Regulator could help franchise feud

A dispute resolution tribunal … would save the people of Ontario millions of dollars in legal fees
… (and) a lot of agony.'- Mike Colle, minister of citizenship and immigration

The Toronto Star
March 16, 2006

Regulator could help franchise feuds
Province awaiting report from committee
James Daw


When the former Conservative government won all-party support for full disclosure, fair dealing and freedom of association for Ontario franchise buyers, the Liberals and New Democrats said it was just a first step.

They wanted a regulator to review the quality of disclosure given to franchisees, an inexpensive system to resolve disputes, rules to govern contractual relationships and penalties for breaking franchise law.

"We support this bill, but on the clear understanding that this is only the first step and not the last step towards franchise legislation," Municipal Affairs Minister John Gerretsen said in the Legislature May 17, 2000.

Toronto franchise lawyer Ben Hanuka, chairman of the joint subcommittee on franchising for the Ontario Bar Association, says he thinks it's about time the Liberals brought forward new legislation.

Some franchisors are not giving adequate disclosure, and franchisees who have already invested a life's savings at the age of 40 or 50 are having to spend $50,000 to $100,000 to enforce their rights under franchise law to rescind their contracts and recover payments. In some cases, the franchisor will not have the money to refund payments, or to compensate the franchisee for his legal costs to win a judgment.

"When a franchisee files a notice of rescission, the franchisor says: ‘Sue me’," Hanuka said. "If the franchisor is bad enough not to give you a disclosure document to begin with, most likely he will not refund the money,'' as we have seen with 3 for 1 Pizza & Wings (Canada) Inc. and Pizza One Group Inc.

The Toronto Star reported this week that former franchisees are waiting to collect about $1.1 million in court awards, plus legal costs and interest, from Reza (Anthony) Solhi of Richmond Hill, his former 3 for 1 Pizza franchise chain and related companies.

Meanwhile, Solhi and his family are facing a new string of lawsuits and default judgments and a police investigation at Pizza One, the first of three new franchise operations they have marketed from offices in Thornhill since 2004.

Hanuka represents clients who have unpaid judgments from 3 for 1 Pizza, and clients who are suing Pizza One, alleging its disclosure was so deficient, it amounted to no disclosure at all. These claims have not been proven in court.

"I think we should upgrade the teeth of the statute, and bring in a regulatory body to deal with the situation where there is an utter breach of providing a disclosure document," Hanuka argued. He also wants rules to eliminate the wide variance in the quality of disclosure documents.

"People should not be forced to locate a franchise lawyer and litigate this, but should have the benefit of a regulatory body, given that franchising plays such an important role in our economy and more and more people are choosing to buy a franchise instead of set up their own business."

"I think it falls on the ministry (of government services) to smell the coffee and step up — to upgrade the legislation to protect these people," he said, adding that several states in the United States already have such protection.

A dispute resolution tribunal …would save the people of Ontario millions of dollars in legal fees…(and) a lot of agony.'
- Mike Colle, minister of citizenship and immigration

This view was supported by Mike Colle, Ontario's current minister of citizenship and immigration, when he was in opposition. He predicted in 2000 that Ontario's Arthur Wishart Act (Franchise Disclosure), 2000, would be "a gold mine for lawyers."

Colle said the act left too much room for post-sale litigation, and that "a dispute resolution tribunal … would save the people of Ontario millions of dollars in legal fees … (and) a lot of agony."

London lawyer Daniel So, author of the Canadian Franchise Law Handbook, said franchises account for 40 per cent of retail sales in Ontario, and could help pay for a regulator.

A regulator could go after "rogue" franchisors, and require them to post a bond to compensate potential victims, and ensure access to justice. But he said any regulator should also protect compliant franchisors from rogue franchisees.

But lawyer Joseph Adler, who mainly represents franchisors, warned that "cumbersome laws will only dissuade honest franchisors from conducting business in this province and increase the cost of doing business for franchisors and franchisees, thereby hurting us all."

Richard Cunningham, president of the Canadian Franchise Association, said "we don't see the need for a regulator," noting that Alberta decided after a few years it was a waste of time to have the securities commission review franchise disclosure documents.

He argued that franchisees who lost their deposits did not do enough homework, or consult specialists in franchise law listed on the association website, before dealing with companies such as Solhi's.

Tony Martin, the federal MP from Sault Ste. Marie, who championed franchise legislation when at Queen's Park, said in 2000 it's unfair to blame franchisees for not doing their homework.

"That's patronizing and belittling of the very well-meaning, hard-working and intelligent people who get hoodwinked in this province today by salesmen with a dream to sell that in the end turns out to be pretty sour."

Government Services Minister Gerry Phillips, responsible for franchising law, is on vacation this week.

A ministry spokesman said the government is waiting for proposals from Hanuka's committee for changes in regulation, but officials are not working on changes in legislation. He said the government would review any proposals from its franchise sector working group, which includes franchisees, the Canadian Franchise Association and franchise lawyers.

James Daw, CFP, can be reached at Business, 1 Yonge St., Toronto M5E 1E6; by phone at 416-945-8633 ; 416-865-3630 by fax; or at ac.ratseht|wadj#ac.ratseht|wadj by email.

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