British Columbia Bill 219 (Private Member) — 40th Parliament, 4th Session — Previous Version 1

40-4 Member Bill 219-1

British Columbia — Bills

c) Queen's Printer,

Victoria, British Columbia, Canada

License

Disclaimer

2015 Legislative Session: 4th Session, 40th Parliament

FIRST READING

The following electronic version is for informational purposes only.

The printed version remains the official version.

MS. CAROLE JAMES

BILL M 219 – 2015

FRANCHISE ACT

Contents

Definitions

Application

Fair dealing

Right to associate

Franchisor's obligation to disclose

Right of rescission

Damages for misrepresentation, failure to disclose

Joint and several liability

No derogation of other rights

Attempt to affect jurisdiction void

Rights cannot be waived

Burden of proof

Regulations

Commencement

This Bill is modelled on The Uniform Franchises Act that was prepared by the Uniform Law Conference of Canada. This Bill grants rights and imposes duties and obligations on

the parties to a franchise agreement, including a duty of fair dealing is imposed on the franchisor and the franchisee. A

franchisee has the right to associate with other franchisees. The franchisor cannot interfere with that right. A franchisor

must disclose certain information – including financial statements and all material facts about the franchise – to a franchisee

before the franchisee enters into the franchise agreement. If the information is not disclosed, the franchisee may cancel

the agreement within a certain time period. A franchisee may sue the franchisor and others for any loss suffered because of

a misrepresentation in the disclosed information. Those who disclose that information have certain defences. A franchisee

cannot waive his or her rights under Franchise Act .

HER MAJESTY, by and with the advice and consent of the Legislative Assembly of the Province of British Columbia, enacts as

follows:

Definitions

(1) In this Act,

"disclosure documents" means the disclosure document required by

section 5;

"franchise" means a right to engage in a business where the franchisee is required by contract or otherwise to make a payment or continuing

payments, whether direct or indirect, or a commitment to make such payment or payments, to the franchisor or the franchisor's

associate in the course of operating the business or as a condition of acquiring the franchise or commencing operations and,

(

a) In which,

(

i) The franchisor grants the franchisee the right to sell, offer for sale or distribute goods or services that are substantially

associated with the franchisor's, or the franchisor's associate's, trade-mark, trade name, logo or advertising or other commercial

symbol, and

(ii) the franchisor or the franchisor's associate exercises significant control over, or offers significant assistance in,

the franchisee's method of operation, including building design and furnishings, locations, business organization, marketing

techniques or training, or

(

b) in which,

(

i) the franchisor or the franchisor's associate grants the franchisee the representational or distribution rights, whether

or not a trademark, trade name, logo or advertising or other commercial symbol is involved, to sell offer for sale or distribute

goods or services supplied by the franchisor or a supplier designated by the franchisor, and

(ii) the franchisor or the franchisor's associate or third person designated by the franchisor, provides location assistance,

including securing retail outlets or accounts for the goods or services to be sold, offered for sale or distributed or securing

locations or sites for vending machines, display racks or other product sales displays used by the franchise;

"franchise agreement" means any agreement that relates to a franchise between,

(

a) a franchisor or franchisor's associate, and

(

b) a franchisee;

"franchisee" means a person to whom a franchise is granted and includes,

(

a) a subfranchisor with regard to that subfranchisor's relationship with a franchisor, and

(

b) a subfranchisee with regard to that subfranchisee's relationship with a subfranchisor;

"franchise system" includes,

(

a) the marketing, marketing plan or business plan of the franchise,

(

b) the use of or association with a trade-mark, trade name, logo or advertising or other commercial symbol,

(

c) the obligations of the franchisor and franchisee with regard to the operation of the business operated by the franchisee

under the franchise agreement, and

(

d) the goodwill associated with the franchise;

"franchisor" means one or more persons who grant or offer to grant a franchise and includes a subfranchisor with regard to that subfranchisor's

relationship with a subfranchisee;

