UTGB Vol 5.pdf - Robson Hall Faculty of Law

time, including a wrap will allow franchisors to enter the province with their
foreign disclosure documents while still having to inform themselves of the
domestic disclosure requirements in order to deliver an adequate wrap.
4. Exceptions for Confidentiality, Site Selection or Refundable Deposit
Agreements
Disclosure documents must be delivered to a prospective franchisee 14 days
before the signing of an agreement relating to the franchise or the payment of
consideration relating to the franchise. All Acts except Ontarids exempt
confidentiality and site selection agreements from the disclosure requirement;
the Alberta Act also exempts fully refundable deposits. 65 Should franchisors in
Manitoba be able to require a refundable deposit or enter into a confidentiality
or site selection agreement with a franchisee before providing disclosure 66
i. Refundable Deposits
Refundable deposits work in such a way that if the negotiations result in a
franchise being granted by the execution of an agreement, the deposit will be
credited towards the franchise fee. Otherwise, the deposit will be returned to
the applicant, usually minus an administrative fee. 67 It is likely that the purpose
of such a payment is for the franchisee to demonstrate that they are serious
about purchasing a franchise and are not simply conducting a market
investigation hoping to steal trade secrets from a franchisor. Initially this
appears to be a good idea. However, such an arrangement exposes the
franchisee to unscrupulous franchisors claiming to refund the deposit but who,
in reality, will refuse to do so given the opportunity.
The Ontario Superior Court of Justice heard such cases on two separate
occasions. First, in Ali v. Triple 3 Holdings Inc., 68 and second in Scott v. 3 for 1
Pizza & Wings (Canada) Inc. 69 In Ali, the plaintiff franchisee paid a deposit
before signing the Franchise Agreement. When the franchisor declined to alter
the agreement to suit Mr. Ali's needs, Mr. Ali requested his deposit back and
Triple 3 refused. In Scott, the plaintiff franchisee had to go to court in order to
obtain a refund of his deposit, having received nothing in return.
65
Section 4(7) of the Alberta Franchises Act, R.S.A. 2000, c. F 23 states that for the purposes
of subsections 2 (a) and 5 (a), an agreement that contains only terms and conditions relating
to any one or more of the following is not a franchise agreement: (a) a fully refundable
deposit; (b) the keeping confidential or prohibiting the use of any information or material
that may be provided to the prospective franchisee; (c) the designation of a location or
territory of the prospective franchised business.
66
Manitoba Law Reform Commission, supra note 14 at 50.
67
Frank Zaid, Franchise Law, (Toronto: Irwin Law, 2005) at 16.
68
[2001] 0.]. No. 5575.
69
[2003J CarswellOnt 3790.