Thursday, February 9, :30 p.m. 4:50 p.m. The Westin Harbour Castle Conference Centre 1 Harbour Square, Toronto HOT SPOTS IN FRANCHISING

Transcription

1 Thursday, February 9, :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 and FRANK ZAID, Osler, Hoskin & Harcourt LLP With thanks to KRISTINA DAVIES of Teplitsky, Colson LLP for her assistance 1 LEGAL_1:

2 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 3 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 4 2

3 Definitions Franchise agreement Franchisee Franchisor Franchisor s associate Case: Ontario Ltd. v. Grill It Up Holdings Inc. What is a franchise Case: MBCO Summerhill Inc. v. MBCO Associates Ontario Inc. Franchisor s associate 5 Form and Content Required contents Material facts as prescribed Other material facts Financial statements Agreements Statements Accurate, clear and concise One document, one time 6 3

4 Major Problem Areas Required disclosure items Franchisor information Litigation history Costs and fees Annual operating costs Rebates Licenses Territory 7 Restrictions on sales Earnings projections Financial statements Case: Canada Inc. v. Dollar It Ltd. Case: Melychuk v. Blitz Ltd. Certificate of disclosure Receipt Case: Canada Inc. v. Dollar It Ltd. 8 4

5 Miscellaneous wrap-arounds or addendums Case: Ontario Inc. v. Tutor Time Learning Centres LLC. Material change One document at one time Case: Ontario Ltd. v. Dig This Garden Retailers Ltd. Updating Specific franchise being offered 9 Who is the Franchisor Who is the Franchisee Timing of Disclosure 14 days No exceptions in Ontario Franchise agreement definition Delivery requirements 10 5

6 Exemptions from disclosure Resale/transfer Additional franchise Fractional franchise Renewal or extension Small franchise Sophisticated purchaser Case: Ontario Inc. v. Springdale Pizza Depot Ltd. 11 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 12 6

7 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 13 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 14 7

8 Case: Machias v. Mr. Submarine Ltd. Best practices Questionnaires Franchisee description of sales process 15 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 16 8

9 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 17 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: Manitoba Ltd. v. Beaver Lumber Ltd. - damages award 18 9

10 Case: Salah v. Timothys Coffees of the World Inc. tort damages Statutory Right to Associate S. 4 Application to class actions Case: Ontario Limited v. Midas Canada Inc. Case: Ontario Ltd. v. Sobeys Capital Inc. Current implications and limitations 19 Fundamental drafting principles Contra proferentum Duty of good faith Fairness Contract of adhesion Typical disputes Reserved rights Territory Encroachment Renewals Pricing of products/services 20 10

11 Supply arrangements Resales, transfers and assignments System changes Defaults Remedies Termination 21 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 22 11

12 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 23 Questions and Answers? 24 12