"franchisor's associate" means a person,

(

a) who directly or indirectly,

(

i) controls or is controlled by the franchisor, or

(ii) is controlled by another person who also controls, directly or indirectly, the franchisor, and

(

b) who,

(

i) is directly involved in the grant of the franchise,

(

A) by being involved in reviewing or approving the grant of the franchise, or

(

B) by making representations to the prospective franchisee on behalf of the franchisor for the purpose of granting the franchise,

marketing the franchise or otherwise offering to grant the franchise, or

(ii) exercises significant operational control over the franchisee and to whom the franchisee has a continuing financial

obligation in respect of the franchise;

"franchisor's broker" means a person, other than the franchisor, franchisor's associate or franchisee, who grants, markets or otherwise offers

to grant a franchise, or who arranges for the grant of a franchise;

"grant" , in respect of a franchise, includes the sale or disposition of the franchise or of an interest in the franchise and, for

such purposes, an interest in the franchise includes the ownership of shares in the corporation that owns the franchise;

"master franchise" means a change, in the business, operations, capital or control of the franchisor or franchisor's associate or in the franchise

or the franchise system, that would reasonably be expected to have a significant adverse effect on the value or price of the

franchise to be granted or on the decision to acquire the franchise and includes a decision to implement such a change made

by the board of directors of the franchisor or franchisor's associate or by senior management of the franchisor or franchisor's

associate who believe that confirmation of the decision by the board of directors is probable;

"material fact" means any information, about the business, operations, capital or control of the franchisor or franchisor's associate or

about the franchise or the franchise system, that would reasonably be expected to have a significant effect on the value or

price of the franchise to be granted or the decision to acquire the franchise;

"misrepresentation" includes,

(

a) an untrue statement of material fact, or

(

b) an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading

in light of the circumstances in which it was made;

"prescribed" means prescribed by regulations made under this Act;

"prospective franchisee" means a person who has indicated, directly or indirectly, to a franchisor or a franchisor's associate or broker an interest

in entering into a franchise agreement, and a person whom a franchisor or franchisor's associate or broker, directly or indirectly,

invites to enter into franchise agreement;

"subfranchise" means a franchise granted by a subfranchisor to a subfranchisee.

(2) A franchise includes a master franchise and a subfranchise.

(3) A franchisee, franchisor or franchisor's associate that is a corporation shall be deemed to be controlled by another

person or persons if,

(

a) voting securities of the franchisee or franchisor or franchisor's associate carrying more than 50 per cent of the votes

for the elevation of directors are held, otherwise than by way of security only, by or for the benefit of the other person

or persons; and

(

b) the votes carried by such securities are entitled, if exercised, to elect a majority of the board of directors of the

franchisee or franchisor or franchisor's associate.

Application

(1) This Act applies with respect to,

(

a) a franchise agreement entered into on or after the coming into force of this section, if the business operated or to

be operated by the franchisee under the agreement is partly or wholly in British Columbia; and

(

b) a renewal or extension entered into on or after the coming into force of this

section of a franchise agreement that was

entered into before or after the coming into force of this section, if the business operated or to be operated by the franchisee

under the agreement is partly or wholly in British Columbia.

(2) Sections 3 and 4, paragraph 5(10)(

d) and sections 8 to 11 apply with respect to a franchise agreement entered into before

the coming into force of this section, if the business operated or to be operated by the franchisee under franchise agreement

is partly or wholly in British Columbia.

(3) This Act does not apply to,

(

a) an employer-employee relationship;

(

b) a partnership;

(

c) membership in,

(

i) an organization operated on a co-operative basis by and for independent retailers that,

(

A) purchases or arranges the purchase of, on a non-exclusive basis, wholesale goods or services primarily for resale by

its member retailers, and

(

B) does not grant representational rights to or exercise significant operational control over its member retailers,

(ii) a "cooperative corporation" as defined under subsection 136(2) of the Income Tax Act , R.S.B.C. 1985, c. 1 (5th Supp.), or as would be defined under that subsection, but for paragraph 136(2)( c),

(iii) an organization incorporated under the Canada Cooperatives Act , S.C. 1998, c. 1, or

