Court File and Parties
COURT FILE NO.: CV-21-0206 DATE: 2021/10/29
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
FPMG Hospitality Inc. Plaintiff
– and –
Recipe Unlimited Corporation Defendant
Counsel: Mr. M. Polvere and Mr. J. Leslie, for the Plaintiff Mr. K. Prehogan and Mr. M. Skrow, for the Defendant
HEARD: at Brantford, Ontario, on October 18, 2021
CORRECTED DECISION: The decision has been corrected on November 17, 2021 to name additional counsel in title of proceedings. No change to content has been made.
THE HONOURABLE JUSTICE J. R. HENDERSON
DECISION ON MOTION FOR INJUNCTION
INTRODUCTION
[1] The plaintiff (“FPMG”) brings this motion for an interlocutory injunction to prohibit the defendant (“Recipe”) from acting on a Notice of Expiration, dated June 18, 2021, regarding a Harvey’s restaurant franchise agreement.
[2] Recipe is a corporation that operates several franchise businesses in Canada, including Swiss Chalet and Harvey's restaurants. FPMG is a single-purpose corporation that has operated the Harvey’s restaurant at 57 King George Road, Brantford, Ontario (“the Brantford Harvey’s”) pursuant to a written franchise agreement signed December 2, 2010 (“the franchise agreement”). At all material times Recipe was the franchisor and FPMG was the franchisee of the Brantford Harvey’s.
[3] Section 4.1 of the franchise agreement provides that the franchise agreement expires at the end of the 10th year of the initial term of the lease. The parties acknowledge that the expiry date is August 31, 2021. Schedule A to the franchise agreement specifically states, "The Franchisee shall not have any option to renew the Agreement following the Expiry Date.”
[4] Recipe delivered a Notice of Expiration, dated June 18, 2021, by which Recipe informed FPMG that the franchise agreement will expire and terminate on August 31, 2021, pursuant to the terms of the franchise agreement.
[5] FPMG submits that, based on Recipe’s conduct, it is entitled to an extension of the franchise agreement for another 10-year term. Recipe takes the position that there is no right of renewal and that the franchise agreement has expired.
THE BACKGROUND FACTS
[6] The principal of FPMG is Okan Zeytinoglu (“Okan”). At all material times Okan conducted the business of, and acted on behalf of, FPMG. Okan has been working at a Harvey’s restaurant since he was 12 years old. His father was one of the first Harvey’s franchisees in Canada.
[7] Okan also owns or controls the Sarnia Harvey’s restaurant. The franchise agreement regarding the Sarnia Harvey’s was negotiated and signed at about the same time as the Brantford Harvey’s franchise agreement. The Sarnia Harvey’s franchise agreement contains a right to renew upon the expiration of the initial 10-year term.
[8] Okan acknowledged that he was aware that the Brantford Harvey’s franchise agreement specifically stated that FPMG did not have a right to renew the agreement, but that he signed the Brantford Harvey’s franchise agreement on behalf of FPMG in any event.
[9] The parties agree that as of 2010 the Brantford Harvey’s restaurant was a corporate restaurant, and that the intention was for FPMG to take over the operation as a franchisee.
[10] On October 22, 2020, by way of an email, David Colebrook (“Colebrook”) the president of the Harvey’s division of Recipe, informed Okan that Recipe would not be entering into a new franchise agreement with FPMG, and that the Brantford Harvey’s agreement would expire in 2021 as set out in the agreement. This was later confirmed on October 27, 2020, in a conference call with Okan, Colebrook, and Recipe’s director of operations, Steven Meeker.
[11] By email dated December 1, 2020, addressed to Colebrook, Okan made a proposal for the renewal of the franchise agreement. By reply email, dated January 5, 2021, Colebrook informed Okan that Recipe’s position remained the same, and that Recipe did not plan to enter into a new Brantford Harvey’s franchise agreement with FPMG. However, Recipe planned to work with Okan on a renewal of the Sarnia Harvey’s franchise agreement.
