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Key Developments Impacting Franchising – 2014 in Review

We are publishing a series of blog posts outlining the most notable advances and developments in franchise law of the past year.  We divide these posts into (a) case commentaries, called “cases of consequence” and (b) commentaries on legislative updates—developments in the statutes governing or affecting franchises.   Today’s post is the first of the series, and will focus on a case of consequence—the Cora restaurant case. 

On January 31, 2014, Justice W. Matheson of the Ontario Superior Court of Justice handed down the judgment in 2176693 Ontario Ltd. v. Cora Franchise Group Inc.  This case concerned two franchisees who sought to have a section of their franchise agreements with the franchisor declared void and unenforceable, amongst other relief sought.  The relevant section required the franchisee to provide Cora’s with a general release of any claim as a condition of Cora’s consenting to the franchisee’s assignment of the franchise agreement.

The Court stated that the ordinary meaning of “general release … of any claims”, as in the relevant section in this case, includes rights under the Arthur Wishart Act (AWA).  The Court held that the section was void, even though Cora’s was not requiring the franchisees to release its AWA rights, but only its non-AWA rights – its common law claims such as breach of contract and misrepresentation.  In coming to his decision, Justice W. Matheson found s.11 of the AWA to be “particularly broad” further stating that, “the words of s.11 also do not expressly contemplate that a provision in an agreement can be void and unenforceable only in part”, and “to interpret s.11 to essentially allow a franchisor to read down its offensive release clause certainly fails to protect franchisees.  It would allow franchisors to take advantage of franchisees.”

As a practical effect, franchisors should be aware that a section in their franchise agreement which purports to limit the common law rights of the franchisee must not also restrict a franchisee’s rights under the AWA, or the entire section will likely be void and unenforceable as a result of this case.   Please contact any member of our team to discuss how your franchise agreement can be brought into compliance with the decision in this case.

Stay tuned for three more instalments in the series.

To read Part Two of our series, click here.

For more information, please contact our Franchise Law team.