(iv) an organization incorporated under the Cooperative Association Act , S.B.C. 1999, c. 28;

(

d) an arrangement arising from an agreement to use a trade-mark, trade name, logo or advertising or other commercial symbol

designating a person who offers on a general basis, for consideration, a service for the evaluation, testing or certification

of goods, commodities or services;

(

e) an arrangement arising from an agreement between a licensor and a single licensee to license a specific trade-mark, trade

name, logo or advertising or other commercial symbol where such licence is the only one of its general nature and type to

be granted in Canada by the licensor with respect to that trade-mark, trade name, logo or advertising or other commercial

symbol;

(

f) a relationship or arrangement arising out of an oral agreement where there is no writing that evidences any material

term or aspect of the relationship or arrangement; or

(

g) an arrangement arising out of an agreement,

(

i) for the purchase and sale of a reasonable amount of goods at a reasonable wholesale price, or

(ii) for the purchase of a reasonable amount of services at a reasonable price.

Fair dealing

(1) Every franchise agreement imposes on each party duty of fair dealing in the performance and enforcement of the agreement,

including in the exercise of a right under the agreement.

(2) A party to a franchise agreement has a right of action for damages against another party to the franchise agreement who

breaches the duty of fair dealing.

(3) For the purpose of this section, the duty of fair dealing includes the duty to act in good faith and in accordance with

reasonable commercial standards.

Right to associate

(1) A franchisee may associate with other franchisees and may form or join an organization of franchisees.

(2) A franchisor and a franchisor's associate shall not interfere with, prohibit or restrict, by contract or otherwise, a

franchisee from forming or joining an organization of franchisees or from associating with other franchisees.

(3) A franchisor and a franchisors' associate shall not, directly or indirectly, penalize, attempt to penalize or threaten

to penalize a franchisee for exercising any right under this section.

(4) Any provision in a franchise agreement or other agreement relating to a franchise which purports to interfere with, prohibit

or restrict a franchisee from exercising any right under this

section is void.

(5) If a franchisor or a franchisor's associate contravenes this section, the franchisee has a right of action for damages

against the franchisor or franchisor's associate, as the case may be.

Franchisor's obligation to disclose

(1) A franchisor shall provide a prospective franchisee with a disclosure document and the prospective franchisee shall receive

the disclosure document not less than 14 days before the earlier of,

(

a) the signing by the prospective franchisee of the franchise agreement or any other agreement relating to the franchise;

and

(

b) the payment of any consideration by or on behalf of the prospective franchisee to the franchisor or franchisor's associate

relating to the franchise.

(2) A disclosure document may be delivered personally, by registered mail or by any other prescribed method.

(3) A disclosure document must be one document delivered as required under subsections (1) and (2) as one document at one

time.

(4) The disclosure document shall contain,

(

a) financial statements as prescribed;

(

b) copies of all proposed franchise agreements and other agreements relating to the franchise to be signed by the prospective

franchisee;

(

c) statements as prescribed for the purpose of assisting the prospective franchisee in making informed investment decisions;

(

d) other information as prescribed; and

(

e) copies of other documents as prescribed.

(5) In addition to the statements, documents and information required by subsection (4), the disclosure document shall contain

all material facts.

(6) The franchisor shall provide the prospective franchisee with a written statement of any material change, and the prospective

franchisee shall receive such statement, as soon as practicable after the change has occurred and before the earlier of,

(

a) the signing by the prospective franchisee of the franchise agreement or any other agreement relating to the franchise;

and

(

b) the payment of any consideration by or on behalf of the prospective franchisee to the franchisor or franchisor's associate

relating to the franchise.

(7) For the purpose of paragraphs (l) (

b) and (6) (b), the payment of any consideration relating to the franchise does not

include payment of a deposit that

(

a) does not exceed an amount prescribed by regulation;

(

b) is refundable without any deductions if the prospective franchisee does not enter into a franchise agreement; and

(

c) is given under an agreement with the franchisor concerning the deposit that does not obligate the prospective franchisee

to enter into any franchise agreement.

