INTRODUCTION

Ontario has been privy to franchise specific legislation for well over 20 years now. The Arthur Wishart Act (Franchise Disclosure), 2000 imposes an obligation on a franchisor to deliver to a prospective franchisee a disclosure document (an “FDD”) which complies with the Wishart Act and the regulations made thereunder. As consumer protection legislation, the Wishart Act, and franchise legislation in other provinces, is designed to afford prospective franchisees the information they need to make an informed investment decision. 

As an incentive to franchisors to comply with their obligation to deliver an FDD, the Wishart Act allows a franchisee to rescind a franchise agreement: (a) within 60 days after receiving the FDD where a franchisor failed to provide an FDD or statement of material change within set timeframes, or where the contents of the FDD fail to meet the requirements set forth in the Wishart Act; and (b) within two (2) years of the signing of the franchise agreement if the FDD was never delivered, or if the FDD was so incomplete that it was deemed to constitute non-delivery.

The market for preconstruction condominiums and newly built homes remains under pressure. Rising interest rates and a volatile bond market have driven mortgage costs upwards and appraisals downward, leaving purchasers in tough waters. Purchasers of new builds are contractually bound—having paid deposits and committed to purchase prices set in a different economic climate. For some, higher interest rates prevent them from securing sufficient financing to close. Others face personal hardships or were misinformed about the transaction process. Regardless of the reason, the fallout from failing to close can be severe: deposits may be forfeited, and damages claims can exceed what buyers ever imagined. Unfortunately, many purchasers who failed to close in 2023 and 2024 are now being served with court actions naming them as Defendants and, in a lot of cases, bankruptcy is the only option.

It has been approximately a year since we last wrote on this topic. In this article, we build on our previous discussion by providing updates on two critical legal developments for preconstruction buyers: the evolving use of relief from forfeiture and the emerging "improvident sale" argument in damages claims. These updates, grounded in recent case law, may serve as precedents for arguments we may see considered in this new wave of failed transaction actions.

The Supreme Court of Canada in 2024 delivered an important decision in the area of regulatory prosecutions in the case of R. v. Greater Sudbury (City). This appeal arose from a fatal accident and concerned the proper interpretation of Ontario's Occupational Health and Safety Act, R.S.O. 1990, c. O.1 (“Act”).

The Corporation of the City of Greater Sudbury contracted with Interpaving Limited to act as constructor to repair a downtown water main. An Interpaving employee tragically struck and killed a pedestrian when driving a road grader, in reverse, through an intersection.  Contrary to the accompanying regulation, Construction Projects, O. Reg. 213/91 ("Regulation"), no fence was placed between the construction project workplace and the public intersection, and no signaller was assisting the Interpaving worker (see ss. 65 and 104(3)). In separate proceedings, Interpaving was tried and convicted for breaching the duty of employers under s. 25(1)(c) of the Act to "ensure that ... the measures and procedures prescribed [in the Regulation] are carried out in the workplace".

Legal fees measured by time dockets are a fundamental aspect of the lawyer-client relationship. However, they are not just a private matter between a lawyer and a client - they are also subject to audit by the court.

In Ontario, the court retains a supervisory jurisdiction over legal fees, and this role extends beyond mere mathematical calculations of time and hourly rates. The court ensures that legal services are billed fairly, in accordance with the principles under the Solicitors Act.

The decision in Belyavsky v. Monkhouse Law, 2024 ONSC 4970 illustrates that lawyers must be extra careful when docketing their time on a case. 

Introduction

Most franchise agreements specifically: (i) grant the franchisee the right to operate a business from a single location; and (ii) state that the franchise agreement’s term expires either at a specified date or when the franchisee ceases to have the right to operate the franchised business from the premises, using wording along the following lines: 

“Subject to the provisions of this Agreement, the Franchisor hereby grants to the Franchisee the right and license to operate the Franchised Business at the location specified in Schedule “A” … for a term (the “Term”) equal to the lesser of: 

1. ten (10) years; and
2. the term of the Lease as may be the case, and any renewals thereunder;” 

The decision of the Saskatchewan King’s Bench in Vern’s Pizza Company Limited v 101011333 Saskatchewan Ltd, involved the court determining when a franchise agreement which granted the franchisee a right to operate two franchised businesses from two separate leased locations, comes to an end. 

In the April 2022, Toronto Law Journal, I wrote an article entitled “There is No Afterlife for Administrative Monetary Penalties After Bankruptcy”. In that article I used the following hypothetical.

A securities broker may be alleged to have defrauded investors by making false statements regarding the use of their funds, and by using invested funds for improper purposes.  In the administrative regime, the securities broker may face restrictions on professional activities or an administrative monetary penalty (“AMP”) of not more than a $1 million for each failure to comply.

Following the imposition of a significant AMP in the millions of dollars, that same securities broker may think that she was fortunate that she was not prosecuted for fraud under the Criminal Code. She may also take some solace in the thought that the AMP, unlike a criminal fine in relation to fraudulent conduct, would not survive a pending bankruptcy. This  would enable her to get on her feet again.

Securities regulators take a different view and would argue that extinguishing the AMP would undermine the deterrent effect of the penalty imposed