CITATION: First of Five Incorporated v. Recipe Unlimited Corporation, 2024 ONSC 2050
DIVISIONAL COURT FILE NO.: DC-23-715
DATE: 20240415
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Lococo, LeMay and O’Brien JJ.
BETWEEN:
First of Five Incorporated
Appellant
– and –
Recipe Unlimited Corporation and J.S.M. Corporation (Ontario) Ltd.
Respondents
Sam A. PRESVELOS, for the Appellant
Kenneth PREHOGAN, Max SKROW, for the Respondent Recipe
David M. ADAMS, for the Respondent J.S.M.
HEARD: March 25, 2024
LeMay J.
Overview
[1] In late 2013, the Appellant, First of Five Incorporated (“First of Five”), obtained the rights to a franchise for a combination Harvey’s and Swiss Chalet restaurant in Napanee by way of an agreement with the Respondent, Recipe Unlimited Corporation (“Recipe”). The franchise agreement ran to 2024 and included a clause that allowed the Appellant to renew the agreement for a further ten years.
[2] In November 2022, First of Five gave notice that it would be seeking to renew their franchise agreement. At that time, Recipe told First of Five that it did not meet the requirements to renew the franchise agreement. In February 2023, Recipe determined that it would terminate First of Five’s franchise agreement early because of defaults on the part of First of Five.
[3] First of Five brought an action against Recipe and J.S.M Corporation (Ontario) Limited (“the landlord”), the company that owned the building where the restaurant was operating. In that action, First of Five sought various orders from the Court, including an order requiring Recipe to renew the franchise agreement and requiring the landlord to continue the lease on the property so that First of Five can continue to operate the restaurant.
[4] As part of its claim, First of Five sought an interlocutory injunction to prevent the termination of its franchise agreement until the underlying action could be tried. That motion was heard before Carey J. (“the motions judge”) on October 4th, 2023. On December 7th, 2023, the motions judge released brief reasons denying the injunction. First of Five appealed the motion’s judge’s decision and sought a stay in order to maintain the status quo. The issue of the stay has not been determined by this Court. First of Five seeks to have this Court re-determine the injunction and rule in its favour. In the alternative, First of Five asks that this Court allow the appeal and remit the matter to a different judge of the Superior Court for a fresh hearing.
[5] For the reasons that follow, I have concluded that the appeal must be allowed. However, I am not prepared to determine the merits of the injunction. Instead, I would return the matter to a different Judge of the Superior Court of Justice to determine the injunction as promptly as possible. I also conclude that Recipe remains bound to its undertaking to permit the continued operation of the franchise until the injunction motion is finally disposed of.
Background
a) The Parties and Their Relationship
[6] Recipe is one of Canada’s largest restaurant companies. It is the successor company to Cara Operations Limited. It operates 20 restaurant brands throughout Canada, including the Harvey’s and Swiss Chalet brands, through both company-owned restaurants and franchises.
[7] First of Five is a family-owned business that has operated a combined Harvey’s and Swiss Chalet restaurant since 2014. It obtained the rights to operate this restaurant from Recipe by way of a detailed and extensive franchise agreement that was entered into on September 20th, 2013. The franchise agreement states that it is for a term of ten years from the date that operations began. Under the terms of the franchise agreement, the parties acknowledge that the original agreement expires on May 31st, 2024.
[8] However, the franchise agreement also includes a detailed renewal provision that gives the franchisee the right to renew the agreement if certain conditions are met. It is set out in Article 4.2 and reads as follows:
The Franchisee shall, subject to meeting or complying with the conditions set out herein. have the option to renew the right and license to operate the Franchised Business granted under this Agreement for one (1) renewal term. Such renewal term shall commence on the expiry of the Initial Term and, unless terminated sooner in accordance with the terms and conditions of the renewal franchise agreement, shall expire on the earlier of (a) the tenth (10th) anniversary thereof; or. (b) expiry or termination of the Lease (subject to the relocation rights set out in section 6.3). Such renewal shall require payment by the Franchisee of the Franchisor's then current renewal fee, which renewal fee shall be twenty-five percent (25%) of the Franchisor's then existing Initial Fee charged to new franchisees.
