COURT FILE NO.: CV-12-9942-00CL

DATE: 20121227

SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST

RE: ROBERT MOORE PHARMACY LTD.
and ROBERT BRUCE MOORE, Plaintiffs

and:

SHOPPERS DRUG MART INC. Defendant

BEFORE: Justice Newbould

COUNSEL: David Himelfarb and Trent Morris, for the plaintiffs, for the plaintiffs
Mark A. Gelowitz and Gillian S.G. Scott, for the defendant

DATE HEARD: December 21, 2012

E N D O R S E M E N T

[ 1 ] On December 21, 2012 I heard and dismissed a motion for an injunction with reasons to follow. These are my reasons.

[ 2 ] The parties are party to an Associate Agreement made December 31, 2009. Robert Moore Pharmacy Ltd. (Moore Ltd.) is named the Associate and Robert Bruce Moore is name the Pharmacist. Under the agreement, Shoppers Drug Mart Inc. (Shoppers) granted a licence to Moore Ltd. to operate a retail drug store in Uxbridge. It is accepted that the agreement is a franchise agreement within the meaning of the Arthur Wishart Act .

[ 3 ] The agreement provided for an original one-year term commencing on December 31, 2009 and the potential for two one-year renewal terms. The renewal terms were to come into existence automatically if neither party took steps to terminate the agreement during its existence by giving notice as required by the agreement. Neither party took any such steps and the agreement was thus extended to December 30, 2012. Section 4.01(b) of the agreement provided “It is understood and agreed that at the expiry of such second automatic renewal term there shall be no further renewal of this agreement”.

[ 4 ] The agreement contained a provision in section 4.02 entitling Shoppers to assume absolute control over the management and supervision of the business of the franchise within the last 60 days of the agreement. That control could be exercised by giving notice to Moore Ltd. either prior to or at the time of the exercise of these rights. The period of control was referred to as the Management Period. There is debate as to the interpretation of these provisions. They read:

(i) 4.02 (a) Should the Company, in its discretion, deem it advisable to terminate this agreement at the end of the original term or any renewal, or upon sixty (60) days written notice during any renewal term , or should this agreement be expiring by effluxion of time (such termination or expiration date being called the "Termination Date"), the Company shall have the right to assume absolute control over the management and supervision of the Franchised Business at any time during the sixty (60) day period immediately preceding the Termination Date and in such event neither the Associate nor the Pharmacist shall have any further right to participate in the management and supervision of the Franchised Business or to incur any liabilities or obligations with respect thereto, except with the prior written approval of the Company. The Company's right to assume such control shall be exercised by notice in writing to the Associate, which notice may be given at any time prior to or concurrently with the assumption of such managerial responsibilities by the Company. The period commencing on the date of such management and ending on the Termination Date is herein referred to as the "Management Period". [Emphasis added]

(ii) (b) Immediately upon commencement of the Management Period and thereafter throughout the continuance of the Management Period, the Associate shall provide the Company with full and free access to and shall deliver to the Company physical possession of the Premises and all equipment, inventory, furnishings, fixtures, books, records, signs and all other assets pertaining to the Franchised Business. In the performance of its duties as Manager, the Company shall have full power and authority, without the prior approval of the Associate, to do and perform or cause to be done and performed all matters and things as the Company deems necessary for the proper operation of the Franchised Business including, without limiting the generality of the foregoing, hiring and firing personnel, establishing the salaries and benefits payable to such personnel, purchasing inventory and supplies and arranging for and making payment of the debts and liabilities relating to the Franchised Business. The employment of the Pharmacist, during such period, shall be at the pleasure of the Company and may be terminated by it at any time with or without cause ; provided that, in the event of such termination, the Pharmacist shall continue to receive his salary for the remainder of the Management Period as if such employment had not been terminated, subject, however, to compliance with the limitations set forth in Section 9.01(a). Such salary shall be considered to be an expense of the Franchised Business and shall be paid out of the revenues and income thereof during the Management Period. [Emphasis added]

[ 5 ] On December 5, 2012 Shoppers notified Mr. Moore that it would not offer a new Associate Agreement to the plaintiffs. The parties differ as to the reasons why Shoppers made this decision. However they both agree that they have lost faith in each other. Mr. Moore confirmed on cross-examination that the relationship between Shoppers and an Associate is in the nature of a partnership for the benefit of both parties, a collaborative relationship where both sides trust each other and work together to improve the business. It is clear that the relationship between the parties is irretrievably broken and that Shoppers and Mr. Moore are no longer compatible business partners.

