1598631 Ontario Inc. v. Imvescor Restaurant Group Inc., 2015 ONSC 1888

CITATION: 1598631 Ontario Inc. v. Imvescor Restaurant Group Inc., 2015 ONSC 1888

COURT FILE NO.: CV-14-517464

DATE: 20150331

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1598631 Ontario Inc., et al., Applicants

AND:

Imvescor Restaurant Group Inc., Respondent

BEFORE: Justice Glustein

COUNSEL: David Altshuller and Lara Di Genova, for the Applicants

Daniel Murdoch and Patrick Corney, for the Respondent

HEARD: March 23, 2015

Endorsement

Nature of application and overview

[1] The applicants, 1598631 Ontario Inc., Spiros Bozikis and George Bozikis (collectively, the “Applicants”) bring this application under Rules 14.05(3)(d) and (g) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and s. 3 of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the “Wishart Act”) for:

(a) a declaration that section 16.3 (“Section 16.3”) of the franchise agreement (the “Franchise Agreement”) between the respondent franchisor Imvescor Restaurant Group Inc. (“Imvescor”) and 3574423 Canada Inc. (“357”), to which the applicants Spiros Bozikis and George Bozikis (collectively, the “Bozikis Brothers”) were personally bound, is void and unenforceable;

(b) in addition or in the alternative to (a) above, a declaration that the menu of the proposed “The Merchant” restaurant (“The Merchant”) does not contravene Section 16.3; and

(c) damages of $100,000 for breach of s. 3 of the Wishart Act.

[2] In their notice of application, the Applicants also sought injunctive relief preventing Imvescor from disparaging the Applicants or interfering in any way with negotiations between the Applicants and Cadillac Fairview Corporation Limited (“Cadillac Fairview”). This relief was not pursued at the hearing or in the factum, so I do not consider this issue.

[3] The present application arises in unique circumstances, in that Justice Wilton-Siegel considered an almost identical clause (section 16.2 of the Franchise Agreement) in an action brought as Court File 09-8341-00CL (the “Imvescor Action”) by Imvescor against, among others, the Applicants. Justice Wilton-Siegel’s decision is cited as Imvescor Restaurants Inc. v. 3574423 Canada Inc., 2011 ONSC 1609 (the “Imvescor Decision”) (affirmed 2012 ONCA 387).

[4] In the Imvescor Action, Section 16.2 of the Franchise Agreement (“Section 16.2”) was at issue since Imvescor alleged breach of the non-competition covenants in the Franchise Agreement, use of confidential information, and breach of s. 3 of the Wishart Act. The Imvescor Action arose from the Applicants’ plan to open a new restaurant to be called the “Redwood Grille” in both Orlando, Florida and in a new development at Don Mills Road and Lawrence Avenue in Toronto (known as The Shops at Don Mills). At that time, 357 was still the Baton Rouge franchisee at the Toronto Eaton Centre pursuant to the Franchise Agreement.

[5] In the Imvescor Decision, 357 brought a motion for summary judgment seeking a declaration that Sections 16.2 and 16.3 were void and unenforceable as a restraint of trade or, alternatively, on the grounds of ambiguity. Wilton-Siegel J. held that Section 16.2 was not ambiguous and was not, on the factual matrix before him, unenforceable as a restraint of trade. Justice Wilton-Siegel held that Section 16.3 only applied to a former franchisee and its officers, directors and key personnel, and thus did not apply since 357 was the current franchisee at that time. Consequently, Wilton-Siegel considered Section 16.2, which contains almost identical language to Section 16.3.

[6] Justice Wilton-Siegel dismissed the motion. He held that Section 16.2 was reasonable and unambiguous as a “very limited” restrictive covenant that applied only if 357, as the Baton Rouge franchisee at that time, operated a competing business that sold most of its products as “prepared as appears in the Manual”. In other words, unless the competing business used the recipes contained in the Baton Rouge Manual for most of its products, the restrictive covenant in Section 16.2 would not apply.

[7] Justice Wilton-Siegel held that since there was no evidence before him as to the recipes to be used in the proposed Redwood Grille restaurant, he could not determine the issue of compliance with Section 16.2 on summary judgment, but he did consider whether Section 16.2 was void and unenforceable or ambiguous on the basis of law and the factual matrix before him.

[8] Justice Wilton-Siegel held that (i) the geographic restriction in Section 16.2 was reasonable; and (ii) the interpretation of Section 16.2 was clear.

[9] The Applicants now bring this application as former franchisees seeking a similar declaration with respect to Section 16.3. In particular, the Applicants seek declarations that (i) Section 16.3 is void as ambiguous and as an unreasonable restraint of trade due to the temporal (5 years), geographic (10 kilometres), and scope (nature of the products which can be sold) restrictions of Section 16.3; (ii) in the alternative, the proposed “Inspirational Menu” for The Merchant would not violate Section 16.3; and (iii) Imvescor has breached s. 3 of the Wishart Act and had caused the Applicants to suffer $100,000 in damages.

[10] For the reasons that follow, I dismiss the application. In particular, I find that:

(a) The temporal, geographic, and scope restrictions of Section 16.3 are reasonable. Section 16.3 has a very limited scope, which only restricts a former franchisee from using the same recipes for most of the products sold at their competing restaurant. Consequently, a 5-year, 10-kilometre restriction is reasonable “in a fully competitive industry such as the restaurant industry which is characterized by limited barriers to entry” “to allow a franchisor to enjoy the fruits of its efforts in developing a particular concept and to provide an opportunity to prospective franchisees who consider that an investment in a franchise of an operating chain with a recognized name, décor and menu reduces the franchisee's investment risk” (as stated by Wilton-Siegel J. in the Imvescor Decision, at para. 105);

(b) Section 16.3 is not ambiguous. While Section 16.3 uses the language “selling generally all the products listed in Section 2.1.18” and Section 16.2 does not use the word “all”, I do not find any difference in the meaning to be attributed to the term “generally” in Section 16.3 as a result of that difference. I adopt the reasons of Wilton-Siegel J. in the Imvescor Decision and hold that Section 16.3 prohibits the same narrow competitive conduct as in Section 16.2, i.e. Section 16.3 is a “very limited” restrictive covenant that applies only if a former Baton Rouge franchisee operates a competing business that sells most of its products as “prepared as appears in the Manual”. In other words, unless the competing business used the recipes contained in the Baton Rouge Manual for most of its products, the restrictive covenant in Section 16.3 would not apply (Imvescor Decision, at paras. 37-40);

(c) The issue of whether the Inspirational Menu would violate Section 16.3 cannot be determined since the Applicants filed no evidence of the recipes for the Inspirational Menu. As Wilton-Siegel J. held with respect to Section 16.2, the restrictive covenant of Section 16.3 is limited to selling products with the same recipes as in the Baton Rouge “Manual”. The court cannot determine how The Merchant menu items on the Inspirational Menu are prepared simply from a listing of items, let alone compare those recipes to those in the Manual from the Eaton Centre Baton Rouge franchise formerly operated by the Applicants; and

(d) There is insufficient evidence before the court on this application to support a finding under s. 3 of the Wishart Act of bad faith or lack of fair dealing by Imvescor.

