Bill 106, Franchises Act, 1998

Versions

Original

[36] Bill 106 Original (PDF)

B106_E

Bill 106 1998

An Act to regulate Franchise Agreements

CONTENTS

PART I

GENERAL

PARTIE I

DISPOSITIONS GÉNÉRALES

Definitions

Purpose

Application of Act

Définitions

Objet

Champ d'application de la Loi

PART II

FILING BY FRANCHISOR ANDREGISTRATION OF SALESPERSONS

PARTIE II

DÉPÔT DU FRANCHISEUR ETINSCRIPTION DES REPRÉSENTANTS

10.

11.

12.

13.

Filing and registration

Change in material fact

Filing requirements cease

Application for registration

Registration

Restrictions on registration

Bonds

Notice of changes

Registration takes effect

Registration ceases

10.

11.

12.

13.

Dépôt et inscription

Changement d'un fait important

Perte d'effet des exigences relatives au dépôt

Demande d'inscription

Inscription

Restrictions imposées à l'inscription

Cautionnement

Avis de modification

Prise d'effet de l'inscription

Fin de l'effet de l'inscription

PART III

DELIVERY OF DISCLOSURE DOCUMENTTO PROSPECTIVE FRANCHISEE

PARTIE III

DÉLIVRANCE DU DOCUMENT D'INFORMATIONAU FRANCHISÉ ÉVENTUEL

14.

Delivery of disclosure document

14.

Délivrance du document d'information

PART IV

exemptions

PARTIE IV

EXEMPTIONS

15.

16.

Exemptions

Discretionary exemptions

15.

16.

Exemptions

Exemptions discrétionnaires

PART V

STANDARDS OF CONDUCT

PARTIE V

NORMES DE CONDUITE

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

Good faith

Source of supplies and services

Payments into trust

Non-renewal of franchise agreement

Termination of franchise agreement

Transfer of franchise

Notices

Right to associate

Disclosure by prospective franchisee

Continuing obligations of franchisee

Obligations of salesperson

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

Bonne foi

Source de fournitures et de services

Paiements en fiducie

Non-renouvellement du contrat de franchisage

Résiliation du contrat de franchisage

Cession de la franchise

Avis

Droit d'association

Divulgation d'un franchisé éventuel

Obligations courantes du franchisé

Obligations du représentant

PART VI

dispute resolution and judicial remedies

PARTIE VI

RÈGLEMENT DES DIFFÉRENDS ET RECOURS EN JUSTICE

28.

29.

30.

31.

32.

33.

34.

35.

36.

37.

38.

39.

40.

41.

Mediation

Litigation

Misrepresentation in disclosure document

Defence to liability

Breach of standards

Breach of obligations by salesperson

Effect of obligations

Joint and several liability

Unconscionable agreements

Failure to file

Failure to give disclosure document

Effect of termination

Rights at law

Action by franchisee association

28.

29.

30.

31.

32.

33.

34.

35.

36.

37.

38.

39.

40.

41.

Médiation

Poursuite

Présentation inexacte des faits dans le document

d'information

Défense

Manquement aux normes

Manquement aux obligations du représentant

Effet des obligations

Responsabilité solidaire

Contrats exorbitants

Dépôt non effectué

Document d'information non remis

Effet de la résiliation

Droits

Action de l'association de franchisés

PART VII

ENFORCEMENT

PARTIE VII

EXÉCUTION

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

52.

53.

54.

Investigations

Power to enter and search

Seizure of property

Variation of order

Confidentiality

Orders by the Commission

Rules governing hearings

Interim orders

Revocation or variation of decisions

Enforcement of order

Undertakings

Failure to comply

Limitation period

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

52.

53.

54.

Enquêtes

Pouvoir de perquisitionner

Saisie de biens

Modification de l'ordonnance

Confidentialité

Ordonnances de la Commission

Règles régissant les audiences

Ordonnances provisoires

Révocation ou modification des décisions

Exécution de l'ordonnance

Engagements

Non-conformité

Prescription

PART VIII

APPEALS

PARTIE VIII

APPELS

55.

56.

Appeal to Commission

Appeal to Divisional Court

55.

56.

Appel à la Commission

Appel à la Cour divisionnaire

PART IX

OFFENCES AND PENALTIES

PARTIE IX

INFRACTIONS ET PÉNALITÉS

57.

58.

59.

60.

Offences

Representations prohibited

Definitions

Penalties

57.

58.

59.

60.

Infractions

Déclaration interdite

Définitions

Pénalités

PART X

PLAIN LANGUAGE FRANCHISE AGREEMENTS

PARTIE X

CONTRATS DE FRANCHISAGE EN LANGAGE CLAIR

61.

Plain language agreements

61.

Contrats en langage clair

PART XI

ADMINISTRATION AND REGULATIONS

PARTIE XI

APPLICATION ET RÈGLEMENTS

62.

63.

64.

65.

66.

67.

68.

69.

Filing of documents

Maintenance of records

Delegation of Director's powers

Sending of documents

Admissibility of certified statements

Waiver not permitted

Jurisdiction

Regulations

62.

63.

64.

65.

66.

67.

68.

69.

Dépôt de documents

Tenue des dossiers

Délégation des pouvoirs du directeur

Envoi de documents

Admissibilité des déclarations certifiées conformes

Renonciation interdite

Territoire de compétence

Règlements

PART XII

COMMENCEMENT AND SHORT TITLE

PARTIE XII

ENTRÉE EN VIGUEUR ET TITRE ABRÉGÉ

70.

