Saturday, December 01, 2012

U.S. Lawyers Should Not Draft Canadian Franchise Documents Without Consulting Local Counsel: Ontario Bar Association Group

This posting was written by Peter Reap, Editor of CCH Business Franchise Guide. 

The Ontario Bar Association Franchise Law Section posted a message on the ABA Forum on Franchising email listserv yesterday, warning U.S. franchise lawyers not to prepare Canadian franchise agreements, ancillary documents, and franchise disclosure documents without consulting Canadian counsel.

With the permission of the Chair of the ABA Forum, the 24-lawyer Executive group of the Ontario Bar Association Franchise Law Section sent an email to the Forum on Franchising membership, “so as to caution ABA Forum members on the inadvisability and risk of this practice.”

“While many U.S. lawyers will directly retain or arrange for their clients to retain qualified Canadian counsel to prepare or at least review these franchise documents, that is not always the case,” the message explained.

“We assume that most of the members of the ABA Forum are aware of the growing complexity involved in Canadian franchise documents, especially disclosure documents, as a result of various articles, papers, presentations at Forum programs, and messages on the Listserv,” it continued. “Courts in the Canadian provinces are regularly interpreting the provisions of provincial franchise laws and regulations, and making decisions that affect substantive provisions of franchise documents. Now with five separate provincial franchise laws, the preparation of Canadian disclosure documents has become even more complicated.”

Nevertheless, U.S. lawyers who are often highly qualified specialist in their own jurisdictions are preparing Canadian franchise documents containing significant errors or omissions, according to the group. “These lawyers are not professionally qualified to prepare Canadian franchise documents or give advice in respect of the laws of a foreign jurisdiction.”

The group expressed concerns about the risks to franchisors being advised on Canadian (and particularly, Ontario) franchise matters by lawyers not trained or qualified to practice law in the jurisdiction. “The statutory remedy of rescission for non disclosure or incomplete disclosure is very harsh, and has elevated the potential risk to lawyers who are not qualified to undertake this work. Unfortunately, this impact and risk can extend to those who sign disclosure document certificates and those involved in the sale and granting of franchises. Further, it may constitute the unauthorized practice of law in a particular province.”

U.S. franchise lawyers should consider whether their insurance provides coverage for professional negligence in preparing documents or giving advice on Canadian law, the group advised.

The message concluded with an invitation to contact any member of the Section Executive group, whose names and email addresses were included. All or most of the members are associate members of the ABA Forum on Franchising, according to Section Chair Larry Weinberg, who sent the message.

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