Endorsement

Background

The plaintiff, First of Five Incorporated ("First of Five"), seeks an interlocutory injunction to prevent the defendants, Recipe Unlimited Corporation ("Recipe") and J.S.M. Corporation (Ontario) Ltd. ("J.S.M."), from terminating a Franchise Agreement, a lease, and a sublease, until this action is determined.

Recipe is one of Canada's largest restaurant companies. In late 2013, First of Five, a family-owned business, entered into a Franchise Agreement with Recipe to operate a combined Harvey’s and Swiss Chalet restaurant in Napanee, Ontario. The agreement was set to expire on May 31, 2024. Section 4.2 of the Franchise Agreement grants First of Five the right to renew for an additional 10-year term, subject to meeting certain terms.

The defendant J.S.M. owns the property from which First of Five operates its franchise. The lease for that property is between Recipe and J.S.M. However, First of Five entered into a sublease agreement with Recipe, which was executed on the same day as the Franchise Agreement. The expiration of this sublease is linked to the expiration of the Franchise Agreement.

First of Five provided verbal notice of its intention to renew on April 28, 2022. On November 2, 2022, First of Five formally notified Recipe of its intention to renew the Franchise Agreement in writing. On November 8, 2022, Recipe informed First of Five it could not renew the agreement while in default of material terms of the Franchise Agreement and offered it an opportunity to cure these defaults. On December 6, 2022, Recipe issued a second notice of default, setting a deadline of January 3, 2023, to cure the alleged defaults, with a warning that failure to cure them would result in Recipe enforcing its rights, which includes terminating the Franchise Agreement.

On January 3, 2023, First of Five objected to Recipe’s notices of default. Recipe subsequently audited First of Five and alleged multiple breaches of brand standards. On February 7, 2023, Recipe issued a third notice of default invoking the "three strikes clause" entitling it to terminate the Franchise Agreement. Recipe delivered a fourth and fifth notice of default on May 10, 2023, and September 19, 2023, respectively.

On April 21, 2023, First of Five commenced this action and brought a motion seeking injunctive relief. Although the injunction was initially denied, the Divisional Court allowed First of Five’s appeal and remitted the matter to a different judge. The Divisional Court ruled that Recipe’s undertaking not to terminate the Franchise Agreement pending the outcome of the injunction motion included appeals and held that its undertaking would continue to be binding until the litigation of the interlocutory injunction, including any further appeal, was completed.

Issues

The test for granting an interlocutory injunction is outlined in RJR-MacDonald Inc. v. Canada (Attorney General), and involves three criteria: (1) the presence of a serious issue to be tried, (2) demonstrating irreparable harm, and (3) assessing the balance of convenience.

Recipe and J.S.M. contend that the injunction sought by First of Five is of a mandatory nature rather than prohibitive. Therefore, at the first stage of the test, they argue that First of Five must demonstrate a strong prima facie case rather than a serious issue to be tried.

The first issue in this motion is determining the appropriate burden of proof for the first criterion. The second issue is whether First of Five has met that burden. The third issue considers whether First of Five will suffer irreparable harm if the injunction is not granted. The fourth issue assesses the balance of convenience between the parties. The fifth issue is whether First of Five’s failure to seek a permanent injunction is fatal to this motion. The sixth and final issue is whether First of Five has provided an adequate undertaking as to damages.

Issue 1 – Must First of Five demonstrate a prima facie case?

In RJR-MacDonald, the Supreme Court held that a prolonged examination of merits is usually unnecessary and undesirable, with two exceptions: if the interlocutory motion effectively decides the action or imposes hardship on a party, nullifying the benefit of trial.

In R. v. Canadian Broadcasting Corp., the Supreme Court held that on an application for a mandatory interlocutory injunction, the appropriate criterion for assessing the strength of the applicant’s case at the first stage of the RJR-MacDonald test is whether the applicant has shown a strong prima facie case. The higher threshold was justified because a mandatory injunction directs the defendant to undertake a positive course of action which can often be costly or burdensome and should generally only be granted at trial.

