2013 QCCA 867, 2013 QCCA 867

Dunkin' Brands Canada Ltd. c. Bertico inc. 2013 QCCA 867 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-022875-124 (500-17-015511-036) DATE: MAY 10, 2013 PRES IDING: THE HONOURABLE MR JUSTICE CLÉMENT GASCON, J.A. DUNKIN' BRANDS CANADA LTD. APPELLANT - Defendant v. BERTICO INC. ET AL. RESPONDENTS - Plaintiffs and CANADIAN FRANCHISE ASSOCIATION PETITIONER JUDGMENT ON MOTION FOR LEAVE TO INTERVENE [ 1 ] The trial judgment [1] at issue in this appeal has been described by some as a landmark decision on franchising in Quebec. It ordered the Appellant, a franchisor, to pay to the Respondents, twenty-one

(21) Dunkin Donuts franchisees, a total sum of $16,407,143 for damages following its failure to fulfill its obligations over a ten-year period. [ 2 ] The proceedings in Superior Court began in May 2003. The trial lasted some 71 days, spread over a three-year period. The Honourable Mr. Justice Daniel H. Tingley rendered judgment on June 21, 2012. Appellant inscribed in appeal on July 23, 2012. Its factum was filed on January 31, 2013.

Respondents' factum is expected to be filed by the end of the month. [ 3 ] During the whole trial process of almost ten years, the current Petitioner, the Canadian Franchise Association (CFA), was never a party to the proceedings. It now seeks to intervene at the appeal level. In this regard, the CFA wants to file a factum and, if authorized by the Court, make representations at the hearing. The legal basis of its request is

Article 211 C.C.P. , which is applicable in appeal through the mechanism of Article 509 (1) C.C.P . [2] : 211. A third party may ask to intervene in order to make representations during the trial. The third party must inform the parties in writing of the purpose of and the grounds for the intervention. After hearing the parties, the court may authorize the intervention if it deems it expedient, having regard to the questions at issue . [My emphasis] 211. Un tiers peut demander à intervenir pour faire des représentations lors de l'instruction.

Il doit pour ce faire informer les parties par écrit du but et des motifs de son intervention. Le tribunal peut l'y autoriser, s'il l'estime opportun, compte tenu des questions en litige et après avoir entendu les parties .[My emphasis] [ 4 ] In its Motion for leave to intervene, the CFA places emphasis on the following arguments. [ 5 ] According to the CFA, the trial judge did not rely solely on the express terms of the contractual agreements binding upon the parties to rule in favour of the Respondents.

He also relied upon "implicit obligations" which "flowed from the general nature of franchise agreements" (para. [1]). For the CFA, these included notably what the trial judge allegedly identified as the obligation incumbent on all franchisors "to protect, improve and enhance the brand" (para. [18]) and an "underlying assumption of all franchise arrangements [to the effect] that the brand will support a viable commerce" (para. [73]). [ 6 ] As a result of this understanding of the trial judgment, the CFA expresses as follows the basis of its request to intervene at paragraph [18] of its Motion: 18.

If granted leave to intervene, the CFA will provide submissions to assist this Honourable Court in determining, among other things, that the creation and imposition of these novel implied obligations, as well as their scope and intensity: a. dramatically modify the nature of the obligations of both franchisors and franchisees and will transform the manner in which the business of franchising will be conducted in the future; b. encroach on the privity of contract and erode the certainty sought by both parties and may ultimately turn entrepreneurs away

from franchising as a means to grow businesses; c. threaten franchising's substantial contribution to the Canadian economy, a contribution which stems both from the opportunities afforded to franchisors for stable and rapid growth, as well as the opportunities afforded to franchisees to benefit from a competitive advantage that is often essential to their ability to succeed; [ 7 ] According to the CFA, the decision to be rendered by the Court is of the utmost importance to the franchising industry.

It submits that a thorough understanding of franchising in Canada and of the possible consequences of the trial judgment are necessary to assist the Court in deciding the appeal. [ 8 ] The parties to the proceedings either oppose the CFA's request or do not contest it. Neither one supports it. [ 9 ] The Respondents contend that this is a private matter and that the intervention serves no useful purpose. At best, they consider that the CFA will either repeat or reinforce the Appellant's arguments. In Respondents' view, this will only create an imbalance between both sides, to their obvious detriment.

The Appellant simply states that it leaves the issue to the Court's discretion. [ 10 ] In my opinion, this is not a case where the Court's discretion should be exercised in favour of granting the intervention. Having regard to the questions at issue and the positions expressed by the parties in appeal, I consider that it is neither necessary, nor useful or warranted that the CFA be granted intervening party status in this case. [ 11 ] I am of this view for the following reasons. [ 12 ] Enacted in 2003,

Article 211 C.C.P. , the provision relied upon by the CFA, has not been interpreted extensively. The decided cases highlight the two criteria for authorizing an intervention set forth in

Article 211: 1) whether the authorizing judge considers the intervention to be "expedient" (in French, " s'il l'estime opportun "); and 2) whether the intervention is warranted given the questions at issue [3] . Since the parties involved are concerned by the outcome, the judge must hear and should consider their points of view before deciding the matter. [ 13 ] The legislature has set out the applicable test in the very text of the provision, thereby differentiating the type of interventions that may be authorized under Articles 208 to 210 C.C.P. and those that may be authorized under

Article 211 C.C.P. [4] . [ 14 ] While it has been recognized that the threshold for obtaining leave to intervene under this provision, even in appeal, is a low one [5] , it remains that the Court or the motion judges have assessed differently intervention requests in matters involving public law, fundamental rights and Charter issues as opposed to matters more akin to purely private disputes [6] . [ 15 ] In the former cases, judges of this Court have been more liberal in allowing interventions [7] .

