In Ontario, under the Arthur Wishart Act (Franchise Disclosure), 2000 (the “Arthur Wishart Act”), franchisors are required to provide prospective franchisees a disclosure document, which must include a certificate, certifying that the disclosure document: (a) contains no untrue information, representations or statements; and (b) includes every material fact, financial statement, statement and other information required by law. Ontario Regulation 581/00, enacted under the Arthur Wishart Act, states that if the franchisor is incorporated, the certificate must be signed and dated by at least two officers or directors or, if the corporation has only one director or officer, the certificate must be signed and dated by that person.
Preparing a franchise disclosure document? Our Business Law team can make sure you get it right
The courts have determined that this certificate is the lynchpin of the disclosure document. Further, in 2240802 Ontario Inc. v. Springdale Pizza Depot Ltd. [2013] O.N.S.C. 7288, the Ontario Superior Court of Justice determined that having only one director or officer sign the certificate when in fact the franchisor has more than one director or officer is a major deficiency in the disclosure document. Subsequently, in Mendoza v. Active Tire & Auto Inc., 2017 ONCA 471, the Ontario Court of Appeal confirmed that a single signature on the certificate, where the franchisor has more than one director and officer, is a material deficiency in the disclosure document. The Court of Appeal held that “[t]hose who sign [the certificate in the disclosure document] are personally responsible for the accuracy and sufficiency of the contents of the disclosure document, and that responsibility is backed up by personal liability to the franchisee.”
Such material deficiency may entitle a franchisee to exercise its right of rescission (that is, right to cancel the franchise agreement), because failing to provide a second signature on the certificate deprives the franchisee of: (a) its right to have a second senior person review and certify the franchise disclosure document for accuracy and completeness, and (b) the franchisee’s right to claim damages against such person in connection with a misrepresentation contained in the disclosure document. As such, it is important for franchisors to understand who is considered an “officer” for the purposes of signing a franchise disclosure document.
Unfortunately, the Arthur Wishart Act does not provide a definition of “officer”. However, Ontario’s Business Corporations Act (the “OBCA”) identifies the following individuals as officers: the chair of the board of directors, a vice-chair of the board of directors, the president, a vice-president, the secretary, an assistant secretary, the treasurer, an assistant treasurer and the general manager of a corporation, and any other individual designated an officer of a corporation by by-law or by resolution of the directors. Furthermore, the OBCA provides that any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any such office is also considered to be an officer.
The definitions of the term “officer” in legal dictionaries are equally broad. Various legal dictionaries define an “officer” as a chairman or vice-chairman of the board of directors, president, vice-president, chief executive officer, secretary, treasurer, general manager, managing director, controller, general counsel; a person appointed or designated by the board of directors or the by-laws of the corporation as an officer; an individual who is part of the management team overseeing the management and administration of the corporation; and even an individual holding a position of responsibility or authority within a corporation.
Not sure who counts as an officer at your company? Speak with a Mann Lawyers franchise lawyer.
When determining which individuals should sign the certificate in the franchise disclosure document, it is crucial for the franchisor to think beyond mere titles of individuals and consider the functions they perform. Failure to do so may result in significant costs to the franchisor.
This blog post was written by Marina Abrosimov, a member of the Business Law team. Marina can be reached at 613-369-0363 or at [email protected].
