In Moonable Right Ltd. et al v. Canadian Ice Cream Company Inc. et al., Justice Parghi granted the former franchisee of the defendants’ Marble Slab franchise system nearly half a million dollars in rescission damages after the franchisor failed to provide the plaintiffs with the franchisor’s current financial statements.

The Facts

In February 2021, the plaintiff was considering whether to invest in becoming a Marble Slab franchisee. The franchisor defendant provided the plaintiff with a financial disclosure document, as required by Ontario’s franchise legislation, the Arthur Wishart Act (the “Wishart Act”). As was also required by the Wishart Act, the disclosure document included the franchisor’s financial statements; however, the financial statements provided were for the franchisor’s fiscal year ending 2019 – more than two years old by the time the disclosure document was provided to the plaintiff.

The franchisee elected to become a Marble Slab franchisee and operated a Marble Slab franchise for less than a year, from June 2022 to January 2023. After operating the business at a continuous loss, the franchisee delivered a rescission notice and stopped operating the store in January 2023.

When the franchisor disputed the franchisee’s entitlement to rescind, the franchisee commenced a lawsuit to recover the franchisee’s rescission losses. In the meantime, the franchisee continued to service the small business loan it had obtained to finance its purchase of the franchise and continued to pay rent to its landlord for many months following the franchisee’s delivery of its rescission notice.

The franchisor eventually installed a new franchisee to take over the tenancy and operate as a new Marble Slab franchisee. With the franchisee’s cooperation, the franchisor bought the former franchisee’s equipment from that franchisee’s lender and sold that equipment to the new franchisee.

In the franchisee’s lawsuit, the franchisee sued the franchisor for a declaration that the franchisee’s rescission was valid and for rescission damages of nearly half a million dollars, including the franchisee’s losses incurred following its rescission. The franchisor countersued, claiming that the franchisee’s rescission was unlawful and that the franchisee had, instead, abandoned the franchise in breach of the franchise agreement.

The Decision

Justice Parghi agreed with the franchisee that it was entitled to have rescinded its franchise agreement up to two years from when it had entered into the franchise agreement. The Court held that the franchisee’s entitlement to rescind arose out of the fact that the financial statements it had been provided by the franchisor were older than what was permitted under the Wishart Act.

• Stale Financial Statements Are a Fatal Flaw in Disclosure

The Wishart Act requires of the franchisor to disclose financial statements for the franchisor’s most recently completed fiscal year (or, if a financial statement for the franchisor’s most recently completed fiscal year has not yet been prepared as of the date of disclosure and a “grace period” of 180 days has not yet passed, the franchisor may disclose financial statements for the year previous to the most recently completed fiscal year).

When the Marble Slab franchisor provided disclosure to the plaintiff franchisee in February 2021, the franchisor was therefore required to include in its disclosure document financial statements for its most recently completed fiscal year, being January 2021, or, if those were not yet available, then it was required to disclose financial statements for its fiscal year ending January 2020.

Instead, the franchisor disclosed financial statements for its fiscal year ending January 2019.

The Court followed previous appellate authority in recognizing that the disclosure of stale financial statements constitutes what has been described as a “fatal flaw” in the disclosure; a fatal flaw is a disclosure defect that is so material that, if present, is regarded by the courts as if no disclosure at all was provided to the franchisee.

Interestingly, Justice Parghi asked in obiter (rhetorically) whether a categorical separation of disclosure flaws into “fatal” and “non-fatal” ones can be “properly reconciled with the case-by-case approach” previously mandated by the Court of Appeal.

Her Honour nonetheless found that the stale financial statements disclosed by the Marble Slab franchisor were a fatal flaw that, in and of itself, entitled the franchisee to rescind; she went on to find, however, that even if the stale financial statements were not a fatal flaw, or if the categorical approach were not the correct one, she would nonetheless have found in favour of the plaintiff.

In reaching that conclusion, she relied on evidence that the franchisor’s financial statements for the fiscal year ending 2020, which had not been disclosed to the franchisee, demonstrated that Marble Slab’s financial situation had deteriorated significantly when compared with the financial situation depicted in the 2019 financial statements that had been disclosed. As the Court noted, the 2020 financial statements were already available to the franchisor by the time it provided disclosure to the franchisee in February 2021. The franchisor’s deteriorating financial condition meant that “the out-of-date financial statements provided to the plaintiffs prevented them from obtaining a complete, accurate, and current financial picture.”

The Court declared Marble Slab’s principal, Cameron Inglis, to be a “franchisor’s associate”, which is a person so closely connected to the franchisor that it becomes co-liable with the franchisor under the Wishart Act for the franchisee’s rescission claim.

• Damages

The Court awarded the franchisee $482,043 in damages, payable both by the Marble Slab franchisor and its principal. In its analysis of the franchisee’s damages, the Court made the significant finding that the franchisee’s damages incurred following rescission were properly recoverable, rejecting the franchisor’s argument that rescission damages crystallize as of the moment of rescission.

• The Court’s Rejection of the Franchisor’s Other Arguments

The Court rejected all of the franchisor’s arguments.

The franchisor had argued that the franchisee must have been content with the disclosure provided and could not have felt deceived by it, given that he built the restaurant, negotiated the lease, personally guaranteed the loan, and even indicated a wish to expand to a second location in August 2022.  In rejecting that argument, Justice Parghi reiterated the well-established proposition that the legal test concerning the sufficiency of the disclosure provided is an objective one that does not depend on the conduct of any franchisee, but that instead is concerned only with the adequacy of the disclosure itself.

Justice Parghi also rejected the franchisor’s argument that a franchisee is under an obligation to mitigate its rescission losses.

Finally, Justice Parghi also summarily dismissed the franchisor’s counterclaim, noting that such counterclaims are consistently dismissed when a franchisee’s rescission is upheld.

Key Takeaways

This decision serves as a sober reminder to franchisors that the disclosure of stale financial statements is a fatal flaw in a franchisor’s disclosure obligation, effectively entitling the franchisee to an automatic right of rescission up to two years from when the franchise agreement was entered into.

Franchisors should accordingly verify that the financial statement they are disclosing are sufficiently recent to comply with the legislative requirements. Franchisees should preserve a copy of the disclosure document provided to them and records of any payments and losses they incur in the operation of their business, including those incurred after delivery of a rescission notice.

Franchisors and franchisees who find themselves involved in a rescission claim – and their counsel – should appreciate that the Marble Slab decision has also expressly confirmed important principles concerning rescission damages that were previously only obliquely referred to in earlier court decisions:

• a franchisee’s post-rescission losses are recoverable; and
• franchisees are not under any duty to mitigate their rescission losses, unlike other plaintiffs seeking damages arising from the breach of non-franchise contracts.

Note: Idan Erez and Karine Bédard of Sotos LLP acted for the franchisee in this case.

How Sotos Can Help

Whether you are a franchisee concerned about the adequacy of the disclosure you received or a franchisor responding to a rescission claim, understanding your legal position is essential. Sotos LLP advises on franchise disclosure obligations and represents franchisors and franchisees in disputes involving rescission and related claims.

For advice on the sufficiency of a franchise disclosure document, potential rescission rights or liability arising from a rescission notice, contact Idan Erez at ierez@sotos.ca or 416-572-7314.

About the Author

Idan Erez is a partner at Sotos LLP whose litigation practice focuses on franchise and commercial disputes. Idan is currently serving as Chair of the Ontario Bar Association’s Franchise Law Section and is recognised by Best Lawyers in Canada for Franchise Law and by Franchise Times as a “Legal Eagle”.

The post Ontario Court Affirms That Faulty Financial Disclosure is a “Fatal Flaw”, Entitling the Franchisee to Rescind appeared first on Sotos LLP.

This article is split into three parts and focuses on the mechanics and benefits of RWI in the franchise system M&A context. The first part presents a brief overview of the benefits and utility of RWI in general. The second part discusses the mechanics of a typical RWI policy. The third and final part sets out why franchise systems are an attractive investment, and discusses how RWI can facilitate more efficient and stress-free transactions.