Facts

(a) Background

[11] Baton Rouge is an upscale casual restaurant chain. It was founded by John and Kostas Mavromichalis (the “Mavromichalis Brothers”) in 1992.

[12] In 1999, the Mavromichalis Brothers obtained a lease from Cadillac Fairview (through T.E.C. Leaseholds Limited) for the Eaton Centre premises (the “Lease”) and entered into it in the name of 357. The Lease had a 10-year term with an option to extend for an additional 5-year term ending on November 30, 2014.

[13] The Mavromichalis Brothers wanted the Bozikis Brothers to be the franchisees of the Baton Rouge location at the Eaton Centre since the Bozikis Brothers had considerable experience in the restaurant industry in Florida. The Mavromichalis Brothers encouraged the Bozikis Brothers to return to Toronto from Florida to become the franchisees.

[14] The shares of 357 were sold to the Bozikis Brothers. The Bozikis Brothers, through 357, entered into the Franchise Agreement with Les Restaurants Baton Rouge Inc. (“BRRI”), dated as of March 1, 1999. The Bozikis Brothers were represented by counsel in these negotiations.

[15] The Franchise Agreement provided that 357 would operate the Eaton Centre Baton Rouge restaurant for a term of 20 years. Schedule “I” to the Franchise Agreement was an addendum which contained 32 amendments to the Franchise Agreement that were negotiated by the parties, including a right of first refusal for 357 (the “Right of First Refusal”) relating to additional Baton Rouge restaurants in Ontario.

[16] The Bozikis Brothers provided personal guarantees of 357’s obligations under the Franchise Agreement.

[17] From March 1999 until early 2013, 357 was the franchisee of the Baton Rouge restaurant located in the Eaton Centre.

[18] There is a dispute as to whether the franchise terminated when 357 filed a notice of proposal in January 2013 or in April 2013 when 357 was assigned into bankruptcy, but that issue is not relevant to the interpretation of Section 16.3.

(b) Relevant sections of the Franchise Agreement

[19] The Franchise Agreement contained a lengthy section 16 governing “Non-Competition and Confidential Information”. Those sections provided as follows:

16.1 Franchisee agrees that during the Term and for a period of 2 years after the termination of this Agreement or expiration of the Term, neither Franchisee, it [sic] directors, officers or shareholders, the Owner, nor any key employee of Franchisee who is actively involved in the Business (collectively called the “Key Personnel”) will, either directly or indirectly, or through, on behalf of or in conjunction with any person:

16.1.1 divert or attempt to divert any business or customer of the Business to any competitor or do or perform any other act injurious or prejudicial to the goodwill associated with the Trade Marks, the Business or the Baton Rouge System;

16.1.2 employ or seek to employ any person who is at the same time employed by Franchisor, any other franchisee within the Baton Rouge System or induce such person to leave his or her employment.

16.2 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.

16.3 Franchisee agrees that for a period of five years after the termination of this Agreement or expiration of the Term, as regards both Franchisee and the Owner, and for a period of five years after ceasing to occupy their positions with Franchisee as regards directors, officers and Key Personnel, and for a period of five (5) years after ceasing to be a shareholder of Franchisee, as regards shareholders of Franchisee, neither Franchisee, its directors, officers, shareholders, the Owner nor any Key Personnel will, either individually or in partnership, 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 in any business which is located within a radius of ten (10) kilometers of the Premises or any other Baton Rouge Restaurant anywhere in Canada and which is substantially similar to the Business, namely the operation of a restaurant selling generally all the products listed in Section 2.1.18.

16.4 Franchisee acknowledges that Franchisor will disclose to Franchisee, and Franchisee will obtain from the Manual and from its operation of the Business, confidential information, knowledge, trade secrets and know-how concerning the Baton Rouge System, the Products, and the business and affairs of Franchisor, all of which information is proprietary to Franchisor (collectively called the “Confidential Information”). Franchisee agrees to treat the Confidential Information as strictly confidential and to make use of it solely and exclusively for the operation of the Business. Franchisee also agrees: (i) to do all things necessary to preserve the secrecy and confidentiality of the Confidential Information; (ii) only to disclose confidential information to the Owner, to its directors, officers, shareholders and Key Personnel who require access to same for the operation of the Business; and (iii) not to make any copies, extracts or reproductions of any part of the Confidential Information except for use by the Owner, its directors, officers, shareholders and Key Personnel as herein contemplated. Franchisee agrees that during the Term or at any time afterwards, neither Franchisee, its directors, officers, shareholders, the Owner, nor any Key Personnel will communicate, disclose or use the Confidential Information for the benefit of any other individual, partnership or other legal entity. [Emphasis added.]

[20] The products listed in section 2.1.18 which were the subject of Sections 16.2 and 16.3 were those prepared as in the Baton Rouge “Manual”. The relevant sections are:

2.1.18 ‘Products’ means southwestern/tex-mex style cuisine including barbecue chicken and ribs, steaks, fish, hamburgers, and other related foods, and such salads, desserts, beverages and related products as are permitted and approved in writing by Franchisor, to be prepared as appears in the Manual and sold in the Business, as well as such range of restaurant or other services as are permitted by the Manual to be performed in connection with the Business.

2.1.13 ‘Manual’ means the Confidential Operations Manual, the suppliers listings prepared from time to time by Franchisor setting forth the products which Franchisee is authorized to sell in the Business as well as the suppliers from whom Franchisee is authorized to purchase products for resale and all memoranda, information sheets, bulletins and other publications prepared by Franchisor for use by its franchisees generally or by Franchisee in particular, containing information, advice, instructions, standards, procedures, recipes and policies relating to the management and operation of the Business. [Emphasis added.]

