IN THE SUPREME COURT OF BRITISH COLUMBIA DeWitt-Van Oosten re Dairy... · IN THE SUPREME COURT OF BRITISH COLUMBIA ... $25,000 in damages for passing off as a Dairy Queen post

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation: Dairy Queen Canada, Inc. v. M.Y. Sundae Inc.,

2017 BCSC 358 Date: 20170306

Docket: S142217 Registry: Vancouver

Between:

Dairy Queen Canada, Inc.

Plaintiff (Defendant by Counterclaim)

And

M.Y. Sundae Inc. operating as a DQ Grill and Chill, Wesley J. Richards and Irene J. Richards

Defendants (Plaintiffs by Counterclaim)

Before: The Honourable Madam Justice DeWitt-Van Oosten

Reasons for Judgment

Counsel for the Plaintiff/Defendant by Counterclaim:

Colin Pendrith Aimee O'Donnell (A/S)

Counsel for Defendants/Plaintiffs by Counterclaim:

Dean P. Davison Jennifer Cao (A/S)

Place and Dates of Hearing: Vancouver, B.C. January 18–20, 2017

Place and Date of Judgment: Vancouver, B.C. March 6, 2017

Dairy Queen Canada, Inc. v. M.Y. Sundae Inc. Page 2

I. INTRODUCTION

[1] Dairy Queen Canada, Inc. (the plaintiff) is an extra-provincially registered

Ontario corporation that acts as the Canadian franchisor for Dairy Queen quick-

serve restaurants and retail stores.

[2] On April 2, 1991, the plaintiff entered into an operating (or franchise)

agreement with M.Y. Sundae Inc., a British Columbia corporation. Under the

agreement, M.Y. Sundae Inc. was licensed to operate a restaurant and store using

the Dairy Queen trademark. The restaurant and store conducted business in the

name of the DQ Grill & Chill and was located on Cambie Road in Richmond.

[3] On October 24, 2008, Wesley Richards and Irene Richards purchased M.Y.

Sundae Inc. and became its principals, directors and shareholders (collectively, the

defendants).

[4] The plaintiff's consent was required to transfer stock with the DQ Grill & Chill

from the previous owners to the new owners. In consideration for this consent,

Wesley Richards and Irene Richards agreed to guarantee any obligations owed by

M.Y. Sundae Inc. to the plaintiff and to "abide by all covenants and obligations"

under the existing franchise agreement. Each of Wesley and Irene Richards also

signed a "Guaranty", agreeing to be bound by the terms and conditions of the

franchise agreement.

[5] Over time, the working relationship between the plaintiff and the defendants

broke down. Among other things, the plaintiff claimed that the defendants were non-

compliant with the terms of the franchise agreement and did not operate the DQ Grill

& Chill in accordance with the standards expected of a Dairy Queen franchise.

[6] In turn, the defendants came to believe that the standards expected of them

were unreasonable and that the DQ Grill & Chill on Cambie Road was monitored

more stringently than other franchisees. The defendants considered the demands

made of them to be unfair, discriminatory and a form of "retaliation" for having voiced


concerns in 2011 about the quality and cost of food supplies provided by the

plaintiff's supplier.

[7] In August 2013, the parties executed a Mutual Cancellation and Release after

the defendants were given notice of multiple defaults under the franchise agreement

that from the plaintiff's perspective, had not been cured. Among other things, the

Mutual Cancellation and Release suspended termination of the franchise agreement

until February 1, 2014, allowing the defendants an opportunity to sell their business

and recoup their investment; required the continued provision of monthly store

reports and franchise fees while the DQ Grill & Chill was operating during the

suspension; and, the defendants were prohibited post-termination from establishing

or operating a business that in any way represented a Dairy Queen.

[8] There are outstanding issues between the parties arising out of the franchise

agreement, the Mutual Cancellation and Release and the defendants' conduct after

the franchise relationship ended.

[9] On January 18–20, 2017, I heard a summary trial addressing these issues

pursuant to Rule 9-7(2) of the Supreme Court Civil Rules, Reg. 168/2009 (the

"Rules"). Judgment was reserved until today's date.

II. ISSUES

A. The Originating Claims

[10] There is both a notice of civil claim (the "Claim") and a counterclaim filed in

this action (the "Counterclaim").

[11] The Claim seeks the following relief: (1) a declaration that the franchise

agreement is terminated, save and except its post-termination provisions; (2) an

injunction restraining the defendants from continuing to operate the DQ Grill & Chill

on Cambie Road, using and displaying the Dairy Queen name or trademarks, or

committing any further breaches of the franchise agreement and Mutual Cancellation

and Release; (3) an order compelling the defendants to comply with their post-

termination obligations; (4) damages in the amount of $17,758.55 for fees due under


the franchise agreement and Mutual Cancellation and Release; (5) damages in the

amount of $25,000 for passing off; (6) legal fees in the amount of $50,000 for

injunction applications that the plaintiff considered necessary; and (7) costs.

[12] The Counterclaim seeks: (1) damages for breach of contract by the plaintiff;

(2) damages for unfair dealing and breach of disclosure under Ontario's Arthur

Wishart Act, S.O. 2000, c. 3; and (3) costs.

B. Issues Pursued at Trial

[13] For the purpose of the summary trial, counsel for the plaintiff advised the

Court that much of the relief sought in its Claim has already been achieved. By the

time of trial, the defendants were no longer operating a DQ Grill & Chill in Richmond.

As such, the plaintiff is pursuing only three outstanding items from its Claim: the

$17,758.55 in fees that it says is owed under the franchise agreement and the

Mutual Cancellation and Release; $25,000 in damages for passing off as a Dairy

Queen post-termination; and costs.

[14] The plaintiff is opposed to all claims for relief that are contained within the

Counterclaim and asks that it be dismissed. It is the plaintiff's position that the

Mutual Cancellation and Release is a "complete answer" to the Counterclaim; the

Counterclaim was filed outside the applicable limitation period; and, in any event, the

plaintiff argues that the claims made in the Counterclaim are without merit, legal

foundation or supported by a credible evidentiary foundation.

[15] In their filed response to the Claim, the defendants admit that they failed to

pay outstanding fees under the franchise agreement and Mutual Cancellation and

Release. However, they deny all other forms of relief sought by the plaintiff and, on

the summary trial, the defendants continued to advance the claims included in their

Counterclaim.

[16] It is the defendants' position that the plaintiff's treatment of them as a

franchisee was unjust. More specifically, they say that the plaintiff failed to disclose

material information to the defendants when they first invested in M.Y. Sundae Inc.;


breached specific terms of the franchise agreement during its term, as well as the

plaintiff's common law and statutory obligations to engage fairly with the defendants;

and, the defendants argue that the plaintiff coerced them through economic duress

into signing an invalid, unenforceable and "unconscionable" Mutual Cancellation and

Release.

[17] The defendants say that the plaintiff has caused M.Y. Sundae Inc. to lose

significant revenue and Wesley and Irene Richards to "lose the entirety of their

investment, their family business, and their home". Under the Counterclaim, the

defendants seek damages for breach of the franchise agreement; damages for

unfair dealing and a failure to disclose under Ontario's Arthur Wishart Act; set off for

any amounts that may be found owing to the plaintiff; dismissal of the Claim; and

costs.

[18] In the Counterclaim's supporting material, the defendants' damages are

estimated at over $1,000,000, including damages for lost sales and reduced profit;

an estimated lost sale price for the franchise; and loss of investment and opportunity

costs.

C. Whether the Action is Suitable for a Summary Trial

[19] It was the plaintiff who brought the application to have both the Claim and the

Counterclaim resolved by way of summary trial. Rule 9-7 provides that:

(2) A party may apply to the court for judgment under this rule, either on an issue or generally, in any of the following:

(a) an action in which a response to civil claim has been filed.

[20] Under Rule 9-7(15), the Court may grant judgment unless the Court is unable

to find the facts necessary to decide the issues of fact or law, or it would be "unjust"

to decide the matters raised on the summary trial application.

[21] The defendants did not oppose having the Claim and Counterclaim heard by

way of a summary trial; however, at the start of the hearing on January 18, counsel

for the defendants suggested that after hearing submissions and reviewing the


affidavit material filed by the parties, the Court may find that the action is not

amenable to the summary trial procedure because of the complexity of the related

legal and factual issues, as well as the extent to which credibility findings may be

necessary for resolution of the issues.

[22] The principles governing the application of Rule 9-7(2) were canvassed in

Greater Vancouver Water District v. Bilfinger Berger AG, 2015 BCSC 485, at

para. 59. There, Justice Griffin noted that summary trials are appropriate even in the

face of conflicting affidavits where there is other admissible evidence that provides

confirmatory support for one or more of the affidavits (such as documentary

evidence), or, there are additional means available by which to test the affidavits.

This can include cross-examination on the affidavits, or transcripts that are produced

from examinations for discovery. See also Inspiration Mgmt. Ltd. v. McDermid St.

