COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:	M.Y. Sundae Inc. v. International Dairy Queen, Inc.,
	2018 BCCA 427

Date: 20181108

Docket: CA45300

Between:

M.Y. Sundae Inc. operated as DQ Grill and Chill,
Wesley J. Richards and Irene S. Richards

Appellants

(Plaintiffs)

And

International Dairy Queen, Inc.

Respondent

(Defendant)

Before:

The Honourable Mr. Justice Groberman The Honourable Mr. Justice Fitch The Honourable Mr. Justice Hunter

On appeal from: An order of the Supreme Court of British Columbia, dated
April 25, 2018 (M.Y. Sundae Inc. v. International Dairy Queen, Inc., 2018 BCSC 744, Vancouver Docket S162376).

Oral Reasons for Judgment

Appearing on behalf of the Appellants, in person:	W.J. Richards
Counsel for the Respondent:	M.I.A. Buttery
Place and Date of Hearing:	Vancouver, British Columbia November 8, 2018
Place and Date of Judgment:	Vancouver, British Columbia November 8, 2018

 

Summary:

In previous litigation, the plaintiffs advanced a counterclaim against Dairy Queen Canada, Inc., alleging that it improperly cancelled a franchise agreement. The counterclaim was dismissed, with findings that the franchise agreement was properly cancelled, and that a release of claims executed by the plaintiffs was valid. The plaintiffs commenced a second claim, this time naming International Dairy Queen, Inc., the parent company of Dairy Queen Canada, as defendant, and alleging that the franchise was improperly cancelled as a result of conspiracies and frauds in which the parent company was implicated. The claim was struck by a master as an abuse of process. On an appeal to a judge of the Supreme Court, the action was dismissed. On further appeal held: Appeal dismissed. Findings of fact that were made definitively in the earlier litigation are binding on the appellants. The current action is an abuse of process. The appellants’ conduct on the appeal, including making false and disturbing allegations against the master and against counsel, and misstating the evidence in argument justify the award of special costs against them.

[1]             GROBERMAN J.A.: A master of the Supreme Court struck the appellants’ notice of civil claim. On appeal to a judge of the Supreme Court, the order striking the claim was affirmed. The action was dismissed on the basis that it constituted an abuse of process. The appellants appeal to this Court.

[2]             The basis for the dismissal of the action was that the plaintiffs released all claims against the defendant in an agreement with Dairy Queen Canada, Inc. (“DQ Canada”) entered into on August 9, 2013. The validity of the release has been determined in litigation between DQ Canada and the plaintiffs.

[3]             In my view, the master and the judge were correct in finding that the current litigation is an abuse of process.

The Release Agreement

[4]             Under a franchise agreement with DQ Canada, M.Y. Sundae operated a Dairy Queen outlet in Richmond from 1991 until 2014. Mr. and Ms. Richards were the principals of M.Y Sundae from 2008 onward.

[5]             In 2013, DQ Canada issued a number of notices to M.Y. Sundae stating that the latter was not in compliance with its obligations to meet quality standards under the franchise agreement. The notices gave the company sixty days to cure the alleged defaults. After the expiry of the sixty days, DQ Canada sent further communications to M.Y. Sundae, indicating that DQ Canada was in a position to terminate the franchise agreement, but offering to refrain from doing so for a period of time, in order to allow the Richards to find an approved buyer and sell the franchise.

[6]             On this appeal, Mr. Richards says that each of these notices was sent to him by International Dairy Queen, Inc. (“DQ International”) rather than directly by DQ Canada. It is apparent on the face of the documents, however, that if that was the case, DQ International was acting as agent for DQ Canada. The evidence establishes that DQ International is the parent company of DQ Canada.

[7]             The Richards signed a document entitled “Mutual Cancellation and Release” on August 9, 2013. The document gave the Richards until February 1, 2014 to sell the business, failing which the franchise would be cancelled. In exchange, DQ Canada agreed, subject to certain conditions, not to cancel the franchise agreement in advance of that date and to allow its operations to continue.

[8]             The document also constituted a mutual release of claims by the parties. Importantly, the release provision stated that M.Y. Sundae and the Richards were releasing not only DQ Canada, but also “its affiliates” from all claims. As the release clause is the critical part of the document for the purposes of this appeal, I will refer to the August 9, 2013 document as the “Release Agreement”.

