COURT FILE NO.: CV-19-3314-00
DATE: 2019 08 30
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MANDARIN RESTAURANT FRANCHISE CORPORATION, Applicant
AND:
AMALIE HOLDINGS LIMITED and RATHCLIFFE PROPERTIES LIMITED, Respondents
BEFORE: Trimble J.
COUNSEL: E. Upenieks and J. Waxman, for the Applicant
S. Addison, for the Respondent
HEARD: August 23, 2019
REASONS FOR DECISION
1. Nature of the Application
[1] The Applicant, Mandarin moves for a permanent or temporary injunction prohibiting the Respondent Landlord from leasing premises in the same strip mall to the Bingo Connection. Mandarin says that such a lease would violate the exclusivity clause in Mandarin’s Lease which reads:
The Landlord Shall not at any time during the term (or any renewals are extensions thereof) lease or release, suffer, permit, or otherwise part with any premises in the shopping center to be utilized for the purpose(s) of operating any form of restaurant, bar[,] or other food service business including a banquet center.
2. Background
[2] Mandarin is a franchisor of Mandarin Restaurants. The Respondents are the Landlord and its agent in negotiations with Mandarin’ Burlington franchisee’s Burlington location, respectively.
[3] Before 2008, Mandarin’s Burlington, Ontario location was located in a strip mall not far from its current location. That location was in a mall that had limited parking and in which there were other restaurants and purveyors of food.
[4] In 2008, Mandarin moved to the Landlord’s mall, spent $2 million in refurbishing the current location, and entered into an extraordinarily long lease of 15 years because of the strength and breadth of the exclusivity clause.
[5] The exclusivity clause was the subject of intense negotiations. The Landlord proposed several versions which were less protective of Mandarin’s interest that the current version. Mandarin rejected all of them. The parties finally agreed to the clause as above. For nine years Mandarin operated as the sole restaurant its current mall.
[6] On April 11, 2019, the Landlord advised Mandarin by letter that it was leasing a vacant part of the mall to Bingo Connection. The Landlord admitted that it was “… cognizant of the fact that Mandarin has exclusivity … for the purpose of operating any form of restaurant, bar or other food service business including a banquet center.” The Landlord advised Mandarin that it did not know what type of food service Bingo Connection would be operating or whether it wanted to obtain a liquor licence. Bingo Connection assured the Landlord (so the Landlord told Mandarin) that Bingo Connection did not intend to function as a restaurant and did not intend to obtain a liquor licence. If it served any alcohol it would only be ancillary to their gaming operation, and that it would not operate in any capacity as a bar.
[7] The Landlord offered to work with Mandarin “… to find a permissible extent of [Bingo Connection’s] allowable food and beverage concession in order to ensure it doesn’t encroach on Mandarin’s business.” The Landlord suggested including wording into the Bingo Connection Lease clarifying that its food and beverage concession would be ancillary to the gaming operation, would be intended only for use by the patrons of the gaming facilities, and would not include buffet service or table service, or contain a traditional bar area.
[8] Mandarin responded on April 19, saying unequivocally that the Lease to Bingo Connection would violate the exclusivity clause in Mandarin’s Lease if Bingo Connection served food.
[9] Mandarin retained counsel who, on July 8, 2019, sent a demand letter to the Landlord. It was not until the Landlord retained counsel and counsel spoke that the Landlord provided a copy of the Lease which had already been signed on June 24, 2019, notwithstanding Mandarin’s objections. The Lease to Bingo Connection contained the following clauses:
A primary business (“Primary Business”) being an OLG licensed Bingo Hall and Ontario Registered Charitable Gaming centre including but not limited to the sale and operation of lottery tickets, bingo and related games including electronic bingo, break open tickets, electronic break open tickets, Class 2 Gaming Machines and other future government approved games or gaming products/offerings including slot machines and/or video lottery terminals if and as approved by the Government of Ontario or an Agency of the Province and the City of Burlington.
The Primary Business may be supported also by the ancillary operation of a counter service snack food concession (“Snack Bar”) to serve solely the patrons of the Primary Business with snacks, sandwiches, light meals, and beverages as listed in Schedule “1” (or such other items as may be permitted by the Landlord from time-to-time in its sole discretion).
The Tenant may also sell alcoholic beverages solely to patrons of the Primary Business subject to first applying for and receiving and AGCO Liquor Sales Licence on the bases of a “Bingo Hall” and/or “Gaming Facility” Premises Type, but not as any form of “Bar”, “Restaurant”, “Banquet Hall”., or “Night Club” Premises Type.
