Underneath the Golden Boy - Robson Hall Faculty of Law

Response to Consultation Paper on Franchise Law 323
allowed the agreement to expire and opened up a new store at its own cost. The
plaintiff franchisor claimed breach of contract by the defendant for failing to
renew the agreement. The Alberta Court of Queen’s Bench decided that,
according to the franchise agreement, the defendant would be bound to renew
should the renewal be offered on the same terms as before. Where reasonable
changes are proposed, it would be unreasonable for the defendant to refuse to
renew the agreement. However, since the defendant was not acting
unreasonably by refusing to renew due to significant changes introduced by the
franchisor, there was no breach of contract.
2. Ontario
Ontario was the second Canadian jurisdiction to regulate franchise relationships,
doing so in 2000. Section 3(1) of the Arthur Wishart Act (Franchise
Disclosure), 2000, emulates Alberta’s duty of fair dealing. However, the Ontario
Act is more extensive than the Alberta Act since it provides that:
A party to a franchise agreement has a right of action for damages against another party
to the franchise agreement who breaches the duty of fair dealing in the performance or
enforcement of the franchise agreement. 92
The Ontario Act also establishes that, for the purposes of the fair dealing
section, the duty of fair dealing includes the duty to act in good faith in
accordance with reasonable commercial standards. 93 The commercial
reasonableness standard of good faith has received a fair amount of criticism.
Some suggest that enforcement of a contract should be about enforcement of the
objective intention of the parties and not a wholesale enforcement of norms and
concepts external to the contract. However, including reasonable commercial
standards in the definition of fair dealing provides the concept of fair dealing
with the contextual clarification it requires and is consistent with the standard of
good faith already applied in the Canadian common law. 94
The right to associate is also addressed by the Ontario Act, once again,
emulating Alberta. However, Ontario has two additional sections. First, section
4(4) states that any provision in a franchise agreement or other agreement
relating to a franchise which purports to interfere with, prohibit or restrict a
franchisee from exercising their right of association is void. Second, section 4(5)
grants the franchisee a right of action for damages if a franchisor or franchisor’s
associate contravenes the association section. The common law has potentially
92
Arthur Wishart Act (Franchise Disclosure) 2000, 2000, c. 3, s. 3(2).
93
Ibid. at s. 3(3).
94
Edward N. Levitt and Deborah E. Palter, “Ontario Passes Franchise Disclosure Act,” online:
Canadian Franchise Association, Government Relations
.