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

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

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

The Facts

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

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

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

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

The Decision

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

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

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

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

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

Why This Matters for Franchise and Commercial Relationships

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

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

Key Takeaways

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

The key takeaways of this case are as summarized:

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

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

About the Author

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

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

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

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A “time is of the essence” (TOE) clause is a common contractual provision used in a wide range of commercial agreements. At its core, a TOE clause indicates that compliance with specified timelines is a material term of an agreement and that failure to meet those timelines, however minor or inconsequential, can constitute a breach entitling the non-breaching party to terminate the contract. In transactions with clearly defined deadlines (such as a fixed closing date), a TOE clause demonstrates that performance within a stipulated timeframe is an essential term of the agreement.

Notwithstanding their widespread use, TOE clauses have frequently been the subject of commercial disputes, highlighting the persistent challenges associated with their interpretation and application. Most recently, the Supreme Court of Canada (SCC) granted leave to appeal the decision of the Court of Appeal of Newfoundland and Labrador in Nova Fish Farms Inc. v Cold Ocean Salmon Inc., highlighting the continued significance of TOE clauses in Canadian contract law.

The Dispute: Nova Fish Farms Inc. v Cold Ocean Salmon Inc.

In this dispute, Cold Ocean Salmon Inc. (the Seller) agreed to sell several trout farms to Nova Fish Farms Inc. (the Buyer) under an agreement of purchase and sale signed in February 2020 (the Agreement). The trout farms were on property leased from the provincial government and were licensed and regulated by both federal and provincial governments. As a result, the sale of the trout farms was conditional on government approval. The Agreement required each party to take the necessary steps to obtain government approval “as promptly as practicable” and that the parties use “commercially reasonable efforts” to obtain approval before closing. The Agreement contained a TOE clause.

Due to the COVID-19 pandemic, neither of the parties took any meaningful steps to obtain the necessary government approvals over the next 16 months. In June 2021, the Buyer submitted transfer applications to the government and received approval in October 2021. The Buyer then notified the Seller of the government approval and that the Buyer wished to proceed with closing. The Seller ultimately informed the Buyer that it did not intend to close, which led to the Buyer suing for specific performance.

The Lower Court’s Decision

The trial judge found that the Buyer had breached the Agreement by failing to take the necessary steps to obtain government approval “as promptly as practicable”. Although there were no set timelines in the Agreement to obtain the government approvals, the trial judge held that the 16-month period was not in the contemplation of the parties and that the TOE clause entitled the Seller to terminate the Agreement.

The Court of Appeal’s Decision

The Court of Appeal disagreed with the trial judge, holding that the TOE clause did not extend to obligations governed by indefinite time provisions (i.e., “as promptly as practicable”). Rather, the Court of Appeal observed that the cases cited by the parties where TOE clauses were enforced “involved precisely stipulated time limits”, such as a fixed or outside closing date.

The Court of Appeal placed particular emphasis on the need for certainty in commercial agreements. It explained that contracting parties utilize TOE clauses to provide clear consequences of a breach relating to timelines, most notably, that a failure to meet such timelines entitles the non-breaching party to terminate the contract. Extending a TOE clause to obligations without defined timelines, the Court of Appeal cautioned, would undermine this objective by introducing ambiguity as to both compliance and the point at which termination rights arise.

Key Takeaways for Drafting and Strategy

The Nova Fish Farms Inc. v Cold Ocean Salmon Inc. case underscores the nuanced application of TOE clauses in Canadian commercial contracts. While TOE clauses are designed to ensure timely performance of contractual obligations, their enforceability may be tied to the presence of clearly defined deadlines. Subject to further guidance from the SCC, the Court of Appeal’s decision suggests that where contractual obligations are expressed in indefinite terms, such as “as promptly as practicable,” a TOE clause may not automatically grant a party the right to terminate.

This case serves as a cautionary reminder to contracting parties of the importance of establishing clear and precise deadlines within their agreements, particularly where the timing of performance is intended to be of fundamental importance. Parties should also carefully assess whether the inclusion of a TOE clause is appropriate in the circumstances. Such clauses should not be adopted as a matter of course, and instead should be evaluated and tailored on a case-by-case basis to ensure alignment with the parties’ intentions.

