CITATION: EZmoney Tario Inc. v. 7724934 Canada Inc., 2016 ONSC 7177
COURT FILE NO.: CV-15-1989-00
DATE: 20161125
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: EZMONEY TARIO INC. – and – 7724934 CANADA INC. and EASYFINANCIAL SERVICES INC.
BEFORE: André J.
COUNSEL: A. Dick, for the Plaintiff
J. Chan, J. Woycheshyn, W. Bortolin, for the Defendants
HEARD: October 19, 2016 at Brampton
E N D O R S E M E N T
[1] The plaintiff, EZmoney Tario Inc. (“EZmoney”) brings a motion for interlocutory relief and seeks the following orders:
(a) an injunction restraining 7724934 Canada Inc. (“772”) from breaching its restrictive covenant by leasing its premises in the Kingspoint Plaza (“the Plaza”) to Easyfinancial Services Inc. (“Easyfinancial”);
(b) an injunction restraining, from carrying out certain business activities at the Plaza including brokering, marketing, servicing and making payday loans or advances, instalment advances, cheque cashing, and precious metal and stone purchasing;
(c) an injunction against either or both defendants, restraining them from posting signs or advertisements relating to the impugned activities; and
(d) costs on a substantial indemnity basis.
[2] The defendants maintain that the EZmoney’s motion has no merit and should be dismissed with costs.
Brief Facts
[3] On June 11, 2011 EZmoney entered into a four-year lease agreement with 772 to operate its payday loan business in the Plaza, located at 370 Main St. North, Brampton.
[4] On September 14, 2014, Easyfinancial entered into a lease agreement with 772 for a unit adjacent to EZmoney. Easyfinancial is an “installment loans” business. During negotiations, 772 advised Easyfinancial of a restrictive covenant in the lease agreement between EZmoney and 772. Easyfinancial indemnified 772 against any potential claims brought by EZmoney.
[5] On October 31, 2014, Easyfinancial opened for business at the Plaza. Easyfinancial did not advertise or post any signs prior to this date. Accordingly, EZmoney learned of their presence only when Easyfinancial opened for business.
[6] On November 3, 2014, EZmoney sent a demand letter to 772, alleging a breach of the restrictive covenant on the basis that Easyfinancial provides the same services as it. Easyfinancial responded on behalf of 772 two days later, denying any breach.
[7] On December 12, 2014, EZmoney renewed its lease agreement with 772 to extend its tenancy to 2020 with a further option to extend to 2025.
[8] On April 27, 2015, EZmoney issued its statement of claim.
[9] On May 25, 2015, EZmoney brought this motion for interlocutory relief.
Court Orders
[10] On February 3, 2016, Justice Bloom ordered, on consent, that the parties agree to a timetable.
[11] On October 8, 2016, Justice Tzimas ordered, on consent, that the proper landlord corporation be named in the action. Originally, EZmoney had erroneously named 7506473 Canada Inc. as the landlord.
Issues
[12] This application raises the following issues:
What is the appropriate test in this application?
Does Easyfinancial’s course of business violate the restrictive covenant provision between EZmoney and 772?
Should the injunction be granted?
Issue No. One: What is the appropriate test for injunctive relief in this case?
[13] The parties submit that there are three competing legal tests for interlocutory injunctions namely:
(a) the test for mandatory injunctions;
(b) the test for prohibitive injunctions; and
(c) the less restrictive test.
[14] In RJR-Macdonald Inc. v. Canada (A.G.), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, the Supreme Court of Canada set out the three-pronged test for courts to apply when considering an application for an interlocutory injunction with respect to a restrictive covenant to prohibit certain conduct:
(a) Is there a serious issue to be tried?
(b) Would the applicant suffer irreparable harm if the application was refused?
(c) Does the balance of convenience favour granting of the order?
[15] The court in RJR noted two exceptional circumstances where the test will not apply. First, where a constitutional question is in issue and is a simple question of law alone. There is no dispute that this exception does not apply in this case.
