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

In this summary trial, the Court dealt with various issues relating to the termination of a Dairy Queen franchise agreement, including the Plaintiff's claim for damages based on the tort of passing off.

The Defendants had purchased the restaurant conducting business in the name of the DQ Grill & Chill and had agreed to be bound by the terms and conditions of the franchise agreement with Dairy Queen Canada, Inc., the Plaintiff. Ultimately, the working relationship between the Plaintiff and the Defendants broke down. In August 2013, the parties executed a Mutual Cancellation and Release. The Release suspended termination of the franchise agreement until February 1, 2014, allowing, inter alia , the Defendants an opportunity to sell their business and recoup their investment. In January 2014, the Defendants were advised that they were not operating in accordance with the terms of the Cancellation and Release and were told that the Plaintiff was "accelerating" the Agreement's termination date to January 8, 2014, in accordance with its terms. The Defendants conceded that they continued to operate the DQ Grill & Chill until April 8, 2014; that they sold products representative of a Dairy Queen franchise while doing so; and, that the premises were identified as a Dairy Queen.

On the issue of passing off, t he Defendants acknowledged that the Plaintiff had established the first element of the tort of passing off, namely, the existence of "goodwill". The Court was also satisfied that the second and third elements of the tort had been made out.

On the second element, the evidence established that the Defendants presented themselves as a Dairy Queen franchise between January 8, 2014, when the Plaintiff terminated the Agreement, and April 8, 2014, when the Dairy Queen signage was removed from the premises.

On the third element of the tort, namely damages, the Court accepted that the Defendants' conduct interfered with the Plaintiff's goodwill and drew an inference of damages as a result. However, the Court determined that the period for assessing damages for passing off was shorter than that which was held out by the Plaintiff. Based on the evidence, the Court found that the Plaintiff represented to the Defendants that the last possible date for the DQ Grill & Chill to close and "de-identify" as a Dairy Queen franchise was March 10, and not January 8, 2014. The Court awarded damages in the amount of $8,500 for passing off in these circumstances, which represented approximately one third of the amount sought by the Plaintiff based on a reduced time frame.