(c) Imvescor becomes the franchisor

[21] During the period that 357 was the franchisee, the Baton Rouge business was sold twice. In 2002, a group purchased Baton Rouge and operated it under the name Baton Rouge Restaurants Company (“BRRC”) between 2002 and 2006. In 2006, the assets of BRRC were sold to Mikes Restaurants Inc., which is a predecessor to Imvescor.

(d) The Right of First Refusal Action

[22] In 2004, 357 brought an action against BRRI, BRRC (which had become Sara-Mammas Corporation Inc.), the Mavromichalis Brothers, Imvescor, and others with respect to an alleged breach by the defendants of the Right of First Refusal. The action was dismissed and 357 was ordered to pay costs of approximately $950,000. 357 appealed the decision and the appeal was dismissed with costs.

(e) The Imvescor Action

[23] In October 2008, Imvescor commenced an action (previously defined as the “Imvescor Action”) against 357 and the Bozikis Brothers in the Ontario Superior Court of Justice arising out of plans by the Bozikis Brothers, through Bozikis Investments Inc., to open a restaurant called the “Redwood Grille” in Orlando, Florida and at The Shops at Don Mills in Toronto. “Redwood” bears a broad resemblance to the English translation of “Baton Rouge”.

[24] Imvescor claimed copyright infringement, breach of the restrictive covenants in the Franchise Agreement and breach of the duty of good faith and reasonable commercial practice in s. 3 of the Wishart Act.

[25] In 2009, 357 and the Bozikis Brothers brought a motion for, among other things, partial summary judgment for declarations that Sections 16.2 and 16.3 were unenforceable. The motion was heard over 6 days between March and November 2010, with reasons released on March 30, 2011. Justice Wilton-Siegel dismissed the motion and his decision (previously defined as the “Imvescor Decision”) was upheld by the Court of Appeal by decision dated May 10, 2012.

[26] Justice Wilton-Siegel held that Section 16.3 was not at issue because 357 was still the franchisee and Section 16.3 related to post-termination conduct (Imvescor Decision, at para. 65).

[27] However, Justice Wilton-Siegel made relevant findings and conclusions with respect to Section 16.2, which like Section 16.3, prohibited 357 from operating a restaurant “selling generally the products listed in Section 2.1.18”.

[28] First, Justice Wilton-Siegel held that without a factual matrix, he could only determine the validity of Section 16.2 as a “pure question of interpretation of the meaning of the words in Section 16.2 without regard to the factual matrix” or as “a question of interpretation involving only undisputed facts regarding such factual matrix” (Imvescor Decision, at para. 18). He held:

I have a serious difficulty with the defendants' theory of this motion, which must be addressed before considering the motion itself, as the Court's conclusion on this issue informs its approach to this motion. (Imvescor Decision, at para. 13)

The defendants bring this motion under Rule 21(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended. Rule 21(1)(a) provides that a party may move for a determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial savings of cost. The defendants seek declarations that the two restrictive covenants in the Franchise Agreement are unenforceable and, on the basis of such declarations, seek partial summary judgment under Rule 20 in respect of all claims based on an alleged breach of such covenants. (Imvescor Decision, at para. 14)

It is significant that the defendants have not commenced operation of the Redwood Grille nor have they published a menu for the Redwood Grille. Therefore, the defendants do not seek a determination of the enforceability of the relevant provisions of the Franchise Agreement in the context of the operation, or proposed operation, of a restaurant having specific characteristics. Instead, they ask the Court to declare that the relevant provisions of the Franchise Agreement are unenforceable as a pure matter of law, rather than as a matter of mixed fact and law. (Imvescor Decision, at para. 15)

In these circumstances, I am not persuaded that the Court can consider the enforceability of restrictive covenants in the manner assumed by the defendants in bringing this motion. There are two aspects to this conclusion that I will address below. I will then set out the approach to this motion that I have adopted in light of the relief sought by the parties on the motion. (Imvescor Decision, at para. 17);

In respect of the covenant in section 16.2, the defendants' motion assumes that it is possible to conceive of a restrictive covenant being enforceable or unenforceable without reference to the specific factual context in which a party seeks to enforce it. This implies that a restrictive covenant is intrinsically enforceable or unenforceable. In juridical terms, the defendants' approach is expressed as an assumption that the enforceability of a restrictive covenant can be addressed as a pure question of law, rather than a question of mixed fact and law. (Imvescor Decision, at para. 18);

Except with respect to issues of contractual interpretation that are pure questions of law, I think this approach is wrong as a matter of law. Because the enforceability of a restrictive covenant can only be considered in the specific factual context in which a party seeks to enforce it, the issue of the enforceability of a restrictive covenant is inherently a matter of mixed fact and law. Indeed, while it is easy to identify the legal principles, the determination of the enforceability of any restrictive covenant is, as this proceeding amply demonstrates, very heavily influenced by the relevant factual matrix. (Imvescor Decision, at para. 19); and

Accordingly, in the present circumstances, the Court can entertain the motion under Rule 21(1)(a) only to the extent that the issue before the Court is either (1) a pure question of interpretation of the meaning of the words in section 16.2 without regard to the factual matrix in which the Franchise Agreement was negotiated and executed; or (2) a question of interpretation involving only undisputed facts regarding such factual matrix. (Imvescor Decision, at para. 21) [Emphasis added.]

[29] Second, Justice Wilton-Siegel held that Section 16.2 was a “very limited” restrictive covenant which only prohibited 357 and the Bozikis Brothers from operating a restaurant that sold “most of the products” sold by the Eaton Centre Baton Rouge location and only if those products “were prepared substantially in accordance with a recipe contained in the Manual”. Wilton-Siegel J. held (Imvescor Decision, at paras. 37-40):

I agree with the plaintiffs’ assessment that the drafting of clauses 16.2 and 16.3 could have been clearer. However, I also agree with the plaintiffs that the following description sets out the essential characteristics of the restrictive covenant in section 16.2, reading the provision in its entirety including the related definitions.

The covenant prevents the Franchisee and the other parties named therein from being involved in another business in Canada that operates a restaurant selling most of the products described in section 2.1.18. This latter provision limits the relevant products to barbeque chicken and ribs, steaks, fish, hamburgers and other related foods including salads, desserts and beverages, provided further that any such products (1) are prepared according to, or substantially according to, a recipe in the Franchisor’s manual (the ‘Manual’) at such time; and (2) are sold at such time at the Eaton Centre Restaurant.

