MTY Tiki Ming Enterprises INC. Plaintiff And: Azmy Enterprises INC. First Defendant And: Walid Azmy Second Defendant, 2018 NLSC 169

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : MTY Tiki Ming Enterprises v. Azmy Enterprises Inc. , 2018 NLSC 169 Date : August 17, 2018 Docket : 201801G2542 Between: MTY Tiki Ming Enterprises INC. Plaintiff And: Azmy Enterprises INC. First Defendant And: Walid Azmy Second Defendant Before: Justice Rosalie McGrath Place of Hearing: St. John’s, Newfoundland and Labrador Date(

s) of Hearing: May 8 and June 28, 2018

Summary: The Plaintiff franchisor sought an interlocutory injunction to refrain the Defendants from operating a business in alleged contravention of a restrictive covenant. The Court dismissed the application on the basis that the Plaintiff had not demonstrated a strong prima facie case or that it would suffer irreparable harm if the injunction were not granted. Further, even if those first two steps of the test for interlocutory injunctive relief had been met, the balance of convenience favoured the denial of the application.

Appearances: Darren D. O'Keefe and Appearing on behalf of the Plaintiff Patrick B. Power Harold M. Smith, Q.C. Appearing on behalf of the Defendants Authorities Cited: CASES CONSIDERED: Hurley v. Slate Ventures Inc. (1996), (NL SC), 136 Nfld. & P.E.I.R. 341, 60 A.C.W.S.(3d) 285 (Nfld. S.C. (T.D.)); RJR - MacDonald Inc. v. Canada (Attorney General), (SCC), [1994] 1 SCR 311;American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396; R. v. Canadian Broadcasting Corp., 2018 SCC 5; Co-operators GeneralInsurance Co. v. Stoyles (2000), (NL SC), 189 Nfld. & P.E.I.R. 63, 96 A.C.W.S. (3d) 476 (Nfld. S.C. (T.D.));Simoni v.

Sugarman (2000), (NL SC), 185 Nfld. & P.E.I.R. 196, 94 A.C.W.S. (3d) 680 (Nfld. S.C. (T.D.)); PodiatryAssociates Inc. v. Sugarman, 2011 NLTD(G) 168; Target Marketing & Communications Inc. v. MacDonald (1998), (NL SC), 169 Nfld. & P.E.I.R. 214, 83 A.C.W.S. (3d) 405 (Nfld. S.C. (T.D.)); Arvak Management Inc. v. McKee (1983) 40 Nfld. &P.E.I.R. 116, 19 A.C.W.S. (2d) 116 (Nfld. S.C. (T.D.)); Jones v. Bay Roberts (Town), 2017 NLTD(G) 134 STATUTES CONSIDERED: Statute of Frauds (29 Car 2 c 3), 1677 (U.K.) TEXTS CONSIDERED: Robert J.

Sharpe, Injunctions and Specific Performance (Looseleaf Edition, Canada Law Book Inc., 1992) RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D REASONS FOR JUDGMENT McGrath, J.: INTRODUCTION [1] The Plaintiff, MTY Tiki Ming Enterprises Inc. (“MTY”), is the franchisor of Extreme Pita franchises. As Applicant, MTYseeks an interlocutory injunction restraining, enjoining and prohibiting the Defendants, or anyone on their behalf, from continuing tooperate a restaurant called Stuff-it Pita in the City of Mount Pearl, in the Province of Newfoundland and Labrador.

The Plaintiff allegesthe operation of this restaurant is in breach of a restrictive covenant contained in a franchise agreement between MTY and theDefendants. The restrictive covenant was for a duration of one year following termination of the franchise agreement. [2] The Defendants deny that they have, either individually or collectively, breached any restrictive covenant, alleging that thefranchise agreement between the Plaintiff and Defendants expired on August 28, 2016 rather than August 28, 2017 as alleged by thePlaintiff.

The Defendants say they did not commence operating Stuff-it Pita until November 2017, after the one-year restrictive covenantexpired. The Defendants further deny that the restrictive covenant is otherwise valid. Background

[ 3 ] MTY is the successor franchisor under a franchise agreement dated August 28, 2006, originally entered into between Extreme Franchising Inc., as franchisor, and a corporation to be incorporated by Walid Azmy (Azmy Enterprises Inc.) as franchisee (the “Franchise Agreement”), with Walid Azmy as guarantor. The Franchise Agreement was for a term of ten years and contemplated Mr. Azmy’s corporation operating an Extreme Pita location at 150 Old Placentia Road, in the City of Mount Pearl.

As part of the franchise arrangement, the franchisor was to enter into a head lease with the owner of the plaza in which the restaurant was located with the franchisor subleasing the premises to Mr. Azmy’s corporation. [ 4 ] In the Statement of Claim, MTY pleads that it assumed all rights and obligations of the franchisor under the Franchise Agreement effective September 6, 2013. Further, MTY states that the head lease was formally assigned to it pursuant to an omnibus assignment of lease agreement dated September 6, 2013.

The head lease had previously been extended and amended such that it had a termination date of October 2, 2017. However, there was no reference in the pleadings or evidence presented at the hearing to indicate there was any assignment or extension of the sublease prior to the dispute giving rise to this claim. [ 5 ] With respect to both the Franchise Agreement and sublease, it is not disputed that the term of the original agreements were to expire on August 28, 2016. However, there is a dispute as to whether the date of termination was extended beyond August 28, 2016.

It is essential to MTY’s claim that it establish such extension as it must prove that the restrictive covenant contained in

Section 16.01(

b) of the Franchise Agreement (the “Restrictive Covenant”) operates until August 28,

Section 16.01(

b) reads as follows: (

b) During the one (1) year period immediately following Termination, neither you nor the Guarantor shall either individually or in partnership or in conjunction with any person or persons, firm, association, syndicate or company as principal, agent, shareholder, employee or in any other manner whatsoever, directly or indirectly, carry on or be engaged in or concerned with or interested in the operation of any business which consists substantially of the sale of sandwiches, pizzas, pita bread, wraps and soups as your main product line (“Competitive Business”) and which is located (

i) in the Territory, or (ii) within twenty (20) kilometres of any of our Extreme Pita locations or any corporate of [sic] franchised locations of RDHR or any franchisees or master franchisees of the RDHR Affiliates. [ 6 ] While this

section refers to RDHR rather than the franchisor, the recitals to the Franchise Agreement indicate that RDHR is RDHR Investments Holdings Inc., originator and developer of the Extreme Pita Franchise System (as defined therein). Further, the trademarks, copyrighted material and goodwill associated with that Franchise System are stated to be owned by RDHR, its subsidiaries or affiliates.

