Oct. 03, 2019 - Chapter 8 of Davies Governance Insights 2019
New Franchises Act in British Columbia: A Little Less Certainty, A Little More Regulation for Franchisors
On October 5, 2015, the British Columbia government introduced a draft Franchises Act (BC Act). The BC Act would apply to franchise agreements relating to franchises that are operated wholly or partly in British Columbia.
Following the lead of jurisdictions such as Ontario, Alberta, Manitoba, New Brunswick and Prince Edward Island, each of which has a statute governing franchises, the BC Act will impose a duty of fair dealing on parties to a franchise agreement, confirm a franchisee’s right of association and require franchisors to disclose certain information to franchisees prior to the franchisee entering into the franchise agreement. As in the other Canadian jurisdictions with franchise legislation, under the BC Act franchisees will have rights of rescission for a franchisor’s failure to provide a franchise disclosure document and a right of action for damages for a misrepresentation by the franchisor.
The BC Act contains a very broad definition of “franchise” and reflects a trend in Canada toward increased regulation of franchises. As a result of this trend, over the last several years we have seen increased litigation in the franchise law context. Much of this litigation has been complex and expensive due to uncertainty over how franchise legislation – and the parties’ duties of good faith and fair dealing – will apply to specific types of commercial relationships.
Although the British Columbia government has publicly stated that the BC Act reflects the legislative framework applicable to franchise relationships in other provinces, there are several key differences between the BC Act and, for example, Ontario’s Arthur Wishart Act (Franchise Disclosure) (Ontario Act). These include the following differences:
- The BC Act, unlike the Ontario Act, makes explicitly clear that the duty of fair dealing applies not only to the performance and enforcement of the franchise agreement, but also to the exercise of a right under the franchise agreement.
- The BC Act contains additional “due diligence” defences in respect of an action for damages for misrepresentation against a non-franchisor.
- The BC Act expressly provides that certain technical irregularities will not nullify the legal effect of a franchise disclosure document.
- Under the BC Act, the payment of a refundable deposit would not, in and of itself, trigger the requirement to deliver a franchise disclosure document to a franchisee.
Unfortunately, the BC Act has not resolved some of the issues found in the franchise legislation of the other provinces. For example, if enacted in its current form, the BC Act would have broad and likely uncertain application to a wide range of commercial relationships. This could create difficulties in drafting franchise agreements and lead to litigation (as we have seen under the Ontario Act). However, it remains to be seen whether the courts will, in practice, view the provisions of the BC Act any differently from those of the Ontario Act.
We note that both the Ontario Bar Association and a panel of distinguished legal experts appointed by the Ontario government, including law professors and lawyers in private practice and in-house, have recently advocated an overhaul to the Ontario Act. Despite this movement toward franchise law reform in Ontario, it seems more likely than not that the BC Act will become law. Draft regulations, which would affect the scope of a franchisor’s duties to disclose to a prospective franchisee, have not yet been published.