The following case decision is a cautionary tale for any party confronted with an anticipatory breach or repudiation of a contract—in layman’s terms, when it becomes clear before the end of the contract terms that one party will not fulfill their side of the agreement. These principles were recently applied by the Ontario Superior Court of Justice in Caivan (Creekside) Limited Partnership et al. v. Logoteta et al.,[1] a summary judgment decision involving a failed pre-construction real estate transaction.

A mere acknowledgement of repudiation, or even an internal belief that the agreement is over, is insufficient. Unless the non-repudiating party clearly communicates its acceptance of the repudiation within a reasonable time, the contract remains in force. As this case illustrates, silence can have serious and costly consequences.

Although the dispute arose in a residential real estate context, the Court’s reasoning has broad application across commercial agreements. In particular, it carries important lessons for franchise systems and supply or distribution relationships, where franchisors, franchisees, and suppliers frequently confront defaults, payment issues, and threatened non-performance.

The Facts

In June 2022, the defendants entered into an agreement of purchase and sale with the plaintiffs to buy a pre-construction townhouse in Oakville for approximately $3.31 million, with completion anticipated in July 2024. The defendants paid an initial deposit of $100,000 but failed to make subsequent required payments in August and October 2022, due to difficulties selling their home in the United Kingdom.

The plaintiffs granted an extension to November 10, 2022, warning that failure to pay could result in termination. On November 8, 2022, the plaintiffs advised that if payments were not made by 5 p.m. on November 10, they “will move to terminate the Purchase Agreement and all deposits shall be forfeited.” However, the plaintiffs also stated that if the defendants later became able to make payment and the house remained available, they were “willing to consider in good faith reviving the transaction,” including crediting the forfeited deposits towards the purchase.

The payments were not made by the deadline. Despite their prior warnings, the plaintiffs took no steps to actually terminate the agreement or communicate any acceptance of the defendants’ repudiation.

Several months later, in March 2023, while the agreement remained technically in force, the plaintiffs resold the property to a third party at a lower price. When the defendants subsequently inquired about reviving the transaction, the plaintiffs asserted that the agreement had already been terminated and sought damages. The defendants countered that the resale constituted a breach and demanded the return of their deposits.

The Decision

The Court reaffirmed the settled law on anticipatory breach repudiation does not terminate a contract unless and until the innocent party clearly accepts it. While acceptance may be communicated expressly or inferred from conduct, it must be clear, unequivocal, and communicated within a reasonable time.

The plaintiffs relied on Cachet Summerhill Developments Inc. v. Kaznlson,[2] where the Court termination based on mandatory and unequivocal language stating that the agreement “shall be declared null and void” unless performance occurred. In contrast, the communications in this case fell short.

Here, the plaintiffs’ October 31 and November 8, 2022 letters did not effect termination. Statements that the vendor “shall have the right” to terminate, or “will move to terminate,” contemplated future steps rather than an immediate and final election. Further, by expressly inviting the defendants to revive the transaction if payment later became possible, the plaintiffs affirmed the contract.

When the defendants failed to pay on November 10, 2022, the plaintiffs were required to make a fresh election, either to terminate or to continue with the agreement. They did neither. Their silence meant the repudiation went unaccepted and the contract remained alive.

By reselling the property in March 2023, the plaintiffs rendered themselves incapable of performing the agreement. In doing so, the “tables turned”: the plaintiffs became the breaching party. The Court held that the defendants were therefore entitled to the return of their deposits, with interest.

Why This Matters for Franchise and Commercial Relationships

This decision carries particular significance for franchise systems. Franchisors often grant indulgences, extensions, temporary forbearance, or informal accommodations to struggling franchisees or suppliers. While commercially understandable, such indulgences can inadvertently affirm the contract and eliminate the ability to later rely on an earlier repudiation.

Similarly, communications that reserve rights, threaten future termination, or continue to press for performance may prevent a franchisor (or franchisee) from later asserting that the agreement was already at an end. In commercial relationships failing to clearly accept repudiation can expose parties to unexpected liability.

Key Takeaways

At the core of the decision is a long-established principle of contract law: a repudiatory breach does not, by itself, bring a contract to an end. Termination depends not on the breaching party’s conduct, but on the clear and unequivocal election of the innocent party to accept the repudiation.

The key takeaways of this case are as summarized:

• Repudiation alone does not terminate a contract. Termination requires a clear and unequivocal acceptance by the “innocent” (non-repudiating) party.
• Termination cannot be unilateral or internal. A belief that an agreement is over has no legal effect unless communicated.
• Granting indulgences carries risk. Courts may infer that a party willing to extend time once may do so again.
• Pressing for performance affirms the contract. Once affirmed, the right to accept the repudiation is lost.
• Silence can be fatal. Where there is still time for the defaulting party to cure, inaction may leave the contract alive and shift breach risk to the innocent party.

For franchisors, franchisees, and commercial actors alike, the lesson is clear: when faced with repudiation, contact counsel, decide, and communicate, quickly and decisively. Silence is not termination.

About the Author

Sara Ray Ramesh is a litigation associate at Sotos LLP.  Prior to joining Sotos, Sara gained valuable experience as a summer and articling student at a national full-service law firm in Toronto. Sara has worked on a wide range of litigation matters spanning various practice areas, including general commercial litigation, construction law, and regulatory proceedings. She can be reached at 416.572.7306 or srayramesh@sotos.ca.

[1] 2025 ONSC 1875.
[2] 2021 ONSC 2512.

This article originally appeared in the Canadian Franchise Association’s Legal Digest column. 

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Investors increasingly buy shares in companies that trade on the exchanges of multiple countries. Capital markets are global — Canadians wish to invest in foreign companies and foreign companies wish to raise capital from Canadians.

When disclosure is incomplete or misleading, the legal response in Canada — unlike the U.S. — can be global too. A shareholder who bought on a U.S. exchange can still sue in a Canadian class action, and an asset manager may need to evaluate recovery options in more than one jurisdiction.

Shareholder rights in the U.S. are more geographically constrained. Specifically, investors can only seek recovery in U.S. federal court for losses related to shares purchased on a U.S. exchange.

In Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), the U.S. Supreme Court adopted a bright-line, transaction-based limit on the reach of U.S. federal securities law, limiting its reach to, “the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.”

