Turtle v Valvoline Canadian Franchising Corp., 2021 SKCA 76

Court of Appeal for Saskatchewan Docket: CACV3789 Citation: Turtle v Valvoline Canadian Franchising Corp. , 2021 SKCA 76 Date: 2021-05-17 Between: Kara Turtle and Dad’s Oil Change Limited Appellants (Defendants) And Sneer Enterprises Ltd. Appellant (Defendant/Plaintiff by Counterclaim/Applicant) And Valvoline Canadian Franchising Corp. Respondent (Plaintiff/Defendant by Counterclaim/Respondent) Before: Richards C.J.S., Jackson and Kalmakoff JJ.A. Disposition: Appeal allowed Written reasons by: The Honourable Chief Justice Richards In concurrence: The Honourable Madam Justice Jackson The Honourable Mr.

Justice Kalmakoff On appeal from: QBG 476 of 2020, Saskatoon Appeal heard: April 16, 2021 Counsel: Janine Lavoie-Harding and David Ukrainetz for the Appellants Geoffrey Shaw, Conrad Hadubiak, Q.C., and David Kelman for the Respondent Richards C.J.S. I. INTRODUCTION [ 1 ] Valvoline Canadian Franchising Corp. [Valvoline] commenced an action in the Court of Queen’s Bench against Sneer Enterprises Ltd. [Sneer], Dad’s Oil Change Limited [Dad’s], and Kara Turtle. In this decision, I will refer to Ms.

Turtle, Sneer and Dad’s collectively as the Appellants. [ 2 ] Valvoline alleged that an oil change business was being operated in violation of certain non-competition obligations owed to it by virtue of a franchise agreement. [ 3 ] Valvoline then sought injunctive relief, asking that the Appellants be enjoined from operating the business pending the outcome of the trial. A Queen’s Bench Chambers judge granted the injunction. [ 4 ] The Appellants take issue with the decision of the Chambers judge.

They contend she made errors in the course of her analysis and that the injunction should be set aside. [ 5 ] As explained below, this appeal must be allowed. The Chambers judge erred in her assessment of the strength of Valvoline’s case with the ultimate result that she erred in granting the injunction. II. BACKGROUND [ 6 ] Ms.

Turtle is Sneer’s sole director and officer. [ 7 ] Valvoline’s predecessor in interest, The Great Canadian Oil Change Franchising Ltd. [Great Canadian] entered into a franchise agreement with Sneer in October of 2007 with respect to the operation of an oil change business at 515 Nelson Road in Saskatoon [Nelson Road Agreement]. [ 8 ] Great Canadian entered into a second franchise agreement [Warman Agreement] with Sneer in February of 2017. It concerned the operation of an oil change business at 910 Centennial Boulevard in Warman, just outside of Saskatoon. Like the Nelson Road Agreement, the Warman Agreement (

a) was signed by Ms. Turtle on behalf of Sneer, and (

b) listed Ms. Turtle, in

Schedule A, as the “owner-operator”. [ 9 ]

Article 15.21 of both the Nelson Road and the Warman Agreement contain the following representation about the involvement of the owner-operator in the business: 15.21 Owner-O p erator The Franchisee and the Guarantor acknowledge that the Franchisor has granted this franchise on the material representation of the Franchisee and the Guarantor that the person(

s) designated in

Schedule “A” to this Agreement are “owner-operators” and shall participate actively on a full-time and best efforts basis in the management and operation of the Licensed Business.

[ 10 ] The Nelson Road Agreement and the Warman Agreement also feature the same non-competition covenant: 10.1 No Competition With Us During the Term of This Agreement During the Term, you will not individually, nor in conjunction with or as part of any person, firm, partnership, corporation, syndicate, association, joint venture or other third party or other entity whatsoever, whether as principal, agent, shareholder, director, officer, employee, consultant, landlord, partner, member, joint venturer or guarantor, or in any other manner whatsoever, directly or indirectly, carry on or be engaged in or concerned with or interested in, financially or otherwise, or advise in the establishment or operation of, any business which consists substantially of operating an automotive lubrication service outlet. 10.2 No Competition With Us After Expiration or Termination In the event of expiration or termination of this Agreement for any reason whatsoever, or in the event this Agreement is transferred pursuant to

Article 11 of this Agreement, you shall not, without our prior written consent, at any time during the period of two (2) years from the date of such expiration, termination or transfer, either individually or in conjunction with or as part of any person, firm, partnership, corporation, syndicate, association, joint venture or other third party or other entity whatsoever, whether as principal, agent, shareholder, director, officer, partner, employee, consultant, member, joint venturer or guarantor or in any other manner whatsoever, directly or indirectly, carry on, be engaged in or be concerned with or interested in, financially or otherwise, or advise in the establishment or operation of an automotive lubrication service outlet at the Premises, or within a two (2) kilometre radius of the Premises, or within a two (2) kilometre radius [of] the premises of any other Great Canadian Oil Change outlet then in operation. [ 11 ] The Nelson Road Agreement expired on October 2, 2017.

There is some disagreement about exactly what happened next in terms of the business relationship between Sneer and Great Canadian. Ms. Turtle says the business continued to operate pursuant to an informal and unwritten agreement with Great Canadian. Valvoline says that Ms. Turtle renewed the Agreement by virtue of her conduct. In any event, the business on Nelson Road continued to operate under the Great Canadian banner. [ 12 ] In July of 2018, Valvoline acquired the rights to Great Canadian’s brand and franchise system. [ 13 ] Dad’s was incorporated in September of 2019.

