Missing Notes to Financial Statements and Other Disclosure Deficiencies

  • May 05, 2021
  • George A. Wowk, Cassels Brock & Blackwell LLP

Summary and Implications

In 2611707 Ontario Inc., et al v. Freshly Squeezed Franchise Juice Corporation, et al,[1] the Ontario Superior Court of Justice assessed a disclosure document for deficiencies. The Court concluded that the deficiencies, on an objective basis, were sufficient to deprive the franchisee of the ability to make an informed decision with respect to its investment in the franchised business, such that the franchisee was entitled to rescind within the two-year period under section 6(2) of the Arthur Wishart Act.

Background of the Case and Findings

2611707 Ontario Inc. operated a retail outlet selling specialized juice beverages as a franchisee of Freshly Squeezed Franchise Juice Corporation. The franchisee operated the franchised business for slightly less than a year before delivering a Notice of Rescission. 

Under the Arthur Wishart Act, in the event a franchisor fails to deliver a disclosure document to the franchisee, the franchisee is entitled, within two years of entering into the franchise agreement, to rescind the franchise agreement and be compensated for any net losses it may have incurred. 

While the franchisor did provide the franchisee with its disclosure document, the franchisee claimed that the deficiencies were so material that it was tantamount to no disclosure having been provided, thereby justifying rescission within the two years under section 6(2) of the Arthur Wishart Act.

The Court reviewed the franchisor’s disclosure document to assess whether the claimed deficiencies were sufficiently material that it effectively amounted to no disclosure being provided.