RDHR provided Extreme Branz (affiliated with the original franchisor) with the exclusive right to license and utilize the Extreme Pita Franchise System and the trademarks, goodwill, etc. associated with them to non-exclusive franchisees, such as the Defendants, wishing to operate Extreme Pita restaurants. [ 7 ] While the Defendants assert that the Restrictive Covenant is not enforceable generally, the evidence at this hearing focused primarily on whether there was an extension of the Franchise Agreement beyond August 28, 2016 as opposed to the enforceability of the Restrictive Covenant.

MTY presented an original and supplementary affidavit from Danielle Elias, Director of Operations for MTY, while Walid Azmy provided both a response and supplementary affidavit on behalf of the Defendants. Both Ms. Elias and Mr. Azmy were cross-examined on their affidavits. [ 8 ] The Plaintiff’s evidence indicates that in April 2016, Ms. Elias advised Mr. Azmy that, based on Mr. Azmy’s current operations and struggles to maintain operating costs, MTY would not be renewing the term of the Franchise Agreement. However, it appears Mr. Azmy had indicated to Ms.

Elias that he had previously signed a document with MTY either renewing or extending the term of the Franchise Agreement for an additional year beyond August 28, 2016. Ms. Elias stated she could not find any amendment to the Franchise Agreement extending its term, and she asked Mr. Azmy to provide a copy. [ 9 ] In further emails in June 2016, Mr. Azmy indicated that he had signed an extension agreement when dealing with Mr. Ron Simard, formerly with MTY. Ms. Elias responded by again asking that Mr. Azmy present a signed copy as the agreement would have required a signature.

She also said she would see if they could reach out to Mr. Simard. Mr. Azmy responded by saying that he had spoken with Ron, who had agreed that an extension agreement had been signed on a visit with Mr. Simard and someone named Sebastian. During cross-examination, Ms. Elias said Sebastian documented to MTY that he had not been present or a witness to any such document. [ 10 ] No evidence was presented of any follow-up correspondence in the next several months on the issue of the extension. Nevertheless, Mr.

Azmy continued to operate a restaurant selling pitas and other food products at the same location after August 2016. He also continued to pay rent for the premises, albeit a reduced rent as a result of a dispute over what he alleged were overcharges for utilities. [ 11 ] In explaining why the Plaintiff allowed the Defendants to continue to operate without having documentary evidence of a signed extension, Ms. Elias stated that MTY hired a new Brand Vice-President in October 2016. She said this individual felt he could work with Mr. Azmy and keep the location open. Ms.

Elias also says it is her understanding that Ron Simard had verbally confirmed with someone at MTY that the Franchise Agreement had been extended for one year. She understood the legal department for MTY then gave advice in late 2016 that MTY had to honour the one-year extension. There was no documentary or affidavit evidence introduced to confirm any conversation with Mr. Simard or an internal decision to confirm the extension other than the hearsay evidence of Ms. Elias. To the knowledge of Ms.

Elias, no signed extension agreement was ever located. [ 12 ] There is, however, documentary evidence that the in-house legal department for MTY wrote to Mr. Azmy on January 27, 2017 indicating that: …As you have stated in your emails of April 14, 2016 and June 9, 2016, sent to Danielle Elias (attached hereto) the Franchise Agreement was extended by both parties to the end of August of 2017. Presently the Franchisor is hereby proposing that the Franchise Agreement be extended to October 30, 2017.

Should you not agree to this two (2) month extension, your Franchise Agreement will terminate on August 28, 2017. [ 13 ] In an email of January 30, 2017, Mr. Azmy replied that he agreed to an extension and would have his lawyer look at the

proposed agreement. By letter dated February 2, 2017, a proposed Franchise and Sublease Amending Agreement was sent to theDefendants for signature. This agreement proposed to amend

Section 2.01 of the Franchise Agreement by extending the term to end onOctober 1, 2017. MTY’s correspondence said that, failing receipt of a signed agreement by February 10, 2017, the offer would beconsidered rejected. [14] Having failed to receive a signed agreement, legal counsel with MTY wrote Mr. Azmy on February 10, 2017 advising that theFranchise Agreement would terminate on August 28, 2017.

However, should he be interested in extending to October 1, 2017 (notingthat the lease expired October 2, 2017 as opposed to the end of October 2017 as mistakenly referenced in previous correspondence),MTY would consider extending until that time with a requirement that there be a signed extension agreement. Mr. Azmy did notrespond. [15] Mr. Azmy’s evidence was that he did not sign the proposed Franchise and Sublease Amending Agreement as it would haveextended the term of the Restrictive Covenant.

He says that, while he had continued to operate the premises after August 28, 2016, hewas not operating it as an Extreme Pita franchise. In particular, he was not using the new Extreme Pita menu, nor was he using therecipes or ingredients required by the franchisor. [16] This non-compliance with the terms of the original Franchise Agreement was confirmed in reports entered into evidence byMTY. However, Ms. Elias indicated that MTY nevertheless still felt things could turn around. In particular, she said that it is herunderstanding that Mr.

Azmy, in a conversation with MTY’s Brand Vice-President, confirmed that he would become compliant. [17] However, MTY eventually made written demands on the Defendants to comply with the franchise requirements and pay rentalarrears. This culminated in MTY giving the Defendants notice that it was terminating both the sublease and the Franchise Agreementeffective late August 2017. MTY eventually arranged for a bailiff to assist in taking possession of the premises on September 1, 2017and seizing assets and equipment of the Defendants for arrears of rent. [18] Mr.

Azmy then leased premises at 74 Old Placentia Road, Mount Pearl, in September 2017 from which he began operating theStuff-it Pita restaurant in November 2017. This restaurant sells products similar to, but not identical to, the menu items offered atExtreme Pita locations. While Mr.

Azmy referred only to his own personal operation of this new restaurant, for the purposes of thisinterlocutory application, I will refer to both Defendants as potential operators of the restaurant. [19] MTY became aware of the existence of this restaurant and sent a cease and desist letter to the Defendants dated December 5,2017 alleging that the operation of Stuff-it Pita violated the Restrictive Covenant. Mr. Azmy continued to operate the Stuff-it Pitalocation despite this letter.

MTY then filed a Statement of Claim and this Interlocutory Application with the Court on April 4, 2018. [20] In the Statement of Claim, the Plaintiff seeks a declaration that the Restrictive Covenant is enforceable and the operation of theStuff-it Pita location contravenes it. It also seeks general and special damages for breaches of the Franchise Agreement and non-payment of amounts due under the sublease, in addition to other relief.

In this Interlocutory Application, the Plaintiff seeks aninterlocutory injunction restraining, enjoining and prohibiting the Defendants, anyone acting on their instructions or with their authority,or any person having notice of the proposed order, from continuing to operate Stuff-it Pita without further order of the Court. ThePlaintiff alleges that the Defendants’ operation of the Stuff-it Pita location has and will continue to cause it irreparable harm, includingloss of goodwill, brand status and recognition, as well as dilution of the franchise brand marks and franchise systems.