Such renewal shall be subject to the following terms and conditions being complied with in full prior to and as at the expiration of the Initial Term:
(a) The Franchisee shall give the Franchisor written notice of its desire to exercise the renewal option (the "Renewal Notice") between eighteen (18) months and twenty-four (24) months prior to the expiration of the Initial Term. The Franchisor shall remind the Franchisee of its upcoming renewal option at least twenty-four months prior to the expiration of the Initial Term, however any failure by the Franchisor to do so shall not negate the Franchisee's obligation to provide notice as required hereunder.
(b) The Franchisee shall not, at the time when the Renewal Notice is given or at any time thereafter up to expiration of this Agreement, be in default of any material terms of this Agreement, the Sublease, nor any other agreement with the Franchisor, any of its Affiliates, or any suppliers of the Franchised Business, and shall have substantially and consistently complied with all material terms, conditions and all monetary obligations contained in this Agreement, and any other agreement(s) related to the operation of the Franchised Business during the term(s) thereof.
(c) The Franchisee shall do or cause to be done all such things as the Franchisor may require to ensure that the Premises and the Franchised Business satisfy the then current image, standards and specifications established by the Franchisor for System restaurants of generally the same age and, subject to the factors noted below, uniformly imposed and enforced on all such restaurants, whether or not such image, standards or specifications reflect a material change in the System in effect during the Initial Term or require a significant investment or expenditure of funds by the Franchisee. The foregoing requirements will be as set out in the Guidelines from time to time, with the general intention that the requirement will extend to refreshing the Premises and the Franchised Business to its initial state, as well as incorporating design and functional changes as the Franchisor may determine, (short of requiring any structural modifications), including but not limited to signage, flooring, fabrics, seat coverings, artwork and decor, paint and wallpaper, lighting fixtures, and modernizing bathrooms. Without limiting the generality of the foregoing, the Franchisee shall complete such refurbishment/renovations and make such capital expenditures as the Franchisor shall determine as being required in connection with the foregoing for the renovation, modernization and refurbishing of the Premises and the Franchised Business. In setting out the requirements, the Franchisor shall have regard for upgrades, enhancements or improvements that the Franchisee may have already completed during the Initial Term, provided that the Franchisor pre-approved same, and may agree in writing to defer certain further upgrades, enhancements or improvements in relation thereto to a date subsequent to the commencement of the renewal term. Except for any specific items deferred, the Franchisor shall have the right to require completion of all work on or before the effective date of the renewal period. With respect to the requirement above to ensure that the Premises and the Franchised Business satisfy the then current image, standards and specifications established by the Franchisor for System restaurants of generally the same age and "uniformly imposed and enforced on all such restaurants", the Franchisee acknowledges that uniformity will be subject to a number of factors including but not limited to the intended term of future use of any particular location, and, in relation to multi-unit owners (whether the Franchisor, its Affiliates or franchisees), the number of locations requiring renovation (whether of the System or Other Brands) as well as the scope of the required renovations, with the understanding that renovation of multi-units shall be paced over a time frame determined by the Franchisor acting reasonably;
(d) The Franchisee is not in default of any material provision of any liquor (if applicable) and other licences for the Franchised Business carried on at the Premises and is able to renew such licences as necessary.
(e) The Franchisee and the Guarantor shall have executed a general release, in the Franchisor's prescribed form, of any and all claims against the Franchisor all claims against Franchisor and its Affiliates, and their respective officers, directors, agents and employees; and
(f) The Franchisee and the Guarantor shall execute a new franchise agreement for the renewal term in the form then being used by the Franchisor for the purposes of renewal, provided however, that such form shall not contain any further right of renewal, shall not require payment of an Initial Fee, shall not provide for different royalty rates or a change to the method of calculation of the Fund contribution and shall make no change to the Territory provided that the renewal agreement shall include the Franchisor's then-current language relating to rights reserved to the Franchisor currently set out in sections 2.2 and 2.3 (but without unreasonably expanding those rights). The Franchisee and the Guarantor shall also execute such other reasonable documents and agreements as are then customarily used by the Franchisor in the granting of franchises and licenses.
