Download PDF - Stewart McKelvey

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadafranchisor includes such supplemental information as is necessary to comply with the disclosurerequirements under the PEI Act and the Franchise Regulations.After a disclosure document is provided and a franchise agreement is signed, a franchisor generally doesnot have ongoing disclosure obligations except in the event of a “material change”. A “material change” isdefined to mean a change in the business, operations, capital or control of the franchisor or franchisor’sassociate or in the franchise or the franchise system, that would reasonably be expected to have asignificant effect on the value or price of the franchise to be granted or on the decision to acquire thefranchise and includes a decision to implement such a change made by the board of directors of thefranchisor or franchisor’s associate or by senior management of the franchisor or franchisor’s associatewho believe that confirmation of the decision by the board of directors is probable.When a material change occurs, a franchisor must provide the prospective franchisee with a writtenstatement of the material change and the franchisee must receive the statement of the change as soonas practicable after the change has occurred and before the earlier of: (i) the signing by the prospectivefranchisee of any agreement relating to the franchise agreement or any other agreement relating to thefranchise; or (ii) the payment of any consideration by or on behalf of the prospective franchisee relating tothe franchise.Rescission RightsThe PEI Act permits a franchisee to rescind a signed franchise agreement by giving a notice ofcancellation to the franchisor or its associate, as the case may be, within 60 days of receiving thedisclosure document if the content of the disclosure does not comply with the requirements of the PEIAct, and within two years if the franchisor never provides such disclosure. If a franchise is rescinded byvirtue of non-disclosure, then a franchisor must refund all monies paid by the franchisee and buy back allassets that the franchisee acquired to operate the franchise.Rights and DisputesThe PEI Act prohibits a franchisor from obtaining a waiver or release by a franchisee or a prospectivefranchisee of any rights conferred by or under the PEI Act or of an obligation or requirement imposed on afranchisor or a franchisor’s associate by or under the PEI Act. The PEI Act renders any such waiver orpurported waiver as void. The PEI Act provides that any provision purporting to restrict the law of PrinceEdward Island or to restrict the jurisdiction or venue dealing with any dispute to a location outside ofPrince Edward Island is void, but only with respect to “a claim otherwise enforceable under this Act inPrince Edward Island”. It is, therefore, possible to have a franchise agreement which is governed by thelaw of another jurisdiction; with only those portions of the franchise agreement that are specifically dealtwith under the PEI Act being governed by Prince Edward Island law. The PEI Act does not restrict afranchisor from including provisions requiring that disputes be heard in a location other than PrinceEdward Island. If a franchisee sought to have a dispute dealt with in Prince Edward Island concerningmatters that were not dealing with “claims otherwise enforceable under the [PEI Act]”, then the franchiseewould still be required to prove to the satisfaction of the court that there is a good reason why thefranchisee should not be bound by the franchise agreement selecting a jurisdiction other than PrinceEdward Island. In determining where such a dispute should be adjudicated, the courts will look toquestions such as the convenience of the parties, fairness between the parties and the interests ofjustice.The provisions of the PEI Act and the Franchise Regulations that deal with disclosure and recission rightscame into force on January 1, 2007. Other provisions of the PEI Act came into force on July 1, 2006. Asthe PEI Act follows closely the Ontario and Alberta acts (provinces in which most of the franchises thatwould set up in Prince Edward Island are already operating), it should not be a deterrent to franchisorswho seek to have franchises established in Prince Edward Island.Page 31