In this article, we provide an overview of Manitoba’s new limitations legislation – which finally takes full effect on September 30, 2024 – and its application to franchise law.
Each Canadian province has legislation that imposes deadlines for a party to bring a Court claim. These timeframes are known as “limitation periods.” Historically, the limitation period in Manitoba has varied depending on the nature of the party’s legal claim. For example, while claims for damage to personal property had to be brought within two years of the events giving rise to the claim, claims for breach of contract, misrepresentation or the recovery of debts could be brought at any time within six years.
In 2021, Manitoba enacted new limitations legislation to streamline limitation periods in Manitoba and to bring those periods into line with the limitation periods in several other provinces. The new Limitations Act, S.M. 2021, c. 44 (the “New Act”) entered into force on September 30, 2022.
Under the New Act, in Manitoba, all claims are now subject to a basic limitation period of two years from the date on which the claim was discoverable. That date is typically the date on which the party first knew, or ought to have known, of their claim. For a further summary as to how the “discoverability” principle works in the context of the New Act, please see our colleagues’ recent blog post on this topic.
The New Act initially entered into force with a “transitional period” through September 30, 2024 to allow the legislation to gradually take effect. During the current transitional period, the limitation period for all claims is the earlier of (a) September 30, 2024 and (b) the day on which the limitation period under the historical legislation would expire. The effect of this transitional period is that all claims that were discoverable before September 30, 2022 must be brought by September 30, 2024.
The New Act’s application to Franchise Law
Under the Franchises Act, there are two key dates that are specific to franchisees and franchisors in Manitoba, which have not been changed by the New Act:
- First, franchisees may rescind their franchise agreement within 60 days of entering into the franchise agreement if the disclosure document provided by the franchisor did not meet certain requirements. This includes if the franchisor failed to provide the disclosure document at least 14 days before entering in to the franchise agreement or taking any payment from the franchisee in connection with the franchise opportunity.
- Second, franchisees may rescind their franchise agreement within two years after entering into the agreement if the franchisor never provided the required franchise disclosure document or if the disclosure document was so deficient that it amounted to “no disclosure.” These limitation periods are specific to franchise disclosure claims, and these limitation periods have not been changed by the New Act.
For both franchisors and franchisees, the most significant consequence of the New Act is that the limitation periods for various other legal claims – including claims for breach of contract, misrepresentation, recovery of debts or other recoveries of funds – have been reduced from six years to two years.
To be clear, this change is not specific to the franchise context but rather it applies to all claims for breach of contract, misrepresentation, recovery of debts or other recoveries of funds, which may arise in the franchise context but also in other commercial contexts.
For franchisees, the importance of the New Act is that all potential legal claims that franchisees might have against the franchisor, such as claims for breach of contract or misrepresentation, are now subject to the basic two-year limitation period. Practically, if the franchisee’s potential claim against the franchisor was or could have been discovered at the time that the parties entered the franchise agreement, then the limitation period for those claims now “matches” the two-year period prescribed by the Franchises Act in Manitoba (and also by franchise legislation in Alberta, British Columbia and the form proposed in Saskatchewan) for the franchisee to rescind the franchise agreement on the basis that there no disclosure was provided.
Similarly, for franchisors, the importance of the New Act is that all potential legal claims that the franchisor might have against the franchisee are now subject to a general two-year limitation period. This includes claims for the recovery of any funds that the franchisor loaned to the franchisee around the time of entering into the franchise agreement, or any claims against the franchisee for other unpaid amounts that were advanced to the franchisee at that time. It is clear that the two-year anniversary of the franchise agreement has now taken on an added significance for both parties.
The New Act’s impact on franchise resales
For a franchisor or franchisee that is considering selling their business, the full entry into force of the New Act may be a welcome development.
When a party sells its business, typically the seller and purchaser must decide which of them bears legal responsibility for future Court claims arising from events that pre-date the sale of the business. If the seller had potential claims against it that were discoverable, or ought to have been discovered, at the beginning of the franchise relationship, historically there would have been a risk that such claims could surface within six years of the start of the franchise relationship, rather than two years. Under the New Act, there will be a reduced likelihood of such claims being advanced after the first two years of the franchise relationship has elapsed, resulting in a greater level of certainty as to what liabilities may exist after that point in time.
Notably, if a party attempts to file a Court claim after the basic two year limitation period has expired, the new Act is likely to provide a complete defence to that claim. In this scenario, the party facing the Court claim against it would likely succeed in bringing a preliminary motion to strike or dismiss the claim on the basis that the deadline for bringing the claim has expired.
The New Act’s impact on representations & warranties with a survival period
Often times, when a franchisee re-sells its franchised business to a new franchisee – or when a franchisor transfers its franchise system over to a new franchisor – the parties would enter into a contract that provides, among other things, a series of important representations and warranties relating to the business being sold. For example, the contract may contain representations and warranties stating that the seller has no outstanding tax liabilities that could attach to the assets being sold, or stating that the seller is not aware of any Court proceedings or other claims against the seller in connection with the franchised business. The seller often agrees to indemnify (compensate) the purchaser in the event that the purchaser later faces a claim resulting from an inaccurate representation or warranty provided by the seller.
The contract will generally provide its own “survival period” for these types of representations and warranties. In other words, the seller might agree to indemnify the purchaser for a breach of a representation or warranty for a defined period of time after the closing of the transaction. That “survival period” is sometimes less than two years.
Section 24 of the New Act states that “[a] limitation period may be extended — but not shortened — in writing, after this Act comes into force.” As a limitation period is about to expire, parties might decide to enter into an agreement to extend the two-year deadline to allow them to attempt to resolve their dispute without the need to escalate the matter to a public Court dispute. However, they are not permitted to shorten the two-year deadline.
We have considered whether the New Act allows parties to negotiate and include a survival period for representations and warranties (discussed above) that is less than two years. According to the Ontario Court of Appeal, the short answer is yes – it ruled that survival periods are “purely contractual” and they are separate and apart from limitation periods at law.
Parties are free to agree to indemnify one another and to impose time limits on those indemnification rights that are shorter or longer than the statutory limitation period. If the terms and procedures agreed to for indemnification are followed, and the conditions precedent to the rights for indemnification are met by the terms of the applicable contract (including, in this example, a breach of a representation and warranty within the contractually stated survival period) – but the indemnifying party does not follow through and reimburse the indemnified party accordingly – this may give rise to a claim for breach of contract. It would be this claim or potential cause of action that would then be subject to the limitation period specified at law.
However, franchisors must keep in mind that the 60-day and two-year rescission remedy periods available to franchisees under the existing (and proposed, in the case of Saskatchewan) franchise legislation in Western Canada, discussed above, cannot be shortened. Existing and proposed franchise legislation in each western Canadian province provides that any attempted waiver or release of a franchisee of a right that they have under the legislation, or of an obligation or requirement imposed on a franchisor under the legislation, is void. Practically, this means that parties cannot shorten the deadlines for rescission claims by franchisees pursuant to franchise legislation.
Conclusion
Franchisors and franchisees are encouraged to consider whether they have any potential claims that were discovered or could have been discovered before September 30, 2022. Any such claims must be brought by September 30, 2024. Moving forward, franchisors and franchisees looking to access Court remedies must be mindful that the timeframe to bring most claims has been abridged to two years.
Any franchisors or franchisees with questions about the new limitation period legislation in Manitoba should seek professional advice. Please contact a member of our franchise law team if you have a question or potential claim that you would like to discuss.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.