Lawrence Ltd. (1989), 36 B.C.L.R. (2d) 202 (C.A.), at paras. 55–56.

[23] In my view, the case before me is one in which the findings of fact necessary

to resolve the issues between the parties can reasonably be made. The evidence

tendered in support of the Claim and Counterclaim includes numerous affidavits,

some of which are contradictory in their asserted recollections and perspectives;

however, there is also objective evidence, such as agreements between the parties

that were reduced to writing and correspondence that was exchanged on pivotal

issues and is available to inform, and test, the assertions made in the affidavits. I

also have transcripts from the examinations for discovery of two key witnesses to

assist in the fact finding process, including any credibility assessments that may be

necessary.

[24] Although the parties make a number of different claims in relation to one

another, these claims are grounded in an overarching franchise relationship that is

defined by executed written agreements and the Application Record offers a fairly

comprehensive view of the relationship, the terms and conditions that governed it,

and the business interaction between the parties.


[25] In light of the evidentiary context; the relatively straightforward nature of the

legal and factual issues; and the resource savings for both the parties and the Court

that will be achieved through a summary resolution, I am satisfied that determining

the Claim and Counterclaim by way of Rule 9-7(2) is feasible and not unjust.

D. Specific Matters for Consideration

[26] Based on the manner in which the parties formulated their positions at the

summary trial, there are six primary issues raised for consideration:

Do the defendants owe the plaintiff $17,758.55 in franchise fees?

Are the defendants liable in damages for passing off and, if so, what constitutes an appropriate award?

What is the impact of the Cancellation and Release on the triable issues?

If the Cancellation and Release does not bar the defendants from pursuing their Counterclaim, as suggested by the plaintiff, did the defendants bring their claims for relief outside the applicable limitation period?

If not, is the plaintiff liable for breach of contract and/or damages for unfair dealing and non-disclosure under Ontario's Arthur Wishart Act?

Depending on one or more of the answers to these questions, what should be done about costs?

[27] After setting out the factual background between the parties, I will address

each of these issues to the extent I consider necessary.

III. BACKGROUND

[28] I will not canvass the whole of the franchise relationship between the parties

or the minutiae of the interaction between their respective representatives since

October 2008. Instead, I will set out the parts of the background that I consider most

salient in light of the issues I have been asked to consider.


A. The Operating (or Franchise) Agreement

[29] On April 2, 1991, the plaintiff and M.Y. Sundae Inc. entered into a "Dairy

Queen" Operating Agreement (the "Agreement"), which granted M.Y. Sundae Inc. a

non-exclusive licence to establish and operate a trademark Dairy Queen self-serve

restaurant and retail store in Richmond. The licence was granted "subject to the

terms and conditions" of the Agreement.

[30] The terms and conditions governed things such as:

restrictions on trademark use, including use of the name "Dairy Queen";

facilities standards and maintenance, based on "quality standards" put in place by the plaintiff;

standards and requirements for products and business operations, including a prescribed (or "authorized") menu;

periodic inspections and evaluations by the plaintiff to assess compliance with the Agreement;

personnel and supervision standards;

sales promotion;

fees payable by the franchisee and monthly reporting requirements;

default under the Agreement and entitlements to terminate; and,

obligations post-termination.

[31] From the plaintiff's perspective, any "standards and specifications" contained

within the Agreement, or established pursuant to its terms, are critical to maintaining

Dairy Queen's brand integrity across the franchise system. These standards work to

ensure that franchise restaurants and stores are kept clean, in a state of good repair

and do not generate health or safety concerns. The inspection process, expressly

provided for in the Agreement, is the means by which the plaintiff ensures that its

standards are adhered to.


[32] The defendants say that the Agreement also contained a number of implied

terms, including (but not limited to) things such as:

the delayed payment of franchise fees "in months where sales [were] slow";

ongoing franchise support to "ensure the success" of the franchisee, including support with a franchisee's supply chain, development, operations and marketing;

a term that any standards and specifications set by the plaintiff would be "reasonable, and applied in a consistent fashion to franchisees across the franchise System"; and,

if the Agreement was brought to an end, the plaintiff would allow the defendants "reasonable time" to sell M.Y. Sundae Inc. and "make best efforts" to ensure that the defendants were able to "recoup their investment".

B. The Consent to Transfer and Guaranty

[33] Wesley and Irene Richards purchased M.Y. Sundae Inc. in October 2008 for

$550,000. To enable the purchase, they signed a "Request for Consent to Transfer

of Stock" from the previous owners to themselves. In this document, the defendants

agreed to "jointly and severally, guarantee the obligations of M.Y. Sundae Inc.,

under the "Dairy Queen" Operating Agreement dated April 2, 1991; and any

addenda thereto". This included agreeing to "make all payments required" by the

Agreement after October 30, 2008 and "to perform and abide by all covenants and

conditions" of the Agreement.

[34] The Richards also personally signed a "Guaranty", in which they agreed to be

"firmly bound by all of the terms, provisions and conditions" of the Agreement. In

exchange for the Guaranty, the plaintiff provided its consent for the transfer of stock

from the previous owners of the DQ Grill & Chill to the Richards, so that the

defendants could take over and operate the restaurant and store on Cambie Road

as a family business.


C. Inspections, Defaults and Actions under the Agreement

[35] Counsel for the plaintiff created a chronology that traces the history between

the parties under the Agreement, as well as material developments relevant to the

issues before me. The chronology was cross-referenced with the affidavit material

that is contained in the Application Record. The defendants did not object to this

chronology being put before the Court for the purpose of the summary trial; nor did

they take substantive issue with its content.

[36] The chronology is attached as Appendix A to these Reasons and I will not

repeat the details here. It speaks for itself in identifying significant developments

between the parties since October 2008, ultimately leading to termination of the

Agreement and closure of the DQ Grill & Chill on April 8, 2014. Specific findings of

fact that I make in relation to the matters referenced therein are set out in my

"Analysis", below.

D. Mutual Cancellation and Release

[37] On August 9, 2013, the defendants signed a Mutual Cancellation and

Release (the "Cancellation and Release") specific to the DQ Grill & Chill on Cambie

Road.

[38] This document arose out of three notices of default that were issued by the

plaintiff under the Agreement in April and May 2013 and not "cured" to the

satisfaction of the plaintiff within the stipulated time frame. The defaults involved

cleanliness issues; an alleged failure to correct outstanding deficiencies with the

facilities on Cambie Road; and, a failure to add the prescribed "Orange Julius"

product line to the defendants' menu.

[39] Based on the defaults, and failures to cure, the plaintiff notified the

defendants in July 2013 that it considered the Agreement to have been terminated.

[40] According to the express terms of the Agreement, a failure by a franchisee to

"cure a default" within seven days from the date of a written notice of default

provides the plaintiff with "good cause to terminate". The Application Record reveals


that it was not uncommon for the plaintiff to grant more than seven days to cure a

default, even considerably longer. In practice, the period specified in the Agreement

appears to have functioned as a minimum and the plaintiff would often exercise its

discretion to go beyond this minimum when giving notice. Nonetheless, however

much time was provided to a franchisee, including the defendants, the Agreement

explicitly allowed for termination upon a failure to cure the specified non-compliance.

[41] The Cancellation and Release allowed for termination of the Agreement to be

suspended for a defined period to enable the defendants time to "possibly recoup

some of their investment" by selling the business assets of the DQ Grill & Chill. In

the Cancellation and Release, the defendants were given until February 1, 2014 to

sell their business and to complete all related transfer requirements. During this

period, the DQ Grill & Chill could continue to operate as a Dairy Queen. However,

the defendants remained responsible to pay "any and all amounts owed" to the

plaintiff and to continue submitting their monthly store reports and fees. A failure to

comply with the terms of the Cancellation and Release could result in the date of the

Agreement's termination moving forward.

[42] If the DQ Grill & Chill was not sold by February 1, 2014 (subject to an

accelerated termination), the Cancellation and Release provided that the Agreement

would be terminated effective February 1 by mutual agreement. Upon termination,

the defendants were required to "remove all [Dairy Queen] trademarks, signs,

insignia, proprietary products and ingredients". Moreover, the defendants were

prohibited from operating a "business with a name that is deceptively similar to any

of the trademarks, trade names and services marks of DQC at the Restaurant

location". For the purpose of the Cancellation and Release, a "competing

restaurant" was defined to include a restaurant that "includes on its menu any soft

serve treats, fruit-based drinks, burgers, chicken sandwiches and chicken strips".

[43] In exchange for suspending termination until February 1, 2014, the

defendants agreed under the Cancellation and Release to release the plaintiff from:


any and all claims, demands, damages, actions, or causes of action, at law or equity, known or unknown, contingent or noncontingent, accrued or unaccrued, of whatever kind or nature, including, but not limited to, federal and provincial antitrust actions or class actions, which it may now or hereafter have or claim to have against DQC or its affiliates; provided that DQC shall not be deemed in any way released from any obligations arising by virtue of this Cancellation.

