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By: Anthony Pugh
Editor: Ben Hanuka
In FPMG Hospitality Inc. v. Recipe Unlimited Corporation, an October 29, 2021, decision of the Ontario Superior Court of Justice, the court dismissed a motion by the plaintiff franchisee, FPMG Hospitality Inc., for an interlocutory injunction refraining the franchisor, Harvey’s, from enforcing a notice of expiration of a franchise agreement.
FPMG or its affiliates controlled two Harvey’s franchises. The first was in Sarnia and the second was in Brantford. The franchise agreement for the Sarnia franchise contained a ten-year right of renewal. But there was no right of renewal in the franchise agreement for the Brantford franchise – and all parties knew that.
In October 2020, Harvey’s confirmed in an email to FPMG’s principal that the Brantford franchise agreement would expire in 2021. Later, in December 2020, FPMG made a proposal about the renewal of the franchise agreement, but Harvey’s position remained the same.
In June 2021, Harvey’s delivered a notice of expiration to FPMG. FPMG commenced the court proceeding in August 2021, and subsequently brought the injunction motion to refrain Harvey’s from enforcing the notice of expiration.
FPMG claimed that Harvey’s was required to extend the franchise agreement for a ten-year period. Among other things, it claimed that a representative of Harvey’s made oral representations about the possible renewal of the franchise agreement at the time that it was first signed.
FPMG also claimed damages for misrepresentation, breach of contract, breach of the duty of good faith and fair dealing and alleged that Harvey’s never delivered a disclosure document. It further made allegations about Harvey’s opening a second location in Brantford and argued that Harvey’s had treated it differently from other franchisees.
The court dismissed the injunction motion
The court held that this was a mandatory injunction motion because there was no existing agreement between the parties. As such, the strong prima facie case legal standard applied – rather than the much lower threshold of ‘serious issue to be tried’. The status quo was the expiry of the agreement. FPMG’s motion was, in essence, asking for an order that would permit it to remain in possession of the franchise and operate it until the conclusion of the action.
The court held that FPMG’s allegations were weak, and that, therefore, it did not meet the necessary threshold for strong prima facie case. Harvey’s denied making any representations to FPMG and, in any event, the alleged representations did not necessarily mean that FPMG would have the right to renew. There were also questions about whether the person who allegedly made those representations was even a representative of Harvey’s.
Further, FPMG was well aware about the expiry date of the franchise agreement and that there would be no right to renew. The franchise agreement also contained an entire agreement clause.
The opening of a second Harvey’s restaurant in Brantford not constitute a breach of the duty of good faith because it was outside of FPMG’s restricted territory. The evidence about whether FPMG was treated better or worse than other franchisees was uncertain and was difficult to determine. It would also have to take into consideration evidence about the Sarnia franchise, which FPMG or its affiliate also operated.
About the disclosure document – neither FPMG nor Harvey’s had a copy of it, so the court held that both parties would have difficulties proving what was disclosed.
Finally, the court held that it was extremely unlikely that FPMG would obtain an order requiring Harvey’s to give it another ten-year franchise agreement at trial, and that a damages remedy would be far more likely.
In addition, many of the allegations in the claim, such as allegations of bad faith conduct, could not result in the court ordering Harvey’s to provide FPMG with a new franchise agreement.
The court also held that there was no irreparable harm to FPMG since what it realistically hoped to get at trial was damages. FPMG was essentially arguing for damages in its claim, but that it could not be reasonably compensated by damages in its injunction motion.
In addition, since the Brantford Harvey’s would continue operation, damages would be quantifiable.
The balance of convenience also lied with Harvey’s. If the injunction was granted, Harvey’s would be forced to enter into a contractual relationship with a company that had no express right to continue that relationship.
Further, it was unlikely that FPMG would be able to satisfy any costs award against it at trial. On the other hand, it was likely that Harvey’s would have the assets to pay any damages claim.
* Click here to see Ben’s key takeaways on this case and share your feedback *Tags : Disclosure, Renewal, Termination, Injunction
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