Now in Effect: British Columbia’s Franchises Act

by Blake, Cassels & Graydon LLP
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On February 1, 2017, British Columbia’s Franchises Act (B.C. Act) and Franchises Regulation (Regulation) came into force. Although the B.C. Act follows other provincial franchise legislation closely, including with respect to its provisions regarding disclosure, misrepresentation and the duty of fair dealing imposed on both franchisors and franchisees, there are certain key differences.

The substantial similarity between the B.C. Act and Regulation and other provincial franchise legislation bodes well for national and international franchisors as it will make it easier for a franchisor to comply with multi-jurisdictional disclosure requirements. The gaps in other provincial franchise legislation that the B.C. Act seeks to clarify gives prospective franchisors and franchisees in B.C. an additional level of certainty in doing business under the franchise model. Such differences may also serve as a model for amendments to other provincial legislation.

BACKGROUND

The B.C. Act received royal assent on November 17, 2015 (see our November 2015 Blakes Bulletin: British Columbia Modernizes Franchise Law) and on October 3, 2016, the B.C. government adopted the much-anticipated Regulation.

The B.C. Act’s provisions are based in large part on a report by the British Columbia Law Institute (BCLI), which followed a year-long consultation period during which public comment was sought on its tentative recommendations. BCLI’s recommendations borrowed heavily from the Uniform Law Conference of Canada’s Uniform Franchises Act (Uniform Act). The Uniform Act has a strong commonality with all provincial franchise legislation as a result of it having been modelled on the earliest enactments of Canadian franchise legislation in Alberta and Ontario and having heavily influenced the development of the franchise legislation in Prince Edward Island (P.E.I.), New Brunswick and Manitoba.

The Regulation is modelled on the Uniform Law Conference of Canada’s Disclosure Documents Regulation, a template franchise regulation, as well as integrating recommendations from the BCLI.

DISCLOSURE REQUIREMENT

Consistent with the franchise legislation in effect in Alberta, Ontario, P.E.I., New Brunswick and Manitoba, the B.C. Act requires a franchisor to provide a prospective franchisee a disclosure document that includes prescribed financial information, proposed franchise agreements and other relevant information about the franchise (including all material facts) at least 14 days before the earlier of the signing of the franchise agreement or the payment of any consideration relating to the franchise.  In line with the franchise legislation of Alberta, Manitoba and P.E.I., but in contrast to Ontario’s Arthur Wishart Act (AWA), the B.C. Act specifies the standard of compliance required to satisfy the disclosure requirement. Under the B.C. Act, it is sufficient if the disclosure document or statement of material change “substantially complies” with the Act. Notably, the B.C. Act adopts the language used in Manitoba’s Franchises Act for the purposes of this provision. The B.C. Act also follows Manitoba’s Act in specifying that substantial compliance may be achieved despite a technical irregularity or formal defect not affecting the substance of the document. Therefore, a franchisee seeking rescission for a minor technical defect is less likely to gain traction in B.C. and, as a result, it can be expected that this standard of compliance will prevent frivolous franchisee claims in B.C. that are exclusively based on minor defects in form requirements.

DUTY OF GOOD FAITH AND FAIR DEALING

The B.C. Act follows the P.E.I. Act and goes beyond the legislation in the other provinces by explicitly stating that the duty of fair dealing applies to the exercise of a right under the franchise agreement.

DUE DILIGENCE DEFENCE

The B.C. Act contains additional due diligence defences to actions against non-franchisors for damages for misrepresentation.

REFUNDABLE DEPOSIT

Unlike the AWA, the B.C. Act permits a franchisee to pay a deposit to the franchisor prior to the franchisor providing a disclosure document, provided that certain requirements are met. Namely, such deposits must:

  • Not exceed 20 per cent of the initial franchise fee, as prescribed by the Regulation
  • Be refundable without any deductions, if a prospective franchisee does not enter into a franchise agreement
  • Be given under an agreement with the franchisor that concerns the deposit and that does not obligate the franchisee to enter a franchise agreement

WAIVERS, RELEASES PROHIBITION

Although the B.C. Act remains consistent with other provincial franchise legislation in prohibiting waivers or releases of a franchisee’s rights under the Act, the B.C. Act goes a step further by carving out such waivers or releases in the context of an action, claim or dispute. The B.C. Act specifies that the bar does not prevent “a waiver or release by a franchisee, or by a prospective franchisee, made in accordance with a settlement of an action, claim or dispute.” Effectively, this exception codifies the common law established in Ontario by the Ontario Superior Court in 1518628 Ontario Inc. v. Tutor Time Learning Centres. This clarification is useful as it enables parties to a franchise agreement to settle their disputes with comfort that any resulting settlement and release should be enforceable.

ELECTION OF REMEDIES

Generally, at common law, a person in a position to sue for both non-statutory rescission of a contract and damages for its breach must elect which remedy to pursue so as to avoid double recovery. However, in 1490664 Ontario Ltd. v. Dig This Garden Retailers Ltd., the Ontario Court of Appeal held that the principles of non-statutory rescission do not apply under the AWA and a franchisee is able to pursue both remedies simultaneously. The B.C. Act echoes this ruling by stating that a franchisee is not required to elect between rescinding the franchise agreement and exercising its statutory rights of action for damages. In addition, the B.C. Act expressly prohibits double recovery, specifying that a franchisee is not entitled to be indemnified by way of damages in respect of a loss recovered through rescission.

INVESTMENTS

Consistent with the AWA, but in contrast with other provincial franchise legislation, transactions involving franchisees that make a sufficiently large investment in a franchise are exempt from the disclosure requirement under the B.C. Act. Disclosure is not required under the B.C. Act if the prospective franchisee is investing an amount greater than C$5-million, as prescribed by the Regulation.  In contrast to the AWA, the B.C. Act does not include a disclosure exemption for small franchises where the required investment is less than a prescribed amount (currently $5,000 under the AWA).

Attempts to Restrict Jurisdiction

As with other provincial franchise legislation, the B.C. Act states that any provision in a franchise agreement that restricts jurisdiction or venue to a forum outside the province is void with respect to claims arising under the franchise agreement to which the B.C. Act applies. The B.C. Act goes further than the AWA and other provincial franchise legislation in specifying that this provision also applies to franchise agreements that submit disputes to arbitration. Thus, an arbitration of a dispute relating to a franchise located in B.C., must be held in B.C. and follow B.C. rules.

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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