ISSUE [21] The issue that I must therefore decide is whether to grant an interlocutory injunction in relation to the Defendants’ operation ofthe Stuff-it Pita restaurant. Law and analysis [22] In the original briefs submitted by both the Plaintiff and Defendants, both counsel submitted that, in order to obtaininterlocutory injunctive relief, a plaintiff must generally show: (

a) that there is a serious question or issue to be tried; (

b) that the damage which will be sustained by the Plaintiff without an injunction will be irreparable, in that it cannot be adequatelycompensated in damages; and (

c) that the balance of convenience favours the granting of the injunction. [23] In the 1996 decision of this Court in Hurley v. Slate Ventures Inc. (1996), (NL SC), 136 Nfld. & P.E.I.R.341, 60 A.C.W.S. (3d) 285 (Nfld. S.C. (T.D.)), this three-part test was broken down further at paragraph 25 as follows: 1. The applicant must show that there is a serious issue to be tried, in the sense that the claim is not frivolous or vexatious. 2.

The applicant must show he or she is suffering or will likely suffer irreparable harm, namely, loss that cannot be readily assessed interms of money or, if it can be so assessed, a loss that will be uncollectible. 3. The applicant should give an undertaking in damages that would be adequate, if the respondent were to succeed at trial, to compensatethe respondent for loss sustained because of the granting of the injunction. The person giving the undertaking ought, as a general rule, tobe in a financial position to honour the undertaking if called upon.

4. Where there is doubt as to the adequacy of the respective remedies in damages available to either party, the applicant must then satisfythe court that the balance of convenience favours the granting of the injunction. In considering this factor, the court must look at andbalance, among other things, the degree of irreparable harm that may be suffered by the Plaintiff, if the injunction were not granted andby the Defendant, if the injunction were granted. The existence and strength of the undertaking offered by the applicant is a factor to beconsidered in the determination of the balance of convenience. 5.

Where the application of the balance of convenience test leads to no clear resolution, the court will normally seek to preserve thestatus quo. 6.

Where the status quo is uncertain or its preservation is not a desirable result the court may consider the relative strength of each party'scase and if the merits on one side appear to be disproportionately greater than the merits of the other then the injunctive relief should begranted or denied accordingly. [24] However, with respect to the first step of the test, when the matter was called before the Court on May 8, 2018, I queriedwhether the parties had considered the statements of the Supreme Court of Canada in RJR - MacDonald Inc. v.

Canada (AttorneyGeneral), (SCC), [1994] 1 SCR 311 that, in some cases, a plaintiff may be required to prove that it has a strong primafacie case as opposed to establishing the existence of a serious issue to be tried. [25] On re-examination of the case law, the Defendants filed a supplemental brief before the continuation of the hearing on June 28,2018, submitting that the Plaintiff must establish the higher standard of a strong prima facie case.

The Plaintiff also filed a supplementalbrief, continuing to assert that the appropriate step one test was that of a serious issue to be tried, but stating that, in any event, if thePlaintiff was required to meet the higher standard of strong prima facie case, it had done so.

The Plaintiff also submitted that, as theparties had initially proceeded on the basis that the appropriate test was that of a serious issue to be tried, the Defendants should not beallowed to renege on this position and assert that the appropriate test is that of a strong prima facie case. [26] With respect to the latter submission by the Plaintiff, while it is correct that the Defendants’ initial brief identified the lowerthreshold test, both parties were aware when the matter was first heard on May 8 that I would like them to address the issue of the test tobe applied at step one.

As the matter could not finish on the initial date, another date was set for the matter to continue on June 28,2018. As such, both parties had sufficient time to file supplemental briefs before making oral submissions. The issue was also raised insufficient time for counsel to request leave to file additional affidavit evidence if they felt it was needed. No such request was made. Inthese circumstances, it is appropriate and fair for me to consider the parties’ supplemental briefs and decide the issue based upon theevidence and all submissions.

In any event, as will be apparent later in these reasons, the decision on step one does not affect the overallresult. [27] Based on the evidence and law presented, I will therefore now consider each aspect of the test for the granting of aninterlocutory injunction. 1. Serious Issue versus Strong Prima Facie Case [28] In RJR - Macdonald, the Supreme Court of Canada followed a prior decision of the House of Lords in American Cyanamid Co.v.

Ethicon Ltd., [1975] A.C. 396, which held that, on an interlocutory injunction application, it is generally sufficient for a plaintiff tosatisfy the court that its claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.

However, the courtnoted two exceptions, and a possible third, that apply to the general rule that a judge should not engage in an extensive review of themerits. [29] At page 338, the Supreme Court of Canada noted that the first exception arises when the result of the interlocutory applicationwill, in effect, amount to a final determination: This will be the case either when the right which the applicant seeks to protect can only be exercised immediately or not at all, or whenthe result of the application will impose such hardship on one party as to remove any potential benefit from proceeding to trial.

IndeedLord Diplock modified the American Cyanamid principle in such a situation in N.W.L. Ltd. v.

Woods, [1979] 1 W.L.R. 1294 , at p. 1307: Where, however, the grant or refusal of the interlocutory injunction will have the practical effect of putting an end to the action becausethe harm that will have been already caused to the losing party by its grant or its refusal is complete and of a kind for which moneycannot constitute any worthwhile recompense, the degree of likelihood that the plaintiff would have succeeded in establishing his right toan injunction if the action had gone to trial is a factor to be brought into the balance by the judge in weighing the risks that injustice mayresult from his deciding the application one way rather than the other. [30] The second exception to the American Cyanamid prohibition is noted at page 339 of RJR – MacDonald.

This arises when thequestion of constitutionality presents itself as a simple question of law alone. The third possible exception may exist in a private lawcontext where the factual record is largely settled prior to the application being made. The second exception, and possible third, do notapply on this application. What may be applicable is the first exception. [31] In their supplemental Memoranda of Fact and Law, both counsel referred to the recent decision of the Supreme Court ofCanada in R. v.

Canadian Broadcasting Corp., 2018 SCC 5, in which the court found that, in considering whether to grant a mandatoryinterlocutory injunction, the appropriate criterion for assessing the strength of the applicant's case is not whether there is a serious issue

or question to be tried, but rather whether the applicant had demonstrated a strong prima facie case. At paragraphs 15 and 16, the courtnoted that this is because it is often costly and burdensome for a defendant to take positive steps to restore the status quo or place thesituation back to what it could have been. As well, there are potentially severe consequences for a defendant which can result from amandatory interlocutory injunction, including the effective final determination of the action in favour of the Plaintiff. An extensivereview of the merits is therefore required at the interlocutory stage.