The DQ Canada Litigation

[9]             By October 2013, the Richards were in default of their obligations under the Release Agreement, and DQ Canada told them to close the restaurant. In January 2014, DQ Canada identified further breaches, and purported to terminate the franchise agreement as of January 8. When the appellants continued the business’s operations, DQ commenced litigation against them. DQ Canada sought a declaration that the franchise agreement was terminated, an injunction prohibiting the Richards from continuing to operate the Dairy Queen outlet, and damages.

[10]         The operation of the Dairy Queen outlet ceased in April 2014, just before the date scheduled for the hearing of the injunction application. In August, 2014, the Richards filed a counterclaim seeking damages for breach of contract, and for unfair dealing and breach of disclosure under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3.

[11]         The litigation continued to a summary trial in the Supreme Court in January 2017. At that time, the Richards, who were represented by counsel, took the position that they had signed the Release Agreement under economic duress. They also contended that the Release Agreement was unconscionable.

[12]         In a judgment indexed as 2017 BCSC 358, the judge upheld the validity of the Release Agreement. She granted damages to DQ Canada. She found no actionable conduct by DQ Canada, and dismissed the counterclaim.

[13]         M.Y. Sundae and the Richards appealed to this Court. They did not have counsel on the appeal; Mr. Richards appeared in person for the appellants.

[14]         On the appeal, Mr. Richards continued to argue that the Release Agreement was invalid, having been signed under duress. He also, however, tendered fresh evidence. The fresh evidence included his own affidavit, in which he denied signing the Release Agreement, as well as a report from a purported handwriting expert stating that, in her opinion, Mr. Richards' signature on the Release Agreement did not match his signature on certain other documents which he claimed he signed.

[15]         The allegation that Mr. Richards' signature was a forgery contradicted the pleadings filed by the appellants, their submissions at the summary trial, and previous affidavits filed by Mr. Richards, as well as other evidence.

[16]         In reasons indexed as 2017 BCCA 442, this Court dismissed the application to adduce fresh evidence, saying:

[41]      In my opinion, it is not in the interests of justice to admit this evidence and send this matter back for a new trial based on this new theory of the case. The evidence in my view is not reasonably capable of belief. All of the documentation is consistent with the conclusion that Mr. and Ms. Richards signed the document on August 9 and Mr. Richards sent it back by fax. That was the evidence of all participants, particularly Mr. Richards.

[42]      The issue has never been whether Mr. Richards signed the document, but whether he signed the document under protest in such circumstances as would amount to a coercion of the mind. Mr. Richards said he did. The trial judge did not accept that evidence.

[43]      Given the focus of the trial on the circumstances in which the Mutual Cancellation and Release was signed, it is not plausible that Mr. Richards could have overlooked the fact that he had not signed it at all. His sworn evidence was not simply that he signed it and sent it back. He presented a detailed explanation of the circumstances in which it was signed and returned by fax to Dairy Queen. There was even documentary evidence that he had inquired to make sure that the Dairy Queen representative had received the document.

[17]         The Court also rejected the duress argument, upholding the validity of the Release Agreement. The appellants have brought an application to appeal the judgment of this Court to the Supreme Court of Canada (docket no. 38060). That application was referred to a panel for consideration by the Court on October 1 of this year, and, at this time, remains outstanding.

The Current Litigation

[18]         In 2016, before the DQ Canada litigation went to summary trial, the appellants commenced the current action, naming DQ International as the defendant. Originally, the allegations against that company were essentially the same as the ones pleaded in the counterclaim in the DQ Canada litigation. The only difference was that the allegations were made against DQ Canada’s parent corporation rather than against DQ Canada itself.

[19]         On June 2, 2017, after the summary trial decision was issued in the DQ Canada litigation, DQ International applied to strike the notice of civil claim in this litigation as an abuse of process. The plaintiffs responded by making several amendments to the notice of civil claim, alleging that “new evidence” obtained in the discovery process in the DQ Canada litigation disclosed that DQ International was a culprit in an elaborate and unlawful scheme to cancel the franchise agreement between the plaintiffs and DQ Canada.

