Is it fair to force franchisees to prove that their franchisor has acted in “bad faith”?

February 24, 2015

No. Since 1971, there have been recommendations in Ontario that franchisors should have the burden of proof when challenged about acting unfairly.

Reverse the onus

The first one was by a retired Superior Court Justice and the next one a former partner to the actual Arthur Wishart, a lawyer from Sault Ste. Marie.

1. The Grange Report

MGCS

Legislative approach

(iii.) Contractual v. equitable approach

3. In these dealings also, placing the burden upon the franchisor to prove,

(a) that the contract is fair; and

(b) that the franchisor’s exercise of his rights under the contract is justified in the circumstances.

Report of The Minister’s Committee on Franchising, The Honourable Arthur Wishart, W.C., M.P.P., Minister of Financial and Consumer Affairs by S. G. M. Grange, Q.C., June 1, 1971.

2. Public Hearing testimony

Wishart

I think it’s interesting that in that circumstance the Grange report does a reverse of onus. It says there has to be fair dealing, and if there isn’t fair dealing, then it’s up to the franchisor to show, and I quote, “that the contract between the parties was fair.” In other words, the onus shifts, not from the franchisee to prove they were treated unfairly but to the franchisor to prove that franchisor dealt with this individual fairly. I think that’s an extremely important concept. It goes on to say that the franchisor’s conduct was “equitable in the circumstance.” So you have this onus on the franchisor, at that point, to prove they dealt with this person fairly.

Mr. Gerald Nori, Wishart and Partners, March 7, 2000.

One of the greatest barriers is franchisee access to information.

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The Grange franchise investigation stands the test of time

November 2, 2010

Samuel Grange, Q.C. and his 1971 “Report of the Minister’s committee on Franchises”: the Grange Report.

In 1970, the Honourable Arthur Wishart, W.C., M.P.P. (Sault Ste. Marie),  Minister of Financial and Consumer Affairs commissioned a public inquiry into referral sales, multi-level or pyramid sales, and franchises. He appointed Grange to head a public inquiry. The current Ontario law was named in 2000, specifically to point backwards in time to Grange’s independent recommendations.

Even after almost 40 years, Justice Grange cuts through the nonsense.

SUMMARY OF RECOMMENDATIONS

Franchises
1. Legislation is to apply to all industries and to all franchises within each industry
2. Prohibition against dealing in franchises except as provided
3. Franchisor to file prospectus setting forth detailed information on scheme
4. Franchisee to have compulsory 48-hour cooling-off period before execution of agreement
5. Franchisee to have right to apply to Tribunal or Court to determine,
(a) whether contract is fair; and
(b) whether conduct of franchisor is fair in circumstances
6. Tribunal or Court to discourage following:
(a) arbitrary termination
(b) arbitrary refusal of assignments or renewals
(c) arbitrary forfeiture of deposits
(d) forced purchases and secret profits
(e) competitive and discriminating practices by franchisors

General
1. The formation of a separate branch of division with its own Registrar to administer multi-level and franchise matters.
2. Control of advertising
3. Regular renewal of permission to operate to be required
4. Suspension and cancellation of permission to operate
5. Regular inspection of records
6. Provision for escrow of investments or fees to protect investors and franchisees
7. Application of legislation to leases as well as sales

Full Report

It is my impression that the current Ontario judiciary is on same frequency as was retired Appeal Court Justice Grange.

York University’s Osgoode Hall Law School Alumni Association Honours Three Outstanding Members of the Legal Profession


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