“In essence”, the court explained, “the Plaintiffs raise two sets of claims against the Defendants. KWR’s claims concern the Defendants’ alleged breach of the restrictive covenants contained in their license agreements with KWR. . . . KWR argues that the operation of the Defendants’ new brokerages under the aegis of a competing real estate franchisor breaches various contractual terms between the parties. KWR claims that the breached contractual terms include the restrictive covenants contained in their license agreements”.

The plaintiffs were seeking a pre-trial injunction against the defendants, and the court accepted the defendants’ argument that “because the relief requested amounts to a mandatory injunction, the first arm of the RJR-MacDonald test should require a higher standard of proof than a serious issue to be tried. It should require proof of a strong prima facie case”.

After an extensive review of the merits of the plaintiffs’ case and the leading authorities, the court found that “there is a strong prima facie case that the restrictive covenants in the License Agreements are both reasonable and enforceable against the Defendants. Further, the Defendants have breached those terms by joining a competing real estate franchise during the term of the License Agreements. Accordingly, there is a strong likelihood that the Plaintiffs will succeed in this proceeding following trial”.

The court also found that the plaintiffs had met the second element of the test:

From the law and the evidence before me, I find that KWR will suffer irreparable harm if an injunction were not granted. I say this because:

1.   The loss of two major franchises in two major markets, with the loss of about six hundred agents, all to a larger direct competitor, causes great harm to KWR.

2.   That harm would be compounded by the anticipated reaction of other KWR franchisees if this motion were denied. Those franchisees would learn that the restrictive covenants in their license agreements, which both bind them to KWR and protect them from KWR competitors, are of little value. That would most likely shrink the goodwill and ultimately, the value of the KWR system in Canada.

3.   Moreover, the Defendants’ breaches of the License Agreements would likely significantly set back any KWR replacement franchises in the applicable Ottawa and Mississauga territories. In addition to lost goodwill and market share, those replacement franchises would be faced with having to compete with former KWR franchises in those same territories

After a brief review of the third element, the court concluded that “the balance of convenience tilts towards the Plaintiffs”.

Finally, the defendants argued that the plaintiffs weren’t entitled to the injunction because they came to the court with unclean hands. The court dismissed this argument in short order:

Undoubtedly, inasmuch as the Plaintiffs seek to obtain equitable relief in the form of an injunction, the clean hands doctrine applies. But I have not found that KWR engaged in any improprieties regarding the Defendants which would cause me to invoke the clean hands doctrine to deny to the Plaintiffs the relief they seek.

The post Ontario court orders mandatory injunction in franchise dispute first appeared on British Columbia Law Institute.

The court began by noting that “The decision to grant an interlocutory injunction is discretionary and entitled to a high degree of deference. This Court may not interfere solely because it would have exercised the discretion differently. Intervention will be justified, however, where the chambers judge proceeded ‘on a misunderstanding of the law’: CBC at para 27; Google Inc v Equustek Solutions Inc, 2017 SCC 34 at para 22”. Further, “The chambers judge identified the three branches of the test for a mandatory interlocutory injunction correctly. The applicant must demonstrate: a) a strong prima facie case; b) irreparable harm if the relief is not granted; and c) the balance of convenience favours granting the injunction: CBC at para 18; Avmax Aircraft Leasing Inc v Air X Charter Limited, 2022 ABCA 252 at para 69.”

But the court found errors in the application of this test. In particular, the court was concerned about the chambers judge’s handling of the first element:

[18]           Needless to say, the application did not proceed as a trial would have done. The parties’ materials and submissions were relatively brief; they prevented the chambers judge from undertaking the “extensive review of the merits” required when considering a mandatory injunction: CBC at para 15. . . .

[20]           The finding of transfers below market value should not have been the end of the inquiry. As noted, a strong prima facie case will be found where there is a “strong likelihood on the law and the evidence presented that, at trial,” the respondent will “be ultimately successful in proving the allegations” set out in his claim: CBC at paras 17-18. Those allegations include that the transfers were made by the mother in breach of trust, the appellant was unjustly enriched, and the appellant accepted the transfers as a trustee. The parties, and therefore the chambers judge, did not address whether there was a breach of trust in any detail.