Shortly thereafter, Sneer transferred its Nelson Road assets to Dad’s. In addition, the landlord for Sneer’s lease for the Nelson Road location consented to an assignment of the lease to Dad’s. Ms. Turtle is Dad’s sole director and officer. The oil change business on Nelson Road began operating as Dad’s Oil Change. [ 14 ] In March of 2020, Valvoline became aware that the oil change business on Nelson Road was being carried on under the Dad’s name. It moved expeditiously to commence proceedings in the Court of Queen’s Bench.

The original version of its statement of claim was based on an alleged breach of the covenants found in the Nelson Road Agreement. [ 15 ] In its amended statement of claim, Valvoline continues to plead that Ms. Turtle and Sneer are acting in violation of the Nelson Road Agreement. It alleges that Ms. Turtle is personally bound by that Agreement and, in this regard, it pleads and relies on the personal guarantee contained in

article 14.1. Further, it relies on

Schedule A wherein Ms. Turtle is listed as an owner-operator said to be bound by the covenants contained in the Agreement, including both the in-term and post-term restrictive covenants found in articles 10.1 and 10.2. Valvoline also pleads that the Warman Agreement “contains similar obligations to which Sneer and Turtle have agreed to be bound” and, in this regard, lists several provisions found in that Agreement including

article 10.1, the in-term restrictive covenant. It alleges that the Appellants are in breach of those articles. [ 16 ] Valvoline’s amended statement of claim goes on to allege that it is suffering irreparable harm by virtue of the operation of the Dad’s business and that the balance of convenience strongly favours the granting of an injunction to restrain the operation of the Dad’s business. [ 17 ] By way of relief, Valvoline seeks an injunction restricting the Appellants from operating the Dad’s business in breach of the in- term and post-term restrictive covenants in articles 10.1 and 10.2 of the Nelson Road Agreement and in breach of the in-term restrictive covenant in

article 10.1 of the Warman Agreement. [ 18 ] Valvoline applied for an injunction, pending the trial, to restrain the Appellants from (

a) operating the Dad’s oil business, and (

b) breaching the non-competition covenants in the Nelson Road and Warman Agreements. The parties filed a number of affidavits. Ms. Turtle and three Valvoline officials were cross-examined on their affidavits. III.

THE DECISION UNDER APPEAL [ 19 ] The Chambers judge correctly recognized that the three key issues she had to address were the strength of Valvoline’s case, irreparable harm and the balance of convenience. [ 20 ] The Chambers judge began the substantive part of her decision by considering whether, in order to obtain an injunction, Valvoline was required to establish only a serious issue to be tried or whether it had to establish a strong prima facie case.

She found that the strong prima facie case standard applied and, it would seem, based this conclusion on the dual notions that the injunction being sought was mandatory in nature and that, by obliging the closure of the Nelson Road business, the injunction would effectively determine the underlying matter in dispute. The Chambers judge explained as follows: [32] In my view, there are positive steps that will need to be taken in order to enforce the injunction, which suggests this is a mandatory injunction.

The practical impacts of the injunction will require the defendants to do something, rather than refrain from doing something – effectively discontinuing Dad’s operation at the location on Nelson Road. The higher standard of requiring the plaintiff to establish a strong prima facie case is required in these circumstances because it may be the final decision on the issue and due to action being required by the defendants, such as discontinuing employment for employees, dealing with suppliers and managing the financial aspects of discontinuing this operation.

[ 21 ] The Chambers judge then turned to an examination of the strength of Valvoline’s case. She began by noting the evidentiary dispute about what had happened after the expiry of the Nelson Road Agreement. In light of that dispute, she found that Valvoline had not demonstrated a strong likelihood that it could prove a breach of the post-term restrictive covenant in that Agreement. She then turned to the Warman Agreement and, in particular, to

article 10.1 of that Agreement – the in-term restrictive covenant. [ 22 ] In considering

article 10.1, the Chambers judge examined the Warman Agreement and concluded that Ms. Turtle had personally bound herself to it. She reasoned that “through her role as the sole director and officer for Sneer, [Ms. Turtle] agreed to be ‘bound by the covenants contained’ in the Warman franchise agreement” (at para 60). She concluded that, on behalf of Sneer, Ms. Turtle had “signed a contract which contained overlapping implications for herself personally” and that the “practical, fair and reasonable

interpretation of the terms of the franchise agreement strongly suggests that [Ms. Turtle] knowingly bound herself personally to the covenants in the Warman franchise agreement” (at para 62). [ 23 ] That done, the Chambers judge considered the question of irreparable harm. She indicated that, in light of the strength of Valvoline’s case, she was inclined to grant the injunction because it reflected the enforcement of the contractual obligations agreed to by Great Canadian, Sneer and Ms. Turtle.

