Courtesy Chrysler, 2012 ABQB 658

Court of Queen ’ s Bench of Alberta Citation: Courtesy Chrysler

(1987) Ltd. v. Chrysler Canada Inc., 2012 ABQB 658 Date: 20121026 Docket: 1201 07001 Registry: Calgary Between: Courtesy Chrysler

(1987) Ltd. Plaintiff - and - Chrysler Canada Inc., James McManes, Michael McManes and XYZ Alberta Ltd. Defendants _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice K. M. Eidsvik _______________________________________________________ Introduction [ 1 ] This is a motion brought by the Plaintiff Courtesy Chrysler

(1987) Ltd. ("Courtesy") for an order granting an interlocutory injunction preventing the Defendant Chrysler Canada Inc. ("Chrysler") from permitting or approving the placement of a new automotive dealership proposed by the Defendants James McManes and Michael McManes (the "McManes Group") and prohibiting the McManes Group from taking any further steps with respect to the proposed new dealership pending trial. [ 2 ] There are currently seven Chrysler dealerships in Calgary; one of which is Courtesy. Courtesy is situated in the southeastern

part of Calgary in the Glendeer Auto Circle, at the junction of Glenmore and Deerfoot Trails. In 2012, Chrysler announced its intention to establish an eighth dealership, to be owned and operated by the McManes Group (the "Proposed Dealership"). The Proposed Dealership is in the area of New Brighton at 130th Avenue and 52nd Street SE, which is essentially located in the middle of Courtesy's existing trade zone. Courtesy argues that establishing the Proposed Dealership in this area will essentially eliminate any business from the affluent communities in the South.

It claims that such actions are in breach of Chrysler's obligation to conduct its dealings with Courtesy in good faith and that the opening of the Proposed Dealership will cause significant harm to Courtesy's business. History [ 3 ] Rick Taylor is the president and designated "dealer principal" of Courtesy. He started off as an employee of Chrysler's predecessor, Chrysler Canada Ltd, and in 1985 he was asked by Chrysler to become a partner in "Courtesy Chrysler" (a dealership then owned by a different entity).

In 1987 Courtesy executed the standard form franchise agreement between dealers and Chrysler (and its predecessors) and became a dealer in Chrysler products. The Dealer Sales and Service Agreement ("DSSA") was drafted by Chrysler and Courtesy was not allowed to negotiate its terms. Subsequent agreements were again executed over time, with the current and operative version issued in 2001. [ 4 ] In 1997 the parties entered into an Implementation Agreement which required them to adhere to the National Automotive Dealer Arbitration Program ("NADAP").

The NADAP rules state that as a precondition to mediation or arbitration under NADAP, a dealer must first comply with the steps provided under Chrysler's Dispute Resolution Process ("DRP"). [ 5 ] Prior to entering into the DSSA, Courtesy was located at 6320 Macleod Trail south. In 1987 Chrysler urged Courtesy to relocate the dealership to its current position, which it did.

Since its inception in the Glendeer Auto Circle, Courtesy has expanded and upgraded its facilities; it now owns additional lands for inventory parking, a body shop and a pre-delivery and excess storage facility. [ 6 ] As the population in the south of Calgary expanded, Courtesy developed into a successful dealership. Its performance has been recognized by Chrysler and it has received accolades including a "Five-Star Dealers" award and membership in Chrysler's "President's Club". The business currently comprises several divisions including: i. Sales of new Chrysler vehicles; ii. Sales of used motor vehicles; iii.

Sales of parts for Chrysler vehicles; and iv. Repair and service of motor vehicles. [ 7 ] In addition Courtesy operates the "Courtesy Collision Centre" and "Courtesy Auto Sales,” both of which are divisions of Courtesy in the south Highfield Industrial District, which is a short distance away from the Glendeer Auto Circle location. In total, Courtesy employs 83 full-time and 19 part-time employees. [ 8 ] In the fall of 2003 Big 4 Motors Ltd. (one of the seven existing Chrysler dealers in Calgary) approached Chrysler to approve a relocation of the Big 4 dealership to Douglasdale Boulevard.

Chrysler had originally approved this relocation but later changed its mind and denied the request. In 2004 Courtesy received formal notification of the proposed relocation and responded with both written and oral objections to the same.

The primary objection raised by Courtesy was that the proposed spot for the Big 4 relocation would essentially cut Courtesy off from what it calls the "Deerfoot Corridor" - that is, the main artery leading from Glendeer Auto Circle location to the southern communities of Douglasdale, Canyon Meadows, Mackenzie Towne, New Brighton, Copperfield, Cranston and other communities further south. Courtesy argued that these communities are both affluent and expanding and provide Courtesy with the largest portion of its customer base.

The proposed relocation of Big 4 would have put it 6.1 kilometers away from the Glendeer Auto Circle. [ 9 ] An arbitration between Big 4 and Chrysler ensued. The reasons of the Arbitrator indicate that Chrysler acknowledged that the proposed relocation by Big 4 would have some negative impacts on Courtesy, including a "dramatic impact" on Courtesy's parts and service business: Big 4 Motors Ltd. v. Daimlerchrysler Canada Inc. (April 22, 2006) paras 71 - 74. The Arbitrator refused Big 4's request for specific performance and granted damages.

[ 10 ] Following this development, Courtesy purchased additional property formerly occupied by the Mercedes dealership in the Glendeer Auto Circle to expand its premises. [ 11 ] In 2006 Chrysler formed an opinion that Calgary's market required an eighth dealership. It retained Avison Young to undertake a study of available lands from which it developed a Network Optimization Plan ("Plan"). Part of the analysis in the Plan was based upon software that had been developed by a company called Urban Science that was designed to identify locations that would maximize the convenience of potential purchasers.

The Plan was reviewed with all exiting dealers, including Courtesy, in the fall of 1996. The Plan was put on hold during the economic recession during which time Chrysler's U.S. parent filed for bankruptcy. In January 2010, all seven dealerships were notified that Chrysler was once again searching for a location for the proposed eighth dealership. [ 12 ] Subsequent to this notification, a meeting was held during which Chrysler encouraged existing dealers to propose possible locations for the eighth dealership.