The practical effect is that U.S. cases are tethered to U.S.-exchange purchases and domestic transactions.

That rule narrows who gets access to U.S. courts, even when the alleged misstatements are the same, the disclosure was global and the harm was widespread. It also means that many investors holding cross-listed stocks — who purchased shares on both U.S. and non-U.S. exchanges — are unable to seek full recovery in U.S. courts alone.

The Canadian approach

Ontario, where most Canadian securities class actions are filed, has specifically rejected the U.S. exchange-based rule for jurisdiction in securities class actions.

Instead, Ontario courts focus on whether there is a “real and substantial connection” to the province. That could include being listed on a Canadian exchange, having significant operations in Canada, etc.

Applying this flexible standard, Ontario courts have certified classes that reach far beyond Canadian borders.

If a real and substantial connection exists, the court may certify a class that reaches beyond Canadian residents and beyond Canadian exchanges. The practical result for investors who have purchased shares on both a Canadian exchange and a foreign exchange — U.S. or otherwise — is that they can seek full recovery in a single proceeding in Canada.

Ontario’s long-arm jurisdiction

In Longair v. Akumin Inc., 2024 ONSC 3675, the court dismissed outright arguments that a proposed class action should be limited to shares purchased on a Canadian exchange, or that respect for foreign courts requires Ontario to step back in favour of a “place of trading” norm.

The relevant shares were traded on the Toronto Stock Exchange and NASDAQ. The core points include:

• Ontario securities law does not contain a “place of trading” limitation.
• Ontario courts can exercise “long-arm” jurisdiction where the defendant has a real and substantial connection to Ontario.
• There is no norm requiring these claims to be heard only where the securities traded.

Akumin Inc. is part of a broader trend — Ontario courts are prepared to certify classes that include foreign-exchange purchasers when Ontario has a close connection to the issuer and the dispute. The courts manage overlap issues through case management rather than by adopting the bright-line exchange-based approach relied on by the U.S. Supreme Court in National Australia Bank.

Claims listed exclusively on foreign exchanges

Akumin Inc. confirmed that with a cross-listed issuer, foreign claimants could bring their claims related to shares purchased on a non-Canadian exchange in an Ontario court. However, this is not the limit of the kinds of claims Ontario courts will hear.

A company listed exclusively on a foreign exchange may be sued for alleged misrepresentations in its disclosure in an Ontario securities class action even if it is not listed on any Canadian exchange.

Abdula v. Canadian Solar, 2015 ONSC 53 confirmed that an issuer listed on a foreign exchange can still face an Ontario securities class action if it has a sufficiently close connection to Ontario. Canadian Solar, incorporated under the Canadian federal corporate statute, was listed on the NASDAQ and less than 4% of its shares were beneficially owned by Ontario residents.

Listing on a foreign exchange does not bar a Canadian class action if the company’s operations establish a meaningful connection to Canada.

The location of the underwriter

In Kamrani-Ghadjar v. Anaergia, 2025 ONSC 2167, the court confirmed that for IPO misrepresentation claims, it is irrelevant whether the selling underwriter was domestic or foreign. Anaergia included both secondary market claims (claims related to freely trading shares) and IPO claims (claims relating to newly issued shares).

Some of the underwriters for the IPO claims were Canadian and others were non-Canadian. The defendants argued that non-Canadian underwriters should be excluded. The court disagreed, holding that it did not, “see why a global class should exclude purchasers who bought from non-Canadian underwriters ”

For investment advisors, this raises important investor protection considerations with direct client service implications. Clients with concentrated positions in companies that are defendants in a class action may receive notices from more than one jurisdiction, and may need to consider which proceedings to participate in.

This is also a governance issue for portfolio managers and institutional investors. A fund may need a litigation participation policy and process for: (i) mapping trading history by exchange, (ii) tracking parallel Canadian and U.S. proceedings and (iii) deciding whether to remain in one class, participate in both where possible or opt-out strategically depending on the claims, available damages and the proposed releases.

Three takeaways:

1. Canadian jurisdiction is connection-driven, not exchange-driven. Akumin Inc. reinforces that Canadian courts have specifically rejected National Australia Bank’s exchange-based logic.
2. Foreign-exchange purchasers may still be liable in a Canadian lawsuit. Canadian Solar remains a strong example of Ontario courts’ willingness to hear claims where the issuer has a “real and substantial connection” to Ontario.
3. Foreign underwriters may be liable in a Canadian lawsuit. As underscored in Anaergia, other capital market participants like underwriters, even those situated abroad, may also find themselves before Canadian courts defending securities misrepresentation claims.

Part 2 of this series will look at the next set of practical differences between Canadian and U.S. securities class actions: thresholds to proceed, liability for misleading forecasts and projections and how damages calculations can diverge across the border.

This article originally appeared in Investment Executive. 

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Franchise systems typically derive much of their value from information—the systems, processes, data, know-how and relationships that distinguish them in the marketplace. This blog series explores how Canadian law protects those intangible business interests, where the limits of that protection lie, and what franchisors can do—proactively and reactively—to safeguard them.

When Sotos LLP assists franchisors in designing or refining their franchise systems, we offer a tailored audit of their intellectual property to ensure it’s properly protected. This proactive service helps identify potential vulnerabilities and establish safeguards, supporting the long-term value and success of our clients’ systems.

Why Confidential Information Matters

For many franchise systems, confidential information constitutes the core of the business. Operation manuals, pricing strategies, supplier terms, customer data, marketing plans, technical data, and proprietary systems and know-how are often what make a brand scalable, defensible, and valuable.

Yet confidential information is also uniquely vulnerable. Unlike physical assets, it can be copied instantly, transmitted invisibly, and misused long after a relationship ends. Canadian law does protect confidential information, but that protection is not always automatic. It can depend on how the information was created and controlled.

Protecting confidential information is important not only because of its value to the franchisor’s business, but also because the consequences of a breach may extend beyond the immediate actor. In some circumstances, a franchisee’s improper disclosure of customer or system information may expose the franchisor itself to legal and/or reputational risk.

This first post in the series provides a foundational overview: what counts as confidential information, how does the law protect it, and what should franchisors be thinking about now to reduce risk later.

What Is Confidential Information?