[16] The second exceptional circumstance where the test will not apply is where the interlocutory decision amounts to a final determination of an issue. In this scenario, the court must take a more in-depth review of the applicant’s claim to determine if a strong prima facie case has been made.
[17] In Jet Print Inc. v. Cohen, [1999] O.J. No. 2864 (Sup. Ct.), at para. 10, the court indicated that “in cases involving restrictive covenants in employment contracts, courts have generally adopted the higher threshold that the plaintiff must establish a strong prima facie case before injunctive relief will be granted.”
[18] RJR also sets out another test for mandatory injunctions. The defendants claim that EZmoney seeks such an injunction, given that it seeks the closure of Easyfinancial operations; and Easyfinancial was not a party to the contract between EZmoney and 772. To that extent, the appropriate test for injunctive relief in this matter is as follows:
(a) It has a strong prima facie case;
(b) It will suffer serious irreparable harm if the injunction is not granted; and
(c) The balance of convenience favours granting the order.
[19] The third legal test for interlocutory injunctions has been set out in Doherty v. Allman, (1878) 3 App. Cas. 709 (H.L.).
[20] The test relates to the enforcement of a negative covenant which, seeks, as in this application, to prevent a party or company from conducting some activity in a certain location. This test indicates that where it is apparent that such a covenant has been breached, the irreparable harm and balance of convenience components of the RJR test will be relaxed.
[21] Authority for this proposition can be found in Ontario Duct Cleaning Ltd. and Wiles, [2001] O.J. No. 5150 (Sup. Ct.) where the court noted in para. 3 that:
Where there is a clear breach of a negative covenant, the elements of irreparable harm and balance of convenience are not required because unless special circumstances exist, the court will compel a contracting party to comply with non-competition obligations and will not give him a "holiday" from a clear promise (see Button v. Jones, [2001] O.J. No. 1976).
[22] Similarly, in Pet Valu Canada Inc. v. 1381114 Ontario Ltd., 2013 ONSC 5361, Backhouse J. noted, at para. 10, that:
Where there is a clear breach of a non-competition provision which is a negative covenant, the elements of irreparable harm and balance of convenience are not required.
[23] However, in Belron Canada Inc. v. TCG International Inc., 2009 BCCA 577, [2009] B.C.J. No. 2529, at para. 22, the British Columbia Court of Appeal noted that:
It is probably correct to say that in most commercial cases involving sophisticated and solvent litigants in which a strong prima facie case is made out that there has been or will be breach of a negative covenant, an interim injunction will be granted. But this area of law would not be well served by formulating a rule, as suggested by Belron, that the injunction should always be granted absent exceptional circumstances. The questions of irreparable harm and balance of convenience should be addressed. Each motion for an interim injunction should be determined on a discretionary basis under the three-part test. On the present state of the law, there is no basis for holding that the test is not of general application.
Analysis
[24] A determination of the nature of the covenant as between EZmoney and 772 must commence with a review of the covenant. This is necessary to determine whether the tests set out in RJR or Doherty v. Allman should be applied.
Restrictive Clause
[25] The contract between EZmoney and 772 provides that:
7.4 Restrictive Covenants
The Landlord shall not lease space to any other tenants in the Shopping Centre, or any expansion therefore, whose primary use is any one or more of the uses permitted to be offered by the Tenant pursuant to Section 7.1 hereof. It is agreed that the foregoing restriction: (a) shall not prohibit the provision of such services by other tenants in the Shopping Centre on an ancillary or incidental basis; (b) shall not apply to any leases or offers to lease in respect of, or tenants in possession of, premises in the Shopping Centre as of July 30, 2010; (c) shall not apply to any tenants in the Shopping Centre occupying premises of 10,000 square feet or more; and (d) shall not apply to any banks, trust companies or financing institutions such as CitiFinancial or HSBC Financial.
