Case against the Use of Wrap-around Disclosure Documents in Canada
![handle is hein.journals/fchlj24 and id is 83 raw text is: The Case Against the Use of Wrap-Around
Disclosure Documents in Canada
DEBI M. SUTIN AND ARTHUR J. TREBILCOCK
anada is the most logical
first step in international
expansion for U.S.-based
franchisors. Because the Province
of Ontario is the most populous of
the Canadian provinces, it is a nat-
ural target market for franchisors
expanding from the United States,
as well as from other Canadian
provinces. Contrary to reasonable
expectations, Ontario increases the Dbi M. Sutin
burden on U.S. and other foreign
franchisors offering franchises in
the province, mostly by failing to
import U.S. concepts like the
Uniform Franchise Offering
Circular (UFOC) and
by ignoring for the most part
important foreign franchisor
features of the legislation in
Alberta, the only other province
regulating franchising.
The upshot is that lawyers
counseling their clients about ArthurJ. Trebilcock
compliance with Ontario's fran-
chise legislation must think twice about using the quick fix
of adding an Ontario addendum to a U.S.-modeled UFOC
or using a wrap-around of the UFOC, that is, sandwich-
ing the UFOC between an Ontario-specific face page and
other pages containing Ontario-specific disclosure informa-
tion. Although an addendum or wrap-around may comply
with Alberta law (we discuss this issue below), the specific
requirements of Ontario's franchise legislation require a
franchisor to add to and change a considerable portion of
the body text of the UFOC itself, often to such an extent
that it may be easier simply to create from the outset a new,
Ontario-specific disclosure document.
This article begins with a review of the differences
between Ontario and Alberta franchise legislation before
examining the use of UFOC-like documents.
Is It a Franchise?
Ontario's Arthur Wishart Act (Franchise Disclosure), 2000
(the Wishart Act),' defines a franchise as follows:
[Firanchise means a right to engage in a business where the fran-
chisee is required by contract or otherwise to make a payment or
continuing payments, whether direct or indirect, or a commitment
Debi M. Sutin is a lawyer with the law firm Feltmate Delibato Heagle
LLP in Burlington, Ontario. Arthur J. Trebilcock is counsel to the law
firm Sotos Associates LLP in Toronto.
to make such payment or payments, to the franchisor, or the fran-
chisor's associate, in the course of operating the business or as a
condition of acquiring the franchise or commencing operations and,
(a) in which,
(i) the franchisor grants the franchisee the right to sell, offer for
sale or distribute goods or services that are substantially associ-
ated with the franchisor's, or the franchisor's associate's, trade-
mark, service mark, trade name, logo or advertising or other
commercial symbol, and
(ii) the franchisor or the franchisor's associate exercises signifi-
cant control over, or offers significant assistance in, the fran-
chisee's method of operation, including building design and
furnishings, locations, business organization, marketing tech-
niques or training, or
(b) in which,
(i) the franchisor, or the franchisor's associate, grants the fran-
chisee the representational or distribution rights, whether or not
a trade-mark, service mark, trade name, logo or advertising or
other commercial symbol is involved, to sell, offer for sale or
distribute goods or services supplied by the franchisor or a sup-
plier designated by the franchisor, and
(ii) the franchisor, or the franchisor's associate, or a third person
designated by the franchisor, provides location assistance,
including securing retail outlets or accounts for the goods or ser-
vices to be sold, offered for sale or distributed or securing loca-
tions or sites for vending machines, display racks or other
product sales displays used by the franchisee.'
The significant elements of this definition are: (1) a pay-
ment or continuing payments; (2) substantial association
with the franchisor's trademark;3 and (3) an offer of signifi-
cant assistance with, or the exercise of significant control
over, the operation of the franchisee's business. Not all
three are necessary to meet the test of a franchise under
the Wishart Act. So long as the payment element is present,
a grant of distribution rights and location assistance,
whether or not a trademark element is involved, is also a
franchise and subject to the provisions of the Wishart
Act, including its disclosure requirements. These types of
ventures are more commonly known as product distribu-
torships or business opportunity ventures and most often
involve the distribution of brand name goods or services,
the source of which is provided by the franchisor through
locations or vending machines serviced by the franchisee.
The definition of franchise under Alberta's Franchises
Act (the Alberta Act)4 differs significantly. The Alberta def-
inition follows below:
[F]ranchise means a right to engage in a business
(i) in which goods or services are sold or offered for sale or are dis-
tributed under a marketing or business plan prescribed in substantial
part by the franchisor or its associate,
(ii) that is substantially associated with a trademark, service mark,
trade name, logotype or advertising of the franchisor or its associate
or designating the franchisor or its associate, and
Fall 2004 N Franchise Law Journal 83](ViewImageLocal?handle=hein.journals/fchlj24&div=16&collection=journals&method=preview&ext=.png&size=3)
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Case against the Use of Wrap-around Disclosure Documents in Canada
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