These concerns are similar to those previously expressed by theSupreme Court of Canada in the first exception in RJR – MacDonald. [32] The Defendants also note that the higher threshold of a strong prima facie case has been regularly applied in cases in which aplaintiff is seeking an interlocutory injunction to enforce a restrictive covenant. [33] The Defendants therefore state that the higher threshold of a strong prima facie case applies on this application both becausethe Plaintiff is seeking to enforce a restrictive covenant and it is effectively seeking a mandatory interlocutory injunction.

On the otherhand, the Plaintiff asserts that what it is seeking is a prohibitive injunction.

The Plaintiff also does not agree that the law in this Provinceestablishes that the higher threshold test applies to interlocutory injunction applications seeking enforcement of a restrictive covenant. [34] In determining whether the relief being sought is a mandatory or prohibitive injunction, I note that at paragraph 16 of CanadianBroadcasting Corp., the Supreme Court of Canada commented on the difficulty in distinguishing between prohibitive and mandatoryinjunctions as follows: 16 …While holding that applications for mandatory interlocutory injunctions are to be subjected to a modified RJR — MacDonaldtest, I acknowledge that distinguishing between mandatory and prohibitive injunctions can be difficult, since an interlocutory injunctionwhich is framed in prohibitive language may "have the effect of forcing the enjoined party to take ... positive actions".

For example, inthis case, ceasing to transmit the victim's identifying information would require an employee of CBC to take the necessary action toremove that information from its website. Ultimately, the application judge, in characterizing the interlocutory injunction as mandatoryor prohibitive, will have to look past the form and the language in which the order sought is framed, in order to identify the substance ofwhat is being sought and, in light of the particular circumstances of the matter, "what the practical consequences of the ... injunction arelikely to be".

In short, the application judge should examine whether, in substance, the overall effect of the injunction would be to requirethe defendant to do something, or to refrain from doing something. [35] With respect to its position that the injunction being sought is prohibitive, the Plaintiff submits that what it is seeking is aninjunction ordering the Defendants to refrain from continuing to operate Stuff-it Pita.

The Plaintiff asserts that this would not require theDefendants to undertake any positive course of action, such as was required of CBC in Canadian Broadcasting Corp. in which the courtfound that the positive action required of CBC was for them to remove their published content. [36] On the other hand, the Defendants state that if the injunction is granted, Mr. Azmy will be required to shut down an ongoingbusiness, including taking positive actions to cease individuals’ employment and destroy existing product inventory.

The practicalconsequences of the interlocutory injunction would effectively require the Defendants to do something as opposed to refrain from doingsomething. [37] With respect to the Defendants’ other submission that the higher threshold test applies to injunctions seeking to enforcerestrictive covenants, counsel for the Defendants refers to the 2000 decision of Adams, J. of this Court, in Co-operators GeneralInsurance Co. v. Stoyles (2000), (NL SC), 189 Nfld. & P.E.I.R. 63, 96 A.C.W.S. (3d) 476 (Nfld. S.C. (T.D.)).

Adams, J. underlined the comments of the Supreme Court of Canada in RJR – MacDonald that an exception to the serious issue testarises when the result of the interlocutory motion will in effect amount to a final determination of the action. He also noted that Barry, J.(as he then was), completed a useful analysis of the historical development of the law in this area in Simoni v. Sugarman (2000), (NL SC), 185 Nfld. & P.E.I.R. 196, 94 A.C.W.S. (3d) 680 (Nfld. S.C. (T.D.)), noting that an interlocutory injunctionseeking enforcement of a restrictive covenant may fit within the first exception in RJR – MacDonald.

This may be the case where,because of the duration of the restrictive covenant, a non-competition clause will have expired by the time the matter comes to trial andis finally decided.

However, Barry, J. did not need to make a finding on that issue in that case him as the parties had agreed to proceedon the basis of a determination on stage 3 of the RJR - MacDonald test; i.e., the balance of convenience. [38] In line with Barry, J.’s reasoning in Simoni, at paragraph 29 of the Co-operators General Insurance, Adams, J. held that thefirst step in an interlocutory injunction application seeking enforcement of a restrictive covenant is for a plaintiff to establish a strongprima facie case, both because it would likely be the final decision on the issue and whatever damage either side would have sufferedwould be complete. [39] In coming to his conclusion on the higher threshold test, Adams, J., at paragraph 28, also referred with approval to the learnedauthor’s comments in Sharpe, Injunctions and Specific Performance (Looseleaf Edition, updated to November 1999, Canada Law BookInc.).

In that text, the author noted that the exception to the serious issue test in American Cyanamid had been accepted by the SupremeCourt of Canada with the court cautioning that the circumstances in which it would apply would be rare. Classic examples were casesinvolving picketing and covenants in restraint of trade. [40] It is notable that by the time the 2017 version of Sharpe’s Injunctions and Specific Performance was issued, updated to June21, 2018, the authors of the text note at

Section 2.210 that: Despite the court’s caution that the circumstances in which it would apply would be rare, there is now a very long list of situations inwhich it has been applied. Classic examples are cases involving picketing and covenants in restraint of trade. [underlining added] [41] On the other hand, the Plaintiff cites cases from this jurisdiction in which the lower threshold was applied. In particular, thePlaintiff refers to the decisions in Podiatry Associates Inc. v. Sugarman, 2011 NLTD(G) 168 and Target Marketing & CommunicationsInc. v.

MacDonald (1998), (NL SC), 169 Nfld. & P.E.I.R. 214, 83 A.C.W.S. (3d) 405 (Nfld. S.C. (T.D.)),where theapplications proceeded on the serious issue to be tried test.

[ 42 ] However, in both those cases the application judge specifically noted that the parties were in agreement on the general law concerning the test to be applied. As such, the judge was not asked to decide that issue. At paragraphs 9 and 10 of the Target Marketing decision, Justice Barry, then sitting as a Justice of this Court, specifically noted that the parties agreed between themselves on the general law and that the issue would come down to a decision on the balance of convenience and an analysis of the usual questions relating to restrictive covenants.

At paragraph 36, Barry, J. again noted that he was asked to interpret the contract of employment to determine whether its restrictive covenants were enforceable by injunction before a trial. That was the scope of the argument placed before him. [ 43 ] It is also notable that Barry, J. was the application judge who, two years later, decided the interlocutory injunction in Simoni .

In Simoni , Barry, J. noted at paragraph 15 that, similar to the Target Marketing case, the parties both proceeded on the basis that the Plaintiff must show that there was a serious question to be tried with both agreeing that the first hurdle had been met.

However, at paragraph 16, Barry, J. noted that: 16 … in determining whether to grant an interlocutory injunction to restrain a breach of a covenant in restraint of trade, the courts will normally ask whether the applicant has shown a strong prima facie case, rather than just a serious issue to be tried. [ 44 ] Similarly, in the Podiatry Associates case, Justice Fry, as she then was, determined that the Plaintiff had demonstrated there was a serious issue to be tried.