Accordingly, even if an allegedly competitive restaurant sold products that were generically described in section 2.1.18 of the Franchise Agreement, there would be no contravention of the restrictive covenant if the products (1) were prepared otherwise than substantially as contemplated by a recipe in the Manual; or (2) were not sold at the Eaton Centre Restaurant at the relevant time, even if the products are substantially similar to food items prepared according to recipes in the Manual. In addition, even if the competing restaurant sold some individual food items that were identical to menu offerings described in the Manual, the covenant in section 16.2 would not be triggered unless the competing restaurant sold most of the products sold at the time by the Eaton Centre Restaurant that were prepared substantially in accordance with a recipe contained in the Manual. This is addressed further below in connection with the defendants’ argument that the restrictive covenant is ambiguous.

Before proceeding, I would observe that, on the basis of the foregoing description of the restrictive covenant in section 16.2, the scope of the covenant is, in fact, very limited. This arises from the fact that a competing business for the purposes of the covenant is described only in terms of the food offered by the Eaton Centre Restaurant which must also satisfy the two conditions set out above. The result is a covenant that appears to have a very narrow scope even if it is enforceable. [Emphasis added.]

[30] Third, Justice Wilton-Siegel held that Section 16.2 was not ambiguous, and that a “plain reading” of Section 16.2 and section 2.1.18 demonstrated “the twin requirements that a product (1) be actually offered on the menu of the Eaton Centre Restaurant; and (2) be prepared in a particular manner that the Bâton Rouge Restaurant & Bar chain has reduced to a recipe in its Manual”. Further, Justice Wilton-Siegel held that the word “generally” in Section 16.2 was to be read as “most of the products”, so that even if the “twin requirements” were met, the restrictive covenant of Section 16.2 would only be breached if the competing restaurant sold most of its products prepared substantially in accordance with a recipe in the Manual (Imvescor Decision, at paras. 48-51).

[31] With respect to any issue of ambiguity arising if the court were required to determine whether “most” of the products sold by a competing restaurant were those from recipes in the Manual of products sold at the Baton Rouge Eaton Centre location, Justice Wilton-Siegel held that such a determination would require “actual facts” and that the court should not “assume a factual context regarding an allegedly competitive restaurant” (Imvescor Decision, at paras. 55-59).

[32] Fourth, Justice Wilton-Siegel held that the doctrine of contra proferentum did not apply as there was no ambiguity. Further, Justice Wilton-Siegel held that the doctrine would only apply if the Franchise Agreement was a contract of adhesion and that such a decision required evidence before the court at trial. He held (Imvescor Decision, at paras. 66-69):

I would add that both parties devoted a considerable amount of time, both in their facta and in oral submissions, to the issue of whether the parties had equal bargaining power at the time of negotiation of the Franchise Agreement. A possible significance of this dispute could be the application of the contra proferentum rule in the interpretation of clause 16.2. The defendants argue that the Franchise Agreement was a contract of adhesion and, accordingly, any ambiguity should be interpreted against the franchisor. This is, however, a rather ambiguous and certainly weak canon of contractual interpretation: see Lewison, Kim, The Interpretation of Contracts (London, Sweet & Maxwell (4th ed.) 2007) at pp. 260-270.

Further, it is clear that this principle is available to resolve an issue of contractual interpretation only if the relevant provision is first determined by a court to be ambiguous in the sense of being susceptible of two or more interpretations. It is also clear that the principle should not be used for the purpose of creating a doubt or magnifying an ambiguity: see Lewison at p. 265. I do not consider the language of clause 16.2 to give rise to any such ambiguity. It is therefore unnecessary to have recourse to this principle of contractual interpretation.

The other purpose for which this issue has been raised is the defendants' assertion that the courts look more closely at the enforceability of covenants in restraint of trade that are contained in contracts of adhesion. The specific application of this principle in the context of the geographic scope of the restrictive covenant in section 16.2 is addressed below.

However, to the extent this principle is relevant at all in the present circumstances, I consider that it presents a genuine issue requiring a trial. The issue turns at least in part on the credibility of the Bouzikis [sic] Brothers in respect of their description of the negotiations between themselves and the Mavromichalis Brothers, including the significance they attach to the specific provisions of the Franchise Agreement and the Addendum. Even if the Mavromichalis Brothers are unavailable as witnesses, a trial judge will be better able to make an informed finding on this issue after observing the viva voce evidence of the Bouzikis [sic] Brothers, particularly under cross-examination. [Emphasis added.]

[33] Fifth, Justice Wilton-Siegel held that without more, evidence that Imvescor permitted other franchisees to operate competing restaurants was not sufficient to determine that Section 16.2 was not reasonable, since the relevant question was whether those restaurants were selling products “prepared according to a recipe that is substantially similar to a receipt [sic] in the Manual”. Justice Wilton-Siegel held:

First, the defendants say that the plaintiffs have permitted other franchisees to operate four specific restaurants that compete with certain other Bâton Rouge restaurants. The defendants’ principal evidence regarding these restaurants consists of the menus of the four restaurants and a chart of menu items at these restaurants that are described in terms that are identical to, or substantially similar to, the description of menu items of the Eaton Centre Restaurant. The defendants say that the covenant cannot be justified as reasonable between the parties when other franchisees have been permitted to open restaurants that violate the covenant in section 16.2. (Imvescor Decision, at para. 77)

Given the language of section 16.2, a determination that there is no longer a private interest to protect on this basis requires, among other things, a comparison of the actual products served by the allegedly competing restaurants with the comparable menu items of the Eaton Centre Restaurant prepared in accordance with the recipe for such items in the Manual. The evidence before the Court on this motion is, however, limited to a comparison of the description of various menu items of the allegedly competing restaurants and the description of allegedly similar items in the Eaton Centre Restaurant menu. Menu items of the allegedly competing restaurants that are described in similar terms will not, however, offend the covenant in section 16.2 unless they are prepared according to a recipe that is substantially similar to a receipt [sic] in the Manual. In addition, the defendants must also establish that the allegedly competing restaurants sell most of the menu offerings sold by the Eaton Centre Restaurant. There is, however, no analysis on either of these issues before this Court on this motion. The evidence is therefore insufficient to conclude that the operation of any or all of these four restaurants would contravene the covenant in section 16.2 if it were applied and, therefore, that the plaintiffs have no private interest to protect. (Imvescor Decision, at para. 79) [Emphasis added.]

