37:3 Bill 138, Arthur Wishart Amendment Act (Franchise Disclosure), 2001

Martin, Tony

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Bill 138 2001

An Act to amend the
Arthur Wishart Act
(Franchise Disclosure), 2000

Her Majesty, by and with the advice and consent of the Legislative Assembly of the Province of Ontario, enacts as follows:

1.  Section 2 of the Arthur Wishart Act (Franchise Disclosure), 2000 is amended by adding the following subsection:

Same

(2.1)  Sections 3.1 to 3.4, 7.1 and 7.2 apply with respect to a franchise agreement entered into before January 1, 2002, and with respect to a business operated under such an agreement, if the business operated by the franchisee under the franchise agreement is operated or is to be operated partly or wholly in Ontario.

2.  Subsection 3 (3) of the Act is repealed and the following substituted:

Interpretation

(3)  For the purpose of this section, the duty of fair dealing includes the duty to act,

(a) in good faith;

(b) in accordance with reasonable commercial standards; and

(c) in the manner in which one would wish the other party to act if the roles were reversed.

3.  The Act is amended by adding the following sections:

Non-renewal of franchise agreement

3.1  (1)  A franchisor or its associate shall not refuse to renew a franchise agreement unless the franchisee has received six months' notice of the refusal and,

(a) the franchisee will be entitled to continue to conduct substantially the same type of business in the same area after the expiration of the franchise agreement; or

(b) the franchisee will be compensated either by repurchase or by other means for the fair market value of the franchised business, as if the franchise agreement had been renewed for the same period as in the original franchise agreement.

Fair market value

(2)  The fair market value of a franchised business shall be,

(a) determined by an impartial appraiser whose appointment is acceptable to the franchisor or its associate and the franchisee; and

(b) based on a method of valuation that is recognized as being appropriate for that industry.

Use of trademarks, etc.

(3)  Unless the franchisor or its associate agrees, clause (1) (a) does not give the right to the franchisee to use any trademark or other proprietary information of the franchisor or its associate.

Terms of renewal

(4)  If the parties cannot agree on the terms of the renewal, the terms of the renewal shall be at least substantially the same as the terms being offered to prospective franchisees, provided that the terms do not materially change the rights and duties of the parties.

Termination of franchise agreement

3.2  (1)  A franchisor or its associate shall not unilaterally terminate a franchise agreement before its expiration unless,

(a) there is good cause; and

(b) the franchisor has notified the franchisee in accordance with section 3.4.

Meaning of "good cause"

(2)  For the purposes of this section,

"good cause" includes,

(a) the failure of the franchisee,

(i) to comply with a lawful material provision of the franchise agreement after receiving a notice and a 10-day period to cure the default, or

(ii) if the default cannot be cured within the 10-day period, to initiate within the 10-day period substantial continuing action to cure the default,

(b) any case where the franchisee,

(i) is bankrupt or is declared legally insolvent,

(ii) makes an assignment for the benefit of creditors or a similar disposition of the assets of the franchised business,

(iii) voluntarily abandons the franchised business,

(iv) is convicted of an offence under a law in force in Ontario that substantially impairs the goodwill associated with the franchisor's or its associate's trademark, trade name or trade secret, or an advertising or commercial symbol of or designating the franchisor or its associate, or with a patent owned by or licensed to the franchisor or its associate,

(v) fails, on two or more occasions, to comply with a lawful material provision of the franchise agreement, if the enforcement of the provision is similar to that imposed on all other franchisees, or

(vi) operates the franchised business in a manner that endangers public health or safety.

Transfer of franchise

3.3  (1)  A franchisor or its associate shall not refuse to approve a transfer of a franchise or an interest in a franchise unless,

(a) there is good cause; and

(b) the franchisor has notified the franchisee in accordance with section 3.4.

Meaning of "good cause"

(2)  For the purposes of this section,

"good cause" includes any case where,

(a) the prospective franchisee fails to meet the franchisor's written reasonable standards then in effect for a new franchisee,

(b) the prospective franchisee or its associate is a competitor of the franchisor or its associate,

(c) the prospective franchisee is unable or unwilling to be bound by a lawful obligation imposed by the existing franchise agreement,

(d) the franchisee or prospective franchisee fails to cure a default under a franchise agreement with the franchisor or its associate existing at the time of the proposed transfer.

