Rescission under the Arthur Wishart Act

Under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3  a franchisee has a right of rescission in limited circumstances. 

A key question is whether a disclosure document has been delivered – if such document has been delivered then reciscission is limited. 

Today’s decision in 4287975 Canada Inc. v. Imvescor Restaurants Inc., 2009 ONCA 308 makes the limitation on rescission very clear:

[25]          In respect to timing, s. 5 of the Act ensures that a prospective franchisee has at least fourteen days to review and consider a disclosure document before signing a franchise agreement or paying consideration in relation to a franchise.  In the event that the franchisor does not comply with s. 5, the Act provides the franchisee with an extraordinary remedy: the right to rescind the franchise agreement with two different limitation periods, depending on when and whether the franchisor provides a disclosure document.

[26]          First, s. 6(1) permits rescission within sixty days of receipt of the disclosure document if the disclosure document is not provided “within the time required by s. 5”.  Not only did the appellant not provide a notice of rescission within sixty days of receiving the document, but it also had six months to consider the disclosure document before entering into the agreement.   

[27]          Second, under s. 6(2), a franchisee may rescind a franchise agreement within two years, but only if there was no disclosure document provided by the franchisor.  In particular, for s. 6(2) to apply, the franchisor must never have provided the disclosure document.  The time for rescission under s. 6(2) starts to run from the date when the franchise agreement was signed, owing to the fact that unlike under s. 6(1) — where the applicable time starts when a proper disclosure document is provided — s. 6(2) applies to a situation where there is no disclosure document provided at all.

[28]          In sum, s. 6(1) provides for a sixty day rescission period if either a franchisor fails to deliver a disclosure document within the required time periods under s. 5 or the contents of a disclosure document did not meet the requirements of s. 5.  Section 6(2) provides for a two year rescission period in the event of a failure by the franchisor to deliver a disclosure document.

[29]          To state it in the terms of the appellant’s arguments, s. 6(1) applies to a situation in which the franchisee was unable to make a fully informed decision as a result of inadequate time for consideration of such decision or inadequate disclosure of the material facts.  Section 6(2) applies to a situation in which the franchisee is unable to make an informed decision at all because of a complete lack of a disclosure document.  

      [30]          As noted, there was disclosure in this case. As the motion judge correctly held, s. 6(2) of the Act, therefore, has no application. 

[31]          The motion judge also found that s. 6(1) was not available to the appellant on the facts of this case, noting at para. 12 that s. 6(1) “does not purport to provide a rescission right in all circumstances”.  Again, I agree with the motion judge.

[32]          Section 6(1) contemplates a situation in which a franchisor has failed to comply with the timing or content requirements of the Act in respect of a disclosure document.  It extends the time normally provided for the review of the disclosure document (at least fourteen days) to afford a franchisee sixty days from the date the disclosure document is given to review the disclosure document and determine whether to rescind a binding franchise agreement.