On June 21, 2012, the Honourable Daniel H. Tingley of the Quebec
Superior Court issued a 43 page judgment which ordered Dunkin'
Brands Canada Ltd. (the "Franchisor") to
pay 21 of its franchisees in Quebec (the
"Franchisees") an aggregate sum of
almost $16.5 million, plus interest and costs, for having failed
"to protect and enhance the Dunkin Donuts brand in
Quebec." The decision in Bertico Inc. et al v. Dunkin'
Brands Canada Ltd. [Dunkin'
Donuts] was a resounding victory for the Franchisees.
The outcome in Dunkin' Donuts contrasts sharply with
the Fairview Donut Inc.and Brule Foods Ltd. v. The
TDL Group Corp. and Tim Hortons Inc. [Tim
Hortons] decision, recently examined by this author,
where Tim Hortons Inc. obtained summary judgment in the Ontario
Superior Court of Justice against efforts by franchisees to certify
a class action.
Despite its historical success, Dunkin' Donuts' market
share in Quebec was all but wiped-out in a single decade. By the
time Tingley, J.S.C. wrote his decision in 2012, less than 13
outlets remained. Foreshadowing this spectacular decline were
repeated warnings by the Franchisees to the Franchisor of what
would eventually be known as the "Tim Hortons'
phenomenon." According to Tingley, J.S.C., "[l]ittle was
done that was effective to combat this
Quebec versus English-Canada
As Dunkin' Donuts was decided in Quebec, which
follows the civil law tradition for private law matters, the case
is not binding at common law on the rest of Canada;
correspondingly, Tim Hortons is not binding in Quebec. In
practice, however, each of these legal systems will treat similar
cases with reverence.
At issue in both cases was the extent to which franchisees are
entitled to earn a reasonable profit. In Tim Hortons, the
franchisees argued that they did not earn enough profit, whereas in
Dunkin' Donuts, the Franchisees had lost their
businesses and their livelihoods. The seriousness of the financial
claims resulted in two very different results. However, in
Dunkin' Donuts, Tingley, J.S.C. cautioned that the
Franchisor was neither "the insurer of the Franchisees nor a
guarantor of their success."
At issue in both Tim Hortons and Dunkin'
Donuts was the language of the respective franchise
agreements. In Tim Hortons, it was the language of its
franchise agreement which provided the franchisor with wide
discretion. In the franchise agreement in Dunkin'
Donuts, the Franchisor specifically "assigned to itself
the principal obligation of protecting and enhancing its
brand." The Franchisor failed to meet this contractual
responsibility, "thereby breaching the most important
obligation it had assumed in its contracts."
In Tim Hortons, the Court noted that there are limits
to what a franchisor can do, in that "[i]t must deal fairly
with its franchisees and act in good faith and in accordance with
reasonable commercial standards in the performance of its
contract." In Dunkin' Donuts, Tingley, J.S.C.
observed that "[f]ranchisors are bound by an obligation of
good faith and loyalty towards their franchisees." Although
both legal systems emphasize the importance of good faith, it
should be noted that the Quebec model appears to take the extra
step of requiring a franchisor to actively attempt to shield its
franchisees from hardship.
There is nothing in the judgment of Dunkin' Donuts
that explicitly refers to the Franchisor having been negligent.
However, it is noteworthy that the Franchisees characterized the
Franchisor as having acted negligently and in bad faith, which was
cited by Tingley, J.S.C. in awarding damages. At a minimum, the
concept of franchisor negligence was implicitly lurking at the back
of Tingley, J.S.C.'s mind. However, there was no official
recognition of franchisor negligence in Dunkin'
Donuts, and no tort exists at Canadian common law or in the
Quebec civil code.
The decisions in Tim Hortons and Dunkin'
Donuts provide an important lesson for franchisors and
franchisees alike. Though these cases come close to establishing a
set of principles that could one day be the foundation for
"franchise law" as a discrete area in Canadian common
law, they instead reinforce the notion that the
franchisor-franchisee relationship is predicated primarily on the
contractual terms of a franchise agreement.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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