Canada: Québec Court Of Appeal’s Dunkin' Case Judgment: Franchisor’s Liability Confirmed, But Awarded Damages Reduced

When it comes to franchise law, Québec is in a class of its own. Unlike other Canadian provinces, the franchise agreement in Québec is an innominate, onerous, synallagmatic contract of successive performance governed by the rules of common law under the Civil Code of Québec, as well as by certain statutes of general application.

Thus, franchise agreements in Québec are not defined or governed by any particular statute, as they are in Ontario with the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3, or in Alberta with the Franchises Act, RSA 2000, c-F23.

The Québec franchise agreement is a contract concluded between two independent parties – the franchisor and the franchisee. They are bound by a contractual relationship, which is defined and determined by the parties in the agreement. As is the case with all contracts governed by Québec law, the franchise agreement contains explicit obligations, i.e., those set out by the parties to the agreement, and implicit obligations, i.e., those stemming from the nature of the agreement as well as from usage, equity and the law.

Given this context, franchise law in Québec is shaped by case law. Thus, it is through the various franchising judgments issued by the courts that the obligations respectively incumbent upon the franchisor and the franchisee are analyzed, defined and specified.

The Dunkin' case is clearly the biggest franchising court case in Québec's history since the Provigo1judgment in 1997. On April 15, 2015, the Québec Court of Appeal released a much-awaited decision with regards to this legal battle, which has been ongoing since 2003, between 21 franchisees collectively operating 32 Dunkin' Donuts establishments in Québec and the Canadian franchisor Dunkin' Brands Canada.

The 2012 Québec Superior Court judgment

First, a brief summary of the proceedings instituted by the franchisees against the Canadian franchisor Dunkin' Brands Canada:

In 2003, the franchisees filed a motion with the Québec Superior Court to terminate their franchise agreements and leases, and to seek damages from the franchisor. 

In their main complaint against the opposing party, the franchisees claimed that the franchisor had breached its contractual obligations by failing to protect and enhance the "Dunkin Donuts" brand in Québec from 1995 to 2005, when franchisees faced fierce competition from Tim Hortons.

The franchisees also criticized the franchisor's failure to execute its own action plan. In fact, towards the end of the 2000s, Dunkin' Brands Canada had established a voluntary program for its franchisees to deal with and respond to the intense competition offered by Tim Hortons. This voluntary program involved the franchisees making a sizeable investment to renovate their respective establishments as well as entering into a broad release for the benefit of the franchisor, in exchange for incentive payments from the franchisor. The action plan also provided that the franchisor would make an investment of nearly $20M to enhance the "Dunkin' Donuts" brand in Québec.

Nevertheless, for various reasons, including a lack of participation by the franchisees, the franchisor's program was never applied. The franchisor then transferred and assigned all of its franchise agreement rights to Couche-Tard. Couche-Tard later terminated these agreements, stating that the franchises were not profitable.

After a 71-day hearing, the Honourable Daniel H. Tingley, writing for the Québec Superior Court, released a lengthy decision totalling over 40 pages. The Superior Court found that the franchisor had breached its contractual obligations by failing to adequately support its franchisees, and failing to protect and enhance its trademark network in Québec. Consequently, the Superior Court cancelled the releases entered into by the franchisees, finding these to be abusive and to have been obtained through false representations, and the Court terminated the commercial leases and franchise agreements. The Court also awarded the franchisees almost $16.5M for loss of profits, loss of investment and various damages.

Among other things, what emerges from the judgment rendered by the Superior Court is that with regards to franchising in Québec, brand protection is an ongoing and successive obligation incumbent upon the franchisor.

An inscription in appeal was filed on July 24, 2012. This case is greatly significant for the Québec franchising industry —  not only because of its magnitude, but also due to the fact that the Canadian Franchise Association had filed a motion for intervention. This motion was denied.2 

The 2015 Québec Court of Appeal judgment

On April 15, 2015, the Honourable Nicholas Kasirer, writing for the Québec Court of Appeal, effectively upheld the Superior Court's decision, but reduced the quantum of damages awarded to the franchisees from $16.4M to $11M.