[9] Recipe’s approach to managing franchisees included various audits and inspections of the business by both Recipe’s staff and by third party consultants. These inspections would produce action plans to address any issues that were not up to the standards set out in the franchise agreement and Recipe’s Guidelines, which I understand were incorporated into the franchise agreement. If the action plans did not work or the issue was serious, then a letter to correct could be issued. In addition, Recipe had the right to issue notices of default under the franchise agreement. My understanding of the approach used by Recipe was that three Notices of Default could result in the franchise agreement being rescinded as long as there was a warning that the franchise agreement was at risk of being terminated.
[10] The property is owned by the Respondent J.S.M. Corporation (Ontario) Ltd., who I refer to as the landlord in these reasons. The lease for the property is between Recipe and the landlord, and First of Five is not a party to the main lease. The main lease was entered into by the landlord and Recipe in August 2018. First of Five has a sublease agreement with Recipe that was signed on the same day as the franchise agreement. The expiry of the lease between Recipe and First of Five is tied to the expiry of the franchise agreement.
[11] On the evidence, the parties did not have any difficulties in their relationship for the first couple of years of operation. After that point, the evidence as to what was happening diverges. I now turn to those events.
b) The Events Giving Rise to the Litigation
[12] The issues in dispute between the parties focus on four different areas: a small claims court action that First of Five started in 2017; the failure of the Heating, Ventilation and Air Conditioning (“HVAC”) equipment in 2020; the decision of Recipe and the landlord to seek reimbursement for additional common area maintenance expenses under the lease; and the concerns of Recipe as to whether the business was meeting the standards set out in Recipe’s Guidelines. I do not intend to determine who is responsible for these issues. That is the responsibility of the judge rehearing the injunction and, ultimately, the trial judge. The summary of the issues that follows is designed to assist in explaining why I have reached my conclusions but should not be taken as binding either the judge re-hearing the injunction or the trial judge.
[13] I start with the Small Claims Court action. This action was brought by First of Five in 2017 and raises a number of issues, including ongoing repairs to the HVAC system, sewer back-ups and arrears of hydro that First of Five says that it was required to pay for a period when it was not in the property and the landlord failed to pay the Hydro bill. This action is ongoing against both Recipe and the landlord. In its Statement of Defence, Recipe has relied on the provisions in the franchise agreement that require First of Five to indemnify Recipe from any legal actions, and has sought a dismissal of the action and all of its costs.
[14] The second issue involves the HVAC equipment. In January 2020, the HVAC equipment in the restaurant suddenly failed, although there had been issues with its operation prior to this date. As a result, First of Five was put to the expense of replacing that equipment. There was a dispute over who was responsible for paying the costs to replace this equipment, and First of Five ultimately withheld lease payments to account for the cost of this equipment. Recipe asserts that, because of the terms of the sublease agreement, First of Five cannot withhold rent or dispute the HVAC issues in this manner.
[15] The third issue was Recipe providing additional rent adjustments to First of Five on account of common maintenance expenses. Under the terms of the lease, these rent adjustments are to be calculated annually. First of Five says that Recipe held up the calculations for several years before passing them on. The landlord says that they were negotiated. It is clear that the charges were passed along years after they had been incurred. It is less clear who was responsible for the delay or what the legal effect of it was.
[16] Finally, Recipe had concerns about First of Five’s management of the business. The evidentiary record before the motions judge indicated that there had been some action plans and Letters to Cure prior to the beginning of the pandemic in 2020. There is no evidence of Recipe raising any concerns with First of Five’s management of the franchise between the beginning of the pandemic in 2020 and October of 2022.
[17] It should be noted that the monies that were outstanding for both the small claims court action and the retroactive rent adjustments were paid prior to the hearing of the injunction motion.