At a high level, confidential information is information that courts have described as having a “quality of confidence about it”. To determine whether information possesses this quality, consider the following non-exhaustive list of factors:

• The extent to which the information is known outside the franchisor’s business;
• The extent to which it is known by corporate employees and/or franchisees and others involved in the franchisor’s business;
• The extent of measures taken by the franchisor to guard the secrecy of the information;
• The value of the information to the franchisor and its competitors;
• The amount of money or effort expended by the franchisor in developing the information; and
• The ease or difficulty with which the information could be properly acquired or duplicated by others (e. by their independent endeavours).

Against that backdrop, and speaking generally, the more resources and skill expended to create the information, the greater the market value of the information, and the more comprehensive a franchisor’s efforts to safeguard the information, the more likely that information will be considered to be confidential, and thus capable of protection.

How Does the Law Protect Confidential Information

Unlike statutory protections for intellectual property such as trademarks or patents, confidential information is primarily safeguarded through the common law in Canada. There is no comprehensive legislative framework for the protection of confidential information. Instead, remedies for misuse are developed through established common law principles.

When a franchisor’s confidential information is misappropriated, the law offers several avenues for redress, often including requests for urgent injunctive relief to prevent further damage. Common legal claims for the protection of confidential information include:

• Breach of Confidence. A franchisor may bring a claim for breach of confidence when it can demonstrate that the information in question is confidential in nature, was disclosed in circumstances where an obligation of confidentiality existed, and has been improperly used or disclosed. In the franchise context, this commonly arises where a franchisee or former employee seeks to use proprietary information—such as trade secrets, operations manuals, supplier lists, or customer lists—to benefit a new or competing venture.
• Breach of Contract. A franchisor may also pursue a breach of contract claim if the defendant has violated a specific confidentiality provision agreed upon in a contract. For example, franchise agreements often include clauses that impose an explicit duty of confidentiality on franchisees. A breach occurs when the defendant improperly discloses, uses, or misappropriates confidential information contrary to the terms of its contractual obligations. Given the nature of franchise relationships, this often arises when a franchisee uses confidential system information to create or help others create a competing business.
• Breach of Fiduciary Duty. In certain business relationships, a fiduciary obligation may exist, such as between a senior executive and a franchisor. A breach of fiduciary duty claim arises when a fiduciary misuses confidential information entrusted to them in a manner that undermines the interests of the beneficiary. For example, if a senior executive leaves a franchise system to join or start a competitor, and in doing so improperly utilizes or discloses confidential information gained during their tenure, this constitutes a breach of their fiduciary duty. The franchisor may seek damages or injunctive relief to prevent further misuse of the confidential information.
• Unjust Enrichment. Where a party has improperly benefited from the misuse of confidential information, a claim for unjust enrichment may be available. This claim seeks to prevent the party from retaining the illicit benefits derived from the misappropriation. In the context of a franchise system, unjust enrichment claims may be brought if a former franchisee uses proprietary business methods, marketing strategies, or customer information to establish a competing business and gain a financial advantage at the franchisor’s expense. The court may order the return of any unjust profits or impose equitable remedies to remedy the wrongful benefit.
• Copyright Infringement. There is often an overlap between confidential information and information protected by copyright. Copyright protection arises automatically when an original work is created and fixed in a tangible form. Where a confidential work is also subject to copyright, the unauthorized reproduction, use, or distribution of that work may give rise to statutory claims for copyright infringement, in addition to any common law remedies available for misuse of confidential information. For example, a third party that copies or adapts a franchisor’s operations manual for use in a competing franchise system may be liable for copyright infringement.
• Potential Criminal Liability. The Criminal Code also provides for criminal sanctions in cases of the improper disclosure of trade secrets under sections 391(1) and (2). While criminal charges are infrequently pursued in the context of confidential information breaches, they remain an option where the conduct crosses the threshold of dishonesty or fraud.

How Can Franchisors Protect Their Confidential Information?

While later posts in this series will address specific risk areas, several high-level principles apply universally.

• Identify What Matters. Not all information warrants the same level of protection. Franchisors should clearly identify what information is confidential, who needs access and who does not, and whether sufficient systems are in place to protect information from inadvertent or improper disclosure.
• Use Clear, Enforceable Agreements. Contracts remain a primary, preventative line of defence to breaches. These may include confidentiality and non-disclosure agreements, employment and contractor agreements, and franchise agreements with robust information-protection provisions.
• Limit and Control Access. Access should be need-to-know, supported by passwords and access controls. Clear policies governing use and disclosure should also be in place.
• Act Consistently With Confidentiality. How a franchisor behaves matters. Marking documents as confidential, training staff, and responding promptly to breaches all signal that the information is confidential in nature and deserving of protection.
• Prepare for Exit Events. Departures, whether by franchisees, executives, or employees are high-risk moments. Advanced planning is essential.

How We Can Help

If you have questions about protecting your confidential information or would like assistance assessing your current protective framework, Sotos LLP regularly advises franchisors on these issues and would be pleased to assist.

About the Author

Daniel Hamson, Sotos LLP

Daniel is a partner in the Litigation Department at Sotos LLP. His practice focuses on complex commercial, corporate, and franchise disputes.

Daniel has been recognized for his litigation work and industry expertise. He is listed as “Ones to Watch” in Best Lawyers in Canada and has been named a “Lawyer to Watch” in the Canadian Legal LEXPERT Directory, as well as in the LEXPERT Canada’s Leading Litigation Lawyers. He is also recognized as “Recommended” in Lexology Index: Canada (formerly Who’s Who Legal).

Daniel can be reached directly at 416.572.7303 or dhamson@sotos.ca.

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When it comes to protecting intellectual property in franchising, trademarks tend to dominate the conversation, largely because the franchise system’s name and logo are often the key drivers of brand recognition and success. However, one of the assets in franchised businesses that is often overlooked are copyrighted materials.

What does copyright protect?

In Canada, copyright arises automatically, without formal registration, upon the creation of an original work in a tangible form. Copyright protects the expression, but not the underlying idea. Under Section 3(1) of the Copyright Act, R.S.C., 1985, c. C-42 (the “Act”), copyright grants the owner the exclusive rights to produce, reproduce, publish, perform, communicate, or adapt an original work.[1] This includes the right to authorize others, for example franchisees, to use the work or  material under certain conditions.