Recipe argues that the expiry of the Franchise Agreement on May 31, 2024, is critical to this motion, as First of Five is seeking to extend the agreement beyond its expiration. Recipe contends that this amounts to a mandatory injunction, compelling it to maintain a franchise relationship against its will, thus requiring First of Five to demonstrate a strong prima facie case at the first stage of the RJR-MacDonald test.

I would not give effect to this submission.

The cases upon which Recipe relies are ones in which the franchisees did not have any option to renew, such as FPMG Hospitality Inc. v. Recipe Unlimited Corporation. In that case, this Court applied the prima facie case standard where the franchise agreement expired on its own terms, and the plaintiff sought to keep it alive. J.R. Henderson J. considered that, in those circumstances, the plaintiff was seeking a mandatory injunction.

In contrast, section 4.2 of the Franchise Agreement grants First of Five an option to renew for an additional term. While this right is contingent upon complying with specific terms outlined in the agreement, the Divisional Court has acknowledged that "First of Five has the right to renew the Franchise Agreement unless they breach one or more provisions in Article 4.2. If no breach exists, Recipe is obliged to renew the agreement for another 10 years." (First of Five Incorporated v. Recipe Unlimited Corporation, 2024 ONSC 2050)

In TDL Group Ltd. v. 1060284 Ontario Ltd., the Divisional Court dismissed an appeal from an injunction preventing the franchisor from terminating the franchise before trial. In that case, the franchisor sought to terminate the agreement on grounds of the defendants' alleged engagement in sexual harassment, pre-emptively asserting that any renewal request would be denied. The franchisor then issued additional default notices, asserting, like Recipe, that the franchisee was not entitled to renewal due to non-compliance with the agreement's terms and unfulfilled monetary obligations before renewal. The motions judge granted an injunction to prevent the franchisor from taking over the premises.

On appeal, the franchisor contended that the motions judge erred by applying the "serious issue to be tried" standard instead of the strong prima facie case standard applicable to mandatory injunctions. The Divisional Court distinguished this case from Parker v. Canadian Tire Corp. and Esmail v. Petro Canada, where the franchisee lacked a contractual right to renew. In those instances, the prima facie standard was deemed appropriate because applying it would effectively create a right not contemplated by the parties in their contract.

The Divisional Court held that when a contractual right to renew exists, as in this case, any continued occupation of the premises and ongoing business relationship with the franchisor is a matter agreed upon by the parties in their contract. By prohibiting the franchisor from evicting the franchisee or interfering with the ordinary course of business, the court is enforcing a right established through the parties' agreement. The Divisional Court concluded that where a right to renew is present, the applicant is not seeking a mandatory order; instead, it is requesting an order to prevent the franchisor from breaching the contract while the dispute is being adjudicated:

In prohibiting the franchisor from taking steps to evict the defendants or interfering with the ordinary course of the business, the court is enforcing a right created by the parties. An order preventing the denial of a right previously agreed to is very different from an order establishing a new right never agreed to and requiring a party to act accordingly. In our view, this order was not a mandatory injunction. Its essence is the prohibition of what is alleged to be a breach of contract. That one effect of this is to require both parties to act in accordance with their contract while the dispute is being tried, does not change the essence of the matter.

In essence, Recipe contends that the Court should determine, in this motion, that First of Five has breached the terms of the Franchise Agreement, resulting in its expiration. However, this issue is one that must be resolved at trial. As the Divisional Court noted when it granted First of Five's appeal, the "claims for default raised by Recipe involve complex issues that necessitate a thorough examination of both the contractual terms and the factual context. Moreover, these claims may also implicate the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3."

The Court’s role in this motion is not to make a final determination on these complex issues at this preliminary stage. Recipe and J.S.M. have yet to defend against First of Five’s claims, and both the issues and the facts remain disputed. Instead, the Court must assess whether a preliminary evaluation of the strength of First of Five’s allegations warrants an interim order to preserve its rights pending trial, in accordance with the first stage of the RJR-MacDonald test.