71.

Commencement

Short title

70.

71.

Entrée en vigueur

Titre abrégé

______________

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

PART I

GENERAL

Definitions

1. (1) In this Act,

associate", when used to indicate a relationship with any person, means,

(a) a corporation of which the person beneficially owns or controls, directly or indirectly, voting securities entitling the person to more than 10 per cent of the voting rights attached to the outstanding securities of the corporation,

(b) an affiliate within the meaning of subsection (2),

(i) in which the person has a beneficial interest, or

(ii) in respect of which the person serves as trustee or in a similar capacity,

(d) in the case of an individual,

(i) the spouse or child of the individual, or

(ii) any relative of the individual or of the spouse of the individual who has the same residence as the individual, or

(e) a partner or joint trustee; ("personne qui a un lien") "

change in a material fact" includes,

(a) a change in the business, operations, capital or control of the franchisor or its associate, including a decision to implement the change made by the franchisor or its associate, or

(b) a change in the franchise system, including a decision to implement the change made by the franchisor or its associate,

that would reasonably be expected to have a significant effect on the value or price of the franchise offered or the decision to purchase the franchise; ("changement d'un fait important") "

Commission" means the Ontario Securities Commission; ("Commission")

Director" means the Executive Director of the Commission; ("directeur")

franchise" means,

(a) a right to engage in a business,

(i) in which goods or services are sold or offered for sale or are distributed under a marketing or business plan required or suggested in substantial part by the franchisor or its associate,

(ii) that is substantially associated with a trademark, trade name, trade secret or advertising or commercial symbol of the franchisor or its associate or designating the franchisor or its associate, or with a patent owned by or licensed to the franchisor or its associate, and

(iii) in which there is a continuing financial interest between the franchisor or its associate and the franchisee with respect to the operation of the franchised business or that required or requires the payment of a franchise fee to the franchisor or its associate,

(b) a master franchise, or

franchise agreement" means a written agreement between a franchisor or its associate and the franchisee or prospective franchisee, as the case may be, that relates to a franchise; ("contrat de franchisage")

franchise fee" means a direct or indirect payment to purchase a franchise or to operate the franchised business, but does not include,

(a) a purchase of or an agreement to purchase a reasonable quantity of goods at a reasonable wholesale price for which there is an established market, other than the franchisees of that franchise, or

(b) a payment of a reasonable service charge to the issuer of a credit card by an establishment accepting the credit card; ("redevances de franchisage") "

franchisee" means a person to whom a franchise is granted and includes, in relation to a master franchise agreement,

(a) a subfranchisor with regard to the subfranchisor's relationship with a franchisor, and

(b) a subfranchisee with regard to the subfranchisee's relationship with a subfranchisor; ("franchisé") "

franchisor" means a person who grants a franchise and includes, in relation to a master franchise agreement, a subfranchisor with regard to its relationship with a subfranchisee; ("franchiseur")

interest in a franchise" includes the ownership of shares in the corporation that owns the franchise; ("intérêt dans une franchise")

marketing or business plan" means a plan or system concerning a material aspect of conducting business, including, without limitation,

(a) price specification, special pricing systems or discount plans,

(b) sales or display equipment or merchandising devices,

(d) promotional or advertising materials or co-operative advertising,

(e) training in the promotion, operation or management of the business, or

(f) operational, managerial, technical or financial guidelines or assistance; ("plan de commercialisation ou d'entreprise") "

master franchise" means the right granted by a franchisor to a subfranchisor to sell or offer franchises for the subfranchisor's own account; ("franchise maîtresse")

material fact" means any information that would reasonably be expected to affect a decision of the franchisee or prospective franchisee relating to the franchise; ("fait important")

misrepresentation" includes,

(a) an untrue statement of a material fact,

(b) an omission to state a material fact,

(c) an omission to state a fact that is necessary to be stated in order for a statement not to be misleading; ("présentation inexacte des faits") "

offer" means,

(a) an attempt to sell a franchise or an interest in a franchise, or

(b) a solicitation of an offer to buy a franchise or an interest in a franchise; ("offre") "

officer" means,

(a) the chair or vice-chair of the board of directors, or the president, vice-president, secretary, assistant secretary, comptroller, assistant comptroller, treasurer, assistant treasurer or general manager of a corporation,

(b) an individual who performs functions or acts in a capacity similar to the function or capacity of the individuals referred to in clause (a), or

(c) an individual designated as an officer of a corporation by by-law or similar authority of the corporation; ("dirigeant") "

person" means an individual, partnership, corporation, unincorporated association, unincorporated organization, trustee, executor, administrator or other legal representative; ("personne")

prescribed" means prescribed by the regulations; ("prescrit")

registered salesperson" means an individual registered under section 8; ("représentant inscrit")

regulations" means the regulations made under this Act; ("règlements")

salesperson" means a person who offers or sells franchises; ("représentant")

sell" means selling or disposing of a franchise or an interest in a franchise. ("vendre")

Meaning of "affiliate"

(2) A corporation is an affiliate of another corporation where one of them is the subsidiary of the other, where both are subsidiaries of the same corporation or where each of them is controlled by the same person.