[12] On June 18, 2021, Recipe delivered the Notice of Expiration to Okan and FPMG. It reads in part,
Pursuant to paragraph 5 of Section 1.1(t) as set out in Schedule "A" to the Franchise Agreement, the Initial Term of the Franchise Agreement expires on August 31, 2021 (the "Expiry Date")….
ACCORDINGLY, as the Franchisee was not granted with any renewal options and as we have repeatedly advised and stated in correspondence dated October 22, 2020, January 5, 2021 and June 16, 2021, the Franchise Agreements shall expire and terminate effective as of the close of business on the Expiry Date (i.e. August 31, 2021).
Your rights to operate the Franchised Business and remain in the Premises cease as of the Expiry Date.
[13] On August 30, 2021, FPMG commenced this proceeding by issuing a Notice of Action, and brought the present motion for an interlocutory injunction.
[14] In the Notice of Action, FPMG requests an order that requires Recipe to extend the term of the franchise agreement for a further 10-year period. FPMG also requests, among other things, an award of damages for negligent misrepresentation, breach of contract, breach of the duty of good faith, breach of the duty of fair dealing, and breach of the Arthur Wishart Act (Franchise Disclosure), 2000 S.O. 2003 c.3 (the "AWA").
[15] Regarding the alleged negligent misrepresentation, Okan deposes that a representative of Recipe, Luis Rego (“Rego”), made oral representations at or about the time the franchise agreement was signed about the possible renewal of the franchise agreement at the end of the initial term, and that FPMG relied upon those representations.
[16] Okan also deposes that FPMG has been treated differently than other franchisees, that it would be unfair if Recipe was permitted to take back the franchise, and that Recipe failed to deliver the disclosure document required by the AWA.
[17] FPMG has remained in possession of the Brantford Harvey’s to date, pending a decision on this motion. In effect, FPMG’s interlocutory motion is for an order that would permit FPMG to remain in possession and to continue to operate the Brantford Harvey’s until this action is resolved.
THE LAW
[18] The three-part test for an interlocutory injunction is set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311. That test was restated by Lederman J. in 530888 Ontario Ltd. v. Sobeys Inc., 2001 28359 (ON SC), [2001] O.J. No. 723, at para. 8, and by Pattillo J. in 674834 Ontario Ltd. v. Culligan of Canada Ltd., 2007 8014 (ON SC), [2007] O.J. No. 979, at para. 23.
[19] I summarize the three-part test for an interlocutory injunction as follows:
- Is there a serious issue to be tried?
- If the injunction is not granted, will the moving party suffer irreparable harm that cannot be compensated by monetary damages?
- If there is doubt as to the adequacy of the respective remedies, the court should consider the balance of convenience by assessing the relative effect of the granting or refusing of the injunction on each of the parties.
IS THERE A SERIOUS ISSUE TO BE TRIED?
[20] FPMG submits that there is a low threshold for this part of the test. FPMG, relying upon the RJR-MacDonald case, submits that if it proves that the plaintiff’s case is not frivolous or vexatious, then it has established that there is a serious issue to be tried.
[21] I acknowledge that FPMG has correctly stated the first part of the test in RJR-MacDonald, as it applies to prohibitory injunctions. However, there is a higher threshold if the request is for a mandatory injunction.
[22] In the Culligan decision, Pattillo J. analysed the differences in the tests for a prohibitory injunction and a mandatory injunction at paras. 24-39. Pattillo J. wrote at para. 26,
Notwithstanding the advent of the "serious issue to be tried" test, courts have identified certain exceptions where "strong prima facie case" still remains the test. One of these exceptions is where the applicant seeks a mandatory injunction. In such a case the courts have held that because of the nature of the relief - the requirement of the defendant to act positively - the applicant must establish a strong prima facie case. More specifically, the applicant must establish that it is clearly right and that there is a high degree of assurance the applicant will succeed in obtaining a permanent injunction at trial.
[23] In Culligan, Pattillo J. found that the application was a request for a prohibitory injunction because at the time of the termination by the defendant there was an existing agreement between the parties. At para. 37 he wrote that by seeking an order to restrain the defendant, the plaintiff was seeking to continue its rights under the existing agreement until trial.
