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Contract - Franchise

. 2619506 Ontario Inc., v. 2082100 Ontario Inc.

In 2619506 Ontario Inc., v. 2082100 Ontario Inc. (Ont CA, 2021) the Court of Appeal considered whether statutory disclosure had been met in this franchise situation:
[3] The appellants raise two main grounds of appeal. First, they argue that the motion judge misapplied the “informed investment decision test” in finding that the deficiencies in the disclosure document amounted to absence of disclosure, thus allowing rescission pursuant to s. 6(2) of the Act within two years. In particular, they argue that Raibex Canada Ltd. v. ASWR Franchising Corp., 2018 ONCA 62, 419 D.L.R. (4th) 53 obliged her to conduct a more detailed analysis of whether a potential franchisee is able to make a properly informed investment decision. The motion judge’s failure to do so constituted a reversible error of law.


[7] In applying the informed investor test, the motion judge considered both the purpose of the Act and the evolution of the test. She began by observing that this court has repeatedly emphasized that the Act is intended to redress the imbalance of power between franchisors and franchisees and that it does so by imposing rigorous disclosure obligations on franchisors, with strict penalties for non-compliance: Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 26; Mendoza v. Active Tire & Auto Inc., 2017 ONCA 471, 139 O.R. (3d) 230, at paras. 13, 26; 6792341 Canada Inc. v. Dollar It Limited, 2009 ONCA 385, 95 O.R. (3d) 291, at para. 13. She continued with the following statement:
Two guiding principles have emerged from the Court of Appeal with respect to the interpretation of s. 6(2) in particular. The first is that non-compliance with s. 5 of the Act does not always provide sufficient grounds for rescission under s. 6(2). As set out in Raibex Canada Ltd. v. ASWR Franchising Corp., 2018 ONCA 62, at para. 46: “[a] franchisee that receives imperfect disclosure does not necessarily stand in the same position as a franchisee that was ‘never provided with a disclosure document.’ In Imvescor, at para. 73, this court warned that conflating those two scenarios would frustrate clear legislative intent….”


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