Meaning of "control"

(3) A corporation is controlled by another person where,

(a) the voting securities of the corporation carrying more than 50 per cent of the votes that may be cast to elect directors are held, other than for the purpose of collateral for a debt, by or for the benefit of the other person; and

(b) the votes carried by the securities referred to in clause (a) are sufficient, if exercised, to elect a majority of the board of directors of the corporation.

Meaning of "subsidiary"

(4) A corporation is a subsidiary of another corporation where,

(a) it is controlled by,

(i) the other corporation,

(ii) the other corporation and one or more corporations, each of which is controlled by the other corporation, or

(iii) two or more corporations, each of which is controlled by the other corporation; or

(b) it is a subsidiary of a corporation that is the other corporation's subsidiary.

Purpose

2. The purpose of this Act is,

(a) to require franchisors to disclose information about the franchise, the franchisor and its associates and the intended franchise relationship so that prospective franchisees can make informed investment decisions;

(b) to establish minimum standards of fair dealing between franchisors and their associates and franchisees throughout franchise relationships; and

(c) to provide remedies so that disputes between franchisors or their associates and franchisees can be dealt with efficiently and effectively.

Application of Act

3. (1) This Act applies,

(a) to an offer or sale of a franchise made in Ontario if the franchised business is to be operated either partly or wholly in Ontario or if the purchaser is an Ontario resident; or

(b) to an offer or sale of a franchise made outside Ontario if it is offered or sold to a resident of Ontario and the franchised business is to be operated either partly or wholly in Ontario.

Same

(2) An offer or sale of a franchise is made in Ontario if,

(a) an offer to sell or a sale is made in Ontario;

(b) an offer to buy is accepted in Ontario;

(d) an offer to sell or an offer to buy is accepted by communicating the acceptance to a person in Ontario either directly or through an agent in Ontario.

Same

(3) Despite subsection (2), this Act does not apply to an offer to sell a franchise that is located outside of Ontario if,

(a) the offer appears in a newspaper or other publication of general and regular circulation that had more than two-thirds of its circulation outside Ontario during the past 12 months; or

(b) the offer appears in a broadcast or transmission originating outside Ontario.

PART II

FILING BY FRANCHISOR AND REGISTRATION OF SALESPERSONS

Filing and registration

4. (1) No person shall offer or sell a franchise unless,

(a) the franchisor has filed with the Director in accordance with this section,

(i) a notice of intent to offer or sell, and

(ii) a disclosure document; and

(b) the person is a registered salesperson.

Exception

(2) For the purposes of this section, a person is not offering or selling a franchise solely because the person finds, introduces or brings together a prospective franchisee and a franchisor.

Notice of intent

(3) A notice of intent to offer or sell shall contain the information required by the regulations.

Disclosure document

(4) A disclosure document shall,

(a) provide full, true and plain disclosure of all material facts relating to the franchise proposed to be offered or sold;

(b) contain the information required by the regulations;

(d) contain financial statements, reports and other documents in accordance with the regulations.

Periodic filings

(5) A franchisor shall file with the Director, on a periodic basis in accordance with the regulations, the prescribed financial statements, reports and other documents.

Change in material fact

5. (1) If a change in a material fact in the information required to be filed under section 4 occurs, the franchisor shall file the change with the Director in accordance with the regulations and subsection (2).

Same

(2) A change referred to in subsection (1) shall be filed,

(a) before further offers or sales are made; and

(b) within 10 days from the day on which the change occurs.

Exception

(3) Subsection (1) does not apply to a change in a term of a franchise agreement that was negotiated at the request of the prospective franchisee.

Filing requirements cease

6. The requirements to file under sections 4 and 5 cease when,

(a) the franchisor gives a notice to the Director that it no longer offers or sells franchises under this Act; or

(b) the Director makes an order stating that the franchisor is prohibited from offering or selling franchises under this Act.

Application for registration

7. An individual who wishes to be registered as a salesperson must file an application with the Director.

Registration

8. (1) The Director may register an applicant if the applicant,

(a) is an individual;

(b) is listed in the franchisor's notice of intent to sell;

(d) in the opinion of the Director, is suitable for registration and meets the requirements of the regulations.

Term of registration

(2) A registration is valid for the prescribed term unless the term is restricted under clause 9 (1) (c).

Restrictions on registration

9. (1) The Director may, if he or she considers it necessary, restrict,

(a) the registration of an applicant or registered salesperson by imposing terms and conditions on the registration;

(b) the registration of an applicant or registered salesperson to offers or sales in certain types or classes of franchises;

Applicant's right to be heard

(2) The Director shall not refuse to grant or amend a registration or impose terms and conditions on a registration without giving the applicant or registered salesperson an opportunity to be heard.

Bonds

10. (1) The Director may require any applicant or registered salesperson to deliver a bond, or an additional bond, to him or her within a specified time.

Same

(2) The bond or additional bond shall be in the amount, in the form and subject to the terms and conditions set out in the regulations.

Notice of changes

11. (1) Every registered salesperson shall, within seven days of the change, notify the Director of the following:

1. A change in the registered salesperson's business address.

2. The commencement of employment with a franchisor.

3. The termination of employment with a franchisor.

4. Any other change specified in the regulations.

Amendment of registration

(2) The Director may amend the registration of the registered salesperson on receipt of the information under subsection (1) or if there is a change in the restrictions referred to in section 9.

Registration takes effect

12. Registration of a salesperson does not take effect until the applicant has received written notice from the Director that registration has been granted.