However, at paragraph 39, she noted that both parties had proceeded on the basis that the appropriate test at step one was the lower threshold of a serious question to be tried. She also pointed out the case of Co-operators General Insurance , the exceptions noted in RJR – MacDonald and that a review of case law from this jurisdiction suggests there is a division of opinion on which test should apply to interlocutory injunctions enforcing restrictive covenants. Despite this apparent divergence, she gave her opinion that, in most cases, the applicant should be required to demonstrate a strong prima facie case.

She nevertheless proceeded on the basis of the lower threshold test for a number of reasons including: (1) the parties both approached the matter in their pleadings and arguments on the basis of the lower threshold test; (2) given the nature of the claim, she was not convinced that the decision on the interlocutory injunction would amount to a final determination of the matter; (3) the factual record was disputed; and (4) it was not necessary to make a determination on the merits of the restrictive covenant in any event as she denied the interlocutory injunction on the basis that there was no evidence of irreparable harm.

These comments indicate the decision is not an endorsement of the position that the threshold test on a similar interlocutory injunction application should be the lower threshold test of a serious issue to be tried. [ 45 ] In my view, based upon a review of the comments of the Supreme Court of Canada in RJR – MacDonald and Canadian Broadcasting Corp. , as well as case law from this jurisdiction, this is an appropriate case in which to apply the higher threshold test of requiring the Plaintiff to establish a strong prima facie case in order to obtain interlocutory injunctive relief.

In so finding, I have considered that the restrictive covenant in this case, if validly and effectively extended, would expire at the end of August 2018, long before this matter would be set down for trial and an ultimate declaration made with respect to its termination date and enforceability.

While the Plaintiff is also seeking damages for loss of profit and arrears of rent which may still proceed to trial even if I were to grant this interlocutory injunction, there would be no worthwhile point at trial of granting the declaratory relief sought by the Plaintiff in its Statement of Claim. [ 46 ] Secondly, I have taken into consideration the effect on the Defendants of granting this interlocutory injunction. Whether or not the relief sought is framed in mandatory or prohibitive language, the practical consequences to the Defendants are the same. Mr.

Azmy would be forced to take steps to shutter a restaurant that was operating for several months before the application was filed. Such an injunction would force him to place himself and other employees out of work. He would also have to make arrangements to dispose of inventory. At the same time, he would in all likelihood be forced to continue to pay rent for his new premises. These are considerations that should be at the forefront of the mind of an application judge when considering the threshold to be applied at the first stage of the RJR – MacDonald test.

In Canadian Broadcasting Corp. , the Supreme Court of Canada directed that the real focus should be on the practical consequences of the relief being sought. The practical consequences in this case mandate the higher threshold test. [ 47 ] Having decided that the appropriate test at step one of the analysis is that of a strong prima facie case, I must consider the nature of that test. The Plaintiff refers to cases from other jurisdictions in which the threshold test had been described in several ways, including: …a much more onerous burden than simply determining there is a serious issue to be tried ( Modry v.

Alberta Health Services , 2015 ABCA 265 ). A case that will “probably prevail at trial” or is “likely to succeed at trial”. ( BrettYoung Seeds Limited Partnership v. Dyck , 2013 ABQB 319 ). [A case where] if the courts had to decide the matter on the merits or the basis of the material before it, would the Plaintiff succeed? ( Petro-Diamond Inc. v.

Verdeo Inc. , 2014 ONSC 2917 ). [ 48 ] In Canadian Broadcasting Corp. , the Supreme Court of Canada noted the following various formulations requiring applicants to establish a “strong and clear chance of success”; a “strong and clear” or “unusually strong and clear” case; that he or she is “clearly right” or “clearly in the right”; that he or she enjoys a “high probability” or “great likelihood of success”; a “high degree of assurance” of success; a “significant prospect” of success; or “almost certain” success.

The Supreme Court of Canada stated at paragraph 17 that these tests can be summarized by stating that the application judge must be satisfied that there is a “strong likelihood on the law and the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originating notice”.

In considering whether the Plaintiff has established such a strong prima facie case, the Defendants ask that I consider the frailties in the Plaintiff’s case. [ 49 ] Firstly, the Defendants state that the main issue of contention is whether the Franchise Agreement expired on August 28, 2016 or August 28, 2017, thereby meaning that the Restrictive Covenant may or may not have expired before the Defendants began operating

the Stuff-it Pita location. The Plaintiff was unable to supply any signed agreement extending the term of the Franchise Agreement to August 28, 2017 despite the fact that the terms of the Franchise Agreement required that any amendment or modification of the Franchise Agreement shall only be effective if in writing and signed by both parties (Section 17.05). [ 50 ] While it is the Plaintiff who must prove that the Franchise Agreement was extended beyond August 28, 2016, it has provided only hearsay evidence from Ms. Elias that someone within the MTY organization received verbal confirmation from Mr.

Simard that the agreement had been extended. Further, no evidence was provided as to whether the agreement was extended on the same terms and conditions. As the Defendants did not open the Stuff-it Pita location until November 2017, if the Franchise Agreement, including the Restrictive Covenant, was not extended beyond August 2016, the Defendants would be able to successfully defend any action for breach of the Restrictive Covenant. [ 51 ] Secondly, with respect to the Plaintiff’s claim that the Defendants are estopped from denying the extension, the Defendants state that, while MTY relies upon the email from Mr.

Azmy in April 2016 referencing an extension agreement having been entered into, it is clear that Mr. Azmy did not have a copy of any signed agreement. Further, while the Plaintiff says that Mr. Azmy should be estopped from now saying that the Agreement was not extended, the Defendants say the evidence of Ms. Elias indicates that she relied on hearsay confirmation from Mr. Simard with respect to the existence of the extension and not on what Mr. Azmy had said or written.

As such, the Defendants state that the doctrine of estoppel would not be applicable. [ 52 ] Further, the Defendants state that the evidence elicited on this interlocutory injunction application also indicates that attempts by MTY to extend the Franchise Agreement in writing in February 2017 failed.

In fact, MTY gave a specific deadline for obtaining a written and signed extension of the Franchise Agreement (albeit also extending the sublease to October 2, 2017) and this deadline passed. [ 53 ] In addition, while not extensively argued, the Defendants state that the alleged agreement to extend the arrangement also involves an extension of the lease of premises which must be in writing pursuant to the Statute of Frauds , (29 Car 2 c 3) 1677 (U.K.).

There was clearly not enough evidence or law provided at this application to properly address that issue. [ 54 ] Finally, the Defendants state that the Plaintiff has failed to provide sufficient evidence or law to satisfy the Court that it would be ultimately successful in proving that the restrictive covenant is a valid and enforceable covenant in restraint of trade. The Defendants refer to the decision of Steele, J. (as he then was) in Arvak Management Inc. v. McKee (1983), 40 Nfld. & P.E.I.R. 116, 19 A.C.W.S. (2d) 116 (Nfld.