[ 6 ] On the same day, Shoppers initiated the Management Period and Mr. Moore has not been allowed on the premises. He seeks on this motion an order removing Shoppers and its representatives from the premises, an order reinstating the plaintiffs with all rights under the agreement including reinstating Mr. Moore as pharmacist and Moore Ltd. as manager for a period of 60 days from the reinstatement. In the alternative, Mr. Moore seeks an order permitting him or his designated representative to be in attendance on the premises for sixty days. An order is also sought requiring Shoppers to provide full access at its own expense to copies of all prescription records, employee files and all business records of any nature and kind whatsoever, in electronic format in connection with the store on a weekly basis beginning December 28, 2012

[ 7 ] There was debate as to whether the injunction sought was a mandatory injunction requiring the plaintiffs to establish a strong prima facie case, or whether it was a prohibitive injunction requiring the lower threshold test of a serious issue to be tried.

[ 8 ] A mandatory order is usually restorative in effect. A plaintiff is asking the court to order the defendant to take the necessary positive action to put the situation back to what it should be. See Robert J. Sharpe, Injunctions and Specific Performance (loose-leaf) (Aurora, ON: Canada Law Book, 2012) at 2.640. Justice Brown dealt with this issue in a franchise case in 1323257 Ontario Ltd. (c.o.b. Hyundai of Thornhill) v. Hyundai Auto Canada Corp . (2009), 2009 494 (ON SC) , 55 B.L.R. (4th) 265 (Ont. S.C.J.). He stated:

In some cases involving the termination of dealerships or franchises courts have examined whether the injunctive relief sought would be prohibitive or mandatory by inquiring whether the dealership agreement in issue contained renewal rights. Where it did not, some courts have regarded a request for an injunction restraining termination as mandatory in nature, requiring, as it would, the franchisor to continue to supply the franchisee: Parker, supra.; Esmail v. Petro-Canada (1995), 86 O.A.C. 385 (Div. Ct.) . Where it did, courts have tended to view requests for interlocutory injunctions restraining termination of the agreement prior to trial as ones for prohibitive relief, with the plaintiff seeking to prevent the denial of a right previously agreed upon: TDL, supra .

[ 9 ] In my view what is being sought in this case is a mandatory injunction by requiring Shoppers to reinstate the plaintiffs, and thus the higher threshold of establishing a strong prima facie case is applicable. There is another reason why this test is applicable. The higher threshold of showing a strong prima facie case is required where the outcome of the interlocutory injunction, practically speaking, will make proceeding to trial pointless for one party or when the plaintiff’s right can be exercised only immediately or not at all. See RJR-MacDonald Inc. v. Canada (Attorney General) , 1994 117 (SCC) , [1994] 1 SCR 311 at para. 76 . While the plaintiffs claim damages that will require a trial, their right to be put back into the premises for 60 days is one that as a practical matter will live or die with this injunction application.

[ 10 ] Having said that, it matters not what the test is as in my view the plaintiffs have not established even the lower threshold of a serious issue to be tried.

[ 11 ] The plaintiffs assert that Shoppers has breached its obligation to act in good faith as contained in section 3 of the Arthur Wishart Act which imposes a duty to act fairly. They plead that they were entitled to one year’s notice or termination or non-renewal.

[ 12 ] Canadian courts have not recognized a stand-alone duty of good faith that is independent from the terms expressed in a contract or from the objectives that emerge from those provisions. The implication of a duty of good faith has not gone so far as to create new, unbargained-for rights and obligations. Nor has it been used to alter the express terms of the contract reached by the parties. Rather, courts have implied a duty of good faith with a view to securing the performance and enforcement of the contract made by the parties, or as it is sometimes put, to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into. See Transamerica Life Inc. v. ING Canada Inc. (2003), 2003 9923 (ON CA) , 68 O.R. (3d) 457 (C.A.) at para. 53 , per O’Connor A.C.J.O.

