Legal Action: First of Five sought an interlocutory injunction to prevent the defendants, Recipe Unlimited Corporation (franchisor) and J.S.M. Corporation (landlord), from terminating its franchise agreement, lease, and sublease until trial.
Background:
The franchise agreement began in 2013 with renewal rights for an additional 10 years if terms were met.
Defendants alleged several breaches by the plaintiff, issuing five default notices between 2022 and 2023.
First of Five Inc. argued the defaults were invalid and that defendants breached their duty of good faith under Ontario's Arthur Wishart Act (AWA).
Legal Issues:
Standard for Injunction:
Defendants claimed the injunction was mandatory and required a strong prima facie case, but the court disagreed, treating it as prohibitive and applying the serious issue to be tried standard.
Irreparable Harm:
Plaintiff demonstrated that denial of the injunction would cause irreversible harm, including business closure, loss of reputation, and job losses.
Balance of Convenience:
Favored the plaintiff, as the injunction preserved its business while trial issues were resolved.
Court's Findings:
Serious Issues:
Defendants' defaults (e.g., rent disputes, performance audits) raised legitimate issues about compliance with contractual and statutory obligations.
The court noted potential breaches of the franchisor's good faith duty under the AWA.
Irreparable Harm:
Plaintiff's business viability and reputation would suffer damages not compensable by monetary awards.
Franchisee’s Conduct:
Alleged breaches by the plaintiff, including late payments, were cured or insufficiently material to warrant termination.
Costs and Undertaking:
Plaintiff’s undertaking as to damages was deemed adequate.
Outcome:
Injunction Granted: The defendants were enjoined from enforcing default notices or terminating/denying the agreement renewal until trial.
Costs Awarded: $33,114.65 to the plaintiff, with Recipe bearing 85% and J.S.M. 15%.