[44] The Cancellation and Release stated that it was "freely and voluntarily

executed by [the parties], without any duress or coercion, and after [the parties had]

carefully and completely read all of the terms and provisions of this Cancellation and

… had an opportunity to review the same with consent".

E. Post-termination

[45] After the Cancellation and Release was executed, with an anticipated

termination date of February 1, 2014, the plaintiff notified the defendants in October

2013 that the monthly store reports and fees payable under the Agreement and

Cancellation and Release for July, August and September 2013 had not been

remitted as required.

[46] The defendants were told that if the outstanding fees were not paid by

October 22, 2013, the plaintiff would require the defendants to close the DQ Grill &

Chill on grounds that they were not complying with the terms of the Cancellation and

Release. The deadline arrived and the fees were not paid. The defendants were

told to close the restaurant and store. They did not do so.

[47] In January 2014, the defendants were advised that the monthly store reports

and fees for October, November and December 2013 had not been remitted in

accordance with the terms of the Cancellation and Release. They were told to

immediately close the DQ Grill & Chill and that the plaintiff was "accelerating" the

Agreement's termination date to January 8, 2014, in accordance with its terms.

[48] The DQ Grill & Chill did not close. There was further communication between

the parties, with demands made by the plaintiff for restaurant closure. The DQ Grill

& Chill continued to operate, with Wesley Richards indicating that he believed he


had been granted an extension under the Cancellation and Release to not close the

DQ Grill & Chill until March 20, 2014.

[49] On March 24, 2014, the plaintiff filed its Claim with this Court. Within a day,

the plaintiff also filed a Notice of Application to enjoin M.Y. Sundae Inc. from

operating as a Dairy Queen, returnable on April 11, 2014.

[50] The defendants ceased business as a Dairy Queen on April 8, 2014 and a

few days later, the restaurant and store on Cambie Road began operating as a

Chicago Grill & Creamery.

[51] The plaintiff brought a second application to enjoin the defendants from

operating as a competing business. On June 17, 2014, by consent, the defendants

were restrained from engaging in business as the Chicago Grill & Creamery and

ordered to operate as a sports bar.

[52] The Counterclaim was filed on August 11, 2014.

IV. ANALYSIS

[53] As indicated at paragraph [26] of these Reasons, the Claim and Counterclaim

raise six primary issues for the Court's consideration. However, one of these issues

carries the potential to put an end to some of the others, or at least impact their

scope. As such, I will address it first. This issue is focused on the Cancellation and

Release, which was signed by Wesley Richards and Irene Richards on August 9,

2013.

A. The impact of the Cancellation and Release

[54] The plaintiff says that the Cancellation and Release, which it describes as a

"gratuitous" gesture made to assist the defendants to recoup their investment in the

DQ Grill & Chill, provides a "complete answer" to any defence to the Claim that is put

forward by the defendants, as well as all allegations made in the Counterclaim.

[55] Under the Cancellation and Release, the defendants agreed in writing to let

go of any disputes or claims that they might have against the plaintiff, past and


present, and the plaintiff says that the defendants cannot now raise these same

claims to avoid responsibility for the consequences of their non-compliance with the

Agreement and their post-termination conduct, or to seek damages.

[56] In response, the defendants argue that the Cancellation and Release was

signed under duress and, as such, it was not voluntarily entered into. They say they

felt they had no choice but to sign because if they did not, the plaintiff would

terminate the Agreement.

[57] The defendants also argue that the Cancellation and Release is not valid or

enforceable because of "technical shortcomings"; namely, it was ambiguous and not

executed in accordance with its terms. Moreover, the Cancellation and Release

flows directly out of the Agreement and the defendants argue that the plaintiff was in

breach of the Agreement. From the defendants' perspective, this means that the

Cancellation and Release is irreparably tainted by the plaintiff's conduct under the

Agreement and cannot be enforced. Finally, the defendants argue that the

Cancellation and Release represents an "unconscionable bargain" between the

parties and should not be given effect by this Court.

[58] In paragraphs [37] to [44] above, I describe the Cancellation and Release and

the circumstances under which it came into existence. For ease of reference, I will

repeat one of the terms of this document that the plaintiff says the defendants

agreed to in exchange for the plaintiff suspending its termination of the Agreement,

and holding the termination in abeyance until February 1, 2014:

[M.Y. Sundae Inc., Wesley Richards and Irene Richards] release DQC and its affiliates from any and all claims, demands, damages, actions, or causes of action, at law or equity, known or unknown, contingent or noncontingent, accrued or unaccrued, of whatever kind or nature, including, but not limited to, federal and provincial and antitrust actions or class actions, which it may now or hereafter have or claim to have against DQC or its affiliates; provided that DQC shall not be deemed in any way released from any obligations arising by virtue of this Cancellation (emphasis added).

[59] Marcy Rupert, the Director of Legal Compliance (American Dairy Queen

Corporation), is responsible for managing legal compliance issues for the plaintiff.


She is the person who sent the Cancellation and Release to the defendants for their

consideration and signature after they were noted in default in the spring 2013, and

did not cure the defaults to the satisfaction of the plaintiff.

[60] In her affidavit, Ms. Rupert states that the Cancellation and Release was sent

to Wesley Richards by email on July 31, 2013. It was accompanied by an

explanatory note in which Ms. Rupert advised Mr. Richards that instead of

immediately terminating the Agreement based on the defaults that were specified in

the Cancellation and Release, and the related failures to cure, the plaintiff was

prepared to "offer [the defendants] the opportunity to sell [their] business to an

approved buyer provided [that Wesley and Irene Richards] sign and return the

attached Mutual Cancellation".

[61] The email also explained that the effect of the Cancellation and Release was

to suspend the termination of the Agreement and give the defendants until

February 1, 2014 to sell the DQ Grill & Chill to an approved buyer. The defendants

were told that the Cancellation and Release was due for return by August 9, 2013.

[62] Ms. Rupert attests that on the same day she sent this email, she spoke with

Wesley Richards by telephone and confirmed that he received the Cancellation and

Release. She says he told her that both he and Irene Richards would sign the

document and it would be returned to Ms. Rupert.

[63] In the material before me, there is a copy of "Telephone Conversation Notes"

from Marcy Rupert that confirms she had a phone call with Wesley Richards. These

Notes are dated July 31, 2013. According to their content, Wesley Richards told

Ms. Rupert that he had already listed the DQ Grill & Chill for sale with Remax, as

well as another broker. The Notes also say that Mr. Richards asked if he could have

an extension on the Cancellation and Release if he did not find a buyer by

February 1, 2014. Ms. Rupert declined this request. The Notes further record

Wesley Richards as saying that he would "sign MC & return to [Ms. Rupert]

tomorrow".


[64] Also before me is a copy of an email that Ms. Richards sent to another

employee of the plaintiff (Marsha Dillon), dated July 31, 2013. In this email,

Ms. Richards confirms with Ms. Dillon that she had "just spoke[n] with Wesley"; he

told her that "he has the store listed for sale already with Remax and another

broker"; and that he would sign the Cancellation and Release and return it to

Ms. Rupert the following day.

[65] By August 9, the plaintiff had not received an executed Cancellation and

Release from the defendants. Ms. Rupert sent a reminder email. In this email, she

confirmed Wesley Richards' previous statement to her that the document would be

signed and returned. In less than half an hour, a signed copy of the Cancellation

and Release was returned to Ms. Rupert. She subsequently received an email from

Wesley Richards advising that he had faxed the Cancellation and Release to her

and seeking confirmation of its receipt.

[66] I have reviewed a copy of this latter email. It is dated August 9, 2013 at

3:13 p.m. The email contains no request from Wesley or Irene Richards for an

additional opportunity to review the Cancellation and Release, or to speak with legal

counsel about it. Nor does Mr. Richards express any concerns about the document

and/or indicate that the defendants felt pressured to sign it.

[67] A fully executed copy of the Cancellation and Release (also signed on behalf

of the plaintiff), was sent by Ms. Rupert to the defendants on August 16, 2013. In

her affidavit, she states that she received nothing in response from the defendants

suggesting that the Cancellation and Release had been signed under protest.

[68] The application Record contains six affidavits from members of the Richards

family. I have reviewed each of these affidavits.

[69] In an affidavit sworn or affirmed on June 9, 2014, Wesley Richards states that

he was away from work between July 31 and August 9, 2013 due to illness. He says

that Ms. Rupert called him at some time between July 31 and August 9 "to tell [him]

about the email she had sent and the Release. However [he] was not advised that


the email specified a deadline by which the Release must be signed and returned to

the plaintiff, failing which [they] would not be given the opportunity to sell the

Franchise".