However, she nonetheless went on to review the evidence relating to irreparable harm and concluded that Valvoline had demonstrated a meaningful risk of such harm if an injunction was not granted. [ 24 ] Finally, the Chambers judge considered the balance of convenience and concluded that it favoured the granting of an injunction. [ 25 ] In the end, the Chambers judge issued an injunction against the Appellants in the terms set out below (at para 99): (

a) Kara Turtle, Sneer Enterprises Ltd., and Dad’s Oil Change Limited, are restrained from operating the competing business, Dad’s Oil Change, at 519 Nelson Road in Saskatoon, Saskatchewan, until the final disposition of the action or until further order of this Court. (

b) This order shall not issue unless and until the plaintiff files a signed undertaking as to damages in a form approved by this Court. (

c) Costs of this application shall be in the cause. IV. ANALYSIS [ 26 ] The Appellants submit that the Chambers judge erred in a number of different ways in reaching the conclusion that an injunction should be issued. Their central allegation, and the only one that needs to be dealt with in order to decide this appeal, concerns the strength of Valvoline’s claim.

In particular, the Appellants assert the Chambers judge erred in finding that Valvoline has a strong prima facie case. [ 27 ] I should also note, at the outset, that the particulars of Valvoline’s claim, at least for the purposes of this appeal, have come into focus since its pleadings were filed. First, Valvoline does not rely on the post-term restrictive covenant in the Nelson Road Agreement as a basis for an injunction. Second, Valvoline does not contend that Ms. Turtle is personally bound by the Warman Agreement on the basis that she is a guarantor.

As a result, Valvoline’s case is based only on the allegation of a breach of the in-term restrictive covenant in the Warman Agreement, i.e.,

article 10.1 of that Agreement. [ 28 ] I propose to work through the points necessary to resolve this appeal by first confirming the applicable standard of review and then turning to the Appellants’ argument about the strength of Valvoline’s case. A. Standard of review [ 29 ] It is firmly established that a decision to grant an interlocutory or interim injunction is discretionary in nature and that, as such, it attracts a discretionary standard of review. See: Google Inc. v Equustek Solutions Inc. , 2017 SCC 34 at para 22 , [2017] 1 SCR 824.

This point was made as follows in Androsoff v Waycon Investments Inc. , 2019 SKCA 131 : [20] All of these arguments must be assessed in light of the applicable standard of review. As provided by the Supreme Court in Harper v Canada (Attorney General) , 2000 SCC 57 at para 26 , [2000] 2 SCR 764, for this Court to interfere there must be “a clear mistake on the law or the evidence, or some other glaring error”. More recently, and paralleling the Supreme Court, this Court said in 101280222 Saskatchewan Ltd. v Silver Star Salvage

(1998) Ltd. , 2019 SKCA 59 at para 14 , [2019] 11 WWR 516, that it could interfere with the Queen’s Bench decision about whether to grant an injunction only if that decision “involves an error of principle, the disregard or misapprehension of a material fact, a failure to act judicially or a result that is so plainly wrong as to amount to an injustice”. See also: Fettes v Culligan Canada Ltd. , 2009 SKCA 144 at para 13 , [2010] 6 WWR 420.

See also: Unifor Canada Local 594 v Consumers’ Co-Operative Refineries Limited , 2021 SKCA 34 at paras 42–45 ; Mosaic Potash Esterhazy Limited Partnership v Potash Corporation of Saskatchewan Inc. , 2011 SKCA 120 at paras 83–85 , 341 DLR (4th) 407; 101280222 Saskatchewan Ltd. v Silver Star Salvage

(1998) Ltd. , 2019 SKCA 59 at paras 13–14 , [2019] 11 WWR 516; Culligan Canada Ltd. v Fettes , 2009 SKCA 144 at paras 13-15 , [2010] 6 WWR 420. As for the particulars of the approach to be taken in the appellate review of discretionary decisions, note should be made of this Court’s recent decision in Kot v Kot , 2021 SKCA 4 , 63 ETR (4th) 161. [ 30 ] Nonetheless, the Appellants and Valvoline take their own approaches to the question of how the Chambers judge’s assessment of the strength of Valvoline’s case should be reviewed for the purposes of this appeal. Recognizing that this issue is grounded in a question of contractual

interpretation, the Appellants characterize the Warman Agreement as a standard form contract. Then, relying on Mosten Investments LP v The Manufacturers Life Insurance Company (Manulife Financial) , 2021 SKCA 36 [ Mosten ], and Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co. , 2016 SCC 37 , [2016] 2 SCR 23 [ Ledcor ], they argue that the correctness standard of review should be applied to this aspect of the Chambers judge’s decision-making. Valvoline, on the other hand, contends that the Warman Agreement is not a standard form contract. Invoking Sattva Capital Corp. v Creston Moly Corp. , 2014 SCC 53 , [2014] 2

SCR 633 [ Sattva ], it submits that review on the standard of palpable and overriding error is appropriate. [ 31 ] I find myself unable to accept either of these lines of thinking. That is because the Chambers judge did not interpret the Warman Agreement in the final and determinative way that a trial judge interprets a contract. Rather, her task was to assess the strength of Valvoline’s position as it concerns the meaning of that Agreement. She did not need to, and expressly did not, make a final or authoritative ruling about how it is to be construed. As a result, this appeal is not about the review of a decision pronouncing or determining the proper

interpretation of a contract. It concerns something subtly, but nonetheless importantly, different. It is about the Chambers judge’s assessment of the strength of Valvoline’s arguments with respect to the

interpretation of the Warman Agreement. Thus, the standard of review issues canvassed in Sattva , Ledcor and Mosten are not directly applicable here. [ 32 ] As noted above, the standard of review to be applied in appeals from decisions granting or denying interlocutory or interim injunctions is very well settled. It is the lens through which the Chambers judge’s consideration of the strength of Valvoline’s claim must be assessed. For the purposes of this appeal, the operative question is whether, in her treatment of that issue, the Chambers judge made an error of principle. I will proceed on that basis. B.