[34] Sixth, Justice Wilton-Siegel found that the Canada-wide restriction in Section 16.2 was reasonable since it had to be considered “against the background of the operation of the restrictive covenant” which had a “very limited reach”. Justice Wilton-Siegel held (Imvescor Decision, at para. 91):

First, the reasonableness of the geographic scope of the covenant must be considered against the background of the operation of the restrictive covenant. As described above, the covenant has a very limited reach for two general reasons. It does not extend to restaurants having a similar, even identical, décor to that of the Eaton Centre Restaurant. Further, it only operates if a competing restaurant sells most of the menu items offered by the Eaton Centre Restaurant prepared in accordance with recipes in the Manual. There is, therefore, no significant restriction on the ability of the Bouzikis [sic] Brothers to earn a livelihood by investing in other restaurants. [Emphasis added.]

[35] Seventh, Justice Wilton-Siegel commented on the public policy supporting a limited restrictive covenant prohibiting a franchisee from competing against a franchisor using the same recipes for the sale of most products. He held (Imvescor Decision, at para. 105):

Precisely because there are numerous restaurants based on differing concepts, it is difficult to establish that it is unreasonable in respect of the public interest to enforce a non-competition covenant designed to protect any particular restaurant concept. This is not a situation in which the effect of the restrictive covenant is to perpetuate a monopoly contrary to the public interest. Conversely, in a fully competitive industry such as the restaurant industry which is characterized by limited barriers to entry, there is arguably some public benefit to upholding franchise agreements, both in order to allow a franchisor to enjoy the fruits of its efforts in developing a particular concept and to provide an opportunity to prospective franchisees who consider that an investment in a franchise of an operating chain with a recognized name, décor and menu reduces the franchisee's investment risk. [Emphasis added.]

[36] The Court of Appeal upheld the decision of Wilton-Siegel J. (2012 ONCA 387). The Court held (at para. 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.

[37] In March 2013, after 357 issued a notice of intention to file a proposal and shortly before 357’s assignment into bankruptcy, Imvescor served a notice of discontinuance of the Imvescor Action.

[38] 357 and the Bozikis Brothers did not elect to continue their counterclaim following service of the notice of discontinuance.

(f) The bankruptcy of 357 and the resulting new franchisee

[39] 357 was assigned into bankruptcy in April 2013. The restaurant was initially operated by the receiver of 357, Ernst & Young Inc., and the assets were sold to 8424853 Canada Inc. (“842”), which became the new franchisee of the Eaton Centre Baton Rouge restaurant.

(g) The Merchant Restaurant concept and Baton Rouge lease extension

[40] 842 worked with Cadillac Fairview to attempt to obtain a new long-term lease, as the Lease was to expire on November 30, 2014.

[41] While 842 was discussing with Cadillac Fairview the possibility of a new lease for the Eaton Centre Baton Rouge restaurant (and within the two-year period under section 16.1 of the Franchise Agreement), the Bozikis Brothers developed a restaurant concept called “The Merchant”, which was to operate in the same Eaton Centre premises as Baton Rouge upon expiry of the Lease. The Bozikis Brothers entered into discussions with Cadillac Fairview about “The Merchant” taking over the Eaton Centre Baton Rouge premises.

[42] At some point during the discussions between Cadillac Fairview and the Bozikis Brothers, Cadillac Fairview advised that it would not enter into a letter of intent for The Merchant unless there was a court order or an acknowledgement from Imvescor that Imvescor would not attempt to enforce sections 16.1 or 16.3 of the Franchise Agreement.

[43] On October 23, 2014, Cadillac Fairview imposed an approximate 10-day deadline for the Applicants to obtain a waiver from Imvescor. On October 27, 2014, 357’s counsel requested the waiver from Imvescor by letter and attached an “Inspirational Menu” for The Merchant. By letter from Imvescor’s counsel dated October 30, 2014, Imvescor refused to waive enforcement of either sections 16.1 or 16.3 of the Franchise Agreement.

[44] On cross-examination, Spiros Bozikis stated that he was “bound and accepted based on this inspirational menu by Cadillac Fairview” and that the menu was designed “within the scope of what Justice Wilton-Siegel told us” but that items could change depending on trends and that he did not have “everything in writing” for the recipes proposed in the Inspirational Menu.

[45] In November 2014, 842 and Cadillac Fairview agreed to a lease extension for the Baton Rouge Eaton Centre restaurant through January 31, 2017.

Analysis

[46] The following issues are raised on this application:

(a) Is Section 16.3 unreasonable based on temporal, geographic, or scope restrictions?

(b) Is Section 16.3 ambiguous and therefore unenforceable?

(c) In any event, does the menu of The Merchant violate Section 16.3?

(d) Did Imvescor breach s. 3 of the Wishart Act and if so, what is the appropriate remedy for damages?

(a) Preliminary comments on approach of the court

[47] The approach I take to this application is similar to the approach adopted by Wilton-Siegel J. in the Imvescor Decision. Consequently, I consider the question of the enforceability of the restrictive covenant or whether the proposed menu for The Merchant complies with Section 16.3 as “a matter of mixed fact and law” (Imvescor Decision, at para. 19).

[48] The Applicants submit that they can seek a declaration from the court that their proposed operation of The Merchant, based on the Inspirational Menu, does not violate Section 16.3. I agree that such a determination can, in principle, be made about a proposed competing business but it must be restricted to the factual matrix without requiring speculation by the court.

[49] While no party provided the court with authority as to whether a franchisee can seek an “advance ruling” as to whether a proposed business violates a restrictive covenant with the franchisor, I find that such a declaration is possible when the evidence satisfies the court either that the restrictive covenant is not reasonable on its face, or the evidence establishes no breach of the restrictive covenant.

[50] Such a declaration is not a “hypothetical” ruling, but rather a ruling that permits a franchisee to engage in a business based on evidence before the court, without having to spend significant funds to start up a business, sign a lease, incur guarantees, engage employees, and then have to face litigation from the franchisor to shut down the business.

[51] On the other hand, the court should not render an “advance ruling” decision unless satisfied that the evidence before it allows the court to properly address the issues at stake on the breach of the restrictive covenant. Consequently, I consider only the factual matrix before the court when addressing the issues below.

(b) Comments on the issue of the applicable onus

[52] Both parties addressed the issue of onus. The Applicants submit that even though they seek a declaration, the onus to establish the validity or breach of Section 16.3 lies with Imvescor as it seeks to rely on the restrictive covenant. Imvescor submits that since the Applicants are seeking a declaration, the onus lies with them to establish the invalidity of or compliance with the restrictive covenant.