[24] The plaintiff in this case, FPMG, submits that its motion is a request for a prohibitory injunction because FPMG is asking the court to make an order that would prevent the defendant, Recipe, from changing the status quo. I disagree. The status quo in this case is the expiry of the agreement.
[25] I find that the present case is different from cases such as Culligan because the franchise agreement by its own terms expires on August 31, 2021. This is not a case in which an existing franchise agreement has been terminated by the defendant; rather, the agreement has expired, and the plaintiff seeks to compel the defendant to keep it alive. The plaintiff’s request is in substance a request to compel the defendant to renew the agreement.
[26] For these reasons, I find that the interlocutory motion before me today is the plaintiff’s request for a mandatory injunction. Thus, for the first part of the RJR-MacDonald test, FPMG must show that it has a strong prima facie case.
[27] Regarding the issues that are raised in the pleadings, I can divide FPMG’s causes of action into three broad allegations as follows:
- There were oral representations by Rego, a representative of Recipe, that suggested that FPMG may be able to renew the franchise agreement at the end of the term.
- Recipe breached its duty of fair dealing under the AWA and at common-law.
- Recipe failed to provide FPMG with the disclosure document that is required by the AWA.
[28] I find that FPMG’s position with respect to the alleged oral representations by Rego is weak. Okan deposed that in 2010 he raised the absence of a right to renew the agreement with Rego, who responded by telling him "not to worry". Okan also deposed that Rego said, "We will take care of it later."
[29] Recipe denies that Rego made these representations, but even if FPMG can prove that he did, in my view the oral representations do not necessarily mean that Rego represented that FPMG would have a right to renew. At best, if a court finds that these representations were made, it is open to a court to conclude that Okan was led to believe that Recipe would consider the possibility of renewal at the end of the term.
[30] Further, the evidence is clear that Okan was well aware that the franchise agreement expired on August 31, 2021, and that he had no right to renew. He was fully informed that there would be no right to renew, but he signed the franchise agreement in any event.
[31] Still further, Recipe, in denying that the alleged representations were made by Rego, has submitted evidence that Rego was not a Harvey’s representative for the Brantford area at the time. Recipe submits that Rego was not even part of the negotiations of the Brantford Harvey’s franchise agreement at the relevant time period.
[32] In addition, the franchise agreement is a written document that is fulsome and complete on its face. Section 20.2 of the franchise agreement is an entire agreement clause that specifically states that there are no representations or statements not contained in the agreement that form part of the agreement.
[33] I also take into account that at no time prior to the commencement of this action did Okan inform any person at Recipe that Rego had made these oral representations to him. The evidence shows that Okan was aware of the pending expiry on August 31, 2021, and that he had been reminded of the expiry date as early as October 2020. Yet, prior to the commencement of this action he made no allegation that there had been any representation to him that he might have a right to renew.
[34] Regarding the alleged breaches of the duties of fair dealing and good faith, FPMG relies upon s.3(1) of the AWA and the common law. FPMG alleges, among other things, that Recipe failed to give FPMG a right of renewal, that Recipe terminated the agreement prematurely, that Recipe allowed a second Harvey’s restaurant to open in Brantford, that Recipe forced FPMG to make costly renovations to the Brantford Harvey’s, and that Recipe required FPMG to pay more money than other franchisees.
[35] In my view, the allegations regarding the right of renewal and the premature termination of the agreement relate to the interpretation of the franchise agreement, and whether the alleged oral representations should be incorporated into the agreement. I have already stated that FPMG’s position on this point is weak.
[36] Regarding the opening of the second Harvey’s location in Brantford, I accept Recipe’s submission that this cannot be construed as unfair dealing as the second Harvey’s restaurant was opened outside of the restricted territory that was defined in the franchise agreement.
[37] Regarding the amount of money paid by FPMG for the franchise, Okan submits that he and FPMG have been treated much differently than other franchisees. He states that the fees and prices that he paid for the franchise far exceed what he believes other franchisees have paid to Recipe.
