Ontario Supreme Court

530888 Ontario Ltd. v. Sobeys Inc.

Date: 2001-02-26

530888 Ontario Limited, 1174710 Ontario Limited, Bird Food Inc., Greg R. Potter Ltd., Stanko Group Ltd., Didier Investments Limited, Robert C. Meehan, Limited, Jodel Foodmarkets Limited, 970375 Ontario Limited, Marmora Food Market Limited, Bird’s Foodmarket Limited, 647702 Ontario Limited, 478970 Ontario Limited, Wilfran Supermarkets Inc., Kudell Enterprises Limited and 650232 Ontario Inc., Plaintiffs (Moving Parties)

and

Sobeys Inc. and Sobeys Capital Incorporated, Defendants (Respondents)

Ontario Superior Court of Justice [Commercial List] Lederman J.

Heard: February 21, 2001

Judgment: February 26, 2001

Docket: 00-CL-3776

David L. Sterns, for Plaintiffs/Moving Parties

Larry P. Lowenstein and Joseph A. Starkman, for Defendants/Respondents

Lederman J.:

Reasons for Judgment

Nature of Motion

[1] One of the plaintiffs, Didier Investments Limited (“Didier”), seeks an interlocutory injunction restraining the defendants (collectively “Sobeys”) from terminating the tenancy of Didier of the Didier IGA store (“the leased premises”) until trial or alternatively until the final disposition of the Sobeys application or the action against Na-Mor Construction Limited (“Na-Mor”).

[2] Didier has operated an IGA grocery store for over two decades on the leased premises that it has sublet most recently from Sobeys. That sublease is to expire on its own terms, with no further options to renew, on February 27th, 2001. Sobeys in turn has leased the premises from the owner, Na-Mor, which lease was originally due to expire on February 28th, 2001 but was extended by agreement between Sobeys and Na-Mor for a further term beginning on March 1st, 2001.

[3] The IGA franchise system is owned by Sobeys which it acquired in 1998.

[4] On June 12, 2000, sixteen IGA franchisees, including Didier, commenced this action against Sobeys alleging breaches of the franchise agreements by Sobeys and its predecessor, Oshawa Holdings Limited. On August 16, 2000, Sobeys served notices of termination which purport to terminate the franchise agreements of the plaintiffs and any and all subleases held by the plaintiffs, as subtenants, with Sobeys, as sub-landlord. Sobeys gave Didier notice that the franchise agreement and its sublease will be terminated on February 16th, 2001, but since postponed to February 27th, 2001. Sobeys also commenced an application against the sixteen plaintiffs wherein it seeks court approval of the terminations of the franchise agreements and subleases.

[5] The plaintiffs in this action also seek an injunction to prevent Sobeys from enforcing the termination notices. That motion is returnable at the hearing of the Sobeys application.

[6] Didier alleges that in August 2000, it negotiated with and entered into a valid and binding agreement to lease with Na-Mor for the leased premises to commence March 1, 2001. Didier has commenced a separate notice of action against Na-Mor for specific performance of the alleged agreement to lease. Didier also claims that the information pertaining to its negotiations with Didier contained in Richard Didier’s affidavit of November 7th, 2000 (which was sworn in response to Sobeys’ application and in support of an injunction in this action to prevent the terminations) was improperly used by Sobeys, in breach of a common law implied undertaking rule, in order to secure a new lease with Na-Mor which was entered into on November 17th, 2000 and before Didier was able to complete a formal lease document with Na-Mor. In this action, Didier seeks to impose a constructive trust over the Sobeys lease as a remedy for unjust enrichment, interference with economic relations, breach of the implied undertaking rule and breach of the statutory duty of fair dealing imposed on both parties by the recent Arthur Wishart Act (Franchise Disclosure) 2000, S.O. 2000, c.3, sections 1, 3 (proclaimed into force as of July 1, 2000).

[7] Na-Mor has not been named as a party defendant in this action; nor has Didier claimed any injunctive relief as against it on this motion. Counsel for Didier served Na-Mor with the motion material the day before the return of the motion and in his covering letter indicated that he did not believe that Na-Mor’s interest would be adversely affected by the outcome of the motion. Na-Mor has not appeared on this motion.

