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Franchise - Disclosure. 2355305 Ontario Inc. v. Savannah Wells Holdings Inc.
In 2355305 Ontario Inc. v. Savannah Wells Holdings Inc. (Ont CA, 2025) the Ontario Court of Appeal dismissed a franchisor's appeal, here from a successful "franchisee’s action brought under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c.3 (the “Act”) for damages".
Here the court considers disclosure provisions, and exemptions thereto, of the Arthur Wishart Act (Franchise Disclosure), 2000:[4] The Act is designed to redress the imbalance of power between franchisor and franchisee, and to provide a remedy for abuses stemming from this imbalance. Disclosure is required under the Act to provide prospective (and often inexperienced) franchisees with sufficient information to make informed decisions: 2189205 Ontario Inc. v. Springdale Pizza Depot Ltd., 2011 ONCA 467, 336 D.L.R. (4th) 234, at paras. 23-24, leave to appeal refused [2014] S.C.C.A. No. 35648. Pursuant to s. 5(1), a franchisor must provide a disclosure document before “the signing by the prospective franchisee of the franchise agreement or any other agreement relating to the franchise” other than certain specific agreements described in s. 5(1.1).
[5] The Act provides for exemptions to a franchisor’s disclosure obligation. In this case, the appellants sought to rely on s. 5(7)(a), which applies to a resale of a franchise if the grant of the franchise is not effected by or through the franchisor. This and other exceptions provided under s. 5(7) are to be narrowly construed: Springdale Pizza, at para. 32. Accordingly, in general, where a franchisor requires a new franchise agreement to be signed, they can no longer rely on the s. 5(7)(a) exemption: 2256306 Ontario Inc. v. Dakin News Systems Inc., 2016 ONCA 74, at para. 8. If, on the other hand, the franchisor merely passively consented to the transfer of the franchise, the exemption can apply: Springdale Pizza, at paras. 31-33; see also s. 5(8)(a) of the Act.
[6] A party relying on this exemption from disclosure must satisfy the four criteria set out at s. 5(7)(a): “(i) the franchisee is not the franchisor, an associate of the franchisor or a director, officer or employee of the franchisor or of the franchisor’s associate, (ii) the grant of the franchise is for the franchisee’s own account, (iii) in the case of a master franchise, the entire franchise is granted, and (iv) the grant of the franchise is not effected by or through the franchisor” (emphasis added).
[7] Pursuant to s. 12 of the Act, at trial, the onus was on the Franchisor to prove that the exemption applied.
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