S.C. (T.D.)), at paragraph 8, as setting out the principles of law applicable to contracts containing covenants in restraint of trade. In such cases, the Plaintiff must establish that (1) the covenant is reasonable between the parties; and (2) that the covenant is not contrary to public policy. To establish that the covenant is reasonable between the parties, the Plaintiff must prove:

a) that the Plaintiff has proprietary interests requiring protection;

b) that the covenant does not go beyond the protection of those proprietary interests;

c) that the covenant is reasonable between the parties as to space and time; and

d) that the covenant is reasonable with respect to the interests of the Defendants. [ 55 ] The Defendants assert that the Plaintiff provided little to no evidence as to the particulars of the proprietary interests it sought to protect other than to refer to sections of the Franchise Agreement. While Ms. Elias attached photographs to her supplementary affidavit showing photos of Stuff-it Pita, no photographs were provided of Extreme Pita. As well, the photos of Stuff-it Pita did not show any striking similarities between the Stuff-it Pita location and Ms. Elias’ description of Extreme Pita franchises.

In particular, while certain of the colors used in the restaurants are somewhat similar, the Stuff-it Pita location also uses colours that are not associated with Extreme Pita. Also, many of the menu items offered are different. Further, other than the use of the word “Pita”, there is little similarity in the names used. It certainly cannot be suggested that the Plaintiff had any proprietary interest in the word “Pita”. [ 56 ] Further, the Defendants have raised questions regarding the reasonableness as to the space (geographic area) covered by the Restrictive Covenant.

In particular, the Restrictive Covenant is stated to apply to a competitive business which is located, (

i) in the Territory (which is not in fact defined in the Franchise Agreement), or (ii) within 20 kilometres of any of the franchisor’s Extreme Pita locations “or any corporate of (sic) franchised locations of RDHR or any franchisees or master franchisees of the RDHR Affiliates”. No evidence was presented as to the location of any Extreme Pita restaurants or of any corporate or franchised locations of RDHR, its franchisees or master franchisees or those of RDHR Affiliates.

As such, it was not possible at the hearing of this application to determine the extent of the area covered by this Restrictive Covenant. [ 57 ] Finally, the Defendants state that the Plaintiff has not established that it has suffered any damage as a result of breach of this Restrictive Covenant. More will be said of this in dealing with the second branch of the test below. [ 58 ] On the other hand, the Plaintiff states that it has established a strong prima facie case. It says the evidence establishes that the Franchise Agreement was extended, relying upon email confirmations from Mr.

Azmy in 2016 and 2017 and the evidence with respect to a conversation with Mr. Simard. Further, the parties performed and conducted themselves as if the Franchise Agreement was extended, notwithstanding that the Defendants may not have been in compliance with all its terms and conditions. [ 59 ] Further, the Plaintiff states that there was a clear breach of the Restrictive Covenant as Mr.

Azmy’s own affidavit acknowledges that, since November 2017, he has been operating a restaurant from which he sells pizzas, pita bread and wraps, all restricted goods with the meaning of the Restrictive Covenant. [ 60 ] With respect to the enforceability of the Restrictive Covenant, the Plaintiff states it is reasonable and enforceable in the following respects:

a) It protects the proprietary interests of the Plaintiff, including the marks and Franchise System, as was acknowledged by the

Defendants in the Franchise Agreement itself;

b) It does not go beyond what is necessary to protect those proprietary interests. The Plaintiff says that, given the substandard operationof Mr. Azmy’s Extreme Pita location, the continued operation of the Stuff-it Pita restaurant within the restricted area would be deemedto have caused or would cause Extreme Pita damage to its brand and reputation. Further, the Defendants acknowledge in the FranchiseAgreement itself that breach of the Restrictive Covenant would give rise to damages and the right to claim interlocutory injunctiverelief.

As such, the cessation of the operation of Stuff-it Pita is necessary to protect the Plaintiff’s proprietary interests. More will besaid of the degree and nature of harm allegedly suffered later in this decision.

c) It is reasonable in both geographic area and time limit.

However, the Plaintiff did not address issues raised by the Defendants withrespect to the wording and identification of the geographic area. [61] Having considered the evidence and submissions of the parties with respect to step one of this interlocutory injunctionapplication, I am not satisfied that the Plaintiff has met its onus of establishing a strong prima facie case in respect of a breach of theRestrictive Covenant. [62] In particular, I do not have sufficient evidence of the particular proprietary interests that the Restrictive Covenant is meant toprotect and can therefore not make an assessment of whether this covenant goes beyond what is required to protect those proprietaryinterests.

While Sections 6.01 and 6.13 of the Franchise Agreement, referred to in greater detail under the step two analysis, containgeneral acknowledgements that there is goodwill associated with the Franchise Marks and Franchise System used in the Extreme Pitafranchises and owned by an affiliate, no evidence was provided to identify how the operation of a restaurant such as Stuff-it Pita sellingproducts commonly sold in other restaurants would adversely impact any proprietary interests the Plaintiff may have in its goodwill,Franchise Marks or Franchise System.

The evidence also did not demonstrate a prima facie case for breach of any trademarks, tradenames or other intellectual property. [63] As well, the Defendants have raised serious issues with respect to the geographic area covered by the Restrictive Covenant.

Asthe Territory is not defined and I have no evidence with respect to locations of any other Extreme Pita locations or those of any corporateor franchise locations of RDHR, its franchisees, or master franchisees, I cannot ascertain the extent of the geographic restriction. [64] Finally, the Plaintiff has not presented me with a copy of any signed agreement extending the term of the Franchise Agreementor Sublease. While Ms. Elias gave hearsay evidence that others within the MTY organization apparently received verbal confirmationfrom an ex-employee that such an agreement had been signed and Mr.

Azmy also made assertions it had been extended, I have no directevidence as to the confirmation from Mr. Simard or any evidence as to what the terms and conditions of any such amendment orextension may have been.

As a result, the Plaintiff has not met the threshold for the first step for the granting of this interlocutoryinjunction. [65] While I have found that the applicable test in respect of this first step of the interlocutory injunction requires the Plaintiff toestablish a strong prima facie case, in the event that I am incorrect in this determination, I note that I would have found that the Plaintiffhad met the lower threshold test of a serious question to be tried.

At pages 402 to 403 of RJR – MacDonald, the Supreme Court ofCanada noted that there are no specific requirements which must be met in order to satisfy the test of a serious question to be tried. Thethreshold is a low one. The application judge must merely be satisfied that the claim is neither vexatious nor frivolous. A prolongedexamination of the merits would generally be neither necessary nor desirable. [66] Applying the lower threshold test, I find that the Plaintiff has established that there is a serious question to be tried with respectto whether or not there has been a breach of the Restrictive Covenant.