Approval of transfer

(3)  If approval of a transfer is required by the franchise agreement, the franchisor or its associate shall not unreasonably withhold that approval.

Deemed approval

(4)  A franchisor or its associate shall be deemed to have approved a transfer unless the franchisee receives written notice of the reasons for disapproval within 30 days of the franchisor's or its associate's receipt of the written notice of the proposed transfer.

Notices

3.4  (1)  A notice under section 3.1, 3.2 or 3.3 shall,

(a) be in writing; and

(b) contain a statement of the intention not to renew or to terminate the franchise agreement or to refuse to approve the transfer of the franchise, as the case may be, together with,

(i) the reasons for the non-renewal, termination or refusal, and

(ii) the effective date of the non-renewal or termination.

Request to transfer

(2)  A notice of a request for approval to transfer a franchise by a franchisee shall be in writing.

Notice void for non-compliance

(3)  A notice that does not comply with this section is void.

4.  Subsection 7 (1) of the Act is amended by striking out "right of action for damages" in the portion before clause (a) and substituting "right of action for damages, rescission or other appropriate relief".

5.  The Act is amended by adding the following sections:

Mediation

7.1  (1)  If a dispute relating to a franchise arises between the franchisee and the franchisor or its associate and has not been resolved by agreement between the parties, either party may refer the matter in dispute to a mediator.

Starting the process

(2)  The party seeking mediation shall file an application for the appointment of a mediator with the Executive Director of the Ontario Securities Commission.

Mediator's appointment

(3)  The Executive Director shall ensure that a mediator is appointed promptly in accordance with the regulations.

Mediation

(4)  The mediator shall inquire into the issues in dispute and attempt to effect a settlement of as many of the issues as possible within the prescribed time.

Extension of time

(5)  The parties may by agreement extend the time for the completion of the mediation process, even if the time for completion has expired.

Notice of failure

(6)  If, at any time before a settlement is effected, the mediator is of the opinion that mediation will fail, he or she shall promptly notify the parties.

Same

(7)  Mediation has failed when the mediator has given notice to the parties that in his or her opinion mediation will fail, or when the prescribed or agreed time for mediation has expired and no settlement has been reached.

Mediator's report

(8)  If mediation fails, the mediator, in addition to any notice required to be given, shall prepare and give to the parties a report setting out the mediator's description of the issues that remain in dispute.

Group or organization

(9)  Under this section, two or more franchisees may act together or an organization of franchisees may act on behalf of its members, and in that case section 7.2 applies with necessary modifications.

Litigation

7.2  (1)  If mediation fails, either party may start proceedings in the Superior Court of Justice.

Limitation

(2)  No person may bring proceedings in court unless mediation has first been sought and has failed.

6.  Subsection 14 (1) of the Act, as amended by the Statutes of Ontario, 2001, chapter 9, Schedule D, section 1, is further amended by adding the following clause:

(j.1) respecting the qualifications and appointment of mediators and prescribing rules of procedure and setting time limits in respect of mediation proceedings under section 7.1;

7.  The title of the Act is repealed and the following substituted:

Arthur Wishart Act (Franchises), 2000

Commencement

8.  This Act comes into force on January 1, 2002.

Short title

9.  The short title of this Act is the Arthur Wishart Amendment Act (Franchise Disclosure), 2001.

EXPLANATORY NOTE

The Bill expands the scope of the Arthur Wishart Act (Franchise Disclosure), 2000 by adding the following:

Protection of franchisee against non-renewal and unilateral termination of franchise agreement and refusal to approve transfer of franchise (sections 3.1 to 3.4 of the Act).

Mediation provisions (sections 7.1 and 7.2 of the Act).

Subsection 3 (1) of the Act requires parties to franchise agreements to deal fairly with each other, and subsection 3 (3) provides that the duty of fair dealing includes duties of good faith and compliance with reasonable commercial standards. The Bill expands subsection 3 (3) to include, as well, a duty to act in the manner in which one would wish the other party to act if the roles were reversed.

The right of action for damages in case of misrepresentation in the disclosure document is expanded to include rescission and other appropriate relief (subsection 7 (1) of the Act).

Because the Act is no longer limited to disclosure-related matters, the title is changed to Arthur Wishart Act (Franchises), 2000.

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