Lapointe Rosenstein Marchand Melançon LLP updates
Cold cut for franchisees! Supreme Court of Canada denies designated supplier's duty of care for pure economic loss
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 16 February 2021
The Supreme Court of Canada recently dismissed the proposed class action brought by Mr Sub franchisees against Maple Leaf Foods for damages resulting from a listeria outbreak linked to Maple Leaf cold cuts. By ruling in Maple Leaf's favour, the majority of the court found that no duty of care is owed by an exclusive supplier for purely economic losses suffered by franchisees with which the supplier has no direct contractual relationship.
Cutting the red tape: recent amendments to Ontario's franchise disclosure act
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 24 November 2020
In 2017 the Ontario government enacted the Cutting Unnecessary Red Tape Act with the objective of alleviating unnecessary regulatory burdens for businesses. The act provided for a series of proposed amendments to Ontario's franchise disclosure legislation and ultimately came into force on 1 September 2020. The amendments include measures to clarify the province's franchise laws and temper or delay franchisors' disclosure obligations towards prospective franchisees in certain circumstances.
Surprise! Rescission notice can be served in a pleading
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 22 September 2020
Ontario's Arthur Wishart Act (Franchise Disclosure) requires franchisors to provide adequate pre-contractual disclosure to potential franchisees, failing which a franchisee may be entitled to rescind its franchise agreement. When properly invoked, rescission by a franchisee imposes extensive obligations on the franchisor. The Ontario Court of Appeal recently dealt with the issue of whether a notice of rescission of a franchise agreement is valid if it is contained within a pleading.
'Special relationship' between franchisors and franchisees: could it give rise to a pre-contractual duty of good faith?
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 14 July 2020
Common law jurisdictions recognise that certain circumstances could arise that would lead contracting parties to have some type of pre-contractual good-faith obligation, including where they have a 'special relationship' – typically characterised by an imbalance of information. A franchise arrangement has been characterised as an example of such a special relationship that could fall within the narrow set of particular requirements for good faith in the pre-contractual context.
Can good faith require parties to help each other properly exercise their rights?
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 12 May 2020
It is well known that franchisors have been facing increasing pressure to conduct themselves in accordance with the principles of good faith. A recent Ontario Superior Court case has led to questions with respect to a franchisor's duty to protect its franchisee's right to operate in circumstances where the franchisor is the gatekeeper of rights with respect to a third party. In its decision, the court navigated the duty of good faith owed in respect of the renewal of a head lease between a franchisor and a landlord.
COVID-19 and the franchise landscape
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 28 April 2020
While some franchised businesses have transitioned to working remotely and have ramped up their e-commerce business models in light of the COVID-19 pandemic, the vast majority of traditional franchised businesses are in a precarious state due to a drastic reduction in revenues and uncertain economic conditions for the foreseeable future. This article sets our practical tips and considerations for franchisors and franchisees with respect to navigating COVID-19.
Franchisee defaults: when is it 'material' enough?
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 25 February 2020
Few areas of contract law have created as much confusion as the nebulous distinction between material breaches, substantial breaches and breaches going to the root of the contract. This distinction is important in a franchise context, where franchise agreements often provide that the franchisor has a right to terminate the franchise agreement for material breach by the franchisee, leaving what constitutes a 'material' breach open for interpretation.
Franchisees can't have their cake and eat it too: statutory disclosure exemptions have consequences
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 29 October 2019
In recent years, many Canadian provinces have adopted franchise-specific disclosure laws with a view to remedying the inequality of bargaining power between franchisors and franchisees. Subject to certain limited exemptions, franchisors must provide prospective franchisees with full and accurate information in respect of all material facts relating to the franchise business before entering into a franchise agreement, failing which franchisees can bring a claim for rescission and damages against the franchisor.
Franchisee or employee in disguise?
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 18 June 2019
Franchising communities in Quebec and elsewhere in Canada have been eagerly awaiting a Supreme Court of Canada decision on whether an unincorporated franchisee operating a two-person cleaning services business in Quebec as part of a cleaning services franchise network qualified as an employee. While the court's ruling may be worrisome to franchisors in certain industries, there are several mitigating factors to consider.
Limits of good faith and relational nature of franchise agreements in Quebec
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 26 March 2019
The Supreme Court of Canada recently reiterated the fact that franchise agreements are relational contracts and are therefore subject to a heightened duty of good faith pursuant to Quebec civil law. This decision is in line with a series of recent Quebec civil law decisions that have broadly interpreted, and arguably extended, the duty of good faith owed by a franchisor to its franchisees.