7.1 Use of Leased Premises
The Lease Premises shall be used continuously, actively and diligently for the sole purpose of the primary use of the brokering, marketing, servicing and making of payday loans and advances, instalment advances, cheque cashing, precious metal and stone purchasing. The Tenant agrees not to offer (i.e. brokering, marketing, servicing and making) secured personal loans, mortgages, home equity loans and home refinancing and for no other purpose.
Unless otherwise specifically set out in this Lease to the contrary, nothing contained in this Lease shall: (i) confer upon the Tenant the exclusive right to sell or provide in the Shopping Centre any of the products or services permitted to be sold or provided from the Leased Premises pursuant to this Section 7.1; nor (ii) prevent the Landlord from leasing any other premises in the Shopping Centre to any other tenant(s) carrying on a business which is similar in whole or in part to the business permitted to be carried on from the Leased Premises pursuant to this Section 7.1.
[26] In Morguard Corp. v. InnVest Properties Ottawa GP. Ltd., 2012 ONSC 80, 2012 CarswellONT 1487, Justice Lederer noted at para. 37 that “the true test of the nature of a covenant is in an examination of the words to understand its intent. It is fundamental that what the courts look to is the substance and not the form in determining whether or not there is a negative covenant”.
[27] What then, is the nature of the covenant in the agreement between EZmoney and 772? It opens with the unequivocal statement that the landlord shall not lease space to any other tenants in the Plaza whose primary purpose is any one or more of the uses permitted to be offered by EZmoney pursuant to the agreement. It then provides exceptions to the “foregoing restriction”.
[28] These restrictive covenants therefore enjoin 772 from leasing space to any other tenant in the Plaza, whose primary use is any one or more of the uses set out in the covenant subject to the exceptions set out within it. However, they permit the landlord to lease space to tenants who provide the services listed in section 7.1 of the contract between EZmoney and 772 “on an ancillary or incidental basis”.
[29] To that extent the appropriate test appears to be that set out in RJR where injunctive relief is sought to prohibit certain conduct:
(a) Is there a serious issue to be tried?
(b) Would the applicant suffer irreparable harm if the application was refused?
(c) Does the balance of convenience favour granting of the order?
[30] This test, however, is subject to two exceptions. The first revolves around the question of whether a constitutional issue arises or whether the issue involves a question of law alone. Neither scenario applies in this matter. The question of whether Easyfinancial’s business falls under the restrictive covenant is not a matter of law, but one of fact.
[31] The second exception revolves around the question of whether the interlocutory decision is tantamount to a final determination of the issue. The fundamental issue in this application is whether 772 should be enjoined from leasing its premises to Easyfinancial. An interlocutory injunction would effectively terminate the lease between Easyfinancial and 772 and cause the former to close down its business at the Plaza. To that extent, the court must take a more in-depth review of EZmoney’s claim to determine if a strong prima facie case has been made.
Issue No. Two: Does Easyfinancial’s business violate the restrictive covenant provision between EZmoney and 772?
[32] EZmoney insists that it does. It identifies the following similarities between the two businesses in support of its claim:
(a) Easyfinancial offers similar or competing loans as EZmoney in that both provide short term, unsecured loans.
(b) While EZmoney concedes that Easyfinancial does not offer “payday loans”, it offers “instalment loans” which is the same as an “instalment advance”. Such advances are covered under the restrictive covenant.
(c) Easyfinancial’s instalment advances are sufficiently similar to EZmoney’s payday loans and are in direct competition with EZmoney’s loan schemes.
(d) Both Easyfinancial and 772 knew that they would likely violate the contract between EZmoney and 772 when they signed a lease agreement. The fact that Easyfinancial indemnified 772 from any liability flowing from their agreement is ample proof that both parties knew they could be violating the restrictive covenant in question.
(e) Easyfinancial’s 2012 advertisements in windows of their stores in various locations were: “Payday Loans Suck”. This constitutes proof that Easyfinancial money lending services are in direct competition with that of EZmoney.