I will now proceed to assess whether First of Five has raised serious issues to be tried.

Issue 2 – Serious issues to be tried

The threshold for establishing that there is a serious issue to be tried is low. The motions judge need only conduct a preliminary assessment of the case's merits. Once the judge is satisfied that the application is neither vexatious nor frivolous, he or she should continue to evaluate the second and third criteria, even if they believe the plaintiff may be unlikely to succeed at trial.

This action centers on First of Five’s right to renew the Franchise Agreement for a second ten-year term. Recipe presents several arguments suggesting that First of Five has breached material terms of the Franchise Agreement, thereby failing to satisfy the preconditions for renewal. In response, First of Five identifies four serious issues that challenge Recipe’s claimed breaches as grounds to deny the renewal request: 1) the small claims court action; 2) the withholding of rent; 3) the late payment of additional rent; and 4) Recipe’s failure to adhere to its default procedure. Each of these issues will be examined in turn.

Effect of Arthur Wishart Act

Franchise agreements often involve an inherent inequality of bargaining power. To address this imbalance, the Arthur Wishart Act (Franchise Disclosure), 2000 (the “AWA”) was enacted to regulate the franchise marketplace and protect both prospective and existing franchisees. This remedial legislation aims to balance the power dynamics within franchise relationships by imposing a duty of “fair dealing” in the performance and enforcement of every franchise agreement.

The reasons Recipe cites for terminating the Franchise Agreement, or opposing First of Five’s right to renew, must be evaluated alongside the statutory obligation of good faith imposed by section 3 of the AWA.

Section 3 of the AWA mandates that each party deal fairly with the other throughout the performance and enforcement of the agreement. It stipulates that “the duty of fair dealing includes the duty to act in good faith and in accordance with reasonable commercial standards.” This obligation generally requires franchisors to enforce agreements without malice or ulterior motives, and in a manner which takes into account the franchisee’s interests as well as its own. Furthermore, this duty demands transparency in dealings to prevent unfair harm or prejudice. (Shelanu Inc. v. Print Three Franchising Corp.)

Small Claims Court Action

On May 10, 2023, Recipe claimed that First of Five breached the Franchise Agreement by failing to pay the legal costs associated with a Small Claims Court action.

On August 7, 2017, First of Five initiated a Small Claims Court action against J.S.M. and Recipe seeking damages arising from plumbing and HVAC issues. Recipe was a defendant in the action because it was a sublandlord. The trial of the Small Claims Court action was scheduled to be heard in April 2023, but was adjourned on consent and has not been rescheduled.

First of Five asserts claims totaling $24,706.16 in damages, which stem from lost sales due to four plumbing incidents and the costs associated with various plumbing and HVAC repairs. Additionally, First of Five contends that it was overcharged for “internet/technical charges.” It alleges that Recipe and J.S.M. acted unfairly and violated their duty of good faith. The defendants defended the claim and denied any liability.

In its defence to the Small Claims Court action, Recipe asserted that, pursuant to sections 21.2 and 21.3 of the Franchise Agreement, First of Five is obligated to indemnify and hold Recipe harmless from any costs or damages related to that proceeding, as well as to pay all legal costs incurred in connection with the same. The relevant provisions of the Franchise Agreement state:

21.2 Indemnification of the Franchisor

The Franchisee and the guarantor hereby agree, during and after the initial term of this agreement, and any renewal thereof, (except in the case of liability, claims or damages resulting from the willful misconduct or gross negligence of the Franchisor or its affiliates), to indemnify and save the Franchisor, its affiliates and their directors, shareholders, officers, employees and agents harmless from any and all liabilities, losses, suits, claims, demands, costs, fines and actions of any kind or nature whatsoever to which they shall or may become liable for, or suffer by reason of any breach, violation or non performance on the part of the franchisee or any of its agents, servants or employees of any term or condition of this agreement or any other agreement relating to the franchised business and from all claims, damages, suits, costs or rights of any persons, firms or corporations arising from the operation of the franchised business.