[ 13 ] In 530888 Ontario Ltd. v. Sobeys Inc. (2001), 2001 28359 (ON SC) , 12 B.L.R. (3d) 267 (Ont. S.C.J.), Lederman J. stated that the duty of fair dealing under section 3 of the Arthur Wishart Act includes the duty to act in good faith and in accordance with reasonable commercial standards and applies to performance and enforcement of existing agreements, but does not compel one party to renew an expiring relationship when it considers it to be commercially unreasonable. In Beaucage v. Grand and Toy Ltd. , (2001) 2001 28391 (ON SC) , 17 C.P.R. (4th) 125 (Ont. S.C.J.) Campbell J. stated that a general duty of fair dealing without more cannot turn a written term of expiry into a right to renew.

[ 14 ] Thus it is necessary to review the agreement in question and the acts of Shoppers purportedly taken under it.

[ 15 ] The claim of the plaintiffs is based on an interpretation of section 4.02(a) of the agreement that is a strained interpretation that in my view does not make commercial sense. That section provides should Shoppers terminate the agreement at the end of the original term or any renewal or on 60 days notice during any renewal term, “or should this agreement be expiring by effluxion of time”, Shoppers shall have the right to assume control. The plaintiffs assert that the agreement does not expire on December 30, 2012 by effluxion of time and therefore there was no right in Shoppers to assume control. They point to section 4.01(c) which provides that if an Associate continues to operate after the expiry of the second automatic renewal term, either party may terminate the continued operation of the store on 30 days notice. Thus they contend the agreement continues and does not “expire by effluxion of time”. They contend that only on reasonable notice can the agreement terminate and that 60 days notice should be implied, that number of days being used in various places in the agreement.

[ 16 ] In my view, this interpretation ignores the language of the agreement, and when viewed in light of the various provisions of the agreement, makes no commercial sense.

[ 17 ] Section 4.00 of the agreement deals with the term of the agreement. Section 4.01(b) provides for the two renewal terms. It expressly provides that “at the expiry of such second automatic renewal term there shall be no further renewal of this agreement”. This language is a clear indication that the agreement expires at the end of the renewal periods and when read together with section 4.02(a) means clearly that the agreement expires at the end of such renewal periods. That is the only sensible interpretation available for the language “expiring by effluxion of time” in section 4.02(a).

[ 18 ] To hold otherwise would mean that the parties provided that Shoppers could exercise its rights to have a Management Period during the course of the agreement but could not do so when the agreement was not renewed at the end of the three year period. There would be no commercial purpose in such a result.

[ 19 ] Section 4.01(c) does not assist the plaintiffs. It is an overholding clause that makes clear that the agreement does not continue. It provides:

If for any reason the Associate continues to operate a retail drug store at the Premises after the expiry of the second automatic one (1) year renewal terms referred to in Section 4.01(b), without executing a further renewal agreement, there shall be no renewal of this agreement and any party may terminate the continued operation of the retail drug store by the Associate by giving to the other at least thirty (30) days notice of such termination….[Emphasis added]

[ 20 ] This clause makes clear that if the Associate continues to operate the store after the expiry of the second renewal term, the agreement does not continue. There would be no purpose otherwise in providing that there shall be no renewal of the agreement. What can be terminated is not the agreement but rather the continued operation of the store.

[ 21 ] The notion that there should be implied a term requiring 60 days notice to be given before Shoppers can exercise its right to assume control over the management and supervision of the business is contrary to section 4.02(a) which provides that Shoppers can give notice of the exercise of its rights at any time prior to or concurrently with the assumption of such managerial responsibilities by Shoppers. A term should not be implied that contradicts the terms of a written agreement.

[ 22 ] The plaintiffs raise a number of points to say that they will be irreparably harmed if the injunction is not granted. Irreparable refers to the nature of the harm rather than its magnitude, and is characterized as harm that either cannot be quantified in monetary terms or which cannot be cured. Evidence of irreparable harm must be clear and not speculative. See RJR-MacDonald, supra, at paras. 57-59 and Ontario v. Shehrazad Non Profit Housing Inc ., (2007), 2007 ONCA 267 () , 85 O.R. (3d) 81 at para. 26 , per MacPherson J.A.

[ 23 ] The claim for damages in this case for not giving proper notice is quantified by the plaintiffs at $ 1 million. The basis of the claim of irreparable harm must therefore rest on other harm that is said will occur without an injunction.

[ 24 ] Section 146 of the Drug and Pharmacies Regulation Act (DPRA) requires that a pharmacy is to be managed by a pharmacist who is designated manager by the owner of the pharmacy. Mr. Moore says that as the designated manager, he has responsibilities including professional supervision of the pharmacy, and that he is to actively and effectively participate in the day-to-day management of the pharmacy. He says his accreditation as a pharmacist could suffer if the accreditation committee of the College of Pharmacists believes he has contravened his duties as designated manager.

