Canada: Ontario Court Of Appeal Narrows The Availability Of Franchise Rescission

Last Updated: January 29 2018
Article by Helen Fotinos and Adam Ship

Most Read Contributor in Canada, September 2018

On January 25, 2018, the Ontario Court of Appeal (the "OCA") released its much-anticipated decision in Raibex Canada Ltd. v. ASWR Franchising Corp. In a business-friendly decision overturning the lower court's decision, the OCA narrowed the availability of rescission for franchisees, reinforcing the importance of recognizing the distinction between "no disclosure" and "imperfect disclosure", and further re-focusing the test for the availability of rescission under s. 6(2) of the Arthur Wishart Act (Franchise Disclosure) (the "Act") to an analysis of whether the franchisee was effectively deprived of the opportunity to make an informed investment decision.

There are four key takeaways from the OCA's decision.

First, the availability of the two-year rescission remedy under s. 6(2)  of the Act will now be considered under a different legal test.  According to the OCA, the fundamental question for two-year rescission is "whether the franchisee has been effectively deprived of the opportunity to make an informed investment decision".

Prior to this decision, the OCA applied an arguably broader test of whether the disclosure document contained a "material deficiency":  see Mendoza v. Active Tire & Auto Inc.. This clarification in Raibex appears to narrow the availability of the two-year remedy by focusing on the effect the deficiency had on the franchisee's ability to make an informed decision.

Second, the OCA rejected the lower court's finding that a disclosure document will be fatally deficient simply because a location for the franchise has not yet been determined.  On the facts of Raibex, the OCA found that the absence of a location and head-lease did not necessarily deprive the franchise of the ability to make an informed decision. The Court held that this was particularly so where, as in Raibex, the franchise agreement required the franchisor to consider the franchisee's interests before securing a location and further afforded the franchisee  a right to opt-out of the franchise agreement and receive a release and full refund of all monies paid to the Franchisor, less the Franchisor's reasonable costs in granting the franchise, if a suitable location was not secured within 120 days of the franchise agreement being signed. The OCA found that these "safeguards" provided a complete defence to the Franchisee's complaint that the Franchisor's failure to disclose the head lease justified rescission under s.6(2) of the Act because they allowed the  franchisee to proceed with the franchise grant without a location and head-lease being available, with the comfort of an available exit if the location ultimately selected was not agreeable. 

This finding is consistent with a long-standing industry practice of providing non-site specific disclosure, pending the identification of a suitable site. As a result of this finding, it is likely that franchisors may continue the industry practice of  granting franchises prior to a location being selected, provided they offer similar safeguards to franchisees in their franchise agreements.

Third, the OCA made important findings concerning the requirement to disclose to a franchisee the costs associated with establishing the franchise.  In Raibex, the franchisee took issue with the fact that the disclosure document only disclosed the costs associated with building the franchise from scratch, rather than the costs associated with converting an existing location to the franchisor's system.  The OCA rejected this concern, finding that the franchisee was able to make a fully informed decision.  The OCA emphasized a number of factors, including that the disclosure document provided the "a strongly worded warning that cost estimates associated with a conversion could vary greatly from site to site". The OCA also emphasized the franchisor's evidence that there was a "wide variance in the costs associated with the Franchisor's three prior conversions", concluding that disclosure of this information would have not have significantly improved the Franchisee's ability to make an informed decision.

This finding suggests that, in future cases, the adequacy of a franchisor's disclosure of establishment costs will be analyzed holistically, based on whether any omitted information would have "significantly improved" the franchisee's ability to make an informed decision.  It also suggests that appropriately phrased disclaimer language and express warnings in a disclosure document may minimize a franchisor of liability where it can be established that the franchisee had notice that the costs associated with its particular location may vary from the numerical estimates disclosed.  The OCA also suggested that a disclosure document should contain estimates that provide a "useful reference point against which to measure the upper range of possible costs associated with" the franchisee's particular location.  Of course, the danger here is that reliance on such disclaimers as a defence to erroneous or misleading establishment costs, may result in the equivalent of no disclosure being provided if the franchisee cannot reasonably rely on the estimates contained in the disclosure document as being accurate estimates of its anticipated costs.  The equity and application of this proposition will need to be carefully evaluated on the specific facts of each case, on a case by case basis.

Fourth and finally, the OCA provided some guidance and clarity around  requiring alleged "de facto directors" not listed on a franchisor's constating documents to sign the franchisor's Certificate of disclosure warranting the contents of the disclosure document when there is no evidence of this individual  exercising any control over the franchisor or holding him/herself out as a director. This finding will provide comfort to senior management employees of franchise systems who may hold officer and director titles, without intending those titles to classify them as "de facto directors" of the franchisor obligated to sign disclosure Certificates and thereby assume joint and several liable with the franchisor for breaches of the Act.  

Raibex is among the most business-friendly of the OCA's decisions on franchise disclosure and should provide franchisors with comfort in continuing to employ the common disclosure practices that the lower court decision brought into question.  This decision will also be important in restoring some balance in the radically swinging pendulum of franchise disclosure cases.

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
Alexander Holburn Beaudin + Lang LLP
Dickinson Wright PLLC
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
Dickinson Wright PLLC
Related Articles
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