The event will be held at the Old Mill in Toronto, and registrations are open.

The Court concluded that a financial forecast “carries with it an implied representation that the forecast was prepared by a person of skill and experience who exercised reasonable care and skill in its preparation.” In determining whether the forecast was properly made, the court will assess whether the forecast falls within a “range of acceptable opinion” or “range of reasonableness.” The Court concluded that caution must be applied before concluding that a particular projection is unreasonable.

The decision recognizes that a financial forecast is an art, not a science. So long as a forecast is based on reasonable targets and assumptions, a franchisor will not be liable simply because a too-optimistic forecast is missed.

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1. Introduction[1][2][3]

Beginning in the 1950s, with franchisors such as McDonald’s, Midas Muffler, and Holiday Inn, the franchise business model has become a popular growth vehicle in both North America and worldwide.  That said, the coming of age of business format franchising in the United States during the mid-20th century brought with it abuses by some opportunistic franchisors seeking to line their pockets at the expense of their franchisees.  During the late 1950s and throughout the 1960s aggrieved franchisees sought to restrain this opportunistic behaviour by bringing actions for redress based on various theories of contract, tort, unjust enrichment, and fiduciary law, and on statutory anti-trust law and securities law.

The franchisees and the regulators, however, found the results largely unsatisfactory, leading to intervention by certain of the states in the U.S., the U.S. Federal Trade Commission, and the Province of Alberta in Canada in the form of franchise disclosure and registration legislation and regulations in the early 1970s.  This initial attempt at franchise regulation was directed at the franchise granting process, and attempted to level the information playing field.  Pre-contractual disclosure regulations require franchisors to provide prospective franchisees with certain information about the franchisor, its affiliates, existing and former franchisees, the franchise business, the franchise contracts, the money, and other matters to enable the prospective franchisee to make an informed decision about investing in the franchise.  Today, this form of regulation continues to dominate the global franchise regulatory landscape.  However, over the years some jurisdictions have also enacted relationship legislation in addition or as an alternative to disclosure and registration laws.

The rise of relationship laws recognized that while disclosure laws provided protection to the franchisee prior to entering into a franchise agreement, they offered no remedy against opportunistic conduct that extended beyond contract formation.  Franchise relationship legislation, then, was directed at the continuing business relationship of the parties after the franchise agreement was signed.  It was intended to restrict franchisors’ discretion in certain areas of contract performance which the regulators thought were of critical importance to franchisees; such as, the duty of good faith and fair dealing, franchise transfers and renewals, termination, procurement, and encroachment on franchisee territories.  Today, with a handful of exceptions which are “disclosure only” regimes, the majority of franchise laws and regulations around the world contain both pre-contractual disclosure and on-going relationship elements; a few countries have opted for the “relationship only” approach.

What follows is an overview of franchise relationship laws around the world and the aspects of the franchise relationship these laws typically address.  While not the focus, this paper will also examine the impact of self-regulation, industry specific legislation, and Australia’s Commissioner Model on the franchise relationship.  In the conclusion, the analysis will rely on the unique characteristics of the franchise model in an effort to provide the reader with conclusions and lessons learned.

The facts of the case were that the franchisor of a restaurant chain suffering from financial difficulties was forced to transfer two restaurants to a creditor, who in turn sold the restaurants to a third party. The third party was given an option to join the franchise, but instead elected to open as an independent. However, the new owners did a substandard job rebranding the restaurants and only removed the most obvious signs of the old owner, and retained the majority of the old restaurant’s design. Consequently, the franchisor sued the new owners for copyright and trade-mark infringement.

The defendant argued that when they purchased all of the assets of the restaurants they acquired an implied license to use those assets which were protected by trade-mark or copyright rights. The Court had no difficulty in finding that intellectual property rights do not automatically transfer with the goods which they protect. As such, the Court found that as soon as the defendants elected not to join the plaintiff’s franchise system they lost their right to use the plaintiff’s trade-marks and copyrighted materials.

Another of the Court’s key findings was that copyright can subsist in a menu. The new owners essentially used the same menu as the old restaurant (i.e. the same graphic design, menu items and descriptions), but merely removed any references to the old restaurants’ name. As a matter of fact, the judge held: “I have no hesitation in concluding that the new Café Mirage menus were inspired by, and copied to a substantial degree, the new Symposium Café menus.” The judge also found that there was enough skill and judgment exercised by the plaintiff in creating the menus to qualify it as an “original” work.

It is worth noting, however, that copyright can never protect a menu item or recipe itself, only the description and presentation of those items. Recipes are considered to be abstract ideas, not creative works, and are therefore not protected by copyright. So in theory, the defendants in this case would not have been liable if they had simply kept the food items the same but changed the design and wording of the menu.

If you hold wealth in the form of private company shares, the estate planning strategy of multiple wills can potentially save your Estate a considerable sum in estate administration tax. This is done by reducing the value of your Estate requiring administration, or probate, by separating out the assets which can pass to beneficiaries without the requirement of probate and distributing them in one will, while the assets requiring probate are disposed of in a second will.