What Is Representations and Warranties Insurance and Why It’s Beneficial?

In short, RWI shifts the risk of purchasing a business from the buyer to a third party insurer in exchange for a price, also known as an insurance premium.

In purchasing a business, the purchaser and seller each make certain representations and warranties (together, “Rep” or “Reps”) under the transaction agreement to induce the other party to enter into the transaction. Reps are set out in the purchase agreement and cover a wide range of concerns relating to the transaction, spanning matters like the financial valuation of the target entity, environmental concerns, tax liability, employment matters, material contracts, and beyond. To determine which party bears liability in the event of a breach or misrepresentation of a Rep, purchase agreements often contain at least one, or a combination, of the following risk allocation mechanisms:

• Purchase price holdbacks or escrow amounts, payable upon the fulfillment of certain conditions set out in the purchase agreement;
• Indemnification provisions, whereby the indemnifying party agrees to pay the damages or liabilities suffered by the party to the agreement who relied on a misrepresentation or breach of a Rep; and
• RWI, which is a policy that a party to the agreement (most often the purchaser) takes out from an insurance provider to cover claims of misrepresentation or breach of Reps made in the course of a transaction.

To buyers and sellers, RWI presents numerous benefits with respect to risk allocation.[1] From a buyer’s perspective where there is indemnity coverage in the purchase agreement, RWI mitigates the risk of the indemnifier failing or delaying to pay out claims after a breach or misrepresentation is proven. It also allows the purchaser to reduce the indemnification obligation of the seller in exchange for favourable terms in the purchase agreement such as broader limitation of liability clauses or longer Rep coverage terms. By reducing or eliminating the seller’s indemnification obligations, the purchaser minimizes the risk of becoming involved in costly and adversarial indemnification claims, while preserving a source of recovery through RWI.[2]

From a seller’s perspective, RWI reduces indemnification obligations and the potential liability under such a provision. It also minimizes the holdback or escrow amounts in the transaction, allowing the seller to receive more of the purchase price sooner. RWI further affords the seller a cleaner exit by minimizing post-closing obligations and reducing the risk of future indemnification claims.[3]

How Does RWI Work in a Franchise Acquisition?

Although common perceptions are that RWI is reserved for large market transactions (starting at valuations around $25 million or more[4]), that is not always the case. Middle to small market transactions, still benefit from the use of RWI.[5]

RWI policies typically have a duration of three to six years depending on the type and nature of the Rep in question (compared to twelve to eighteen months under a customary seller’s indemnity).[6] For instance, Reps more fundamental to the purchaser entering into the transaction, such as the financial valuation of the target entity, will often have a longer coverage term than general or less fundamental Reps. The coverage often offered for RWI is for ten percent of the purchase price,[7] but depending on the circumstances, up to one-hundred percent coverage can be obtained.[8]

Coverage exclusions from RWI policies range from the general to the deal specific. A general coverage exclusion may be where the buyer has actual knowledge of a breach of a Rep.[9] Insurers may also add exclusions if they are uncomfortable with the level of disclosure or the quality of diligence around a suspected area of risk.[10] Deal specific coverage exclusions are uniquely drafted for the particular transaction, and include issues discovered in the due diligence process of a deal.[11]

Franchise-Specific Considerations for RWI and Due Diligence

As benefits of franchise systems abound, so do the risks. In addition to RWI, having experienced counsel in franchise law is critical to understanding – and avoiding – the risks. Below are examples of Reps to look out for and consider while forming the RWI policy and due diligence process.

• Franchise Agreements in Good Standing. Purchasers should diligently examine the franchise agreements for each target franchise location (including any area development/master franchise agreements) and assess the terms for any inconsistent or troublesome provisions, as well as ensuring that such agreements have been fully executed and are in good standing. Notable terms in franchise agreements include franchise fees, royalty payments, termination obligations, non-competition clauses, and the exclusive territory given to the franchisee (if any). In addition to the franchise agreements, other material contracts common to franchise grants which should also be reviewed include general security agreements, personal guarantees, and leases. While proper diligence will help mitigate these risks for a purchaser, RWI provides additional certainty for the purchaser and seller alike.
• Franchise Disclosure Legislation Compliance. The mechanics, process, and timing of each franchise grant should also be reviewed to uncover any outstanding liabilities under Canada’s provincial franchise acts, including live rescission claims. Franchise legislation provides an extraordinary remedy for franchisees in the event they have not received adequate disclosure. A franchisee can rescind their franchise agreement, leave the franchise system, and be fully reimbursed for all investments made into such franchise, if a franchise disclosure document is not provided to the franchisee in the acceptable form and timeframe prescribed by applicable legislation. Potential purchasers of franchise systems should closely review the franchise disclosure documents of any franchise grant made within the last two years.

Franchises are regulated on a provincial basis in Canada. Currently, there are seven provinces which have legislated franchise law regimes: Ontario, Manitoba, Alberta, British Columbia, New Brunswick, Prince Edward Island, and Saskatchewan. The acceptability of the franchise agreement and ancillary documents (like the general security agreement, and guarantee) should be reviewed in each jurisdiction for potential liabilities.

• Unit Economics: Assessing the unit economics across the franchise system is critical. After parsing out the obligations of each franchisee under each respective franchise agreement, the flow of funds for the royalty streams, franchise fee, working capital needs, should be reviewed to see whether the financial mechanics of the franchise system work on a consistent and regular basis. It should be ensured that the Reps provided to the purchaser by the seller accurately reflect the on-the-ground performance of its units, barring which RWI may provide both parties with additional certainty in the event of an error or misrepresentation.

Though the benefits of purchasing a franchise system are substantial, so too are the risks if such a transaction is not carefully planned and executed. While expensive, the presence of RWI in a purchase transaction can soften the costs and discomfort caused by incorrect or inaccurate Reps made in a purchase of a franchise system. Where economically viable, RWI should be strongly considered by both the purchaser and seller of a franchise system as part of a transaction.

If you are considering the acquisition or sale of a franchise system in Canada, our team can advise on transaction structure, franchise-specific due diligence, purchase agreement risk allocation and the role RWI may play in the transaction.

About the authors

Jason Brisebois is a corporate and commercial lawyer whose practice focuses on mergers and acquisitions and franchise law. He advises franchisors, investors and privately held businesses on the acquisition and sale of franchise systems and other corporate transactions. Qualified to practise in Ontario and New York State, Jason has been recognized by the Canadian Legal LEXPERT Directory, Lexology Index: Canada and Best Lawyers in Canada, and received the 2024 Lexology Client Choice Award for Franchising in Canada.

Sam Fata is a corporate and commercial lawyer whose practice includes mergers and acquisitions, corporate finance and securities law. He advises businesses on acquisitions, dispositions and other corporate and commercial transactions across a range of industries.

The post Representations and Warranties Insurance in Franchise M&A: What Canadian Buyers and Sellers Need to Know appeared first on Sotos LLP.

Before entering into a franchise agreement, both franchisees and franchisors should carefully consider the terms governing the duration of their relationship as well as the circumstances which could lead to the termination of the agreement. Often, franchise agreements will automatically renew after a set period of time, so long as certain conditions are met. In those instances, if neither party breaches the agreement, and if there is no limit placed on the number of renewal terms granted by the franchise agreement, the relationship may continue indefinitely.

What Is an “Evergreen” Clause in a Franchise Agreement?

This brings us to a discussion of indefinite term contracts containing what are commonly referred to as “evergreen” clauses. An indefinite term contract is an agreement that does not have an “expiry date”. An “evergreen” clause entails the automatic renewal of the agreement year after year. What does this mean in practice? Well, in most cases, if both parties are acting in accordance with the terms of the agreement, the relationship may continue indefinitely. However, what if one party wants out in circumstances where there have been no events of default entitling the innocent party to terminate the agreement?