21.3 Legal Fees

Further to section 21.2, in the event the Franchisor shall be made a party to any litigation commenced by or against the Franchisee or any guarantor, then the Franchisee and the guarantor shall, except where there has been willful misconduct or gross negligence on the part of the Franchisor or its affiliates, indemnify and save the Franchisor harmless against any losses, damages or claims whatsoever arising therefrom and shall pay all costs and expenses including reasonable legal fees, accountants and expert witness fees, costs of investigation and travel and living expenses incurred or paid by the Franchisor in connection with such litigation. Further, if it is established that the Franchisee has breached any of the terms and conditions of this agreement, the franchisee hereby agrees to pay all costs and expenses including legal fees that may be incurred or paid by the Franchisor in enforcing the Franchisor’s rights and remedies under this agreement. This section shall not apply to claims that may be issued against the Franchisor and the Franchisee relating to the Franchisee’s use of the marks so long as such use is in compliance with this Agreement.

Notwithstanding that the Small Claims Court action was initiated in 2017, Recipe did not request the payment of its legal fees until October 25, 2022. First of Five paid $5,855.66 on May 23, 2023. On June 21, 2023, Recipe advised First of Five that it had incurred additional fees in connection with the Small Claims Court action since it delivered its first notice of default. Recipe demanded payment of a further $8,042.21. First of Five paid this additional sum on October 2, 2023.

Recipe did not request any sums related to the Small Claims Court action, nor did it share any invoices for these fees, until it became clear that First of Five wished to renew the agreement for another term. In October 2022, Recipe framed this issue as a reason for default. First of Five contends that declaring a default under these circumstances raises serious issues regarding Recipe’s duty of good faith.

I agree that Recipe's attempt to default its franchisee on the basis of unpaid Small Claims Court fees, now fully paid, presents a serious issue. The duty of good faith obliges franchisors to enforce agreements without ulterior motives and in a commercially reasonable manner, considering both the franchisee’s and their own interests. Recipe's failure to demand the payment of these fees until First of Five was entering the renewal period makes it susceptible to claims of acting with ulterior motives. Furthermore, it is arguable that Recipe has not adequately considered the franchisee’s interests by strictly enforcing the Franchise Agreement over a relatively small sum that has already been fully paid.

I would add, in obiter, as this point was not argued, that I question the enforceability of sections 21.1 and 21.2 of the Franchise Agreement. These sections aim to shield the franchisor from any liability for claims made against it and require the franchisee to reimburse it for any legal fees incurred, except when the franchisee’s claims result from the franchisor’s willful misconduct or gross negligence. Arguably, such provisions may violate section 11 of the AWA.

Section 11 of the AWA provides that “any purported waiver or release by a franchisee of a right given under this Act or of an obligation or requirement imposed on a franchisor or a franchisor’s associate by or under this Act is void”. First of Five alleged in the Small Claims Court action that Recipe breached its duty of good faith, an obligation imposed by section 3 of the AWA. Requiring First of Five to indemnify Recipe for claims it makes to assert its rights under the AWA, and to reimburse Recipe for the legal fees incurred in defending those claims, effectively compels First of Five to waive rights granted to it under the AWA.

In Landsbridge Auto Corp. v. Midas Canada Inc., this Court determined that a franchise agreement which required the franchisee to execute a general release of claims against the franchisor before renewing the franchise agreement was void. In that case, the franchisee was involved in a class action in which it was alleged that the franchisor breached its duty of fair dealing under the AWA. The franchisee refused to execute the release, as doing so would prevent it from asserting its class proceedings claim. The Court ruled that if exercising a franchisee’s rights under the franchise agreement necessitates a release of rights granted by the AWA, that release will be void. The Court of Appeal affirmed the motion judge’s decision, stating that “if [a franchisor] includes a term in [a] franchise agreement purporting to be a waiver or release of any rights a franchisee has under the Act, it will be void”. (405341 Ontario Limited v. Midas Canada Inc., 2010 ONCA 478)

Here, it is arguable that the indemnity and legal fee provisions function as a waiver of rights. These provisions seem to effectively negate rights the franchisee may have against the franchisor under the AWA. As this point was not argued before me, I will limit my comments to stating that Recipe’s reliance on sections 21.1 and 21.2 to declare a default against First of Five raises serious issues that warrant further examination.