At the outset, the Court of Appeal judgment brings interesting clarifications. It notes that the fact that the breakup of the Dunkin' Donuts franchise network in Québec is unprecedented in the province's annals of franchising has no bearing on the dispute between the parties before the courts. The Court further states that in fact, the dispute between Dunkin' Brand Canada and its Québec franchisees involves the application of widely accepted legal principles in Québec law, including the doctrine of implied obligations provided in section 1434 of the Civil Code of Québec and the duty of good faith set out in the Provigo judgment, which was rendered by the Court of Appeal nearly 18 years ago and holds undeniable precedential value.

A. The franchisor's grounds for appeal with regards to fault

The Court of Appeal rejected the seven main grounds of appeal raised by the franchisor with regards to fault.

Obligational content of the franchise agreement

The franchisor alleged that its obligation to protect and support the Dunkin' Donuts brand in Québec did not include the obligation to thwart all competition the franchisees might face, and the obligation to guarantee their profitability.

The Court of Appeal dismissed this first ground and affirmed that franchise agreements clearly state that the obligation of the franchisor is to make ongoing efforts to enforce high and uniform quality standards to protect and enhance the Dunkin' Donuts brand and reputation in Québec. This obligation is the very essence of the franchise agreement. Indeed, the franchise agreement establishes a long-term relationship of co-operation and collaboration between the franchisor and its franchisees — a relationship reflecting both common and diverging interests. To this end, the brand's protection is a crucial element and the franchisor must enforce it in a significant manner during the contractual relationship.

Thus, the Court of Appeal maintained the Superior Court's decision: the franchisor's obligation to protect and enhance the brand is ongoing and successive. The Court of Appeal noted that this is especially relevant considering the role and the powers given to the franchisor in the franchise agreement — that of constantly monitoring the network's operations and enforcing uniform standards. In this context, the franchisor's obligation to protect and enhance the brand was qualified by the Court of Appeal as a necessary complement to the franchise agreement by its very nature.

With regards to the implied duty of good faith as found in the Provigo judgment and which the Superior Court referred to extensively, the Court of Appeal wrote that the pursuit of diverging interests on the part of the franchisors and the franchisees does not constitute an obstacle to the duty of mutual good faith. On the contrary, the pursuit of diverging interests must be exercised within the parameters of the contract and of the inherent duty of good faith, a responsibility shared by the parties. The duty of good faith implies an obligation of co-operation which is the inherent feature of any relational contract such as the franchise agreement.

Thus, the Court of Appeal upheld the Superior Court's decision, stating that the franchisor has breached his duty to protect and enhance the brand.

Intensity of the franchisor's obligation to protect and enhance the brand

The franchisor argued that his obligation to protect and enhance the brand is an obligation of means and not an obligation of results.

The Court of Appeal rejected this argument on the grounds that the franchisor does not differentiate between intensity of obligation and quantum of damages.

Application of the "business judgment rule"

The franchisor argued that the "business judgment rule" must be applied.

The Court of Appeal rejected the proposed application of the "business judgment rule." Any business has discretion in conducting its business activities, but courts have the power to intervene when there are allegations of breach of contractual obligations from a party.

Assessment of the evidence with regards to measures undertaken by the franchisor

Measures undertaken by the franchisor to assist the franchisees in staving off the strong competition presented by Tim Hortons were not sufficiently taken into consideration, according to Dunkin' Brands Canada.

The Court of Appeal dismissed this argument, reiterating that the franchisor had tolerated bad performance on part of some franchisees that the Court of Appeal qualified as "bad apples" in its judgment, which disadvantaged the network of franchisees. Moreover, the measures taken by the franchisor were insufficient under the circumstances.

Lack of causal connection

The franchisor affirmed that there was no causal connection between the conduct of the franchisor and the damages suffered by the franchisees. This ground of appeal was also dismissed.

Validity of the releases

The franchisor asserted that the releases signed by the franchisees were valid and should not have been annulled by the Superior Court. This ground of appeal was rejected.