The Test for an Interlocutory Injunction

[8] Under the test laid down by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (S.C.C.), [1994] 1 S.C.R. 311 (S.C.C.), the first question to be decided is whether the moving party has presented a case which is not frivolous or vexatious but which does present a serious case to be tried. The second step is to ask whether damages will provide the moving party with an adequate remedy or whether it could suffer irreparable harm if the injunction were refused. Where there is doubt as to the adequacy of the respective remedies, the court should focus on the balance of convenience, assessing the relative effect of the granting or refusal of the injunction on each of the parties.

[9] Sobeys contends that although the wording of the notice of motion seeking the injunction is couched in prohibitive terms it in effect seeks a mandatory injunction to force Sobeys to maintain a franchise agreement and to enter into a new sublease with Didier. In those circumstances Sobeys says that the plaintiff must show that it is “clearly right” and satisfy the court that it would be successful at trial and not merely show that it has an arguable case. Whether the relief sought is prohibitive in nature, as Sharpe J.A. has explained in his text, Injunctions and Specific Performance, at paragraph 1.30:

It should not be overlooked that the burden imposed by a prohibitive order is often substantial. Any negative order may amount in practical terms to an order requiring a certain course of action.

[10] There is no doubt that Didier seeks to have Sobeys maintain, against its will, a sublease with it that has no option to renew and that will expire on its terms on February 27th, 2001.

[11] However the motion is characterized, there is no inherent right to force a franchisor to enter into a new sublease agreement with one of its franchisees that has expired on its own terms with no option to renew. This is apparent from TDL Group Ltd. v. 1060284 Ontario Ltd., [2000] O.J. No. 1239 (Ont. S.C.J.). There, TDL, the franchisor of Tim Hortons, had refused to renew a franchise license agreement and sublease agreement it had with one of its franchisees. Those agreements were due to expire imminently with no provision for renewal.

[12] The franchisee brought an injunction to “restrain” TDL from “taking any steps to evict the defendant… or from interfering with the ordinary course of its business or terminating its franchise license or sublease”. B. Wright J. refused to grant what he concluded was a “mandatory injunction” stating:

[T]he defendants argue that … [they] had a reasonable expectation that the agreements would be renewed. Further, they argue that TDL has shown bad faith in refusing to renew… The fact that TDL and the defendants have been in a long-term profitable relationship does not convert into an obligation on TDL to renew the agreements. When a party enters into an agreement which contains no right to renew or option to renew on ascertainable terms there will be no renewal enforceable by a court.

[13] On what basis, therefore, does Didier allege that it is entitled to have the relief sought?

Alleged Agreement to Lease Between Didier and Na-Mor

[14] Didier submits that there is a serious question to be tried as to whether it had entered into an enforceable agreement to lease and seeks an interlocutory injunction against Sobeys to ensure that the remedy of specific performance against Na-Mor will be available to Didier if it succeeds in establishing the existence of a lease at trial.

[15] It is quite telling that in Richard Didier’s affidavit sworn on November 7th, 2000, he admitted that he was merely “negotiating” with Na-Mor. Although Richard Didier has attempted to explain away the use of that word, it is clear that a most critical term for the alleged agreement to lease is missing. In particular, there is no indication that any agreement was ever arrived at with respect to the rent for the two renewal periods which comprised ten of the fifteen years of the possible total lease term under discussion. Moreover, the conduct of Mr. Hindson, counsel for Didier was not consistent with the parties having reached any kind of binding agreement, in that the language that he utilized in his letters clearly indicates that the parties were merely engaged in the preliminary negotiation stage. Further, when a draft lease was submitted to Na-Mor, Na-Mor’s response was one of surprise to receive a lease offer.

[16] Moreover, there is no writing or memorandum whatsoever from the party that allegedly granted the lease, i.e. Na-Mor, and since the proposed lease was to exceed a term of three years from the making thereof, such an arrangement would be in contravention of the Statute of Frauds.

[17] Accordingly, there is no basis for saying that Didier has an arguable case, let alone one that is clearly right, that it had a valid and binding agreement to lease with Na-Mor.

Breach of the Implied Undertaking Rule

[18] Didier alleges that Sobeys improperly used the information in Richard Didier’s affidavit to enter into its own purported lease for the leased premises with Na-Mor, and, thereby breached the common law implied undertaking rule.

[19] There is some question, whether with the adoption of Rule 30.1, the common law rule still exists. Nevertheless, where a party voluntarily swears and serves an affidavit with the intention that it be made public and used in support of its position, there can be no reasonable expectation of confidentiality or limitation on its use once it is served on the opposing party.