Registration ceases

13. (1) Registration of a salesperson ceases to have effect,

(a) when the term of the registration expires;

(b) when the registered salesperson gives a notice to the Director that he or she is no longer offering or selling franchises under this Act;

(c) when the registered salesperson is no longer employed by the franchisor to offer or sell franchises or is no longer an officer of the franchisor;

(d) when the franchisor who employs the registered salesperson or for whom the registered salesperson is an officer gives the Director a notice under clause 6 (a);

(e) when the registration is cancelled by the Commission; or

(f) during the period that the registration has been suspended by the Commission.

Notice of end of employment

(2) The franchisor shall notify the Director within 10 days when a registered salesperson ceases to be employed by the franchisor or ceases to be an officer of the franchisor.

PART III

DELIVERY OF DISCLOSURE DOCUMENT TO PROSPECTIVE FRANCHISEE

Delivery of disclosure document

14. (1) A franchisor shall give a prospective franchisee a copy of the most recent disclosure document and other documents referred to in section 4 and any changes required to be filed under section 5.

Time for delivery

(2) The disclosure document, other documents and changes must be received by the prospective franchisee at the earlier of,

(a) the first personal business meeting that is held for the purpose of discussing the offer or sale of a franchise; or

(b) a day that is at least 14 days before the prospective franchisee,

(i) enters into an agreement relating to the franchise, or

(ii) pays any consideration relating to the franchise.

Changes in material fact

(3) A franchisor shall give a prospective franchisee a statement of any changes in a material fact that occurs after the disclosure document, other documents and changes have been given to the prospective franchisee.

Time for delivery of changes

(4) The changes shall be given as soon as possible after they have occurred, but not later than 24 hours before the earlier of,

(a) the entering into by the prospective franchisee of an agreement relating to the franchise; or

(b) the payment of any consideration by the prospective franchisee relating to the franchise.

PART IV

EXEMPTIONS

Exemptions

15. (1) Sections 4, 5, 11 and 14 do not apply to,

(a) an offer or sale of a franchise by a franchisee if,

(i) the franchisee is not the franchisor or an associate of the franchisor or a director, officer or employee of the franchisor or its associate,

(ii) the offer or sale is for the franchisee's own account,

(iii) in the case of a master franchise, the entire franchise is offered or sold,

(iv) the offer or sale is not effected by or through the franchisor, and

(v) in the five years before making an offer to sell, the franchisee has not sold a franchise;

(b) an offer or sale of a franchise to a person who has been for at least two years an officer or director of the franchisor or its associate for that person's own account;

(c) an offer or sale of an additional franchise to an existing franchisee if that additional franchise is substantially the same as the franchise that the franchisee has operated for at least two years at the time of the offer or sale;

(d) a renewal or extension of an existing franchise agreement if there is no interruption in the operation of the franchised business and there is no material change in the franchise relationship;

(e) an offer or sale of a franchise if the franchisee is required to make a total annual investment of $1,000 or less to acquire and operate the franchise;

(f) an offer or sale of a franchise by an executor, administrator, sheriff, receiver, trustee, trustee in bankruptcy or guardian on behalf of a person other than the franchisor or the estate of the franchisor;

(g) an offer or sale of a right to a person to sell goods or services within or adjacent to a retail establishment as a department or division of the establishment, if the person is not required to purchase goods or services from the operator of the retail establishment.

Sale not effected through franchisor

(2) For the purpose of subclause (1) (a) (iv), a sale is not effected by or through a franchisor if,

(a) the prospective franchisee merely signs franchise agreements with terms that do not differ in a material way from the franchise agreements with the existing franchisee; or

(b) the franchisor has a reasonable right to approve or disapprove the sale or requires payment of a reasonable transfer fee.

Interruption in operation of franchise

(3) For the purpose of clause (1) (d), an interruption in the operation of the franchised business solely for the purpose of renovating the premises or relocating the business is not a material change in the franchise relationship or an interruption in the operation of the franchised business.

Discretionary exemptions

16. (1) If it is satisfied that to do so would not be prejudicial to the public interest, the Commission may make an order exempting an offer or sale of a franchise or a class or type of offer, sale or franchise from any one or more of sections 4, 5, ll and 14 or all or any part of a regulation made under this Act.

Terms or conditions

(2) The order may be subject to any terms or conditions that the Commission considers necessary.

Effective date

(3) An order may provide that it is effective as of a date before it was made.

PART V

STANDARDS OF CONDUCT

Good faith

17. (1) Every party to a franchise agreement shall perform the obligations and exercise the rights under the agreement in good faith.

Same

(2) Good faith means honesty in fact and the observance of commercially reasonable standards of fair dealing throughout the franchise relationship.

Reasonable performance standards

(3) Neither the franchisor or its associate nor the franchisee may impose unreasonable performance standards on the other with respect to the franchise.

Commercially reasonable standard

(4) If a franchise agreement contains any unilateral, arbitrary or discretionary right, the party exercising the right must exercise it in a commercially reasonable manner, balancing the interests of the franchisor, the franchisee and the collective interests of the franchisor and all the franchisees of that franchisor.

Encroachment prohibited

(5) A franchisor or its associate shall not establish a point of sale for the same or similar goods or services offered for sale by the franchisee within the area specified in the franchise agreement or, if no such area is specified, within an area that is likely to adversely affect the sales of the franchisee.

