CANADA Trends and Developments Contributed by: Melissa Cattini and Ahmed Malik, MLT Aikins
Franchisors operating in British Columbia should be proactive and closely audit and update all consumer- facing agreements, including franchisee-to-consum - er contracts, and subscription and renewal clauses, ensuring full transparency and removing any prohib - ited terms. Franchisees, even when acting as inter - mediaries, must be aware that consumer protections prevail over standard contractual provisions, and it is common practice for franchisors to impose obli - gations on a franchisee to comply with applicable local laws. Franchisors and franchisees alike should prepare by remaining abreast of regulatory develop - ments, training their teams, and beginning the process of adapting internal processes and manuals ahead of enactment. Case Law Developments Re: TBS Canada In the last weeks of 2024, the Ontario Superior Court of Justice (ONSC) granted an exemption from Ontar - io’s Arthur Wishart Act (Franchise Disclosure), 2000 (AWA) during urgent Companies’ Creditors Arrange - ment Act (CCAA) proceedings. TBS Canada faced severe financial distress after its UK parent entered into administration and was placed under the con - trol of a licensed insolvency practitioner in February 2024, cutting off its funding. With creditor value and hundreds of jobs at stake, the court-supervised sale process set closing deadline of 16 December 2024. Ordinarily, franchisors in Regulated Provinces must deliver a compliant franchise disclosure document and observe a 14-day cooling-off period before a franchise agreement can be signed. In this case, the ONSC held that strict compliance with the AWA would have jeopardised the sale. Among other factors considered, the buyer, a sophisticated, private equity affiliate with extensive franchise experience, had con - ducted due diligence for months, negotiated directly with the UK parent company, and was represented throughout by expert franchise counsel. Given these factors, and the public-interest objectives of preserv - ing jobs and business continuity, the court found the disclosure relief justified in the circumstances. Pertinent takeaways from TBS Canada include the following:
• exemptions to disclosure obligations are rare and fact-specific by design – in this case, an urgent CCAA restructuring proceeding with imminent closing deadlines; • sophistication counts – the buyer had extensive franchise experience, had conducted lengthy due diligence, and had representation by expert legal counsel throughout, which may be seen as mitigat - ing the need to address what is typically the infor - mational imbalance between franchisor/franchisee in the franchise context; • public-interest factors – preserving jobs, maintain - ing operations and maximising creditor recovery may have influenced the ONSC in granting the exemption; and • intact disclosure obligation – the generalisability of this case was limited, with the AWA protective pur - pose remaining unchanged for typical franchisees and small-business investors. While fact-specific and arising in a restructuring con - text, the TBS Canada decision signals a narrow judi - cial willingness to flex franchise disclosure rules when the counterparty is well advised, the timeline is critical, and broader stakeholder interests are at risk. For fran - chisors, this is not a general relaxation of obligations but a reminder that targeted relief may be available in exceptional, well-documented circumstances. Jayasena The Ontario Court of Appeal (ONCA) recently upheld the trial decision in Jayasena confirming that, among other things, the franchisee had validly rescinded its franchise agreement and the franchisor could not rely on the statutory disclosure exemption in Subsection 5 (7)(a) and 5 (8)(a) of the AWA. In this case, the franchisees had purchased an exist - ing Wild Wing franchise from another franchisee, operated it unsuccessfully for 18 months, then served a rescission notice under the AWA and abandoned the business. At trial, they sought declarations that: (i) the agreements related to the franchise were rescinded under the AWA, and (ii) that certain defendants were “franchisor’s associates” for the purposes of the AWA. In its reasons, the ONCA reaffirmed its earlier deci - sions in 2189205 Ontario Inc. v Springdale Pizza
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