[53] For the purposes of this application, it is not necessary to decide the issue, as there is sufficient evidence before the court to establish whether the terms of Section 16.3 violate the principle of reasonableness.

[54] Further, to the extent the Applicants seek to rely on the doctrine of contra proferentem to shift the onus to Imvescor to uphold Section 16.3, I rely on the comments of Wilton-Siegel J. that (i) the doctrine does not apply as Section 16.3 is not ambiguous and (ii) in any event, there is not sufficient evidence to satisfy the court that there was any inequality of bargaining relationship between the parties (see the Imvescor Decision, at paras. 66-69, and also the facts set out at paragraphs 13 to 15 above).

[55] I now address each of the issues summarized at paragraph 46 above.

Issue 1: Is Section 16.3 unreasonable based on time, geography, or scope restrictions?

[56] It is settled law that the court must consider whether a restrictive covenant is reasonable based on the four-part test in Tank Lining Corp. v. Dunlop Industries Ltd. (1982), 1982 CanLII 2023 (ON CA), 40 O.R. (2d) 219 (C.A.) (“Tank Lining”), at para. 13. The only issues on this application under Tank Lining (as was the case before Wilton-Siegel J. in the Imvescor Decision) are whether the restraint can be justified as reasonable (a) in the interests of the parties, and (b) with respect to the interests of the public (see also Elsey v. J.G. Collins Insurance Agencies Ltd. (1978), 1978 CanLII 7 (SCC), 83 D.L.R. (3d) 1 (SCC), at 6).

a) Time

[57] The Applicants submit that a 5-year restriction against competing is an unreasonable restriction on their right to earn a living. The Applicants rely on the evidence that Imvescor has (i) recently amended its standard form franchise agreement to reduce the time restriction from 5 years to 2 years, and (ii) allowed other existing and former Baton Rouge franchises to open other restaurants that in some cases feature signature Baton Rouge items such as baby back ribs. I address these issues below.

[58] The temporal restriction must be considered in light of the scope of Section 16.3 in general. As Wilton-Siegel J. noted with respect to Section 16.2, Section 16.3 is very limited, and only applies when a competing restaurant sells most of its products based on the same recipes used in the Manual. In those circumstances, a 5-year period to prevent a party from using confidential recipes on most of their products is reasonable.

[59] Further, the 5-year time period is reasonable given the long-term contractual relationship between the parties. 357 negotiated a 20-year franchise and agreed to take on a 15-year lease. The Bozikis Brothers were sophisticated businesspeople with considerable expertise in the restaurant business. A 5-year restriction on competition limited to using the same recipes for most products in another restaurant is reasonable given this factual matrix.

[60] I adopt the comments of Wilton-Siegel J. and find that the public policy of allowing franchisors and franchisees to benefit from a recognized menu supports the reasonableness of a 5-year period (Imvescor Decision, at para. 105):

…in a fully competitive industry such as the restaurant industry which is characterized by limited barriers to entry, there is arguably some public benefit to upholding franchise agreements, both in order to allow a franchisor to enjoy the fruits of its efforts in developing a particular concept and to provide an opportunity to prospective franchisees who consider that an investment in a franchise of an operating chain with a recognized name, décor and menu reduces the franchisee's investment risk.

[61] The Applicants rely on the reduction of the period from 5 years to 2 years in the current franchise agreement. However, a review of the two agreements does not demonstrate that Section 16.3 is unreasonable.

[62] The temporal reduction in section 14.2 of the new franchise agreement must be considered in the context of the significant expansion of the scope of that new restrictive covenant. Unlike Section 16.3 which limited the prohibited competition to selling most products made in accordance with the recipes in the Manual, the new restrictive covenant under section 14.2 now prohibits franchisees from engaging in a “competing business” which is defined as any “restaurant business which is, in any manner whatsoever, similar to the Franchised Business or any one of the businesses operating under the System offering products such as ribs, steaks, hamburgers, salads, fresh fish or seafood”.

[63] In other words, there is no requirement under section 14.2 that the competing business sell most of its products based on the same recipes from the Manual, the two important restrictions on Section 16.3. It was those restrictions which led Wilton-Siegel J. to conclude that Section 16.3 was very limited in scope, and I adopt his reasons in that regard.

[64] Consequently, the reduction of the temporal restriction of the current section 14.2 to 2 years must be considered in light of the expansion of the scope, and does not support the Applicants’ position. A 5-year restriction under Section 16.3 is reasonable since the prohibited competition is for selling products that the franchisee is making with the same Baton Rouge recipes (and only applies if most of those products sold by the new business are derived from those recipes), since the purpose of such a clause is to “allow a franchisor to enjoy the fruits of its efforts in developing a particular concept and to provide an opportunity to prospective franchisees who consider that an investment in a franchise of an operating chain with a recognized name, décor and menu reduces the franchisee's investment risk” (Imvescor Decision, at para. 105).

[65] Further, I reject the Applicants’ submission that the 5-year period is unreasonable because other restaurants operated by some former franchisees sell some similar products to that of Baton Rouge. In this regard, I adopt the comments of Wilton-Siegel J. who addressed the identical submission with respect to Section 16.2 (Imvescor Decision, at para. 79):

Given the language of section 16.2, a determination that there is no longer a private interest to protect on this basis requires, among other things, a comparison of the actual products served by the allegedly competing restaurants with the comparable menu items of the Eaton Centre Restaurant prepared in accordance with the recipe for such items in the Manual. The evidence before the Court on this motion is, however, limited to a comparison of the description of various menu items of the allegedly competing restaurants and the description of allegedly similar items in the Eaton Centre Restaurant menu. Menu items of the allegedly competing restaurants that are described in similar terms will not, however, offend the covenant in section 16.2 unless they are prepared according to a recipe that is substantially similar to a receipt in the Manual. In addition, the defendants must also establish that the allegedly competing restaurants sell most of the menu offerings sold by the Eaton Centre Restaurant. There is, however, no analysis on either of these issues before this Court on this motion. The evidence is therefore insufficient to conclude that the operation of any or all of these four restaurants would contravene the covenant in section 16.2 if it were applied and, therefore, that the plaintiffs have no private interest to protect.

b) Geography

[66] Section 16.2 prohibits a franchisee from opening a competing restaurant in Canada during the term of the agreement if that restaurant sold most of its products using the same recipes in the Manual. Wilton-Siegel J. held that such a restriction was reasonable in Section 16.2 given the limited scope of Section 16.2.