Nothing suitable was located and in December 2011 the McManes Group wrote to Chrysler confirming its expression of interest in developing the eighth dealership location in New Brighton. The area of New Brighton is virtually in the middle of Courtesy's existing trade zone. [ 13 ] On February 1, 2012 Chrysler informed the exiting dealers, including Courtesy, of its decision to award the McManes Group the eighth dealership point (the Adjacent Dealer Contact Report). The Report allows existing dealers to either accept the proposed dealership or to add additional comments. Mr.

Taylor returned the Report to Chrysler with the comments "3 dealers already represented" and "do not accept" written on it. No further steps were taken and on February 24, 2012 a letter of intent was concluded between Chrysler and the McManes Group. Courtesy was notified of Chrysler's decision to approve the Proposed Dealership by way of a letter dated March 7, 2012. In May of 2012 Courtesy wrote to Chrysler objecting to the Proposed Dealership and requesting additional time to appeal under the DRP. Chrysler refused this request. Courtesy filed its original Statement of Claim on June 4, 2012.

Issue and Positions of the Parties [ 14 ] The sole issue to be determined is whether Courtesy should be granted an interlocutory injunction. Courtesy has alleged that in granting the Proposed Dealership Chrysler failed to exercise good faith, as required under contract, statue and common law. It also alleges that the McManes Group induced Chrysler to breach its duty of good faith and conspired against Courtesy to cause economic loss.

It submits that an interim injunction is necessary before trial. [ 15 ] Chrysler argues that it is fully within its contractual rights to establish the Proposed Dealership and that Courtesy has offered no evidence of bad faith. It further submits that Mr. Taylor has expressly stated that he has no reason to believe that Chrysler conspired with the McManes Group and that this fully answers the issue. The Defendants submit that the tripartite test for an interim injunction has not been met and that the application should be denied.

Analysis The DSSA and Related Agreements [ 16 ] The DSSA is the primary contract governing relations between Courtesy and Chrysler. Courtesy argues that the obligation to deal in good faith can be found in the

preamble or "Introduction"

section of the DDSA which reads: While the undertakings of this relationship are set forth in the provisions that follow, their success rests on a recognition of the mutuality of interests of DEALER and DAIMLERCHRYSLER and a spirit for understanding and co-operation by both parties in the day-to-day performance of their respective functions... [ 17 ] On the other hand, Chrysler submits that the Introduction also clearly expresses an intention of dealers and the manufacturer to work together in furthering the interests of Chrysler.

[ 18 ] Moreover, Chrysler points to

Article 8(a)(

v) of the Terms and Provisions attached to the DSSA in arguing that it is within its contractual rights to establish the Proposed Dealership. The Terms and Provisions are expressly incorporated into and form part of the DSSA pursuant to paragraph 4 of the DSSA: 8 (a) (

v) Changes in Market Representation DAIMLERCHRYSLER reserves the right to determine, from time to time, in its best judgment, the numbers, locations and sizes of authorized dealers necessary for proper and satisfactory sales and service representation for DAIMLERCHRYSLER products and DAIMLERCHRYSLER service contracts and protection packages within and without the DEALER'S Sales Locality. [...] DAIMLERCHRYSLER shall have the right to appoint additional dealers of DAIMLERCHRYSLER products and DAIMLERCHRYSLER service contracts and protection packages within or outside the DEALER'S Sales Locality when, in DAIMLERCHRYSLER's opinion, such appointment is necessary to provide DAIMLERCHRYSLER products and DAIMLERCHRYSLER service contracts and protection packages with proper sales and service representation in such locality.

DAIMLERCHRYSLER by written notice to the DEALER will give the DEALER 30 days in which to consider and discuss such additional dealer representation with representatives of DAIMLERCHRYSLER and to give DAIMLERCHRYSLER written notice of objection to the proposed addition...DAIMLERCHRYSLER will give written consideration to any such written objection and advise the DEALER in writing of its decision. [ 19 ] The DRP states that the dispute resolution process applies to any disagreements or disputes under the DSSA and is a precondition to mediation or arbitration under NADAP.

The DRP states that any disputes that are not submitted under the dispute resolution process within the prescribed times are deemed abandoned. [ 20 ] NADAP establishes a nationwide program for the resolution of disputes between manufacturers and dealers.

Of note, it provides a definition of "good faith" as follows, at Rule 1(m): "Good Faith" - means the observance of reasonable commercial standards by balancing, where, and to the extent relative, the interests of the MANUFACTURER, the DEALER, the collective interests of the MANUFACTURER and all of its dealers, and the interests of the customers of all of its dealers, and by recognizing the competitive nature of the automotive industry. [ 21 ] Rule 6 of NADAP deals with the establishment of a new dealership: The MANUFACTURER has the right to determine the size and structure of its dealer body and to create new dealer points, relocate dealerships, appoint new dealers and fill existing dealer points.

However, the MANUFACTURER shall provide a DEALER described in Rule 6(

a) or (

b) with notice of its intent to create a new dealer-point or relocate an existing dealership. A DEALER who meets the following conditions and who also sells the identical vehicle brands as that of a proposed new dealer-point or proposed relocation of a dealership of another dealer may submit for arbitration under NADAP regarding whether the new dealer-point or relocated dealership should be permitted: a ii) A DEALER in a METROPOLITAN MARKET may challenge the creation of a new dealer-point in that METROPOLITAN MARKET if the DEALERSHIP is less than 8 kilometers direct driving distance of the proposed new dealer-point in that METROPOLITAN MARKET. [ 22 ] Rule 6(

f) goes on to state that the onus falls upon the dealer to establish that any newly proposed dealership will cause "a significant loss of sales and profits" if created. NADAP provides that in making a determination under Rule 6, an arbitrator is to balance the dealer's loss of sales and profits against the interests of the manufacturer in creating a new dealership, the collective interests of the manufacturer and all dealers, and the interests of the customers (Rule 6 (g)). [ 23 ] The requirement of good faith dealings is addressed in Rule 7 of NADAP which states:

