Business Law

Franchise Law - Duty to inform under Quebec Civil Law

Jul 18th, 2013

By Morris Szwimer

Recently, I wrote of the requirement under the Civil Code of Quebec to act in good faith and in a reasonable manner notwithstanding the fact that a binding agreement may not, in fact, have been entered into by the co-contracting parties.

 A decision of the Quebec Court of Appeal (9150-0595 Quebec Inc. vs. Franchises Cora Inc., 2013 QCCA 531 (rendered March 22, 2013)) recently confirmed the foregoing in the context of a franchisor/franchisee relationship.

Unlike certain common law provinces (Ontario, Alberta etc.) there is no specific legislation in force at the present time which regulates the relationship between franchisor and franchisee in the Province of Quebec (i.e. statutory requirements regarding disclosure of documentation prior to consummation of a contract, etc.).

In the decision at hand, the lower court of Quebec found that certain internal information compiled by the franchisor for its own purposes did not have to be revealed to the franchisee prior to the franchisee entering into a contractual relationship with the franchisor.  On appeal, the Court of Appeal applied the obligation to act in good faith and reasonably found in Article 6 and Article 1375 of the Civil Code of Quebec and determined that internal data compiled by the franchisor could, in certain instances, significantly influence the franchisee’s consent to enter into a contractual relationship with the franchisee.  Accordingly, the Court found that the lower Court judge erred in determining that the franchisor had fulfilled its duty to inform the franchisee pursuant to the Civil Code of Quebec.  Any information which could reasonably influence the franchisee in making its decision should in fact be revealed to the latter.

Franchisors are therefore cautioned to ensure that any information, even if compiled internally may have to be revealed to a franchisee prior to entering into any contractual relationship, if it would have an influence on the franchisee’s willingness to contract with the franchisor.

 Morris Szwimer is a corporate lawyer at Spiegel Sohmer working primarily in domestic and cross-border transactional work.