[70] Mr. Richards says that when he returned to work on August 9, he saw the

email from Ms. Rupert attaching the Cancellation and Release. He "immediately

contacted" Ms. Rupert by telephone and "sought an extension of time to review the

Release and seek legal advice but [his] request was refused". He said he was told

that if the document was not returned this same day, the plaintiff would immediately

terminate the Agreement. Mr. Richards attests that "[u]pon hearing that [he] was in

a state of panic" and "felt intimidated" into signing the Cancellation and Release.

[71] The Cancellation and Release is addressed again by Wesley Richards in an

affidavit sworn or affirmed on September 18, 2016. In this affidavit, he attests that

he "did not receive the Release from DQC until [he] returned to work at the

Franchise on or about 9 August 2013". He re-asserts that both he and Irene

Richards were "intimidated into signing the Release and signed it under protest on

August 9, 2013". He was "in a state of panic as [he] believed that if [he] did not sign

the Release without delay DQC would make good on its threat to shut down the

Franchise immediately".

[72] Irene Richards has also filed an affidavit in this matter. She is a signatory to

the Cancellation and Release. There is no assertion in her affidavit that she signed

the document out of economic (or other) duress, misunderstood its terms, or wanted

an opportunity to seek legal advice before the document was executed and returned

to the plaintiff.

[73] A transcript from an examination for discovery of Wesley Richards was filed

as an exhibit on the summary trial. In his examination, Mr. Richards said that "in the

past mutual cancellation[s] came and went" as part of his franchise relationship with

the plaintiff; so, when he received one, he did not think it was important. According

to his evidence, as long as he fixed the problems identified by the plaintiff, any

suggested mutual cancellation and release would "disappear by itself".


[74] Mr. Richards also stated in his examination that he has only a limited

recollection of the July 31, 2013 phone call with Marcy Rupert. However, he

confirmed that by this date, the DQ Grill & Chill had indeed already been listed for

sale. He said he did not take the Cancellation and Release "seriously": "there

[were] two other occasions the same thing. Same thing happened. And same

similar document was issued and [he] rectified all the deficiencies and all fixed".

[75] On this last occasion in August 2013, he was asked to sign the Cancellation

and Release and, consistent with the approach he took in the past, he signed it and

sent it back. He said he did not think much of it. It was his "understanding [Dairy

Queen] never terminated anybody, and [he] didn't think this is a serious document".

Mr. Richards said he did not read the Cancellation and Release.

[76] In his examination, Wesley Richards also said that he:

… didn't protest. They never told me this is a serious document, Wesley, you're going to have an issue. Not even Madam Rupert or Marsha Dillon, nobody told me …

I said okay, I'll sign it and send it to you …

It was very casual. And I trusted them. I had a full trust in them. So I said fine.

… I sign the document thinking that it's a normal practice asking me to sign, then once I fix the deficiencies and everything is back to normal (emphasis added).

[77] Mr. Richards was asked at discovery whether he had an opportunity to

consult with legal counsel in relation to these matters leading up to January 31, 2014

(the day before the contemplated mutual termination of the Agreement). He said:

A. Yeah, at the time I was stressed out. Totally in a mess and totally stressed out.

Q. So you decided not to call a lawyer?

A. I never thought about it.

Q. You didn't think about it?

A. Yeah.

Q. At any point?

A. Yeah.


Q. -- to talk about the mutual cancellation and release?

A. No (emphasis added).

[78] As noted, the Cancellation and Release includes a statement that it was

"freely and voluntarily executed by [the parties], without any duress or coercion, and

after [the parties had] carefully and completely read all of the terms and provisions of

this Cancellation and … had an opportunity to review the same with consent".

[79] After considering the evidence surrounding the Cancellation and Release as

a whole, I am not persuaded by the defendants that this document was signed by

them under duress, or should otherwise be disregarded on grounds that it is the

product of pressure, coercion or some other form of conduct by the plaintiff that

vitiates the voluntariness of their signatures.

[80] Wesley Richard's affidavit evidence on this point is not supported by what he

said under oath at his examination for discovery. In his affidavits, Mr. Richards says

that he was panicked when he signed the Cancellation and Release and that he

wanted time to speak with a lawyer before doing so, but was deprived of any such

opportunity by the plaintiff. However, at his examination for discovery, he said he

never even thought about contacting legal counsel. He also said that he did not take

the Cancellation and Release seriously and that the exchange of the document

between the parties was "very casual". Although Mr. Richards states in affidavit

form that both he and Irene Richards signed the Cancellation and Release "under

protest", there is no indication from the evidence before me that he voiced any

concern about the Cancellation and Release at the time it was executed, or in the

immediate aftermath. At his examination for discovery, Mr. Richards confirmed this

reality: he "didn't protest".

[81] Mr. Richard's affidavit evidence, as well as his examination for discovery, also

stands in stark contrast to the "Telephone Conversation Notes" that were made by

Marcy Rupert on July 31, 2013 and capture information provided to her by

Mr. Richards during their call.


[82] Based on these Notes, I find as a fact that Mr. Richards was not only aware of

the Cancellation and Release when it was first sent to him on July 31, 2013, but that

he understood its content (indeed, he acknowledged having received a similar

document from the plaintiff on at least two prior occasions), including the

contemplated sale of his business by February 1, 2014 and mutual termination of the

Agreement. Why else would he advise Ms. Rupert during the phone call that the DQ

Grill & Chill was already listed for sale, or seek an extension of the February 1

deadline? The information he provided to Ms. Rupert during the conversation on

July 31, and the questions that he posed, are directly responsive to the Cancellation

and Release, as well as the information that was relayed to him by Ms. Rupert on

the plaintiff's behalf.

[83] I do not accept Mr. Richard's assertion that it was not until August 9, 2013

that he appreciated the true impact of the Cancellation and Release, and that both

he and Irene Richards signed the document while panicked, under protest and as a

result of duress. In this sense, the case before me is not unlike Bell v. Levy, 2011

BCCA 417, in which an argument of duress failed because the evidence did not

factually support a finding of duress at the time the impugned agreement was

executed (see para. 87).

[84] On January 31, 2014, Wesley Richards sent a letter to the Vice President of

Dairy Queen International (Peter White). A copy of this letter is contained within the

Application Record. In the letter, Mr. Richards acknowledges that he had been told

by the plaintiff to close the DQ Grill & Chill. He then says that he is "not disputing

nor retaliating" what the plaintiff has demanded of him (emphasis added). Instead,

Mr. Richards sought an extension of the plaintiff's deadline for termination of the

Agreement to accommodate potential offers for the purchase of the DQ Grill & Chill

by a new owner. The plaintiff responded in writing on February 11, 2014, declining

an extension and confirming that from its perspective, the Agreement was

terminated effective January 8.


[85] In my view, the letter of January 31, 2014 is also inconsistent with the

defendants' assertion that the Cancellation and Release was signed under protest,

and/or was otherwise involuntary and unenforceable due to technical irregularities,

because the defendants did not understand its content, were not accepting of its

terms, considered themselves under duress, or, because the Cancellation and

Release represented an unconscionable bargain.

[86] Mr. Richards makes no mention of these things in his letter to Mr. White. Nor

does he assert that the plaintiff was in any way disentitled from terminating the

Agreement; moving the termination date forward; or from requiring closure of the DQ

Grill & Chill under the Cancellation and Release.

[87] The analysis required of a court when a party seeks to "escape the effect" of

an exclusion clause in a contract, or a release, was addressed in Tercon Contractors

Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4. The approach

developed by Binnie J. in his dissenting judgment was adopted by the majority:

[121] The present state of the law, in summary, requires a series of enquiries to be addressed when a plaintiff seeks to escape the effect of an exclusion clause or other contractual terms to which it had previously agreed.

[122] The first issue, of course, is whether as a matter of interpretation the exclusion clause even applies to the circumstances established in evidence. This will depend on the Court's assessment of the intention of the parties as expressed in the contract. If the exclusion clause does not apply, there is obviously no need to proceed further with this analysis. If the exclusion clause applies, the second issue is whether the exclusion clause was unconscionable at the time the contract was made, "as might arise from situations of unequal bargaining power between the parties" ([Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426], at p. 462). This second issue has to do with contract formation, not breach.

[123] If the exclusion clause is held to be valid and applicable, the Court may undertake a third enquiry, namely whether the Court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy, proof of which lies on the party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts.

See also Loychuk v. Cougar Mountain Adventures Ltd., 2012 BCCA 122, leave for appeal ref'd [2012] S.C.C.A. No. 225.


[88] Applying this framework to the circumstances before me, I find that the

Cancellation and Release does apply to (or cover) termination of the Agreement; the

defendants' continued authority to operate post-termination; and, release of any and

all claims arising out of both the franchise relationship and its cessation. Indeed, the

Cancellation and Release was drafted, produced and executed by the parties for the

specific purpose of managing these very issues. The matters raised by the

defendants under the Agreement were known to them at the time they signed the

document: Drader v. Abbotsford (City), 2013 BCCA, at para. 40.

