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Q & A with Frank Zaid: Opt in or out of court proceedings

GavelBy Frank Zaid

Q: How have recent franchising-related court decisions set precedents regarding the rights of various parties to join, be represented in or opt out of court proceedings?

A: There have been several recent important and, indeed, precedent-setting decisions involving (a) the right of a franchising industry association to intervene in an ongoing dispute, (b) the rights of franchisees to be represented as a group and (c) the right of franchisees to opt out of an ongoing class action.

Motion to intervene
In a decision on May 10, 2013, the Quebec Court of Appeal dismissed a motion by the Canadian Franchise Association (CFA), a national trade association, for leave to intervene in ongoing proceedings between Dunkin’ Donuts Canada and 21 of its franchisees in Quebec.

This was the first time CFA had sought leave to intervene in a private civil action. In June 2012, the Quebec Superior Court had awarded the franchisees $16.4 million in damages, based on the “implicit obligations” flowing from the general nature of their Dunkin’ Donuts franchise agreements, including an implied obligation of all franchisors “to protect, improve and enhance the brand” (see Canadian Business Franchise, November 2012, page 54). This decision was widely publicized as creating a novel concept in franchise law.

That decision was then appealed, to the Quebec Court of Appeal. CFA sought leave to file a factum and to make arguments on the appeal. This procedure is unique to Quebec, in that the province’s Civil Code allows a third party to intervene if the court deems such intervention “expedient, having regard to the questions at issue.”

CFA based its application on the potential impact and importance of the implicit obligations referred to in the decision and the potential consequences that might flow from such implied obligations on both franchisors and franchisees.

The Quebec Court of Appeal noted the procedure for intervention should distinguish between matters of public law and other matters that are purely private in nature. In a private dispute, the intervening party cannot merely seek to express views or repeat positions similar to those that would be voiced by a party to the proceeding, as that would result in a disproportional imbalance between the parties.

The court decided the arguments CFA would address did not materially differ from the arguments Dunkin’ Donuts itself would make on the same issues. As the court was not convinced CFA’s perspective on the issues was sufficiently novel, it dismissed the application to intervene.

As the mandate of CFA is to represent franchise systems and not just franchisors, however, this means both franchisors and franchisees will not be able to have their industry interests considered at large in the Dunkin’ Donuts case.

While this decision is unique to Quebec, as it was decided under that province’s specific rules regarding intervener status, it is likely similar considerations may be considered by a court in another province, should a third party attempt to gain intervener status in proceedings. That is to say, the distinction between cases involving the public interest and private claims may be considered superior to the right of a national trade association to make representations regarding industry expertise and industry-based considerations.

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