January 31, 2012

Ontario Court provides helpful guidance on franchise financial forecasts

On January 3, 2012, in Healy v. Canadian Tire Corporation, the Ontario Superior Court of Justice provided guidance on the care that a franchisor should take when preparing and providing financial forecasts to franchisees. The Court concluded that a franchisor is not liable to a franchisee simply because forecast targets are not met. The forecast must fall outside a “range of reasonableness,” or a “range of acceptable opinion” before a franchisor may be liable for incorrect financial forecasts.

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.