Conversely, in the latter cases, they have been much more cautious [8] . [ 16 ] For instance, in private disputes, the mere fact that the Court's ruling may have an impact on other pending matters is not in itself sufficient to justify an intervention [9] .

Similarly, in private matters, judges of this Court have stressed the importance of the intervening party being able to show that the parties to the proceedings will not properly and thoroughly consider the issues at stake [10] . [ 17 ] From that standpoint, it has often been said that the intervening party should not merely express views that will be voiced in any event by the parties to the proceedings.

An intervention should not be the mere repetition of similar positions in the hope of amplifying their importance [11] . [ 18 ] That said, in determining whether an intervention is expedient or not, a judge enjoys a wide discretion. The exercise of this discretion calls for an assessment of the advantages and disadvantages of allowing the intervention. One of the key elements is to evaluate whether or not the intervening party can efficiently assist the court.

A petitioner must thus convince the judge that it will indeed offer an additional and useful perspective on the issues at stake that is different from what the parties will likely submit themselves [12] . [ 19 ] Any impact upon the process, in this case the appeal process, or upon the different positions of the parties directly involved is a factor to be considered as well [13] . [ 20 ] In private disputes more particularly, the position of the parties involved on the intervention request must be taken into account.

The principles of proportionality and of proper balance between the relative strength of the principal parties come into play. As previously stated by the Court, albeit in a very different context [14] , " [t]he preservation of the fairness of the appellate process is critical to the exercise of the Court's discretion in deciding whether or not to grant intervener status to an applicant ". [ 21 ] In this case, it is not disputed that the CFA is a not-for-profit national trade association committed to the growth, enhancement and development of franchising in Canada.

Its credibility and good faith are not at issue in this intervention process. [ 22 ] Still, I cannot agree with its statement that it will not take sides in this appeal and that it is not interested in which party wins the case.

The CFA's intervention is aimed at contesting the existence of the implied obligations recognized by the trial judge and which form, at least in part, the basis of the conclusions he reached in favour of the Respondents. [ 23 ] The allegations of the Motion for leave to intervene indicate rather clearly that the CFA's position will be supportive of Appellant and will be focussed upon setting aside, at least in part, the trial judgment. There is no indication that any of its arguments will indeed favour the Respondents' position, to the contrary.

It is indeed worth mentioning that while Appellant is a member of the CFA, this is not the case of the Respondents. [ 24 ] This is, in my view, an important element to consider when assessing whether or not to grant an intervening party status in the context of what is, in the end, a private dispute. From this standpoint, I consider that the Respondents are right in stating that allowing the CFA's intervention will force them to devote additional time and expense to face another opponent, and that this will ultimately

create an imbalance between the parties on "the two sides of the dispute", to their detriment. [ 25 ] In addition, I am not convinced that the arguments to be presented by the CFA will be different from those of the Appellant in support of its request for the reversal of the trial judgment. For instance, when one compares the grounds put forward by the CFA at paragraph 18 of its Motion to the following paragraphs included in Appellant's inscription in appeal, the similarity is striking: 5.

Unlike these countless other situations in the world of commerce where market leaders come and go, in this decision, the Trial Judge has saddled the Appellant with the sole responsibility to maintain for its franchisees their market dominance in perpetuity. 6. This Judgment is unprecedented in the annals of franchise law in Canada and the Western World. It imposes upon the franchisor a duty to thwart all competition and effectively guarantee the financial success of its franchisees. No such obligation exists under the contract or in law. 7.

The Trial Judge misinterpreted the contractual terms that establish the relationship between the Appellant and Respondents to create these inordinate duties upon the Appellant. 8. He further misinterpreted the Franchise Agreement by imposing upon Appellant an obligation to "protect and enhance the brand". He then allowed these misconceived duties to taint the balance of the decision at every turn. 9. In fact, this Judgment imposes upon the Appellant the unrealistic objective of maintaining its "market share" leadership in Quebec.

It is against this yardstick of absolute excellence that the Trial Judge decided to assess the behaviour of the Appellant. [ 26 ] The Appellant's factum also contains similar statements: 2. The judgment under appeal (the " Judgment ") is unprecedented in the annals of franchise law, non only in Quebec and Canada, but also in the United States. It imposes upon the franchisor, and exclusively upon the franchisor, a new unintended obligation to protect and enhance the brand, outperform competition and maintain indefinitively market share.