[18] On October 25th, 2022, Recipe sent its first Notice of Default to First of Five. That Notice of Default set out the following defaults:
a. A failure to pay all of the rents and royalties owing, including the rent that had been withheld;
b. A failure to pay the additional rents and maintenance fees that had been assessed; and
c. A failure to indemnify Recipe for the legal fees from the small claims court action.
[19] On November 2nd, 2022, First of Five gave notice of its intent to renew the franchise agreement. Recipe responded by asserting that First of Five was in breach of the franchise agreement and could not renew it. Recipe also noted that, in any event, First of Five would be required to sign a general release in order to renew the agreement.
[20] A second Notice of Default was sent to First of Five on December 6th, 2022. It raised the same issues as set out at paragraph 18, and provided First of Five until January 3rd, 2023 to pay the outstanding amounts.
[21] In the meantime, Recipe had the facility inspected on November 28th, 2022, December 20th, 2022 and January 11th, 2023. According to the inspections, some of which were performed by a Recipe staff member, there were significant problems in the restaurant with both the Guidelines and food safety issues.
[22] As a result, Recipe sent a third Notice of Default on February 7th, 2023. This notice raised the same issues that had been raised in the first two Notices of Default and also raised the issues that the inspections had identified. Given that this was the third default, Recipe took the position that it was at liberty to terminate the franchise agreement.
[23] First of Five took the position that the inspections were extraordinary and that the claimed defaults were not justified. In particular, First of Five took the position that the deficiencies found in the restaurant as a result of the inspections were not present to the extent claimed by Recipe.
[24] I note that there was a great deal of correspondence back and forth between the parties on these defaults and on other issues both before and after the third Notice of Default. The parties disagree over both the significance and extent of this correspondence. Given my disposition of this appeal, it is not necessary for me to resolve those disputes.
c) The Litigation History
[25] On April 21st, 2023, First of Five commenced an action in this matter, and sought injunctive relief to prevent Recipe from terminating the franchise agreement. Counsel for both sides discussed the matter, and an undertaking was given by Recipe’s counsel not to terminate either the franchise agreement or the sub-lease. Given that this undertaking is a live issue on this motion, the portion of Recipe’s counsel’s letter of April 25th, 2023 that deals with this issue should be set out in full:
Further to the request in your letter that our client take no action to lock out your client while this matter is before the Court, please be advised that pending the determination of your client's motion for injunctive relief, Recipe will not terminate the Franchise Agreement or the Sublease (as defined in the Statement of Claim) on the basis of the defaults particularized in the Notices of Default dated October 5, 2022, December 6, 2022 and February 7, 2023.
[26] The letter goes on to list some circumstances in which Recipe would not be bound by this undertaking. Those circumstances were described as circumstances in which “the situation further deteriorates on the ground” and included things such as health violations or safety violations. The letter also notes that Recipe “does not intend to deliver a Statement of Defence until [First of Five’s] motion for injunctive relief has been determined.” The letter concludes with the statement that “we wish to make clear that Recipe’s remedial action will not include terminating the Franchise Agreement or the Sublease until the determination of the injunction motion.”
[27] There was some discussion on the appeal about the differences between counsel for Recipe’s April 25th, 2023 letter and the July 6th, 2023 letter that was also sent. The key excerpts of that letter read as follows:
Recipe is not prepared to proceed with the discovery process while your client’s Injunction Motion is outstanding.
That all said, Recipe is prepared to negotiate the terms of a draft Discovery Plan to be signed by the parties once the Injunction Motion is decided and the time to commence an appeal has lapsed, or the parties confirm that none will be appealing the decision.
[28] The motion for injunctive relief was processed by the parties over the next few months. In that time period, Recipe sent a further Notice of Default on May 10th, 2023. This was as a result of an inspection that was performed on May 4th, 2023.
[29] The injunction motion was scheduled for July 6th, 2023. However, counsel for First of Five failed to confirm the motion in a timely way because of a holiday. As a result, the matter was struck from the list and re-scheduled for October 4th, 2023.