Will a franchisee's rescission claim stay or will it go? Mandatory mediation may result in stay of proceedings
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 18 December 2018
It has become common practice to include alternative dispute resolution (ADR) provisions in franchise agreements. A recent decision by the Ontario Court of Appeal serves as a stark reminder to franchisors to ensure that ADR provisions contained in a franchise agreement are properly drafted so that the commencement of disputes thereunder triggers the running of the applicable limitation period.
To be an employee or not to be – that is once again the question
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 13 November 2018
The issue of whether a franchisee is an employee or an independent contractor has been debated on numerous occasions and was once again raised in a recent Quebec Court of Appeal decision. In its decision, the court emphasised that when analysing whether a franchisee qualifies as an employee or an independent contractor, the courts should look beyond the terms of the agreement between the parties. While this decision may worry certain franchisors, there are a number of mitigating factors to consider.
Franchisor caught between rock and hard place: importance of clear exclusivity clauses
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 21 August 2018
Franchise arrangements often involve a three-way relationship whereby franchisors enter into commercial leases with landlords and then sublease the rented premises to franchisees. Such leases often contain an exclusivity clause limiting the landlord's ability to lease nearby commercial space to competitors of the franchise network. The Superior Court of Quebec recently confirmed that exclusivity clauses must be interpreted and applied restrictively so as not to unduly interfere with the parties' freedom of contract.
Franchisors rejoice! Ontario Court of Appeal raises bar for franchise rescission
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 05 June 2018
The Ontario courts have recently endeavoured to clarify the outer limits of the parameters within which a franchisee may exercise its right to rescind a franchise agreement. A long-awaited Ontario Court of Appeal decision sends a clear message to the lower courts that a franchisee's right to rescission is an exceptional measure that should not be granted lightly, and that the terms and conditions negotiated between a franchisor and its franchisee cannot be ignored.
Rescission or bust: statutory requirements trump franchisee's insouciance
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 13 February 2018
The Ontario Court of Appeal overturned a lower court's finding that a deficient disclosure document may be forgiven if the franchisor has provided the franchisee with sufficient information to make an informed decision regarding the acquisition of the franchise. It also held that, where disclosure is insufficient, rescission may be granted regardless of whether the franchisee has read the contents of the franchise disclosure.
Happily ever after: the perpetual franchise
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 10 October 2017
Renewal clauses are common in commercial contracts, particularly in the case of franchise agreements. The Supreme Court recently upheld the validity of a clause which had the effect of allowing a franchisee to renew a franchise agreement perpetually. In its landmark judgment, the court affirmed the lower courts' determination that a renewal clause which does not limit the number of times that a contract of affiliation may be renewed is legal pursuant to Quebec civil law.
Structuring royalties on professional fees
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 27 June 2017
Until recently, there was significant doubt as to the validity of fees payable by professional franchisees on the basis of professional revenue. However, two decisions in Quebec have established certain conditions for such fee payments to be considered valid, in particular that the fees are related to the fair market value of the goods or services provided to the professional.
Get out while you can – franchisors navigating the consumer class actions maze
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 04 April 2017
A recent Quebec Court of Appeal decision reversed a Quebec Superior Court ruling which had granted authorisation of a proposed class action by consumers against a franchisor for alleged misrepresentations made by its franchisee with respect to the purchase of an extended warranty for consumer goods. The case illustrates the difficulties often faced by franchisors in relation to class action proceedings brought by consumers at the authorisation stage.
Should franchisors avoid entering into franchise agreements before selecting a franchise location?
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 31 January 2017
A recent Ontario Superior Court of Justice decision has created an unprecedented expansion of a franchisor's disclosure obligations, significantly affecting franchisors' disclosure practices when entering into franchise agreements before the franchise location is determined. This case is troubling for franchisors, for which it has been common practice to enter into franchise agreements before selecting a specific location for the franchise.
To the end of the term and beyond: perpetual renewal clauses considered legal
Lapointe Rosenstein Marchand Melançon LLP- Franchising
- Canada
- 12 July 2016
The Quebec Court of Appeal has recently addressed whether a franchise agreement may include a clause that would have the effect of renewing the agreement perpetually. This decision is a reminder of the importance of clear renewal conditions and processes in place in the context of franchise, affiliate and banner association agreements.
