In the recent decision of Mendoza v. Active Tire & Auto Centre, the Court of Appeal confirmed the importance of complying with the disclosure obligations under the Arthur Wishart Act. In this case, the franchisee had all the information necessary and the franchisor had even helped them retain an accounting firm which did a comprehensive review. However, all the information was not provided in the one “disclosure document” required by the Arthur Wishart Act or provided at the time of the disclosure document.
When the business didn’t do well, the franchisee tried to rescind the agreement over two months later. The Act limits any attempt to rescind to within 60 days. The trial judge found that while the Act was not strictly complied with, enough information was provided to let the franchisee fairly decide whether to enter the franchise agreement or not and there were no significant misrepresentations.
The Court of Appeal, however, overturned the trial judge. Despite the rescission notice being more than 60 days after the entering into the franchise agreement, the Court of Appeal felt that there were in fact significant deficiencies in the disclosure document (lack of signatures and lack of financial statements – though it appears the financial statements were in fact provided later but not with the disclosure). The court confirmed that if a disclosure document it found to be significantly deficient, then it doesn’t count as a disclosure document. This means that the law treats the situation as if the franchisor made NO disclosure under the Act, which means there is no 60 day limit on rescission. Therefore, it is always going to be a serious question as to whether part disclosure was sufficient or not and the 60 day limit for rescission will depend on that finding.
Bottom line is that you must make sure you are adhering very strictly to the requirements of the Arthur Wishart Act including providing all required documents with the disclosure document.
For more information on civil litigation, please feel free to contact us.