Withholding of Rent

In January 2020, the HVAC units at the premises broke down and required replacement for the restaurant to operate. First of Five discovered that the age of these HVAC units had been misrepresented in the lease, where they were stated to be 1 and 5 years old. On January 29, 2020, First of Five notified Recipe that it would withhold rent for a four-month period, equal to the cost of the replacement units, amounting to $23,965.00.

First of Five purported to rely on section 12.2 of the lease, which requires the tenant to replace HVAC units when necessary. This section prorates replacement costs between tenant and landlord based on unit age and the remaining lease term. Section 12.2 further requires the landlord to pay the tenant its share of the replacement costs forthwith upon delivery of an invoice. If the landlord fails to pay its share of the replacement cost, the tenant is entitled to deduct the outstanding amount from the rent.

On December 20, 2020, and February 18, 2022, Recipe requested that First of Five resend its letter notifying it of the HVAC malfunction, along with the invoices for the replacement of the HVAC units. Recipe undertook to "resolve that matter with the landlord".

On October 25, 2022, Recipe declared First of Five in default for failing to pay the withheld rent. Recipe contends that withholding rent constituted a breach of the sublease, particularly section 4(1), which required First of Five to pay rent without any deductions, setoffs, or abatements. Although section 4(3) of the sublease stipulated that the terms and conditions in the lease were deemed mutatis mutandis to be terms and conditions applicable to the premises, section 12.2 of the lease, which enabled the tenant to deduct rent, was excluded from the sublease.

On April 23, 2023, after reviewing the invoices for the replacement of the HVAC units, J.S.M. offered to pay its share of the replacement cost, factoring in the actual ages of the units, in accordance with the formula outlined in the lease. J.S.M. proposed a contribution of $10,637.50 plus HST. J.S.M.’s offer was disclosed to First of Five only in response to answers to undertakings in the context of this motion.

Recipe contends that First of Five should have initiated arbitral proceedings under section 22.16 of the lease. This section stipulates that while arbitration proceedings are ongoing, a party shall be deemed not to be in default of its obligations.

First of Five argues that Recipe breached its duty of good faith by using the withholding of rent as a basis for declaring a default. I concur that declaring a default on this ground presents a serious issue.

Recipe was aware of First of Five’s position regarding the HVAC malfunction and its intention to withhold rent since January 29, 2020. Recipe never informed First of Five that it could not rely on section 12.2 of the lease or that it should arbitrate the issue to avoid default. Instead, it appears to have ignored the matter for two years before attempting to resolve it with the landlord. After undertaking to resolve the issue with J.S.M., Recipe declared First of Five in default before negotiations with the landlord were completed and failed to inform First of Five that J.S.M. had offered to pay half of the replacement costs.

By not promptly communicating its stance on the sublease exclusions and by ignoring First of Five's reliance on lease provisions over an extended period, Recipe may have breached its duty of good faith. Ignoring First of Five’s stated intent and later using this as a basis for declaring default could suggest a lack of honest and fair dealing.

I am satisfied that First of Five has raised a serious issue regarding Recipe’s obligation of good faith, particularly concerning whether Recipe has adequately considered the franchisee’s interests.

Failure to pay additional rent

Under the lease and sublease, First of Five was obligated to pay its proportionate share of the premises' common area maintenance costs (“CAM”) as additional rent. J.S.M. would estimate these costs annually, and First of Five would pay them in equal monthly installments. Once J.S.M. determined the actual costs, it would invoice Recipe, which would then forward the invoices to First of Five.

It is not disputed that First of Five paid the CAM estimates since the beginning.