Prescription evidentiary objections

The franchisor affirmed that the arguments raised at trial court regarding the prescription were not considered and that some evidentiary objections asserted should have been granted. This ground of appeal was rejected.

B. The franchisor's grounds for appeal with regards to damages

With regards to damages, the franchisor affirmed that the Superior Court had erred in its assessment of damages awarded for loss of profit and loss of investment.

Loss of profit

Contradictory methods for calculating loss of profit were presented by the parties' respective experts at trial court. The preferred method of calculating losses was that of the franchisees, which is based on a comparison with Tim Hortons' growth during the relevant period.

Thus, the Superior Court awarded profit losses to the franchisees based on 100% of Tim Hortons' growth in Canada, totalling almost $7.4M between 2000 and 2005. In appeal, the franchisor asserted that it was unreasonable to adopt such a calculation method considering the major differences between Tim Hortons' and Dunkin' Donuts' business models. More specifically, the franchisor drew attention to the fact that Tim Hortons had a drive-through service, while Dunkin' Donuts did not.

The Court of Appeal intervened to review the amount awarded as loss of profits for the franchisees with regards to two aspects. The first pertained to the relevant period on which the loss of profit calculations were based. The Court of Appeal applied the three-year legal prescription period and subtracted an amount of $248,000 from the damages awarded by the Superior Court to the franchisees as loss of profit.

The second aspect pertained to royalties and other payments that franchisees owed under their franchise agreements. Taking into account the franchisor's condemnation to pay the franchisees' loss of profit, the latter are still obliged to pay any contribution owed as if the contract had been properly executed under the principle of performance by equivalence. Thus, an amount of $890,528 was subtracted from the amount awarded by the Superior Court as loss of profit.

Moreover, the Court of Appeal reviewed the trial court's decision and retained, as a basis for comparison, 75% of Tim Hortons' growth and not 100% as the Superior Court had calculated. The Court of Appeal deemed it necessary to take into account the competitive advantage held by Tim Hortons with its drive-through service, as well as the advantage Tim Hortons obtained from the weakening of Dunkin' Donuts' competition. It was also necessary to take imponderables into account, as had been done in the Provigo judgment.

The damages awarded to the franchisees as loss of profit were thus reduced from almost $7.4M to $4.4M.

Loss of investment

The Court of Appeal believed that the calculation of the damages awarded as loss of investment should have also been calculated through a comparison with Tim Hortons based on 75% of its growth rather than 100%. Moreover, the franchisees who received money from the franchisor to renovate their establishment will have to reimburse it.

The damages awarded as loss of investment were reduced from almost $9.1M to $6.5M.


In short, the judgment rendered by the Superior Court of Québec in 2012 has been completely maintained with regards to the liability of the franchisor, Dunkin' Brands Canada. As for the damages, the quantum has been revised by the Court of Appeal: the damages awarded by the franchisees have been reduced from $16.4M to $11M, plus interests and disbursements — an amount to be divided among the franchisees.

The parties have been given 60 days to request leave to appeal before the Supreme Court of Canada.

In another judgment rendered on April 15, 2015, the Court of Appeal also rejected the franchisor's appeal pertaining to special fees of $240,000 that were awarded to the franchisees by the Superior Court of Québec.3

What emerges from this Court of Appeal judgment is that the franchisor's obligations to protect and enhance the brand in its network of franchisees is far-reaching. It will be interesting to note the judgment's impact on the Québec franchise industry over the coming years.

Considering the increasingly fierce competition in many markets — due to a new entrant or the rise or regrouping of existing players — franchisors will need to be more proactive in protecting and enhancing their network's brand, as their actions are likely to be closely scrutinized by both franchisees and other industry players.

The Québec Court of Appeal decision is available here.


1 Provigo Distribution inc. v. Supermarché A.R.G. inc., 1997 CanLII 10209 (QC CA)

2 Bertico inc. c. Dunkin' Brands Canada Ltd., 2012 QCCS 2809

3 Dunkin' Brands Canada Ltd c. Bertigo inc. et al., Québec Court of Appeal, 500-09-023156-128 (April 15, 2015)

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.