7a. the parties to a DEALER AGREEMENT must interpret, apply, perform and enforce it in GOOD FAITH. b. If a DEALER AGREEMENT contains any unilateral or discretionary right, the party exercising such right must do so in GOODFAITH. [...] Test for Interlocutory Injunction [24] The parties agree that the test for whether injunctive relief may be granted is as established in RJR-MacDonald Inc. v. Canada(Attorney General), (SCC), [1994] 1 SCR 311, namely that an applicant must establish that: (

i) there is a serious issueto be tried; (ii) irreparable harm will be suffered if the injunction is not granted; and (iii) the balance of convenience favours granting therelief sought.

i) Is there a serious issue to be tried [25] Chrysler argues that there is no serious issue to be tried, given the contractual rights afforded under the DSSA and NADAP. Itsubmits that Chrysler was well within its rights to establish the Proposed Dealership and that there is no evidence of bad faith. In soarguing, Chrysler points to a number of factors, including: a.

Article 8(a)(

v) of the Terms and Provision of the DSSA expressly grants Chrysler the right to determine the number, size andlocation of dealerships. It also expressly allows Chrysler to appoint additional dealers within an existing dealer's sales locality when in itsopinion such an appointment is necessary. Chrysler submits that this Court should be reluctant to grant an injunction restricting a partyfrom exercising a contractual right: Edmonton Northlands v. Edmonton Oilers Hockey Corp. (1993), (AB KB), 147AR 113 (QB); b. Neither sales localities or trade zones are proprietary.

While dealers are assigned trade zones, they are free to market and sellthroughout Calgary. Trade zones have no practical impact on the business of dealers; c. The Proposed Dealership is approximately 12 kilometers from Glendeer Auto Circle. Rule 6 of NADAP creates a limited right ofdealers to challenge the creation of a new dealership only where it is less than 8 kilometers from the existing dealership; d. It announced its intention to develop an eighth dealership as early as 2006.

Following the revitalization of this project after therecession, it actively engaged its existing dealers (including Courtesy) in finding a suitable location; e. It retained Avison Young to undertake a study of available lands from which it developed a Network Optimization Plan. It alsoutilized software developed by Urban Science to assess optimal locations for the eighth dealership. The New Brighton location wasgenerally consistent with the Avison Young Report; f. It consulted the J.D.

Power and Associates 2011 Canada Customer Service Index, which indicated that location was not the onlyfactor considered by consumers in determining which dealership to patronize; g. It rejected an earlier proposed (Woody's RV) because the proposed area was within the eight kilometre zone and thereforeoffended the expectations expressed in NADAP; and

h. It discussed the McManes Group proposal with existing dealers in February of 2012. It also provided them with written notice ofits approval of the Proposed Dealership. In so doing, Chrysler complied with the notice provisions of

Article 8(a)(

v) of the Terms andProvisions of the DSSA and Rule 6 of NADAP. [26] Chrysler submits that it is critical to the success of its business that it has the right to determine the size and structure of itsdealerships and that this right is expressly preserved in the DSSP and NADAP. It argues that it has done nothing throughout the processof establishing an eighth dealership that may have offended its good faith obligations. Rather, its only motivation was to address themarket need for an additional dealership to service the requirements of the expanding South Calgary population.

It submits that none ofits actions were contrary to the original expectations of the contracting parties. [27] Courtesy argues that it has plainly established that a serious issue exists to be tried, namely, whether Chrysler has failed todeal with it in good faith. It states that this duty exists under contract, relevant legislation and at common law. [28] The contractual provisions detailing the duty of good faith dealings have been outlined above.

Specifically, Rule 7 of NADAPrequires the parties to interpret the DSSA in good faith and to exercise any discretionary rights contained in the DSSA in good faith, asdefined. [29]

Article 40 of the Terms and Provisions states that the terms of the DSSA shall be governed by the laws of Ontario. Ontarioand Alberta have almost identical legislation governing franchises.

Section 3 of Ontario's Arthur Wishart Act (Franchise Disclosure),2000, SO 2000, c 3 states: (1)Every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement. [...] (3)For the purpose of this section, the duty of fair dealing includes the duty to act in good faith and in accordance with reasonablecommercial standards. [30]

Section 7 of Alberta's Franchises Act, RSA 2000, c F-23 is identical to s 3(1) of the Arthur Wishart Act. Both statutes statethat the provisions of good faith cannot be waived under contract. [31] Courtesy directed this Court to a number of cases confirming that the relationship between franchisor and franchisee gives riseto a duty of good faith in their business dealings: Shelanu Inc. v. Print Three Franchising Corp. (2003), (ON CA),226 DLR (4th) 577 (Ont CA) para 66; McKinlay Motors Ltd. v. Honda Canada Inc. (1989) (NL SC), 80 Nfld & PEIR200 (Nfld SC TD) para 80; Katotikidis v. Mr.

Submarine Ltd. (2002) (ON SC), 26 BLR (3d) 140 (Ont SCJ) paras65-67. [32] Courtesy submits that the duty to act in good faith can be breached when one party to an agreement substantially nullifies thebargained objective or acts in a manner which is inconsistent with the reasonable expectations of the parties: Gateway Realty Ltd. v.Arton Holdings Ltd. (1991), (NS SC), 106 NSR (2d) 180 (NSSC TD) para 60-62; Landsbridge Auto Corp. v. MidasCanada Inc. (2009), 73 CPC (6th) 10 (Ont SCJ) paras 16 - 26; Mesa Operating Ltd. v.

Amoco Canada (1994), 1994 ABCA 94 ,149 AR 187 (CA) para 14. [33] Courtesy takes the position that the establishment of the Proposed Dealership nullifies the objective of its agreement withChrysler, and is inconsistent with the expectations of the parties. It contends that it assumed the risk of relocating to the south when itwas very much a developing area and that it bore financial losses during its initial years. This risk paid off as the neighbourhoodsadjacent to the Deerfoot grew.