The strength of Valvoline’s case [ 33 ] Valvoline takes no issue with the Chambers judge’s determination that, in order to obtain the injunction it seeks, it must establish a strong prima facie case for success at trial. As a result, I will not pursue that point any further. [ 34 ] As explained in R v Canadian Broadcasting Corp. , 2018 SCC 5 , [2018] 1 SCR 196, a strong prima facie case is one where there is a strong likelihood on the law and the evidence that the plaintiff will make out the allegations in its statement of claim: [17] This brings me to just what is entailed by showing a “strong prima facie case”.

Courts have employed various formulations, requiring the applicant 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. Common to all these formulations is a burden on the applicant to show a case of such merit that it is very likely to succeed at trial.

Meaning, that upon a preliminary review of the case, 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. (Emphasis in original, footnotes omitted) 1. The Warman Agreement and Ms. Turtle [ 35 ] The central issue with respect to the strength of Valvoline’s case, and the one on which counsel focussed, is whether Ms. Turtle is personally bound by the terms of the Warman Agreement.

There are considerations that weigh on both sides of the relevant legal scale. [ 36 ] The key points in favour of the idea that Ms. Turtle is not personally bound are three in number. To begin, and most importantly, she is not listed as a party to the Agreement. The first page of the Agreement indicates that it is between Great Canadian, identified as the “Franchisor”, and Sneer, identified as the “Franchisee”. There is no reference to Ms. Turtle personally or otherwise. [ 37 ] Second, the Warman Agreement gives no indication that Ms. Turtle signed it in her personal capacity.

The signature block at page 37 of the Agreement bears her signature, but only on behalf of Sneer. That part of the Agreement says, in relevant part, “By the Franchisee: Sneer Enterprises Ltd.” and then, under that, there is a signature line over the words “By its Authorized Signatory”. Ms. Turtle signed only on that line. [ 38 ] Third, the Warman Agreement provides for, or anticipates, a guarantor. The relevant provisions, found in

article 14.1 of the Agreement, make the guarantor liable as a principal under the Agreement by providing that, “[i]n consideration of the Franchisor granting the franchise to you, the Franchisee, the Guarantor hereby covenants and agrees to be personally bound by all of the terms and conditions of this Agreement as if the Guarantor were the Franchisee herein”. This is self-evidently the mechanism by which Great Canadian would bind a person in Ms.

Turtle’s position to the Agreement but, for reasons unexplained, she is not named as a guarantor and did not sign the Agreement as a guarantor. [ 39 ] On the other side of the scale, Valvoline relies on a different set of considerations. First, it points to

article 15.21 and a part of

Schedule A of the Warman Agreement. They read as follows: 15.21 Owner-Operator The Franchisee and the Guarantor acknowledge that the Franchisor has granted this franchise on the material representation of the Franchisee and the Guarantor that the person(

s) designated in

Schedule “A” to this Agreement are “owner-operators” and shall participate actively on a full-time and best efforts basis in the management and operation of the Licensed Business. …

Schedule “A” … 3. The following person(

s) are “owner-operators” and shall participate actively on a full-time basis in the management and operation of the Franchised Business and are bound by the covenants contained in this Agreement. Kara Turtle

… Valvoline emphasizes the wording of the provision found in

Schedule A, i.e., “bound by the covenants contained in this Agreement” and the identification of Ms. Turtle as an owner-operator. [ 40 ] Valvoline also relies on the fact that, in cross-examination on her affidavits, Ms. Turtle indicated that she had believed herself to be personally bound by the covenants in the Nelson Road and Warman Agreements. She said this: 129 Q. Okay. But I’m just asking is it your understanding that you, Kara Brekke, were bound by the covenants contained in the [Nelson Road] agreement? A. I believe so. 130 Q. Thank you.

And doesn’t the same verbiage appear in the Warman franchise agreement as well? … Let me know when you have that in front of you. A. Yeah. 131 Q. And so you see in the Warman agreement here, it has your name listed as Kara Turtle which is your name as of that point in time, correct? A. Yes. 132 Q. And similarly, you would have understood as a result of reading this

section that you are bound by the covenants contained in the agreement? A. Yeah, I believe so, yes. [ 41 ] On this same front, Valvoline points to Ms. Turtle’s conduct during 2018 and 2019 when, according to it, she made no suggestion in the course of their dealings that she was not personally bound by the Nelson Road and Warman Agreements. According to Logan Smith (a consultant for Valvoline), in his reply affidavit, Ms.

Turtle acknowledged in July of 2019 that she could not operate both the Warman franchise and a competing business without breaching the non-competition covenants in the franchise agreements. [ 42 ] As an aside, I note that, after her cross-examination, Ms. Turtle swore an affidavit wherein she purported to correct the record. With respect to the Warman Agreement, she averred that “I understood that I was signing the Warman Agreement on behalf of Sneer Enterprises Ltd., and not in my personal capacity.