[30] The motions judge heard argument on the motion on October 4th, 2023. On December 7th, 2023, the motions judge released his reasons. Those reasons were two paragraphs in length, and read in their entirety as follows:
[1] The plaintiffs seek an injunction preventing the defendants from terminating their franchise agreement. They cite their disagreement over the reasons given for termination. However, it is clear that the current agreement ends in April 2024 and there is no automatic renewal clause.
[2] The injunction requested would essentially extend the agreement indefinitely, pending the resolution of the litigation, which easily could take years. That would be unfair to the defendants. The plaintiffs can continue their litigation and seek monetary damages for the termination. The request for an injunction is denied. Costs reserved to the trial judge.
[31] On December 10th, 2023, counsel for First of Five wrote to counsel for Recipe, asking that Recipe refrain from acting on the motion’s judge’s decision by terminating the franchise agreement until the motion for leave to appeal could be heard. Recipe refused to do so.
[32] In response to Recipe’s position, on December 12th, 2023, counsel for First of Five served both Respondents with a motion to stay the motion’s judge’s decision and maintain the status quo. On the day that this motion was served on the Respondents, First of Five remained in possession of the premises and was continuing to operate the Harvey’s/Swiss Chalet franchise.
[33] On the next day, December 13th, 2023, without any prior notice to First of Five, Recipe locked First of Five out of the premises, changed the locks, occupied the premises and began to take significant steps to conduct a new business operation on the premises. However, I understand that the premises remains unused at this point.
[34] The motion for a temporary stay was originally heard by Tranmer J., sitting as a Superior Court Judge, on January 12th, 2024. Tranmer J. released his reasons on January 17th, 2024 (reported at 2024 ONSC 317). In those reasons, Tranmer J. set out a brief history of the matter and concluded that he did not have the jurisdiction to address the stay, as he was sitting as a judge of the Superior Court and not of the Divisional Court.
[35] Leave to appeal was granted by the Divisional Court on February 2nd, 2024 (reported at 2024 ONSC 509). The panel granting leave directed that the merits of the appeal be heard by the end of March and that the motion for interim relief be scheduled as soon as possible. The panel further confirmed that the materials before Tranmer J. should be used for the application for interim relief.
[36] The motion for a temporary stay was subsequently scheduled before the Divisional Court in Toronto and was heard on February 15, 2024. Reasons have not been released in that matter and the outcome of that motion is superseded by the outcome of this decision. The issue of the effect of the undertaking given by Recipe will be addressed below.
[37] Ultimately, this matter was heard by this panel on March 25th, 2024.
Issues
[38] The issues on this appeal are:
a. Whether the reasons of the motions judge are sufficient to permit meaningful appellate review?
b. If the reasons of the motions judge cannot be meaningfully reviewed, should this Court substitute its own decision either upholding the motions judge’s decision or imposing an injunction?
c. What is the legal effect of the undertaking given by Recipe in respect of the motion?
d. Should the landlord be removed from this motion at this stage?
[39] I will deal with each issue in turn.
Issue #1- Are the Motions Judge’s Reasons Sufficient to Permit Appellate Review?
[40] This is an appeal. As a result, the standard of review that is generally applicable is as set out in Housen v. Nikolaisen 2002 SCC 33, [2002] 2 S.C.R. 235. For questions of law, the standard is correctness. For questions of fact, the standard is palpable and overriding error. For questions of mixed fact and law, there is a spectrum.
[41] However, no deference is owed in a case where the appellate court cannot understand the legal basis for the decision, or the factual findings made in support of the decision: Barbieri v. Mastronardi, 2014 ONCA 416, at para. 23; Penate (Litigation Guardian of) v. Martyn Estate, 2024 ONCA 166, at para. 20.