[33] Easyfinancial, on the other hand, maintains that its operations are different from those of EZmoney in many material ways including:
(a) Their business operates more like a bank than a payday loans institutions and banks are specifically excluded from the restrictive covenant;
(b) The restrictive covenant is narrowly construed and should not be interpreted so broadly as to restrain legitimate business competition;
(c) Easyfinancial does not offer payday loans in that the repayment periods are not contingent on the borrower’s pay periods;
(d) EZmoney has conflated the concepts of “Instalment Loan” and “Instalment Advance”. EZmoney has failed to establish that the two are synonymous. To the contrary, they are quite distinguishable.
[34] Regarding the defendants’ first argument, Easyfinancial does not operate like a bank any more than EZmoney. It does not offer the plethora of financial services, including lending, savings and investment services that a bank traditionally offers. Neither does it present itself as a bank to its potential clients. It offers short-term loans to the public in the same way that EZmoney does. The clients repay the principal and interest to Easyfinancial over a fixed installment over a fixed term while in the case of EZmoney, the client’s repayment schedule is fixed to his or her paydays. Easyfinancial’s lending services may be packaged differently but the company essentially offers the same loan product to the public as EZmoney.
[35] Second, Easyfinancial submits that the restrictive covenant should not be interpreted as broadly as to restrain or restrict legitimate business competition. However, the restrictive covenant which EZmoney and 772 contractually agreed to was designed precisely to achieve this goal. Furthermore, Easyfinancial became aware of the contract prior to agreeing to lease space in the Plaza. The company was therefore not blindsided by the restrictive covenant after they had entered into an agreement with 772. Furthermore, the covenant does not restrain business activity. It merely imposes limits on the type of business that can be conducted in the Plaza. There is nothing to prevent Easyfinancial from carrying on its business in close proximity to the Plaza.
[36] Easyfinancial’s contention that the restrictive covenant should not be enforced because it restrains business activity ignores that fact that such covenants have been regarded as entirely appropriate in shopping centres. For example, in Hi-Fi Express Inc. v. Walsa Ltd. (1981), 1981 CanLII 5070 (ON SC), 61 C.P.R. (2d) 71 C. Ct. J., at para. 12, Hollingworth J. cited the Supreme Court of Canada in Russo v. Field, 1973 CanLII 10 (SCC), [1973] S.C.R. 466, noting that:
One of the inducements to become tenant to a mall (and that is the case here) is the security of knowledge of noncompetition with the development.
[37] Furthermore, in Spike v. Rocca Group Ltd. (1979), 1979 CanLII 2492 (PE SCTD), 107 D.L.R. (3d) 62 (P.E.I. Sup. Ct.), at para. 15, the court noted that:
I would conclude, then, the following principles to be applicable: generally speaking, covenants in restraint of trade are void at common law; however, such covenants may be deemed to be lawful if in the mutual interests of the parties concerned, and not otherwise contrary to the public interest; that such covenants may be included in leases, and particularly in shopping center leases which enure to the benefit of all tenants; that such covenants are mutually and reciprocally enforceable as between landlord and tenant, and as between tenants if it is sufficiently clear from the respective leases that a community of interest is thereby created.
[38] Third, the defendants take the position that the loan packages Easyfinancial offers are different from those of EZmoney in that the repayment periods are not contingent on the borrower’s pay periods.
[39] That may be so. However, an “instalment loan” provided by Easyfinancial is essentially the same as an “instalment advance” provided by EZmoney. An advance of money is, in effect, a loan. This advance or loan is provided, not to an employee, but to members of the public. One form of loan is contingent on the borrower’s payday, while the other is contingent on a repayment schedule fixed by Easyfinancial. In my respectful view, there is nothing dissimilar between the “instalment” or “payday loans” offered by EZmoney and the “instalment advances” offered by Easyfinancial.