[67] I adopt the same analysis with respect to the 10-kilometre restriction in Section 16.3. On its face, a reduction of the geographic scope from “all of Canada” for in-term franchisees to 10 kilometres for out-of-term franchisees is reasonable. The uncontested evidence is that Baton Rouge is an upscale casual restaurant chain, and as such, it is reasonable that Imvescor seek a reasonable driving distance as a radius to ensure former franchisees cannot compete with its operations.

[68] Further, the 10-kilometre restriction only applies if the proposed competing business sells most of its products using the same recipes in the Manual. As Wilton-Siegel J. held, “there is, therefore, no significant restriction on the ability of the Bouzikis [sic] Brothers to earn a livelihood by investing in other restaurants” (Imvescor Decision, at para. 91).

[69] The Applicants submit that the geographic restriction cannot be reasonable since BRRI only granted a 2-kilometre exclusive territory to 357 and awarded a Baton Rouge franchise near the Rogers Centre within a 3-kilometre radius of the Eaton Centre. I do not agree.

[70] The issue of granting an exclusive territory is not the same as a restriction against competition. A prospective franchisee, or Imvescor, may consider that a downtown market can support two Baton Rouge franchises within a 3-kilometre area, and a franchisee can make a determination as to whether an exclusive territory restriction is acceptable. However, that does not mean that Imvescor would reasonably permit a former franchisee to use the recipes from the Manual to sell most or all of their products within 10 kilometres from (i) another Baton Rouge franchise, or (ii) the existing premises. This is particularly so when the franchisee has a 20-year franchise with considerable expertise in the restaurant business.

[71] Imvescor has the right to “enjoy the fruits of its efforts in developing a particular concept and to provide an opportunity to prospective franchisees who consider that an investment in a franchise of an operating chain with a recognized name, décor and menu reduces the franchisee’s investment risk” (Imvescor Decision, at para. 105). In light of the very limited restrictive covenant, a 10-kilometre range is reasonable.

[72] Further, the submission by the Applicants that “many of the restaurants that Imvescor allowed other franchisees to open are within the 10-kilometre radius of other Baton Rouge Restaurants” does not demonstrate the unreasonableness of the 10-kilometre restriction. The Applicants only filed menus (not recipes) from some of those restaurants, and as such there is no evidence that those restaurants are in breach of Section 16.3, i.e., there is no evidence that those restaurants sell mostly products from recipes in the Manual. Without such evidence, the location of other restaurants is irrelevant.

[73] Wilton-Siegel J. rejected the same argument in the Imvescor Decision. He held (Imvescor Decision, at paras. 77 and 79):

First, the defendants say that the plaintiffs have permitted other franchisees to operate four specific restaurants that compete with certain other Bâton Rouge restaurants. The defendants' principal evidence regarding these restaurants consists of the menus of the four restaurants and a chart of menu items at these restaurants that are described in terms that are identical to, or substantially similar to, the description of menu items of the Eaton Centre Restaurant. The defendants say that the covenant cannot be justified as reasonable between the parties when other franchisees have been permitted to open restaurants that violate the covenant in section 16.2.

Given the language of section 16.2, a determination that there is no longer a private interest to protect on this basis requires, among other things, a comparison of the actual products served by the allegedly competing restaurants with the comparable menu items of the Eaton Centre Restaurant prepared in accordance with the recipe for such items in the Manual. The evidence before the Court on this motion is, however, limited to a comparison of the description of various menu items of the allegedly competing restaurants and the description of allegedly similar items in the Eaton Centre Restaurant menu. Menu items of the allegedly competing restaurants that are described in similar terms will not, however, offend the covenant in section 16.2 unless they are prepared according to a recipe that is substantially similar to a receipt in the Manual.

[74] Finally, in the case relied upon by the Applicants for their submission that a 5-year, 10-mile radius restriction “was likely excessive” (1460904 Ontario Inc. v. MDG Computers Canada Inc., [2006] O.J. No. 4390 (SCJ)), the court only found that the clause “may arguably have overreaching provisions” (at para. 18), but made no finding. In any event, the factual matrix in the present case supports the reasonableness of the provision for the reasons I discuss above, including the long-term relationship between the parties on the particular facts of this case.

[75] For those reasons, I find the geographic restriction to be reasonable.

c) Scope

[76] Even though Wilton-Siegel J. held that Section 16.2 was very limited and narrow, the Applicants submit that the scope of Section 16.3, which has almost the same wording, is too broad.

[77] The Applicants make two submissions on this point.

[78] First, the Applicants submit that Section 16.3 is broader because Section 16.2 applied to a “restaurant selling generally the products listed in Section 2.1.18”, while Section 16.3 applied to a “restaurant selling generally all the products listed in Section 2.1.18”. [Italics added.] I do not agree.

[79] I see no difference in the restricted nature of Section 16.3 by the addition of the word “all” in Section 16.3. The word “generally” modifies the expression “all the products” in the same way as Wilton-Siegel J. held it modified the term “products”. In other words, if “generally” is to have any meaning, it must be defined to be “most of the products” which is the same meaning under both Sections 16.2 and 16.3.

[80] Second, the Applicants submit that the prohibition in Section 16.3 against operating a business substantially similar to Baton Rouge is too broad because it uses the expression ”namely the operation of a restaurant selling generally all of the products listed in Section 2.1.18”. [Italics added.] However, that language is the same as in Section 16.2, which is a very limited restriction. Further, the Applicants themselves acknowledge in their factum that “namely” is less broad than “including”, which is more consistent with a narrow interpretation of the restrictive clause.

[81] Consequently, there is no difference between Sections 16.2 and 16.3 with respect to the scope of the clause. For the same reasons as held by Wilton-Siegel J., I do not find that the scope of the language in Section 16.2 is an unreasonable restraint of trade.

Issue 2: Is Section 16.3 ambiguous?

[82] Wilton-Siegel J. found the nearly identical wording of Section 16.2 to be prima facie unambiguous. At the present hearing, the Applicants did not strenuously pursue that Section 16.3 was ambiguous.

[83] The Applicants did not challenge Section 16.3 on the basis of ambiguity except for the alleged ambiguity arising from the use of the term “generally all” in Section 16.3 instead of “generally” as used in Section 16.2, a submission I reject for the reasons set out at paragraphs 78 and 79 above.

