Caught by Release: Franchisees Can't Have Their Cake And Eat It Too

The recent decision in New Vision Renaissance MX Ltd. v. The Symposium Café Inc.1 confirms that Ontario courts will uphold the terms of appropriately crafted releases in the context of the Arthur Wishart Act (Franchise Disclosure), 2000 (the "AWA"). Moreover, the Court rejected the argument that the Tutor Time exception is limited to the release of claims that are specifically the subject of the dispute or to releases given at the end of a franchise relationship. Releases will be effective if given as part of a settlement of a dispute or potential dispute where the franchisee has knowledge of the matters being released and has legal advice in respect of the settlement.

Beyond finding that the release in this case was valid and enforceable, the Court also went on to state by way of obiter that the "piecemeal" disclosure by the franchisor did not prevent the franchisee from making an informed investment decision. The New Vision case supports the recent string of decisions that assess rescission claims based on the impact of a disclosure deficiency to a franchisee's investment decision.

Background

The franchisor provided the franchisee with two separate disclosure documents on two occasions. Neither disclosure document contained certificates signed by the appropriate directors or officers on behalf of the franchisor as required by the AWA. The franchisee later alleged that the disclosure documents contained additional, allegedly material, deficiencies.

Notwithstanding the deficiencies, the franchisee agreed to proceed with the proposed franchise arrangement and executed a franchise agreement dated February 2015 (the "Franchise Agreement"). When the time came to finalize the franchise transaction, the franchisee did not have the funds necessary to do so. The franchisor agreed to advance a short-term loan in exchange for the franchisee releasing any claims for rescission and misrepresentation relating to the franchisor's disclosure obligations pursuant to the AWA. The financing arrangement (including the requirement that rescission clams be released) was memorialized in a franchise amending agreement dated June 2015 (the "Franchise Amending Agreement").

The Rescission Claim

Less than a year after opening the franchised business, the franchisee purported to rescind the franchise agreement on the basis that the franchisor failed to deliver a disclosure document in compliance with the AWA. Among other deficiencies, the franchisee alleged that the disclosure document:

did not contain a certificate signed by the appropriate directors and officers on behalf of the franchisor; was not delivered as one document at one time; and did not contain all material facts. In response, the franchisor argued that...