[89] I also do not find the Cancellation and Release to be "unconscionable" based

on an unequal bargaining power or otherwise. Counsel for the defendants made

much of the difference between a franchisor and a franchisee in his submissions at

the trial, which I appreciate is a factor that I should be mindful of; however, as

indicated, I do not find that the defendants' suggested coercion or duress in the

signing of the Cancellation and Release, economically or otherwise, is borne out on

the evidence. Moreover, I agree with the plaintiff that the Cancellation and Release

is more generous on its face than the Agreement itself, allowing the franchisee time

to recoup its investment through the sale of an operating franchise rather than

immediate termination of the Agreement and an accompanying demand to cease

and desist.

[90] Finally, I do not see a compelling public policy reason that should cause me

to override the "very strong public interest in the enforcement of contracts" (Tercon,

at para. 123). The mere fact that the Cancellation and Release was entered into

between a franchisor and a franchisee does not make it inherently suspicious, or

presumptively cast doubt on the voluntariness of the franchisee's signature. In

Jestadt v. Performing Arts Lodge Vancouver, 2013 BCCA 183, at para. 48, the Court

endorsed the following description of duress, as stated in Lei v. Crawford, 2011

ONSC 349:

[7] Duress involves coercion of the consent or free will of the party entering into a contract. To establish duress, it is not enough to show that a contracting party took advantage of a superior bargaining position; for duress, there must be coercion of the will of the contracting party and the pressure


must be exercised in an unfair, excessive or coercive manner (as cited at para. 54 in Jestadt, emphasis added).

[91] I find that the Cancellation and Release was validly executed, is binding on

the parties and not only resulted in an enforceable termination of the Agreement

effective January 8, 2014 (the accelerated date) because of the defendants'

admitted failure to pay their required franchise fees, but bars the defendants from

advancing the claims put forward in their Counterclaim, whether based on the terms

of the Agreement, at common law, or pursuant to statute. When the defendants

executed this document, they waived their entitlement to reach back into their

business relationship with the plaintiff and seek reparations for its impugned

conduct.

[92] By virtue of the Cancellation and Release, the defendants released the

plaintiff from "any and all claims, demands, damages, actions, or causes of action, at

law or equity, known or unknown, contingent or non-contingent, accrued or

unaccrued". The Counterclaim seeks damages that are based on alleged

misconduct by the plaintiffs from the start of the franchise relationship in 2008, up to

and including when the defendants ceased operating as a DQ Grill & Chill. These

claims arise out of, and are inextricably linked to, the Agreement and the

Cancellation and Release.

[93] At no point during the life of the Agreement did the defendants formally raise

the complaints that they now make under the dispute resolution mechanism that was

built into the Agreement (it contains an arbitration clause), or initiate a civil action for

breach, unfair dealing or otherwise. They now seek to do so, notwithstanding

execution of the Cancellation and Release. In my view, there is no proper legal

basis on which the allegations made within the Counterclaim can be advanced.

B. Remaining Issues Raised by the Plaintiff

[94] As a result of the conclusions I have reached about the Cancellation and

Release, it is unnecessary for me to determine the issues arising out of the

Counterclaim, both legal and factual, including: implied terms of the Agreement;


whether the Counterclaim falls outside the applicable limitation period; whether the

defendants can appropriately avail themselves of obligations that they say arise

under Ontario's Arthur Wishart Act; and, the admissibility of evidence extrinsic to the

Agreement, including health inspection records from local government authorities

that the defendants sought to tender at the summary trial in support of their

Counterclaim.

[95] However, I do need to decide the remaining issues advanced by the plaintiff,

namely, franchise fees owed under the Agreement and Cancellation and Release,

as well as the claim for damages based on the tort of passing off. In addressing

these remaining matters, I hold that the Agreement was terminated effective

January 8, 2014.

(i) Outstanding Fees

[96] The plaintiff says the defendants owe $17,758.55 in outstanding franchise

fees under the Agreement and Cancellation and Release.

[97] Marcy Rupert explains how this amount was calculated in her affidavit sworn

January 11, 2016. As at this date, the defendants:

did not pay the outstanding fees for the months of October through December 2013 or January through April 2014 … we have calculated that these fees amount to $17,758.55 through April 8, 2014, the date that the Franchisee stopped operating as a DQ Grill & Chill restaurant. This is comprised of accounts receivable of $12,784.73 for billing through to the month of February 2014, estimated fees of $4,006.78 for March 2014 and estimated fees of $967.04 for April, 2014 (up to April 8, 2014).

[98] In their response to the Claim, the defendants did not dispute the plaintiff's

factual assertion of $17,758.55 in outstanding fees (Part 1, para. 1).

[99] The acknowledgment of outstanding fees is repeated in the defendants'

written submissions on the summary trial. At the hearing, counsel for the defendants

questioned the accuracy of the calculation asserted in the Claim, but offered no

other calculation for comparative purposes on the timeframe presented by the

plaintiff (through to April 8, 2014).


[100] In an affidavit from Wesley Richards, sworn or affirmed on June 9, 2014, he

acknowledges that the defendants did not pay their October, November and

December 2013 franchise fees, which he says amounted to about $8,000.00. In a

second affidavit, sworn or affirmed on September 28, 2016, Mr. Richards admits that

there were "fees owing" under the Agreement as at January 15, 2014.

[101] In light of the admissions, I find that the plaintiff has established there are

outstanding franchise fees owed by the defendants. However, in the interests of

justice, I decline to award the entirety of the amount put forward by the plaintiff.

Instead, I conclude that $6,394.14 is the appropriate amount owing under the

Agreement. According to the plaintiff's written submissions, this amount represents

the cumulative total of the unpaid fees for October, November and December 2013,

plus an additional balance of $155.14 outstanding for the months of July to

September 2013.

[102] Under the Cancellation and Release, the defendants were obliged to submit

monthly store reports and the "accompanying fees during the term of [the]

Cancellation". These reports and "accompanying fees" arose under the Agreement.

Initially, the Cancellation and Release suspended termination of the Agreement until

February 1, 2014. The termination of the Agreement was then accelerated by the

plaintiff and rendered effective on January 8, 2014. At that point, the Agreement

came to an end and the "Post-term Obligations" of the Cancellation and Release

took over.

[103] On their face, the "Post-term Obligations" do not include the continued

provision of monthly store reports and franchise fees. Instead, under the "Post-term

Obligations", the defendants were obliged to: remove any Dairy Queen trademarks,

signage, products and ingredients from their business premises; not use Dairy

Queen trademarks and trade names on the Internet in a negative fashion; and, the

defendants were prohibited from operating a business with "a name that is

deceptively similar to" the Dairy Queen's trademarks, or from operating a "competing

restaurant" for a period of one year.


[104] Under the Cancellation and Release, the defendants were not released from

any "post-termination obligations" contained within the Agreement. However, similar

to the Cancellation and Release, there is no indication in these latter provisions that

a franchisee must continue to pay fees prospectively, after the Agreement has been

terminated.

[105] In my view, if the defendants are liable to the plaintiff for monies arising out of

their continued operation of the DQ Grill & Chill post-termination and until April 8,

2014, the liability must be legally grounded in something other than non-compliance

with the obligation to remit franchise fees under the Agreement, as carried forward

by the Cancellation and Release during suspension of the termination.

(ii) Passing Off

[106] The tort of passing off was recently reviewed by the Court of Appeal in

Vancouver Community College v. Vancouver Career College (Burnaby) Inc., 2017

BCCA 41. There, the Court endorsed as accurate a summary of the governing

principles that is found in Greystone Capital Management Inc. v. Greystone

Properties Ltd., 87 C.P.R. (3d) 43 (B.C.S.C.), at para. 27:

1. The existence of reputation or goodwill at the relevant time. This includes consideration of whether the plaintiff was recognized by the trade name and whether the trade name was distinctive within the relevant field of activity.

2. A misrepresentation leading the relevant public to believe there is a business association or connection between the parties. This includes consideration of whether the defendants' use of the trade name is likely to deceive the relevant public. Any misrepresentation need not be deliberate and proof of intent is not necessary. Evidence of likelihood of confusion, leading to the possibility of lost business opportunity is relevant. However, the establishment of actual confusion is not required.

3. Damage or potential damage flowing to the plaintiff as a result of any misrepresentation due to loss of control over its reputation is presumed: Greystone, at para. 30.

[107] In their written submissions, the defendants concede that they operated the

DQ Grill & Chill until April 8, 2014; that they sold products representative of a Dairy


Queen franchise while doing so; and, that the Cambie Road premises were

identified as a Dairy Queen.

[108] The defendants acknowledge that the plaintiff has established the first

element of the tort of passing off, namely, the existence of "goodwill". This

concession is well-founded. On the evidence, the name Dairy Queen and its

trademark products carry "sufficient distinctiveness" that they are well recognized as

designating the plaintiff, and the restaurants and retail stores that operate as

franchisees under its name (Vancouver Community College, at para. 40).