[38] In my view, the evidence as to whether Okan has been treated better or worse than other franchisees is uncertain. The total amount of money paid by FPMG over the 10-year term will be a combination of fees, renovation costs, and equipment lease payments, as set out at various places in the agreement. At present, there is little evidence as to all of the payments that may have been required from other franchisees and whether there are reasons for any differences. This evidence will have to be explained in detail at trial. At present it is difficult to determine whether Okan has been treated better or worse than other franchisees.
[39] To complicate matters, Okan owns or controls the Sarnia Harvey’s franchise, and therefore he himself is another franchisee. The Sarnia franchise agreement contains a right of renewal and in fact is being renewed. If there is an allegation of unfair dealing, it is likely that the court will need to examine the Sarnia Harvey’s franchise agreement as well.
[40] The last part of the FPMG’s allegation is that Recipe did not provide the disclosure document that is required by s.5 of the AWA. Again, the evidence on this issue is uncertain. Recipe submits that a proper disclosure document was provided to FPMG, and FPMG agrees that it received a disclosure document.
[41] However, both Recipe and FPMG are unable to provide evidence as to the specific disclosure that was made. FPMG apparently does not have a copy of the disclosure document, although Okan acknowledges that he received one. Recipe apparently shredded the hard copies of the disclosure document in their possession at some point in the last 10 years. On that evidence, I find that it is unlikely that either party will be able to prove precisely what was disclosed at the time.
[42] Therefore, regarding the causes of action that are raised in the Notice of Action, I find that FPMG has a weak case with respect to its allegations that Rego made negligent misrepresentations on behalf of Recipe, that Recipe breached its duties of fair dealing and good faith, and that Recipe failed to comply with the AWA. In summary, FPMG does not have a strong prima facie case for any of these causes of action.
[43] Finally, in assessing this part of the RJR-Macdonald test, I have also considered the remedies requested in the Notice of Action. In particular, I have considered the merit of FPMG’s claim for an order that requires Recipe to extend the franchise agreement for another 10 years. That claim is in effect a request for a final mandatory injunction order that compels Recipe to enter into a contract. In my view, the chances of FPMG succeeding in achieving this remedy are extremely remote. If there is any remedy for FPMG in this case, the remedy is likely to be in the form of damages.
[44] Under the AWA, even if FPMG can show that there was a breach of Recipe’s duty of fair dealing and/or a breach of its duty to provide the disclosure document, those breaches cannot form the basis for a court order that compels Recipe to renew the franchise agreement. Pursuant to s.3, 6, and 7 of the AWA, FPMG’s only remedy is damages (The time for rescission has passed and rescission is not being sought.)
[45] At common law, in order to obtain the final mandatory injunction order at trial, FPMG will have to convince a court that it was an implied term of the agreement that there would be a right to renew for a further 10 years. This is very unlikely. Therefore, if FPMG has any remedy at common law, it is also probably limited to damages.
[46] There have been previous decisions by this court that deal with applications for injunctions and allegations of bad faith. In TDL Group Ltd. v. 1060284 Ontario Ltd., 2000 22758 (ON SC), [2000] O.J. No. 1239, the franchise agreement for certain Tim Horton’s franchises expired on a certain date according to the terms of the agreement. The franchisor, TDL, gave notice that it would not be renewing the franchise agreement. The franchisees brought a motion for an interlocutory order that would restrain TDL from evicting them.
[47] Wright J. dismissed the motion by the franchisees. He found that TDL was under no obligation to renew the agreement and that the expectations of the franchisees could not impose such an obligation on the franchisor. Further, he found that TDL’s refusal to renew did not constitute bad faith.
[48] Similarly, in 6646107 Canada v. The TDL, 2019 ONSC 2240, Nakatsuru J. found that the failure to renew an agreement that did not contain a right of renewal could not constitute a breach of the duty of fair dealing. He found that where there was no contractual right to renew, then the renewal process was “untethered” to the agreement and accordingly could not amount to a cause of action.
[49] I accept and adopt the reasoning in both of these cases. Therefore, I find that where there is no contractual right to renew, a failure to renew an agreement will not, on its own, constitute a breach of the duties of fair dealing and good faith, and will not support a mandatory order that compels a franchisor to renew an agreement.
