Franchise Review Oct 2013 - Franchising in Alberta: Only One Signature on the Franchisor’s Certificate Is Still Fatally Deficient

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Alberta courts have recently upheld the strict disclosure requirements confirmed by the Alberta Court of Appeal in Hi Hotel Limited Partnership v. Holiday Hospitality Franchising Inc., 2008 ABCA 276 (Hi Hotel). In 1448244 Alberta Inc. v. Asian Concepts Franchising Corporation, 2013 ABQB 221 (Asian Concepts), the Court of Queen’s Bench of Alberta determined that the lack of signatures on the franchisor’s certificate was a deficiency in the disclosure obligations so “plain and obvious” that the disclosure documents provided by the franchisor could not be “substantially complete” within the meaning of the Franchises Act, R.S.A. 2000, c. F-23 and its regulations (Regulations).

Section 13 of that Act provides that a failure of a franchisor to discharge its disclosure obligations may allow a prospective franchisee to rescind the franchise agreement. Regulation 2(3) provides that the disclosure document “shall” include a certificate signed by at least two officers or directors of the franchisor.

If there is any misrepresentation in a disclosure document that causes loss to a franchisee, the franchisee has a right of action under section 9 against “every person who signed the disclosure document.”

In Asian Concepts, the disclosure document provided by the franchisor contained only one signature, and this was found to be a failure to comply with the Act. The franchisee was granted partial summary judgment declaring that the disclosure was not “substantially complete” and entitling the franchisee to the rescission relief prescribed by section 13.

The franchisor in Asian Concepts argued that since the franchisee admitted that the disclosure document contained no misrepresentations or inaccuracies, there was minimal liability for the franchisor or its signatory, and that this should militate against granting summary judgment.

To explain why the two signatures are required, the Court quoted the Alberta Court of Appeal in Hi Hotel, which stated:

“Subjective reliance or non-reliance by the deponent may well be irrelevant. For one thing, the combined effect of ss. 1(q) and 9(2) of the Act deems the respondent to have relied upon any omission of a required ‘material fact that is required to be stated.’ Surely the phrase quoted includes the facts required in the certificate. Besides, this is statutory rescission, not common-law rescission, so the common-law need for reliance is irrelevant.”

The lesson from Asian Concepts case is that Alberta courts do not appear to have any inclination to move away from the strict interpretation of the statutory requirements confirmed in Hi Hotel and want to continue to adhere to a form-over-substance approach. This will be the case even when the disclosure document does not contain any misrepresentation or inaccuracy.

 

Topics:  Canada, Duty to Disclose, Franchise Agreements, Franchises

Published In: General Business Updates, Franchise Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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