(8) All information in a disclosure document and a statement of material change shall be accurately, clearly and concisely

set out.

(9) A disclosure document or statement of material change complies with this section, despite the presence in it of a technical

irregularity or error or other defect that does not affect the substance of the document, if it substantially complies with

this Act.

(10) This

section does not apply to,

(

a) the grant of a franchise by a franchise if,

(

i) the franchisee is not the franchisor, the franchisor's associate or a director, officer or employee of the franchisor

or the franchisor's associate,

(ii) the grant of the franchise is for the franchisee's own account,

(iii) in the case of a master franchise, the entire franchise is granted, and

(iv) the grant of the franchise is not effected by or through the franchisor;

(

b) the grant of a franchise to a person who has been an officer or director of the franchisor or the franchisor's associate

for at least six months immediately before the grant of the franchise, for that person's own account;

(

c) the grant of an additional franchise to an existing franchisee if that additional franchise is substantially the same

as the existing franchise that the franchisee is operating and if there has been no material change since the existing franchise

agreement or latest renewal or extension of the existing franchise agreement was entered into;

(

d) the grant of a franchise by an executor, administrator, sheriff, receiver, trustee, trustee in bankruptcy or guardian

on behalf of a person other than the franchisor or the estate of the franchisor;

(

e) the grant of a franchise to a person to sell goods or services within a business in which that person has an interest,

if the sales arising from those goods or services, as anticipated by the parties or that should be anticipated by the parties

at the time the franchise agreement is entered into, will not exceed 20 per cent of the total sales of the business during

the first year of operation of the franchise;

(

f) the renewal or extension of a franchise agreement where there has been no interruption in the operation of the business

operated by the franchisee under the franchise agreement and there has been no material change since the franchise agreement

or latest renewal or extension of the franchise agreement was entered into;

(

g) the grant of a franchise if the franchise agreement is not valid for longer than one year and does not involve the payment

of a non-refundable fee; or

(

h) the grant of a franchise if the franchisor is governed by

section 55 of the Competition Act , R.S.C., 1985, c. C-34.

(11) The Crown is not required to include the financial statements otherwise required by paragraph (4)(

a) in its disclosure

document.

(12) For the purpose of paragraph (10) (a) (iv), a grant is not effected by or through a franchisor merely because,

(

a) the franchisor has a right, exercisable on reasonable grounds, to approve or disapprove the grant; or

(

b) a fee must be paid to the franchisor in an amount set out in the franchise agreement or in an amount that does not exceed

the reasonable actual costs incurred by the franchisor to process the grant.

(13) For the purposes of subsections (1) and (6), an agreement is not a franchise agreement or any other agreement relating

to the franchise if the agreement only contains terms in respect of,

(

a) keeping confidential or prohibiting the use of any information or material that may be provided to the prospective franchisee;

(

b) designating a location, site or territory for a prospective franchisee.

(14) Despite subsection (13), an agreement that only contains terms described in paragraph (13) (

a) or (

b) is a franchise

agreement or any other agreement relating to the franchise for the purposes of subsections (1) and (6) if the agreement,

(

a) requires keeping confidential or prohibits the use of information,

(

i) that is or comes into the public domain without breaching the agreement,

(ii) that is disclosed to any person without breaching the agreement, or

(iii) that is disclosed with the consent of all the parties to the agreement; or

(

b) prohibits the disclosure of information to an organization of franchisees, to other franchisees of the same franchise

system or to a franchisee's professional advisors.

Right of rescission

(1) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than 60 days after receiving

the disclosure document, if the franchisor failed to provide the disclosure document or a statement of material change within

the time required by

section 5 or if the contents of the disclosure document did not meet the requirements of

section 5.

(2) A franchisee may rescind the franchise agreement, without penalty or obligation, no later than two years after entering

into the franchise agreement if the franchisor never provided the disclosure document.

(3) Notice of rescission shall be in writing and shall be delivered to the franchisor, personally, by registered mail, by

fax or by any other prescribed method, at the franchisor's address for service or to any other person designated for that

purpose in the franchise agreement.

