The resale of an existing franchise often tempts franchisors to lean on disclosure exemptions under the Arthur Wishart Act, 2000. But as a recent Ontario Court of Appeal decision confirms, even limited involvement by a franchisor in the resale process can invalidate these exemptions triggering rescission rights and substantial damages.
The case in question, 2355305 Ontario Inc. v. Savannah Wells Holdings Inc.[i], dealt with a common fact pattern. Prospective franchisees expressed interest in joining the Wild Wing system. A representative of the franchisor encouraged them to acquire an existing franchise, personally arranged a tour, and handed over some vendor financials but crucially, no disclosure document. A new franchise agreement was later executed, and the franchisees took over the location. Within 18 months, they rescinded and sued under section 6(2) of the Arthur Wishart Act.
The franchisor attempted to rely on the exemption in section 5(7)(a)(iv) of the Act, which excuses disclosure obligations where a resale is “not effected by or through the franchisor.” The Ontario Court of Appeal decisively rejected this defence. Echoing earlier case law, including Springdale Pizza Depot, the Court emphasized that disclosure exemptions are to be narrowly interpreted in light of the Act’s consumer protection purpose.[ii]
Section 5(8) of the Act clarifies that a franchisor does not “effect” a grant merely by consenting to it or charging a transfer fee. But here, the franchisor’s conduct went well beyond that. The plaintiffs were steered to a specific resale, given proprietary business data, and required to execute a fresh franchise agreement rather than being assigned the vendor’s contract. According to both the trial and appeal courts, this was active participation. It made the resale “effected through” the franchisor, thereby nullifying the exemption.
Moreover, the Ontario Court of Appeal reiterated that the burden to prove an exemption always rests with the franchisor.[iii] The franchisor’s failure to do so meant the plaintiffs were entitled to rescind and to recover $672,188.00 in damages and $250,000.00 in substantial indemnity costs.[iv]
These findings echo a series of earlier decisions notably Dakin News Systems Inc. In the 2022 case 1901709 Ontario Inc. v. Dakin News Systems Inc.[v], the franchisor imposed a six step transfer protocol, required a $20,000 inventory fee, and mandated that the purchaser sign a new franchise agreement. Although Dakin had no direct contact with the purchaser, the court held it nevertheless controlled “every aspect” of the transaction through what was ultimately a franchisor driven process. The exemption did not apply.
In a prior ruling, 2256306 Ontario Inc. v. Dakin News Systems Inc., the Ontario Court of Appeal had already found that the mere requirement to sign a new franchise agreement can be sufficient to nullify the exemption.[vi] This was again emphasized in the 2023 Jayasena trial ruling, where the franchisor’s involvement and documentation requirements were found to go beyond a “passive” role.[vii]
What Jayasena v. Savannah Wells confirms is that this logic is now firmly entrenched. The courts have consistently emphasized from Springdale to Dakin to Savannah that requiring new documents, participating in negotiations, or orchestrating the transfer process constitutes active franchisor involvement.
The lesson for franchisors is simple: any meaningful role in a resale transaction whether by initiating the connection, supplying business information, or requiring new agreements is likely to disqualify the use of the resale exemption under s. 5(7)(a)(iv) of the Act. In such cases, the prudent and legally sound step is to provide a compliant disclosure document. Hoping to rely on an exemption, even in seemingly minor cases, invites costly litigation and statutory rescission.
Always consult a lawyer and accountant familiar with Ontario franchise law before finalizing any transaction. This article is for informational purposes only and does not constitute legal advice.
[i] 2355305 Ontario Inc. v. Savannah Wells Holdings Inc., 2025 ONCA 505
[ii] 2189205 Ontario Inc. v. Springdale Pizza Depot Ltd., 2011 ONCA 467
[iii] Section 12, Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3
[iv] 2355305 Ontario Inc. v. Savannah Wells Holdings Inc., 2025 ONCA 505 at para 20 and 22
[v] 1901709 Ontario Inc. v. Dakin News Systems Inc., 2022 ONSC 6008
[vi] 2256306 Ontario Inc. v. Dakin News Systems Inc., 2016 ONCA 74.
[vii] Jayasena Management Corp. et al. v. Savannah Wells Holdings Inc. et al., 2023 ONSC 1008, at para 45-47