Courtesy submits that placing the Proposed Dealership next to the Deerfoot Corridor will essentiallydivert business from its target market. [34] Courtesy submits that this is at odds with its expectations as a franchisee. It refers to the Introduction of the DSSA whichconfirms the mutuality of interest and spirit of understanding of the parties as establishing a basis for this expectation. Courtesy argues

that in establishing the Proposed Dealership the only interests Chrysler is taking into account are its own. With the significant discretion conferred to Chrysler under the DSSA and NADAP, comes the duty to act in good faith. [ 35 ] While Courtesy acknowledges that the Proposed Dealership is outside of the eight kilometre radius established under NADAP, it contends that given the fact that it is located in a largely industrial area and includes portions of the Bow River, the eight kilometre boundary is inappropriate, as it will leave Courtesy with very little residential market.

The photo exhibits attached to the affidavit of Robert Wild aptly demonstrate the geographical layout of the area in question. Courtesy relies on Shelanu , supra, para 71 for its argument that the fact that contractual terms are ultimately complied with does not mean there has not been a breach of the duty of good faith. [ 36 ] Courtesy alleges the following in arguing that Chrysler failed to act in good faith and with due regard of its interest as franchisee: a. Trade zones are established by the mid-point between two dealer locations.

The Proposed Dealership will effectively remove Courtesy's targeted communities out of its trade zone. The Proposed Dealership is located more or less in the centre of the existing trade zone, in the middle of the targeted communities. Courtesy depends on these communities for its viability; b. During the Big 4 relocation discussions, Chrysler became aware of Courtesy's position that a dealership in the proposed area would cut Courtesy off from its main customer base. The same considerations apply to the case at bar; c.

The Network Optimization Plan does not indicate that the Proposed Dealership is the optimal site. Courtesy submits that the Plan included an optimal site near Fish Creek Park (south of the proposed location). According to a letter sent out by Mr. Whiteside, Chrysler was looking to locate a new dealer-point south of Highway 22X. The site identified by Mr. Wayne Hill was also closer to Highway 22X; d. Chrysler has not examined the effects on Courtesy of establishing a new dealer at the Proposed Dealership site; e.

Chrysler informed Courtesy that it "didn't need Courtesy's consent" to approve a new location, which indicated that Courtesy's input was not valued by Chrysler; f. Chrysler refused Courtesy's request to grant it additional time to appeal the decision under the DRP. Courtesy submits that the reason for its initial delay in responding to Chrysler's approval of the Proposed Dealership was Mr. Taylor's health problems at the relevant time. It was denied any meaningful opportunity to voice its objections to Chrysler; g.

By adhering to the black letter law of the DSSA and NADAP, the spirit and intent of the franchise relationship are lost. The eight kilometre restriction is meaningless given the unique geography of the location in question; h. In any event, there is nothing in the DSSA or the NADAP which prevents Courtesy from objecting to a dealership that is located outside of the 8 kilometer zone. Rather, the NADAP simply provides an express right to do so if a proposed dealership is inside of this zone; i. Chrysler's attitude continually reflects a disregard for its obligation of good faith towards its franchisees.

Its behavior has been paternalistic and arbitrary, and is indicative of an abuse of a power imbalance; and j. The obligation of good faith acts to counterbalance Chrysler's wide-ranging unilateral contractual rights.

[ 37 ] This Court is not tasked with determining the merits of the applicant's case. In order to pass the first branch of the tripartite test in RJR-MacDonald , Courtesy must demonstrate there is a serious issue to be tried. The threshold for establishing the first branch of the test is not a high one. In order to pass, an applicant needs to show that the facts support a cause of action that is not "frivolous or vexatious": Edmonton Oilers para 58. [ 38 ] As recently discussed by the Court in Paul Sadlon Motors Inc. v.

General Motors of Canada Ltd. , 2011 ONSC 2628 , 86 BLR (4th) 144, at para 54 : On a motion for an interim or interlocutory injunction, the court is not to undertake a prolonged or detailed examination of the merits when determining whether or not there is a serious question to be tried. Presumptively, because the court must decide the question of interlocutory relief on affidavit evidence that is not fully tested and conclusive findings of fact cannot be made, the court should not engage in an extensive review of the merits.

As made clear in RJR-MacDonald, supra, the threshold "is a low one" and this element of the test is satisfied so long as it can be shown that the claim is not frivolous or vexatious. [ 39 ] The above is similar to the well known expression set out by the House of Lords in American Cyanamid Co. v.

Ethicon Ltd. , [1975] AC 396, at 407 : It is no part of the court's function at this stage of the litigation to try and resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide on difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial. ...

So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at trial, the court should go on to consider whether the balance of convenience lie in favour of granting or refusing the interlocutory relief that is sought. [ 40 ] On the facts as alleged before me, I find that Courtesy has established the existence of a serious issue to be tried vis-a-vis Chrysler.

Simply because the DSSA grants Chrysler the right to determine the number and location of its dealerships, it is not relieved of its obligation to act in good faith. Courtesy has demonstrated that it has an argument that mere compliance with contractual terms does not mean that there has not been a breach of the duty of good faith.

An argument also exists as to whether Chrysler was obligated to - and did - consider any interests other than its own. [ 41 ] Courtesy has also raised a viable argument that it is not limited from challenging the proposed location simply because it is outside of the eight kilometre zone. It suggests that an issue exists as to whether NADAP simply provides an express ability to challenge within the zone, as opposed to operating as an exclusionary rule. Moreover, the DSSA does not provide a similar restriction.

In these circumstances, there is a good argument that the location of the proposed dealership is seriously problematic and the granting of Chrylser’s approval was not made in good faith. While the ultimate success of these arguments is, of course, a matter for trial, Courtesy has established serious issues to be tried. The first branch of the tripartite test is therefore passed, with respect to Chrysler. [ 42 ] There was some debate as to whether Courtesy had established a serious issue to be tried as against the McManes Group. During questioning on his affidavits, Mr.

Taylor opined that he did not believe that the McManes Group was interfering with his contractual relations with Chrysler or was otherwise conspiring with Chrysler. Counsel for Courtesy and the McManes Group argues that this answer means that no conspiracy can be found. [ 43 ] Courtesy argues that Mr. Taylor's lay understanding of what constitutes the tort of conspiracy or unlawful interference with contractual relations cannot limit the plaintiff's cause of action against the McManes Group.