In answering [counsel for Valvoline’s] questions, my answer given was that I believed that I ‘understood’ the contents of the Warman Agreement. I was not answering the legal question of whether I understood that I had given a personal covenant under the Warman Agreement”. Whatever might be made of that correction, it was not referred to by the Chambers judge in her decision.

I note, also as something of an aside on this point, that there is an issue which may not have fully surfaced yet in this case about the extent to which the behaviour of a party after the signing of a contract can be used to inform an inquiry into the nature of that party’s intentions at the time of signing. See, for example: Ter Keurs Bros. Inc. v Last Mountain Valley (Rural Municipality) , 2021 SKCA 55 at paras 33–46 . [ 43 ] Returning to the main road of the analysis, I observe finally that, in support of its position, Valvoline further submits any finding that Ms.

Turtle is not personally bound by the Warman Agreement would be “absurd” because that would mean she could very easily avoid its effect. [ 44 ] Against the background of those considerations, the Chambers judge worked her way to a conclusion about the strength of Valvoline’s case by writing, in relevant part, as follows: [60] … Even if Ms. Turtle is not a “guarantor” or the “franchisee”, through her role as the sole director and officer for Sneer, she agreed to be “bound by the covenants contained” in the Warman franchise agreement.

On behalf of Sneer, she made a material representation that she, personally, was an “owner-operator” as identified in

Schedule “A”. This

schedule specifically provides that Ms. Turtle agreed to be personally bound by the covenants in the Warman franchise agreement. … [62] Ms. Turtle, on behalf of Sneer, signed a contract which contained overlapping implications for herself personally. While she asserts that she signed only on behalf of the corporation, a practical, fair and reasonable

interpretation of the terms of the franchise agreement strongly suggests that she knowingly bound herself personally to the covenants in the Warman franchise agreement. … [64] Despite the general law which ensures that the corporation and the director are separate entities, the unique circumstances of this case satisfy me that Ms. Turtle did agree to be personally bound to the restrictive covenants in the Warman franchise agreement. Given the wording of the franchise agreement, the understanding expressed by Ms.

Turtle, and the fact that the contracting corporation had a sole director, officer and operating mind who signed an agreement containing a clause which specifically binds herself personally, I am satisfied that the intention was for the restrictive covenants to apply not only to Sneer, but to Ms. Turtle as well. … [68] On the evidence before me, I am satisfied that Valvoline has demonstrated a strong prima facie case that Ms.

Turtle did bind herself to the restrictive covenants in the Warman franchise agreement. [ 45 ] In my very respectful view, this line of reasoning reveals that the Chambers judge erred in principle by failing to appreciate the

significance of the doctrine of independent corporate personality and its implications for the strength of Valvoline’s claim. [46] A corporation has a distinct legal status. See, most famously: Salomon v Salomon & Co. (1896), [1897] AC 22 (HL). In thisregard, a closely-held private corporation such as Sneer is just as much a separate legal person from its shareholder(

s) as is a publicly-traded corporation. See: Kevin McGuinness, Canadian Business Corporations Law, 3d ed, vol 1 (Toronto: LexisNexis, 2017) at 448–449.On this latter point, I observe that Valvoline cites Ontario Marble Company v Creative Memorials Ltd. (1964), (SKCA), 45 DLR (2d) 244 (Sask CA) [Ontario Marble], to suggest that Sneer should or could be seen as having some sort of diminishedindependent legal status because Ms. Turtle is its only officer and director. However, Ontario Marble is readily distinguishable.

Itconcerns the authority of an individual to bind a corporation not, as here, the question of whether an individual, entering into a contractualobligation on behalf of a corporation, also binds himself or herself personally. [47] The significance of the concept of independent corporate personality is clearly reflected in the case law dealing with allegedbreaches of restrictive covenants. Let me mention just two such cases that, although not precisely on all fours in every factual detail withthis appeal, very much illustrate the point. The first is Imperial Oil v H.H.L.

Fuels Ltd. and Herman Levesque, 2006 NBCA 1, 294 NBR(2d) 371 [Levesque]. H.H.L. Fuels Ltd. was owned by Herman Levesque. There was an agreement between it and Imperial wherebyH.H.L. agreed to sell and/or deliver Imperial products to customers in and around Edmundston. Mr. Levesque decided to retire and his sonstarted a new business which included the sale of fuel oil in the Edmundston area. Mr. Levesque invested money in his son’s companyand provided operational advice to it and H.H.L. transferred equipment and inventory to the company.

This led Imperial to terminate itsagreement with H.H.L. and to seek damages from H.H.L. and Mr. Levesque for, among other things, an alleged failure to abide by a non-compete clause in the agreement between it and H.H.L. [48] The Court of Appeal of New Brunswick upheld a trial decision dismissing Imperial’s claim. One basis for its ruling in relationto Mr. Levesque was that he had signed the agreement with Imperial as the president of H.H.L., or as authorized by H.H.L., not in hispersonal capacity. Nor, although the agreement with Imperial contemplated a guarantor, had he signed the agreement as a guarantor.