Source of supplies and services

18. (1) A franchisor or its associate shall not, directly or indirectly, prohibit a franchisee from obtaining equipment, fixtures, supplies or services used in the setting up or operating of the franchised business from sources chosen by the franchisee, except that the equipment, fixtures, supplies or services may be required to meet uniform system-wide standards that are consistently applied and enforced by the franchisor.

Exception

(2) Subsection (1) does not apply in respect of reasonable quantities of equipment, fixtures, supplies or services that the franchisee is required to obtain from the franchisor or its associate where the equipment, fixtures, supplies or services are substantially associated with a trademark, trade name, trade secret or advertising or commercial symbol of the franchisor or its associate or designating the franchisor or its associate, or with a patent owned by or licensed to the franchisor or its associate.

Payments into trust

19. At the request of a franchisor, its associate or a prospective franchisee, investments or other funds to be paid by any of those parties to another shall be placed in trust in accordance with the regulations.

Non-renewal of franchise agreement

20. (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

21. (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 23.

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

22. (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 23.

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

23. (1) A notice under section 20, 21 or 22 must,

(a) be in writing; and

(b) contain a statement of the intention not to renew, to terminate 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 to approve the transfer, 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 must be in writing.

Notice void for non-compliance

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

Right to associate

24. (1) A franchisor shall not, directly or indirectly, prohibit or restrict a franchisee from forming an organization of franchisees or from associating with other franchisees in any organization of franchisees.

Same

(2) A franchisor shall not directly or indirectly penalize a franchisee for engaging in the activities described in subsection (1).

Disclosure by prospective franchisee

25. A prospective franchisee shall give information to the franchisor that the franchisee knows or should know is relevant to, or would have an effect on, the decision of the franchisor to enter into a franchise agreement with that franchisee.

Continuing obligations of franchisee

26. A franchisee who becomes aware of a contravention of this Act or the regulations by a franchisor or its associate or salesperson that causes a loss to the franchisee shall,

(a) take reasonable steps to minimize the loss; and

(b) promptly take reasonable steps to resolve the matter with the franchisor, associate or salesperson who the franchisee believes is responsible for the loss.

Obligations of salesperson

27. A salesperson shall act in good faith in dealings with a prospective franchisee and shall not knowingly mislead or make any misrepresentations to a prospective franchisee.

PART VI

DISPUTE RESOLUTION AND JUDICIAL REMEDIES

Mediation

28. (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, then 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 Commission.

Mediator's appointment

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

Mediation

(4) The mediator shall enquire 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.

Litigation

29. (1) If mediation fails, either party may start proceedings in the Ontario Court (General Division).

Limitation

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

Misrepresentation in disclosure document

30. (1) If a franchisee suffers a loss because of a misrepresentation contained in a disclosure document filed under section 4 or 5 or given under section 14, the franchisee has a right of action for damages, rescission or other appropriate relief against any or all of,

(a) the franchisor;

(b) every director of the franchisor at the time the disclosure document was filed or was given;

Deemed reliance on misrepresentation

(2) If a disclosure document filed under section 4 or 5 or given under section 14 contains a misrepresentation, a franchisee who purchases a franchise to which the disclosure document relates during the period that the filing is in effect shall be deemed to have relied on the misrepresentation.

Defence to liability

31. (1) No person is liable in an action under section 30 if the person proves that the franchisee purchased the franchise with knowledge of the misrepresentation.

Same

(2) No person, other than the franchisor, is liable in an action under section 30 if the person proves that the disclosure document was filed without his or her knowledge or consent and that on becoming aware of its filing the person promptly filed a notice with the Director that the disclosure document was filed without his or her knowledge or consent.

Breach of standards

32. If a franchisee suffers a loss because of a contravention of section 19, 20, 21, 22 or 24 or any ruling or order of the Commission under this Act by the franchisor or its associate, the franchisee has a right of action for damages, rescission or other appropriate relief against,

(a) the franchisor or its associate, as the case may be; and

(b) every director of the franchisor or its associate, as the case may be.

Breach of obligations by salesperson

33. If a franchisee suffers a loss because of a contravention of section 27, the franchisee has a right of action for damages, rescission or other appropriate relief against the salesperson, the franchisor and every director of the franchisor.

Effect of obligations

34. Failure by a franchisee or franchisor or its associate to fulfil the responsibilities referred to in Part V may be considered in assessing or apportioning damages.

Joint and several liability

35. Where two or more persons are found to be liable or accept liability, they are jointly and severally liable.

Unconscionable agreements

36. If in an action a court finds a franchise agreement or any part of it to be unconscionable, the court may,

(a) refuse to enforce the franchise agreement;

(b) refuse to enforce the unconscionable clause;

(d) make any other order it considers appropriate in the circumstances.

Failure to file

37. If a franchisor fails to file a disclosure document under clause 4 (1) (a) or subsection 4 (5), or changes under section 5, a franchisee may withdraw an offer to purchase or terminate the franchise agreement by sending a notice to the franchisor or its associate, as the case may be, no later than 180 days after discovering the contravention.

Failure to give disclosure document

38. If a franchisor contravenes section 14, a franchisee may withdraw the offer to purchase or terminate the franchise agreement by giving a notice to the franchisor or its associate, as the case may be, no later than 60 days after receiving the documents referred to in section 14.

Effect of termination

39. (1) A notice given under section 37 or 38 operates,

(a) to terminate the franchise agreement; or

(b) to withdraw the offer to purchase.