For businesses navigating complex commercial agreements, the use and interpretation of “time is of the essence” clauses can have significant legal and financial consequences. Sotos LLP has extensive experience advising clients on contract drafting, risk management, and high-stakes commercial disputes. If you have questions about how these developments may impact your agreements or require strategic guidance, our team would be pleased to assist.

About the Author
Sam Fata is an associate in the corporate and commercial group at Sotos LLP. His practice focuses on corporate finance, mergers and acquisitions, securities, and commercial law. He advises clients across a wide range of industries, including technology, manufacturing, mining, agribusiness, entertainment, artificial intelligence, and consumer goods. Sam takes a client-focused approach, working closely with businesses to understand their objectives and deliver practical, tailored legal solutions. He can be reached at 416.530.0447 or sfata@sotos.ca.

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

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

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

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

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

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

The Canadian approach

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

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

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

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

Ontario’s long-arm jurisdiction

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

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

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

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

Claims listed exclusively on foreign exchanges

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

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

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

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

The location of the underwriter

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

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

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

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

Three takeaways:

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

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

This article originally appeared in Investment Executive. 

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

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

Why Confidential Information Matters

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

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

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

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

What Is Confidential Information?

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

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

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

How Does the Law Protect Confidential Information

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

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

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

How Can Franchisors Protect Their Confidential Information?

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

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

How We Can Help

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

About the Author

Daniel Hamson, Sotos LLP

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

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

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

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Canada is an attractive but highly regulated market for foreign vehicle original equipment manufacturers (“OEMs”). Canada has a safe and stable economy and adheres to the rule of law, making it an attractive destination for OEMs looking to introduce their products into new foreign markets. While the Canadian marketplace often appears similar to the United States at first glance, dealer regulation, franchise protections, different legal systems, tariffs, environmental law requirements, data privacy laws, consumer protection laws, and countless other regimes create a very distinct legal and commercial environment. Careful dealer network structuring at the outset is critical to avoiding regulatory friction, dealer disputes, and costly restructuring later.

This article outlines certain principal considerations non-Canadian OEMs should review when expanding into the Canadian marketplace and designing a Canadian dealer network.

1. Choosing the Right Market Entry Structure

Many OEMs enter Canada by establishing a wholly-owned Canadian subsidiary entity, which contracts directly with dealers and manages national distribution, marketing, and compliance. This structure offers simplicity regarding certain tax, employment, regulatory, and other matters, while also providing liability containment.

Alternative models, such as appointing an independent importer and distributor, may offer speed to market, but may also result in reduced brand control and imaging and increased difficulty transitioning to a direct manufacturer-dealer relationship later. Once dealers are entrenched under a third-party distributor, re-alignment can be highly contentious and expensive.

Regardless of the model an OEM ultimately adopts, early cross-border tax planning is essential. Canada’s corporate tax, sales taxes, transfer pricing, and withholding tax regimes, among other considerations, can materially affect OEM and dealer economics, pricing, and overall profitability if not considered and addressed upfront. Misalignment between legal structure and tax planning can result in compliance exposure and costly retroactive restructuring.

2. Dealer Network Architecture and Coverage Strategy

Canada’s geography, population distribution, and climate materially affect the planning and breadth of any proposed dealer network. While Canada is geographically vast, its population is highly concentrated in a small number of urban corridors, namely southern Ontario, Québec’s St. Lawrence corridor, and pockets of British Columbia and Alberta. This leaves a number of regions with low population density and long travel distances between service points. This uneven distribution complicates dealer placement, service coverage, and vehicle and parts logistics.  Moreover, with the country’s latest emphasis on increased immigration, the country’s population has grown significantly over the last five years.

In the seven provinces in Canada that have (or will soon have) franchise disclosure and relationship laws, including Ontario, British Columbia, and Alberta, OEMs should be aware that automotive dealerships generally constitute “franchises” under such laws (regardless of how the contract attempts to define each party and their relationship). As a result, a franchise relationship will often exist between the OEM and each dealer, even if one is not intended, imposing additional franchise disclosure and relationship obligations on the OEM.  Failing to recognize and comply with these obligations will have significant monetary and reputational impacts on OEMs, and may serve to severely impact an OEM’s entry into the Canadian marketplace.