[50] Accordingly, I find that even if there is a serious issue to be tried regarding the causes of action, FPMG’s remedy would likely be in the form of damages. It is very unlikely that FPMG would be entitled to an order to compel renewal of the agreement. In my view, it is not appropriate to grant injunctive relief on an interlocutory basis, when it is a very remote possibility that FPMG would obtain that relief at trial.
[51] In conclusion, regarding the first step of the test for an interlocutory injunction, I find that in order to succeed in this case FPMG must show that it has a strong prima facie case. I find that FPMG’s case is weak with respect to both the causes of action alleged and the injunctive remedy that is requested. FPMG’s case does not meet the required threshold. For this reason alone, FPMG’s motion must be dismissed.
WILL FPMG SUFFER IRREPARABLE HARM?
[52] FPMG submits that it would suffer irreparable harm if it were not permitted to stay in possession of the Brantford Harvey’s operation. Counsel submits that the business was built and made prosperous by Okan, and that the operation will be destroyed if FPMG does not remain in possession. Okan will lose all of the money and money’s worth that he had invested in the business. Thus, FPMG alleges that whatever damages may be awarded, FPMG will not be adequately compensated for the destruction of the business.
[53] The short answer to FPMG’s submission is that the plaintiff’s business clearly was anticipated to be an operation with a 10-year lifespan ending on August 31, 2021. I accept that Okan invested money and money’s worth into the business, as would be expected of any business operator. However, at all times Okan was aware that the Brantford Harvey’s franchise was due to end in August 2021. Whatever business decisions he made, must have been made in light of that knowledge.
[54] Further, if FPMG is able to prove that it relied upon oral representations by a representative of Recipe, or that Recipe breached a duty that was owed to FPMG, it is likely that FPMG’s only remedy will be in damages. It is difficult to comprehend the plaintiff’s argument that it will not be adequately compensated by damages if its primary remedy is damages.
[55] Still further, the Brantford Harvey’s, and other Harvey’s franchises, will likely continue for many years. All of the records that might be relevant to the assessment of damages will be available. Therefore, the court will be in a good position to accurately assess any damages owed to FPMG if FPMG is able to establish a cause of action.
[56] In summary, even if FPMG was able to meet the threshold at step one of the test, I find that FPMG is unable to meet the threshold at step two.
THE BALANCE OF CONVENIENCE
[57] It is not necessary to consider the balance of convenience as FPMG is unable to meet the thresholds at step one and step two of the test.
[58] However, I observe that the balance of convenience in any event clearly favours Recipe. If FPMG continued as the franchise operator for several years pending the resolution of this proceeding, it would mean that Recipe would be compelled to be in a relationship, against its will, with an entity that had no express right to continue in the relationship. In fact, any right of the plaintiff expires, on the face of the franchise agreement, as of August 31, 2021.
[59] Further, since FPMG is a single-purpose corporation whose only asset has been terminated as of August 2021, there is some doubt as to whether the plaintiff would have any assets to satisfy any award of costs that might be made against it should Recipe be successful at trial.
[60] On the other hand, if FPMG wins this action and has not been in possession of the Brantford Harvey’s pending the resolution of the action, FPMG would likely have a sizable monetary claim, and it is probable that Recipe would have more than sufficient assets to pay the claim.
[61] Therefore, even though it is a moot point, I find that the balance of convenience clearly favours Recipe.
CONCLUSION
[62] For all of these reasons I find that FPMG is not entitled to an interlocutory injunction order. The motion is dismissed.
[63] If there are any issues arising out of this decision, including costs, I direct that the party seeking relief shall deliver written submissions to the trial coordinator at Brantford within 20 days of the release of this decision with responding submissions to be delivered within 10 days thereafter. If no submissions are received within this timeframe, the parties will be deemed to have settled all of the remaining issues as between themselves.
J. R. Henderson J.
Released: October 29, 2021
COURT FILE NO.: CV-21-0206 DATE: 2021/10/29
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
FPMG Hospitality Inc. Plaintiff
– and –
Recipe Unlimited Corporation Defendant
REASONS FOR JUDGMENT
J. R. Henderson J.
Released: October 29, 2021