[ 25 ] Mr. Moore was the designated manager. However on December 6, 2012 he removed himself as the designated manager. He has not appointed anyone else as designated manager. He thus contends that Shoppers is acting illegally by managing the store without a designated manager. I think the problem is one of Mr. Moore’s creation. Shoppers’ evidence is that at the meeting of December 5, 2012 with Mr. Moore, he was advised that Mr. Paul Goldman was to be appointed designated manager. Mr. Goldman has been a Shoppers Associate since 1990 and operates the Shoppers pharmacy in the Eaton Centre. Mr. Moore denies this and states that he was only asked a few days before the hearing of the motion during his cross-examination to designate Mr. Goldman. He said he would consider it but on the following day his solicitors advised that Mr. Moore thought that he was the appropriate person to be designated manager (even although he had removed himself from that position) and that he did not believe Mr. Goldman to be appropriate as he had de facto management of a large store in the Eaton Centre.

[ 26 ] On December 6, 2012 the College of Pharmacists e-mailed Mr. Moore and told him that since he had removed himself as designated manager he had to appoint a replacement and that he was to do so by December 13, 2012. Apparently the e-mail ended up in his spam mail box and Mr. Moore said he only became aware of it during his cross-examination shortly before this motion was heard. Be that as it may, he has not designated anyone to replace himself. It is clear that Shoppers wishes Mr. Goldman to be designated manager and that Mr. Moore knows this. The business has been sold to Mr. Goldman effective December 31, 2012. Mr. Moore acknowledged that he was aware that Mr. Goldman was the responsible pharmacist that Shoppers was putting in to manage the store and that he understood that Mr. Goldman was exercising rights as a designated manager. Moreover, there are five pharmacists at the store who have worked for Mr. Moore and any one of them could have been designated as manager if Mr. Moore was so inclined.

[ 27 ] The agreement in section 17.11 provides that a party at the request of the other shall do such acts and execute documents in order to carry out the intent of this agreement. In my view Mr. Moore is in breach of this provision. The intent of the agreement is clearly that Shoppers has the right during the Management Period to assume control over the management and that Mr. Moore is to have no such rights. He is purposely frustrating the agreement by refusing to designate a manager as he is required by law to do. He is thus in breach of section 17.11. He is also in my view in breach of section 3 of the Arthur Wishart Act which imposes on each party a duty of fair dealing. It is no ground for an injunction that Mr. Moore has refused to designate a manager. To the contrary, his breach is reason to refuse the equitable remedy he seeks.

[ 28 ] The plaintiffs also assert that the pharmacy is being operated contrary to section 142(1) and (2) of the DPRA that provides that no corporation shall own or operate a pharmacy unless a majority of the directors and shareholders are pharmacists. Shoppers is not such a company. Section 166(1) of the DPRA provides that the designated manager is liable for every offence against the Act committed by any person in the employ of or under the supervision of the owner or designated manager with the owner’s or designated manager’s permission, consent or approval, express or implied. I see little if any risk to the plaintiffs, as it is clear that they cannot be said to have approved or consented to the actions of Shoppers.

[ 29 ] In any event, whether Shoppers can be said to be operating the pharmacy as that word is used in the DPRA is by no means clear. The Associate Agreement does not define the word operate. Section 4.02(b) gives Shoppers the right to assume control of the management and supervision of the pharmacy, and it has been attempting to have Mr. Goldman be designated as the manager. It is by no means clear that in these circumstances it can be said that Shoppers is acting contrary to the DPRA. In any event, the College of Pharmacists is well aware of the steps taken by Shoppers and has confirmed to Shoppers that Shoppers has done everything that it could and has raised no concerns with the operation of the pharmacy by Mr. Goldman between the commencement of the Management Period and the change of ownership to Mr. Goldman that will occur on December 31, 2012. The College has approved Mr. Goldman becoming owner and official designated manager of the pharmacy as of January 2013.