[109] The defendants say that the second and third elements of the tort have not

been met. Moreover, they deny liability for passing off on grounds that: (1) the

Cancellation and Release was void and not binding on them; (2) if it was binding, the

plaintiff improperly accelerated the termination dated specified in this document;

(3) the defendants were doing their best to comply with the Cancellation and

Release, but they were in financial trouble and it took time and expense to remove

the Dairy Queen signage and trademarks; and (4) the plaintiff could have removed

its own signage.

[110] I have already concluded that the Cancellation and Release is binding on the

parties. As such, the defendants cannot raise lack of enforceability of this document

as a defence to the allegations of passing off.

[111] Moreover, I am satisfied on the evidence that all three elements of the tort

have been made out. It is undisputed that between January 8, 2014, when the

plaintiff terminated the Agreement, and April 8, 2014, when the Dairy Queen signage

was removed from the Cambie Road premises, the defendants operated their

restaurant and store as a DQ Grill & Chill. In this sense, the restaurant was "equally

descriptive" of a Dairy Queen franchise and any consumer, upon encountering the

restaurant, would likely have seen it that way. According to Vancouver College, this

form of confusion in the marketplace is sufficient to establish the second element of

the tort (at para. 71). The key issue in showing "confusion" is how the impugned


entity has "presented itself" (at para. 72). The defendants presented themselves as

a Dairy Queen franchise.

[112] In my view, the real issue in this case is whether the plaintiff has established

the third element of the tort, namely, damages. The tort of passing off "requires only

that some damage is established, in which case injunctive relief may be ordered and

the trial court will be put to the task of assessing damages" (Vancouver College, at

para. 74). Proof of actual financial loss is not required. Rather, the unauthorized

use of goodwill, standing alone, may support an inference of damage. As well,

damage may be inferred from the loss of control over goodwill (Vancouver College,

at para. 75, citing Edward Chapman Ladies' Shop Ltd. v. Edward Chapman Ltd.,

2006 BCSC 14, at paras. 53–56, aff'd 2007 BCCA 370).

[113] The plaintiff seeks $25,000 in damages, presumably for interference with and

loss of control over its goodwill for the period of January 8 to April 8, 2014, when the

defendants' restaurant ceased operating as a DQ Grill & Chill. I accept that the

defendants' conduct interfered with the plaintiff's goodwill and I draw an inference of

damages as a result. However, I have determined that the period for assessing

damages for passing off is shorter than that which is held out by the plaintiff.

[114] After the Agreement was terminated on January 8, the defendants no longer

had licence under the Agreement or the Cancellation and Release to operate a

restaurant or retail store under the name of Dairy Queen. This was made clear to

the defendants. When the plaintiff notified Wesley Richards that the Agreement was

terminated effective January 8, he was told in an email from Marcy Rupert to

"immediately remove from the premises all signage, trademarks, point-of-sale

materials, proprietary products and ingredients and all other items which bear any of

DQC's trademarks …".

[115] In Ms. Rupert's affidavit, she states that after January 8, the plaintiff had

"internal discussions" in which it was agreed that the plaintiff would allow the

defendants to carry on with the process of finding a buyer and transferring the DQ

Grill & Chill by February 1, 2014, or perhaps even longer if a buyer was located, but


only if the restaurant was closed. The defendants were notified of this decision on

January 13.

[116] On January 15, Ms. Rupert spoke directly with Wesley Richards. She

confirmed with him that the plaintiff would only continue to work with the defendants

to facilitate a sale and transfer of the DQ Grill & Chill if the restaurant closed

immediately. Wesley Richards told her that he would not agree to cease operations

or pay any outstanding franchise fees.

[117] On January 21, 2014, the plaintiff sent a letter to the defendants with the

heading "Confirmation of Termination". The letter confirms termination of the

Agreement effective January 8 and stresses the obligation to immediately close the

restaurant and remove all DQ Grill & Chill trademarks. The defendants were also

reminded in the letter of the contractual prohibition against operating a competing

restaurant at the premises for one year following termination of the Agreement. This

letter was followed up by further correspondence from legal counsel with the plaintiff

(Genevieve Beck), again telling the defendants that the Agreement was terminated

and they must "cease and desist from operating a DAIRY QUEEN restaurant".

[118] The defendants continued to operate and it was at this time that Wesley

Richards sent the January 31 letter to Peter White asking for more time to remain

open. The request was denied. The defendants responded by sending a letter to

the plaintiff on February 16, indicating that they were "making final preparations to

depart from the Dairy Queen Family" and offering to sell the plaintiff some of the

defendants' equipment, as well as other items. This included $350,000 worth of

"Dairy Queen Goodwill". The offer was declined.

[119] Based on this evidence alone, it would appear that between January 8 and

April 8, 2014, the defendants were operating their DQ Grill & Chill in open defiance

of the franchisor.

[120] However, on March 6, 2014, the defendants were notified that legal

proceedings would be commenced against them unless the franchise was


"completely de-identified on or before March 10, 2014" (emphasis added), and all

outstanding store reports and franchise fees were paid. The defendants responded

to this letter, with the following:

Thank you for your letter of March 6, 2014.

As mentioned in the letter sent, there was a [sic] confusion with the line "unless you remit all outstanding SMRs and fees in arrears, which now total $10,552.18 by the same date". Are you indicating that the restaurant may be kept open if the amounts are remitted? What remitting policies or payment plans are being offered? Secondly, as we verbally conversed last time, March 20th, 2014 was the allowed new closing date and it is confusing as to why the date was thereafter moved back 10 days as seen in your writing. I proceeded to call a few times but with no success and therefore am taking this opportunity to write to you.

Unfortunately, as the communication channel has not been clear, your voice of reasoning is necessary for the final preparations; we thank you in advance … (italics in the original).

[121] Legal counsel for the law firm representing the plaintiff responded to this letter

on March 17, 2014. The defendants were told:

… at no point in our verbal conversation was it agreed that you could continue operating until March 20, 2014. To the contrary, you requested a closing date at the end of March, which was denied. In my letter dated March 6, 2014, I indicated that the closing date was March 10, 2014. I have not received any follow-up emails or voicemails in respect of this letter despite all of my full contact information being contained therein.

My letter of March 6 makes it clear that you may not continue operations if you remit all outstanding SMRS and fees. Rather, you have been unequivocally advised that you must both (i) close your franchise and completely de-identify on or before March 10, 2014; and (ii) remit all outstanding SMRs and fees in arrears by the same date (emphasis added).

[122] The DQ Grill & Chill did not close by March 10. On March 24, the plaintiff

filed its Claim with this Court. Among other things, the Claim sought to enjoin the

defendants from continuing to operate as a Dairy Queen. The DQ Grill & Chill

closed on April 8 and the plaintiff's proprietary trademarks and signage were

removed.

[123] This is when the Chicago Grill & Creamery began its operations. The plaintiff

amended its Claim to include the new business. A second injunction application was


initiated and, by consent, an order was issued on June 17 ordering removal of all

Dairy Queen material from the Cambie Road premises. It furthermore restrained the

Chicago Grill & Creamery from operating in a manner that represented a Dairy

Queen. The order contained the following term:

The Applicants agree to forever release Mr. Adrian Richards and Chicago Grill & Creamery Corporation from any and all actions or claims of whatever kind that exist as of the date of this Consent Order arising from the performance or non-performance by the Adrian Richards & Chicago Grill & Creamery Corporation of their obligations pertaining to this action and all related matters save and what is agreed to in this Consent Order.

[124] Based on the correspondence between the parties after January 8, 2014,

and, in particular, the letter of March 17 from the law firm for the plaintiff, I find that

the plaintiff represented to the defendants post Cancellation and Release that the

last possible date for the DQ Grill & Chill to close its doors and "de-identify" as a

Dairy Queen franchise was March 10.

[125] The consent order issued on June 17 removed any entitlement of the plaintiff

to claim damages in relation to the Chicago Grill & Creamery. As such, the period

under consideration for damages for the tort of passing off is March 10 to April 8,

2014 - a period of less than one month. Up to March 10, the plaintiff acquiesced in

the defendants' continued operation of a business that held itself out as a DQ Grill &

Chill, notwithstanding the fact that the Agreement had terminated effective

January 8.

[126] Nonetheless, there was clearly interference with the plaintiff's good will from

March 10 onward, and it took the potential for an injunction application before the

defendants followed through on their "Post-term Obligations" under the Cancellation

and Release.

[127] As noted by Cromwell J. A. (as he then was) in 2703203 Manitoba Inc. v.