[40] Additionally, it is not through mere coincidence that Easyfinancial’s advertising strategy includes the slogan, “Payday Loans Suck”. This slogan is a pointed jab at the financial product offered by EZmoney. It underscores the fact that Easyfinancial is competing with EZmoney by its offer of a financial product which is similar to that offered by EZmoney.
[41] For the above reasons, I find that EZmoney has a strong prima facie case against 772 that it breached the contract by leasing space to a company which was in direct competition with EZmoney, contrary to the contract between the two.
Issue No. Three: Should the injunction be granted?
[42] Whether or not injunctive relief is granted is dependent on a finding that there is a serious issue to be tried or, alternatively, the plaintiff has a strong prima facie case, irreparable harm may well result if such relief is not granted and the balance of convenience favours granting of the order.
[43] The plaintiff submits that if the court finds that 772 breached a negative covenant then it is unnecessary to consider the irreparable harm and balance of convenience branches of the RJR test. I am more persuaded however, by the British Columbia Court of Appeal’s decision in Belron Canada Inc. v. TCG International Inc., 2009 BCCA 577, [2009] B.C.J. No. 2529, to the effect that, in assessing the propriety of granting injunctive relief in a case involving the breach of a negative covenant, I should adopt a “contextual” approach by examining all three branches of the test.
[44] I have already concluded that EZmoney has met the first branch of the test. At the minimum, the company has established that there are serious issues to be tried, namely:
(a) Whether an instalment loan is the same as an instalment advance;
(b) Whether Easyfinancial is a bank and therefore falls within the exception of the restrictive covenant; and
(c) The significance of the restrictive covenant to a shopping centre given the ubiquity of such commercial centres throughout Ontario.
[45] Alternatively, it has proven on a balance of probabilities that it has a strong prima facie case that 772 breached the restrictive covenant in the contract with EZmoney.
[46] I must now turn to the second and third branches of the RJR test.
Irreparable Harm
[47] In Precision Fine Papers Inc. v. Durkin, 2008 CanLII 6871 (ON SC), at para. 25, Strathy J. (as he was then) noted that:
Cases of unfair competition have often been recognized as ones in which damages may not adequately compensate the plaintiff for the loss suffered due to the defendant’s conduct. Not only is it difficult to quantify the loss of goodwill or market share suffered by the plaintiff due to the defendant’s actions, but the damage to relationships with customers is inherently difficult to assess. In a competitive industry, where there can be considerable fluidity of customer allegiances, it may be difficult for the moving party to establish an accurate measure of damages…[citation omitted]
[48] The defendants maintain that EZmoney, by its own admission, has not suffered any discernible loss and is a profitable business. It also states that 17 out of 27 existing EZmoney locations exist within 1.5 km of an Easyfinancial location, all of which have continued to operate despite the presence of Easyfinancial at the Plaza.
[49] These submissions, however, do not resolve the question of irreparable loss which EZmoney may suffer if injunctive relief is not granted. The fact that EZmoney continues to be profitable does not necessarily mean that the company has not suffered any loss of business. The potential loss of market share may well be significant, although difficult to quantify. It is also difficult to quantify whether EZmoney has already suffered market share loss on account of Easyfinancial’s presence in the Plaza. Sales histories may not be an adequate measure of damages. Furthermore, the loss of the company’s goodwill may not be easily quantifiable. All of these support EZmoney’s contention that it may suffer irreparable harm if injunctive relief is not granted.
Balance of Convenience
[50] Does the balance of convenience favour granting the injunctive relief?
[51] EZmoney relies on the following submissions that it does:
(a) It will suffer loss of actual or potential customers if Easyfinancial continues to operate in the Plaza.
(b) 772 will suffer no loss given that it will be indemnified by Easyfinancial if injunctive relief is granted.
(c) Easyfinancial knew of the restrictive covenant before leasing space in the Plaza and therefore knew that it may be in some jeopardy if it proceeded to do so.