[42] In deciding whether reasons are sufficient, the Court considers various factors. As noted by the Court of Appeal in Gholami v. The Hospital of Sick Children, 2018 ONCA 783, at para. 63:
[63] Appellate intervention may be warranted where the insufficiency of trial reasons prevents meaningful appellate review. Reasons that permit meaningful appellate review justify and explain the result, inform the losing party why he lost, enable informed consideration as to whether to appeal and enable the public to determine whether justice has been done…. [Citations omitted.]
[43] Even if the reasons, on their face, do not reveal the reasons for the decision, a reviewing court must look at the record as a whole to determine whether the reasons are more comprehensible when considered in the context of the record as a whole: Gholami, para. 64.
[44] I have concluded that the motions judge’s reasons are not sufficient to permit appellate review and must be set aside for three main reasons.
[45] First, the motions judge concluded that First of Five had no automatic right to renew the franchise agreement. The problem is that the renewal provision set out at paragraph 8 sets the right to renew the franchise agreement as the default provision. In other words, First of Five has the right to renew the franchise agreement unless they are in breach of one or more of the provisions set out in Article 4.2 of the agreement. If First of Five is not in breach of any of those provisions, then Recipe would have no choice but to renew the franchise for a further ten years.
[46] From the motions judge’s reasons, it is impossible to know if he overlooked the renewal provision, noticed it but misread it as not providing a right of renewal as the default setting, or if he decided that First of Five was, in fact, in default and that First of Five had no justification for its defaults and therefore no right to renew the agreement.
[47] Second, the motions judge’s reasons are conclusory. They do not explain what evidence was relied upon or why it was relied upon. Further, the Court cannot infer from the record either what inferences the trial judge made or what evidence he relied upon. My concerns in this respect are highlighted by the problems in determining which party is actually responsible for Recipe’s claims of default on the part of First of Five.
[48] As I have set out above, the claims of default raised by Recipe are complicated issues that require a detailed consideration of both the terms of the various agreements and the underlying factual matrix. They may also engage the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3. Section 3 of that legislation imposes a duty of “fair dealing” in the performance and enforcement of every franchise agreement. There is also case law that deals with the general obligation of a party to deal in a good faith, fair and commercially reasonable manner when renewing (or deciding not to renew) a contractual agreement. See, for example, C.M. Callow Inc. v. Zollinger, 2020 SCC 45, [2020] 3 S.C.R. 908 at para. 47.
[49] This duty might inform Recipe’s claims of defaults under the franchise agreement, particularly given both their timing and the gap that exists between the issues arising and the first Notice of Default
[50] Third, the motions judge did not address the test to be applied to whether an injunction should be granted in any meaningful way. That standard is set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311, and requires the moving party to show a serious issue to be tried (or a strong prima facie case), irreparable harm and that the balance of convenience favours the party seeking the injunction. For the purposes of this analysis, I have assumed that the facts require a strong prima facie case.
[51] The closest the motions judge came to addressing these issues was his statement that “the injunction requested would essentially extend the agreement indefinitely, pending the resolution of the litigation, which could easily take years.” This statement arguably addressed the balance of convenience between the parties. I accept Recipe’s point that they only have to succeed on one branch of the test in order to successfully resist First of Five’s request for an injunction.
[52] However, the motions judge’s reasons on the balance of convenience fail to address the interpretation of the renewal clause or the obligations of the franchisor under the Arthur Wishart Act. It also fails to address First of Five’s claims in respect of the profile that owning this franchise gives the shareholders of First of Five in the community. It is, therefore, a conclusory statement that does not address key facts and does not explain why the motions judge made his decision. It may also be founded on an erroneous interpretation of the renewal clause, but I cannot determine that either.
[53] Counsel for Recipe argued that these decisions must be made promptly and that appellate courts should be deferential to motions judges in these circumstances. In support of this assertion, counsel pointed to the decision in PDM Entertainment Inc. v. Three Pines Creations Inc., 2015 ONCA 488, 388 D.L.R. (4th) 478. In that case, the application judge’s reasons were described as “terse” and conclusory. However, the Court of Appeal was satisfied that the reasons did not cross the line and fall into the category of “insufficient”.