Parks, 2007 NSCA 36, it is often very difficult for a victim of passing off to prove

damages "with precision" (at para. 147). However, "difficulty in assessing damages

does not relieve the court from the duty of assessing them as best it can" (at


para. 148). On this point, Justice Cromwell cited the words of Goddard L.J. in

Draper v. Trist, [1939] 3 All E.R. 513 (Eng. C.A.), at p. 527:

... once one has established passing off, there is injury to goodwill, and this court or the jury must assess, by the best means they can, what is a fair and temperate sum to give to the plaintiff for that injury (quoted at para. 149 of 2703203 Manitoba Inc.).

[128] In my view, damages in the amount of $8,500 is appropriate for passing off in

the circumstances of this particular case, which represents approximately one third

of the amount sought by the plaintiff based on a reduced time frame.

C. Costs

[129] The Cancellation and Release provides that if the plaintiff was required to

take legal action to enforce its rights under the document, it is entitled to "recover in

such action its legal and accounting fees, together with court costs and expenses of

litigation". As noted at paragraph [13] above, counsel for the plaintiff abandoned any

claim based on this contractual entitlement at the start of the summary trial.

[130] However, the plaintiff has been substantially successful on the summary trial.

Under Rule 14-1(9), the "costs of a proceeding must be awarded to the successful

party unless the court otherwise orders". Rule 14-1(9) was explained this way in Loft

v. Nat (No. 1), 2014 BCCA 108, leave to appeal ref'd [2014] S.C.C.A. No. 211:

[46] Pursuant to Rule 14-1(9), costs in a proceeding must be awarded to the successful party unless the court otherwise orders. At its most basic level the successful party is the plaintiff who establishes liability under a cause of action and obtains a remedy, or a defendant who obtains a dismissal of the plaintiff's case.

…

[49] The fact that a party has been successful at trial does not however necessarily mean that the trial judge must award costs in its favour. The rule empowers the court to otherwise order … Whether a judge will order otherwise in any particular case will be dependent upon the circumstances of that individual action.

[50] Costs are very much a matter of the trial judge's discretion.


[131] The discretion to withhold an award of costs to a successful litigant requires

"special circumstances" that arise out of, and are connected to the litigation:

Sutherland v. Canada (Attorney General), 2008 BCCA 27, at paras. 26–27, Currie v.

Thomas (1985), 19 D.L.R. (4th) 594 (B.C.C.A.). Although the defendants have

raised a number of complaints about the manner in which the plaintiff managed the

franchise relationship, they made no submissions to me about the litigation process

itself that would justify an exceptional approach to the issue of costs.

[132] On the material before me, I see no reason to depart from the approach

ordinarily taken under Rule 14-1(9). I further hold that Rule 14-1(10) does not apply.

In light of the nature of the issues initially addressed in the plaintiff's Claim, including

injunctive relief, this is a matter for which there was sufficient reason for bringing the

proceeding in the Supreme Court. The plaintiff is entitled to recover its costs from

the defendants.

V. DISPOSITION

[133] For the reasons provided, I grant the plaintiff's application for a summary trial

and make the following orders:

(1) The defendants are obliged to pay the plaintiff $6,394.14 in outstanding fees, plus pre-judgment interest in accordance with the Court Order Interest Act, R.S.B.C. 1996, c. 79;

(2) The defendants are liable for $8,500 in damages to the plaintiff for the tort of passing off;

(3) The Counterclaim and defendants' request for set off is dismissed; and,

(4) The plaintiff is awarded costs as the substantially successful party to be assessed on Scale B. This includes costs on the injunction applications filed in April 2014 and June 2014 respectively, and costs on the summary trial.

"DeWitt-Van Oosten J."


APPENDIX A

Chronology

Date Event

April 2, 1991 Franchise Agreement signed between DQC and M.Y. Sundae.

Sometime before October 24, 2008

The Richards allege that they requested documents from DQC and that DQC declined to provide the requested documents.

October 24, 2008 The Richards purchase M.Y. Sundae from a previous owner. The transaction was not made through DQC.

November 5, 2009 During a Cleanliness Pride Check, M.Y. Sundae is cited for six yellow breaches of DQC's standards and specifications and one red (i.e., major) breach.

November 5, 2009 During a Facilities Pride Check, M.Y. Sundae is cited for 11 unsatisfactory points which constitute breaches of DQC's standards and specifications.

November 5, 2009 During a Food and Safety Pride Check M.Y. Sundae is cited for 19 unsatisfactory points in five categories which constitute breaches of DQC's standards and specifications.

April 29, 2010 During a Cleanliness Pride Check, M.Y. Sundae is cited for four yellow breaches of DQC's standards and specifications and four red (i.e., major) breach.

April 29, 2010 During a Facilities Pride Check, M.Y. Sundae is cited for 18 unsatisfactory points which constitute breaches of DQC's standards and specifications.

April 29, 2010 During a Food and Safety Pride Check M.Y. Sundae is cited for six unsatisfactory points in five categories which constitute breaches of DQC's standards and specifications.

October 8, 2010 M.Y. Sundae is advised about delinquent store monthly reports and fees. A/R balance is $15,966. DQC indicates that A/R has become a serious concern and will be requesting a default.

October 18, 2010 M.Y. Sundae is warned about growing A/R. Balance is $28,330.71. DQC advises that they require a business plan on staying current during winter.

December 3, 2010 M.Y. Sundae is Noted in Default for failure to remit franchise fees and store monthly reports.

March 8, 2011 DQC Business Consultant Steve Boyle provides a P&L and Inventory Planner to M.Y. Sundae and advised, "I will be more than happy to show you how to use them."


Date Event

April 6, 2011 Steve Boyle sends email to M.Y. Sundae providing information and suggestions on options for servicing machines.

Sometime before November 7, 2011 inspections

Mr. Richards alleges that he notices the Breaches (as defined in the counterclaim) and complained about them to DQC.

August 31, 2011 M.Y. Sundae is advised that July report and fees are delinquent. DQC confirms the agreement that M.Y. Sundae stay current on reports and fees.

November 7, 2011 Chris Pennington attends at franchise to perform CPC, FPC and FSPC.

Mr. Pennington's notes explain his attempts to assist M.Y. Sundae:

"Wesley's sales are below the market norm by -10% I explained the importance of consistent day to day operations and tied in the red/green book and shift leadership program with this." "CPC had 9 RED on it and there was a huge opportunity behind the counter with cleanliness. A very clear lack of systems and routines. I explained to Wesley the importance of a clean store and how this has a direct correlation to sales. We went over how the red book will help with this."

"The store had meat in the carter hoffman unit that was not >140F being held and there was raw grilled chicken breasts being held at room temperature 58F. We disposed of everything and I explained the procedures and the extreme importance of food safety within the establishment."

November 7, 2011 During a Cleanliness Pride Check, M.Y. Sundae is cited for 13 yellow breaches of DQC's standards and specifications and nine red (i.e., major) breach.

November 7, 2011 During a Facilities Pride Check, M.Y. Sundae is cited for 16 unsatisfactory points which constitute breaches of DQC's standards and specifications.

November 7, 2011 During a Food and Safety Pride Check M.Y. Sundae is cited for 19 unsatisfactory points which constitute breaches of DQC's standards and specifications.

November 10, 2011

Mr. Pennington emails M.Y. Sundae offering to schedule a time to come back with Marsha Dillon and go over the Pride Check issues with the franchisee.

November 18, 2011

Notice of default for failed CPC inspection. M.Y. Sundae given 60 days to cure defaults.


Date Event

November 24, 2011

Mr. Pennington and Ms. Dillon attend at premises and provide advice to Mr. Richards on CPC issues.

Also discussed is obligation to complete modernization and install self-serve pop, as required by Grill and Chill concept.

January, 2012 DQC announces initial roll-out of Orange Julius products across system.

January 6, 2012 DQC writes to M.Y. Sundae to advise of obligation to install remote drink system as part of Grill and Chill concept. DQC notes that it will defer the deadline until April 30, 2012 based on Mr. Richards' request.

February 2, 2012 During a Cleanliness Pride Check, M.Y. Sundae is cited for 13 yellow breaches of DQC's standards and specifications and two red (i.e., major) breach.

February 6, 2012 Marsha Dillon and Chris Pennington return to speak with Mr. Richards to address the recurring issues and offer help. Ms. Dillon and Mr. Pennington explain importance of consistency in meeting the standards. Again, the need for self-serve pop as a requirement of the Grill and Chill concept is discussed.

February 6, 2012 DQC closes M.Y. Sundae's CPC default despite the fact that it still had numerous deficiencies. DQC clarifies in its letter that any outstanding issues must be rectified.

March 6, 2012 M.Y. Sundae is Noted in Default for failure to remit franchise fees and store monthly reports.

Mary 23, 2012 During a Cleanliness Pride Check, M.Y. Sundae is cited for 12 yellow breaches of DQC's standards and specifications and four red (i.e., major) breach.

May 23, 2012 During a Food and Safety Pride Check M.Y. Sundae is cited for 25 unsatisfactory points in 10 categories which constitute breaches of DQC's standards and specifications.