Can an Indefinite Franchise Agreement Be Terminated on Reasonable Notice?

In some instances, indefinite term contracts may be terminated on reasonable notice in the absence of any clause permitting such right. Courts have been willing, in some cases, to find an implied term which permits the termination of a contract without cause. The Ontario Court of Appeal has stated that when the term of a contract is not fixed and there is no provision for the termination of the contract on reasonable notice, a court may treat a contract as either perpetual in nature or as an indefinite term contract with an implied unilateral termination right on reasonable notice.[1] In the latter instance, either party to the agreement can terminate the contract if they give the other party reasonable notice. How the court determines what is ‘reasonable’ is largely dependent on the facts of each particular situation. In order to make this determination, the court must consider the following:

1. the relationship between the parties;
2. the specific terms of the contract; and
3. all surrounding circumstances.

Type of Relationship: Some types of contracts which depend upon mutual trust between the parties, like contracts of employment, partnership, or personal services, naturally give rise to an implied right to terminate upon reasonable notice.[2] Franchise agreements have also generally been found to be of a class of agreements that can be terminated upon reasonable notice without cause.[3] This is because franchise agreements are the type of contract that involve mutual trust, and each party should have the right to terminate the contract unilaterally on notice in the event there is a breakdown of that trust. In other words, trust between the parties is so important in this type of relationship that the absence of it is sufficient grounds for either party to end the contract.

Specific Terms: There may be specific terms within the franchise agreement which either point towards or away from an implied right to terminate without cause on reasonable notice. For example, if an agreement stipulates that it can only be terminated by mutual agreement or for a material breach of contract, then likely only in those two circumstances mentioned could the parties actually terminate the agreement. The courts in Ontario have also found that, given that franchise agreements are contracts of adhesion reflecting unequal bargaining power, they require the utmost good faith in their performance and the courts must carefully scrutinize their termination. In order to be appliable, a termination clause must be very clear, and its words will be read strictly.[4] When an agreement contains specific terms which set out when termination may occur, it is more difficult to establish an implied right to terminate on reasonable notice without cause. In the context of an agreement with numerous termination provisions, an additional implied right to terminate would arguably be inconsistent with the intention of the parties.

In addition to the existence and content of any termination provisions in the agreement, in order to determine whether or not a contract is perpetual in nature or an indefinite term contract capable of being terminated on reasonable notice, the existence in the contract of the express intention to be bound perpetually can provide a strong basis for a finding that the contract is actually perpetual.[5]

Where there are no specific terms governing the termination of a contract, then the courts have been much more likely to imply the right to terminate that contract on reasonable notice, especially in regard to contracts of a commercial character.[6]

Surrounding Circumstances: In addition to the nature of the relationship and specific terms in the contract, the surrounding circumstances help determine whether there is an implied right to terminate on reasonable notice. These factors include:

• the level of sophistication of the parties;
• whether the parties were strangers at the time they entered into the agreement;
• whether the parties had done prior business together;
• whether the relationship involved the need for trust, confidence, and satisfaction; and
• the amounts invested by each party pursuant to the agreement.

When Will a Court Find an Agreement to Be Perpetual?

The discussion above focuses mostly on circumstances in which a court may find an agreement to be terminable on reasonable notice, but this is only one possible outcome. A court may instead conclude that the agreement is perpetual. The Ontario Court of Appeal has confirmed that in fact, there is no presumption in favour of treating an indefinite term contract as terminable instead of perpetual. Rather, each situation is context-specific and depends on how the contract was constructed.^[7] In Conseil Scolaire Catholique Franco-Nord v Nipissing Ouest (Municipalité), the Ontario Court of Appeal considered whether an indefinite service agreement was perpetual or could be terminated on reasonable notice. The Court applied the three factors discussed above – the type of relationship, the specific terms of the contract, and the surrounding circumstances – and concluded that the agreement was perpetual. In reaching that conclusion, the Court noted that the agreement was not a strictly commercial arrangement and that the relationship did not depend on the type of mutual trust that might otherwise give rise to an implied right to terminate on reasonable notice.^[8]

What does all this mean in practice? Although courts may imply a right to terminate an agreement on reasonable notice in certain circumstances, they will also enforce perpetual obligations where the parties have clearly agreed to them, or where the nature of the relationship, the specific terms, and the surrounding circumstances indicate that the parties intended a perpetual agreement. While commercial agreements, including franchise agreements, may be more likely to be found terminable on reasonable notice, parties should still carefully consider these issues when drafting their agreements and clearly express their intentions regarding the duration and termination of the relationship.

What Have Canadian Courts Said About Perpetual Franchise Agreements?

The courts have considered the question of whether a termination clause could be implied into a franchise agreement with a purportedly “perpetual” term a few times, with varying results.

France v. Kumon

In France v. Kumon, 2014 ONSC 5890, the Ontario Superior Court of Justice considered whether an oral franchise agreement could be terminated upon reasonable notice. In this case, a franchisor purported to terminate a verbal franchise agreement when, after protracted negotiations and an 11-year hiatus, a franchisee refused to sign the franchisor’s new form of written franchise agreement. The franchisee argued that the franchisor had no right to terminate the franchise agreement because it was a perpetual contract. The Court held that where a franchise agreement does not contain a termination clause, a court has two options: (1) to imply a right of termination; or (2) to treat the agreement as perpetual. In this case, the Court found that there was no evidence that a perpetual contract was the parties’ intention, for a few reasons: (i) the franchisor, in all versions of its written franchise agreement, did not wish to have perpetual contracts with its franchisees; and (ii) the franchisee’s objections to the new written franchise agreement did not have anything to do with the length of its term or renewal provisions and so the court concluded that the franchisee was not concerned with the perpetuity of the agreement. Given that the verbal franchise agreement was not a perpetual contract, the Court held that it could be terminated on reasonable notice.

Petro-Lon Canada Ltd. v. Petrolon Distribution Inc.

Alternatively, in Petro-Lon Canada Ltd. v. Petrolon Distribution Inc., 1995 CanLII 7407, an arbitrator refused to imply a right to terminate on reasonable notice into a franchise agreement. The franchise agreement in this case was a written agreement which contained a defined initial term, and an unlimited number of automatic renewals thereafter (unless the franchisee provided notice that it did not want to renew). There were also termination provisions written into the franchise agreement which indicated that: (i) either party could terminate the agreement on notice if there was a material breach; (ii) the franchisee could terminate the franchise agreement without cause to the exclusion of the franchisor; and (iii) the franchisor could terminate the franchise agreement with cause. The franchisor tried to terminate the franchise agreement without cause by providing the franchisee with 11.5 months notice of its termination. The arbitrator held that given that: (i) the franchisee had made a substantial investment into the business in terms of money and time; (ii) the contract could be terminated for cause; (iii) the contract could be terminated by the franchisee on notice without cause; and (iv) the contract contained performance requirements only for the first year, no clause permitting termination on reasonable notice should be implied in favour of the franchisor. The arbitrator’s decision was upheld by the court on appeal.

What Should Franchisors and Franchisees Consider Before Signing?

What appears to be a long-term, endless relationship may not be forever. Both franchisors and franchisees should keep in mind that, although it is possible for a franchise agreement to be perpetual, the courts will only uphold such an agreement in certain circumstances.

Before moving forward with a franchise agreement, think about the kind of relationship you want to have with your franchisee or your franchisor. Are you prepared to offer your franchisees automatic renewals year after year? Are you prepared to enter into an agreement that allows your franchisor to terminate you without any cause on 60 days’ notice? What will happen to the franchisee’s investment if the agreement is terminated? No one expects a relationship to end on unhappy terms, but it happens, and it is better to contemplate termination scenarios at the beginning of the relationship, rather than at the end. In order to avoid any uncertainty and a potential battle in court, both franchisees and franchisors should be sure that their intention as to the length of the term and any renewal terms is very clearly expressed in the franchise agreement, that the franchise agreement contains express provisions as to how and when it may be terminated and that it may only be terminated in accordance with those express provisions, and that they both understand the circumstances under which each of them can terminate the relationship.