The lease stipulated that J.S.M. was required to provide Recipe with a statement of additional rent within 120 days after the end of each annual period. However, J.S.M. did not adhere to this schedule. Statements were issued in 2019 for the 2016 and 2017 calendar years, in 2021 for the 2018, 2019, and 2020 calendar years, and in 2023 for the 2021 and 2022 calendar years. Recipe did not forward these statements to First of Five and instead negotiated with J.S.M. between 2019 and 2022. Following these negotiations, Recipe and J.S.M. provided First of Five with supporting documentation and demanded payment.

First of Five acknowledges that it received the statement of CAM adjustments in the winter of 2021 and that supporting documentation was finally received in June of 2022. On September 8, 2022, First of Five disputed several expenses, including $5,369.27 in interest charges, which it believed it should not have to pay due to the recent receipt of the invoices and supporting documentation. Recipe informed First of Five that under the terms of the sublease, it had no right to dispute any payment obligations under the lease. Ultimately, First of Five paid these fees before the hearing of this motion as a “sign of good faith.”

I find that declaring First of Five in default under this ground also raises a serious issue regarding the franchisor’s obligation to deal with the franchisee in good faith. J.S.M. and Recipe took years to negotiate the appropriate amount of CAM adjustments, yet they expected First of Five, a restaurant affected by the COVID pandemic, to pay $40,616.19 in CAM adjustments spanning five years immediately. Furthermore, Recipe did not attempt to bring First of Five’s concerns to J.S.M.’s attention or address them. I am satisfied that First of Five has raised a serious issue regarding whether Recipe acted in a fair and commercially reasonable manner.

Other issues

First of Five asserts that it has passed all health inspections; however, it contends that Recipe conducted multiple performance audits on its restaurant, did not comply with its own processes, and failed to respond to its replies to these audits. Recipe disputes these allegations but argues that the operational audits are not cited as grounds for default and claim they are not relevant to this motion. In light of Recipe’s position, this issue will not be considered further.

In its fifth notice of default dated September 19, 2023, Recipe stated that First of Five owed Sysco, a food distributor, $16,925.67. It claimed that the failure to pay suppliers constituted a default of the Franchise Agreement. However, First of Five had already made arrangements to pay the amount owed on September 11, 2023, and these arrangements were communicated to Recipe. The account was fully paid as of September 19, 2023, the same day Recipe issued its fifth notice of default. Recipe’s fifth notice required First of Five to pay Sysco all outstanding amounts by September 26, 2023. Given that First of Five made these payments before Recipe’s deadline, the Court considers that any default has been cured.

Recipe contends that, as a condition for the renewal of the Franchise Agreement, First of Five was required to execute a general release of any and all claims against Recipe. As noted above, such a requirement was deemed by the Court of Appeal to violate section 11 of the AWA in Midas. In this action, First of Five alleges that Recipe breached its duty of fair dealing as outlined in section 3 of the AWA. The Court of Appeal held that requiring a franchisee to release any claims against the franchisor in order to exercise a right of renewal under a franchise agreement contradicts the spirit, intent, and letter of the AWA: “Where a franchisor insists upon such waiver or release, section 11 makes it clear that any such waiver or release will be void.” (405341 Ontario Limited v. Midas Canada Inc., 2010 ONCA 478) To the extent that Recipe relies on this requirement as a basis to deny First of Five its right to renew the Franchise Agreement, I find that it raises a serious issue as well.

Issue 3 – Irreparable Harm

The onus is on the plaintiff to demonstrate that it will suffer irreparable harm if the injunction is refused. The plaintiff must provide evidence establishing that it will experience actual harm that cannot be adequately compensated through damages.

Recipe argues that First of Five’s case primarily concerns damages, asserting that if the injunction is denied, Recipe will operate the business as a corporate restaurant and maintain accounting records that would allow the court to assess any lost profits should First of Five’s claim succeed. However, I am not persuaded by this submission.