Courtesy submits that James McManes knew that Courtesy was taking the position that the location of the Proposed Dealership would cause it economic harm. Courtesy submits that on the facts, the tort of conspiracy has been made out: Mraiche Investment Corp. v. Paul , 2012 ABCA 95 , 524 AR 151.

Mraiche defines the tort of conspiracy as unlawful conduct by a defendant directed toward the plaintiff that the defendant should know in the circumstances is likely to cause injury to the plaintiff: para 4. [ 44 ] Again, the threshold for passing this branch of the tripartite test is a low one, and is satisfied so long as it can be shown that the claim is not frivolous or vexatious. James McManes has a long history with Chrysler, including as a franchisee in Calgary.

He has served on Chrysler's "President's Advisory Council" and as president of Chrysler's "Alberta's Dealers Marketing Association,” providing input into business and marketing activities. He was clearly in a position to understand Chrysler's "trade zones" concept and to appreciate the effect that opening a dealership in New Brighton might have on Courtesy.

[45] As such, an argument exists that the test has been met in that James McManes should have known that establishing theProposed Dealership in the middle of Courtesy's trade zone along the Deerfoot Corridor was likely to cause injury.

While the strength ofthis argument will be tested at trial, Courtesy has established that a serious issue exists as to whether the McManes Group committed aconspiracy or induced a breach by entering into the agreement with Chrysler. ii) will irreparable harm be suffered if the injunction is not granted [46] The concept of ‘irreparable harm' was discussed by our Supreme Court in RJR-MacDonald, at para 59: "Irreparable" refers to the nature of the harm suffered rather than its magnitude.

It is harm which either cannot be quantified in monetaryterms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former includeinstances where one party will be put out of business by the court's decision (R.L. Crain Inc. v. Hendry (1988), (SKKB), 48 D.L.R. (4th) 228 (Sask. Q.B.)); where one party will suffer permanent market loss or irrevocable damage to its businessreputation (American Cyanamid, supra); or where a permanent loss of natural resources will be the result when a challenged activity isnot enjoined (MacMillan Bloedel Ltd. v.

Mullin, (BC CA), [1985] 3 W.W.R. 577 (B.C.C.A.)). [47] Chrysler takes the position that Courtesy has failed to demonstrate that it will suffer an irreparable harm if the ProposedDealership is established. Chrysler argues that if Courtesy were successful at trial, damages would be available, quantifiable, and wouldbe sufficient to compensate any harm suffered. Chrysler relies in part on Thermo Star Products Ltd. v.

Tomlinson (1997), (AB KB), 201 AR 191 (QB) in arguing that as damages would be an adequate remedy and the defendant is in a financial positionto pay them, an interlocutory injunction should not be granted: para 21. [48] Chrysler submits that any damages alleged by Courtesy are merely speculative and that Courtesy has failed to show any "realrisk" that the alleged harm would happen. As our Court of Appeal stated in Lubicon Lake Indian Band v.

Norcen Energy Resources Ltd.(1985), 1985 ABCA 12 , 58 AR 161 at paras 30-33: 30 It is said for the appellants that irreparable harm includes any interference with livelihood because an interference with livelihoodis never adequately compensable in damages. For irreparable harm, it is said, it is not necessary to talk of destruction of livelihood. It issufficient to talk about activities which interfere with, compromise, affect, or are incompatible with the earning of the livelihood.

It issaid that "irreparable harm" means harm not adequately compensable in damages and that "adequately compensable" in turn means onlya claim which itself is a money claim. We reject this argument.

We accept the proposition in High on the Law of Injunction, 4th ed., vol.1, p. 36 that: By irreparable injury it is not meant that the injury is beyond the possibility of repair by money compensation but it must be of such anature that no fair and reasonable redress may be had in a court of law and that to refuse the injunction would be a denial of justice. 31 For the purposes of interim relief, and for the purposes of the test expressed by this court in Law Soc. of Alta. v. Black, 1983ABCA 261 , 29 Alta.

L.R. (2d) 326, this is what we mean by irreparable harm: it is harm for which no fair and reasonableredress would be available after trial. [...] 33 ...We think that the courts should not forget that an interim injunction is emergent relief. The claimant seeks a remedy withoutproof of his claim. This inversion should only be considered in cases where the harm is of such seriousness and of such a nature that anyredress available after trial would not be fair or reasonable. [49] Chrysler asserts that there is simply no objective evidence that Courtesy will be harmed upon the establishment of theProposed Dealership.

It points to an example of a new dealership which opened in Sherwood Park near Edmonton as an instance ofwhere a new dealership actually increased market share. Alternatively, it submits that if any harm does occur, Courtesy may beadequately compensated in damages.

[50] In discussing the immediacy of the harm, Chrysler argues that there is no urgency to the situation. Chrysler suggests that theProposed Dealership will likely not be operational until some time in 2014. As such, it submits that Courtesy will not actually suffer anyimmediate harm, making interlocutory relief unnecessary.

It submits that with proper management, the trial of this action can take placebefore the Proposed Dealership becomes operational and before any alleged losses are incurred. [51] In contrast, Courtesy argues that it will indeed suffer harm and that such harm will be irreparable as its prime customer basewill be largely diverted to the Proposed Dealership, causing it to suffer a permanent loss of market share and market base. Mr.

Tayloropines in his affidavit evidence that if the Proposed Dealership is established, Courtesy would cease to be a viable business. [52] Courtesy submits that it does not have to prove that damages will not be an adequate remedy. Rather, it must show that thereis doubt as to whether damages will be adequate in the circumstances: Pioneer Chrysler Ltd. v. DaimlerChrysler Canada Inc., 2002ABQB 801, 324 AR 272 at para 62. [53] In Amoco Canada Petroleum Co. v.