[54] The Three Pines decision does not assist Recipe, as it is distinguishable from the case before this Court in two respects. First, in Three Pines, the parties requested (and received) both an urgent hearing and an immediate decision. The applications judge released his reasons the morning after the hearing. In this case, the motions judge released his reasons more than two months after the motion was argued. I accept that, in reviewing the sufficiency of reasons, appellate courts must account for the speed at which courts of first instance are sometimes required to render their decisions. That consideration does not apply in this case.
[55] Second, in Three Pines, the Court’s reasons ran to several pages, and the application judge clearly grappled with the issues that the parties placed before him. As I have discussed above, there is no basis on which this Court can conclude that the motions judge grappled with the issues in this case. In addition, the record does not assist in clarifying the basis for the motions judge’s decision. The claims are complicated, there are factors that favour both sides in granting or denying an injunction and there is a significant issue (discussed at paragraphs 45-46) in the motion judge’s interpretation of a key part of the franchise agreement.
[56] For these reasons, I would find that the reasons of the motions judge are inadequate and I cannot determine the factual grounds for the motion judge’s decision. As a result, the reasons are owed no deference and the decision must be set aside.
Issue #2- Should This Court Determine the Motion?
[57] Under section 134(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, an appellate Court has broad powers to deal with the substantive issues even when they have not been dealt with by the Court below. Those powers include the jurisdiction to “make any order or decision that ought to or could have been made by the court or tribunal appealed from.”
[58] I would not exercise those powers in this case. I have set out a summary of the issues between the parties in respect of whether an injunction should be granted. Those issues are complicated and require a detailed factual review by a Court of first instance. It is not the function of this court to weigh evidence and determine facts de novo on a voluminous record where the facts are very much in dispute.
Issue #3- What is the Legal Effect of Recipe’s Undertaking?
[59] As I have set out at paragraph 25, Recipe gave an undertaking that it would not terminate the Franchise agreement “pending the determination of [First of Five’s] motion for injunctive relief. Given that I would not decide the merits of the motion for injunctive relief, the question of the scope of this undertaking remains a live issue as it goes to the remedy that this Court should order on this appeal. It can be determined on the record before this court and is a discrete issue that can be determined separately from the merits of the injunction.
[60] Addressing the scope of the undertaking requires consideration of a preliminary issue, which is whether the post-hearing Affidavits and transcripts should be introduced. The fresh evidence concerns three discrete areas:
a. The events after the decision of Carey J. was released in December 2023.
b. The undertaking letters themselves.
c. First of Five’s performance rankings.
[61] Recipe argues that none of these documents should be received by the Court, as the test for fresh evidence in Palmer is not met. I disagree. The first two categories of documents are not being relied upon for the purposes of reviewing the decision. Instead, they are being relied upon for determining the remedy that this Court should provide as well as the question of whether a stay should have been granted until this appeal was heard.
[62] In short, it is evidence that relates to the remedy that this Court should provide and not to the merits of the decision itself. As a result, I am of the view that it is admissible for the purposes of assisting the Court in what remedy, in addition to a fresh hearing, should be granted and I would consider it for that purpose.
[63] The third area of evidence concerns documentation that was available prior to the hearing of the injunction. This evidence might very well not meet the Palmer test. However, First of Five’s Affiant states that the evidence was not provided to the Court for the injunction because it came to her attention after the original date for the hearing of the injunction had passed. This evidence is not necessary to decide either the appeal or the remedial issues and I would not consider it further. Any question of whether it is admissible on the re-hearing of the injunction is a matter for the judge hearing that motion to determine, perhaps at a case conference.
[64] This brings me to the merits of this issue. Counsel for First of Five argues that the undertaking was to apply until the motion was determined, and that determination includes any appeal. He advances two points in support of this argument:
a. That the legal meaning of the word “determination” includes any appeal from the decision on the injunction.
b. That Recipe itself has acceded to this meaning by its conduct and, in particular, its failure to provide a statement of defence to date.
