As discussed in the Idan Erez’s recent article “The Enforcement of Restrictive Covenants Against Non-Contracting Parties”, the issue of the enforcement of restrictive covenants is always a front-and-center concern for Canadian franchisors. The British Columbia Court of Appeal’s 2022 decision in Garcha Bros. Meat Shop Ltd. established a helpful appellate level decision in respect of the enforcement of post-term non-competition provisions against non-parties to a franchise agreement. However, as noted in that article, there is hardly consistency in respect of the enforcement of restrictive covenants, and the decisions of Canadian courts regarding shutting down ex-franchisee businesses are often complex and subject to the unique contexts of the parties’ conduct and the specific contractual language governing their relationship. Two recent injunction decisions (one in Ontario and one in British Columbia) highlight the fact that the enforcement of a restrictive covenant is never a fait d’accompli, and franchisors should exercise care when proceeding with court actions to protect their rights.
In Lightbox Enterprises v. 2708227 Ontario Inc., the Ontario Superior Court of Justice refused to grant interlocutory injunction to shut down a cannabis retail store that rebranded after the end of a licensing arrangement. The plaintiff, Lightbox, was a licensor and service provider for the “Dutch Love” cannabis store brand. Under the Ontario cannabis licensing framework, the defendant 2708227 Ontario Inc. (“270”) had obtained two retail cannabis licenses from the Ontario government for locations in Timmins and Brampton, Ontario. With those licenses in hand, 270 contracted with Lightbox to brand these locations under the “Dutch Love” banner and the parties entered into license/service agreements in that regard.
The relationship was short-loved and the parties ceased their contractual relationship. 270 continued to operate the stores, removed the “Dutch Love” branding, and renamed the stores as “Roll N Rock Cannabis.” Lightbox took the view that 270 was contractually prevented from operating these locations under its post-term covenants and was wrongfully using the “Dutch Love” operational process in the launch of its new business. Accordingly, Lightbox brought a motion for an interlocutory injunction to stop 270 from continuing to operate the “Roll N Rock Cannabis” stores and to stop 270 from purportedly using the Dutch Love marks and the confidential operating methods 270 acquired via its license and service agreement.
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