Fair Dealing in Franchise Agreements

Section 7 of the Franchises Act ofAlberta creates a statutory duty of fair dealing in the performance and enforcement of every franchise agreement

There is no definition of fair dealing under the Act, but over the years, the Courts have tiedthe common law concept of fair dealing to the notion of good faith, conveying a strong message to the parties to an agreement that they must conduct themselves and exercise their rights under the agreement in a fair way. The concept has also been interpretedas protecting the justifiedexpectations of the other party

The statutory duty of fair dealing allows the Courts to go beyond and behind a business deal and to second guess business decisions which in the Court’s opinion were not made in good faith.

¬†Generally, Courts have been inclinedto give relief to an oppressedparty where there is a perceivedinequality of bargaining power. Section 7 facilitates the Court’s scrutiny of franchise agreements and permits a Court to look at other factors, such as:

  • the closeness of the relationship between the Franchisor and Franchisee
  • the duration of the relationship between the parties; and
  • the amount of investment made by the Franchisee.

¬†This statutory duty of fair dealing imposes a higher duty of fairness on Franchisors to act honestly and not to abuse a Franchisee’s weakness. We would be pleasedto discuss with you further implications of these changes.