May 4, 2015
Jennifer Dolman and Alexandre Fallon, Canadian Lawyer
On April 15, 2015, the Québec Court of Appeal released its highly anticipated decision in Bertico Inc. v. Dunkin’ Brands Canada Ltd., a group action brought against Dunkin’ Donuts by 21 of its franchisees in Québec.
Dunkin’ Donuts was historically a strong brand in Québec with 210 stores in its heyday in 1998. However, a wave of Tim Hortons franchises flooded the province through the late 1990s and early 2000s, resulting in Dunkin’ Donuts’ market share plummeting to 4.6 per cent in 2003 from 12.5 per cent in 1995.
The plaintiffs brought an action against Dunkin’ Donuts for the termination of their leases and franchise agreements together with damages totalling $16.4 million. The claim alleged a repeated and continuous failure by Dunkin’ Donuts between 1995 and 2005 to “protect and enhance” the Dunkin’ Donuts brand in Québec.
The plaintiffs’ claim succeeded in full at the trial level and the franchisor appealed on several grounds. With the exception of the quantification of damages awarded to the plaintiff franchisees (resulting in the reduction of the damages awarded at trial by approximately $5.5 million), the Court of Appeal upheld the trial judge’s decision and reasoning. This included respect to the implicit obligations that flow from the general nature of franchise agreements, namely a duty incumbent upon a franchisor to provide its franchisees with technical support and co-operation in the aim of maintaining the relevance of the franchise relationship.
Last November, the Supreme Court of Canada found in Bhasin v Hrynew there is a common law duty that applies to all contracts to act honestly in the performance of contractual obligations.
Some commentators have argued Bhasin, combined with Bertico, increases the duties of franchisors across Canada. We disagree, as Bertico is based on concepts contained in the Civil Code of Québec that are not mirrored in the law of other Canadian provinces, and in any event, is not binding on courts outside of Québec.
As such, while franchisees across the country will undoubtedly attempt to invoke Bertico in the context of disputes with franchisors, it is the franchisors who hold the better arguments on whether or not the decision can be applied outside of Québec.
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