For absolute clarity, the Leased Premises are on no way intended to be operated or promoted in whole or in part as a restaurant, a bar, a banquet centre, a night club, or a food service business.
[10] Schedule 1 to the Lease listed the snack bar items as various forms of soft drinks (bottled and fountain); hot drinks; sandwiches, wraps and hot dogs; soup and chilli; small salads; nachos and cheese; potato chips and popcorn; chocolate bars, candy and nuts; pre-packaged cakes, muffins, cookies, bagels and doughnuts; meat pies, cabbage rolls and sausage rolls; and vegetable and cheese trays.
[11] The evidence indicates that Bingo Connection operates bingo games to raise money for charities. Its food service is a self-help counter with a cashier. There are no tables or chairs. Patrons select prepared foods for themselves and pay for them at a cashier’s counter. The only exception was popcorn which, for safety reasons, have to be put in and removed from the microwave by the cashier.
[12] The size of average individual sales is significantly below two dollars per transaction, (depending on the month), comprising mainly coffee, pop, potato chips, bingo dabbers, and scotch tape. Prepared sandwiches, hot dogs, cabbage rolls and other foods are available.
[13] Bingo Connection has no plans to seek a liquor licence nor to expand its food service.
3. Positions of the Parties
Mandarin
[14] Mandarin says that the relevant parts of the exclusivity clause in its Lease as set out above, are: “… shall not… permit... any premises in the Shopping Centre to be utilised for the purpose(s) of operating any form of restaurant, bar[,]or other food service business.…” (emphasis added).
[15] Mandarin says that this exclusivity clause, reasonably interpreted, means that the Landlord cannot lease any of the mall premises to any business that serves any food or alcohol, of any nature, in any amount, and by any means. The clause would, for example, permit the Landlord to rent space to a convenience store selling candy, confections, and milk and pop in individual serving containers. If that store were permitted to sell pre-made, pre-wrapped sandwiches, the Landlord would be in breach. Similarly, the Landlord could rent space to an LCBO outlet, but would be in breach if the Landlord permitted liquor consumption in the store, or permitted the LCBO to serve food.
[16] Mandarin says that the words in the exclusivity clause, must be given their ordinary meaning. Hence, the words “shall not” are mandatory, and mean must not; the words “any form” mean of any sort or any type; the word “restaurant” means a place where meals are served to the public in exchange for payment; the word “bar” means a counter over which liquor and/or food may be served, the space behind that counter, or the room or building containing such a counter.
[17] Applying the ordinary meanings of these words, the exclusivity clause is very broad, strict, comprehensive and unambiguous. It prohibits the land of policing premises in the mall to anybody who serves food or alcohol.
[18] In support of its definition of “food service business” in the exclusivity clause, Mandarin points to this statutory definition of “food service premises” contained in the Health Protection And Promotion Act, R.S.O. 1990, c. H.7; O. Reg. 493/17, which is adopted as the definition of “food service establishment” in the Safe Drinking Water Act, S. O. 2002, c. 32; O. Reg. 170/03: Drinking Water Systems. Those two terms define a food service premise or a food service establishment as any premise where meals or meal portions are prepared for immediate consumption, or sold, or served, in a form that will permit immediate consumption, on the premises, or elsewhere.
[19] Further, Mandarin also refers to Schedule “H” of its Lease, clause 2, which tells Mandarin and the Landlord that the leased premises may not be used for any purpose that would result in the violation of any “exclusive covenants” in the Leases between the Landlord and the mall’s other tenants. These clauses provided:
a) Re Business Depot - it had “the exclusive right as a business whose primary use is that of selling business and office supplies….”
b) Re Michael’s Craft Store – the exclusivity clause prevented the Landlord from renting to any business “that is largely similar to that of the Tenant in merchandising, or … selling” identified products such as art and craft supplies, framed art, artificial flowers or picture frame. The clause permitted other tenants to engage in certain of Michael’s activities provided the other tenant devoted not more that 10% of the floor space or 1,000 square feet to that competing activity. It prohibited the landlord from renting to anyone offering picture framing services “in any capacity whatsoever.”
c) Beddington’s Bed & Bath’s Lease prohibited the Landlord from renting to anyone “with a primary use being the sale of bed, bath and kitchen linen.”