TheCourt concluded that “Herman Levesque cannot be found liable to Imperial for any breach of [the non-compete clause] because he was notbound by it” (at para 43). [49] Imperial Oil Limited v Westlake Fuel Ltd., 2001 MBCA 130, 203 DLR (4th) 604, is also worthy of note. As in Levesque, itconcerned an Imperial agency agreement. The agreement was between Imperial and Westlake Fuel Ltd. Kevin Johnson and his wifeKimberley signed the agreement as guarantors. Imperial terminated the agreement after it found accounting irregularities in Westlake’sbooks. Shortly thereafter, Mr.

Johnson registered the name Westshore Fuel and Oil and began delivering petroleum products under thatname. Imperial sued for an accounting and for the payment of monies owed to it. It also sought an interim injunction, arguing thatWestlake and the Johnsons were in breach of a non-compete clause in the agreement between it and Westlake. In pursuing the claimagainst the Johnsons, Imperial relied on the fact that they were guarantors of the agreement in issue. [50] The Court of Appeal of Manitoba held that the non-compete clause was not binding on the Johnsons.

Justice Philp, speakingfor the Court, concluded his analysis of this point by writing, in relevant part, as follows: 28 Johnson and his wife signed the agency agreement as guarantors. Their guarantee was directed in the main to the due observanceand performance by Westlake of the covenants, terms, provisions, stipulations, and conditions in the agreement. The agreement did notbind Johnson and his wife, in their personal capacities, within the terms of the restrictive covenant.

Nor did they enter into a restrictivecovenant running collateral to the agency agreement. 29 It would have been a simple matter for Imperial to have the personal covenants of Johnson and his wife included in the agencyagreement or in a collateral agreement. See, for example, the standard clause often found in franchise agreements that is reproduced inFrank Zaid, Canadian Franchise Guide, looseleaf (Toronto: Carswell, 1993), and Big Iron Drilling Ltd. v. Standard Holdings Ltd., (SK KB), [1981] 1 W.W.R. 599 at 602 (Sask. Q.B.).

But Imperial did not do so. 30 The courts have shown a willingness to “pierce the corporate veil” in order to prevent parties from avoiding their personalliabilities and obligations. … 31 But those are not the circumstances in this case. Johnson and his wife have simply not covenanted, in their personal capacities, tobe bound by any restrictive covenant. In signing the agency agreement as guarantors they did not agree that they would not, either directlyor indirectly, solicit or supply Imperial’s customers after the termination of the agreement.

The covenant in the agency agreement bindsWestlake alone. (Emphasis added) [51] I accept that the Chambers judge did acknowledge the concept of independent corporate personality to be part of the package ofsubmissions placed before her. While outlining the positions of the parties, she indicated, at paragraphs 54–55 of her decision, that “[t]hedefendants [now the Appellants] also point to the separate legal personalities of Dad’s, Sneer and Ms. Turtle. Counsel suggests thatbecause Valvoline has not pled the piercing of the corporate veil, there is no relief which can be granted in this regard…Ms.

Turtlesuggests that she did not sign the franchise agreement in her personal capacity and that she was signing on behalf of Sneer, which did notbind her personally”.

Further, after analyzing the matter before her, the Chambers judge introduced her bottom-line conclusion, atparagraph 64, with the words, “Despite the general law which ensures that the corporation and the director are separate entities” and thenwent on from there. [52] Notwithstanding these features of her decision, I conclude that, in the heart of her assessment of the merits of Valvoline’s case,the Chambers judge lost sight of the concept of independent corporate personality.

Respectfully, she failed to properly appreciate, as amatter of principle, how significantly that concept looms in any assessment of the merits of Valvoline’s position. This had the effect ofskewing her evaluation of the strength of Valvoline’s claim in its favour. [53] To understand all of this more clearly, it is helpful to consider in some detail what the Chambers judge said. I begin withparagraph 60 of her decision, quoted above. There, she indicated that “through her role as the sole director and officer for Sneer”,

Ms. Turtle agreed to be bound by the Warman Agreement. But, of course, the only way that a corporation can act is through its board ofdirectors or its officers, agents and employees. This is fundamentally important because, on the face of things, Ms. Turtle (qua officer ofSneer) agreed that Sneer would be bound by the Warman Agreement. Finding that she thereby also bound herself personally appears toignore the idea of independent corporate personality. [54] Carrying on with paragraph 60, it is self-evidently correct that, as the Chambers judge observed, Ms. Turtle “[o]n behalf ofSneer…made a material representation that she, personally, was an ‘owner-operator’ as identified in

Schedule ‘A’”. This is the combinedeffect of

article 15.21 and

Schedule A. However, contrary to the Chambers judge’s reading of the Agreement, the plain terms of ScheduleA would not seem to provide that Ms. Turtle herself “agreed to be personally bound by the covenants in the Warman franchiseagreement”. At least on the basis of its wording,

Schedule A is no more than Sneer’s identification of Ms. Turtle personally as an owner-operator who will “participate actively on a full-time basis in the management and operation of the Franchised Business” and be “boundby the covenants contained in this Agreement”. Only by getting past the fact that Ms. Turtle was the officer through whom Sneer wasacting is it possible to read

Schedule A as meaning that she also made those undertakings in her personal capacity. Valvoline hasarguments that the Agreement should be read in this way but, in light of the centrality of the concept of independent corporate personality,its position cannot be seen as having a strong likelihood of success. [55] Turning next to paragraph 62 of the Chambers judge’s decision, also quoted above, I note her comment that “Ms. Turtle, onbehalf of Sneer, signed a contract which contained overlapping implications for herself personally”.