Works that are protected by copyright include:

• Literary works (e.g. computer programs, compilation of literary works);
• Dramatic works (e.g. choreographic work, mime, scenic arrangement, cinematographic work, compilation of dramatic works);
• Musical works (e.g. music or musical composition with or without words, compilation of musical works); and
• Artistic works (e.g. paintings, drawings, maps, charts, plans, photographs, sculptures, works of artistic craftsmanship, architectural works, compilation of artistic works).[2]

While copyright arises automatically, there are benefits to registering copyright with the Canadian Intellectual Property Office (“CIPO”). Once the application is submitted and the application fee is paid, a registration certificate and registration number will be issued to the applicant within seven business days.[3] The certificate is deemed presumptive evidence that the registered owner owns the copyright.  It can be beneficial in litigation proceedings and in warranting ownership of the copyright to prospective licensees of a work.

How does copyright apply in the context of franchising?

Although registration is not required, registering copyright can be useful in the franchising context. One of the basic premises of the franchise model is that, in return for ongoing payments, the franchisee receives the right to use some of the franchisor’s intellectual property, subject to certain conditions. This includes everything from training manuals, advertising and promotional materials, website content, proprietary software, computer software, menus, newsletters to employees or customers, and operations manuals.[4] Obtaining a copyright registration for these materials helps to ensure that there is no unauthorized use of the materials including by terminated franchisees.  It also allows the franchisor to enforce its rights more effectively and to ensure that it has the exclusive right to commercially benefit from the use of the materials.

Canadian franchise law does not specifically regulate copyright. However, the disclosure requirements under the provincial franchise legislation can be interpreted as requiring franchisors to describe all intellectual property licensed to the franchisee.[5] Franchisors should ensure that their franchise disclosure document clearly articulates who owns the copyright. For example, if a third party contractor has been hired to create the materials (such as the training materials, software, or brochures), the contractor, as the author, owns the copyright and not the franchisor. To avoid any future disputes, the franchisor should ensure that it obtains a fully executed assignment of the ownership of the materials or an exclusive licence to use the materials.[6]

What is the importance and benefit of copyright protection for franchisors?

There are compelling reasons for franchisors to register a copyright in their materials. Copyright registration serves as strong evidence of ownership and ultimately provides a creation date, which is invaluable in the event of a future dispute. It also strengthens enforcement efforts, making it easier for franchisors to stop the unauthorized use of the materials and to pursue infringement claims more effectively. This helps to prevent any misuse of the brand’s materials and intellectual property which could damage the brand’s reputation or result in a financial loss. Additionally, it is important to include clear copyright provisions in franchise agreements by defining ownership and the permitted uses allowed by the franchisee. This can help to lower the risk of disputes or litigation arising from the improper or unauthorised use of materials.

Beyond the legal and financial advantages, effective copyright registration and protection supports the foundation of a successful franchise – brand consistency. Franchisors require that all of their locations are uniform in appearance and presentation so that customers receive the same experience, regardless of where they interact with the brand. One of the primary ways to achieve this uniformity and consistency is by franchisors allowing franchisees to use their intellectual property, and specifically the franchisor’s copyrighted material. The distribution of proprietary characters, music, logos, marketing materials, training materials, digital content, uniforms, menus, and even store layouts contributes to maintaining that uniformity. Protecting these assets not only maintains specific quality and standards but also fosters customer trust and loyalty, which helps to reinforce brand reputation and contributes directly to the franchise system’s growth.

Copyright protection can provide franchisors with a competitive advantage and provide an additional revenue stream through licensing the proprietary materials in certain circumstances. A well-protected copyright portfolio can enhance the marketability of the franchise system itself, making it more attractive to prospective franchisees, investors, and partners, all of whom value a well-protected and unique brand. Safeguarding copyright is not just about compliance, but is essential for protecting reputation, deterring infringement, and securing long-term success.

Conclusion

For Canadian franchisors, effective copyright management is essential to protecting some of the core elements of its franchise system. These are assets of their business that require protection, and copyright should therefore be part of the discussion when establishing their franchise system and drafting their franchise agreement and disclosure documents.

At Sotos LLP, our intellectual property team provides full-service, practical support across all aspects of IP protection. We can assist not only with registering your copyright, but also with developing and implementing copyright and trade mark strategies, conducting IP audits, preparing and negotiating licensing and data-sharing arrangements, and enforcing your rights through opposition, infringement, counterfeit, and other litigation proceedings, so that your brand and proprietary materials are properly protected as your franchise system grows.

About the authors

Anna Thompson-Amadei is an associate at Sotos LLP whose practice includes advising clients on trademark and other intellectual property protection, aligning practical brand protection strategies with the growth and day to day needs of their business.

Bailee Kleinhandler is an associate at Sotos LLP in the corporate and commercial group and is building a diverse practice in corporate and franchise law.

[1] Copyright Act, RSC, 1985, c C-43 at s 3(1).

[2] Ibid at s 2 and 5(1).

[3] Government of Canada, Canadian Intellectual Property Office, How your application for registration of a copyright is processed (August 7, 2022). https://ised-isde.canada.ca/site/canadian-intellectual-property-office/en/copyright/how-your-application-registration-copyright-processed.

[4] Valerie Brennan, “Copyright Protetion for the Franchised Business” (2024) 43:4 Franchise L.J. at 32.

[5] Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c 3 at s 5(4).

[6] Copyright Act, RSC, 1985, c C-43 at s 13(4).

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Background

David and Elizabeth planned to go skiing at resorts north of Toronto. When they were purchasing their tickets, they signed the ski resorts’ respective waivers of liability for injuries they might suffer at the resorts. They went skiing but both had accidents. They sued the ski resorts for their damages.

The question became whether the waivers of liability that David and Elizabeth had signed were valid.

Two competing pieces of legislation applied to their circumstances. David and Elizabeth were consumers as defined under Ontario’s Consumer Protection Act (“CPA”). They were also persons entering the resort premises for which the ski resorts were responsible. Therefore, Ontario’s Occupiers’ Liability Act (“OLA”) also applied.

The Court of Appeal’s Decision

The two statutes could not be reconciled: the CPA states generally that waivers of liability or warranty are void with respect to consumers. The OLA permits waivers of liability with respect to certain premises onto which other persons enter.