Alberta and Southern Gas Co. (1992), (AB KB), 130 AR 252 (QB)the Court stated, at para 41: The "doubt" about the adequacy of damages is the proper way to apply the second test seems to me to be logical given the very nature ofan interim order. As discussed earlier in regard to the threshold test, it is not the function of a judge at this stage to decide the issues.That, indeed, would be impossible given the limited material that is available. Similarly, in considering irreparable harm, there will ofnecessity be many unknowns at this stage.

To expect an Applicant to prove irreparable harm could detract from one of the basic purposesof an interim injunction, namely to preserve the status quo. As stated by Lord Diplock, the relevant question is doubt as to the adequacyof damages. [54] Courtesy also relies on Paul Sadlon Motors, the facts of which are similar to the case at bar.

In Paul Sadlon Motors, theapplicant (a car dealership in the Barrie area) sought an interlocutory injunction restraining the defendant from appointing an additionalcar dealer (Georgian) in southern half of the Barrie region, which was the area with the most growth potential and the majority ofcommercial activity. The proposed appointment would have reduced the applicant's area to the northern portion of the region and wouldreduce its current market by one-half. The DSSA between the parties contained a number of standard provisions as well as others whichwere unique to the particular dealers.

Of note, the DSSA provided that while GM had the right to appoint additional dealers, it would notdo so without first analyzing dealer network planning considerations. [55] Under the division, the applicant would be prohibited from selling vehicles in the southern half of the Barrie zone. Thedefendant expected that Sadlon's sales would fall by 50 percent. The Court recognized that the effect of the change would significantlyreduce Sadlon's market area and transfer a significant part of its market.

In holding that the Court can draw reasonable inferences fromthe facts as to the harm that may result, it held at para 92 that: Now, here, Sadlon would keep the monopoly-type advantage that it has in North Barrie, but it would be eliminated from anyparticipation in a significant way in the South Barrie market except to the extent that the marketing activity it is permitted to engage in, inthe North Barrie market, would capture for its customers who might otherwise make purchases in South Barrie.

As well, it would bevulnerable in its own market in North Barrie to the similar cross-border effects of the competition in South Barrie. Consequently, unlessthe North Barrie market is the better area in which to be located vis-à-vis South Barrie, the nature of the effect of the change on Sadlonmust be at least as adverse as the type of situation addressed in Campbell.

Simply put, not only does Sadlon lose its market in SouthBarrie, it also becomes vulnerable in North Barrie to the effect of Georgian's marketing in South Barrie. [56] In discussing whether such harm is "irreparable" the Court concluded, at paras 97-99: There is evidence that the prospective consequences are such that there is a risk to the continuing viability of the business. This evidenceis challenged on the basis that Sadlon has not produced the financial statements that would provide relevant evidence for the assessmentof this evidence.

"Irreparable harm" can be shown without showing that the business will likely collapse and fail altogether; so it is notnecessary to show that Sadlon is likely to do so. It is credible that the ongoing viability of the business would be challenged. Thatvulnerability would likely add to the adverse consequences of the loss of market share.

Submissions were made about whether the likely harm is quantifiable in monetary terms. There is evidence that projections can be made of the lost sales that will likely be suffered. Issue was taken as to whether those losses, even if they can be reasonably projected, could be shown to result from the competitive sales efforts of Georgian. However, even if the evidence were to be that Georgian had greater success in its sales than Sadlon would have had, the court would be able to take the evidence into account to determine the amount appropriate to attribute to loss of sales.

Even so, this case involves not simply a likely loss of prospective sales, but a likely loss, in effect, of a major part of the business of Sadlon together with a risk to the viability of the remaining business. These elements of the situation distinguish this case from one in which a calculation of lost sales would provide the court with a proper basis for adequate compensation. [ 57 ] Chrysler argues that Paul Sadlon Motors can be distinguished on the basis that the applicant was actually "prohibited" from selling vehicles in the south Barrie trade zone.

I do not read the Court's reasons as stating that Sadlon was contractually prohibited from selling as much as it was de facto prohibited given the more convenient physical placement of the southern dealership. In either scenario, the focus remained the real risk of loss to the viability of the business. [ 58 ] In the case at bar, both sides submitted affidavit evidence of experts tasked with evaluating the effect that the establishment of the Proposed Dealership would have on Courtesy. Mr.

Wayne Hill provided an affidavit as a commercial real estate broker who has had direct involvement with the relocation or construction of a number of motor vehicle dealerships in Calgary. In his opinion, given the geographic layout of the area in question, he opined that Courtesy relies very substantially on the residential housing growth to the south and southeast. [ 59 ] Mr. Kevin Copeland provided two affidavits as a partner of LBC International Investigative Accounting.

He provided an opinion as to the volume of business that Courtesy received from certain neighbourhoods as well as the amount of business loss required to cause Courtesy to become unprofitable. In so doing, he examined Courtesy's financial statements, and sales volume with respect to certain postal codes representing the neighbourhoods in issue. [ 60 ] The Copeland Report suggests that over the long term, a 23 percent reduction in sales in the targeted postal code areas would eliminate all of Courtesy's business earnings.

The Report states that Courtesy's volume of business related to the six different postal codes (neighbourhoods) which may be lost (to an unknown extent) to the Proposed Dealership is as follows: i. new vehicle sales: 33% ii. used vehicle sales : 23% iii. service: 40% iv. parts and accessories: 40% v. body shop: 40% (equal to service); and vi. other income: 33% (equal to new vehicle sales) [ 61 ] The Copeland Report then went on to provide estimates as to what the total revenue reduction (sales and earnings) would have to be for Courtesy to cease operating as a viable entity.