In doing so, the Judgment effectively guarantees the financial success of all Dunkin' Donuts franchisees. No such obligations exist under the franchise agreements, or in law. The financial success of the franchisees is expressly disclaimed in the franchise agreements executed by the parties. [ 27 ] This factum even includes a specific

section on the nature of a franchise relationship in general, which includes the following wording: 15. A franchise agreement generally provides that one party (the franchisor) grants to the other party (the franchisee) the right to use a prescribed system or method developed by the franchisor to sell goods or services using the franchisor's trademarks for a period of time in exchange for the payment of a weekly or monthly royalty, typically a percentage of the weekly gross sales of the franchise (4.9% in the instant case). 16. A franchised business is independently owned and operated by the franchisee.

The franchise agreement defines the relationship and specific obligations of both parties. 17. A franchise agreement is not one in perpetuity but generally provides for a fixed term. Generally, it will be renewed by agreement of the parties when the franchise has been successful and the franchisee has complied with its contractual obligations. Conversely, either party may terminate the relationship at the end of the term, or sooner under certain circumstances. 18.

Typically, the franchisee does not own any of the proprietary rights, trademarks, or goodwill, of the franchise during or at the end of the term, even if it is generated in part by the franchisee's efforts. 19. During the term, in addition to their contractual obligations, both franchisor and franchisee share a common objective to protect and enhance the brand, maintain market share, increase sales and profits, and outperform the competition. Both parties aim to succeed, not fail, and neither party benefits when the business fails.

Notwithstanding their best efforts and goals for success, many franchised businesses fail from time to time for a variety of reasons, may of which do not involve fault of either party. 20. The success or failure of a franchised business does not rest solely with the franchisor. As an independent owner, employer, operator and entrepreneur, the franchisee has primary control of the business and the primary relationship with its customers 24/7.

Conversely, the franchisor undertakes to provide all of its expertise and experience acquired over time to assist the franchisee in meeting their common objective to achieve success. Ultimately however, despite all of its efforts and experience, the franchisor cannot and does not guarantee the success of the franchisee. 21. Many challenges face franchisors and franchisees and one of the most significant is competition. Competition is a fact of life in franchising and one that is impossible to avoid in a free market economy.

It is certain, however, that it is in the best interest of both the franchisor and the franchisee to offer and serve the best possible products at competitive prices and at the most attractive premises in order to attract and retain customers and thus keep pace with or outperform the competition, and hopefully maintain or increase market share. At the end of the day, success is about customer satisfaction achieved at the store level. 22. The reasons supporting the Judgment given by the Trial Judge contradict these fundamental principles of franchising.

The Judgment undermines the very essence of the franchise business model since it converts a common objective of success into a legal obligation, and one solely resting on the franchisor. The Judgment creates an incompatible obligation of result which is to guarantee the success of a franchise by holding only the franchisor accountable for store lever execution, changing market conditions, competition, protecting and enhancing the brand, and maintaining market share. [ 28 ] Considering this, it appears obvious that Appellant itself will argue the same points that the CFA seeks to emphasize through its

intervention. [ 29 ] At the end of the day, this appeal is a private commercial dispute between a franchisor and 21 of its franchisees. It involves the

interpretation of specific franchise agreements. In his judgment, the trial judge found that express and implied contractual obligations were binding upon the parties. This is, in fact, typical of the

interpretation of contracts by courts in commercial disputes. Given that both parties will no doubt argue at length the applicable rules of

interpretation, I cannot see how the intervention of the CFA will be anything but a repetition of most of the arguments that Appellant will put forward. [ 30 ] This case is not one involving public law, fundamental rights or Charter issues. The CFA has no direct interest in the litigation per se. Both sides are represented by competent counsel who have thoroughly argued the issues at trial and who will no doubt do the same in the appeal process. Each side has been allowed to file longer factums of 60 pages so that they might properly treat the numerous issues to be debated in appeal.

This hardly appears to be a case where the addition of other representations will benefit the Court or where an intervention will bring a novel perspective to the dispute. [ 31 ] In this regard, it is worth noting that in its factum, disputing the special fee claimed by the Respondents, Appellant itself stated that " […] the present case is one of a private nature and involves straightforward questions of law and ordinary questions of fact (franchisors' faults, causality, damages)". [ 32 ] To sum up, I am not convinced that the CFA's intervention will assist or enlighten the Court on the issues that will be thoroughly covered by both parties in the appeal.

Its expertise in franchising is not enough on its own to justify the intervention sought. FOR THESE REASONS, THE UNDERSIGNED: [ 33 ] DISMISSES the Motion for leave to intervene, with costs in favour of the Respondents. CLÉMENT GASCON, J.A. Mtre Stéphane Teasdale Mtre Luc Giroux DENTONS CANADA For the Appellant Mtre Frédéric Gilbert FASKEN MARTINEAU DUMOULIN Mtre Guy de Blois LANGLOIS KRONSTRÖM DESJARDINS For the Respondents Mtre Daniel Urbas BORDEN LADNER GERVAIS For the Petitioner Date of hearing: April 19, 2013 [1] Bertico Inc. v. Dunkin' Brands Canada Ltd. , 2012 QCCS 2809 .