[20] Mandarin says that because these clauses in other Leases are part of the Mandarin’s Lease, the Court should consider these other, less strident or restrictive exclusivity clauses, in interpreting Mandarin’s exclusivity clause. The fact that the Landlord did not include similar wording in Mandarin’s Lease such as “primary use” indicates that the Landlord intended that the exclusivity clause in Mandarin’s Lease would be much more restrictive in terms of the Landlord’s ability to rent other premises in the mall.
Landlord
[21] The Landlord agrees that the words in the exclusivity provision should be interpreted in their ordinary meaning. It agrees that Mandarin’s exclusivity clause is broader than those in the other tenants’ leases. The Mandarin’s Lease, however, should be interpreted with common sense.
[22] The exclusivity clause prohibits the Landlord from leasing to anyone who might use the premises as “… any form of restaurant, bar or other food service business, including a banquet centre” (emphasis added). “Business”, says the Landlord, is the key word in that subordinate clause. The Landlord breaches Mandarin’s Lease if it rents space to a business whose main purpose is as a form of restaurant, bar, or other food service business including a banquet center. Reasonably interpreted, the clause does not prohibit the Landlord from leasing to businesses for whom providing food and beverages is ancillary to the main purpose of the business.
[23] In this case, Bingo Connection was in the business of operating a charity bingo hall. It was not in the restaurant business, the bar business, or the food service business. Its restaurant business was purely ancillary to its operation is a bingo hall. Further, its Lease specifically provided:
“For absolute certainty, the leased premises are in no way intended to be operated or promoted in whole or in part as a restaurant, a bar, a banquet center, a nightclub, or a food service business. The Landlord acknowledges that the use of the leased premises strictly in accordance with the above permitted and required use (including the ancillary operation of the snack bar) does not constitute a restaurant, bar, banquet center, nightclub, or food service business.”
4. The Law
[24] There is no dispute on the law. The following legal principles apply:
a) The contract must be read in its ordinary meaning according to the proper principles of contractual interpretation. The overriding concern is to determine the intent of the parties at the time the contract was entered into. To do that, the Court must read the contract as a whole, giving the words used in their ordinary and grammatical meaning, consistent with the surrounding circumstances, known to the parties at the time of the formation of the contract.
The court may consider the circumstances or factual matrix surrounding the formation of the contract recognizing that ascertaining the contractual attention may be difficult when looking at words on their own because words, alone, do not have an immutable or absolute meaning. The factual matrix, however, merely assists in the interpretive process. The court cannot use the factual matrix to deviate from the text such that the court effectively creates new agreement. The factual matrix must never be allowed to overwhelm the words of the agreement.
The factual matrix should consist only of the objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. The factual matrix does not include subjective evidence such as what the parties in the negotiation thought that the words meant or intended the contract to provide. (See: Sattva Capital Corp. v. Creston Molly Corp. 2014 SCR 633, paras. 47, 57 & 58).
b) The contract should be interpreted in a manner that gives meaning to all of its terms and avoids interpretation that would render one or more of its terms ineffective, and in a fashion that accords with sound commercial principles and good business sense, and that avoids commercial absurdity. The cardinal presumption is that the parties used the words that they intended to use. (See: Ventas Inc. v. Sunrise Senior Living Real Estate Trust, 2007 ONCA 205, at para. 24).
c) The test for an injunction involves considering and balancing three criteria: 1) Is there a serious issue to be tried? 2) Would the moving party otherwise suffer irreparable, non-compensable harm if the injunction is not granted? and 3) Does the balance of convenience favor granting the injunction? (See: RJR Mac Donald Inc. v. Canada, 1994 117 (SCC), [1994] 1 S.C.R. 311). These criteria should be weighed together. All are required, but weaknesses in one criterion may be made up by strengths in another.
d) The “serious issue to be tried” portion of the test has a low threshold. The moving party need only show a strong prima facie case, which is neither frivolous nor vexatious. (see: 2256598 Ont. Inc. v. World Bowl Ent. Centre Inc., 2013 ONSC 3097, para. 13).
e) The “irreparable harm” portion of the test requires that the irreparable harm be present and must threaten the company’s existence. The threat must be more than trifling, trivial or modest. (See: Double Double Food Corp. v. Triple “C” International Ltd.,2003 CarswellOnt 962, paras. 12-23; World Bowl, supra, at para. 22; 2432714 Ont. Inc. v. Heffner Dev’t Gp. Ltd., 2018 ONSC 1034 , at paras. 28-29 & 32).
f) Where a court is satisfied that the proposed (but not yet commenced) activity by the other tenant takes the tenant’s activity out of limited, permitted but otherwise offending activity that was permitted as incidental to the permitted use under the Lease, the “irreparable harm” condition may be met if it is arguable that “there will be harm” to the Applicant. (See: Lawrence Plaza Equities Ltd. V. A & P Properties Ltd., 1997 CarswellOnt 4803, at paras. 4-5).
g) Future losses such as lost royalties, the inability to lease to another franchisee, potential loss of customers, or damage to the franchisor’s reputation may also be “irreparable harm.” (See: Double Double, supra, at para. 15; and World Bowl, supra, at para. 22). Such future losses do not need to be proved on a balance of probabilities, but on the basis of a real and substantial possibility, not mere speculation. (See: Athey v. Leonati, 1996 183 (SCC), [1996] 3 S.C.R. 458, at para. 48).
h) The “balance of convenience” portion of the test requires that the Court consider the prejudice to the Applicant in not granting the injunction and the prejudice to the Respondent in granting it. Generally, where the balance of convenience is even, the Court should favour the status quo. In other words, the Court should give priority to the existing tenant’s rights, not those of the breaching landlord or the tenant who is not a party to the Lease. (See: World Bowl, supra, at para. 28; and Double Double, supra, at para. 16).
5. Disposition and Analysis
[25] For the reasons that follow, Mandarin’s Application for an injunction is dismissed.
Is there a serious issue to be tried?
[26] I do not find that there is any serious issue to be tried.
[27] The test for a “serious issue to be tried” is low. It need be only an arguable case.
[28] The reasonable, commercially sensible interpretation of the ordinary words of the exclusivity clause, which gives commercial sense to the clause within the context of the entire Lease without doing damage to or rendering other clauses void, is that the Landlord is prevented from leasing the premises to tenants whose business is operating as a restaurant, bar, or other food service business. Mandarin is in the business of running a restaurant, bar, and banquet centre. In this context, this interpretation of the exclusivity clause protects Mandarin’s business.
[29] Mandarin’s interpretation of its exclusivity clause to mean that the Landlord cannot lease any part of the mall premises to any business that serves any food or alcohol of any nature, in any amount, and by any means, makes no commercial sense, for several reasons.
[30] First, the Lease does not say what Mandarin submits.
[31] Second, the tenants to which the Landlord is prohibited from renting are those whose business is the operation of a restaurant, bar, food service business such as a banquet centre. The use of the adjective “business” describes each of “restaurant,” “bar,” “or other food service”.
[32] Third, I disagree with Mandarin’s position that the words “any form” in the exclusivity clause prohibits that Landlord from rending to anyone who sells food or alcohol in “any form.” If that were the intent, the clause would have said “… for the purposes of operating any form of restaurant….. including a banquet centre, or selling food or beverage of any form, in any amount.”
[33] In Mandarin’s exclusivity clause, the adjectival phrase “any form” modifies the words “restaurant”, “bar”, “or food service business.” In other words, the Landlord cannot rent to any other restaurant, bar, or food service business serving any type of food, with or without table seating, with or without table service, with or without alcohol service.
[34] The principle of ejusdem generis indicates that the general language in a list of entities ought to be interpreted to include only entities “of the same kind or nature” as those that are specifically listed. (See: Hamilton (City) v. Hamilton Harbour Commissioners (1984), 1984 2125 (ON SC), 48 O.R. (2d) 757 (H.C.); at p. 770, para. 40; St. Lawrence Power Co. v. Ontario (Minister of Revenue) (1978), 1978 1409 (ON SC), 23 O.R. (2d) 61 (H.C.), at p. 63, para. 10; Toronto and Region Conservation Authority v. Ontario (Minister of Finance) (1999), 9 M.P.L.R. (3d) 312 (Ont. S.C.J.), at para. 24; Westfall v. Eedy (1991), 1991 7284 (ON SC), 6 O.R. (3d) 422 (Gen. Div.), at p. 428, para. 18).
[35] The words “such as a banquet centre” are a specific example that characterize the general descriptions that precede them. The evidence concerning the activities of Bingo Connection, do not fall within the description of prohibited tenants’ activities either in their general description or as narrowed by the specific example provided. Mandarin’s clause prohibits the Landlord from renting to tenants conducting a certain type of business. It does not prevent the Landlord from renting to tenants who offer food services as a minor and ancillary aspect of their main, non-prohibited business.
[36] Finally, I do not accept Mandarin’s “slippery slope” argument.
[37] The Bingo Connection’s Lease permits the Landlord, unilaterally, to approve of the expansion of food from those foods listed on Schedule 1 to Bingo Connection Lease. Further, the Lease contemplates that Bingo Connection can apply for a liquor licence. This is the slippery slope Mandarin describes. Mandarin says that it has no way of monitoring, policing, and enforcing its exclusivity clause since that is all left to the Landlord, unilaterally.
[38] I disagree with this position. The Landlord has the obligation to ensure that the exclusivity clauses given to all of its tenants are honoured. The Landlord is required to monitor and enforce the clauses. In any event, Mandarin’s people are free to enter the Bingo Connection premises as members of the public to monitor the Landlord’s policing and enforcement of Mandarin’s exclusivity clause.
[39] In reaching this conclusion on the “serious issue” criterion for an injunction, I have applied the interpretive direction of the Supreme Court of Canada in Sattva. I have considered the factual matrix surrounding the negotiation of the Lease. More specifically, I have considered the objective facts in existence at the time the Lease was entered into to assisting me in interpreting the words that the parties used. I have not allowed those objective facts to override the words used or to render another clause ineffective or meaningless. I have not considered the subjective opinions of the affiants in terms of what they wanted the contract to provide, or what they thought the words meant. To consider this subjective evidence would breach not only the directions from Sattva concerning contract interpretation, but would also violate the parole evidence rule.
[40] I am aware that by making this ruling, I have made a final determination of the interpretation of the exclusivity clause. The question before me is one of pure contractual interpretation. Because of the exigencies of time prevailing in the case, the parties agreed to put this issue before the Court by way of Application, and without cross-examination. As indicated, however, oral evidence would not be of use in this case. The parties put before the Court that factual matrix that they deemed necessary. No other Court would have been in a better position to interpret this contract than this Court.
Would Mandarin suffer irreparable, non-compensable harm if the injunction is not granted?
[41] This criterion is weak. Mandarin has led no evidence concerning its customer base and Bingo Connection’s.
[42] Mandarin is a well-known Canadian restaurant chain serving Chinese and Canadian food. Its premises are generally large, divided into dining areas, an entry/bar area, and a large buffet area. It also serves à la carte food. It serves individuals to large parties. The bar is not a stand-alone part of the premises. It supports food service. Mandarin also provides banquet and take-out services.
[43] Bingo Connection is a bingo hall that operates charity bingo games. Its snack bar is a self-serve area in its premises which serves pre-prepared food and drinks. The majority of its sales is in pop, coffee, potato chips, popcorn, bingo dabbers and tape. It also provides pre-prepared sandwiches, nachos, vegetable and cheese trays. In the last four weeks of operation before it closed at the end of July, snack bar sales averaged at about $1 per person. The average number of patrons was 53 people spending an average of $93.31 per bingo event. Assuming its patrons knew that the location was closing, Bingo Connection’s sales and attendance were probably lower in the last month of operations.
[44] There is little evidence to suggest that Bingo Connection’s food sales posed any risk to Mandarin’s sales or goodwill.
Balance of Convenience
[45] The balance of convenience favours Bingo Connection, who would be prevented from operating had the injunction been issued.
[46] My finding with respect to the interpretation of the exclusivity clause, alone, means that the request for an injunction is refused.
[47] Had I found an arguable case for Mandarin, still, I would not have granted the injunction. Mandarin’s argument that it may or will suffer irreparable, non-compensable harm is weak. The balance of convenience favours Bingo Connection. For the reasons stated in the “serious issue to be tried” part of these reasons, prejudice to Mandarin is relatively weak while the prejudice to Bingo Connection in not being able to open, is strong.
6. Costs
[48] Bingo Connection is presumptively entitled to its costs. I shall entertain costs submissions in writing, with submissions limited to 4 double-space, type pages, excluding bills of costs. Bingo Connection’s submissions are to be served and filed by 4 p.m., 30 September 2019, and Mandarin’s by 14 October, 2019. There will be no reply.
Trimble J.
Date: August 30, 2019
COURT FILE NO.: CV-19-3314-00
DATE: 2019 08 30
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: MANDARIN RESTAURANT FRANCHISE CORPORATION, Applicant
AND:
AMALIE HOLDINGS LIMITED and RATHCLIFFE PROPERTIES LIMITED, Respondents
COUNSEL: E. Upenieks and J. Waxman, for the Applicant
S. Addison, for the Respondent
REASONS FOR DECISION
Trimble J.
Released: August 30, 2019