[20] In April or May 2000, Sobeys had commenced discussions with Na-Mor regarding a new lease after expiry of its lease on February 28th, 2001. Those discussions continued during the summer and into the early fall of 2000, with Sobeys being unaware that Na-Mor was engaging in separate negotiations with Didier. After the affidavit of Richard Didier, dated November 7th, 2000, was served on Sobeys, it learned for the first time that Didier was competing for the site. Sobeys then proceeded to finalize a lease agreement with Na-Mor.

[21] Didier submits that Sobeys was obliged to stand aside and let Didier negotiate exclusively with Na-Mor, despite Sobeys’ ongoing negotiations and its pre-existing desire to extend its lease with Na-Mor. There was no indication given in Richard Didier’s affidavit prepared for public court filing, that this information was provided on a restricted basis. Nor could any such expectation be reasonably assumed given the parties’ openly adverse interests at this stage with respect to the leased premises.

[22] Therefore, even if the common law undertaking rule continues to exist in Ontario, Didier has not established an arguable case that any breach has occurred in the circumstances of this case.

Duty of Fair Dealing

[23] Didier claims that Sobeys breached its duty of fair dealing imposed by the Arthur Wishart Act. Under s. 3 of that Act, every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement. The “duty of fair dealing” includes the duty to act in good faith and in accordance with reasonable commercial standards.

[24] This duty applies to performance and enforcement of existing agreements. It surely does not compel one party to renew an expiring relationship when it considers it to be commercially unreasonable. In any event, Didier had the same intention as Sobeys with respect to the leased premises. In July 2000, Didier was seeking from Na-Mor an option to the premises in order to tie down the site for itself and get ahead of everyone else, including Sobeys. It was clear at that point that Didier was interested solely in obtaining control of the leased premises without regard to the commercial interests of Sobeys. Both parties were freely competing, in their own interests, to acquire control of the site once their relationship had ended. In doing so, neither side was breaching its respective duty of fair dealing. Accordingly no arguable cause of action for breach of duty of fair dealing has been established.

Unjust Enrichment

[25] In a claim for unjust enrichment, a plaintiff must prove:

(1) an enrichment of the defendant;

(2) a corresponding deprivation on the part of the plaintiff; and

(3) the absence of any juristic reason for the enrichment.

[26] Didier submits that with respect to the first and second elements of the test as it applies to leasehold premises, the loss of locational goodwill would constitute a deprivation to the tenant/franchisee and an enrichment to an occupying franchisor. Similarly, it submits that leasehold improvements constitute an enrichment to the defendant landlord and a deprivation to the plaintiff tenant. I further submits that because Sobeys has acted with a fundamental lack of fairness and contrary to the clear expectations of Didier, there can be no juristic reason for the aforesaid deprivation or enrichment.

[27] A contractual right constitutes a juristic reason. Didier specifically contracted with Sobeys in the sublease that the landlord was to get the leasehold improvements at the end of the lease and thus there does exist a juristic reason for this circumstance. Moreover, the failure to include an option to renew in the sublease is a juristic reason for the loss of the leased premises and any goodwill that goes with the location. No arguable claim for unjust enrichment has been made out.

Unlawful Interference with Economic Relations

[28] No arguable case has been established for this cause of action. Didier never had an agreement with Na-Mor. Moreover, Sobeys’ intentions were always to secure for itself continued rights over the site which were demonstrated even before it became aware of Didier’s attempts to obtain a lease from Na-Mor.

Irreparable Harm

[29] Without an interlocutory injunction, Sobeys, a well-known grocer in its own right, will be maintaining and operating the grocery store at the leased premises with the existing employees. Sobeys will be maintaining appropriate financial statements and accounting records of revenues and expenses. There is no reason why an assessment of any foregone interim profits of the store could not be made. This is not a case where the business itself is coming to an end because of the end of the tenancy as the store will continue as before but only under Sobeys’ management.

[30] There is no evidence to conclude that damages would not form an adequate remedy in these circumstances if Didier ultimately succeeds at trial.

Balance of Convenience

[31] To permit an interlocutory injunction here would require Sobeys to carry on a leasing relationship it does not want and it would not be practical for this court to compel and supervise a new lease arrangement for a supermarket in an involuntary business relationship pending a final disposition on the merits. In these circumstances, the balance of convenience does not favour the plaintiff.

Conclusion

[32] The motion is therefore dismissed.

[33] If the parties cannot agree as to costs they may make written submissions.

Motion dismissed.