For anyone unfamiliar with the term, “probating” a will is the process by which the executor, or  Estate Trustee, applies to the Court to obtain authority to act in the Estate’s name. The Estate Trustee applies for what is called a “Certificate of Appointment of Estate Trustee with a Will.” This is required when the value of the Estate assets is over a minimum amount – generally over $25,000.00 – or in cases where the Estate is comprised of certain specific types of assets such as publicly traded securities and Canada Savings Bonds. Many banks, stockbrokers and other financial institutions require this Certificate from the Court before they will permit the Estate Trustee deal with the assets of the Estate.

The cost associated with obtaining this Certificate is the estate administration tax referenced above and it is based upon the gross value of an Estate. The tax is calculated as follows: $5 per thousand on the first $50,000 value of an Estate and $15 per thousand on the balance of the Estate’s value. By way of example:

• A modest estate of $150,000 would attract estate administration tax of $1,750;
• A larger estate of $250,000 would attract estate administration tax of $3,250; and
• A million dollar estate would attract estate administration tax in the amount of $14,500.

Bear in mind that there is no upper limit on this tax amount.

Effective estate planning can help avoid the attraction of at least part of this tax through the reduction of the value of the Estate requiring administration.  Since shares in private companies can generally be transferred without obtaining probate, it is advantageous to dispose of such assets through a separate will which will not be submitted for probate. In the absence of such an additional will, the entire gross value of your Estate would be included for the purposes of obtaining probate; thereby resulting in payment of a needlessly higher estate administration tax.

A brief example will illustrate the value of multiple wills in this context.

• A testator has left an Estate valued at $2,000,000 comprised of $50,000 in cash in a bank account and $1,950,000 in private company shares. In order to give the Estate Trustee access to the $50,000 bank account, the bank will require that the Estate be administered by obtaining a Certificate from the Court. As such, estate administration tax in the amount of $29,500 would be payable on the full $2-million value of the Estate before the Court hands over the desired Certificate of Appointment of Estate Trustee with a Will.
• As noted, an effective tax minimization strategy in this case would have been the execution of two Wills by the testator; one will for the assets which must pass through the Court, i.e., the bank account, and one will for those assets which need not pass through the Court, i.e., the private company shares.
• In this example, an application for a Certificate of Appointment of Estate Trustee with a Will would then have been made for the will dealing only with the $50,000.00 bank account; resulting in estate administration tax of only $250.00 payable by the Estate, a saving of $29,250 in estate administration tax!

If you wish more information on this and other tax saving measures, contact one of the Estate planning specialists at Sotos LLP.

As part of his commercial litigation practice, Jean-Marc has defended class actions involving franchise, contract and competition claims. He is also experienced in appellate advocacy, built on his clerkships at both the Federal Court of Appeal and the Supreme Court of Canada.

Jean-Marc will continue his class actions, commercial litigation and appellate advocacy practice at Sotos.

 » View Jean-Marc Leclerc’s bio

The Award is named for the late Markus Cohen, Q.C. in recognition of his excellence and dedication as a lawyer practicing in the area of franchise law. Markus was an original member of the OBA Executive of the Franchise Law Section and was the initial editor of Franchising 101 which appears on the OBA website. Markus wrote and spoke widely about franchising law issues and was an exceptional educator and mentor. The Award not only recognizes Markus’ contributions to franchise law but stands as a testament to the civility and dignity which were hallmarks of Markus’ practice.

Congratulations to David Sterns and Jennifer Dolman!

View the article online at JD Supra

The preferred candidate for will have a minimum of three (3) years’ experience, and will hold a Certificate or Diploma from a recognized College Legal assistant/Law clerk program (a University degree would be an asset). Applicants should have knowledge of Word, Adobe and Outlook 2007, strong communication and interpersonal skills for liaising with clients, lawyers and government offices, and excellent organizational skills.

• View full corporate/commercial department posting (PDF)

Qualified candidates may submit their resumes to ssingh@sotosllp.com. We thank all applicants for their interest; however only those selected for an interview will be contacted.

The SPIS is a questionnaire that can be completed by the vendor and used by the real estate agent in the course of showing the property to prospective buyers. The questionnaire includes questions about the vendor’s knowledge of any issues with the house (such as structural or plumbing). Despite the fact that information provided in a SPIS is not a warranty, the Court of Appeal has found that it could still form the basis for liability.

In this case, the vendors were aware of plumbing issues with the house but responded in the negative as to whether they had knowledge of any plumbing defects in completing the SPIS. The buyer was shown the SPIS at the open house and relied upon it when purchasing the property. The vendors were also aware that the house had issues with the foundation’s settling. Despite this fact, they told their real estate agent that the house had not faced settling issues for 17 years. That information was conveyed by the agent to the buyer.