First of Five asserts that the denial of the injunction would lead to the collapse of its business, jeopardize the family's livelihood, and cause reputational harm. Ms. Freyas, First of Five’s principal, invested her life savings, borrowed a significant portion of her parents’ life savings, and secured an additional $600,000 loan against her family home to become Recipe’s franchisee. She emphasizes that the franchise has become integral to her personal identity over the past nine years, and her family’s name and reputation are closely tied to the restaurant. Additionally, the restaurant has been involved in various charitable and community initiatives and employs approximately 30 people.

I agree that First of Five would suffer irreparable harm if the injunction were not granted. In the context of the termination of a franchise, loss of business, profits, reputation and goodwill have been found to constitute irreparable harm. As Conway J. remarked in 1318214 Ontario Ltd. et al v. Sobey’s, 2010 ONSC 4141, even if the franchisor continues to operate the store, the franchisee will lose the business they purchased, that they were operating, that their families worked in, and that they expected to develop over the terms of the franchise. Such an opportunity cannot be restored through the payment of damages.

Issue 4 – The balance of convenience

I find that the balance of convenience favors the granting of the injunction. If the injunction is not granted, First of Five will lose its business. Conversely, Recipe will have to continue its commercial dealings with First of Five until this action is determined. Recipe contends that granting the injunction would necessitate maintaining a fractured and dysfunctional relationship with a franchisee it views as troublesome.

I have no hesitation in concluding that, between the parties, First of Five would be most detrimentally affected by the denial of the injunction. The relationship between the parties appears to have been relatively positive for much of the agreement’s first term. First of Five’s principal testifies that she never encountered any major issues with the franchisor until recently. First of Five has passed all food and safety inspections and does not owe Recipe any royalties. Furthermore, many of the breaches of the agreement that Recipe relies upon have been cured.

Finally, Recipe’s counsel advised First of Five in an email dated May 30, 2024, that Recipe remains willing to renew the franchise if First of Five agreed to meet certain renewal preconditions, which were primarily financial. This willingness to maintain a business relationship undermines Recipe’s argument that the relationship is as fractured as it claims.

Issue 5 – Failure to seek a permanent injunction

Finally, Recipe and J.S.M. contend that First of Five’s failure to seek a permanent injunction in its Fresh as Amended Statement of Claim deprives the court of jurisdiction to grant an interlocutory injunction.

Recipe relies on several cases that follow the precedent set in Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc.. However, that case is distinguishable.

In Cellular Rental Systems, the defendant Bell Mobility refused to renew the plaintiff’s license to operate as one of its authorized agents in the marketing and sale of cellular telephone services. The plaintiff sought an interlocutory injunction pending the outcome of its application to the Director of Investigation and Research under section 9 of the Competition Act. The plaintiff alleged that Bell Mobility's decision to discontinue supplying it with cellular telephone services was intended to lessen competition in the Canadian cellular service market and violated the Competition Act.

At first instance, the plaintiff was granted an injunction directing Bell Mobility to continue dealing with the plaintiff pending the resolution of its application to the Director of Investigation and Research. Additionally, if the Director requested a hearing before the Competition Tribunal, the injunction would remain in effect until the Tribunal rendered its decision.

The Divisional Court allowed Bell Mobility’s appeal and addressed both substantive and procedural arguments, which were closely connected. Regarding the substantive grounds, the Divisional Court held that the injunctive order exceeded the Court’s jurisdiction because the Competition Tribunal had exclusive authority to grant the remedy sought by the plaintiff. The Competition Act did not provide any remedy enforceable through an action in the Superior Court. Consequently, the Competition application could not serve as the necessary foundation for the injunctive order.

In that context, Borins J. stated that it is “a fundamental principle that in the absence of a pending proceeding, or an intended proceeding, in which a permanent injunction is claimed, the court has no jurisdiction to grant an interlocutory injunction.” Interlocutory injunctions are intended to preserve the status quo, ensuring that the subject matter of the litigation is not destroyed or irreversibly altered before trial, and to protect the plaintiff's rights as established in the action from being undermined by the defendant's actions before trial. Interlocutory injunctions are not self-sustaining causes of action; there must be a legal dispute between the parties deserving of trial before anything interlocutory can occur in the proceedings leading to trial. Such interlocutory orders are made solely to ensure that the plaintiff's asserted rights in the action may be effectively enforced by the court should the action ultimately succeed.

