Canada: Ontario Court Allows Franchisor To Rely On Buy/Sell Exemption To Disclosure And Enforces Restrictive Covenant

Last Updated: November 27 2015
Article by Adam Ship

Most Read Contributor in Canada, September 2018

In MEDIchair LP v. DME Medequip Inc. ("MEDIchair"), the Ontario Superior Court of Justice (the "Court") considered whether a restrictive covenant contained in a franchise agreement is enforceable by a franchisor, MEDIchair LP (the "Franchisor") against its corporate franchisee, 2169252 Ontario Inc. ("216") and its two principals, Allison Rolph and Ron Seiderer (collectively, the "Respondents").The Court also considered circumstances where a franchisor may rely on the exemption set forth in Section 5(7)(a)(iv) of the Arthur Wishart Act (Franchise Disclosure), 2000 (the "Act") to avoid the disclosure obligations set forth in the Act. Please see the following links for our previous blogs discussing other cases on these two issues:

In summary, the Court held that the Franchisor played only a passive role in the buy/sell transaction and was therefore exempt from the requirement to deliver a disclosure document to the purchaser. As a result, the fact that the franchisor decided to deliver a disclosure document to the purchaser that may have been materially deficient was legally irrelevant to the inquiry. Moreover, the Court enforced the restrictive covenant.

In MEDIchair, the Franchisor operated a network of franchisees that sold and leased a line of home medical equipment. Two of the Respondents, Allison Rolph and Ron Seiderer, purchased the shares of a company ("DME") that had been operating as a franchisee of the Franchisor for approximately 20 years in Ontario (the "Purchase Transaction") and caused 216 to continue the business of DME in Ontario. As part of the Purchase Transaction, the Respondents agreed to a restrictive covenant with the Franchisor that, for a period of 18 months after the termination of the applicable franchise agreement with the Franchisor (the "Agreement"), they would not operate any kind of business that was "similar to" the business carried on by the Franchisor or any of its franchisees within a radius of 30 miles of the nearest system outlet or the premises of 216.

Upon expiry of the Agreement, 216 changed its operating name and continued its business at the same premises, with the same merchandise and with the same employees. The Franchisor brought an application to enforce the restrictive covenant in the Agreement against the Respondents and the Respondents countered by arguing that the restrictive covenant was not enforceable because the Franchisor had breached its disclosure obligations in the Act by providing a deficient franchise disclosure document (because it did not include a copy of the Agreement). They also argued that the restrictive covenant was either ambiguous or unreasonable in temporal or spatial scope.

The Court rejected each of the arguments of the Respondents and upheld the application of the Franchisor. The Court ruled that the Franchisor was not required to provide a disclosure document to the Respondents pursuant to Section 5(7)(a)(iv) of the Act since the Franchisor had very little involvement in the Purchase Transaction. In particular, the Court noted that even if a franchisor provides a disclosure document to a franchisee, this is not determinative of whether a franchisor is required to provide a disclosure document to a franchisee pursuant to the Act.

In addition, the Court noted that the restrictive covenant was not ambiguous and was not unreasonable in temporal or spatial scope. First, courts regularly enforce restrictive covenants that contain a "similar to" reference and, on the facts of this case, 216 did not change any aspect of its business after the expiry of the Agreement which made it easier for the Court to conclude that its business was "similar to" the business carried on by the Franchisor. Further, the mere fact that a franchisor offers a range of products, not all of which are available at every franchise, does not result in an ambiguity based on the wording of such a restrictive covenant. Second, the temporal (18 months) and spatial (30 mile radius) terms of the restrictive covenant were not unreasonable since they were in line with earlier jurisprudence and, interestingly, was less restrictive than the restrictive covenant of 5 years and 100 kilometers negotiated between the Respondents with the sellers of DME in connection with the Purchase Transaction. While this was not determinative of the issue, it did suggest to the Court what the Respondents thought a reasonable restrictive covenant was in a commercial transaction. Third, the Court noted that it was not relevant whether the Franchisor would be opening a new franchise within the spatial scope covered by the restrictive covenant or that its business had been in decline; instead, the integrity of both the franchise system and the bargain struck by the parties to the Agreement should be maintained.

MEDIchair presents a number of important takeaways for franchisors. Courts are willing to find that disclosure is not required pursuant to Section 5(7)(a)(iv) of the Act as long as a franchisor is truly playing a passive role in the grant of a franchise from one party to another. Further, depending on the facts, courts may enforce restrictive covenants in a franchise setting even if they contain "similar to" provisions or if the spatial and temporal scope of the restrictive covenant is 30 miles and 18 months, respectively.

Nevertheless, franchisors should be cognizant of the factual matrix that informs a court's determination in each case. Notably, in this case, the Respondents continued to sell the same products, in the same premises, with the same employees and had entered into an even more restrictive covenant with the former sellers of DME which placed the legitimacy of their own arguments against the Franchisor under greater scrutiny.

To view original article, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions