2016 ONSC 7256

COURT FILE NO.: CV-16-1532

DATE: 2016-11-24

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2184472 ONTARIO INC.

Applicant

– and –

1637601 ONTARIO LIMITED & 147 DUNLOP STREET EAST INC.

Respondents

Mr. H. Dorsey, for the Applicant

Mr. J. Cook, for the Respondent 1637601 ONTARIO LIMITED

Mr. J. Dare, for the Respondent 147 DUNLOP STREET EAST INC.

HEARD: November 17, 2016

REASONS FOR DECISION ON INJUNCTION APPLICATION

VALLEE J.

Introduction

[1] 2184472 Ontario Inc. which operates Escrow Restolounge, brings this application for a temporary injunction restraining 1637601 Ontario Limited, the Landlord, from leasing other space in the same premises, at 147 Dunlop Street East in Barrie where Escrow is located, to 147 Dunlop Street East Inc. which intends to operate a family Mediterranean restaurant. Escrow also requests an order restraining 147 from operating the restaurant at the premises. Escrow relies on an exclusionary clause in its lease with the Landlord.

[2] 147 has spent $150,000 on leasehold improvements for the Mediterranean restaurant. It is ready to open. The applicant is also in the process of opening what it describes as an upscale “Scotch and Whiskey Lounge with accompanying food items” in the premises. It has spent $128,000 on leasehold improvements.

[3] The issue between the parties is whether the exclusionary clause applies to 147’s proposed Mediterranean restaurant. Is it a type of business similar to that being operated by the applicant as Escrow? Does the clause apply to the applicant’s Scotch and Whiskey Lounge which is not being operated but is soon to be opened?

Test for Injunction

[4] The test for granting an interim injunction is well known and is set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311 (S.C.C.). The test has three elements:

(a) Is there a serious issue to be tried?

(b) Will the applicant suffer irreparable harm if the injunction is not granted?

(c) Does the balance of convenience favour the applicant?

[5] The parties take opposing positions on its applicability to the facts before me.

[6] The applicant submits that “generally, the breach of a negative covenant will give rise to the injunctive relief. In such a case, proof of damages is not necessary nor is any consideration of the three stage analysis ordinarily applicable to claims for injunctive relief” (see para. 25 of the applicant’s factum).

[7] The respondent submits that the applicant “must satisfy the criteria in RJR-MacDonald Inc. v. Canada (Attorney General)…” (see para. 18 of the respondent’s factum).

[8] Boswell J. provides some clarification as to how the RJR-MacDonald test should be properly applied in relation to restrictive covenants in MTY TIKI MING Enterprises v. Boundris, 2016 ONSC 3290. He states:

50 First, it is important to recognize that the Supreme Court, in RJR-MacDonald, did not expressly provide for exceptions to the threshold test where the second and third prongs do not apply. To suggest that where a clear breach of a restrictive covenant is established the second and third prongs are irrelevant, is, in my view, not in keeping with the Supreme Court’s ruling.

54 The Saskatchewan Water Corp. decision reflects what I believe to be the correct approach to the application of the three prongs of the RJR-MacDonald test. In particular, the three elements of the test must be applied contextually. The Supreme Court has not directed that they be given equal weight in each case. The weight to be accorded to any one particular factor will vary from case to case.

55 The British Columbia Court of Appeal provided the following guidance in Belron Canada Inc./Belron Canada inc. v. TCG International Inc., 2009 BCCA 577 (B.C.C.A.), at para. 22:

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 law, there is no basis for holding that the test is not of general application.

Accordingly, I will apply the three-pronged RJR-MacDonald test.

Is there a serious issue to be tried?

[9] According to 2256598 Ontario Inc. v. World Bowl Entertainment Centre Inc., 2013 ONSC 3097, (World Bowl),“the Court is not to undertake a prolonged or detailed examination of the merits when determining if there is a serious issue to be tried. The threshold is low. The judge must make a preliminary assessment of the merits and need only satisfy himself or herself that the issues raised are not frivolous or vexatious.” (see para.13).

[10] The Landlord operates a building in Barrie. Its lease with the applicant, contains the following exclusionary clause:

Tenant [applicant] shall have exclusive rights to operating a business of the type being operated by the tenant during the term of the Lease and for any type of nightclub/lounge. With respect to any property owned either directly or indirectly by the Landlord or its principals, the Landlord shall not allow any other similar business or any nightclub/lounge to operate in any premises or property adjacent to our [sic] near the Premises without the Tenant’s written approval.

[11] 147’s proposed Mediterranean restaurant will be serving alcohol as well as food. The applicant states that the Mediterranean restaurant is the same type of business being operated by Escrow and the soon to be opened Scotch and Whiskey Lounge within the same premises that the applicant has leased.

[12] 147 states that its Mediterranean restaurant does not offend the exclusionary clause. It will serve breakfast, lunch and dinner. It will offer a full menu, a copy of which was in the materials. The menu includes 17 main courses, a number of which are pasta dishes. Escrow is a bar and offers appetizers, three salads and five main courses which are wings, a burger, a chicken sandwich, chicken tenders and a wrap. 147 states that the Mediterranean restaurant will serve alcohol but it is not a bar. There is a small bar area at the front of the restaurant; however, it is a place for customers to have a drink and/or wait for tables. It will be open until 10 p.m. whereas Escrow stays open until 2 a.m. The Scotch and Whiskey Lounge will be open until 2 a.m.

[13] It seems to me that the type of food served is not the main issue here. There is no evidence as to what type of food will be served by the Scotch and Whiskey Lounge. The choice of food served by Escrow is limited and completely different from the wide variety of food that will be served at the Mediterranean restaurant.

[14] The Mediterranean restaurant’s service of alcohol is the more pressing issue raised by the applicant. Escrow serves alcohol from either 5 p.m. or 8:30 p.m., depending on whether the season is winter or summer, until 2 a.m. except for Mondays. The Scotch and Whiskey Lounge will operate from 11 a.m. until 2 a.m. 7 days a week and will presumably serve alcohol during that time. The Mediterranean restaurant will presumably not serve alcohol for breakfast but likely will serve alcohol for lunch, from 11:30 a.m. until 2 p.m., and for dinner from 5 p.m. until 10 p.m.

[15] The applicant states that customers will walk past the Mediterranean restaurant on their way to Escrow. Escrow’s customers may decide to go to the Mediterranean restaurant instead of going to Escrow which will result in a loss of business for Escrow.

[16] The applicant does not have to demonstrate a strong prima facie case in order to show there is a serious issue to be tried. As per RJR-MacDonald, the ‘serious issue’ threshold is only elevated when the court is presented with a constitutional question that is strictly law or the interlocutory ruling amounts to a final determination of the claim (see para. 26, MTY TIKI MING Enterprises). I find that the issues raised, such as whether the Mediterranean restaurant to be operated by 147 and whether the Landlord’s leasing the premises to 147 for this purpose are caught by the applicant’s exclusionary clause, meet the threshold for serious issues. I am satisfied that the issues raised are not frivolous or vexatious.

Will the Applicant suffer irreparable harm if the injunction is not granted?

[17] The applicant relies on World Bowl. In this case, the applicant was seeking to enforce an exclusivity clause which gave it the exclusive right to operate a karaoke club in a unit at the premises. The respondent had entered into a lease for another unit at the premises in order to operate a restaurant and karaoke.

[18] The applicant’s position was that if the restaurant was permitted to have karaoke, it would lose customers, substantial business and might even be put out of business. The respondent’s newer, larger premises would be more attractive to the applicant’s customers. The respondent’s position was that it would not be operating a karaoke club and therefore it would not be operating the same type of business as the applicant.

[19] The court stated, “the moving party has the onus of establishing on the evidence that it will suffer actual harm which is not compensable in damages. The law is clear that the applicant must lead evidence of irreparable harm which is not founded upon mere speculation.” (see para. 18).

[20] In paragraph 23, the Court also considered para. 64 of RJR-MacDonald where Sopinka and Cory J.J. stated:

At this stage in dealing with the issue of irreparable harm, the only issue to be decided is whether a refusal to grant relief could so adversely affect the applicant’s own interests that the harm could not be remedied if the eventual decision on the merits does not accord with the result of the interlocutory application. Irreparable harm refers to the nature of the harm suffered rather than its magnitude. It is harm which cannot be quantified in monetary terms or which cannot be cured. Examples of the former include instances where one party will be put out of business by the court’s decision or where one party will suffer permanent market loss or irrevocable damage to its business reputation.

[21] The applicant has the onus of establishing on the evidence that it will suffer actual harm which is not compensable in damages. The applicant states that damages will be very difficult to prove. The Scotch and Whiskey Lounge has not opened yet. There is no previous history of sales, so proving that the Mediterranean restaurant has caused Scotch and Whiskey Lounge a loss of revenue will be difficult.

[22] I note that the evidence regarding the anticipated business of the Scotch and Whiskey Lounge is very thin. Its hours of operation were provided by counsel only after the court inquired about them.

[23] Unlike the Scotch and Whiskey Lounge, Escrow has been operating since May 2015. It will have a history of previous sales that can be compared to its sales after the Mediterranean restaurant opens.

[24] I note that there is no evidence or suggestion that Escrow or the Scotch and Whiskey Lounge will be put out of business by the Mediterranean restaurant. Escrow offers a different experience in contrast to the Mediterranean restaurant. Escrow describes itself as a “restolounge.” It is open until 2 a.m.

[25] Difficulty in calculating damages does not mean that a loss cannot be compensated by them. (see Barton-Reid Canada Ltd. V. Alfresh Beverages Canada Corp., 2002 34862 (ON SC) at para. 18). In this matter, a loss will be a decrease in sales. It is a number that can be calculated. As noted above, there is no evidence that the continued existence of Escrow and the soon to be opened Scotch and Whiskey Lounge is threatened, the loss of which could not be compensated by damages. Whether the wording of the exclusionary clause, which states “the type of business that is being operated” by the applicant, includes the Scotch and Whiskey Lounge, which is not open yet, is an issue to be determined.

[26] I find that the applicant has not shown that it will suffer irreparable harm for which damages cannot provide compensation.

Conclusion

[27] Since I have found that the applicant has not met the second element of the test for an injunction, there is no need for me to consider the third element of the test. The application for a temporary injunction is dismissed.

Costs

[28] If the parties cannot agree on the amount of costs or who should pay them, they may provide written submissions. The text of the submissions shall be a maximum of 3 pages with 1.5 spacing, regular margins and 12 point font. The defendants shall serve and file written submissions within 20 days of the date of this endorsement. The applicant may file responding submissions, within a further 10 days. The defendants may file reply submissions within a further 5 days. Submissions shall be filed with the Barrie Trial Co-ordinator to my attention.

VALLEE J.

Released: November 24, 2016