O (Why) Canada? The Ontario Court of Appeal Speaks in Rare Franchising Decision

Why should U.S. franchisors care about Canada and Canadian franchise law? Savvy franchisors realize that Canada's population is about the same as California's, and that the tastes of many Canadians are similar to (and molded) by their American counterparts. Also, U.S. franchisors' investment in Canada is facilitated under the North American Free Trade Agreement and the Investment Canada Act. While there are certainly similarities between the United States and Canada in the law respecting business-format franchising and trademarks, there are some major differences as well ' some subtle; others not so subtle. For example:

• There is no federal jurisdiction over franchising per se. Canada's constitution gives exclusive jurisdiction over property and civil rights ' including contracts and the like ' to the provinces.
• Contrariwise, provincial jurisdiction over trademarks is nonexistent: There are no provincial trademark registrations in Canada.
• As this is written, only the provinces of Alberta and Ontario have franchise-specific legislation in force ' the remaining provinces rely on laws of general application and (excepting Quebec) the common law to inform franchise practices.
• Franchises in the province of Quebec are largely governed by the Code Civil du Quebec (ie, the Civil Code of Quebec), which, among other things ' and unlike the common law provinces ' obliges parties to negotiate their contracts in good faith, not merely perform them in that manner once concluded.

The law as it relates to franchising has been slower to develop in Canada than in the United States. That is why the appearance of a new decision from the most populous province's Court of Appeal is a notable event. Such an event occurred on May 20, 2003 with the release of the Ontario Court of Appeal's decision in Shelanu Inc. v. Print Three Franchising Corp. [2003] O.J. No. 1919, Docket No. C35392. Arguably, this is the most important of the fewer than 100 or so franchise cases to reach that Court in the three decades since its decision in Jirna Ltd. v. Mr. Donut was released in 1972, later finding its way to the Supreme Court of Canada (reported at [1975] 1 S.C.R. 2) to become the most famous (if not the most famously followed) franchise decision in Canada.

The author's first acquaintance with the Shelanu case occurred upon the release of the judgment of judge Nordheimer, reported at [2000] O.J. No. 4129; Court File No. 97-CV-130338CM following 11 days of trial at Toronto. That release took place on Halloween Day in 2000, exactly three months before the disclosure obligations under Ontario's Arthur Wishart Act (Franchise Disclosure) 2000 were to come into force, but four months after the statutory duty of 'fair dealing' became applicable to conduct occurring subsequent to July 1, 2000: Canada Day. All the material conduct that formed the substratum of the Shelanu case had, however, occurred earlier.