About the author

John Yiokaris

John Yiokaris is a partner at Sotos LLP, a full-service law firm based in Toronto.  He has been recognized by Chambers Canada, LEXPERT, Who’s Who Legal, Lexology, and Best Lawyers Canada as a leading Canadian franchise law practitioner.

John practices business law with a specific focus on franchising and disputes and he is trusted counsel to both franchisors and franchisees.  If you are negotiating, renewing or considering the termination of a franchise agreement, contact John to discuss the agreement and your options. He can be reached directly at 416.977.3998 or jyiokaris@sotos.ca.

The post “Perpetual” Franchise Agreements: When Can They Be Terminated? appeared first on Sotos LLP.

Since the opening salvo in the U.S.-Canada trade dispute in early 2025, the measures initially imposed on Canadian goods have been modified by exemptions for CUSMA-compliant goods and supplemented by sector-specific tariffs, including on steel, aluminum and automobiles. In February 2026, the U.S. Supreme Court held that the International Emergency Economic Powers Act did not authorize the broad tariffs imposed under that statute. That decision did not, however, bring the trade dispute to an end, as the U.S. has continued to rely on other statutory authorities to impose tariffs on certain Canadian goods.

Canada’s response has evolved as well. After imposing counter-tariffs beginning in March 2025, Canada removed most of those initial countermeasures effective September 1, 2025, while retaining measures affecting steel, aluminum and automobiles. The dispute has remained fluid, with further U.S. measures and Canadian countermeasures announced as recently as August 2026. The takeaway for businesses is that the tariff rates and products affected at any particular point in time should not be assumed to remain static.

The continuing use of U.S. tariffs and Canadian counter-tariffs has had widespread effects across various industries, including the franchise sector. Franchisors and franchisees must continue to prepare for the legal and business consequences of rising costs, disrupted supply chains and shifting market dynamics. The experience since March 2025 has also shown that tariff planning needs to account for changing rates, exemptions, product coverage and legal authorities.

SUPPLY-CHAIN ANALYSIS

Franchisees that depend on imported goods — whether for equipment, supplies, or inventory — may face substantial cost increases due to tariffs. For instance, tariffs on raw materials, such as steel and aluminum, as well as finished products, will likely drive up operational expenses and delay deliveries, potentially disrupting the system’s supply chain. This will impose increased costs on franchisees, which will necessitate a difficult decision between absorbing such costs, passing them on to customers, or a combination of both. Many franchise agreements also require the use of specific materials and equipment to maintain consistency throughout the system, which may limit (absent franchisor intervention) the ability of franchisees to easily adapt to changing economic circumstances.

Maintaining a strong franchisor-franchisee relationship is key in navigating these changing market conditions. Below are certain key considerations for franchisors in navigating this relationship:

Initial investment: Franchisors must consider whether they should make changes to their initial investment expectations and requirements for franchisees. If tariffs increase the cost of equipment, supplies, or inventory, franchisors should consider reviewing and revising the initial investment estimates to reflect these higher costs. Failure to do so may mislead potential franchisees about their expected expenses. Moreover, failing to account for such changes may be setting franchisees up for failure before they even begin operating.

Ongoing expenses and unit economics: Franchisors should evaluate how tariff-induced cost increases affect their unit economics, including per-location profitability, break-even points, and overall financial sustainability. Clearly presenting this data can help franchisees make informed investment decisions. If tariffs impact ongoing costs, such as supply procurement or vendor agreements, these changes should be disclosed. Franchisees should be made aware of potential cost fluctuations. Franchisors should assess franchisee costs on a market-by-market basis, and prepare to be flexible on procurement where necessary to ensure that franchisees’ unit level economics remain viable in light of this volatility.

Supply chain and sourcing restrictions: If a franchise system mandates specific suppliers affected by tariffs, these restrictions should be transparently disclosed. Franchisors may also explore whether allowing some flexibility in supplier selection can help mitigate disputes, and actively work with franchisees to assess whether domestic alternatives exist that will (while perhaps not entirely consistent with brand standards applicable in the U.S.) allow the franchisee to continue operating without further hardship than is necessary.

Financial performance representations: Franchisors should monitor profit margins and other financial metrics due to tariff-related cost increases and assess whether tariff-related cost increases are a development that impacts financial performance representations. Providing outdated or overly optimistic projections could expose franchisors to legal claims and otherwise adversely impact the franchisor-franchisee relationship.

CONSUMER PRICE SENSITIVITY

Franchisors should also consider whether to authorize or encourage price increases for goods and services. However, price-sensitive consumers may reduce their spending or seek alternatives, particularly in highly competitive industries such as quick-service restaurants, retail, and hospitality. It is critical that franchisors consider balancing necessary price adjustments with consumer expectations in order to maintain brand reputation and profitability. In light of these challenges, franchisors should consider which obligations currently imposed on franchisees are crucial to maintaining brand standards, and which others may be more flexible.

ADAPTION IS KEY

Predictable costs and strong unit economics are the hallmarks of a successful franchise system. While tariffs may create new cost pressures, they also present opportunities for Canadian brands to emphasize domestic production and sourcing, which can resonate with consumers and differentiate them in the market. Similarly, U.S. brands entering Canada may still find opportunities to expand, particularly when the favourable exchange rate helps offset tariff impacts, allowing cost-competitive pricing in the Canadian market. Franchisors and businesses that adapt their supply chains, pricing strategies, and brand positioning to these evolving dynamics can still find opportunities for growth and expansion despite the shifting trade landscape.

OPPORTUNITIES & SHIFTS

While tariffs impose significant challenges for businesses of all stripes, they also provide opportunities to savvy and opportunistic businesses. For example, Canadian franchise systems with predominantly domestic supply chains may reap the benefits of changing consumer preferences towards Canadian-made products, while products previously bound for the U.S. may be sold domestically at the same or lower prices. Franchisors can also re-evaluate global sourcing strategies to mitigate tariff exposure.

To address ongoing challenges, franchisors should consider the following actions:

• Supply-chain diversification: The impending tariffs should prompt franchisors to carefully re-evaluate suppliers and explore domestic alternatives where feasible.
• Negotiating terms: Franchisors and franchisees should also work with suppliers to share or reduce tariff-related cost burdens.
• Efficiency measures: Franchisors and franchisees should invest in technology or streamline operations to offset increased expenses.
• Franchise disclosure and agreement revisions: It is critical that franchisors assess whether franchise disclosure documents and franchise agreements need adjustments to address unforeseen consequences arising from the tariffs.

MADE IN CANADA

While not the primary focus of this article, businesses should keep in mind that promoting products as “Made in Canada” or “Product of Canada,” or highlighting Canadian ownership, can be a valuable strategy for brands seeking to reduce the impact of tariffs between Canada and the U.S. However, businesses must ensure that such claims comply with Canadian law, including the Competition Act, the Consumer Packaging and Labelling Act, and the Textile Labelling Act. These acts prohibit false or misleading representations, and restrict how and when such claims can be used. Businesses that choose to make “Made in Canada” or “Product of Canada” claims must ensure their claims meet the appropriate guidelines and thresholds.

LESSONS LEARNED IN THE FIRST EIGHTEEN MONTHS OF THE DISPUTE

The first eighteen months of the dispute have reinforced that managing tariff risk involves more than deciding whether to absorb an additional cost or pass it along. Tariffs have been introduced, modified, exempted and challenged, sometimes in relatively short order. For franchise systems, a few practical lessons have emerged:

Build flexibility into the supply chain: Domestic sourcing can help reduce exposure, but flexibility may be even more important. Having alternative approved suppliers, products or specifications can give a franchise system more room to respond when tariffs change. It is also important to understand where key inputs actually originate and how they are classified for tariff purposes. Buying from a Canadian supplier, for example, does not necessarily mean that the underlying goods are of Canadian-origin or insulated from tariffs.