[ 30 ] The plaintiffs also assert that the action of Shoppers in removing him from the business has caused him to breach the Personal Health Information Protection Act . Section 32(1) requires a “health information custodian”, which in this case is Moore Ltd., to not disclose personal health information unless required by law to do so. Mr. Moore says that he has not had an opportunity to notify patients of the use of their health information. However, Mr. Moore has never taken the position with Shoppers that he requires access to any patient health information. There is no obligation yet arising under section 42(1) or (2) of the Act for the custodian, Moore Ltd., to give notice to anyone regarding a transfer of the business to a successor. I see no breach of the legislation.

[ 31 ] The plaintiffs have also asserted that after Shoppers took over control of the management of the pharmacy on December 5, 2012, narcotics were ordered using his professional designation contrary to Ontario law. What happened is that a small number of narcotic orders were placed by two pharmacists on December 5 and 6. They did this by pressing a button to place the orders which automatically had Mr. Moore’s licence number recorded in it. It was in the ordinary course of business for his employees to order narcotics using his licence number in this way. This was inadvertently done on December 5 and 6. On December 8, Shoppers’s solicitors wrote to the plaintiffs’ solicitors and advised that Mr. Moore’s licence number would not be used in the future. There is no evidence at all that in spite of the letter, and the affidavit evidence filed on behalf of Shoppers, that Shoppers is using Mr. Moore’s licence number to order narcotics. Any concern is entirely speculative.

[ 32 ] Mr. Moore asserts that he has not been entitled to be present during the taking of inventory by Shoppers. However, there is no right in the agreement for him to be present for this purpose during the Management Period. Section 4.02(c) of the agreement provides that during the first three days of the Management Period, Moore Ltd. may request an inventory of the stock-in trade be conducted. The plaintiffs’ solicitors requested that this be done in the presence of Mr. Moore. The solicitors for Shoppers replied that it would be done but that Mr. Moore had no right to be there. The language of the agreement supports Shoppers in that regard. The plaintiffs point to section 6.01(k)(3) of the agreement to support the argument that Mr. Moore had a right to be present. However, that section does not assist Mr. Moore. It is a covenant by Moore Ltd. and Mr. Moore to take physical inventories semi-annually or at more frequent intervals as required by Shoppers, and that they shall be taken by representatives of Shoppers and Moore Ltd. at the expense of Moore Ltd. It does not apply in the circumstances of a Management Period in which neither Moore Ltd. nor Mr. Moore has any right to participate in the management and supervision of the business and during which Mr. Moore could be terminated at any time.

[ 33 ] In any event, the point is moot and there is no issue of harm being done to the plaintiffs. The inventory was taken on December 10, 2012. The results of the inventory showed minor degrees of “shrinkage” of the inventory but not outside the ranges Shoppers would expect in the ordinary course of business. Shoppers has confirmed that the amount it will pay to Moore Ltd. will not be reduced as a result of the physical inventory count.

[ 34 ] It is really not necessary to deal specifically with the balance of convenience factor in light of my previous findings. However I shall do so briefly. This factor involves a determination of which of the plaintiffs or SDM will suffer the greater harm from the granting or refusing of an interlocutory injunction, pending a decision on the merits. See RJR-MacDonald , supra , at para. 62.

[ 35 ] I find no real risk of harm to the plaintiffs. On the other hand, there is risk of harm to Shoppers. The affidavit of Mr. Matteis on behalf of Shoppers lists risks to Shoppers of allowing an outgoing Associate such as Mr. Moore to continue to manage the store. These are based on Mr. Matteis’ experience, and include damage to Shoppers brands caused by a disgruntled or de-motivated Associate, mismanagement, damage to employee morale, misappropriation of assets or patient lists and direction of customers and patients to competitors. In this case, with the lack of trust of Shoppers and Mr. Moore with one another, the risks of harm cannot be said to be mere speculation.

[ 36 ] As well, Shoppers submits, I think with reason, that an order sought by the plaintiffs would necessarily cause confusion with the business’ internal management, employees, third-party insurers, customers, patients, and the Ontario College of Pharmacists. Mr. Goldman has been acting as the de facto designated manager and supervising and operating the business since December 5, 2012. To remove Mr. Goldman only to reinstate him again in sixty days creates a difficult environment for both employees and customers and is more than likely to affect the business of the store and will have a negative effect on the Shoppers’s brand.

[ 37 ] In all of the circumstances, the motion for an injunction is denied.

[ 38 ] If costs are sought, Shoppers may make brief written submissions along with a proper cost outline within 10 days and the plaintiffs will have 10 further days to make brief reply written submissions.

Newbould J.

DATE: December 27, 2012