The Court of Appeal decided that because the language used in the OLA was more specific than the CPA, the OLA should govern. Therefore, the waivers of liability were valid under the OLA and not void under the CPA.

In making its decision, the Court of Appeal considered the original legislative intent underlying the waivers provision in the OLA. The goal was to encourage private landowners to make their properties available to others for recreational use without allowing the fear of liability to get in the way. On the other hand, the Court found no intent in the history of the CPA to show that the legislature intended to ban a waiver of the duty of care towards visitors of premises that are captured by the OLA.

Significance of the Decision

The Court’s decision will have significance for many businesses especially those offering play, sports, and recreational services. If properly drafted and presented, waivers that are given by the consumers of such activities will provide a defence to owners or operators of such businesses. Lawyers at Sotos LLP regularly advise business operators in the restaurant and hospitality industry as well as sports and recreational enterprises on all aspects of their liability towards their customers and staff.

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In particular, PIPEDA requires compliance with the ten key privacy principles of the Model Code for the Protection of Personal Information developed by the Canadian Standards Association.  One of the fundamental principles is openness and requires organizations to provide information to the public about policies and practices relating to the management of personal information. The openness principal requires businesses to include information on who is accountable for the organization’s policies and practices and to whom complaints can be forwarded. Details on gaining access to personal information, a description of the type of personal information held by the organization, and disclosure of personal information made available to related organizations, must also be provided.

While establishing a privacy policy is an obligation under PIPEDA, it is also key to building trust with consumers. A company’s approach to privacy can either build or hamper consumer confidence in a company. In fact, various studies have established a link between a company’s privacy policy and consumer trust. Yet, many businesses do not dedicate sufficient resources or time to developing an effective privacy policy.

In 2013, the Office of the Privacy Commissioner of Canada (OPC), the mandated guardian of privacy in Canada responsible for enforcing PIPEDA, participated in an international privacy sweep which involved assessing the online privacy policies of Canadian businesses. The sweep found major shortcomings in the privacy policies of Canadian businesses, ranging from no privacy policy at all to lengthy and overly legalistic policies. Five years later, businesses’ privacy policies remain a key area of concern in the minds of stakeholders and from the perspective of the OPC.

Finding information on a business’s privacy practices usually involves scrolling to the bottom of the business’s website homepage and clicking on a link that takes you to the business’s privacy policy. Oftentimes, consumers skip over online privacy policies due to their length and complexity. Yet, privacy laws require consumers to understand what they are consenting to and online privacy policies are often a key (and only) mechanism for obtaining informed consent.

When privacy policies are overly technical, legalistic, or lengthy, they hinder the intention behind establishing a privacy policy in the first place. By the same token, when privacy policies are a few sentences in length, they cannot possibly provide a consumer with sufficient information to make a meaningful decision regarding consent. There is an obvious balancing act between establishing a clear, user-friendly privacy policy and ensuring that sufficient information about the collection, use, and disclosure of information is provided.

In finding the appropriate balance between user-friendliness and providing sufficient information, practical guidance can be gleaned from reviewing the published summaries of investigations conducted by the OPC on businesses’ privacy practices. For instance, in one investigation, a web-based company learned that it must identify specific retention periods and the reasons for such retention periods (for instance, disclosing the fact that contact information is retained for 7 years to comply with the Income Tax Act). In another investigation, an airline company learned that it must inform customers through its privacy policy that it may provide personal information to third parties contracted to perform functions on its behalf (in the case of the airline company, information was shared with a third party to conduct surveys on behalf of the airline). Such lessons can be useful for businesses trying to determine what information to include and what level of detail is required in their privacy policies.

Beyond information contained in OPC investigations, the OPC has published a wealth of information, including guidelines on establishing an effective privacy policy as well as a helpful privacy toolkit for businesses.  Most recently, consultations wrapped up on OPC guidelines for obtaining meaningful online consent. In its draft guidelines, the OPC has developed seven key guiding principles for online consent, which include:

(1) emphasizing key elements about the collection, use, and disclosure of personal information;

(2) allowing individuals to control the level of detail regarding information practices by presenting information in a layered format;

(3) providing consumers with a clear option to say “yes” or “no”;

(4) being innovative (i.e. no one-size-fits all approach);

(5) considering the consumer’s perspective by making the information user-friendly;

(6) ensuring the effectiveness of consent processes, and

(7) making consent an ongoing process.

The development of these guidelines stem from recognition that establishing privacy policies and obtaining meaningful consent from consumers is becoming increasingly challenging in this digital age.

While determining how to present information on privacy practices may be somewhat challenging and, at times, unclear, what is clear is that a business’s privacy policy should not be a standard, one-size-fits-all document lacking real substance. A privacy policy should reflect a business’s actual practices, mechanisms, and measures put in place on the collection, use, and disclosure of customer information.

An important component and starting point for businesses integral to the development of a privacy policy is the appointment of a privacy officer. Businesses governed by PIPEDA are required to appoint an individual responsible for privacy management – this is an element of the accountability principal contained in the Model Code for the Protection of Personal Information. A privacy officer should not simply be a title without substance or integrity. Instead, a privacy officer’s role is vital to establishing accountability within an organization. Developing a privacy program involves training employees and ensuring that procedures are in place to protect personal information and respond to complaints. In turn, a business’s privacy policy is its declaration to consumers that it has implemented an effective privacy program and has carefully considered the manner in which personal information will be handled.  Accountability, as established through the development of a privacy program, goes hand in hand with openness, achieved through the availability of a company’s privacy policy.

When accountability and openness related to privacy practices are not built into the fabric of an organization, the risk of a privacy breach and related erosion of consumer confidence, is high. Privacy breaches and the ineffective response to a privacy breach can destroy consumer confidence and cause serious damage to a brand. Take, for instance, the recent example of the Uber 2016 data hack involving the personal information of millions of users across the globe, which was only disclosed in late 2017 after an initial cover-up by the company.  Uber’s failure to disclose the data breach has led to government investigations, lawsuits, and the erosion of consumer trust.

Growing concerns over the handling of Canadians’ information have led to OPC recommendations to strengthen enforcement mechanisms, including disclosure of breaches and fines for non-compliance.  While such measures, if introduced, may persuade more businesses to ensure they are compliant with privacy laws, the biggest incentive for business should be their long-term viability which depends, in large part, on consumer trust. Businesses depend on consumer confidence to forge ongoing loyalty to a brand.  One poorly handled data breach can destroy a brand.