Moreover, certain OEMs have been moving away from the traditional franchisee dealer model to an agency or direct-to-consumer (D2C) model, where dealers are no longer directly responsible for owning and selling each vehicle, but instead fill certain other primary functions, such as vehicle delivery, test drive and customer touchpoints, service, and used vehicles sales. The reasons for this transition include OEMs making an effort to establish stronger ties with purchasers and reducing floor plan requirements for its dealers, all the while capturing a greater share of the profits to be made from selling new vehicles.

For this and other reasons, and together with the increasing prevalence of direct to consumer and/or hybrid agency models for vehicle sales, certain key considerations for any dealer network include:

• Whether to adopt a traditional franchise dealer model, an agency (D2C) model, or a hybrid between the two models, and whether to apply the chosen model(s) to all of the OEM’s vehicle lines or only to a select line(s).
• How to ensure adequate national and regional coverage, including rural and remote markets, if such markets are to be included in a proposed network.
• Whether dealers may operate single-brand or multi-brand rooftops, including whether existing dealers of other OEMs would be considered to further adopt a new entry OEM.

Manufacturers should expect scrutiny from dealers around network density, point allocation and closures, the opening of additional locations—particularly in growing urban markets, and facility requirements. Dealers currently operating dealerships of other OEMs may also face restrictions in their ability to take on new OEM banners.

3. Dealer Agreement Design and Termination Risk

Dealer agreements in Canada must balance brand control with enforceability and commercial realities. As dealer relationships may last for years, or even decades, such agreements need to be thorough, well-drafted, and as forward looking as possible. Moreover, dealer agreements must provide dealers with a reasonable opportunity to recoup their investment in the dealership. As discussed above, dealer agreements typically constitute “franchise agreements” under applicable franchise disclosure and relationship laws.

Critical drafting considerations include, but are not limited to:

• Term length, renewal rights (if any), and clearly defined performance criteria;
• Facility, branding, staffing, training, and equipment standards;
• Floorplan requirements;
• Sales performance and operational criteria;
• Export restrictions (to avoid grey-marketing);
• Ownership, assignment, and change of control provisions;
• Termination rights and notice periods; and
• Many other legal and business considerations.

4. Provincial and Federal Legal and Regulatory Considerations

Canada’s federal system has a material and often underestimated impact on foreign OEMs and other businesses expanding into the Canadian marketplace. Legislative authority is divided between the federal government and Canada’s ten provinces and three territories, resulting in multiple overlapping regimes across varying laws, regulations, and industries. While matters such as competition law, customs, and certain safety standards are in the federal domain, provinces regulate (among other things) dealer licensing, consumer protection, franchise and disclosure laws, employment standards, and aspects of sales tax and environmental compliance.

With respect specifically to dealer regulations and licensing (such as Ontario’s OMVIC framework), such matters are provincial in nature. As a result, OEMs may need to juggle and maintain compliance with multiple provincial frameworks at any given time. OEMs should also be mindful of laws and regulations, whether at the federal or provincial level, of:

• Advertising and marketing laws, including signage.
• Franchise disclosure laws.
• Competition laws.
• Consumer protection laws.
• Language laws, including in the province of Quebec.
• Environmental laws and mandated emission standards.

Successful expansion into or further into Canada therefore requires a coordinated national strategy that is deliberately adapted to provincial realities, rather than a one-size-fits-all approach.

5. Data, Digital Retail, and Customer Ownership

Data is becoming an ever-important tool and asset for businesses of all types, including OEMs. The nature of the products and services sold by OEMs and their dealers allows manufacturers to be especially-well positioned to capitalize on the ability to collect and employ significant data, including data about its customers.

That being said, OEMs should be acutely aware of the large number of rules and regulations governing data collection, use, disclosure, storage, and destruction in Canada. At the federal level, the Personal Information Protection and Electronic Documents Act (PIPEDA) governs the collection, use, disclosure, storage, and destruction of personal information in commercial activities, while several provinces have enacted enhanced private-sector privacy regimes that impose even stricter requirements.

For OEMs, these laws directly affect digital retail platforms, dealer CRM systems, marketing programs, connected-vehicle and telematics data, and cross-border data transfers. PIPEDA and other legislation places significant emphasis on meaningful consent, purpose limitation, and accountability across the entire data lifecycle. As a result, OEMs expanding into Canada must carefully align their data architecture, dealer agreements, and customer engagement strategies to ensure compliance across multiple jurisdictions’ laws, rules, and regulations – even when all interaction is between the customer and the dealer.