Again, this view seems to ignore thehurdle posed by the concept of independent corporate personality. It is not readily apparent how it can be found that, although she signedthe Warman Agreement on behalf of Sneer, Ms. Turtle was simultaneously acting in her personal capacity and was doing so even thoughthe Agreement did not identify her as a party. [56] The Chambers judge’s assessment of the proper

interpretation of the Agreement, at paragraph 62 of her decision, is similarlycoloured by an apparent failure to properly come to grips with the notion of corporate personality. She concluded that “a practical, fair andreasonable

interpretation of the terms of the franchise agreement strongly suggests that [Ms. Turtle] knowingly bound herself personally tothe covenants in the Warman franchise agreement”. This view is difficult to reconcile with the well-recognized notion that courts shouldnot disregard independent corporate personality “on some loosely defined ‘just and equitable’ standard”.

See: Transamerica LifeInsurance Company of Canada v Canada Life Assurance Company (1996), (ON SC), 28 OR (3d) 423 (WL) (Ct J (GenDiv)) at para 21, aff’d 1997 CarswellOnt 3496 (CA). [57] Similar sorts of issues arise with respect to paragraph 64 of the decision of the Chambers judge. Her reliance on “the wording ofthe franchise agreement” self-evidently involves seeing the Agreement in a way that elides the concept of independent corporatepersonality.

Significantly, the reference to the fact that “the contracting corporation had a sole director, officer and operating mind whosigned an agreement containing a clause which specifically binds herself personally” also appears to reveal a failure to grapple with thesignificance of this concept. [58] I conclude, therefore, that while Valvoline has arguments to the effect that Ms.

Turtle is personally bound by the WarmanAgreement, those arguments cannot be seen as amounting to a strong prima facie case if the concept of independent corporate personalityis given the place that, as a matter of principle, it must be accorded in the relevant legal analysis. 2. Valvoline’s other arguments [59] By way of secondary submissions, Valvoline suggests two alternative approaches to finding that Ms. Turtle is properly thesubject of an injunction in the circumstances at hand. In the first line of attack, it suggests that, even if Ms.

Turtle is not personally boundby the Warman Agreement, the restrictive covenant found in that Agreement could apply to her on the basis that she conspired with Sneerto avoid its effect. In this regard, Valvoline relies on Pet Valu Canada Inc. v 1381114 Ontario Limited, 2013 ONSC 5361 [Pet Valu], andOntario Duct Cleaning Ltd. v Wiles, 2001 CarswellOnt 6190 (Sup Ct) [Ontario Duct]. The Chambers judge referenced those cases in herdecision and described Pet Valu as involving “similar” circumstances to those in issue here.

However, she does not appear to have in anyway based her decision on them. [60] I am not persuaded that this line of reasoning establishes a strong prima facie case in favour of Valvoline. Pet Valu involved asituation where Robin Martin and Eglinton Co., a corporation of which she was the sole officer and director, entered into a franchiseagreement with Pet Valu. The agreement contained a restrictive covenant and a provision that Eglinton could not sell its assets without PetValu’s approval. Ms.

Martin’s husband incorporated a numbered company and Eglinton sold its assets to the numbered company withoutPet Valu’s blessing. Pet Valu then sought to enjoin the numbered company from operating a pet supply business. Justice Backhousegranted the injunction saying that it was clear that the numbered company was incorporated to hide Ms. Martin’s involvement in the newbusiness. As is apparent, this decision does not parallel the circumstances here. Ms. Martin and Eglinton were signatories to the franchiseagreement with Pat Valu and thereby obviously parties to it.

Thus, she and Eglinton were clearly bound by the agreement. JusticeBackhouse’s analysis led from that starting point to the injunction against the numbered company. In this case, of course, the question isdifferent. It is whether Ms. Turtle is bound by the Warman Agreement in the first place. [61] Ontario Duct, the other decision relied on by Valvoline, is distinguishable on the same basis. The facts are not set out in greatdetail in this brief decision, but it seems clear enough that one Mr. Wiles was a party to a franchise agreement with Ontario Duct. Thatagreement contained a non-competition clause. Mr.

Wiles incorporated a company and, through it, took business away from Ontario Duct.It then sought an injunction. Justice Rivard appears to have enjoined both Mr. Wiles and his company from carrying on this competingbusiness. Again, the circumstances in the present case are different. Mr. Wiles was undeniably a party to the agreement with thefranchisor. By contrast, the key issue in this case is whether Ms. Turtle is a party to the Warman Agreement. [62] Notwithstanding all of this, Valvoline suggests that these cases can be applied by (

a) seeing Sneer in the position of Ms. Martinin Pet Valu and Mr. Wiles in Ontario Duct, and (

b) seeing Ms. Turtle in the position of their corporations. In other words, it says thatSneer is clearly bound by the Warman Agreement and that it cannot be allowed to use Ms. Turtle to manoeuvre around the restrictivecovenant in that Agreement. This is an interesting line of thought but it does not take account of the basic point that, while people cancontrol or be the directing minds of corporations, the obverse is not true. Corporations cannot control or be the directing minds of people.This simple reality, if nothing else, means that this line of argument cannot amount to a strong prima facie case for Valvoline.