The trial judge determined that the vendors were liable for negligent misrepresentation but dismissed the plaintiff’s claim against the real estate agent.

The Court of Appeal agreed with the trial judge with respect to the vendors’ negligence. The court reasoned that although preparing a SPIS is not mandatory, once it is used, the buyer is entitled to rely upon it. The warning found in most SPIS forms, stating that the buyer must undertake his or her own enquires despite information contained in the form, was found not to absolve the vendors’ liability. The Court also referenced the trial judge’s distinction between patent and latent defects. Patent defects are easily visible to the buyer and must be accepted upon purchase, whereas latent defects (such as structural defects) are not readily identifiable and the buyer relies on the vendor’s representations, if any are contained in the agreement.

However, the Court also extended liability to the real estate agent. The Court used the due diligence requirements found in the Real Estate Council of Ontario’s Code of Ethics to establish the agent’s standard of care. It concluded that the agent should have been apprehensive about the information provided by the vendors. In this case, the agent knew about the house’s history of settlement problems, and could also have discovered signs of problems through the agent’s visual inspection of the property. Those factors should have prompted the agent to verify the accuracy of the vendors’ statements.

Ultimately, the Court decided to apportion 50% fault to both the vendors and the agent. The agent should have informed the vendors about the implications of misrepresenting information in the SPIS. The vendors should not have offered misrepresented statements to the agent and in the SPIS.

This decision provides informative instructions to future vendors and agents. Vendors should be wary about offering information about their property that they know to be false. Real estate agents should counsel their vendor clients and should either take measures to verify the information provided by vendors or strongly recommend to buyers that they undertake an inspection of the property and make the closing conditional upon passing the inspection and obtain a statement confirming that the buyers are not relying upon the SPIS.

Out of the provinces that have franchise laws in place, the wording, structure and substance of the Manitoba Regulation is most similar to that of New Brunswick. This is perhaps to be expected, since New Brunswick only introduced its franchise regulation last year (read about it here).

However, the Manitoba regulation has some unique features. The biggest innovation of the Act is that it allows, in certain circumstances, for disclosure documents to be delivered in parts. This can be contrasted with other provinces which require disclosure documents to be delivered all at once. The Regulation defines the specifics of this “piece-meal” disclosure. In order to deliver a disclosure document in parts:

• the required “risk warnings” must be provided to the franchisee first;
• certain subsets of information must be provided in groups (information about the franchisor, information about the franchise, and lists of franchisees);
• the franchisor must include a specifically-worded statement at the beginning of every document which is intended to form part of the disclosure document; and
• the signed certificate of the franchisor must be included with the last part of the disclosure.

The 14-day cooling off period will only begin once the last document has been delivered to the franchisee. However, prior to the end of the 14 day cooling off period, franchisors may nevertheless accept a fully refundable deposit of up to 20% of the initial franchise fee, to a maximum of $100,000.

Franchisors may use disclosure documents which were prepared for other jurisdictions, but they must supplement them to bring them into accordance with the Manitoba Act and Regulation. Similarly, franchisors may use financial statements that were prepared for other jurisdictions using generally accepted accounting principles other than those set out in The Canadian Institute of Chartered Accountants Handbook – Accounting. However, they must include a statement in the disclosure document indicating this.

Those familiar with Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 regulation should be aware of the following miscellaneous differences between the two regulations:

• the specific form and wording of the certificate, risk warnings, and statement of material change have been altered, though they are substantially the same;
• the disclosure document may be delivered by electronic means. Electronic delivery is acceptable so long as the documents do not include any hyperlinks, i.e. the final disclosure document must be self-contained and printable;
• the exemption from providing financial statements is slightly relaxed in the Manitoba Regulation. Franchisors who have operated 25 or more franchisees in the preceding 5 years in a jurisdiction other than Canada may be eligible for the exemption. However, the Manitoba Regulation requires franchisors to include a statement in the disclosure document if they intend to rely on any such exemption;
• franchisors are only required to disclose information about administrative orders and proceedings and civil proceedings against them from the preceding 10 years;
• the disclosure document must include information about operations manuals, “other fees”, and any guarantees or security interests franchisees will be required to provide;
• the disclosure requirements for earnings projections are considerably more specific and slightly more onerous in the Manitoba Regulation;
• franchisors must disclose their territory policy with regards to internet sales, telephone sales, catalogue sales or sales by other means;
• franchisees must be warned that they may have to obtain additional licenses in their jurisdiction and should thoroughly research the applicable laws; and
• if earnings statements, training, manuals, or exclusive territory are not to be provided to franchisees, the franchisor must include a statement indicating that they do not provide them.

The Regulation is currently in the public consultation phase, during which time the government of Manitoba is accepting comments from stakeholders. If you have any questions or wish to make comments to the government on the proposed Regulation, please contact John Sotos (jsotos@sotosllp.com), Peter Viitre (pviitre@sotosllp.com) or John Yiokaris (jyiokaris@sotosllp.com).