Given the importance of privacy in an increasingly digital world, companies ought to carefully consider their privacy policies. Establishing an effective privacy policy that is backed up by meaningful internal procedures and practices makes sense from a business perspective. Developing a clear privacy policy is a mechanism for building trust with consumers; it is an opportunity for a business to show that it values, and understands the importance of, the privacy of its consumers.

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Canada has one of the most robust privacy regimes in the world. Recent amendments to its anti-spam legislation (CASL) demonstrate the strict approach taken towards the safeguarding of personal information and individual privacy – key considerations for any e-commerce strategy. The CASL amendments have strengthened the law around the sending of unsolicited e-mail and other communications (i.e. SPAM) by requiring that recipients provide their consent to being contacted. Canada’s federal privacy statute, the Personal Information Protection and Electronic Documents Act (PIPEDA), which regulates the collection, use and dissemination of personal information, requires e-commerce participants to have privacy policies in place, and to appoint privacy officers to address consumer complaints. Gone are the days of companies collecting vast amounts of personal data and freely using it to market and promote to consumers. In order to do business online, however, retailers must collect personal information, such as names, addresses, e-mails, phone numbers, financial information, and the like. The limited use and safeguarding of that sensitive data is a key consideration for any online business. Grocers are just the latest example of industry participants competing for market share via e-commerce, and in doing so, should ensure they have adequate legal strategies in place to address the implications of transacting online.

Online retailers also face new challenges in digital advertising and marketing. In light of the global reach of online communications, traditional legal considerations for in-store advertising are no longer sufficient. The cornerstone of advertising law is a prohibition on false, deceptive, and misleading ads. In retail, consumer complaints often centre on misleading pricing or promotions. In the online realm, ask yourself whether it is misleading to advertise US dollar prices to Canadian consumers. Must a website be viewed in Canada for a consumer to be considered “Canadian”? Must advertised pricing cater to the location of the viewer? These are some of the complex questions facing traditional retailers looking to establish a foothold in e-commerce.

Last year, the Ministry of Health and Long-Term Care launched its “Healthy Eating” strategy, which includes proposed restrictions on advertising certain foods and beverages to children.  It might, however, prove difficult for authorities to determine whether an ad is targeting children. In the past, ads appearing on weekend morning television were relatively easy to identify as targeting children, while those appearing on late-night television or in the newspaper were often deemed to be adult-oriented. In the online era where people of all ages have access to internet content, identifying the target audience has become increasingly complex, thereby making it difficult for advertisers to comply with applicable laws.

The regulation of e-commerce happens at two levels: the federal government primarily handles aspects relating to privacy and the internet, while the provinces are responsible for local commerce and consumer protection.  This multi-layered governance structure combined with the unique issues facing online retailers requires a thoughtful legal approach and carefully planned out e-commerce strategy for grocers – the latest example of a traditional industry looking to do business online.

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Registering a trademark gives you the exclusive right to use that trademark in association with the goods and/or services described in your registration across Canada, even in regions of the country where your mark is not currently being used. It also puts everyone in Canada on notice that you are the owner of that trademark. For these reasons and more, it is generally advisable to register a trademark when you are using or are planning on using one.

There are many different types of trademarks that can be registered, and a person can easily find themselves at a loss for what type of application to file. The basic approach, however, is simple: think about what you want to protect, and file accordingly. How do people identify your goods and services?

The Canadian Intellectual Property Office currently allows words, designs, sounds, and three dimensional objects to be registered as trade-marks.  In addition, trademark laws will soon be amended to allow for the registration of holograms, motion marks, and trademarks applied in a particular position on a three-dimensional object.

There is also a curious beast known as the “distinguishing guise.” A distinguishing guise is essentially a shaping of goods or their containers, or a mode of wrapping or packaging goods. Examples are the distinctive shape of a bottle of Heinz ketchup (UCA001117) or the triangular shape of a Toblerone bar (TMA562648). These too can sometimes be registered as trademarks.

Business and product names are easy. Suppose you decided to name your new brand of running shoes “Nike”. To protect this name you would simply register a trademark for the word NIKE. That would protect you from imitators marking their shoes with the word “Nike” as well. (For those interested, Nike International, Ltd.’s real trademark is TMA205933 in Canada.)

Logos can be straightforward too. Suppose the logo for your new shoe brand was a “swoosh” symbol like the following:

This swoosh symbol appears on the sides of all of your running shoes. In that case, you would simply register a trademark for the swoosh design, i.e. a design mark. That registration would prevent imitators from putting swoosh-like logos on their shoes. (Again, the swoosh logo is of course a registered trademark of Nike International, Ltd. TMA657404).

Things get complex when logos have words in them. Consider, for example, registered trademark TMDA010433 which is owned by Coca-Cola Ltd.:

Remember, this is a design mark, not a word mark. The trademark above does not protect the name “Coca-Cola.” Rather, it protects the style of text the designer used. It would, for example, prevent Pepsi from writing the words “Pepsi-Cola” in the same iconic typeface as the Coca-Cola logo.

To protect the name “Coca-Cola,” Coca-Cola Ltd. would need to register a second trademark for the words COCA-COLA. Otherwise, they leave open the possibility of someone using words similar to COCA-COLA and simply changing the design. Registering both the name and the logo precludes the possibility of imitators stealing either the typeface design or the underlying words. (Coca-Cola Co. does in fact own a registered trademark for the words COCA-COLA: TMDA055268).

Our advice for most of our clients is that if they have a distinctive name for their business or product, and it is otherwise registrable, then they should register it as a word mark. Additionally, if their logo has any sort of distinctive or interesting design element to it, then they should register their logo as a design mark as well.

If a logo is simply a name written out in text without any particularly distinctive design elements to it, then it probably is not registrable as a design mark. On the other hand, if the lettering is distinctive somehow, like the Coca-Cola trade-mark above, it may be worth registering. Or, if their name is not registrable for whatever reason as a word trademark, then it may be advisable to register the text as a logo just to get some level of protection.

An old axiom of intellectual property law is “if it’s worth copying, it’s worth protecting.” Consider which elements of your name, logo, packaging, etc. are worth copying. It may guide you towards what types of trademarks you should register.

