Franchises Act

Franchises Act 35 2015 November 17, 2015 1198514681/15035act/15035tlc E3tlc15035 Definitions and interpretation 1 1 In this Act: disclosure document means a disclosure document required by section 5; franchise means a right to engage in a business in which a franchisee is required by contract or otherwise to make a payment or continuing payments, whether direct or indirect, or a commitment to make that payment or those payments, to a franchisor, or a 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 trademark, 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 for, 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 a third person designated by the franchisor, provides location assistance, including A securing retail outlets or accounts for the goods or services to be sold, offered for sale or distributed, or B securing locations or sites for vending machines, display racks or other product sales displays used by the franchisee; franchise agreement means any agreement that relates to a franchise and is entered into between a a franchisor or franchisor's associate, and b a franchisee; franchise system includes the following: a the marketing, marketing plan or business plan of a franchise; b the use of or association with a trademark, trade name, logo or advertising or other commercial symbol; c the obligations of a franchisor and franchisee with regard to the operation of the business operated by the franchisee under a franchise agreement; d the goodwill associated with the franchise; franchisee means a person to whom a franchise is granted, including 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; franchisor means any person who grants or offers to grant a franchise, including 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 a franchisor, or ii is controlled by another person who also controls, directly or indirectly, a franchisor, and b who i is directly involved in the grant of a franchise A by being involved in reviewing or approving the grant of the franchise, or B by making representations to a 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 a franchisee and to whom the franchisee has a continuing financial obligation in respect of a franchise; franchisor's broker means a person, other than a franchisee, franchisor or franchisor's associate, 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 disposition of the franchise or of an interest in the franchise and, for this purpose, an interest in the franchise includes the ownership of shares in the corporation that owns the franchise; master franchise means a franchise that is a right granted, by a franchisor to a subfranchisor, to grant or offer to grant franchises for the subfranchisor's own account; material change 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, including a decision to implement the 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 on the decision to acquire the franchise; misrepresentation includes a an untrue statement of a 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; prospective franchisee means a person a who has indicated, directly or indirectly, to a franchisor, franchisor's associate or franchisor's broker an interest in entering into a franchise agreement, and b whom a franchisor, franchisor's associate or franchisor's broker invites, directly or indirectly, to enter into a franchise agreement; subfranchise means a franchise granted by a subfranchisor to a subfranchisee. 2 For the purposes of this Act, a reference to a franchise includes a master franchise and a subfranchise. 3 For the purposes of this Act, a franchisee, franchisor or franchisor's associate that is a corporation is deemed to be controlled by another person or persons, if a voting securities of the franchisee, franchisor or franchisor's associate carrying more than 50% of the votes for the election 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 the securities are entitled, if exercised, to elect a majority of the board of directors of the franchisee, franchisor or franchisor's associate. 4 For the purposes of the definition of "franchise" in subsection (1), a reference to a payment or continuing payments, as described in that definition, does not include a payment made in respect of a purchase described in section 2 (3) (g). Application 2 1 This Act applies with respect to a a franchise agreement entered into on or after the coming into force of this section, 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, on or after the coming into force of this section if the business operated or to be operated by a franchisee under the franchise agreement is wholly or partly in British Columbia. 2 Sections 3, 4, 5 (8) (d) and 10 to 13 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 a franchisee under the franchise agreement is wholly or partly in British Columbia. 3 This Act does not apply to the following: a an employer-employee relationship; b a partnership; c a membership in i an organization, operated on a cooperative basis by and for independent retailers, that A purchases, or arranges for the purchase of, on a non-exclusive basis, wholesale goods or services primarily for resale by the organization's member retailers, and B does not grant representational rights to or exercise significant operational control over the organization's member retailers, ii a cooperative corporation, as defined in section 136 (2) of the Income Tax Act (Canada) or as would be defined in that section, but for section 136 (2) (c) of that Act, iii a cooperative incorporated under the Canada Cooperatives Act , or iv an association incorporated under the Cooperative Association Act ; d an arrangement arising from an agreement to use a trademark, 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 trademark, trade name, logo or advertising or other commercial symbol, if the licence is the only one of its general nature and type to be granted in Canada by the licensor with respect to the trademark, trade name, logo or advertising or other commercial symbol; f a relationship or arrangement arising out of an oral agreement, if there is no writing that evidences any material term or aspect of the relationship or arrangement; 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 3 1 Every franchise agreement imposes on each party a duty of fair dealing in the performance and enforcement of the franchise agreement, including in the exercise of a right under the franchise 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 purposes 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 4 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 must not interfere with, prohibit or restrict, by contract or otherwise, a franchisee from associating with other franchisees, or from forming or joining an organization of franchisees. 