Assuming that not all of its current business would be lost to the Proposed Dealership, it ran three scenarios, based upon a 25, 50 and 75 percent business loss. It concluded that if the reduction in earnings is sufficient "there would be a real concern for the viability of Courtesy as a business." [ 62 ] Chrysler argues that Mr. Copeland's opinion has been largely undermined by a number of factors, including: (

i) he included assets and land holdings that belonged to other companies associated with Mr. Taylor in valuing Courtesy; (ii) he failed to account for certain debts and liabilities; (iii) the figures used in his three scenarios were arbitrarily chosen; (iv) his analysis of customer diversion does not take traffic patterns into account; (

v) he is operating an on assumption that sales would be lost; (vi) the information in the J.D. Powers study undermines his assumptions; and (vii) it is unknown whether the Proposed Dealership will have a body shop. Chrysler also questions the credentials of Mr. Copeland to opine in the areas of business valuation or insolvency. [ 63 ] Chrysler retained Robert White, Chartered Accountant and Business Valuator at PriceWaterhouse Coopers LLP to critique the

Copeland Report. The White Report makes a number of criticisms, including: (

i) method of capital asset valuation; (ii) profitability has been declining since 2007; (iii) the Copeland Report provides no support for the assumption that the placement of the Proposed Dealership will impact Courtesy's revenues; (iv) there was no analysis of historical financial statements; (

v) there was no rationale behind the use of the 20 percent discount rate; and (vi) there was no rationale behind the choice of the figures used in the three sales-loss scenarios. [ 64 ] Chrysler also relies on the affidavit evidence of its Dealer Network Development Manager, Mr. Kevin Whiteside so support its argument that designated trade zones are largely irrelevant. While the exhibits attached to Mr. Whiteside's affidavit do indicate that sales outside of one's zone are not unusual, I do not interpret these exhibits as rendering them irrelevant.

Indeed, I note that they are used in planning sales volumes and minimum sales responsibilities. I do not see trade zones and convenience as being mutually exclusive concepts. There is merit to Courtesy's submission that if trade zones are irrelevant, the eight kilometre rule would not be required. [ 65 ] Mr. Taylor also provided affidavit evidence as to his beliefs regarding the impact of opening the Proposed Dealership, based on his years of experience in the auto industry and his personal experience with Courtesy. Mr.

Taylor deposed that in his opinion, customers most often obtain services from the most convenient dealership, especially in the case of the parts and services department. [ 66 ] Chrysler submits that Mr. Taylor's opinion as to the effect of the Proposed Dealership is not supported by any objective evidence. Rather, it argues that "trade zones have no practical impact on the business of a dealer". While I accept that trade zones are not proprietary, I find this statement difficult to accept on a common sense basis.

As I understand the Copeland Report (supplemental affidavit), the largest percentage of business for each of the categories mentioned comes from the "T2Z" postal code. This is the same postal code area (neighbourhood) in which the Proposed Dealership would be placed. While the exact percentage of business lost to the Proposed Dealership remains an unknown, to argue that no business will be lost is unrealistic. [ 67 ] In disputing other evidence put forward by Chrysler in an attempt to show that Courtesy is simply speculating as to loss, Courtesy submits that the J.D.

Powers document has been produced without context, is for a Canada-wide market as opposed to the Calgary market, and as such, generally lacks relevance. Courtesy also submits that the effect on market share upon the introduction of the Sherwood Park dealership has no bearing on the Calgary market. Furthermore, it argues that no evidence was introduced showing the effect of the introduction of the Sherwood Park dealership on individual dealers in the area. [ 68 ] Again, this is a motion for an interlocutory injunction. The ultimate persuasiveness of any expert witness, as well as of lay witnesses such as Mr.

Taylor who might opine as to their personal experience in the industry, will be evaluated on the witness stand. In any event, the Copeland Report opined on the volumes of business Courtesy receives from the neighbourhoods in issue. This evidence was not subject to any meaningful challenge. [ 69 ] In Paul Sadlon Motors the Court stated that it can draw a reasonable inference from the facts as to the harm that may result.

Although the actual level of business lost to the Proposed Dealership will not be known until such time as it is operational, I am satisfied that there exists a real risk that the opening of the Proposed Dealership will do more than simply interfere with Courtesy's business. Rather, Courtesy has established the existence of a genuine risk that its ongoing viability as a business may be compromised.

This is an injury that would not be fairly redressed through an award of damages following trial. [ 70 ] While I acknowledge that the risk of such harm will not actually materialize until the opening of the Proposed Dealership, I do not think the fact that the opening is not imminent must be fatal to this application. The test is whether an applicant will suffer an irreparable harm; the timing of the harm is not necessarily determinative. Chrysler has not provided this Court with any authority stating that a future harm can not meet the test for an injunction.

Moreover, it seems nonsensical for an applicant to be forced to await the eve of its financial ruin before applying for injunctive relief. [ 71 ] This said, I do recognize that it is prudent to examine the urgency of the harm complained of: ICF Spry, The Principles of Equitable Remedies , 5th ed (Toronto: Carswell, 1997) at 459. In the case at bar, the initial time line governing the development of the Proposed Dealership is set out in the letter of February 22, 2012 from Chrysler to the McManes Group (the "Letter").

Courtesy itself argues that the date of opening is not imminent (the letter provides that the construction and financing completing date is set for March 1, 2014). However, I note that even with case management procedures in place, given the current stage of this litigation, it may not be possible to have the ultimate issues determined by a trial court prior to the Proposed Dealership becoming operational.

iii) the balance of convenience [ 72 ] The last branch of the tripartite test calls upon the Court to determine which of the parties will suffer a greater harm from the granting or the refusal to grant an interlocutory injunction. [ 73 ] Chrysler puts forward two main arguments on why the balance of convenience favours not granting the injunction. First, it submits that its contractual and commercial independence, as well as its financial interest, would be harmed. It argues that it has invested time and financial resources since 2006 in locating and securing a much-needed eighth dealership.

It argues that it risks losing an opportunity to develop its market share if it is not allowed to proceed, which will in turn negatively affect profit. Along the same lines Chrysler argues that allowing the injunction will set a dangerous precedent for other dealerships, as it is clearly acting within its contractual rights. [ 74 ] Chrysler submits that the McManes Group risks being placed in a position where it may be unable to recover its investment on the properties.

At the very least, it will suffer a detriment by having funds tied up in property that is not producing revenue during the course of this litigation. [ 75 ] Second, Chrysler argues that where non-parties to the proceedings would be caused damage or inconvenience, these interests should be considered: Pioneer Chrysler Ltd. , para 63 ; Edmonton Oilers , para 85.

