Materiality in Franchise Disclosure: An Analysis of How “Material Facts” Have Been Interpreted Under Other Legislation

Abstract

As the information imbalance inherent to the franchisor-franchisee relationship can put a franchise purchaser at a significant disadvantage in a transaction, several Canadian provinces have implemented legislation aimed at resolving this disparity. The legislation attempts to strike a balance between empowering potential purchasers in their decision-making process and unduly burdening franchisors with an obligation to produce all information available, regardless of utility. Integral to the determination of what must and need not be disclosed to a franchisee prospect is the concept of materiality, specifically the statutory obligation to disclose “material facts” and “material changes.”  While materiality is inherently contextual and thus cannot be precisely defined, without further guidance from the courts, franchisors will continue to grapple with the extent of disclosure necessary to conduct sound business transactions.