In particular, I am satisfied that the Plaintiff’s claim that there wasan extension of the Franchise Agreement, and thereby the Restrictive Covenant, is neither frivolous nor vexatious. Similarly, thePlaintiff’s assertion that the Defendants’ operation of a restaurant is in contravention of that Restrictive Covenant is not frivolous orvexatious. [67] I will therefore proceed to consider whether the Plaintiff has met the requirements of the second step of the RJR – MacDonaldtest, i.e., whether the Plaintiff has suffered irreparable harm. 2.

Irreparable Harm [68] As noted earlier in this decision, the second step of the test for an interlocutory injunction requires that the Plaintiffdemonstrate it is suffering or will likely suffer irreparable harm by reason of the Defendants’ continued operation of the Stuff-it Pitarestaurant. [69] In dealing with the meaning of “irreparable harm”, at paragraph 64 of RJR – Macdonald, the Supreme Court of Canada stated: "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.) ). The fact that one partymay be impecunious does not automatically determine the application in favour of the other party who will not ultimately be able tocollect damages, although it may be a relevant consideration (Hubbard v. Pitt, [1976] Q.B. 142 (C.A.) ). [70] As referenced at paragraph 68 in Jones v. Bay Roberts (Town), 2017 NLTD(G) 134, it is not the size of the loss that is relevantbut the nature of the loss.

MTY must prove that it is suffering or will likely suffer loss that cannot be cured or one that cannot becollected or readily assessed in terms of money. [71] Applying this analysis, the Plaintiff alleges it has suffered and will continue to suffer, if Stuff-it Pita remains in operation,

substantial harm as a result of the actions of the Defendants for which damages cannot provide complete compensation. The Plaintiff says these damages include loss of goodwill, loss of reputation, loss of business revenue, loss of future income, loss of market share and several other variants of “economic loss”. The Plaintiff also states that a failure of this Court to enforce the Restrictive Covenant would cause irreparable harm to the franchisor’s credibility, by undermining the Plaintiff’s ability to manage and control the Franchise System. [ 72 ] In support of its position, the Plaintiff refers to

Section 6.01 of the Franchise Agreement, containing an acknowledgement of the goodwill associated with the trademarks of Extreme Pita.

Section 6.01 reads, in relevant part, as follows: You acknowledge that the goodwill associated with the Marks has been created through the use of certain marketing and operating methods established by us. You further acknowledge that, through the operation of the Business, you shall have the opportunity to benefit from such goodwill and shall be in a position to affect such goodwill to the benefit or detriment of Extreme Pita and our other franchisees… [ 73 ] The Plaintiff states that the

Section 6.13 of the Franchise Agreement obligates the Defendants to cease any conduct that is harmful to the goodwill associated with the Extreme Pita brand and/or Extreme Pita franchisees.

Section 6.13 states: Any conduct or practice carried on by you or your employees, agents or contractors (whether through advertising or operating procedures or otherwise) which, in our opinion, may harm the goodwill associated with the Marks or the System, or which may reflect unfavourably on us and/or RDHR, the RDHR Affiliates, the System, or franchisees of Extreme Pita and/or RDHR, or which may tend to confuse, mislead, deceive or be fraudulent to the public shall be immediately discontinued by you upon notice from us… [ 74 ] The Plaintiff therefore states that, not only have the Defendants, at the very outset of the franchise relationship, acknowledged their ability to beneficially or detrimentally affect the goodwill of Extreme Pita, but they have actually benefitted financially from that goodwill over their eleven years of operating an Extreme Pita franchise.

The Plaintiff asserts that the Defendants are now intentionally affecting the goodwill of Extreme Pita in a detrimental manner by taking advantage of the goodwill obtained while operating the Extreme Pita franchise to attract customers to Stuff-it Pita. [ 75 ] The Plaintiff further states that Stuff-it Pita is offering products for sale that are substantially similar to those of Extreme Pita. The Plaintiff provided photographs that it says demonstrate that Stuff-it Pita is utilizing branding, logos, and color schemes that are substantially similar to those of Extreme Pita.

The Plaintiff also notes that the Extreme Pita Marks and Franchise System include the phrase “eat good, feel good”, while a logo board in the Stuff-it Pita location contains the phrase: “Eat-n Great! Feel-n Great! & Be-n Great!”. [ 76 ] Finally, the Plaintiff says that

Section 16.04 of the Franchise Agreement, reproduced below, explicitly contemplates that the Plaintiff shall be entitled to injunctive relief to protect the interests and rights of the Plaintiff in its trademarks, logos, names, labels, designs and otherwise. You hereby acknowledge and agree that the covenants and agreements given by you pursuant to this

Section 16 are reasonable, having regard to the necessity of RDHR and the RDHR Affiliates protecting their respective interests and rights in the Marks and the integrity thereof, and that without your express understanding and agreement to take such steps as may be necessary to protect the interests and rights in the Marks by RDHR and RDHR Affiliates, we would not have granted any right and license to you pursuant to this Agreement to use either the trade name or the Marks.

Accordingly, you agree that RDHR and the RDHR Affiliates, aside from any other rights and remedies to which we may be entitled under this Agreement, may enforce their respective rights under this Agreement by means of injunctive relief, including interlocutory injunction, by any court of competent jurisdiction. [ 77 ] The Plaintiff says the Defendants, having acknowledged the Plaintiff’s right to seek interlocutory injunctive relief, should not now be able to avoid injunctive relief by claiming that the loss to the Plaintiff is compensable through an award of damages. [ 78 ] In response, the Defendants note that

Section 16.05 of the Franchise Agreement provides that, should the Defendants operate a Competitive Business (as defined in the Franchise Agreement) in contravention of the Restrictive Covenant, the Defendants shall pay to the Plaintiff five percent (5%) of the gross sales of the Competitive Business until the expiration of the Restrictive Covenant. The Defendants state that this contractual provision demonstrates the Plaintiff’s alleged losses are compensable in monetary terms. [ 79 ] The Defendants also note that the evidence of Ms. Elias does not establish any circumstances giving rise to irreparable harm.

While Ms. Elias states that the Extreme Pita franchisor has suffered damages to their business and reputation, she provides no basis to conclude why the claimed damages to the business or damage to the reputation of the Plaintiff’s operation cannot be compensated in monetary damages. As well, the Plaintiff has provided no evidence that it has an existing operation or franchisee that is suffering any financial loss as a result of the operation of the Defendants’ new restaurant. [ 80 ] Further, the Defendants note that Ms.