3 A franchisor and a franchisor's associate must not, directly or indirectly, penalize, attempt to penalize or threaten to penalize a franchisee for associating with other franchisees, or for forming or joining an organization of franchisees. 4 If a provision in a franchise agreement or other agreement relating to a franchise purports to interfere with, prohibit or restrict a franchisee from associating with other franchisees, or from forming or joining an organization of franchisees, the provision is void. 5 If a franchisor or a franchisor's associate contravenes subsection (2) or (3), a franchisee has a right of action for damages against the franchisor or the franchisor's associate, as the case may be. Disclosure 5 1 A franchisor must provide a prospective franchisee with a disclosure document as set out in this section, and the prospective franchisee must have received the disclosure document at least 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, by or on behalf of the prospective franchisee to the franchisor or the franchisor's associate, of any consideration relating to the franchise. 2 A disclosure document may be delivered personally, by email or by any other prescribed method. 3 A disclosure document must be delivered as one complete document and delivered at one time. 4 A disclosure document must contain the following: a prescribed financial statements; b copies of all proposed franchise agreements, and other agreements relating to the franchise, to be signed by a prospective franchisee; c prescribed statements that have the purpose of assisting a prospective franchisee to make informed investment decisions; d other prescribed information; e copies of other prescribed documents. 5 In addition to the statements, documents and information required by subsection (4), a disclosure document must include all material facts. 6 A franchisor must provide a prospective franchisee with a written statement of any material change, and the prospective franchisee must receive the statement of material change as soon as practicable after the change has occurred and before the earlier of the following: a the signing, by the prospective franchisee, of a franchise agreement or any other agreement relating to a franchise; b the payment, by or on behalf of the prospective franchisee to the franchisor or franchisor's associate, of any consideration relating to the franchise. 7 All information in a disclosure document and a statement of material change must be set out accurately, clearly and concisely. 8 This section does not apply to the following: a the grant of a franchise by a franchisee, if i the franchisee is not the franchisor, the franchisor's associate or a director, officer or employee of the franchisor or of 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 of the franchisor's associate for at least 6 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 i the additional franchise is substantially the same as the existing franchise that the franchisee is operating, and ii 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, liquidator 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% 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, if there has been i no interruption in the operation of the business operated by the franchisee under the franchise agreement, and ii no material change since the franchise agreement, or the latest renewal or extension of the franchise agreement, was entered into; g the grant of a franchise, if the franchise agreement, including any renewal or extension of that franchise agreement, i is valid, or would be valid, for one year or less, and ii does not involve the payment of a non-refundable initial franchise fee, renewal fee or extension fee; h the grant of a franchise, if section 55 of the Competition Act (Canada) applies to the franchisor; i the grant of a franchise, if the prospective franchisee is investing an amount greater than a prescribed amount in the acquisition of the franchise. 9 For the purposes of subsection (8) (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 a franchise agreement or in an amount that does not exceed the reasonable actual costs incurred by the franchisor to process the grant. 10 Subsection (4) (a) does not apply if the franchisor is the government of British Columbia. 11 For the purposes of subsections (1) and (6), an agreement is not a franchise agreement or any other agreement relating to a 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 a prospective franchisee, or b designating a location, site or territory for a prospective franchisee. 12 Despite subsection (11), an agreement that only contains terms described in paragraph (a) or (b) of that subsection is a franchise agreement or any other agreement relating to a 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 in 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 of 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. 13 For the purposes of subsections (1) (b) and (6) (b), the payment of any consideration relating to a franchise does not include the payment of a deposit that a does not exceed an amount prescribed by regulation, b is refundable without any deductions, if a prospective franchisee does not enter into a franchise agreement, and c is given under an agreement with a franchisor concerning the deposit that does not obligate the prospective franchisee to enter into any franchise agreement. Right of rescission 6 1 A franchisee may rescind a franchise agreement, without penalty or obligation, within 60 days after receiving a disclosure document, if a a franchisor failed to provide the disclosure document or a statement of material change within the time required by section 5, or b the contents of the disclosure document did not meet the requirements of section 5. 2 A franchisee may rescind a franchise agreement, without penalty or obligation, within 2 years after entering into the franchise agreement, if a franchisor never provided a disclosure document. 3 A notice of rescission must be in writing and delivered to a franchisor, personally 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 A notice of rescission is effective, a if delivered personally, on the day the notice is delivered, or b if delivered by any other prescribed method of delivery, on the day determined in accordance with the regulations. 