[ 63 ] Valvoline also argues that, at a minimum, an injunction lies against Sneer. It is undeniably bound by the Warman Agreement and, says Valvoline, it breached

article 10.1 of that Agreement in two ways. The first was by transferring its assets from the Nelson Road location to Dad’s in June of 2020 (retroactively to November of 2019) and thus providing Dad’s with title to the equipment necessary to operate a competing oil change business. The second was by assigning the lease for the Nelson Road location to Dad’s in March of 2020 and thereby giving Dad’s a right to occupy and use that location. [ 64 ] The Chambers judge did not consider this line of argument but, rather, focussed on the question of whether Ms. Turtle herself could be enjoined.

Presumably reflecting the substance of the arguments presented to her, she did not hone in on the particulars of Sneer’s situation. As a result, the Court does not have the benefit of her assessment of this question. [ 65 ] There is obviously some merit to Valvoline’s argument about Sneer. But, when that argument is examined, I am not persuaded that it amounts to a strong prima facie case. As for the asset transfer, there is room for debate about whether Sneer’s actions constitute a breach of

article 10.1. In relevant part, that

article says Sneer will not, during the term of the Warman Agreement, “directly or indirectly, carry on or be engaged in or concerned with or interested in, financially or otherwise, or advise in the establishment or operation of, any business which consists substantially of operating an automotive lubrication service outlet”.

As the Appellants point out, a one-time transfer of assets by Sneer to Dad’s without any ongoing involvement by Sneer in the Dad’s business can certainly be argued to fall short of “carrying on” an oil change business, being “engaged in” an oil change business, being “concerned with or interested in” an oil change business, or “advising” on the establishment or operation of an oil change business. [ 66 ] It is also significant that the Nelson Road Agreement (like the Warman Agreement) has an

article that speaks specifically to the transfer of business assets.

Article 12.17 says that “[d]uring the term and currency of this Agreement…the Franchisee [Sneer] shall not remove all or any substantial part of its business assets” without Valvoline’s consent. This would seem to suggest that, once the Nelson Road Agreement had expired, Sneer could do what it wanted with its assets. This would appear to make some practical and business sense because, otherwise, if a franchise agreement came to an end, the franchisee would be left with stranded assets. Significantly, this appeal is argued on the basis that the Nelson Road Agreement expired prior to the transfer of the assets in question. Accordingly,

article 12.17 would seem to undermine the strength of Valvoline’s argument about Sneer being in violation of

article 10.1 of the Warman Agreement by virtue of having transferred its assets. [ 67 ] What then of the situation concerning the assignment of the lease? Ms. Turtle avers that in July of 2006, Great Canadian signed a lease with a third party landlord for the premises on Nelson Road. She indicates that the lease came to an end shortly after the Nelson Road Agreement expired and that Great Canadian then authorized Sneer to become the lessee. Sneer entered into a new lease with a third party landlord in April of 2018. In this regard, Great Canadian did not require Sneer to enter into a tripartite lease agreement or assignment agreement of the sort contemplated by

article 3.5 of the Nelson Road Agreement when a franchisee leases directly from a third party landlord. In effect, Great Canadian appears to have simply left the scene in relation to the lease issue. As indicated above, the lease was ultimately assigned from Sneer to Dad’s in November of 2019. [ 68 ] All things considered, it would seem that Valvoline’s argument with respect to the lease assignment, while not without merit, is not sufficiently compelling to amount to a strong prima facie case.

First, as with the asset transfer to Dad’s, there is an issue about whether the simple assignment of the lease by Sneer, without any further involvement by it in the Dad’s operation, amounts to a breach of

article 10.1 of the Warman Agreement. Second, as the Appellants suggest, there is a question about whether

article 10.1, even if it is broad enough on its face to apply to the lease assignment, can be engaged with respect to an issue that can be argued to more properly fall under the scope of the now expired post-term restrictive covenant in

article 10.2 of the Nelson Road Agreement. Third, there is an issue about how Great Canadian’s decision to walk away from any ongoing involvement with the lease might impact the application of

article 10. In short, Valvoline’s argument in this regard is not so clear and compelling as to amount to a strong prima facie case. 3. A final word [ 69 ] None of the foregoing is to suggest that Valvoline cannot or will not succeed at trial in establishing its claim against the Appellants. Rather, the point is only that the Chambers judge erred in her assessment of the merits of Valvoline’s position and thereby overestimated Valvoline’s chances of success at trial.

In all of the circumstances here, it cannot be said that Valvoline’s claim is so solid in relation to the law and the evidence that it has a strong prima facie case. [ 70 ] Valvoline accepts that the injunction it seeks can only be granted if it establishes a strong prima facie case, i.e., there must be a strong likelihood that it will ultimately succeed at trial. Having failed to clear that hurdle, Valvoline’s request for injunctive relief must be denied. V. CONCLUSION [ 71 ] I conclude, for the reasons given above, that this appeal must be allowed.

The Appellants are jointly entitled to one set of costs payable by Valvoline. “Richards C.J.S.” Richards C.J.S. I concur. “Jackson J.A.” Jackson J.A. I concur. “Kalmakoff J.A.” Kalmakoff J.A.