6. Dispute Resolution

To mitigate litigation risk with dealers, OEMs should carefully consider the provisions of their dealer agreements, with mechanisms existing to manage disagreements or issues before and after they escalate into formal conflicts and litigation. This can be achieved through provisions such as:

• Dealer advisory councils created and maintained by the OEM;
• Escalation and remediation frameworks; and
• Tiered dispute resolution clauses (such as mediation and arbitration).

In parallel, most OEMs selling vehicles in Canada participate in the National Automobile Dealer Arbitration Program (often referred to as NADAP), an industry-funded mediation and arbitration program that provides binding dispute resolution for disputes between OEMs and their dealers. Although NADAP is not mandatory for OEMs, most OEMs operating in Canada have adopted it as it provides a more efficient and confidential process than dealing with disputes through the courts, and by having disputes mediated and arbitrated by individuals with specific automotive knowledge and experience.  Foreign OEMs should carefully assess whether their vehicles, distribution model, and market entry plans necessitate participation in NADAP and ensure that their agreements and internal escalation processes are aligned accordingly.

Finally, since Canadian provincial franchise legislation expressly permits franchisees to associate amongst themselves, it should be noted that dealer associations are quite common in Canada and may, depending on the situation, either simplify or complicate the dispute resolution process.

Conclusion

Canada is a stable, sophisticated, and attractive market with significant automotive history and expertise for OEMs, but it is not a “plug-and-play” extension of other jurisdictions. Manufacturers that invest early in thoughtful dealer network structuring, compliance, and balanced dealer economics are far better positioned for sustainable growth and brand stability.

Being informed of all of the various issues impacting OEMs and making sound business decisions will be essential for an OEM to successfully expand into Canada.  This includes carefully considering the operational, contractual, and legal elements of a proposed expansion into Canada.  If you have any questions about expanding into Canada, Sotos LLP can help. Sotos LLP has extensive automotive experience in advising new and established OEMs in all facets of their business.

Please contact Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca , John Yiokaris at 416.977.3998 or jyiokaris@sotos.ca, or Peter Viitre at 416.977.7754 or pviitre@sotos.ca,  to discuss your automotive industry related inquiries.

About the Authors

Jason Brisebois, Sotos LLP

Jason Brisebois is a partner at Sotos LLP. His practice focuses on corporate, commercial, and franchise law, with a particular emphasis on the automotive sector.

Jason was awarded the Lexology 2024 Client Choice Award, is listed as “Ones to Watch” in Best Lawyers in Canada, and is recognised as “Recommended” in Lexology Index: Canada. He has also been named a “Legal Eagle” by Franchise Times Magazine.

John Yiokaris, Sotos LLP

John Yiokaris is a partner at Sotos LLP and serves as co-managing partner of the firm. He has extensive experience acting as lead counsel for major automotive manufacturers and dealers. John is also head of the firm’s Trademark practice and advises on intellectual property matters, including the registration and licensing of trademarks.

John was awarded the Lexology 2019 Client Choice Award, is ranked by Chambers Canada, and has been consistently listed in Best Lawyers in Canada. He is also recognised in the Best Lawyers Global Business Edition, listed in the Canadian Legal LEXPERT Directory, and recognised in Lexology Index: Canada. John was inducted into the Franchise Times “Hall of Fame” in 2022.

Peter Viitre, Sotos LLP

Peter Viitre is a partner at Sotos LLP and head of the Corporate and Commercial practice. He regularly advises domestic and international clients, including in the automotive sector, on market entry, dealer and franchise network structuring, regulatory compliance, and risk management across Canada.

Peter is ranked in Band 1 by Chambers Canada, has been consistently listed in Best Lawyers in Canada, and has been named “Lawyer of the Year” by Best Lawyers in Canada in 2015 and 2018. He is also recognised in the Best Lawyers Global Business Edition, listed as “Most Frequently Recommended” in the Canadian Legal LEXPERT Directory, and recognised as “Recommended” in Lexology Index: Canada. Peter has further been recognised as “Most Highly Regarded” and as a “Global Elite Thought Leader” by Lexology Index, and was inducted into the Franchise Times “Hall of Fame” in 2022.

The post Vehicle Sales in Canada: How Foreign OEMs can structure a compliant and efficient Dealer Network appeared first on Sotos LLP.

This article is different. It assumes that you are going to use generative AI to do legal research and have chosen which tool to use. It proposes five ways to refine your prompts to get better answers, regardless of what tools you are using or what types of questions you are researching.