Understand who bears the tariff risk: Supplier, distribution and franchise arrangements should make clear who ultimately bears tariff-related cost increases. Just as importantly, the parties should understand what happens if a tariff is later reduced, removed or refunded. The successful legal challenges to certain U.S. tariffs have shown that tariff costs may not always be permanent. This makes provisions dealing with tariff pass-throughs, refunds, rebates and changes in law worth another look.

Disclose volatility rather than try to predict it: The pace of change over the past eighteen months has also demonstrated how difficult it is to predict where tariffs will be months—or even weeks—into the future. Rather than trying to forecast a particular outcome, franchisors should ensure that their disclosure appropriately addresses material exposure to tariffs and other trade measures, particularly where those risks could affect initial investment estimates or financial information.

Look for available relief: Tariffs do not always have to be treated simply as an unavoidable cost of doing business. Government remission, financing and other tariff-relief programs may be available in appropriate circumstances. Where a franchise system has centralized purchasing arrangements, it is worth considering whether the franchisor, supplier, distributor or franchisee is best positioned to pursue that relief before the additional cost is passed through the system.

Plan for more than one outcome: Perhaps the clearest lesson is that tariff planning should not depend on a single prediction about the future of Canada-U.S. trade. Measures have been imposed, modified, exempted, challenged and replaced over a relatively short period. Franchise systems will be better positioned if they test their supply chains and unit economics against a range of tariff, sourcing and pricing scenarios and leave themselves enough flexibility to respond when circumstances change.

How Sotos Can Help

Tariffs can affect much more than the cost of imported goods. For franchise systems, they can also create issues around supplier arrangements, pricing, franchise disclosure, franchise agreements and the allocation of increased costs between the parties.

Sotos LLP advises franchisors and other businesses on the legal and commercial issues that can arise when market conditions change. Our work can include reviewing franchise agreements and disclosure documents, assessing supplier and distribution arrangements, reviewing how tariff-related costs are allocated, and advising on sourcing and pricing issues.

We can also assist businesses with advertising and marketing issues, including the use of “Made in Canada” and “Product of Canada” claims.

If tariffs or other trade measures are affecting your franchise system or commercial arrangements, please contact Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca, Peter Viitre at 416.977.7754 or pviitre@sotos.ca, or Nicole Perez at 416.977.3674 or nperez@sotos.ca.

About the Authors

Jason Brisebois is a partner at Sotos LLP whose practice includes franchise law, mergers and acquisitions, commercial leasing, privacy and data protection, and advertising and marketing law. He also advises clients on commercial agreements and Canada-U.S. cross-border business matters.

Peter Viitre is a partner at Sotos LLP whose practice focuses on franchise law. He advises franchise systems on franchise agreements, disclosure obligations and other legal and commercial issues affecting their businesses.

Nicole Perez is an associate at Sotos LLP who advises clients on franchise and commercial matters, including legal issues affecting franchisors and businesses operating within franchise systems.

The post TARIFF TURMOIL: U.S. tariffs and Canadian counter tariffs will have an impact on the franchise industry appeared first on Sotos LLP.

Canadian privacy laws regulate the collection, use, and disclosure of “personal information,” meaning information about an identifiable individual. Importantly, an individual does not need to be directly identified – information may still qualify as personal information where there is a serious possibility that the individual could be identified from that information. British Columbia,^[1] Alberta,^[2] and Quebec^[3] have generally applicable private-sector privacy laws that have been declared substantially similar to the federal Personal Information Protection and Electronic Documents Act (“PIPEDA”).^[4] In those provinces, the provincial legislation may apply instead of PIPEDA, while the remaining provinces are subject to PIPEDA. As a principles-based statute, PIPEDA establishes broad privacy obligations rather than bright-line rules.

The franchise model creates unique challenges related to privacy compliance because personal information is often shared among franchisors, franchisees, and third-party service providers. Determining who is responsible for protecting that information, maintaining compliance with privacy legislation, and responding to data breaches can be complicated. The following are some of the key privacy risks facing franchise systems and steps that franchisors and franchisees can take to mitigate them.

Key Privacy Risks & Considerations

Uncertainty Regarding Control and Responsibility for Customer Data

One of the main challenges in franchise privacy compliance is deceptively simple: whose data is it? Under the private sector privacy laws, organizations remain accountable for personal information within their control. Typically, an organization will be considered in control of personal information when it has the authority to determine how the information is collected, used, disclosed, retained, and disposed of. An organization remains accountable for personal information transferred to a third-party for processing on its behalf and must use contractual or other means to provide a comparable level of protection. Where information is instead disclosed to an independently operating franchisee or other organization for that organization’s own purposes, the parties’ respective responsibilities will depend on the circumstances, including who determines the purposes and means of collection, use, disclosure, retention, and disposal.

It is common for both franchisors and franchisees to collect and distribute personal information across their respective networks, as well as to third-party service providers. This data may be distributed for a number of reasons, including for marketing campaigns, sales reporting, and loyalty programs. For example, a franchisor may obtain identifiable sales data from a franchisee, and a franchisee may share customer information with a food delivery platform or other vendor. This complex and frequent exchange of information can make it difficult to determine who controls the data where clear roles and responsibilities have not been established. Accountability over the information becomes even more challenging when franchisees within the same franchise system employ inconsistent methods of data collection and consent practices. Because privacy legislation imposes obligations on organizations that control personal information, ambiguity surrounding who has that control can make it harder to comply with the law.

Increased Exposure to Cyber Attacks and Data Breaches

Another major area of concern for franchisors and franchisees alike is the risk of cyber attacks. Franchise systems are attractive targets for hackers because they often rely on shared POS and IT systems to store large volumes of customer information across numerous locations. As a result, a data breach at a single franchise location may have consequences for multiple franchisees and the franchisor itself. Although shared technological systems can increase efficiency for the franchise network as a whole, they may also increase the potential impact of a security incident. Beyond the immediate disruption to business, a data breach can expose a franchise system to reputational harm, the disclosure of confidential business information, regulatory investigations, audits, complaints, and potential civil liability.

For these reasons, it is important that franchisors and franchisees keep their privacy-related obligations in mind, in order to avoid accidental non-compliance with the law as well as to protect the franchise system.

The following is a list of best practices that can help mitigate privacy risks and strengthen compliance across the franchise network.

Best Practices for Franchise Privacy Compliance

Clearly Define Control Over Customer Data

Because information frequently moves between franchisors, franchisees, and third-party vendors, clearly defining responsibility for that information is one of the most important steps a franchise system can take to strengthen privacy compliance. Under PIPEDA, organizations are obligated to protect transferred personal information via “contractual means”.^[5] Where the information is passed between franchisor and franchisee, the parties should address the control and use of any customer information in the franchise agreement, an ancillary agreement, or the franchisor’s operations manual. Where a third-party service provider is involved, the franchisor or franchisee should ensure any contract between the parties includes an adequate data protection agreement or data protection provisions in the service agreement.

Before entering these contracts, franchisors and franchisees should consider what personal information is being exchanged, whether the information is necessary for the services provided, and how consent can be adequately obtained from customers. Any agreement should also specify which party is responsible for obtaining consent and for safeguarding the data. When contracting with third-parties, franchisors and franchisees should ensure the agreement allows them to maintain adequate control and protection over the use of the information by the service provider.

Implement Consistent Privacy and Consent Practices Across the Franchise System

Consistency across the franchise network is also critical in privacy compliance. As discussed above, franchise systems often involve numerous franchisees collecting and processing customer information in various ways. Without standardized privacy and consent practices, franchisors may find it difficult to ensure compliance with privacy laws across the system and may face increased regulatory risk. Franchisors should therefore implement uniform standards across the system when it comes to obtaining customer consent and handling customer data. Privacy policies and consent practices should also be updated on a regular basis to ensure they remain current and accurately reflect how customer information is being collected, stored, and used by the organization. Each organization subject to applicable privacy legislation should designate an individual responsible for its compliance. A franchisor may also appoint a privacy lead to coordinate standards and oversight across the franchise system.

