Franchising In Canada ' 2022 Year In Review

• Law Firm: McMillan LLP
• Subject Matter: Corporate/Commercial Law, Intellectual Property, Trademark, Franchising
• Author: Mr John Clifford, W. Brad Hanna, FCIArb., Andrae J. Marrocco, Adriana Rudensky, Mitch Koczerginski, Peter Giddens, Enda Wong, Michael P. Whitcombe, Ben Bathgate, Mervyn Allen, Sidney Elbaz, Paola Ramirez and Jessie Treagus
• Published date: 07 February 2023

Overview

In this update we summarize some of the more significant franchise law cases and legislative developments that occurred in 2022.

Top 6 Case and Legislative Highlights in Franchise Law in 2022

• The Ontario Court of Appeal confirmed in two decisions that franchisees are not required to show that disclosure deficiencies subjectively impaired their ability to make an informed investment decision to succeed in claims for rescission. Following the 2018 Court of Appeal's decision in Raibex, there was some uncertainty as to whether fundamental disclosure deficiencies also required subjective proof that the franchisee was unable to make an informed investment decision.
• The first decision reported under New Brunswick's Franchises Act discusses the necessity of providing statute-compliant financial statements. ¹
• The Ontario Court of Appeal held that continued performance after the expiry of a franchise agreement had the effect of extending the agreement. ²
• The Ontario Superior Court of Justice noted that goodwill associated with a trademark can be established by obtaining evidence from potential franchisees. ³
• Small business franchisors may be eligible for additional funding and loans due to the amendments to the Canada Small Business Financing Regulations and Canada Small Business Financing Act.
• The Single-use Plastics Prohibition Regulations under the Canadian Environmental Protection Act, 1999 has ushered in the prohibition of the manufacture, import and sale of single-use plastics.

Case Law Highlights

Franchise Disclosure Document Deficiencies

In 2022, the courts continued to examine what constitutes a "fatal flaw" or other deficiencies in franchise disclosure documents ("FDDs") that entitle franchisees to rescind their franchise agreements for up to 2 years after the date of signing. Some of the key cases in this regard are summarized below:

261707 Ontario Inc. v. Freshly Squeezed Franchise Juice Corporation (Freshly Squeezed), 2021 ONSC 2323 aff'd 2022 ONCA 437

The Ontario Court of Appeal ("ONCA") found that the failure to provide complete financial statements and include an Agreement to Lease were material disclosure deficiencies or "fatal flaws". Further, the failure to highlight that the franchised business would be the first to operate in a non-mall retail environment amounted to failing to disclose a "material fact" (as defined in the Arthur Wishart Act (Franchise Disclosure), 2000, (the "AWA")). These deficiencies entitled the franchisee to...