[84] The only other argument raised by the Applicants on ambiguity was based on Wilton-Siegel J.’s comment in the Imvescor Decision that ambiguity might arise if actual menu items were compared to one another which would have to be considered as a question of mixed fact and law.

[85] However, Justice Wilton-Siegel was clear that there was no ambiguity in the meaning of the clause. While a court with evidence on recipes would have to consider whether the recipes for the competing product were those from the Manual, any such ambiguity would have to be considered in a factual context when such evidence existed. In the abstract, just as in the Imvescor Decision, it would be premature to reach any decision on ambiguity (Imvescor Decision, at para. 59).

[86] It is not enough to suggest ambiguity in the potential application of a restrictive covenant. Section 16.3 is clear that recipes from the Manual cannot be used to sell most of the products of the competing restaurant, and it is for that reason that the menu items cannot be used as a basis for alleged ambiguity since the court cannot determine from menu items whether any breach of Section 16.3 occurred (i.e. use of the same recipes from the Manual).

[87] For the above reasons, I do not find Section 16.3 to be ambiguous or unenforceable.

[88] Since I find Section 16.3 is reasonable and is not ambiguous, I do not address the issue of whether the court can read down any of the clauses.

Issue 3: Does the Inspirational Menu of The Merchant violate Section 16.3?

[89] In the present case, the Applicants rely on the Inspirational Menu before the court to submit that the court can determine whether the proposed Inspirational Menu items to be served by The Merchant breach the “scope” provision under Section 16.3 which, as in the Imvescor Decision, precludes a very limited competition by selling mostly products which are based on recipes in the Manual. The Applicants submit that they have taken into account the comments of Wilton-Siegel J. at paragraph 15 of the Imvescor Decision (in which he notes that no menu was published for the Redwood Grille) and ask the court to make a finding that the Inspirational Menu does not breach Section 16.3.

[90] I do not agree.

[91] Even if I accept that the Inspirational Menu is the final proposed menu to be served by The Merchant, the evidence is uncontested that many of the recipes for The Merchant are not written down, and none of the recipes were put before the court in the affidavit material filed. The Court cannot determine by a simple comparison of the two menus whether any of the recipes used at Baton Rouge are being used for the products to be sold by The Merchant.

[92] By way of example, it is not sufficient for the Applicants to submit that a raw tuna tartar starter proposed to be served by The Merchant cannot be based on the same recipe as a seared tuna starter sold at Baton Rouge. The manner of producing the item may contain a similar set of ingredients even if one product is seared and another is raw. The issue of whether the recipes are similar cannot be determined without the recipes. The court should not make an abstract determination of whether recipes are (or could be) the same or different by a review of two menu items.

[93] The Applicants prepared a chart for the hearing comparing the items proposed to be sold at The Merchant and the items currently sold at the Baton Rouge Eaton Centre location. The Applicants submit that at best, approximately only one-third of those items could be based on similar recipes. However there is no way to determine from that list whether recipes for the products are based on the same recipes.

[94] Without the information as to the recipes, it is not possible to determine whether the restrictive covenant has been breached. As Wilton-Siegel J. held in the Imvescor Decision, the restrictive covenant in the present case is very narrow and based on whether most of the products sold by the competing restaurant are derived from the recipes in the Manual. Recipes are required to make that determination.

[95] The same issue exists even if The Merchant is serving a brunch menu. Without recipes, it is not possible to conclude that a brunch menu (simply because it is served at brunch) cannot be based on the same recipe as from the Manual, as the court cannot determine whether any of the steaks, pasta dishes, or other dishes are based on the same ingredients.

[96] The Applicants submit that because Mr. Mammas was asked on cross-examination to identify similar items on the Baton Rouge menu and the Inspirational Menu and only identified items which were of a small proportion, the court can be satisfied that there is no breach of the restrictive covenant. However, this submission again does not address the lack of evidence as to the recipes which are the basis of Section 16.3.

[97] The argument raised by the Applicants in the present case is similar to that raised before Wilton-Siegel J. in the Imvescor Decision, in which the Applicants submitted that there was no breach of Section 16.2 based on evidence before the court that the Redwood Grille concept would include steaks, pasta dishes, rotisserie grilled meats such as chicken, and a brunch menu. Justice Wilton-Siegel required evidence of recipes to determine compliance with Section 16.2 and I adopt his analysis.

[98] For those reasons, I cannot determine that the Inspirational Menu complies with Section 16.3. The only difference between the analysis in the present case as compared to the Imvescor Decision is, at best, a menu (even though there is evidence that the Inspirational Menu could change and that many recipes have not been written out). Such a menu comparison does not permit the court to address the necessary elements of the breach.

Issue 4: Breach of s. 3 of the Wishart Act

[99] The Applicants did not lead evidence on the record sufficient to satisfy the court of bad faith dealings by Imvescor.

[100] First, as I discuss above, the court cannot decide on the evidence before the court if the Inspirational Menu complies with Section 16.3. Consequently, it cannot be held that Imvescor acted in bad faith or for an ulterior motive in refusing to sign the proposed waiver.

[101] Second, Imvescor was asked to waive any rights or recourse with respect to section 16.1, for which no declaration has been sought in this application. There is no evidence that Imvescor acted in bad faith in maintaining a position that the Applicants acted contrary to section 16.1 by attempting to obtain a lease at the same premises while within the 2-year period of section 16.1. The court cannot find Imvescor to be in bad faith when section 16.1 prohibits a former franchisee within two years of termination from seeking to (i) “attempt to divert any business or customer of the business”, or (ii) “perform any other act injurious or prejudicial to the goodwill associated with the Baton Rouge system”.

[102] Consequently, there is no evidence that Imvescor acted in bad faith by refusing to waive any claim under section 16.1.

[103] For those reasons, a finding that Imvescor breached s. 3 of the Wishart Act is not available on the evidentiary record.

Order and costs

[104] For the above reasons, I dismiss the application. Imvescor sought partial indemnity costs in the amount of $23,218.80, which is very reasonable given the importance of the issues, the numerous motion records filed for the motion, the thorough cross-examinations, the research required, the detailed factums delivered by both parties, and the costs sought by the Applicants. Given that Imvescor was fully successful on the application, I fix costs at $23,218.60, inclusive of taxes and disbursements, payable by the Applicants to Imvescor within 30 days of this order.

GLUSTEIN J.

Date: 20150331