Compensation

(2) The franchisor or its associate, as the case may be, must, within 30 days of receiving a notice of termination under section 37 or 38, compensate the franchisee for any losses that the franchisee has incurred in acquiring, setting up and operating the franchised business including,

(a) repaying all money that has been paid to the franchisor, its associate and the salesperson in respect of the franchise;

(b) compensating the franchisee for the expenses that the franchisee has incurred in setting up the franchised business.

Rights at law

40. A right of action or the right to terminate a franchise agreement conferred by this Part is in addition to and does not derogate from any other right a franchisee may have at law.

Action by franchisee association

41. (1) In this section,

franchisee association" means a corporation that has as its primary objective the protection or advancement of the interests of franchisees.

Same

(2) A franchisee association may start proceedings in the Ontario Court (General Division) against a franchisor in respect of an activity that the franchisee association alleges contravenes this Act in the same manner that a franchisee could start those proceedings.

Same

(3) A franchisee association does not need to have an interest in or be affected by the subject-matter of the proceedings in order to start proceedings under subsection (2).

Security for costs

(4) When proceedings are started under this section, the Court may order a franchisee association to give security for the costs of the proceedings in an amount the Court considers proper.

Powers of Court

(5) If a franchisee association is successful in its claim, the Court may do any or all of the following:

1. Declare that the franchisor has contravened this Act or the regulations.

2. Grant an injunction restraining the franchisor from engaging in the activity or a similar activity that would or could contravene this Act.

3. Award costs.

PART VII

ENFORCEMENT

Investigations

42. (1) The Director may make any investigations that he or she considers necessary,

(a) in respect of the administration of this Act and the regulations; or

(b) into any matter relating to the offer or sale of franchises.

Same

(2) In conducting an investigation, the Director may require a person,

(a) to give written replies to questions; and

(b) to give to the Director any information the Director considers necessary for the investigation.

Power to enter and search

43. (1) If the Director has reason to believe that this Act is not being complied with, the Director may apply to the Divisional Court for an order authorizing the Director to enter and search anywhere for evidence that this Act has been contravened or of the extent of the contravention.

Notice not required

(2) The application may be made without notice to any person.

Order

(3) The Court may make any order it considers appropriate, with or without conditions.

Seizure of property

44. (1) If an entry and search order is made, the Director may look at, take away, take extracts from or copy anything relevant to the search.

Return of original documents

(2) The Director must give to the person who is in control of the premises that have been entered and searched a receipt for anything taken away after a search and must return the original as soon as possible after it is removed.

Variation of order

45. (1) A person may apply to the Ontario Court (General Division),

(a) to have an entry and search order changed or cancelled; or

(b) for an order declaring that an entry and search order was improperly made.

Same

(2) The Court may make any order it considers appropriate, with or without conditions.

Confidentiality

46. (1) No person shall disclose, except to his or her counsel, information or evidence obtained in an investigation under this Part without the consent of the Director.

Disclosure permitted

(2) Where the Director considers it in the public interest to do so, he or she may by order at any time authorize, on any terms or conditions that he or she considers appropriate, the release of information, records, documents or things obtained in an investigation under this Part, or copies of them, to,

(a) any person; or

(b) any government, government agency or regulatory body that is empowered by the laws of a jurisdiction to regulate franchises.

Orders by the Commission

47. (1) The Commission may, on its own motion or on the application of any person, order that,

(a) offers or sales of franchises cease in respect of any franchise;

(b) a person be prohibited from offering or selling franchises;

(d) any or all of the exemptions contained in section 15 do not apply to the person or franchise named in the order;

(e) any exemption given under section 16 be suspended or revoked.

Hearing

(2) Before making an order under subsection (1), the Commission shall conduct a hearing.

Rules governing hearings

48. (1) The Commission may by regulation make rules respecting the conduct of hearings under this Act.

Same

(2) For the purposes of a hearing before the Commission, in addition to the rules made under subsection (1),

(a) the Board has the same power as is vested in the Ontario Court (General Division) for the trial of civil actions,

(i) to summon and enforce the attendance of witnesses,

(ii) to compel witnesses to give evidence under oath or otherwise, and

(iii) to compel witnesses to produce documents, records and things;

(b) the failure or refusal of a person summoned as a witness to attend a hearing, to answer questions or to produce documents, records and things that are in that person's custody or possession makes the person liable to be committed for contempt by a judge of the Ontario Court (General Division) as if in breach of an order or judgment of that Court;

Interim orders

49. (1) Despite anything in this Act, the Commission may make an interim order at any time without conducting or concluding a hearing which would otherwise be required where, in the opinion of the Commission, the length of time required to conduct a hearing and make a decision could be prejudicial to the public interest.

Same

(2) An interim order expires 15 days from the day it was made.

Same

(3) Despite subsection (2), the Commission may, without conducting a hearing, extend the interim order until a hearing is conducted or concluded and a decision is made, if the Commission is of the opinion that it would not be prejudicial to the public interest to do so.

Same

(4) Where the Commission makes an interim order, the Commission shall send a copy of the interim order and an accompanying notice of hearing to any person that, in the opinion of the Commission, is substantially affected by the order.

Revocation or variation of decisions

50. If the Commission is of the opinion that to do so would not be prejudicial to the public interest, the Commission may make an order revoking or varying any decision made by it.

Enforcement of order

51. An order made under this Part may be enforced in the same manner as an order of the Ontario Court (General Division).