(4) The notice of rescission is effective,

(

a) on the day it is delivered personally;

(

b) on the fifth day after it was mailed;

(

c) on the day it is sent by fax, if sent before 5 p.m.;

(

d) on the day after it was sent by fax, if sent after 5 p.m.;

(

e) on the day determined in accordance with the regulations, if sent by a prescribed method of delivery.

(5) If the day described in subsection (4) (b), (

c) or (

d) is a holiday, the notice of rescission is effective on the next

day that is not a holiday.

(6) The franchisor or franchisor's associate, as the case may be, shall, within 60 days of the effective date of the rescission,

(

a) refund to the franchisee any money received from or on behalf of the franchisee, other than money for inventory, supplies

or equipment;

(

b) purchase from the franchisee any inventory that the franchisee had purchased pursuant to the franchise agreement and

remaining at the effective date of rescission, at a price equal to the purchase price paid by the franchisee;

(

c) purchase from the franchisee any supplies and equipment that the franchisee had purchased pursuant to the franchise agreement,

at a price equal to the purchase price paid by the franchisee; and

(

d) compensate the franchisee for any losses that the franchisee incurred in acquiring, setting up and operating the franchise,

less the amounts set out in paragraphs (

a) to (c).

Damages for misrepresentation, failure to disclose

(1) If a franchisee suffers a loss because of a misrepresentation contained in the disclosure document or in a statement of

material change or as a result of the franchisor's failure to comply in any way with

section 5, the franchisee has a right

of action for damages against,

(

a) the franchisor;

(

b) the franchisor's broker;

(

c) the franchisor's associate; and

(

d) every person who signed the disclosure document or statement of material change.

(3) If the franchisor failed to comply with

section 5 with respect to a statement of material change, a franchisee who acquired

a franchise to which the material change relates shall be deemed to have relied on the information set out in the disclosure

document.

(4) A franchisee who is deemed under subsections (2) or (3) to have relied on a misrepresentation or information set out

in the disclosure document is conclusively deemed to have so relied, unless the franchisor or other party opposing relief

sought by the franchisee proves that the franchisee entered into the franchise agreement with actual knowledge, as the case

may be, of

(

a) a misrepresentation, or

(

b) a material change occurring between the delivery of a disclosure document and the execution of a franchise agreement

that was not described in a statement of material change delivered to the franchisee within the time required by the Act.

(5) A right of action under subsection (1) may be based upon a misleading or inaccurate statement in a financial or earnings

projection provided to a franchisee by the franchisor or franchisor's associate before the franchisee entered into a franchisee

agreement, unless the projection was made on a demonstrably reasonable basis and was accompanied by statements that:

(

a) the projection is made with respect to the future;

(

b) the projection is based on assumptions about future economic, fiscal, and other conditions; and

(

c) actual financial results may vary significantly from those predicted in the projection.

(6) A person is not liable in an action under this

section for misrepresentation if the person proves that the franchisee

acquired the franchise with knowledge of the misrepresentation or of the material change, as the case may be.

(7) A person, other than a franchisor, is not liable in an action under this

section for misrepresentation if the person

proves,

(

a) that the disclosure document or statement of material change was given to the franchisee without the person's knowledge

or consent and that, on becoming aware of its having been given, the person promptly gave written notice to the franchisee

and the franchisor that it was given without that person's knowledge or consent;

(

b) that, after the disclosure document or statement of material change was given to the franchisee and before the franchise

was acquired by the franchisee, on becoming aware of any misrepresentation in the disclosure document or statement of material

change, the person withdrew consent to it and gave written notice to the franchisee and the franchisor of the withdrawal and

the reasons for it;

(

c) that, with respect to any part of the disclosure document or statement of material change purporting to be made on the

authority of an expert or purporting to be a copy of or an extract from a report, opinion or statement of an expert, the person

had no reasonable grounds to believe and did not believe that,

(

i) there had been a misrepresentation,

(ii) the part of the disclosure document or statement of material change did not fairly represent the report, opinion or

statement of the expert, or

(iii) the part of the disclosure document or statement of material change was not a fair copy of or extract from the report,

opinion or statement of the expert;