Adopt a Data-Minimization Approach

Limiting the amount of personal information collected in the first place can help reduce privacy risk and makes compliance with privacy legislation easier. Under PIPEDA, the collection of personal information must be limited to what is necessary for purposes identified by the organization, and those purposes must be ones that a reasonable person would consider appropriate in the circumstances.^[6] Franchisors and franchisees should therefore carefully evaluate what information is truly required for their business operations and avoid collecting unnecessary data.

A data minimization approach also has the added benefit of reducing the organization’s obligations to manage, secure, and retain the information appropriately. Collecting only what is necessary reduces the amount of data that the organization is responsible for and can lessen the potential impact of a cyber attack or data breach. Organizations should not ordinarily make access to a product or service conditional on consent to collection, use, or disclosure that is unnecessary for that product or service. Secondary uses such as marketing should be clearly explained and supported by an appropriate form of consent, subject to any applicable statutory exceptions.

Strengthen Cybersecurity Practices

Franchisors should also take steps to strengthen their technology and cybersecurity practices across the franchise system. Operations manuals should set out cybersecurity standards and include clear IT hardware and software requirements for franchisees. Cybersecurity threats are constantly evolving, and a system that was once considered safe several years ago may no longer offer sufficient protection today. Franchisors should therefore regularly review and update their technology standards to ensure they can adequately respond to emerging risks. Franchise agreements and operations manuals should also clearly outline who is responsible for managing the aftermath of a breach.

In addition, franchisors should provide ongoing training and guidance to their franchisees on the collection, storage, and protection of customer information, including how to recognize and respond to phishing attempts. Finally, given the high rate of employee turnover in the retail and food service industries, franchisees should periodically update passwords and maintain security measures to reduce the risk of unauthorized access to sensitive information.

Prepare for Data Breaches Before They Occur

Because franchise systems are particularly attractive targets for cyber attacks, franchisors should prepare for a breach before one occurs. A comprehensive crisis plan can help reduce operational disruptions, ensure compliance with privacy legislation, and minimize harm to customers and the franchise brand. The plan should clearly identify who is responsible for managing each aspect of the response and require franchisees to cooperate with the franchisor throughout the process. Additionally, organizations are subject to reporting and record-keeping obligations under PIPEDA in the event of a breach. For example, organizations subject to PIPEDA must maintain records of all breaches of security safeguards involving personal information under their control. Where it is reasonable to believe that a breach creates a real risk of significant harm to an individual, the organization must also report the breach to the Office of the Privacy Commissioner of Canada and notify affected individuals.

Conclusion

Privacy compliance is not only a legal issue but an operational and reputational concern as well that affects the entire franchise system. The interconnected nature of franchise relationships can make it difficult to determine responsibility for customer information and can increase exposure to cybersecurity risks. By implementing clear and consistent privacy practices across the entire franchise system, minimizing data collection, and adequately preparing for cybersecurity threats, franchisors can better protect both customer information and the franchise as a whole.

How Sotos Can Help Franchise Systems with Privacy Compliance

Privacy compliance in a franchise system often sits at the intersection of franchise agreements, operations, technology, cybersecurity, and third-party relationships. Sotos LLP can help franchisors assess how personal information moves through their systems, clarify responsibilities between franchisors, franchisees, and service providers, review privacy and data-protection provisions in franchise and vendor agreements, and develop practical privacy policies and incident-response protocols.

If you have questions about privacy compliance in your franchise system, contact Jason Brisebois by email at jbrisebois@sotos.ca or by phone at 416.572.7323 to discuss how these issues may apply to your system.

About the authors:

Jason Brisebois advises franchisors and other businesses on privacy and data protection, including privacy compliance, commercial agreements involving data, and privacy considerations in franchise and technology arrangements. He received the 2024 Lexology Client Choice Award and has been recognized by the Canadian Legal LEXPERT Directory, Lexology Index: Canada, and Best Lawyers in Canada.

Chrisoula Angelis is a 2026 summer student at Sotos LLP and contributed to the research and preparation of this article.

The post Who Controls Customer Data in Franchise Systems? Key Privacy Risks and Best Practices appeared first on Sotos LLP.

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.

The post Protecting the Information Behind the Brand appeared first on Sotos LLP.

Background

In 2021, Mr. Zagros Management Inc., a restaurant franchisor, leased a premises from Yulee Developments Inc. In turn, Mr. Zagros sublet the premises to its franchisee, 11254316 Canada Inc. Under the lease, notices from the landlord to Mr. Zagros were required to be delivered to the premises.

Throughout the operation of the franchise, as a matter of course, the franchisee paid rent directly to the landlord. In March 2024, however, the franchisee failed to pay rent, which resulted in a demand issued by the landlord to the franchisee. Neither party informed Mr. Zagros of the situation.

The arrears remained uncured into April. In response, on April 3, the landlord delivered a notice of default to the premises addressed solely to the attention of the franchisee’s principal. The landlord also emailed a copy of the notice to the principal, but not to Mr. Zagros. The notice provided for a five-day window to pay the arrears.  Despite being informed the next day by the franchisee’s lawyer that his client had not forwarded the notice to Mr. Zagros, the landlord waited until the cure period expired on April 9 before taking steps to actually bring the notice to Mr. Zagros’ attention.

After Mr. Zagros learned of the arrears on April 9, its principal contacted the franchisee’s principal and, believing that the latter would rectify the arrears, left the matter with her. In the meantime, the franchisee’s principal began negotiating with the landlord. The negotiation included a proposal that the franchisee’s principal pay the arrears, albeit once the lease was terminated and a new lease was entered into directly with her. The parties did not disclose these negotiations to Mr. Zagros.

Shortly thereafter, with the arrears still outstanding, the landlord purported to terminate the lease by issuing a notice of termination addressed solely to the franchisee. The landlord and a newly incorporated company controlled by the franchisee’s principal then signed a new lease for the premises. The franchisee’s principal proceeded to open a restaurant competitive with her former franchise from that location.

The Application

Mr. Zagros commenced an application against the landlord, the franchisee, its principal and her newly incorporated company seeking, among other things, a declaration that the default and termination notices were not delivered in accordance with the lease and were therefore void. According to Mr. Zagros, the notices were non-compliant because, as a matter of contractual interpretation, the notice provision required that notices delivered thereunder, at a minimum, not be addressed to the wrong party.

The landlord defended the application on the principal basis that, irrespective of who the default and termination notices were addressed to or the practical consequences of this error, it complied with the strict wording of the notice provision by simply delivering the notices to the premises.

In two endorsements, the application judge accepted Mr. Zagros’ submission:

[T]he notice of termination is deficient. It was not addressed to Mr. Zagros but rather to 112. 112 was not the tenant. I am of the view that the notice of termination had a fatal defect as it was not addressed to Mr. Zagros Management Inc. and did not accord with the provisions of the lease…

…

In my January 2025 Endorsement, I held that the notice of termination was deficient. I did not explicitly address the notice of default dated April 3, 2024. However, that notice is also deficient as I find it was not properly served upon the Applicant.

The Appeal

The landlord unsuccessfully appealed from that judgment to the Ontario Court of Appeal. In its brief reasons, the Court agreed with and elaborated on the application judge’s analysis:

We see no error in the application judge’s findings that the Default Notice and the Termination Notice were deficient because they had not been properly served on Mr. Zagros. The application judge accepted Yulee’s submission that notices were to be delivered to the Leased Premises. However, they did not comply with the requirements of s. 17.11 of the Lease because they were improperly addressed. The Notice of Termination was addressed to 112, rather than to Mr. Zagros, and the Default Notice was addressed to the attention of Ms. Zamani, again as opposed to Mr. Zagros. Accordingly, as the court advised the parties at the oral hearing of the appeal, Yulee’s appeal was dismissed.

