Under the Arthur Wishart Act (Franchise Disclosure), 2000 (Ontario), franchisors are required to provide prospective franchisees with 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. 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).
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. While the courts have not yet ruled on whether this deficiency on its own would entitle the franchisee to a two-year right of rescission, the courts have determined that the certificate is the “lynchpin” of the disclosure document. An argument can be made in favour of the right of rescission in the event of a deficient certificate, given that failing to provide a second signature on the certificate deprives the franchisee its right to have a second senior person review and certify the franchise disclosure document for accuracy and completeness, as well as the franchisee’s right to claim damages against such person in connection with deficient or misleading disclosure. As a result, it is crucial to understand who is considered an “officer” for the purposes of preparing a franchise disclosure document.
The Ontario Business Corporations Act states that the following individuals are all 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 Ontario Business Corporations Act provides that any other individual who performs functions for a corporation similar to those normally performed by an individual occupying any such office is considered to be an officer.
This definition of the term “officer” is open-ended, and definitions of this term in legal dictionaries are just as broad. An officer may be 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; or even an individual holding a position of responsibility or authority within a corporation.
In short, when determining who will sign the certificate, it is important for the franchisor to think beyond mere titles of individuals and consider the functions they perform.
For more information regarding Franchise Law and Franchise Disclosure Documents in Ontario, contact the Business Law Group at Merovitz Potechin LLP.