5 A franchisor or franchisor's associate, as the case may be, must, within 60 days after the effective date of a rescission, a refund to a 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 under the franchise agreement and remaining on 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 under 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 7 1 If a franchisee suffers a loss because of a misrepresentation contained in a disclosure document or in a statement of material change, or as a result of a franchisor's failure to comply in any way with section 5, the franchisee has a right of action for damages against the following: a the franchisor; b the franchisor's broker; c the franchisor's associate; d every person who signed the disclosure document or statement of material change. 2 Subject to section 8 (1), if a disclosure document or statement of material change contains a misrepresentation, a franchisee who acquired a franchise to which the disclosure document or statement of material change relates is conclusively deemed to have relied on the misrepresentation. 3 Subject to section 8 (1), if a 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 is conclusively deemed to have relied on the information set out in the disclosure document provided by the franchisor under section 5. Exceptions and defences to liability 8 1 A person is not liable in an action under section 7 (1) for misrepresentation, if the person proves that the franchisee acquired the franchise with actual knowledge of the misrepresentation or the material change. 2 A person, other than a franchisor, is not liable in an action under section 7 (1) for misrepresentation, if the person proves any of the following: a that the disclosure document or statement of material change was provided to the franchisee without that person's knowledge or consent and, on becoming aware that the disclosure document or statement of material change had been provided, that person promptly gave written notice to the franchisee and the franchisor that the disclosure document or statement of material change had been provided 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, that person withdrew consent to it and gave written notice to the franchisee and the franchisor of the withdrawal of consent 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, that 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, that 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 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 public official; e that, with respect to any part of the disclosure document or 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, that person i conducted an investigation sufficient to provide reasonable grounds for believing there was no misrepresentation, and ii believed there was no misrepresentation. Substantial compliance 9 A disclosure document or a statement of material change complies with section 5 despite the presence of a defect in form, a technical irregularity or an error, if a the defect in form, the technical irregularity or the error does not affect the substance of the disclosure document or the statement of material change, and b the disclosure document or the statement of material change is substantially in compliance with this Act. Joint and several liability 10 1 If 2 or more parties to a franchise agreement are found to be liable in an action brought under section 3 (2), or accept liability with respect to an action brought under that section, they are jointly and severally liable. 2 If 2 or more franchisors or franchisor's associates are found to be liable in an action brought under section 4 (5), or accept liability with respect to an action brought under that section, they are jointly and severally liable. 3 If 2 or more persons specified in section 7 (1) are found to be liable in an action brought under that section, or accept liability with respect to an action brought under that section, they are jointly and severally liable. No derogation of other rights 11 1 Subject to this section, the rights conferred 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 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 a franchise agreement. Attempt to affect jurisdiction void 12 1 If a provision in a franchise agreement purports to restrict the application of the law of British Columbia or to restrict jurisdiction or venue to a forum outside British Columbia, the provision 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 commenced before the coming into force of this section. Rights cannot be waived 13 1 Any purported waiver or release by a franchisee, or by a prospective franchisee, of a right conferred under this Act or of an obligation or requirement imposed on a franchisor or franchisor's associate under this Act is void. 2 Subsection (1) does not apply to a waiver or release by a franchisee, or by a prospective franchisee, made in accordance with a settlement of an action, claim or dispute. Burden of proof 14 In a proceeding under this Act, the burden of proving an exemption or exclusion from a requirement or provision is on the person claiming the exemption or exclusion. Section 5 of Offence Ac t 15 Section 5 of the Offence Act does not apply to this Act or the regulations. Regulations 16 1 The Lieutenant Governor in Council may make regulations referred to in section 41 of the Interpretation Act . 2 Without limiting subsection (1), the Lieutenant Governor in Council may make regulations as follows: a exempting, with or without conditions, a person or class of persons completely or partially from the application of section 5; b prescribing methods of delivery and rules with respect to the use of the methods of delivery for the purposes of section 5 (2); c prescribing and governing the financial statements to be contained in a disclosure document for the purposes of section 5 (4) (a); d prescribing statements, information and documents for the purposes of section 5 (4) (c) to (e); e prescribing an amount for the purposes of section 5 (8) (i); f prescribing a deposit amount for the purposes of section 5 (13) (a); g prescribing methods of delivery and rules with respect to the use of the methods of delivery for the purposes of section 6 (3) and (4), including the day on which a notice of rescission delivered by such methods is effective for the purposes of section 6 (4) (b); h prescribing forms and providing for their use. 3 In making regulations under this Act, the Lieutenant Governor in Council may make different regulations for different circumstances, persons or things, or for different classes of circumstances, persons or things. Commencement 17 This Act comes into force by regulation of the Lieutenant Governor in Council.