Key Takeaways for Landlords and Franchisor Sublandlords

This case provides a clear lesson: Notices under a lease are more than formalities. Properly addressed and delivered notices are essential to protect both landlords (and franchisors acting as sublandlords). Missteps in this process can leave a landlord or sublandlord unable to rely on the notice — a costly mistake that can be avoided with careful attention to the lease.

Remember:

1. Follow the lease to the letter. Default and termination notices must be addressed to the legal tenant. Even a technically minor misaddressing may invalidate the notice.
2. Monitor communications. Franchisors acting as head tenants must ensure that they receive all communications from the landlord. Notice provisions will often provide for the opportunity to amend the address for service. As a best practice, franchisors should consider adding the franchisor’s head office as an additional required address for service under the lease.
3. Establish a disciplined lease administration framework. Beyond staffing or systems, franchisors acting as head tenants or sublandlords should proactively structure their leasing arrangements to ensure visibility and control over defaults and enforcement steps. This may include evaluating whether a tripartite agreement or rent-flow arrangement are appropriate for the system. Thoughtful lease architecture at the outset can materially reduce the risk that critical notices are misdirected, delayed, or leveraged to the franchisor’s detriment.

Daniel Hamson and his team at Sotos LLP acted as counsel to Mr. Zagros on the application and appeal in Mr. Zagros Management Inc. v. Yulee Developments Inc.

Sotos LLP regularly advises franchisors on leasing strategy and structure, including with respect to head leases, subleases, and tripartite arrangements, to ensure franchisors maintain control over premises and minimize enforcement risks across their franchise systems.

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 recognised 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 recognised as “Recommended” in Lexology Index: Canada (formerly Who’s Who Legal).

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

The post Wrong Addressee, Right Outcome: Why Your Lease Notice Might Not Count appeared first on Sotos LLP.

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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On March 3, 2025, the Trump administration confirmed that the United States would proceed with imposing blanket tariffs on imports from Canada and Mexico, and increases to existing tariffs on China, effective March 4, 2025. These tariffs include a 25% tariff on all imports from Canada and Mexico, with the exception of Canadian energy resources and minerals, which face a reduced 10% tariff. The tariffs were initially planned to take effect on February 4, 2025, but were delayed by the Trump administration pursuant to ongoing negotiations with Canada and Mexico. The White House has also announced the imposition of 25% U.S. tariffs on all steel and aluminum imports with an expected effective date for imposition of March 12, 2025.

On March 4, 2025, the Government of Canada announced that, in response to U.S. tariffs, the Government of Canada would move forward with 25% tariffs on $155 billion worth of imported U.S. goods, beginning immediately with a first tranche covering $30 billion worth of goods. The scope of the Canadian counter tariffs will be increased to $155 billion if the current U.S. tariffs are maintained, and may also be increased if new U.S. tariffs are imposed. Beyond the federal government’s response, several Canadian provinces have implemented their own retaliatory measures. These include restricting government procurement opportunities for U.S. suppliers, terminating existing contracts and disqualifying future bids from U.S. companies, and removing American alcoholic products from provincially-controlled liquor stores. Ontario Premier Doug Ford has also indicated that he is considering imposing an export tax on Ontario-produced energy, and even halting energy and certain mineral resource exports altogether.

The implementation of U.S. tariffs and Canadian counter tariffs on imported goods will have widespread effects across various industries, including the franchise sector. Franchisors and franchisees must understand and prepare contingencies on how to navigate the legal and business consequences posed by the rising costs, disrupted supply chains and shifting market dynamics associated with these tariffs.

Supply Chain Analysis: Key Considerations for the Franchisor-Franchisee Relationship

Franchisees that depend on imported goods—whether for equipment, supplies, or inventory—may face substantial cost increases due to tariffs. For instance, tariffs on raw materials, such as steel and aluminum, as well as finished products, will likely drive up operational expenses and delay deliveries, potentially disrupting the system’s supply chain. This will impose increased costs on franchisees, which will necessitate a difficult decision between absorbing such costs, passing them on to customers, or a combination of both. Many franchise agreements also require the use of specific materials and equipment to maintain consistency throughout the system, which may limit (absent franchisor intervention) the ability of franchisees to easily adapt to changing economic circumstances.

Maintaining a strong franchisor-franchisee relationship is key in navigating these changing market conditions. Below are certain key considerations for franchisors in navigating this relationship:

• Initial Investment: Franchisors must consider whether they should make changes to their initial investment expectations and requirements for franchisees. If tariffs increase the cost of equipment, supplies, or inventory, franchisors should consider reviewing and revising the initial investment estimates to reflect these higher costs. Failure to do so may mislead potential franchisees about their expected expenses. Moreover, failing to account for such changes may be setting franchisees up for failure before they even begin operating.
• Ongoing Expenses and Unit Economics: Franchisors should evaluate how tariff-induced cost increases affect their unit economics, including per-location profitability, break-even points, and overall financial sustainability. Clearly presenting this data can help franchisees make informed investment decisions. If tariffs impact ongoing costs, such as supply procurement or vendor agreements, these changes should be disclosed. Franchisees should be made aware of potential cost fluctuations. Franchisors should assess franchisee costs on a market-by-market basis, and prepare to be flexible on procurement where necessary to ensure that franchisees’ unit level economics remain viable in light of this volatility.
• Supply Chain and Sourcing Restrictions: If a franchise system mandates specific suppliers affected by tariffs, these restrictions should be transparently disclosed. Franchisors may also explore whether allowing some flexibility in supplier selection can help mitigate disputes, and actively work with franchisees to assess whether domestic alternatives exist that will (while perhaps not entirely consistent with brand standards applicable in the U.S.) allow the franchisee to continue operating without further hardship than is necessary.
• Financial Performance Representations: Franchisors should monitor profit margins and other financial metrics due to tariff-related cost increases and assess whether tariff-related cost increases are a development that impacts financial performance representations. Providing outdated or overly optimistic projections could expose franchisors to legal claims and otherwise adversely impact the franchisor-franchisee relationship.

Consumer Price Sensitivity

Franchisors should also consider whether to authorize or encourage price increases for goods and services. However, price-sensitive consumers may reduce their spending or seek alternatives, particularly in highly competitive industries such as quick-service restaurants, retail, and hospitality. It is critical that franchisors consider balancing necessary price adjustments with consumer expectations in order to maintain brand reputation and profitability. In light of these challenges, franchisors should consider which obligations currently imposed on franchisees are crucial to maintaining brand standards, and which others may be more flexible.

Adapting to Tariffs for Growth and Expansion

Predictable costs and strong unit economics are the hallmarks of a successful franchise system. While tariffs imposed by the U.S. and Canada’s counter tariffs may create new cost pressures, they also present opportunities for Canadian brands to emphasize domestic production and sourcing, which can resonate with consumers and differentiate them in the market. Similarly, U.S. brands entering Canada may still find opportunities to expand, particularly when the favourable exchange rate helps offset tariff impacts, allowing cost-competitive pricing in the Canadian market. Franchisors and businesses that adapt their supply chains, pricing strategies, and brand positioning to these evolving dynamics can still find opportunities for growth and expansion despite the shifting trade landscape.

Opportunities and Competitive Shifts

While tariffs impose significant challenges for businesses of all stripes, they also provide opportunities for savvy and opportunistic businesses. For example, Canadian franchise systems with predominantly domestic supply chains may reap the benefits of changing consumer preferences towards Canadian-made products, while products previously bound for the U.S. may be sold domestically at the same or lower prices. Franchisors can also re-evaluate global sourcing strategies to mitigate tariff exposure.

To address ongoing challenges, franchisors should consider the following actions:

• Supply Chain Diversification: The tariffs should prompt franchisors to carefully re-evaluate suppliers and explore domestic alternatives where feasible.
• Negotiating Terms: Franchisors and franchisees should also work with suppliers to share or reduce tariff-related cost burdens.
• Efficiency Measures: Franchisors and franchisees should invest in technology or streamline operations to offset increased expenses.
• Franchise Disclosure and Agreement Revisions: It is critical that franchisors assess whether franchise disclosure documents and franchise agreements need adjustments to address unforeseen consequences arising from the tariffs.