Tip 1: Set the Temperature

“Temperature” is a term of art in AI research. You can think of it as a measure of how eager to please the AI will be. It is best understood with an example. Suppose you ask an AI tool “Find me a case that says X” but there is no case that says X and in fact the law is the opposite.

• If the temperature was zero, it may say “You are wrong. There is no case that says X.” It doesn’t care about pleasing you and does little more than find identical text.
• If the temperature was higher, it may say “There is no case that says X, but here is a case that says Y which is similar to X.” Y may or may not actually be similar to X.
• If the temperature was even higher, it may say “Here is a case that says X”, omitting to tell you that the case does not exist or actually says the opposite.

Some AI tools let you explicitly set the temperature, e.g. there’s a slider. But even if your tool does not have a slider, try adding “set temperature to zero”, “set temperature low”, or “set temperature high” to your prompts. Many tools are sophisticated enough to understand and adjust accordingly.

It should be obvious why you might want low temperature: fewer hallucinations. Most of the time with legal research, low temperature is the right choice. Note that I did not say “no” hallucinations. Even at low temperature, AI can misinterpret a case or miss that it has been overturned.

You may want to try setting the temperature higher when the case law is against you and you need to find a creative argument, or if you’re working in an area with little case law where the only arguments will come by analogy. Just be aware that when you set temperature high, you have to be extra careful in double-checking that the interpretation is accurate.

Tip 2: Ask for Keywords or Prompts

As you develop expertise in an area of law, you develop an intuitive sense of the terms of art you care about. For example, where a law student may ask, “When can a bankrupt debtor sell future income they may not get”, a bankruptcy expert might instead ask, “Does the anti-deprivation rule apply to property to be vested only on satisfaction of a condition precedent”. There is a case squarely on point. You are more likely to find it with the second prompt.

So get the AI tool to build the second prompt for you. If all you know is the first prompt, type that in and instead of asking for an answer, ask the AI tool for what terms of art or what legal doctrines might be relevant. When the AI tool tells you about the anti-deprivation rule and conditions precedent, you can now turn that into the second prompt and use that one to get your answer.

Tip 3: Ask for the Chain of Thought

Modern legal AI tools do not simply plug your prompt into their model and spit out whatever it says. They usually go through their own multi-step process of refining the question first. It is often a good idea to ask the tool to show you those steps by asking for its “chain of thought”.

The chain of thought will identify the terms of art that the tool came up with, which you can use to refine your next prompt. If the tool went totally off course, that is usually visible in the chain of thought, so you can try the prompt again but expressly tell it not to veer off in that direction. For example, if you were looking for what a reasonable expectation of privacy means under privacy legislation, but the chain of thought shows that the model started looking at criminal cases, you can prompt it again saying “Focus on cases under privacy statutes or tort law, and only refer to criminal law to the extent that it is endorsed in those cases”.

Tip 4: Refine with Follow-Up Questions

When you are looking for cases with an AI tool, you can expect to get cases that are not relevant or are easily distinguishable. Many people stop there, concluding either that the AI tool does not understand or that there is no case on point. But sometimes all it takes is identifying why that case is wrong and asking the AI tool to try again. Consider trying follow-up prompts like “Try again but limited to cases about [specific cause of action]” or “Try against but exclude cases in [specific area of law]” or “Try again but exclude interlocutory decisions”.

Tip 5: If You Find Something Good, Look for Something Better

Sometimes, the AI tool gives you a great case. The natural inclination is to stop there. But there might be an even better case out there. Consider prompts like “Is there an appellate decision that says the same thing”, “Is there a case from [your jurisdiction] that stands for the same proposition”, or “Is there a case with the same holding with [your client’s facts]”.

None of the tips in this article will work on every tool or on every question. But you would be amazed how often they do. And you lose nothing by giving them a try. Happy prompting!

About the Author

Adil Abdulla, Sotos LLP

Adil is a litigation lawyer at Sotos LLP, where his practice focuses on class actions, complex IP and competition disputes, and emerging issues at the intersection of law and technology. He regularly advises clients on the practical implications of legal developments. Adil can be reached by email at aabdulla@sotos.ca or by phone at 416.572.7325.

The post Crafting Perfect Prompts for AI Legal Research appeared first on Sotos LLP.