Franchising in the Province of Québec

• Author: Pascale Cloutier and Stéphane Teasdale
• Pages: 31-66

Franchising in the Province of Québec

CHAPTER 2

Pascale Cloutier and Stéphane Teasdale

Contents

31

I. Introduction of the Province of Québec . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

II. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

III. The Franchise Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

A. Nature of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

B. Adhesion Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

C. Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8

D. External Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

E. Abusive Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

F. Covenants Against Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

G. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

IV. Charter of the French Language (CQLR c C-11) . . . . . . . . . . . . . . . . . . . . 42

A. Office Québécois de la Langue Française . . . . . . . . . . . . . . . . . . . . . . 43

B. Use of Trademarks and Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

C. Signs and Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

D. Translation of Agreements and Other Materials . . . . . . . . . . . . . . . . . . 45

E. Products and Labels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

F. Websites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

G. Labour Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

H. Penalties and Other Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

V. Consumer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

A. Rules Governing Consumer Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 48

B. Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

C. Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

D. Representations and Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

E. Penalties and Other Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

VI. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

A. Personal Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

B. Movable Hypothecs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

1. Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

2. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

3. Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

C. Immovable Hypothecs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

32 Chapter 2

VII. Recent Developments and Case Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

A. Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

B. The Obligations Contained in the Franchise Agreements . . . . . . . . . . 58

C. The “Intensity” of the Franchisor’s Contractual Obligations . . . . . . . 63

D. The Application of the Business Judgment Rule . . . . . . . . . . . . . . . . . 63

E. Evidence of the Franchisor’s Fault . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

F. Causation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

G. The Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

VIII. Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

A. Damages for Lost Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4

B. Damages for Lost Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

C. Significance of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6

Franchising in the Province of Québec 33

33

I. Introduction of the Province of Québec

With a population of 8 million, the Province of Québec is the second largest in

Canada after Ontario. Québec has a unique status, as it is the only province in

Canada where the official language is French—Canada has two official lan-

guages, English and French. Québec’s legal system is based on a Civil Code,

similar to the one in force in most of the Western European countries. Since the

Canadian Constitution divides the powers to adopt legislation between the fed-

eral legislature and the provincial legislatures, Québec is also governed by fed-

eral laws and regulations.

The courts in Québec are established by the Canadian Constitution, and the

rules of evidence and administration of justice are very much influenced by the

British common-law system, with some distinction. Therefore, while the pro-

cess of a trial is very similar to the one in the other Canadian provinces, Québec

has its own unique Code of Civil Procedure, which makes the process of getting

a file ready for trial different from the other provinces. As an example, Québec

has no discovery of documents.

The Province of Québec has no specific laws or regulations governing fran-

chising. Therefore, franchise agreements are governed by the general rules of

contracts stipulated in the Québec Civil Code.

This chapter will provide an overview of the principal differences in fran-

chising between Québec and the other provinces in Canada.

Practice Note

Unlike the rest of Canada, the Province of Québec is a civil-law juris-

diction, with a Civil Code that regulates the law of contract. Québec

does not have any specific law that regulates franchising.

II. Disclosure

As mentioned, Québec has no specific laws or regulations governing franchis-

ing. Therefore, there is no mandatory disclosure process in Québec, and the

Civil Code of Québec general provisions governing contracts apply to franchise

agreements. The franchisor has a general obligation to divulge the information

in its possession that could have an effect on the decision of the franchisee to

enter into the franchise agreement. As a corollary obligation, the prospective

franchisee has the obligation to ask for all information relevant to his decision to

enter into the franchise agreement.