The Ontario Court of Appeal has confirmed that the disclosure
exceptions in the Arthur Wishart
Act1 should be "narrowly
The appeal in 2147191 Ontario Inc. v. Springdale Pizza Depot
Ltd.2 arose as a result of a motion for
summary judgement whereby the motions judge had held that the
plaintiffs were entitled to rescind their franchise agreement for
failure by the Franchisor to provide a disclosure
The plaintiffs had taken an assignment of the franchised
business from an existing franchisee. A disclosure document was
provided to the plaintiffs, but the disclosure was materially
deficient so that it amounted to no disclosure at all, thus
entitling the franchisee to rescind the franchise agreement
pursuant to subsection 6(2) of the Act.
The franchisor appealed the decision arguing that the motions
judge had erred in holding that the franchisor could not avail
itself of the "resale" exemption from disclosure found in
subsections 5(7)(a)(iv) and 5(8) of the Act, which read as
(7) This section does not apply
(a) the grant of a franchise by a franchisee if,
(iv) the grant of the franchise is not effected by or through the
(8) For the purpose of subclause
(7)(a)(iv), a grant is not effected by or through a franchisor
(a) the franchisor has a right,
exercisable on reasonable grounds, to approve or disapprove the
(b) a transfer fee must be paid to
the franchisor in an amount set out in the franchise agreement or
in an amount that does not exceed the reasonable actual costs
incurred by the franchisor to process the grant.
The motions judge had held that the franchisor had gone beyond
the "mere passive role" that the Act allows by (i) being
involved in 3 meetings with the plaintiffs in respect of the
acquisition of the franchise, (ii) requiring the plaintiffs to
provide payment of consideration beyond the transfer fee charged to
the former franchisee, and (iii) requiring the plaintiffs to sign
an acknowledgement, which provided certain protections to the
franchisor. The motions judge had stated:
In my view, the remedial purpose of the statute requires the
Court to err on the side of disclosure. Where the franchisor makes
a business decision to do more than remain a passive approver of a
"franchisee to franchisee" transaction, then the grant is
"by or through the franchisor" and disclosure is
The Court of Appeal affirmed the motion judge's findings and
stated that the decision was "consistent with the spirit of
the case law from this court concerning the interpretation of the
Arthur Wishart Act and recognizes both the overall purpose
of the Act and the need to "narrowly construe" the
disclosure exceptions in the Act."5
The key take-away from this case is that a franchisor should use
caution when considering whether to rely on a disclosure exemption.
When in doubt, a franchisor should err on the side of caution and
provide a franchise disclosure document notwithstanding the
possible availability of an exemption from disclosure.
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