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When approached with preparedness, renewal negotiations can offer the opportunity to retain a great franchisee and adapt the terms of the parties’ agreement to reflect evolving priorities and changing industry conditions, or, if the arrangement is no longer fruitful, amicably conclude the business relationship.

Conversely, when a franchisor pursues a renewal in an ad hoc manner, the experience can become stormy, whereby the franchisor is unable to steer negotiations towards a beneficial conclusion, resulting in missed opportunities and, at worst, exposure to potential legal liability.

In practice, the renewal process invokes a confluence of often competing “heads” of consideration which can—and should—be contemplated during system design, when the architecture of the franchise agreement, head lease, and other ancillary documents affecting the tenor of any eventual renewal is being conceived. By drafting at this stage with an eye towards process, and in particular through fashioning terms that fit together in chronological lock-step, all while paying due attention to statutory obligations, a franchisor will be adequately prepared to effectively navigate the sometimes uncertain waters of renewal negotiations.

While it is beyond the scope of this article to thoroughly examine any particular head of consideration, or discuss at length the substantial interconnection between each head, the following will provide a high-level map of the significant issues that should be settled as a franchisor seeks to renew, or not renew, a franchise agreement.

I. TERMS OF THE FRANCHISE AGREEMENT

(a) What is the renewal right? As a preliminary step in designing any franchise system, franchisors should contemplate what mechanism for renewal will apply to the parties’ arrangement—an automatic renewal, unconditional or conditional renewal, or one of the numerous other species of renewal. To that end, think of this right like a ship’s hull: It should be the first component designed, it establishes the parameters within which all other renewal terms must fit and, on a practical level, when poorly constructed, it can threaten to sink a prospective deal. Further, at the point of negotiation, and leaving analogies aside, whichever renewal right one chooses will help determine, among other things, whether and to what extent contract terms are negotiable and which party possesses what bargaining leverage.

(b) Notice of intent versus notice of renewal? From a procedural standpoint, franchise agreements typically contain notice provisions, and in particular stipulate rules pertaining to the substance and timing of a notice of renewal required to be delivered by a franchisee. The utility of such terms lies in the commercial certainty they offer by providing confirmation of a franchisee’s agreement to continue the parties’ arrangement into a subsequent term. When drafting such provisions, franchisors should choose their language carefully. All too often, agreements speak instead of a notice of intent in place of a notice of renewal, despite the former being, for practical purposes, procedurally superfluous.

(c) When is compliance assessed? A boilerplate renewal condition found in most franchise agreements requires that the franchisee be in full compliance with the terms of the parties’ agreements. With that in mind, franchisors should investigate when such compliance is assessed—at the time notice of renewal is provided, at the time of the renewal itself, or at some other point? The answer to this question could affect the availability of a franchisee’s right to renew, if default provisions were drafted with foresight, and may provide the franchisor with a useful bargaining chip during the negotiation process.

(d) Conditions or obligations? Franchise agreements regularly contain a host of conditions for renewal that must be satisfied in order for the franchisee to enjoy the benefit of a subsequent term. Some franchisors, however, choose instead to style the same requirements as obligations of the parties’ renewal agreement. The difference between the two approaches is apparent when assessed through the lenses of certainty of performance and enforcement. That is, with respect to conditions, a franchisee has discretion whether and to what extent to fulfill the requirement, but once the parties execute a renewal agreement, the condition is tacitly deemed satisfied. With the latter approach, execution of the renewal agreement confirms the franchisee’s duty to fulfill the obligation, and provides the franchisor with tools to compel performance to a standard to the franchisor’s satisfaction.

(e) Noncompliance or leverage? As touched on above, consider the strategic value of certain procedural or substantive requirements for renewal left unsatisfied by a franchisee. Take, for example, a notice to renew submitted outside the prescribed window—while technically deficient and potentially constituting grounds to disallow renewal, a noncompliant notice can also offer leverage when negotiating an update to the parties’ agreement.

(f) What are the terms on expiry? Given that not all renewal negotiations end up with an inked deal, when drafting post-expiry terms in the initial franchise agreement, there are a myriad of considerations franchisors should pay heed to, for example, whether they anticipate wanting the right to subsequently purchase the franchisee’s assets and how those assets will be valued, as well as the enforceability of restrictive covenants, among other things.

II. TERMS OF THE HEAD LEASE

In certain systems, franchisors require franchisees to contract directly with landlords, thus absolving franchisors of leasing obligations and the headache of coordinating head lease and franchise renewal deals. For the vast majority of franchisors who, for the purposes of having more robust and direct land control, do not follow this practice, there are a number of integral considerations to keep in mind when negotiating a head lease at the outset of system design and at the point of franchise renewal.

For example:

• Will the head lease renewal be conditional upon the franchisor securing a franchisee for a subsequent term? As discussed more fully below under “When to provide disclosure?”, where a head lease renewal is not conditional, due to certain legislative rules regarding the substance and timing of disclosure documents, franchisors may find themselves forced to renew their head lease without the guarantee of a subtenant, risking the possibility of being saddled with vacant premises or an obligation to operate directly if franchise renewal negotiations falter.
• Does the head lease provide for conditions for renewal or obligations upon renewal, and are these requirements similarly styled in the franchise agreement?
• What is the timing and mechanism for setting rent applicable to the new term?

III. STATUTORY OBLIGATIONS

(a) Whether to provide disclosure? Franchisors must pay attention to their statutory obligations in preparing for renewal negotiations. By way of example, Ontario’s provincial franchise legislation requires franchisors to provide a disclosure document to franchisees prior to renewal of the parties’ franchise agreement, subject to a narrow exemption in cases where, among other things, there has been no material change since execution of the franchise agreement or the latest renewal. Where a franchisor fails to meet this exemption yet neglects to provide a disclosure document, the legislation confers on the franchisee an assortment of statutory remedies, including a right of rescission within two years of executing the franchise agreement renewal. The difficulty, of course, is in determining what constitutes a material change.

