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Tutor Time Learning Centres

Full Case Name: 1518628 Ontario Inc. v. Tutor Time Learning Centres, LLC (2006)

This court decision is among the most influential Ontario court decisions under the Arthur Wishart Act (Franchise Disclosure), 2000, to date.

In this case, a Tutor Time Learning Centres day care facility was resold from the original franchisee to a new one. The franchisor required the spouse of the purchasing franchisee’s principal to sign the franchise agreement as guarantor.

The disclosure document appeared extensive and included all prescribed requirements, like financial statements, signed certificate, etc. However, it did not contain some important information about operational deficiencies that the day care had with the ministry.

After starting to operate the franchised day care, the new franchisee encountered problems and asked for the franchisor’s financial assistance. The franchisor agreed to provide financial assistance on condition of the franchisee sign a settlement agreement releasing the franchisor of any past claims. After consulting a transactional lawyer, the franchisee agreed and signed the settlement agreement and release.

Later, the franchisee started this case to cancel (rescind) its purchase of the franchise, and receive compensation for its losses. The Ontario Superior Court of Justice held as follows, for the first:

  • The franchisor was not exempt from the resale exemption in the Act because it “effected” the sale by requiring the spouse of the corporate franchisee’s principal to sign as guarantor. This requirement was in addition to the resale conditions in the franchise agreement, which required only that the principal (not the principal’s spouse) sign as guarantor.
  • The franchisor failed to provide adequate disclosure document because it did not disclose information about ministry deficiencies concerning the daycare centre’s operations.
  • However, the franchisee was not entitled to rescission because it had earlier signed a settlement and release in favour of the franchisor. The no-waiver provision in section 11 of the Act did not apply because the agreement that the settlement agreement was not a mere “release”, but rather a “settlement” with consideration. In addition, the franchisee had legal advice when signing the settlement.

The decision was made by a senior judge of the Ontario court, sitting on the specialized Commercial List, Mr. Justice Cumming (now retired), a former law professor at Osgoode Hall Law School.

Procedurally, this was the first franchise rescission case where a court held important substantive issues under the Act without a trial – through a motion for summary judgment.

More importantly, the decision has played a pivotal role in shaping, and continuing to shape, these multitude fundamental aspects of Ontario franchise disclosure law:

  • How lawyers and courts interpret complex issues of whether a particular release is part of a valid settlement or invalid under the no-waiver provision in section 11 of the Act.
  • What constitutes a ‘material fact’ that renders a disclosure document inoperative.
  • When a franchisor ‘effects’ a resale transaction and, as a result, is disqualified from the resale exemption in the Act.
  • When an additional party, such as a guarantor, is entitled to receive a separate disclosure document.
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