In this case, there clearly exists a lis between the parties, which falls squarely within this Court’s jurisdiction. First of Five disputes certain charges and expenses claimed against it and argues that Recipe’s purported termination of the agreement, or failure to renew the agreement based on its failure to pay those charges, constitutes a breach of the AWA. It seeks an interlocutory injunction preventing Recipe from violating the renewal provisions of the Franchise Agreement until its claims are resolved.

I am satisfied that the omission of the words “and permanent” between "interlocutory" and "injunction" in paragraph 1(a) of the Fresh as Amended Statement of Claim is merely an oversight and does not provide a sufficient reason to deny First of Five the injunction, particularly since it does not require the defendant’s consent or leave of the Court to amend its pleading, as the defendants have not yet filed statements of defence.

Issue 6 – Undertaking as to damages

Pursuant to Rule 40.03 of the Rules of Civil Procedure, a party moving for an interlocutory injunction must, unless the court orders otherwise, undertake to abide by any order concerning damages that the court may make if the injunction causes damage to the responding party. Such an undertaking has been described as an “essential condition” which serves to acknowledge that the interlocutory order is made before the court has had a chance to consider all relevant facts and arguments, and that the enjoined party may be wrongfully damaged. (Airport Limousine Drivers Association v. Greater Toronto Airports Authority)

Recipe argues that, although First of Five has provided the undertaking, it has resisted all efforts to investigate its sufficiency. During cross-examination, First of Five’s principal was asked to provide her bank account statements, investment account statements, tax returns, notices of assessment, and/or a summary of her personal liabilities.

First of Five took these questions under advisement. It subsequently advised Recipe that much of the information it requested was overly broad and intrusive. However, it did provide the information that the First of Five’s principal's home was appraised at $1,200,000 over 10 years ago, and indicated that there currently was mortgage of approximately $100,000 registered against the property. Additionally, First of Five noted that family members, who are listed as indemnifiers under the Franchise Agreement, own a portfolio of investments valued at well over $1,000,000.

Recipe has not provided any authority for the proposition that an undertaking as to damages must be supported by extensive disclosure of financial information. Furthermore, it has not supplied any estimate of the damages it anticipates incurring by continuing to deal with the plaintiff until this action is resolved. To the extent that any financial disclosure is required, I find that First of Five has provided answers that adequately support its undertaking with respect to damages.

Costs

As the successful party, First of Five is presumptively entitled to its costs.

First of Five claims $33,114.65 for costs of this motion on a partial indemnity basis. In comparison, Recipe's partial indemnity costs amount to $14,083.98, also calculated on a partial indemnity scale. J.S.M. did not submit a costs outline.

I find that the costs claimed by both parties are very reasonable for a motion of this complexity, which was heard over the course of one full day. It is understandable that First of Five, as the moving party bearing the onus and whose business was at stake in this motion, incurred higher legal fees than the responding parties. I recognize that the issues at hand were of significant importance to First of Five and conclude that the fees incurred were reasonable and proportional.

I fix First of Five’s costs in the amount of $33,114.65, and allocate these costs 85% to Recipe and 15% to J.S.M., payable within 30 days.

Disposition

For the foregoing reasons, the Court grants the plaintiff’s interlocutory motion and enjoins the defendants from asserting any of the grounds contained in Recipe’s five notices of default as reasons for refusing to renew the Franchise Agreement, the lease, and the sublease, or as grounds for terminating these agreements, until this action is determined.

The plaintiff shall have its costs fixed at $33,114.65, inclusive of disbursements and HST, to be allocated between the two defendants as follows: 85% to Recipe and 15% to J.S.M.

Justice A. Kaufman

Date: January 6, 2025