Undertakings

52. (1) In this section and in section 53,

undertaking" means a written commitment to the Director or the Commission by,

(a) a franchisor or its associate or any directors, officers or employees of the franchisor or its associate, or

(b) a salesperson.

Same

(2) If the Director is of the opinion that a person referred to in clause (a) or (b) of the definition of "undertaking" in subsection (1) is not complying with this Act or the regulations, the person may enter into an undertaking with the Director or the Commission.

Same

(3) An undertaking may require the person to do any one or more of the following:

1. To stop engaging in the practice described in the undertaking or to change the practice.

2. To provide compensation to franchisees who have incurred a loss.

3. To publicize the undertaking or the action being taken to stop or change a former practice.

4. To pay the costs of an investigation, hearing and any costs associated with the undertaking.

5. To do or cease to do anything else the Director or the Commission and the person agree on.

Same

(4) The contents and form of the undertaking must be satisfactory to the Director or the Commission.

Public record

(5) The Director shall keep a public record of undertakings given under this section.

Failure to comply

53. (1) If it appears to the Director that a person has failed to comply with or is contravening an undertaking made by the person under section 52, the Director may apply to the Commission for an order.

Order

(2) The Commission may,

(a) order the person to comply with the undertaking;

(b) restrain the person from contravening the undertaking; or

Limitation period

54. No proceeding under Part VI or this Part may be commenced more than three years after the day of the occurrence of the event that gave rise to the proceeding.

PART VIII

APPEALS

Appeal to Commission

55. (1) Any person directly affected by a decision of the Director may appeal the decision to the Commission within 30 days from the day the notice of the decision was sent to the person.

Same

(2) On appeal, the Commission may by order confirm the decision or make any other order the Commission considers proper.

Appeal to Divisional Court

56. (1) Any person directly affected by a decision or order of the Commission, other than an order under section 16, may appeal to the Divisional Court.

Same

(2) The Divisional Court may,

(a) confirm, vary or reject the decision or order of the Commission;

(b) direct the Commission to re-hear or review the matter; or

PART IX

OFFENCES AND PENALTIES

Offences

57. (1) Every person who,

(a) makes a misrepresentation in respect of any material submitted or given under this Act or the regulations to the Commission, its representative, the Director or any person appointed to make an investigation or audit under this Act;

(b) makes a misrepresentation in any information, report or other document required to be filed or furnished under this Act or the regulations;

(d) fails to file within the time limits prescribed by this Act or the regulations, any document, record or report required to be filed under this Act or the regulations;

(e) contravenes section 4, 5, 11, 14, 17, 19, 20, 21, 22, 24, 27, 58, 59, 61 or 63;

(f) interferes with an investigation under section 42;

(g) fails to comply with an undertaking given under section 52; or

(h) contravenes a regulation made under section 69,

is guilty of an offence.

Defence

(2) No person is guilty of an offence under clause (1) (a) or (b) if the person did not know and in the exercise of reasonable diligence could not have known that the statement was a misrepresentation.

Representations prohibited

58. No person shall make a representation that the Commission, the Director, or an employee of the Commission has in any manner expressed an opinion or passed judgment on,

(a) the financial standing, fitness or conduct of a franchisor or its associate; or

(b) the merits of a franchise.

Definitions

59. (1) In this section,

compensation" means money, credits, discounts, goods or any other right or thing of value; ("rémunération")

pyramid franchise" means a franchise in which,

(a) a participant is required or receives the right to recruit one or more other persons as participants who are subject to a similar requirement or who obtain a similar right,

(b) a participant has the right to receive compensation, the amount of which is dependent on the number of participants, and

(i) the majority of the compensation to the participants involved will not be derived from the sale of goods or services to the public,

(ii) participants who obtain goods under the franchise do not receive a refund of the cost price of unsold inventory on termination of the franchise agreement,

(iii) there is no reasonable limitation on the number of participants to be located in any area in relation to the population within the area. ("franchise pyramidale")

Pyramid franchises prohibited

(2) No person shall offer or sell a pyramid franchise.

Penalties

60. (1) A person convicted of an offence under this Act is liable,

(a) in the case of an individual, to a fine of not more than $100,000 or to imprisonment for a term of not more than two years, or to both;

(b) in the case of a corporation, to a fine of not more than $250,000.

Directors' and officers' liability

(2) Where a corporation or a person other than an individual is guilty of an offence under this Act, every director or officer of the corporation or person who authorized, permitted or acquiesced in the offence is also guilty of an offence and on conviction is liable to a fine of not more than $100,000 or to imprisonment for a term of not more than two years, or to both.

PART X

PLAIN LANGUAGE FRANCHISE AGREEMENTS

Plain language agreements

61. (1) Every franchisor shall ensure that every franchise agreement to which the franchisor or its associate is a party is in readily understandable language and form.

Compliance

(2) A franchisor who can show that reasonable efforts have been made to comply with subsection (1) shall be deemed to be in compliance with that subsection.

PART XI

ADMINISTRATION AND REGULATIONS

Filing of documents

62. (1) A document is filed under section 4, 5 or 7 when it is received by the Director with the prescribed fee.

Documents public

(2) A document filed under this Act, except information required to be filed under section 7, is public unless the Director specifies otherwise.

Maintenance of records

63. A franchisor must, in accordance with the regulations, at all times keep, and make available to the Director when requested, a complete, up-to-date set of books, records and accounts of its offers and sales of franchises.

