COURT OF APPEAL FOR ONTARIO
CITATION: Imvescor Restaurants Inc. v. 3574423 Canada Inc., 2012 ONCA 387
DATE: 20120607
DOCKET: C53641
Cronk, Juriansz and Epstein JJ.A.
BETWEEN
Imvescor Restaurants Inc. and
PDM Royalties Limited Partnership
Plaintiffs/Respondents
and
3574423 Canada Inc., Redwood Grille – Orlando, L.L.C.,
Unique Hospitality, L.L.C., George Bozikis and Spiro Bozikis
Defendants/Appellants
AND BETWEEN
3574423 Canada Inc.,
George Bozikis and Spiro Bozikis
Plaintiffs by Counterclaim/
Appellants
and
Imvescor Restaurants Inc. and
PDM Royalties Limited Partnership
Defendants by Counterclaim/
Respondents
Ian N. Roher and David S. Altshuller, for the appellants
Randy C. Sutton and Rahool P. Agarwal, for the respondents
Heard: May 10, 2012
On appeal from the order of Justice Herman Wilton-Siegel of the Superior Court of Justice, dated March 30, 2011, with reasons reported at 2011 ONSC 1609.
By The Court:
[1] This appeal involves a narrow issue of contractual interpretation concerning a restrictive covenant in a franchise agreement. At the conclusion of oral argument, this court dismissed the appeal, with reasons to follow. These are those reasons.
I. Background
[2] The appellants moved before the Superior Court of Justice for various declaratory relief concerning, in part, the enforceability of certain restrictive covenants in a franchise agreement between the appellant 3574423 Canada Inc. (the franchisee) and Les Restaurants Bâton Rouge Inc., the predecessor in interest to the respondent Imvescor Restaurants Inc. (the franchisor). In so doing, the appellants invoked Rule 20 (the summary judgment rule) and rules 21.01(1)(a) and 2(a) (relating to the pre-trial determination of a question of law).
[3] The franchise agreement was executed by the parties on March 1, 1999 and amended by an addendum executed on March 12, 1999 (the Agreement). Under the Agreement, the franchisee acquired the right to operate a Bâton Rouge restaurant located at the Eaton Centre Shopping Complex in Toronto, in accordance with the requirements of the “Bâton Rouge System” developed by the franchisor.
[4] Sometime in 2008, a dispute arose between the parties regarding the franchisee’s compliance with the terms of the Agreement, in particular, certain restrictive covenants, which constrained the franchisee’s right to operate or be involved with a competing business, both during and after the term of the Agreement.
[5] Litigation soon followed. The franchisor sued the appellants – the franchisee, its principals and a related corporation – seeking damages and declaratory and injunctive relief in respect of the franchisee’s alleged breaches of the Agreement. The appellants defended the action, denying the alleged breaches, disputing the damages claimed and asserting the right of set-off. They also counterclaimed for damages arising from the franchisor’s alleged breaches of the Agreement and other related agreements between the parties.
[6] After the exchange of pleadings, the appellants moved for the relief described above, including for declarations that, on various grounds, the restrictive covenants at issue were unenforceable. Throughout, the Agreement remained in force and the appellants continued to operate the Bâton Rouge restaurant in the Eaton Centre.
[7] As relevant to this appeal, the main clause in dispute is s. 16.2 of the Agreement. It reads as follows:
Franchisee agrees that during the Term, neither Franchisee, its directors, officers, shareholders, the Owner, nor any Key Personnel will, either individually or in partnership or jointly or in conjunction with any person, and whether as principal, agent, shareholder, employee or in any manner whatsoever, carry on or be engaged in or be concerned with or interested in or advise, lend money to, guarantee the debts or obligations of or permit their name or any part of it to be used anywhere within Canada in any business which is substantially similar to the Business, namely the operation of a restaurant selling generally the products listed in Section 2.1.18.
[8] In light of the manner in which the appellants structured their motion and the relief claimed, the motion judge concluded that: (1) he could only apply rule 21.01(1)(a) in respect of issues of contractual interpretation that were pure questions of law; and (2) any questions of mixed fact and law fell to be determined under Rule 20. Further, in the motion judge’s view, the final determination of the enforceability of s. 16.2 of the Agreement could only be addressed in a specific factual context, in which enforcement of the provision was sought. Given these conclusions, the only remaining issue before the motion judge was whether – as a pure question of contractual interpretation – s. 16.2 of the Agreement was so ambiguous as to be unenforceable.