[65] Recipe disagrees with these submissions and argues that the letters of April 25th, 2023 and July 6th, 2023, reproduced at paragraphs 25 and 27 respectively, show that Recipe differentiated between whether or not an appeal was included in their positions depending on the circumstances. Counsel for Recipe argues that, since the July 6th, 2023 letter specifically mentions an appeal period and the April 25th, 2023 letter does not, Recipe’s undertaking did not include any appellate review.
[66] I accept the interpretation of the undertaking proposed by First of Five for three reasons:
a. Accepting Recipe’s argument that the undertaking only applied until the original decision was made would substantially prejudice First of Five’s appeal rights. It would have required First of Five to have been able to obtain an immediate stay from the Divisional Court to preserve its rights to continue operating this business. In other words, First of Five’s “stealing a march” argument has merit and supports its’ reading of the undertaking.
b. As Tranmer J. noted in his reasons, “both parties were represented at the time that the undertaking and would know about rights of appeal.” Although that comment is not binding, I view it as persuasive. The word “determination” has to mean the resolution of the matter, and that has to include the right to appeal the decision.
c. While the July 6th, 2023 letter uses somewhat different terms than the April 25th, 2023 letter, it appears to me in reading them that both sides would have understood the same things, which is that the parties were dealing with all of the issues in respect of the injunction before they turned to deal with the litigation of the underlying action. Again, this supports the interpretation advanced by First of Five that the undertaking was to last until the appeal period was over.
[67] For these reasons, I find that Recipe’s undertaking continues to be binding and will continue to be binding until the litigation of the interlocutory injunction, including any further appeal, is completed.
Issue #4- Should the Landlord be Removed From this Action At This Point?
[68] No.
[69] Counsel for the landlord argued that, since there was no privity of contract between the landlord and First of Five, the request for an injunction against the landlord was overly broad. There are two problems with this argument. First, if the landlord and Recipe agree to terminate the lease on the property where the restaurant is located, First of Five’s rights will be adversely affected. Second, some of the landlord’s decisions, especially in respect of the additional rent charges, are directly engaged in this litigation.
[70] I am, therefore, not prepared to make any orders in respect of whether the landlord should remain part of either the injunction proceeding or the underlying action. That is a matter that the landlord can raise with the judge re-hearing the injunction motion.
Conclusion and Costs
[71] For the foregoing reasons, I would grant the appeal and refer the matter back to a different judge of the Superior Court of Justice to determine the Appellant’s request for an interlocutory injunction. Pending that referral, I would require the Respondent Recipe to continue to be bound by its undertaking to permit the Appellant to operate the franchise until the end of the interlocutory injunction proceeding, including any appeal of the next injunction.
[72] This brings me to costs. The parties have agreed that the successful party shall have its costs of this appeal in the sum of $32,000.00 inclusive of HST and disbursements. These costs cover the fresh evidence motion, the motion for leave to appeal and the appeal itself. Given my disposition of the fresh evidence motion, I would view the Appellant as having been successful on the fresh evidence motion and would award the Appellant all of the agreed-upon costs.
[73] The only costs issue that is outstanding is the costs of the motion before this Court for the stay pending an appeal. Those costs include the hearing before Tranmer J., and bills of costs have been filed. Given that this decision effectively decides the motion to stay in the Appellant’s favour, I am of the view that they should have their costs for these proceedings as well, and I fix those costs in the sum of $7,500.00 inclusive of HST and disbursements.
LeMay J.
I agree _______________________________
Lococo J.
I agree _______________________________
O’Brien J.
Released: April 15, 2024
CITATION: First of Five Incorporated v. Recipe Unlimited Corporation, 2024 ONSC 2050
DIVISIONAL COURT FILE NO.: DC-23-715
DATE: 2024 04 15
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Lococo, LeMay and O’Brien JJ.
BETWEEN:
First of Five Incorporated,
Appellant
-AND-
Recipe Unlimited Corporation and J.S.M. Corporation (Ontario) Ltd.
Respondents
REASONS FOR JUDGMENT
Released: April 15, 2024