[21]           Even assuming a strong prima facie case of breach of trust could be established, the chambers judge did not consider how a breach of trust by the mother would make the appellant liable for return of the transferred properties. At the time of the transfers, the appellant was not a trustee. A stranger to a trust can be held liable as a constructive trustee for breach of trust in some circumstances—for example, if the stranger is found to be a trustee de son tort, to have knowingly assisted in a fraudulent and dishonest design, or to have knowingly received the property where there is constructive or actual knowledge of the breach: Citadel General Assurance Co v Lloyds Bank Canada, 1997 CanLII 334 (SCC), [1997] 3 SCR 805 at paras 19-25, 48-51, 1997 CanLII 334 (SCC); Paul First Nation v K & R 2014 Inc, 2021 ABQB 32 at paras 67-68. On the materials available to us, it appears there was no argument as to whether or how the appellant was liable as alleged. The result is that the chambers judge did not consider, and was not equipped to consider, whether there was a strong prima facie case any of these or other bases for liability were made out.

[22]           In addition to arguments based on the terms of the trust deed, the respondent pointed to the fact the mother’s caveats remain on title from 2003 as support for his position that the lands were still “owned beneficially for the trust”; he argued they would have been removed if the transactions were intended to transfer beneficial ownership to the appellant. The appellant responded that the intent, if any, behind the failure to remove the caveats could only be determined on evidence that was not before the court, such as evidence from the lawyer who assisted with the transfers.

[23]           The chambers judge placed weight on the presence of the caveats in concluding the appellant had established a strong prima facie case. However, a caveat only provides notice of a claim to an interest in land, it does not establish the validity of the claim: St Pierre v North Alberta Land Registry District (Registrar), 2023 ABCA 153 at para 8, citing St Pierre v Schenk, 2020 ABCA 382 at paras 30-31. . . . Given the inconsistency between the transfer documents and the historically registered caveat, and without any other evidence, the respondent did not establish that the mother’s failure to remove the caveat was intentional. The existence of the caveat is not capable, on its own, of establishing a “strong likelihood” the respondent will be successful in proving the allegations set out in his statement of claim.

The court also had concerns regarding the second element of the test:

[24]           The chambers judge also committed reviewable error in assessing irreparable harm. Generally, irreparable harm refers to harm that either cannot be quantified in monetary terms or that cannot be cured, for example where one party will not be able to collect damages from the other: RJR-MacDonald Inc v Canada (Attorney General), [1994] 1 SCR 311 at 341, 1994 CanLII 117 (SCC). An applicant bears the onus of demonstrating irreparable harm with evidence that is clear and not speculative: Modry v Alberta Health Services, 2015 ABCA 265 at para 82.

***

[27]           The respondent also argued the trust would suffer losses because the appellant was not paying it rent for her use of the land, was not collecting or remitting payments on certain surface leases, and might be dilatory in renewing expiring leases. The respondent characterized these losses as unquantifiable, giving rise to irreparable harm.

[28]           The chambers judge appeared to accept this argument, holding that irreparable harm had been established because “potential harm to the beneficiaries goes beyond the amounts that could be quantified on the basis of [the appellant’s] past use of the land and . . . extends into the future in the form of unquantifiable losses”. Any loss of rent or surface lease income, present or future, is quantifiable; the fact it has not yet been incurred does not make it unquantifiable and therefore irreparable. It does not constitute harm that “cannot be quantified in monetary terms or which cannot be cured”: RJR at 341.

***

[30]           As noted by this Court in Lubicon Lake Band v Norcen Energy Resources Ltd, 1985 ABCA 12 at para 33, the “irreparable harm” criterion serves to remind courts and litigants of the extraordinary nature of granting injunctive relief on an interlocutory basis: “an interim injunction is emergent relief. The claimant seeks a remedy without proof of his claim. This inversion should only be considered in cases where the harm is of such seriousness and of such a nature that any redress available after trial would not be fair or reasonable. This hurdle must be met before the balance of convenience is weighed”. The chambers judge erred by misinterpreting the irreparable harm requirement.

Finally, the court came to the following conclusion regarding the injunction:

[32]           It is open to us to consider afresh whether an injunction should be granted. As noted, the evidence was incapable of establishing irreparable harm. In these circumstances, this is a sufficient basis on which to deny the injunction. It is therefore not necessary to consider afresh the strength of the case and the balance of convenience.

[33]           Beyond the three parts of the test, the “fundamental question is whether the granting of an injunction is just and equitable in all of the circumstances of the case”: Google at para 25. The relief the respondent sought in the application below was the same as the core elements of the relief he sought in his statement of claim, albeit on an interim basis. While a plaintiff might be entitled to such relief before proving his claim in some circumstances, the respondent did not establish any basis on which granting such an inversion would be just and equitable in the circumstances of this case.

[34]           We conclude that granting a mandatory injunction on an interlocutory basis is not just and equitable in the circumstances of this case.

The post Alberta Court of Appeal overturns mandatory injunction to transfer land first appeared on British Columbia Law Institute.