[9] After considering the various interpretive arguments raised by the appellants in support of their contention that s. 16.2 of the Agreement was ambiguous and, hence, unenforceable, the motion judge held, at para. 53, that none of the appellants’ arguments, individually or collectively, “supports a conclusion that the covenant in [s.] 16.2 is ambiguous to the point of [being] unenforceable as a pure question of law”.
[10] The remaining questions raised by the appellants concerning the enforceability of s. 16.2 were regarded by the motion judge as questions of mixed fact and law. He therefore considered these issues in his Rule 20 analysis and concluded that they raised genuine issues requiring a trial, thus necessitating the denial of summary judgment.
[11] In the result, the appellants’ motion for declaratory and other relief was dismissed in its entirety.
[12] The appellants then appealed directly to this court.
[13] In their appeal, the appellants raised numerous issues that involved interlocutory rulings by the motion judge, including his ruling on the questions of mixed fact and law that he addressed under Rule 20. By order dated December 12, 2011, this court granted the respondents’ motion to quash the interlocutory aspects of the appellants’ appeal and held that the only issue appealable as a final order directly to this court was the motion judge’s ruling at para. 53, described above, that s. 16.2 of the Agreement is not ambiguous as a pure question of law.
II. Issues
[14] As a result of the events described above, the sole issue on this appeal is whether the motion judge erred in concluding that s. 16.2 of the Agreement is not ambiguous to the point of being unenforceable as a pure question of law.
III. Discussion
[15] We conclude that the appeal must be dismissed.
[16] Both in their factum and during oral argument, the appellants raised numerous issues that implicated interlocutory rulings by the motion judge. These matters are not properly before this court. The narrow issue now raised for determination is whether s. 16.2 of the Agreement is ambiguous to the point of rendering it unenforceable as a pure question of law. We agree with the motion judge that the answer to this question is “no”.
[17] Having closely scrutinized the wording of s. 16.2 of the Agreement, including in the context of the other provisions of the Agreement that assist in its interpretation, we are not persuaded that s. 16.2 is facially ambiguous. On the contrary, when read as a whole, the Agreement provides several guideposts to the intended meaning and scope of s. 16.2.
[18] One straightforward example suffices to illustrate this point. The appellants contend that the meaning of the phrase “during the Term”, as it appears in s. 16.2, is ambiguous. However, by the combined effect of ss. 2.1.23, 5.1 and 2.1.8 of the Agreement, the term of the Agreement is established as 20 years, commencing on the date of the rent-free period specified in the lease between the parties, as referenced in Part I of Schedule “A” to the Agreement. Similar observations can be made concerning the meaning of the phrase “Key Personnel” in s. 16.2, about which the appellants also complain.
[19] Of course, the fact that various phrases in s. 16.2 of the Agreement require reference to other sections of the Agreement in order to ascertain the intended meaning and scope of the restrictive covenant in s. 16.2 does not, by itself, render s. 16.2 ambiguous and devoid of any clear meaning. The drafting technique of such cross-referencing and incorporation by reference often guides the interpretation of complex, or even standard form, commercial documents.
[20] A conclusion that s. 16.2 is sufficiently ambiguous as to be rendered wholly unenforceable requires that no intelligible meaning attach to the language employed by the parties in s. 16.2. At this stage of the action, in the absence of any factual context for the interpretation of s. 16.2, we are not persuaded that the requisite patent ambiguity in s. 16.2 has been demonstrated.
[21] It may be that with the benefit of a full factual record, fatal interpretive ambiguities in s. 16.2 may be established. But that is not the basis on which the appellants elected to seek pre-trial declaratory relief regarding s. 16.2. It will be open to the appellants at the trial of this action to advance the claim of such core ambiguity on a proper evidentiary record. However, considered at this stage, in the absence of any factual context and as a pure question of law (as the appellants requested in their notice of motion before the motion judge), the claim that s. 16.2 is irretrievably ambiguous as a matter of law must fail.
IV. Conclusion
[22] For the reasons given, the appeal is dismissed. The respondents are entitled to their costs of the appeal, fixed in the amount of $8,500, inclusive of disbursements and all applicable taxes.
RELEASED:
“JUN -7 2012” “E.A. Cronk J.A.”
“EAC” “R.G. Juriansz J.A.”
“G.J. Epstein J.A.”