Second major victory for former Dunkin' Donuts franchisees in Québec - The Court of Appeal upholds the Honourable Daniel H. Tingley's judgment ordering Dunkin' Brands to compensate 21 former franchisees of Dunkin' Donuts (together holding 32 establishments), but reduces the quantum of damages awarded

MONTRÉAL, April 15, 2015 /PRNewswire/ - In a unanimous decision, the Court of Appeal of Québec confirmed the merits of Justice Tingley's decision and ruled in favour of the former franchisees in Québec who were suing Dunkin' Brands Canada Ltd. for incompetence, negligence, lack of support and flagrant breach of the contract entered into between the franchisor and franchisees as regards the brand's protection and development between 1995 and 2005. This ruling reduced the damages from $16,407,143 to $10,908,523. With legal interest and fees, Dunkin' Brands should be paying plaintiffs a total of $18 million.

According to M^tre Frédéric Gilbert (Fasken Martineau), who has been representing the former franchisees since this legal saga began in 2003, the Court of Appeal has just confirmed the solidity and rigour of the Honourable Daniel H. Tingley's judgment in this matter.

"Justice Tingley has written an important page on franchise law in Canada. This judgment, whose relevance has just been confirmed by the Court of Appeal, will have a lasting influence on the obligations of franchisors not only to the franchisees belonging to their banner, but also to the brand itself by taking reasonable measures to support it in a highly competitive environment, " says M^tre Gilbert. The Court of Appeal also states the following:

[77] Beyond the obligation to allow individual franchisees to use the Dunkin' Donuts system, the contracts created, through express language and by necessary implication, a duty owed to the franchisees collectively to take reasonable measures to support and enhance the brand. This included the duty to respond with reasonable measures to help the franchisees as a group to meet the market challenges of the moment and to assist the network of franchisees by enforcing the uniform standards of quality and cleanliness it holds out as critical to the success of the franchise.

[81] […] By denying that it has a duty to protect and enhance the brand, the judge rightly saw the Franchisor as going back on its word in each individual contract by denying the existence of the very cause of the arrangement.

Justice Tingley also confirms the franchisors' duties as regards their contractual undertakings, emphasizing that the franchisees acting as plaintiffs in this matter had acted in good faith and in an exemplary manner, unlike the franchisor," M^tre Gilbert adds.

The Court of Appeal also confirms the franchisees' duties as regards their contractual undertaking. It adds, however, that they cannot be held liable for the shortcomings of less assiduous franchisees.

[84] What can a franchisee do about a free—rider who, for example, fails to adhere to the contractual standards of product quality or store cleanliness? Little or nothing.

[85] It is up to the Franchisor to police the network by taking reasonable measures to root out the free-riders. […]

In fact, in paragraph 61 of his judgment, Justice Tingley explains that the former franchisees had fulfilled their duties: "Were the Franchisees poor operators? Not by a long shot. They were amongst the best and most successful in the Quebec "réseau". Their owners were amongst the most active committee members. Several of them chaired these committees at one time or another. Many of the owners operated several stores. They were for the most part the leaders amongst the Quebec Franchisees. ADRIC failed miserably during the first sixty-six days of trial to paint the Franchisees as poor operators. This was a defence utterly devoid of substance."

The Court of Appeal agreed, stating that the defendants had failed to convince it, too.

A very demanding 11-year wait for the former franchisees involved in this suit.

According to M^tre Gilbert, each franchisee needed a lot of courage to pull through this situation, and they are very proud that they did not give up against a much larger adversary despite the adverse effects on their businesses and lives. "They have not emerged unscathed, but at least they have two judgments in their favour confirming that they will receive compensation," says M^tre Gilbert.

SOURCE FASKEN MARTINEAU