Elias’ statements are not made on the basis of her own personal knowledge but on the basis of photographs of Stuff-it Pita only and a general belief that the Defendants’ business is operating using similar branding, colours, and menus to that of Extreme Pita. While she included photographs at Tab E of her Affidavit, her Affidavit and the photographs do not provide any material evidence of the similarity claimed. In contrast, the Affidavit of Walid Azmy reflects a comparison of “Stuff-it Pita” and “Extreme Pita” showing many distinguishing features in branding, colors and menus from those of Extreme Pita.

There is no evidence that anyone has or is likely to confuse Stuff-it Pita with Extreme Pita.

The Defendants say there is therefore no irreparable harm or potential for harm to the Plaintiff’s business by reason of the Defendants operating this business. [ 81 ] I agree that the evidence presented on this application does not establish on a balance of probabilities that the Plaintiff has suffered or will continue to suffer irreparable harm as a result of the Defendants’ continued operation of Stuff-it Pita. [ 82 ] While there may well be cases where significant non-compensable damage to goodwill, reputation, brand status and franchise system viability is caused by breach of a restrictive covenant, there is no evidence of such harm on this application.

In particular, there is no evidence that members of the public associate, or are likely to associate, Stuff-it Pita with Extreme Pita. Further, no evidence was presented to show that the Plaintiff or any Extreme Pita franchisee was or will suffer a loss of profits or market share. Nor was any

evidence presented to demonstrate that there was or was likely to be any damage to the goodwill associated with the Plaintiff’s Marks, which damage was the basis of the acknowledgement in

Section 16.04 that injunctive relief may be sought. It is also not clear to me how the Plaintiff’s alleged substandard operation of the Extreme Pita franchise relates to the Defendants’ operation of a new restaurant, thereby causing the Plaintiff irreparable harm. Such harm could presumably only result if persons thought, or were likely to think, the new restaurant was an Extreme Pita franchise or associated with Extreme Pita.

No such evidence was adduced and the evidence that was presented does not allow me to draw such an inference. [ 83 ] Finally, the somewhat unique circumstances of this case cause me question to whether a denial of interlocutory injunctive relief would have a serious, or any impact, on the integrity of the Plaintiff’s franchise system. One of the most significant issues is whether the Franchise Agreement, including the Restrictive Covenant contained in it, was extended. This determination will in large part depend on the evidence to be presented at trial specific to the dealings between these parties.

As such, it is not likely to have a significant impact beyond these proceedings. [ 84 ] Accordingly, I find that the second step of the test for the granting of an interlocutory injunction has not been met. However, in the event I am incorrect in deciding the first two steps, I will proceed to consider the issue of balance of convenience. 3. Balance of Convenience [ 85 ] The third step of the RJR – MacDonald test is for the Court to consider the balance of convenience.

At paragraph 80 of the Jones case cited above, I described the balance of convenience test as follows: While courts have traditionally referred to this third prong of the test as requiring the courts to consider whether the balance of convenience favours the granting of the injunction or refusing it, the Court in RJR-MacDonald referred to this test as the balance of inconvenience. This is perhaps a more accurate term as the Court must assess which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.

The degree of irreparable harm and existence and the strength of an undertaking are factors to be considered in this determination. Where the application of the balance of inconvenience test leads to no clear resolution, the Court will normally seek to preserve the status quo. [ 86 ] In considering the balance of convenience, I note that the Plaintiff has filed an undertaking in which it has agreed to abide by any order as to damages which this Honourable Court may make, if it is determined that the Defendants have suffered damages as a result of an injunction.

I have no reason to believe that the Plaintiff could not or would not abide by this undertaking if called on.

This is a factor supporting the granting of the injunction. [ 87 ] However, as for the remainder of the factors weighing in favour of the grant or refusal of this interlocutory injunction, I find that the balance of convenience favours the Defendants. [ 88 ] In making this finding, I have considered the Defendants’ submission that there is a lack of direct evidence from witnesses who would support the allegation that the Franchise Agreement was effectively extended on the same terms and conditions beyond August 28, 2016, together with Ms.

Elias’ direct assertion in an email in 2016 that an extension needed to be in writing. The Defendants state that this assertion allowed the Defendants to proceed to establish Stuff-it Pita, believing the one-year Restrictive Covenant had expired on August 28, 2017. [ 89 ] I have further considered the individual Defendant’s statement that significant amounts of capital were used to create and complete the new restaurant, with that business being the only source of income for the Second Defendant. It is not only he but his children who benefit from the income of his enterprise.

Should the injunction be granted, the Second Defendant says he will suffer significant harm and loss as he will not be able to sustain the rent on the premises and will thereby suffer consequential losses. [ 90 ] The Defendants further note that the Plaintiff, on the other hand, is a large multinational corporation and the continued operation of the Stuff-it Pita restaurant has not reasonably been demonstrated to cause non-compensable or irreparable harm to its viability or its product lines.

The Defendants therefore assert that the balance of convenience weighs against the granting of an injunction as the irreparable harm to the Defendants is significantly greater to the Defendants’ small business and his ability to sustain it should an injunction be granted. [ 91 ] I also note that the Restrictive Covenant would only extend until August 28, 2018, even if the position of the Plaintiff on the extension is correct.

The Plaintiff has suggested the operation of the injunction could be extended beyond that date due to the time delays inherent in obtaining court dates and an ultimate decision, but even if the application had been heard and decided within a couple of weeks of its initial filing in April, the injunction would have lasted for only four months with Stuff-it Pita having already been in operation for five months. [ 92 ] Further, as noted earlier in this decision, the Plaintiff has given no evidence of an existing Extreme Pita restaurant, franchised or otherwise, that has been or will be negatively impacted by the failure to enforce this Restrictive Covenant, other than a general statement of the deleterious effect refusal of the injunction may have in undermining contracts that form the basis of its franchise system.

There is also no evidence of specific damage to goodwill, reputation, trademarks, tradenames or other intellectual property. [ 93 ] Finally, the circumstances of this case, particularly surrounding the confusion over whether the Franchise Agreement was extended, would presumably not be common in respect of the Plaintiff’s franchising business. The resulting impact to the corporate Plaintiff in its dealings with multiple franchisees should therefore not be significant.

I conclude that the harm to the Plaintiff of not granting this application would be far less severe than that suffered by the Defendants who are operators of or affiliated with a small business. conclusion [ 94 ] The Plaintiff has failed to prove that it has a strong prima facie case. As a result, the application for an interlocutory injunction fails at the first step of the analysis. In the event that I am incorrect and the threshold test at the first step of the analysis is that of a

serious issue to be tried, the application nevertheless is denied as the Plaintiff has failed to prove that it has or is likely to suffer irreparable harm if the interlocutory injunction is not granted. While it was not necessary for me to consider the balance of convenience, that third consideration also weighs in favour of not granting the application. [ 95 ] The application is therefore denied with costs to the First and Second Defendants on column 3 of the Scale of Costs pursuant to Rule 55 of the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch. D. _____________________________ Rosalie McGrath Justice