[52] Easyfinancial counters that if the injunctive relief is granted, its workers may lose their jobs; it will face serious business disruption and 772 will not be able to replace Easyfinancial.
[53] The last submission, could be dealt with through reference to Hampstead & Suburban Properties Ltd. v. Diomedous, [1969] 1 Chancery 248, which stated at page 259 that:
I see no reason for allowing a convenantor who stands in clear breach of an express prohibition to have a holiday from the enforcement of his obligations until the trial.
[54] Undoubtedly, 772 may have difficulty finding a suitable replacement for Easyfinancial. However, this is a risk it decided to assume. Indeed, it insulted itself from the prospect of legal finding that it had breached its agreement with EZmoney, by signing an indemnification agreement with Easyfinancial. It therefore cannot be suggested that on this basis the balance of convenience favours a decision not to grant injunctive relief in this matter.
[55] Regarding Easyfinancial, there is no doubt that the company will have to relocate if injunctive relief is granted. However, Easyfinancial clearly anticipated, through its knowledge of the restrictive covenant, that litigation may result if they established a business within the Plaza. It therefore took a calculated risk in proceeding with its business. It cannot then be allowed to continue to benefit from that decision at the expense of EZmoney, which took scrupulous steps to protect its business from companies carrying on a similar business.
[56] As noted by Reid J. in Indal Ltd. v. Halko (1976), 1976 CanLII 2652 (ON SC), 28 C.P.R. (2d) 230 (Ont. H. Ct. J.) at p. 236:
The introduction of an innocent third party as a device to defeat plaintiff’s rights should not be permitted and this is precisely what is sought when it is argued that a third party is truly innocent. There is nothing in the material filed on behalf of the so-called third parties to offset the impression that they are none of them innocent. If they were, I would expect them to say so.
[57] For the above reasons, I conclude that the balance of convenience favours the granting of injunctive relief in this matter.
ORDERS
[58] Order to go that 7724934 Canada Inc. comply with the exclusivity provision in its lease with EZmoney Tario Inc. by ensuring that Easyfinancial Services Inc. ceases to operate its business at the Kingspoint Plaza located at 370 Main Street North, Brampton, Ontario.
[59] Easyfinancial Services Inc. is restrained from conducting the following primary business activities at its leased premises at the Kingspoint Plaza: brokering, marketing, servicing and making of payday loans or advances, installment advances, cheque cashing and precious metal and stone purchasing.
COSTS
[60] EZmoney seeks costs of $25,000 on a partial indemnity basis and $50,000 on a substantial indemnity basis. The defendant 772 seeks costs of $23,548.63 on a partial indemnity basis and $32,979.88 on a substantial indemnity basis, while Easyfinancial seeks costs of $84,264.28 and $114,832.42 on similar bases.
[61] In determining the quantum of costs that is fair and reasonable in this matter, I consider the following:
The plaintiff was substantially successful in its application.
The plaintiff’s counsel’s hourly fee of $675 is not unreasonable, having been called to the bar in 1984.
The issues in this matter were relatively complicated and involved a fairly significant amount of research.
The matter involved examinations, filing of facta, affidavits and casebook of authorities.
In my view, costs in the amount of $25,000 inclusive are appropriate in this matter.
[62] Order to go that the defendant 7724934 Canada Inc. pay the amount of $25,000 inclusive to EZmoney Tario Inc. within 90 days of today’s date.
André J.
DATE: November 25, 2016
CITATION: EZmoney Tario Inc. v. 7724934 Canada Inc., 2016 ONSC 7177
COURT FILE NO.: CV-15-1989-00
DATE: 20161125
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: EZMONEY TARIO INC. – and – 7724934 CANADA INC. and EASYFINANCIAL SERVICES INC.
BEFORE: André J.
COUNSEL: A. Dick, for the Plaintiff
J. Chan, J. Woycheshyn, W. Bortolin, for the Defendants
ENDORSEMENT
André J.
DATE: November 25, 2016