(b) When to provide disclosure? The question of when to provide disclosure is affected both by procedural and substantive statutory requirements, and is deeply imbricated with the timeline of any simultaneous head lease renewal negotiations. On the point of statutory procedure, franchise laws ubiquitously require a multi-day “seasoning period” between the time disclosure is provided and when the parties may execute an agreement or transfer any funds. From a substantive perspective, provincial franchise legislation obliges franchisors to include in their disclosure documents a copy of the applicable head lease. Together, these two obligations thus mandate that, in practice, a franchisor must have its head lease locked up before it can include it in the disclosure document, which document must in turn be delivered before the franchisee can sign the renewal agreement. A problem arises, however, in situations where the head lease renewal is not conditional upon securing a franchisee—the franchisor must enter into the new head lease without certainty that the franchisee will agree to renew the parties’ arrangement once it has had a chance to consider the disclosure document. While there are solutions to remedy this timing issue, which are beyond the scope of this article, suffice it to say that with sufficient preparation at the time of system design, this dilemma can be safely managed.

(c) What to disclose? Renewals can be, and are often used as, an excellent time to update franchisees to the current form of franchise agreement. A properly drafted franchise agreement contemplates the availability of this option for implementation at renewal. Note that any proposed updated agreement, however, will need to be the subject of disclosure for further consideration by the franchisee.

(d) How does “fair dealing” apply? Another notable statutory obligation that applies to renewal negotiations—the duty of fair dealing (and the related common law concept of good faith, including where no statute applies)—is particularly relevant in instances where the franchise agreement confers upon the franchisor certain discretionary powers exercisable as a condition or obligation associated with renewal (e.g., the power to oblige a franchisee to renovate its premises). Where these powers are vaguely worded, such that the onerousness of the requirement depends upon the franchisor’s discretion (e.g., the extent of the mandated renovation), this statutory duty is engaged. When the exercise of discretion is done in bad faith, or is made in an unfair or unduly burdensome manner, such conduct may offend the statutory duty.

Generally speaking, the statutory duty of fair dealing, which incorporates the common law duty of good faith, requires franchisors to:

• exercise their powers under the franchise agreement in good faith and with due regard to the interests of the franchisee;
• observe standards of honesty, fairness and reasonableness;
• ensure that they do not substantially nullify the bargained objective or benefit contracted for by the franchisee, or causes significant harm to the franchisee, contrary to the original purpose and expectation of the parties; and
• exercise discretion reasonably and with proper motive, and not in an arbitrary or capricious manner.

Knowing whether a franchisor’s conduct has offended the duty of fair dealing, while difficult to assess, is essential to circumscribing commercial risk, as failure to act in accordance with this duty may result in potential legal liability.

IV. CONCLUSION

Renewals are an inevitable part of every franchisor’s business. It is therefore vital to prepare for the seamless continuation or amicable expiry of a franchise agreement by contemplating the abovementioned heads of consideration at the outset of system design. In doing so, and in seeking further advice about the application of these heads to the facts of their particular circumstance, franchisors will be better prepared to identify and leverage tactical opportunities during negotiations, further equipped to close renewals on favourable terms, and more likely to enjoy smooth sailing over the sometimes uncertain waters of renewal negotiations.

The post Navigating the Uncertain Waters of Franchise Renewal Agreements: An Introductory Map appeared first on Sotos LLP.

Accompanying this movement are questions related to how outsourcing via technology platforms impacts the relationship between franchisors and franchisees. A central component of franchising is brand protection and compliance with system standards.  While outsourcing offers many potential benefits, there are also inherent risks.  Reliance on delivery apps places a restaurant’s reputation in the hands of a third party. That third party, in turn, partners with independent contractors to provide delivery services. The deliverer who hands over Chinese takeout to a restaurant’s customer has no meaningful connection to the restaurant (aside from being entrusted with a bag of dumplings), but becomes its temporary representative, along with many others on any given day.

Given the inherent risks, franchisors should have policies in place around partnerships with third party delivery service providers. First, a franchisor’s policy should address whether restaurant partnerships with such third party providers are permitted in the first place. If partnerships with third parties are permitted, then a franchisor must consider whether any third party providers are permitted or only a select few that have been vetted and approved by the franchisor. A franchisor should not only review franchisees’ restaurant partnership agreements, but it should also require that such agreements first be approved by the franchisor.

As an alternative to permitting franchisees to enter into partnership agreements with third party providers, a franchisor may want to consider entering into a direct agreement with a single provider, as McDonalds has recently done with UberEats. This type of arrangement places more control in the hands of the franchisor, amongst other benefits.

In addition to the above, a franchisor’s policy should contemplate how to deal with unhappy customers in the event an order is late, incorrect, or there is an otherwise negative customer experience. Determining the chain of events leading to an unhappy customer in such circumstances may be difficult to ascertain: for instance, was it the restaurant that had a long lineup of orders which led to the delayed delivery, or did the deliverer dawdle before reaching the customer’s apartment? Was the order mix-up due to a technical issue with the app, or was it a mistake made by kitchen staff? Having an established procedure for dealing with customer complaints in such instances is important and should be considered in conjunction with a third party provider’s own procedures.

Determining the root cause of customer complaints may be especially important in cases where franchise agreements contain a termination clause allowing a franchisor to terminate if there are a certain number of customer complaints within a set period of time. If a franchisor is not able to meet the evidentiary burden, it may be unable to rectify chronic service issues.

As a matter of course, a franchisor should reserve the right, at any time to revoke the right of franchisees to enter into partnerships with third party delivery service providers and to require franchisees to terminate any existing partnerships on written notice.  This is important for the purposes of brand protection. If there are repeat customer complaints across the system related to the use of third party apps, or one app in particular, it may be in a franchisor’s best interests to reconsider the right to allow the use of these services. In line with this idea, a franchisor should include in its policy the requirement that franchisees submit monthly reports on the use of third party delivery service providers containing customer reviews and comments.  This will allow a franchisor to track customer complaints over time.

Protection of a franchisor’s brand and reputation is central to its continuing success. The introduction of new technology in the restaurant world offers more options to restaurants, but with more options comes a new set of potential risks.  Having a policy in place regarding the use of delivery apps can help to mitigate risk and reduce franchisor-franchisee conflict. We recommend contacting your legal counsel to assist with you with the development of a delivery apps policy.

At Sotos LLP, we represent leading international and national franchisors.  We can assist franchisors in the development of policies that respond to and address issues involving the ever-evolving world of technology.

See: Food Delivery Apps in Restaurant Franchising: How to Deal with Fees?

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