Missing Notes To Financial Statements And Other Disclosure Deficiencies

• Published date: 01 June 2021
• Law Firm: Cassels
• Author: Mr George A. Wowk

A recent Ontario case considered the test for determining whether deficiencies in a disclosure document are so material so as to amount to no disclosure at all, thereby permitting rescission within two years under section 6(2) of the Arthur Wishart Act (Franchise Disclosure), 2000 (Ontario) (Wishart Act).¹ The decision notes that the test, which considers whether the deficiencies impair the ability of a franchisee to make an informed decision, is an objective one, but which must account for the particular facts of each case.

SUMMARY AND IMPLICATIONS

In 2611707 Ontario Inc., et al v. Freshly Squeezed Franchise Juice Corporation, et al,² the Ontario Superior Court of Justice assessed a disclosure document for deficiencies. The Court concluded that the deficiencies, on an objective basis, were sufficient to deprive the franchisee of the ability to make an informed decision with respect to its investment in the franchised business, such that the franchisee was entitled to rescind within the two-year period under section 6(2) of the Wishart Act.

BACKGROUND OF THE CASE AND FINDINGS

2611707 Ontario Inc. operated a retail outlet selling specialized juice beverages as a franchisee of Freshly Squeezed Franchise Juice Corporation. The franchisee operated the franchised business for slightly less than a year before delivering a Notice of Rescission.

Under the Wishart Act, in the event a franchisor fails to deliver a disclosure document to the franchisee, the franchisee is entitled, within two years of entering into the franchise agreement, to rescind the franchise agreement and be compensated for any net losses it may...