June 6, 2012 During a Food and Safety Pride Check M.Y. Sundae is cited for 16 unsatisfactory points in four categories which constitute breaches of DQC's standards and specifications.

June 12, 2012 M.Y. Sundae is sent a letter addressing the repeat Food and Safety Pride Check deficiencies. The letter was not a notice of default, but required the franchisee to immediately correct the deficiencies.

July 13, 2012 M.Y. Sundae is noted in default for failure to install remote drink system, as required by Grill And Chill concept. The franchisee is given 30 days either install the remote drink system or change the signage from from "Grill and Chill" to "Restaurant".


Date Event

September 20, 2012

M.Y. Sundae is sent a Mutual Cancellation and Release Agreement as a result of the failure to cure the remote drink system default. The agreement does not contain an opportunity to cure the default and avoid termination.

September 26, 2012

Mr. Richards advises Ms. Rupert that the restaurant is listed for sale. Mr. Richards requests a final chance to install remote drink system and continue operating.

October 2, 2012 Ms. Rupert emails Mr. Richards with a new Mutual Cancellation and Release that gives an opportunity to avoid the termination if a remote drink system is installed by December 1, 2012 or the signage is changed from "Grill and Chill" to "Restaurant".

November 2012-January 2013

M.Y. Sundae, Wesley and Irene Richards sign three separate Mutual Cancellation and Release Agreements in relation to the failure to install a remote drink system, as required by Grill and Chill concept.

Initially, the wrong version is signed and returned in November. The correct version is signed twice in December 2012 and January, 2013.

They do not obtain legal advice in respect of any of these agreements, each of which was signed "willingly" and without protest.

December 7, 2012 During a Facilities Pride Check, M.Y. Sundae is cited for 13 unsatisfactory points which constitute breaches of DQC's standards and specifications.

December 7, 2012 Chris Pennington emails Mr. Richards explaining FPC issues that need to be fixed within the next 90 days. He also attaches the 1-2-3-4 portioning guide discussed with Mr. Richards. Mr. Pennington offers to help Mr. Richards, stating "give me a call if you have any questions or need help with anything".

January 18, 2013 System Memo sent to all franchisees explaining requirement to add Orange Julius drinks as core menu items by April 1, 2013.

February 7, 2013 Letter sent to M.Y. Sundae reiterating the April 1, 2013 deadline to add Orange Julius drinks as core menu items.

February 18, 2013 Chris Pennington emails Mr. Richards and offers to help with the mock recall. Mr. Pennington writes, "If you would like me to go over it with you please let me know…"

March 18, 2013 Letter sent to M.Y. Sundae reiterating the April 1, 2013 deadline to add Orange Julius drinks as core menu items.

March 28, 2013 During a Cleanliness Pride Check, M.Y. Sundae is cited for 19 yellow breaches of DQC's standards and specifications and thirteen red (i.e., major) breach.


Date Event

March 28, 2013 Produce pride check – 2 of 5 items not approved.

Onions and salad blend.

March 28, 2013 Pennington emails M.Y. Sundae with photos and report. Explains how Marsha Dillon and he will be returning to help develop an action plan to fix these specific cleanliness areas.

April 2, 2013 During a Facilities Pride Check, M.Y. Sundae is cited for 10 unsatisfactory points which constitute breaches of DQC's standards and specifications. Each point is a repeat.

April 10, 2013 and M.Y. Sundae is sent two notice of default – each with 60 days to cure.

One in respect of the failed Facilities Pride Check inspections on December 7, 2012 and April 2, 2013.

One notice of default in respect of the failed March 28, 2013 Cleanliness Pride Check Inspection.

May 13, 2013 M.Y. Sundae is sent a notice of default for failing to sell Orange Julius drinks by the April 1, 2013 deadline.

A 60-day period to cure was also provided in the notice of default.

July 15, 2013 During a Cleanliness Pride Check, M.Y. Sundae is cited for 19 yellow breaches of DQC's standards and specifications and fifteen red (i.e., major) breaches, many of which were recurring red breaches.

July 23, 2013 During a Facilities Pride Check, M.Y. Sundae is cited for five unsatisfactory points which constitute breaches of DQC's standards and specifications. Each point is a repeat failure from the previous inspection.

July 31, 2013 M.Y. Sundae is advised that it did not cure its CPC default, FPC Default and Orange Julius Default.

The final mutual cancellation and release agreement was attached.

July 31, 2013 Marcy Rupert discusses the mutual cancellation and release with Mr. Richards by telephone. Mr. Richards indicates that he wanted to sign the release and return it to DQC the next day.

August 9, 2013 Marcy Rupert sends a follow up email stating:

"When you and I spoke last week you said you would sign and return he Cancellation to me. However, I still haven't received it yet. Please make sure you do that immediately so we can give you the opportunity to sell the business".

August 9, 2013 Mr. Richards returns a signed copy of the Mutual Cancellation and Release by fax.


Date Event

August 9, 2013 Mr. Richards emails Ms. Rupert stating, "Hi Marcy, Thank you for your email… I have faxed the document. Please confirm. Thank you"

August 16, 2013 Ms. Rupert returns a fully executed copy of the Mutual Cancellation and Release to Mr. Richards by email.

Her email states, "Please make sure you continue to (a) submit all SMR's and fees when due (July is past due now)".

October 15, 2013 Ms. Rupert writes to Mr. Richards, stating:

"You owe July fees and August and September reports and fees. Remember that the cancellation you signed requires you to remain current in submitting reports and fees during the sale period.

Be advised that if we don't receive the July fees and August and September reports and fees by October 22, 21013, we will require you to close the restaurant".

October 24, 2013 Ms. Rupert writes to Mr. Richards stating:

"You still have no submitted the July fees or the September report and fees by the deadline I gave you of October 22. Therefore, we must now require you to close this restaurant".

January 8, 2014 Ms. Rupert writes to Mr. Richards stating:

"At this time, you owe reports and fees for October and November, 2013 and December 2013 report and fees will be due Friday, January 10. In addition you owe other accounts receivable.. .. Thus, you must IMMEDIATELY close this restaurant permanently, as we are accelerating the termination date in the Cancellation to be effective today, January 8, 2014."

The franchise does not close.

January 13, 2014 Marcy Rupert writes to Mr. Richards, advising that, if the store is closed immediately, DQC will still allow Mr. Richards to find a buyer of the business up until February 1, 2014 and that a further extension will be granted if a buyer is presented to allow DQC to approve the buyer, with the possibility of a further extension to complete all transfer requirements if the buyer is approved.


January 15, 2014 Mr. Richards speaks to Ms. Rupert and refuses to close store or remit SMR's or fees.



Date Event

January 21, 2014 Genevieve Beck, legal counsel for DQC, writes to M.Y. Sundae confirming the January 8, 2014 termination and requests immediate closure.


January 24, 2014 Genevieve Beck, legal counsel for DQC, writes to M.Y. Sundae demanding the immediate closure of the franchise.


January 31, 2014 Wesley Richards writes to Peter White, EVP of DQC to ask for more time to sell the franchise.

The letter admits that M.Y. Sundae has been asked to close and that he is "not disputing nor retaliating".

February 1, 2014 Original termination date under the Mutual Cancellation and Release.


February 11, 2014 Genevieve Beck, legal counsel for DQC, writes to M.Y. Sundae demanding the immediate closure of the franchise.


February 16, 2014 Mr. Richards writes to Genevieve Beck offering to sell various assets of the franchise to DQC


February 20, 2014 Cassels Brock writes to the franchisee demanding that the franchise close immediately.


March 6, 2014 Cassels Brock writes to the franchisee demanding that the franchise close immediately.


March 12, 2014 Mr. Richards writes to Cassels Brock asserting that "March 20th 2014 was the allowed new closing date".

March 17, 2014 Cassels Brock writes to the franchisee explaining that March 20 was never an agreed upon closing date and demanding that the franchise close immediately.


March 24, 2014 Notice of Civil Claim filed.

March 25, 2014 Notice of Application to enjoin M.Y. Sundae from operating as a Dairy Queen filed, returnable on April 11, 2014.


Date Event

April 8, 2014 M.Y. Sundae ceases operating as a Dairy Queen – resulting in application not being heard.

On or about April 11, 2014

The franchise location turns into a Chicago Grill and Creamery, which DQC asserts is a competing business.

May 21, 2014 Amended notice of application to enjoin Chicago Grill and Creamery from operating as a competing business.

June 17, 2014 Consent order of Justice Grauer restraining defendants from engaging in the Chicago Grill & Creamery business and requiring the business to be operated as a sports bar.

August 11, 2014 Counterclaim filed.

Documents

IN THE SUPREME COURT OF BRITISH COLUMBIA DeWitt-Van Oosten re Dairy... · IN THE SUPREME COURT OF BRITISH COLUMBIA ... $25,000 in damages for passing off as a Dairy Queen post