(

d) that, with respect to any part of the disclosure document or statement of material change purporting to be made on the

authority of a statement in writing by a public official or purporting to be a copy of or an extract from a report, opinion

or statement of a public official, the person had no reasonable grounds to believe and did not believe that,

(

i) there had been a misrepresentation,

(ii) the part of the disclosure document or statement of material change did not fairly represent the report, opinion or

statement of the public official, or

(iii) that part of the disclosure document or statement of material change was not a fair copy of or extract from the report,

opinion or statement of the public official; or

(

e) that, with respect to any part of the disclosure document of statement of material change not purporting to be made on

the authority of an expert or of a statement in writing by a public official and not purporting to be a copy of or an extract

from a report, opinion or statement of an expert or public official, the person,

(

i) conducted an investigation sufficient to provide reasonable grounds for believing that there was no misrepresentation,

and

(ii) believed there was no misrepresentation.

Joint and several liability

(1) All or any one or more of the parties to a franchise agreement who are found to be liable in an action under subsection

3 (2) or who accept liability with respect to an action brought under that subsection are jointly and severally liable.

(2) All or any one or more of a franchisor or franchisor's associates who are found to be liable in an action under subsection

4 (5) or who accept liability with respect to an action brought under that subsection are jointly and severally liable.

(3) All or any one or more of the person specified in subsection 7 (1) who are found to be liable in an action under that

subsection or who accept liability with respect to an action brought under that subsection are jointly and severally liable.

No derogation of other rights

(1) Subject to subsections (2) and (3), the rights conferred by or under this Act are in addition to and do not derogate from

any other right or remedy any party to a franchise agreement may have at law.

(2) A franchisee is not required to elect between rescission under

section 6 of this Act and the statutory rights of action

for damages.

(3) A franchisee is not entitled to be indemnified by way of damages in respect of a loss recovered through rescission of

the franchise agreement.

Attempt to affect jurisdiction void

(1) Any provision in a franchise agreement purporting to restrict the application of the law of British Columbia or to restrict

jurisdiction or venue to a forum outside British Columbia is void with respect to claims arising under a franchise agreement

to which this Act applies.

(2) Without limitation, subsection (1) applies to a provision in a franchise agreement providing for disputes under the franchise

agreement to be submitted to arbitration.

(3) Subsection (1) does not apply to a claim if an action based on the claim was commended before the coming into force of

this section.

Rights cannot be waived

(1) Any purported waiver or release by a franchisee or a prospective franchisee of a right conferred by or under this Act

or of an obligation or requirement imposed on a franchisor or franchisor's associate by or under this Act is void.

(2) Subsection (1) does not apply to a waiver or release by a franchisee or prospective franchisee pursuant to a settlement

of an action, claim, or dispute.

Burden of proof

12 In any proceeding under this Act, the burden of proving an exemption or an exclusion from a requirement or provision is on

the person claiming it.

Regulations

(1) The Lieutenant Governor in Council may make regulations,

(

a) prescribing and governing the financial statements to be contained in the disclosure document;

(

b) prescribing statements for the purpose of

section 5 (4) (c);

(

c) prescribing an amount for the purpose of

section 5 (7) (a);

(

d) prescribing other information and documents for the purposes of sections 5 (4) (

d) and (e);

(

e) prescribing methods of delivery for the purposes of sections 5 (2), 6 (3), and prescribing rules surrounding the use

of such methods, including the day on which a notice of rescission delivered by such methods is effective for the purpose

section 6 (4) (e);

(

f) prescribing forms and providing for their use;

(

g) respecting any matter that the Lieutenant Governor in Council considers necessary or advisable to carry out effectively

the intent and purpose of this Act.

(2) A regulation made under subsection (1) may be general or specific in its application.

Commencement

14 This Act takes effect on the date of Royal Assent.

Explanatory Note