[20]         A master heard DQ international’s application, and struck the notice of civil claim. He gave short oral reasons for doing so. His reasons, directed to Mr. Richards, in plain language, summed up why the action was an abuse of process:

[Y]ou do not have a claim because [the summary trial judge in the DQ Canada litigation] already found against you and dismissed your counterclaim and that means against the affiliates, too, and that’s what you’re trying to do here.

You’ve lost. You can’t go around that and try again. That’s an abuse of the process of the court, sir. That’s what this is all about. You are abusing the process of the court in trying to do what you’re trying to do. It will not work.

[21]         The appellants appealed from his decision to a judge of the Supreme Court. The appeal before the Supreme Court judge was heard after the appeal to this Court in the DQ Canada litigation. As he had done on the appeal in that litigation, Mr. Richards changed tack, and applied to file evidence showing that he had not signed the Release Agreement. The judge, applying the usual tests for reception of fresh evidence, denied the application. In particular, she found that: with due diligence, the appellants could have adduced the evidence before the master; the fresh evidence would not have affected the outcome of the application; and it was not in the interests of justice to admit the fresh evidence. The judge agreed with this Court’s assessment that the fresh evidence was not reasonably capable of belief.

[22]         The judge also found the claim to be vexatious and an abuse of process. While her reasons were more elaborate than those given by the master, and cited a considerable number of legal authorities, the reasons were, in essence, the same: the plaintiffs had attempted, in the previous litigation, to show that the Release Agreement was invalid, and to show that the cancellation of the franchise was improper. They failed. They cannot re-litigate those matters. Merely making allegations against the parent company rather than against DQ Canada does not change the character of the litigation or the applicability of the release. Nor do the addition of allegations that purport to be new, such as allegations of conspiracy or fraud, preclude the second action from being an abuse of process.

The Appellants' Arguments on Appeal

[23]         On this appeal, the appellants take issue with the judge’s characterization of the litigation as “vexatious”, relying on cases dealing with declarations that litigants are vexatious. They also take issue with the characterization of the litigation as an abuse of process, relying on cases dealing with the tort of abuse of process.

[24]         The issue on this appeal is not whether the appellants are vexatious litigants, nor is it whether they have committed the tort of abuse of process. Rather, the issue is whether the claim that they put forward is an abuse of process by reason of the fact that critical aspects of it have already been determined adversely to them. The principle is fully discussed in Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, an authority relied on, quite properly, by the judge below.

[25]         The validity of the termination of the franchise agreement was definitively determined in the DQ Canada litigation, as was the authenticity and validity of the Release Agreement. The current litigation challenges those determinations. In the result, it is an abuse of process.

[26]         Mr. Richards has taken great pains to point to detailed differences between the wording of the notice of civil claim in this case and the wording of the counterclaim in the DQ Canada case, and to note that different legal characterizations are applied to the facts in this case. Those distinctions, however, are irrelevant to this appeal. For essentially the reasons given by the Supreme Court judge, the litigation constitutes an abuse of process.

[27]         The Supreme Court judge made no error in ruling the fresh evidence inadmissible, and also made no error in dismissing the claim as an abuse of process. I would dismiss the appeal.

[28]         The respondent seeks special costs of the appeal, contending that because outrageous personal allegations are made against counsel and against the master in the reply factum of the appellants, an award of special costs is appropriate.

[29]         In determining the appropriate disposition of costs on an appeal, the Court will usually confine its considerations to the merits of the appeal and the conduct of the parties in the course of the appeal (Lower v. Stasiuk, 2015 BCCA 296). Here, the offensive, irrelevant and spurious allegations against the master and against an officer of the court are important considerations. We have, as well, the unfortunate fact that Mr. Richards misrepresented evidence at the oral hearing of this appeal, by falsely claiming that there was no evidence that DQ International was the parent company of DQ Canada.

[30]         Ethical conduct is essential to the proper functioning of the court process. The disgraceful allegations made by the appellants in their reply factum and the misrepresentation of the record cannot pass without sanction. Accordingly, I would dismiss the appeal, and award the respondent special costs in this Court.

[31]         FITCH J.A.: I agree.

[32]         HUNTER J.A.: I agree.

[33]         GROBERMAN J.A.: The appeal is dismissed with special costs awarded to the respondent.

“The Honourable Mr. Justice Groberman”