It argues that the remaining dealerships will be negatively impacted by the injunction and will suffer harm in that they will be denied the increased market share that it submits would accompany the addition of the eighth dealership. [ 76 ] Chrysler maintains that on the whole of the evidence, granting the injunction and prohibiting the development of the Proposed Dealership until after trial would cause the greater harm. It argues that everything else being equal, it is a counsel of prudence to preserve the status quo.

It submits that in this case, the "status quo" is the continued development of the Proposed Dealership. [ 77 ] Courtesy rejects Chrysler's argument that it will suffer the greater comparative harm for a number of reasons. First, it argues that Chrysler will not suffer an irreparable harm if the injunction is granted. Rather, as this undertaking has been in the works since 2006, there is clearly no urgency to the situation.

Conversely, if the Proposed Dealership opens, Courtesy risks ceasing operation as a viable business. [ 78 ] Courtesy also suggests Chrysler must remain mindful of the fact that its contractual rights to expand its business are not absolute. Rather, they must be interpreted alongside its good faith obligations, as defined under contract but also as arising under statute and the common law.

Courtesy thus suggests that Chrysler cannot put forward its right to "contractual and commercial independence" as a consideration under this branch of the tripartite test if such rights are being asserted in violation of its good faith obligations. A similar argument exists in addressing Chrysler's concern that granting an injunction might set a dangerous precedent for its relations with other dealerships. [ 79 ] Courtesy points out that Chrysler bears no liability or exposure to the McManes Group if the injunction is granted.

It notes that the Letter provides for a development time line and also grants Chrysler with the discretion to extend any stated development period. I note as well that the letter does state that "time is of the essence" in developing the Proposed Dealership. [ 80 ] Courtesy notes that the only evidence from the McManes Group as to harm is a bare assertion in July 10, 2012 affidavit of James McManes wherein he states that Courtesy's interference has put the real estate transaction in jeopardy and will cause them to sustain a loss.

As Courtesy points out, there is no evidence that the completion of the real estate transaction was conditional on securing a dealership agreement. [ 81 ] In addressing the harm allegedly suffered by the remaining dealers, Courtesy argues that Chrysler has failed to introduce any evidence that the establishment of the Proposed Dealership will actually increase (as opposed to merely redistribute) market share.

It notes that there is no evidence from any of the existing dealers in support of the establishment of the Proposed Dealership. [ 82 ] During oral argument Courtesy contested Chrysler's definition of the "status quo". Rather, Courtesy takes the position that maintenance of the status quo means maintaining the state of affairs which existed before the alleged tort occurred.

[ 83 ] After examining the harm that each party submits it will suffer from either the granting or the refusal to grant an interim injunction, I am persuaded that Courtesy will suffer the greater harm. While Chrysler may suffer an inconvenience caused by delay in pursuing the project, which I accept may result in an overall short term loss of a potential expansion of market share in Calgary and connected profit, this is not as detrimental as the risk of harm facing Courtesy.

Indeed, Chrysler has discretionary power to extend any of the time lines established in the Letter, with the result that the project will not be lost should a slight delay occur. I agree with Courtesy's submissions that Chrysler cannot properly assert that it will be harmed through an inability to exercise its contractual rights, if in so doing it breaches its good faith obligations owed to its dealers. [ 84 ] In addressing the alleged third party concerns, I agree that there is a lack of evidence as to any harm that will be suffered by the remaining dealers.

As noted above, the studies in evidence were focused on the effects that an additional dealership would have on Chrysler. In examining the harm suffered by the McManes Group, while I acknowledge that the injunction will impact the time line outlined in the Letter, if the Defendants are successful at trial and if the location is as key as Chrysler claims, extensions of any time periods may be made.

I note that during questioning on his affidavit, James McManes indicated that it was his understanding that Chrysler would be "flexible" with respect to the time frames set out in the Letter. [ 85 ] Turning next to the objective of maintaining the status quo, I find Courtesy's definition of this state of affairs preferable over Chrysler's. As Spry states, at 453-454: ...So Cotton L.J. referred to an application for an interlocutory injunction.

"The object of which is to keep things in status quo, so that if at the hearing the plaintiffs obtain a judgment in their favour, the defendants will have been prevented from dealing in the meantime with the property in such as way so to make that judgment ineffectual". [ 86 ] Moreover, preservation of the status quo is meant to act as a determining consideration where all other factors are equally balanced: American Cyanamid , 408.

In the current case I have not found the remaining factors to be evenly balanced. [ 87 ] While I accept that both Chrysler and the McManes Group may suffer some inconvenience, be it in lost market share (Courtesy) or delayed profit realization (both), this harm does not match the risk of harm to the ongoing viability of Courtesy's business. The balance of convenience favours granting the injunction. Conclusion [ 88 ] Courtesy has established each branch of the tripartite test set out in RJR MacDonald .

As such, it is awarded an Order granting an interim injunction pending trial and more specifically: a. prohibiting the Defendant Chrysler from permitting or approving the placement of a new franchise automobile dealership for the Defendant McManes Group at the proposed location at or near 130 Avenue and 52nd Street SE, Calgary, Alberta; and b. directing that no further steps be taken by either of the Defendants to effect the Proposed Dealership or from taking any further steps with respect to the establishment of the Proposed Dealership pending a final determination in the within action. [ 89 ] The granting of this Order is subject to an undertaking by Courtesy to abide by any order that this Court may make as to damages. [ 90 ] If the parties are unable to agree as to costs, they may appear before me within 45 days of the issuance of this decision.

Heard on the 7 th day of September, 2012. Dated at the City of Calgary, Alberta this 26 th day of October, 2012. K. M. Eidsvik J.C.Q.B.A. Appearances: Donald J. Chernichen, Q. C. Douglas McGillvray, Q. C. Douglas S. Nishimura Burnet, Duckworth & Palmer LLP for the Plaintiff, Courtesy Chrysler

(1987) Ltd. Jeffrey D. Vallis, Q. C. Borden Ladner Gervais LLP for the Defendant, Chrysler Canada Inc. James Thornborough Thornborough Smeltz LLP for the Defendants, McManes Automotive Grays and XYZ Alberta Ltd.