Disclosure document: CD, EMAIL, FAX or HARD COPY ?
Number 15 – November 3, 2008
QUESTION CORNER
Question (Ontario): Some franchisors offer their Disclosure Document on a CD. Please provide your opinion to this method as opposed to providing a specific Disclosure Document for each case in hard copy.
Answer: I am also aware of certain franchisors that provide a Disclosure Document to prospective franchisees by fax, by email and on a USB memory key. One franchisor even presents the Disclosure Document during a conference where the participants take notes.
Your example reminds me of when Internet came out. Everyone wondered whether existing laws already covered transactions on Internet or if new laws were going to be necessary to address this new transaction vehicle.
In the case of Internet, we quickly realized that the laws in place could apply to transactions on Internet, and therefore, that a specific law dealing with Internet transactions was not necessary.
Is it the same situation for Disclosure Documents provided on a CD, by email, by fax or on a USB memory key?
Let’s take a look at the applicable legislation in Ontario, the Arthur Wishart Act (the “Act”).
“Franchisor’s obligation to Disclose”
5.(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.
Methods of delivery
(2) A Disclosure Document may be delivered personally, by registered mail or by any other prescribed method.
Same
(3) A Disclosure Document must be one document, delivered as required under subsections (1) and (2) as one document at one time.”
It should be noted that it is the franchisor that has the burden of proving the prospective franchisee has been provided a Disclosure Document.
Article 5 is very clear in addressing your inquiry, but it does open the door to other methods of delivering a Disclosure Document by providing that, “A Disclosure Document may be delivered personally, by registered mail or by any other prescribed method”. However, a review of the regulations of the Act shows that no other method has been prescribed.
Therefore, nothing in the Act or its regulations permits a franchisor to provide a potential franchisee with a Disclosure Document other than in hard copy.
Contrary to the laws applicable to transactions on Internet, the Act does not apply to “new technologies”. The law maker has drafted this article to be interpreted restrictively and to protect prospective franchisees.
Furthermore, a Disclosure Document is not a static document. On the contrary, it may often require changes (annual update, material change, local market information, etc.).
A generic Disclosure Document does not respect the requirements under the Act.
Furthermore, I would add that a franchisor has an interest to provide a Disclosure Document to prospective franchisees in hard copy.
From a practical perspective, I don’t think any franchisor would want its potential franchisees to “walk around” with its Disclosure Document without protecting the information contained in the document. A Disclosure Document sent by email can easily be forwarded to other people. A CD or a USB key can easily be copied.
In fact, this is exactly why many franchisors include the Disclosure Document in the definition of “Confidential Information”. If it were to fall in the hands of a competitor, information concerning the franchisor, its activities, its finances, etc. could be used by the latter.
Article 5 of the Act is clear. The consequences are also very clear.
Claude J. Pellan, Attorney, Quebec, Canada
Franchise and Business Law
www.claudepellan.com
IMPORTANT NOTE: As previously mentioned, I do not give legal opinions in answers to questions in QUESTION CORNER. I provide my thoughts, comments and/or practical advice on issues that arise in the normal course of the activities of a franchisor. Therefore, I strongly advise that you consult an attorney from your province for a legal opinion on answers to questions in QUESTION CORNER.
THE SERVICE: For those that are receiving QUESTION CORNER for the first time, this is how the service works. To use this service, all you have to do is send a question on franchising or business law in general to info@claudepellan.com. I will choose a few questions of general interest and answer them by email. The person asking the question will not be identified and there are no subscription or user fees.
The questions and answers will be sent to other franchisors throughout Canada (unless otherwise indicated in the email) that may have the same question or wish to comment my answer.
If an answer to a question is urgent, please specify it in the email. I will provide my best efforts to respond to the question as quickly as possible.
