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2/13/2012
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Thursday, February 9, 2012 – 1:30 p.m. – 4:50 p.m.The Westin Harbour Castle Conference Centre
1 Harbour Square, Toronto
HOT SPOTS IN FRANCHISING
By IAN ROHER, Teplitsky, Colson LLP andFRANK ZAID, Osler, Hoskin & Harcourt LLP
With thanks to KRISTINA DAVIES of Teplitsky, Colson LLP for her assistance
1 LEGAL_1:22744999.2
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� Nature of franchise relationship
� Types of documents
� Statutory disputes
� Contractual disputes
� Statute appears clear on initial reading – but be clear, it is uncertain and ambiguous in parts, and always subject to specific fact situations and judicial decisions
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� Hotspots◦ Content of disclosure documents
◦ Problems with franchise disclosure process
◦ Misrepresentations
◦ Disputes relating to duty of good faith and rights to associate
◦ Common contractual trouble spots
◦ Lawyers’ duties related to content of and process relating to disclosure documents
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� Definitions◦ Franchise agreement
◦ Franchisee
◦ Franchisor
◦ Franchisor’s associate
Case: 1706228 Ontario Ltd. v. Grill It Up Holdings Inc. –What is a franchise
Case: MBCO Summerhill Inc. v. MBCO Associates Ontario Inc. – Franchisor’s associate
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� Form and Content◦ Required contents
◦ Material facts as prescribed
◦ Other material facts
◦ Financial statements
◦ Agreements
◦ Statements
◦ Accurate, clear and concise
◦ One document, one time
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� Major Problem Areas
◦ Required disclosure items
� Franchisor information
� Litigation history
� Costs and fees
� Annual operating costs
� Rebates
� Licenses
� Territory
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◦ Restrictions on sales
◦ Earnings projections
◦ Financial statements
Case: 6792341 Canada Inc. v. Dollar It Ltd.
Case: Melychuk v. Blitz Ltd.
◦ Certificate of disclosure
� Receipt
Case: 6792341 Canada Inc. v. Dollar It Ltd.
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� Miscellaneous◦ wrap-arounds or addendums
Case: 1518628 Ontario Inc. v. Tutor Time Learning Centres LLC.
◦ Material change
◦ One document at one time
Case: 1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd.
◦ Updating
◦ Specific franchise being offered
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� Who is the Franchisor
� Who is the Franchisee
� Timing of Disclosure◦ 14 days
◦ No exceptions in Ontario
◦ Franchise agreement definition
� Delivery requirements
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� Exemptions from disclosure◦ Resale/transfer
◦ Additional franchise
◦ Fractional franchise
◦ Renewal or extension
◦ Small franchise
◦ Sophisticated purchaser
Case: 2189205 Ontario Inc. v. Springdale Pizza Depot Ltd.
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Case: TA&K Enterprises Inc. v. Suncor Energy Products
� Disclosure specific to each type of franchise◦ New
◦ Renewal or extension
◦ Resale or transfer
◦ Conversion
◦ Corporate/franchisor unit
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� Pre-Contractual Common Law Misrepresentations and Exclusionary Clauses◦ Nature of sales process
◦ Types of misrepresentations
Case: Murray v. TDL Group Ltd.
� Special relationship
◦ Duty of fair dealing
◦ Defensive drafting
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� Exclusionary Clauses◦ Types of exclusionary clauses
◦ Non-waiver clauses
◦ Entire agreement clauses
Case: Shelanu v. Print Three Franchising Corp.
Case: Queen v. Coqnos
◦ Enforcement of clauses
◦ Contract of adhesion
◦ Entire agreement clause
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Case: Machias v. Mr. Submarine Ltd.
◦ Best practices
◦ Questionnaires
◦ Franchisee description of sales process
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� Statutory Misrepresentations◦ Rights of rescission – s.6
◦ Misrepresentation – s.7
◦ Who is liable
◦ Limitations period
◦ Deemed reliance
� Hot Spots◦ Earnings projections or representations
◦ Business reality situations
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� Common Law Duty of Good Faith◦ Case law description of duty
◦ Utmost good faith?
◦ No fiduciary duty
Case: Shelanu
◦ Meaning of good faith
◦ Duty of franchisor
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� Statutory Duty of Fair Dealing◦ S. 3
◦ Both parties
◦ Performance and enforcement of agreement
◦ Includes good faith
◦ Includes reasonable commercial standards
◦ Discretion
◦ Application to renewals
Case: 33177447 Manitoba Ltd. v. Beaver Lumber Ltd. -
damages award
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Case: Salah v. Timothys’ Coffees of the World Inc. – tort damages
� Statutory Right to Associate◦ S. 4
◦ Application to class actions
Case: 405341 Ontario Limited v. Midas Canada Inc.
Case: 1318214 Ontario Ltd. v. Sobeys Capital Inc.
◦ Current implications and limitations
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� Fundamental drafting principles◦ Contra proferentum
◦ Duty of good faith
◦ Fairness
◦ Contract of adhesion
� Typical disputes◦ Reserved rights
◦ Territory
◦ Encroachment
◦ Renewals
◦ Pricing of products/services
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◦ Supply arrangements
◦ Resales, transfers and assignments
◦ System changes
◦ Defaults
◦ Remedies
◦ Termination
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� Explaining disclosure document to franchisor/franchisee client
� Consequences of incomplete/no disclosure
� Gathering facts process
� Updating of specific disclosure items
� Material facts
� Execution and delivery
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� Solicitor’s report to franchisor client
� Modifications to/updating of disclosure document
� Incomplete or inaccurate disclosure
� Misleading or fraudulent disclosure
� Advising a franchisee
� Requiring franchisee to obtain independent legal advice
� Engagement letters – franchisor/franchisee client
� Future legal conflicts
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� Questions and Answers?
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