Delegation of Director's powers

64. The Director may delegate any of his or her duties or powers under this Act or the regulations to any employee of the Commission.

Sending of documents

65. (1) Unless otherwise provided by this Act or ordered by the Director, any document required to be sent or given under this Act or the regulations may be,

(a) personally delivered to the person that is to receive it;

(b) sent by mail to the person that is to receive it; or

Same

(2) A document sent to a person under clause (1) (b) or (c) is to be sent to the person,

(a) at the most recent address for that person known by the sender of the document; or

(b) in the case of a franchisor or salesperson, at the address for service in Ontario filed by that person with the Director.

Deemed receipt

(3) A document that is sent by the Commission or the Director by mail shall be deemed, unless the contrary is proved, to have been received by the person to whom it is sent on the seventh day from the day that the document is sent.

Admissibility of certified statements

66. A statement as to,

(a) the registration or non-registration of any person;

(b) the filing or non-filing of any document or material with the Director; or

(c) any other matter relating to the registration, non-registration, filing or non-filing or to any person, document or material,

purporting to be certified by the Director or the Commission is, without proof of the office or signature of the person certifying the statement, admissible in evidence for all purposes in any action, hearing, prosecution or other proceeding.

Waiver not permitted

67. Any waiver by a franchisee of a right or obligation contained in this Act, the regulations or any order made under this Act is void.

Jurisdiction

68. A provision in a franchise agreement restricting jurisdiction or venue to any forum outside Ontario is void with respect to a claim otherwise enforceable under this Act in Ontario.

Regulations

69. The Lieutenant Governor in Council may make regulations,

(a) prescribing a business or arrangement to be a franchise for the purposes of this Act;

(b) respecting the form and content of any notice, statement, report, agreement or other document or information required to be filed or given under this Act;

(c) respecting the giving of information to the public, the Commission or the Director by a registrant in connection with franchises or offers or sales of them;

(d) respecting the preparation and filing of financial statements and the audit requirements with respect to the financial statements;

(e) respecting the periods for which the documents referred to in section 5 are to be filed;

(f) respecting the requirements for being registered as a salesperson and any changes in information required to be given to the Director;

(g) respecting the term of registration as a salesperson;

(h) respecting the keeping and updating of franchisors' books, records and accounts, and their availability for inspection;

(i) respecting the amount, form and contents of a bond and the terms and conditions of a bond;

(j) restricting any exemptions set out in section 15;

(k) respecting the establishment, form and contents of a trust for the purposes of section 19;

(l) respecting the qualifications and appointment of mediators and prescribing rules of procedure and setting time limits in respect of mediation proceedings under section 28;

(m) prescribing the practice and procedure of investigations under section 42;

(n) governing costs of investigations under section 42;

(o) prescribing the fees payable to the Commission including fees for filing, fees upon applications for registration, fees in respect of audits made by the Commission and other fees in connection with the administration of this Act and the regulations;

(p) prescribing rules for the purposes of section 48;

(q) governing costs in respect of matters heard before the Commission;

(r) governing undertakings referred to in section 52.

PART XII

COMMENCEMENT AND SHORT TITLE

Commencement

70. This Act comes into force on a day to be named by proclamation of the Lieutenant Governor.

Short title

71. The short title of this Act is the Franchises Act, 1998.

EXPLANATORY NOTE

The Act provides a comprehensive scheme to regulate the entering into of franchise agreements and the on-going relationship between the franchisor and the franchisee.

Part I sets out the purpose of the Act.

Part II provides that a prospective franchisor must first file with the Executive Director of the Ontario Securities Commission a notice of intent to offer or sell a franchise and a disclosure document. The person offering or selling the franchise must be named in the notice of intent and must be registered as a salesperson under the Act.

The disclosure document must disclose all of the material facts relating to the franchise which is being offered for sale and must include a copy of the proposed franchise agreement.

Part III provides that the disclosure document relating to a franchise must be delivered to a prospective franchisee at least 14 days before the franchise agreement is entered into or any consideration is paid for the franchise.

Part IV exempts certain offers for the sale of a franchise from the operation of the Act.

Part V sets out the minimum standards of conduct required to be maintained by the parties to a franchise agreement throughout its operation. A franchisee may use its own sources of goods and services except where these are substantially associated with a trademark or patent of the franchisor. A franchisor is prohibited from terminating the franchise agreement or refusing to approve a transfer of the franchise without "good cause", which is defined for these purposes. If a franchisor proposes not to renew a franchise agreement, it must give six months notice of the non-renewal and provide appropriate compensation to the franchisee.

Part VI deals with dispute resolution and rights of action. Disputes must first be referred to mediation. If mediation fails, either party may start court proceedings. The franchisee has a right of action for damages against the franchisor for losses suffered as a result of a misrepresentation in a disclosure document or for a breach of the standards of conduct required by Part V.

Part VII provides for investigations into any matters arising from the administration of the Act and hearings by the Commission.

Part VIII provides that a decision of the Executive Director may be appealed to the Commission. The Commission's decisions may be appealed to the Divisional Court.

Part IX sets out the offences and penalties for breach of the provisions of the Act. The sale of "pyramid franchises", which is defined for these purposes, is prohibited.

Part X Franchise agreements must be written in plain language.

Part XI provides that the parties cannot contract out of the provisions of the Act.

Office of the Legislative Assembly of Ontario

Toronto, Ontario, Canada.