Advertising Considerations: Made in Canada

While not the primary focus of this article, businesses should keep in mind that promoting products as “Made in Canada” or “Product of Canada”, or highlighting Canadian ownership, can be a valuable strategy for brands seeking to reduce the impact of tariffs between Canada and the United States. However, businesses must ensure that such claims comply with Canadian law, including the Competition Act, the Consumer Packaging and Labelling Act, and the Textile Labelling Act. These acts prohibit false or misleading representations, and restrict how and when such claims can be used. Businesses that choose to make “Made in Canada” or “Product of Canada” claims must ensure their claims meet the appropriate guidelines and thresholds. Our firm works closely with companies to develop compliant, strategic branding approaches that not only highlight Canadian origins, but also help navigate cross-border trade challenges.

Conclusion

U.S. tariffs present significant challenges for the franchise industry, with potential legal and financial implications for franchisors and franchisees alike. If you have any concerns as to how these tariffs will affect your system, and how to navigate these challenges, Sotos LLP can help. At Sotos LLP, we have acted for hundreds of clients in every aspect of the franchising process for over forty years. We have extensive knowledge of the regulatory issues that may arise from the introduction of tariffs and regularly assist with supply chain evaluations, contract revisions, and strategic planning to mitigate risks and seize opportunities in this complex regulatory environment. Our firm can assist in developing tailored strategies to mitigate the impact of tariffs, whether through supply chain restructuring, trade compliance planning, or leveraging available exemptions We can also assist in reviewing disclosure requirements in light of the tariffs.

Please contact Peter Viitre at 416.977.7754 or pviitre@sotos.ca, Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca, or Nicole Perez at 416.977.3674 or nperez@sotos.ca to see how we can help your franchised business adapt to ever-changing economic conditions.

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The Ontario Court of Appeal’s recent decision in Aroma Franchise Company, Inc. v Aroma Espresso Bar Canada Inc. (the “Aroma Decision”)[1] explored the grounds of arbitrator impartiality and disclosure obligations under the UNCITRAL Model Law on International Arbitration (the “Model Law”), adopted in the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5.

The Model Law contains provisions that promote arbitral impartiality. Article 12(1) imposes a duty on an arbitrator to disclose – before appointment and as the arbitration proceeds – any circumstance likely to give rise to justifiable doubts about the arbitrator’s impartiality. Article 12(2) permits a challenge to the arbitrator or the award that was made if circumstances exist that give rise to justifiable doubts about the arbitrator’s impartiality, as long as the person making the challenge was unaware of the circumstances when they participated in the arbitrator’s appointment. Justifiable doubts about impartiality is an equivalent phrase to reasonable apprehension of bias.^[2]

So, What Happened?

The franchisor, Aroma Franchise Company Inc. (the “Franchisor”) and its affiliates alleged that their Canadian master franchisee, Aroma Espresso Bar Canada Inc. (the “Franchisee”) breached an exclusive coffee supply arrangement. As a result of the breach, in May of 2019, the Franchisor sent a notice to the Franchisee terminating the Master Franchise Agreement (“MFA”). The Franchisee, in turn, argued the termination was unlawful. Following a lengthy arbitration over the termination of the MFA, substantial damages were awarded to the Franchisee. After the arbitration had concluded, the Franchisor discovered the arbitrator had accepted another arbitration appointment on an unrelated matter from counsel for the Franchisee during the proceedings. The arbitrator did not disclose this to the Franchisor, arguing the two cases had no overlapping parties or issues.

This non-disclosure led to claims of bias, prompting the Franchisor to successfully have the award set aside by the Ontario Superior Court of Justice. The decision was rooted in a finding of reasonable apprehension of bias, due to the arbitrator’s silence regarding his other engagement. However, the Court of Appeal disagreed, restored the award relating to this issue, and clarified the threshold for bias in arbitration.

The Appeal

The Court of Appeal corrected the lower court judge’s fundamental error in failing to address the fact that the arbitrator was not made aware (and deliberately so by Franchisor’s counsel) of the communications between counsel for the parties which predated counsel’s approach to the arbitrator. The Court of Appeal found that the arbitrator could not have known of any potential concerns which the Franchisor had about other relationships with the arbitrator because Franchisor’s counsel deliberately chose not to so inform the arbitrator.

The Court of Appeal confirmed that the threshold for disclosure under Article 12(1) of the Model Law is an objective one and relied on the objective test for reasonable apprehension of bias – what would a fair-minded and informed observer think?

1. Disclosure ≠ Determinative

The Court acknowledged that while arbitrators must disclose any circumstances that are likely to raise justifiable doubts about impartiality, failure to disclose does not automatically indicate bias. In this case, the Court emphasized that the two arbitrations were entirely unrelated, involving different parties, industries, and issues. This lack of a meaningful connection diminished the likelihood that the arbitrator’s impartiality could reasonably be called into question, ultimately tipping the scales in favour of upholding the award.

2. International Decisions

The Court leaned heavily on UK precedent, including Halliburton Company v Chubb Bermuda Insurance Ltd., (“Halliburton”)[3] and Aiteo Eastern E & P Company Ltd. v Shell Western Supply and Trading Ltd., & Ors (“Aiteo”)[4] emphasizing that disclosure obligations in international arbitrations are context-specific and guided by the Model Law. These cases underscored the principle that multiple appointments by the same counsel does not inherently give rise to bias.

3. Objective Test Prevails

A fair-minded observer, the Court concluded, would not find the arbitrator’s undisclosed second appointment sufficient to displace the presumption of impartiality. The decision underscored that Canadian courts apply a strong presumption of arbitrator impartiality, even when disclosure lapses occur.

Key Takeaways for Coffee (and Arbitration) Enthusiasts:

• Disclosure Duties Are Not Black and White

While the Model Law sets a high standard for disclosure, it’s not a free pass to challenge awards where an arbitrator does not disclose something. Context matters and parties must assess the potential overlap of issues and parties objectively.

• Precedent Percolates Across Borders

Canadian courts are aligning their approach with international best practices, as seen in Halliburton and Aiteo. Practitioners should familiarize themselves with these decisions to better anticipate disclosure risks.

• “Reasonable Apprehension of Bias” Is Not a Catch-All

Bias remains a high bar to prove. Parties seeking to challenge arbitrators must go beyond subjective discomfort and belief and demonstrate objectively justifiable doubts about impartiality.

• Toward a Global Trend

This decision hints toward greater alignment in how arbitrator disclosure and disqualification are approached globally. While it does not supplant the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (the “IBA Guidelines”), it signals a move toward consistency for cases where the IBA Guidelines are not adopted. This could help standardize outcomes and strengthen confidence in arbitration as a fair and predictable dispute resolution method.

Final Sip…

The Aroma Decision reaffirms the importance of maintaining impartiality in arbitration while recognizing that non-disclosure alone does not automatically indicate bias. By emphasizing the objective standard of a fair-minded and informed observer, the Court of Appeal clarified that disclosure obligations must be assessed in each specific context. This ruling aligns Canadian arbitration practices with international standards and reinforces the principle that arbitration should balance transparency with practicality, to preserve its integrity and efficiency. Additionally, its influence may extend beyond Canada, contributing to greater global consistency in arbitrator disclosure and disqualification approaches.

NOTE: Allan D.J. Dick and his team at Sotos LLP acted as counsel to the Franchisee in the arbitration and in the court proceedings and, with co-counsel, Alison FitzGerald, on the appeal.

[1] 2024 ONCA 839.
[2] Ibid, para 2.
[3] [2020] UKSC 48, [2021] 2 All E.R. 1175.
[4] [2024] EWHC 1993 (Comm).

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