Dairy Queen Canada, Inc. v. M.Y. Sundae Inc., 2017 BCSC 358

In a summary trial, Dairy Queen Canada, Inc. (“DQ”) sought relief including damages for passing off, an injunction restraining M.Y. Sundae Inc. and two individual defendants (“Sundae”) from further operation of its franchise and use of the Dairy Queen name and marks, and a declaration that the Franchise Agreement (“FA”) was terminated. Sundae brought a Counterclaim for breach of contract and unfair dealing.

Sundae operated a DQ Grill & Chill, purchased from a prior franchise operator. Sundae agreed to abide by all covenants and obligations of the prior existing FA.

After multiple instances of non-compliance with the FA, DQ notified Sundae in July 2013 that the FA was terminated. After further discussion, the parties signed a Mutual Cancellation and Release (“MCR”) in August 2013, suspending termination of the FA until February 2014, to give Sundae an opportunity to sell the business. Sundae did not cease operation until April 2014.

Sundae argued that DQ coerced it through economic duress into signing an invalid, unenforceable and unconscionable MCR, while DQ claimed the MCR was a complete answer to the Counterclaim, as it contained terms releasing the Plaintiff from all claims, damages and actions against them, and a statement that it was “freely and voluntarily executed” and that the parties “had an opportunity to review the same [terms] with consent”.

The Court agreed with DQ and noted that the MCR was more generous on its face than the FA, allowing the franchisee more time to recoup its investment through sale of the business. The Court found the MCR validly executed and binding, thus barring Sundae from advancing its Counterclaim.

On the issue of passing off, Sundae acknowledged the existence of goodwill in DQ’s trademarks and admitted to continuing operations until April 2014. The Court was satisfied all elements of the tort were met, since Sundae presented itself as a Dairy Queen franchise after the FA was terminated. The Court noted that the damage element of the tort can be supported by the unauthorized use of goodwill alone, and can also be inferred from a loss of control over goodwill. The Court held that Sundae’s conduct interfered with DQ’s goodwill and awarded damages, however the assessment was based on a reduced time frame from that sought by DQ.

The case is available HERE: