Fear mongering begins in Ontario Wishart Act proposed change

November 11, 2010

Some professionals hold fast to their word.

They continue to practice with integrity, dignity, grace and humour, often under extreme conditions.

If faced with insurmountable economic hardships, they choose to leave a field rather than sell-out their principles.

Bev Cline writing for the Globe and Mail attributes the following excerpt to a Sotos LLP partner:

Another concern is that franchisors will essentially be asked “to crystal ball gaze” into the future in creating the educational document, says Allan Dick, a franchise lawyer at Sotos LLP in Toronto. “Currently a franchisor has to disclose, through the disclosure document [as mandated by the Arthur Wishart Act], everything that is material to the opportunity,” says Dick. The disclosure document, he points out, “is not a ‘general’ document; it’s a very specific document for a specific opportunity for a specific franchise.”

So, in terms of the proposed educational document, Dick asks: “If the franchisee is relying on a franchisor who is being forced [in the educational document] to crystal-ball-gaze into the future, to provide information that the franchisor could not know, will this benefit the prospective franchisee?”

The point is that prospective franchisees’ immediate interest and goal is to “look for the best opportunity they can find to be successful in business,” says Dick.

The implied threat to politicians, always sensitive to job loss or creation, is in the last sentence.

In addition, if franchisors are held liable for predicting business prospects in an unrealistic way, says Dick, they may be reluctant to enter into certain markets in the first place.

In WikidFranchise, Risk #17 is 95 per cent of legal fees are paid by franchisors. The full article: before and after I had “Wiki-ed” it (eg. told a story through a case study risk analysis).

Who are you going to trust?

– Thanks to This Isn’t Happiness


Would it be better to have no legislation? That’s a no-brainer.

September 29, 2010

The public hearings that led to the Ontario Wishart Act (Franchise Disclosure), 2000 started on March 6, 2000.

  1. The first expert witness was Ms. Susan Kezios from the American Franchisee Association (her testimony, above to right).
  2. Mr. John Sotos was the next of the five expert witness (40 in total :: 4 days :: 4 cities) was a Toronto attorney called (his full testimony, left).

Mr. Tony Martin, a politician from Sault Ste. Marie  asked Mr. Sotos a question:

Mr Martin: Would it be better to have no legislation than to put a piece of legislation in that gives people a false sense of security, given some of the statistics?

Mr Sotos: That obviously is a no-brainer. The purpose of legislation is remedial, it’s to correct a problem. If the legislation doesn’t achieve that, then I think it’s misplaced.

“That obviously is a no-brainer.”

  • summum ius summa iniuria –  The more law, the less justice

Sterns’ warning: Don’t do a half-assed job on disclosure reviews

April 9, 2010

Ontario’s 35,000 lawyers should consider themselves warned.

This is not just outstanding peer-to-peer legal advice (which it is: both carrot and stick) but it’s also crucial information for all current Canadian franchise investors.

The benefit of collective franchisee action has never been more justified.

David Sterns of Toronto’s Sotos LLP writes in March’s Canadian Lawyer magazine an article called: Advising the purchaser of a franchise business.

Sterns’ bottom-line advice to lawyers? (especially general attorneys):

The harsh reality is that some franchises have a failure rate as high as or even higher than non-franchised businesses. When the franchised business fails, the results are often catastrophic for the franchisee. The legal advice provided by the reviewing lawyer will come under close scrutiny, particularly if the franchisee misses the rescission window because it was unaware of its rights…

Lawyers should allocate sufficient time and charge a sufficient fee to permit a proper document review and reporting to the client. Otherwise, they should decline the retainer.

Lots of implications for the general and franchise Ontario bar.

But, hey, huge importance for the 40,000 ON investors in a current franchise relationships who are organized. Disclosure requirements are not just for the entering but whenever a material change happens to the relationship (ie. during, at renewal: any time a material or “significant” franchisor decision is made).

Did you get proper disclosure documents the last time your franchisor decided to change the rules in the middle of the game?

These are the business risks I assigned and that appear in the WikidFranchise entry:

  1. Arthur Wishart Act (Franchise Disclosure), 2000, Canada,
  2. Buying an existing outlet even riskier than from scratch,
  3. Courts extremely picky about shoddy disclosure practices,
  4. Disclosure documents are deficient,
  5. Disclosure document: one, bound and delivered at the same time,
  6. Disclosure document certificate,
  7. Disclosure document must disclose all material facts,
  8. Disclosure document must include third party contracts (suppliers),
  9. Disclosure documents never given,
  10. Disclosure documents not given within proper timeframe,
  11. Duty of care,
  12. Franchise law being ignored,
  13. Independent businesses survive longer than franchised ones,
  14. Independent businesses much higher profit than franchised ones,
  15. Lawyer alert: advise only prospects with adequate legal due diligence budgets or risk being sued,
  16. Lawyers being threatened with lawsuits for speaking out,
  17. Material facts were not disclosed,
  18. Outstanding advice,
  19. Professional negligence,
  20. Refuses to take client,
  21. Rescission,
  22. Sue the lawyer,
  23. Unintentional or hidden franchises

This is an important article that I will visit again.


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