Double Pizza/Roasters express (9091-2288 Québec inc.) c. 9203-0873 Québec inc. (Double Pizza — Fabreville)

2014 QCCS 1742

SUPERIOR COURT

(Civil Division)

CANADA
PROVINCE OF QUÉBEC
DISTRICT OF MONTRÉAL

No.:     500-17-082075-147

DATE: April 28^th, 2014

 

PRESIDING: THE HONOURABLE MR. JUSTICE MARK G. PEACOCK,                                                         

 

                                                                                                                                                        

DOUBLE PIZZA/ROASTERS EXPRESS (9091-2288 QUÉBEC INC.),

                

                             Petitioner/Franchisor

                                                                      

v.

 

9203-0873 QUÉBEC INC., doing business under the firm name and style of DOUBLE PIZZA - FABREVILLE

FRANCHISEE

-and-

 

Mohammad (Peyman) Khaleghi, President of 9203-0873 Quebec Inc.

 

                             collectively the Respondents

 

-and-

 

CONAN FOODS INC.

 

-and-

 

PROVIGO DISTIBUTION INC.

                                                          

                             Mise en Causes

                                                                                                                                                        

JP 1900

JUDGMENT

[1]      Petitioner/Franchisor presents a Motion In Interlocutory, Provisional and Permanent Injunction and Safeguard Order and Termination of Franchise Agreement; (the “Motion”);

 

[2]         CONSIDERING the allegations of the Motion, its Exhibits and the affidavit in support thereof as well as the Respondents’' response affidavit;

[3]         CONSIDERING that Petitioner/Franchisor rights under the Franchise Agreement which at this stage, are somewhere between clear and doubtful. The legality of certain of those rights are contested by the Respondents;

[4]         CONSIDERING that Petitioner/Franchisor will suffer serious and irreparable harm without the respect of the enforceable provisions of its Franchise Agreement;

[5]         CONSIDERING that in the short term, these legal proceedings should not constitute a "lever" to unbalance any fair re-negotiation of terms of the Franchise Agreement;

[6]         CONSIDERING the urgency of the situation since the daily operation of the Franchise in accordance with the Franchise Agreement is in issue;

[7]         considering the Franchisee's affidavit alleging that these legal proceedings are being used by the Franchisor as a pretext since the Franchisee is part of a group of disgruntled franchisees who allege that the Franchisor is not meeting certain of the Franchisor’s contractual obligations;

[8]         considering that the Franchisee must purchase approved products from the approved supplier, Conan Foods to whom it is in debt and who may only continue to supply it on a COD basis;

[9]         Considering that the Franchisee alleges that it had an agreement with Conan Foods regarding a manner of payment which it alleges was vetoed by the Franchisor;

[10]      considering that the Franchisee must make whatever arrangements necessary to ensure supply from Conan Foods including, the requirement for COD if that is the only payment that Conan Foods will accept;

[11]      CONSIDERING the representations made by the attorneys for the parties, including jurisprudence and doctrine filed and the Court’s additional research;

[12]      CONSIDERING the following références from the 2004 Court of Appeal judgment in 9045-6740 Quebec Inc. v. 9049-6902 Quebec inc. et al[1]: 

13-Particulièrement en matière contractuelle, l'injonction doit tendre au maintien du statu quo entre les parties[2].  Or, le jugement entrepris a pour effet de mettre de côté la convention des parties et permet à l’intimée de se conduire comme si ladite convention n’existait pas.

14-Il est vrai qu'en cette matière l'injonction ne doit pas avoir pour effet de forcer une partie, sous peine d'outrage, à adopter l'interprétation contractuelle proposée par son cocontractant[3].  Tel n'est pas le cas en l'espèce.  Il n'y a aucune ambiguïté sur les obligations contractuelles de l'intimée aux termes de la convention de franchise.  Le texte même du contrat établit nettement l'apparence de droit de l'appelante.  Sans trancher le fond de l'affaire, l'appelante a fait une démonstration prima facie de son droit à l'exécution en nature des obligations de l'intimée.

15-Même si les manquements allégués par les intimés devaient être tenus comme prouvés au stade interlocutoire, ceux-ci n’apparaissent pas assez importants suivant la preuve faite à cette étape de la procédure pour que l’on mette immédiatement de côté la convention des parties.

16-De même, la Cour est d'avis que l'appelante a établi que l'injonction interlocutoire recherchée est nécessaire pour empêcher que ne lui soit causé un préjudice sérieux ou irréparable.  Dans la convention, l'intimée reconnaît que le préjudice subi par l'appelante, en pareil cas, est impossible à quantifier.  Règle générale, la Cour a reconnu que la perte d'achalandage constitue un préjudice difficilement quantifiable[4].  Dans les faits, il s’agit de la perte d’une clientèle fidélisée à « La Belle Province » et d’un emplacement d’exploitation.  Les auteurs du traité sur l'injonction écrivent :

            Le critère du préjudice sérieux ou irréparable doit également être examiné lors d'une demande d'injonction interlocutoire.  Que son objectif vise à se prémunir contre des tactiques déloyales ou encore à faire cesser la violation d'une stipulation de non-concurrence, le créancier de l'obligation fait face, en cas de contravention du débiteur, à des répercussions au niveau de sa clientèle, de son chiffre d'affaires, de son prestige, etc.

            La jurisprudence reconnaît généralement que la compensation en dommages-intérêts pour la perte de clientèle est un recours insatisfaisant et aléatoire parce que le dommage est difficilement mesurable de telle sorte qu'il devient irréparable.[5]

           En l'espèce, permettre à l'intimée de mettre fin à la convention des parties tout en le laissant opérer le restaurant au même endroit et avec les mêmes équipements est certes susceptible de causer à l'appelante un préjudice sérieux ou irréparable.  Qui plus est, le jugement entrepris fait fi de l'engagement de non-concurrence souscrit par l'intimée."  

 (This Court's emphasis)

[13]      CONSIDERING the following applicable principles from the jurisprudence concerning provisional injunctions and safeguard orders :

(a)          a safeguard order is in the nature of a provisional injunction except that urgency is more pressing and more immediate for a provisional injunction: the presence of an emergency is not as important as regards a safeguard order;[6]

(b)          in general, the four tests: urgency, apparent right, irreparable harm, and, as required, balance of convenience, should be applied to each conclusion requested by a petitioner;[7]

(c)          while a provisional injunction is not the appropriate procedure to collect past debts[8], a safeguard order (under article 46 CCP) may be appropriate and even necessary to re-establish a certain equilibrium between contracting parties and provides a discretion for the motions judge to fashion a reasonable remedy to preserve all parties rights pending a full hearing on the merits;[9]

(d)          in this context, the motions judge can order that all or part of ongoing amounts that become due, such as royalty fees and  advertising fees in  franchise agreements, be paid - either into court or into an interest-bearing account held by the petitioner’s attorney - provided the order  is for a limited period of time;[10]

(e)          the Franchisor must ensure that any "surcharge" (in French, "ristournes") that it benefits from indirectly are reasonable and do not diminish the Franchisee's profits to the point where the franchise agreement is no longer fair and reasonable to the franchisee;[11] and

(f)            for a provisional injunction and safeguard order, this Court must rely on the facts as shown in any affidavits and exhibits filed into the record.[12]

[14]      CONSIDERING the following principles that apply in the case of provisional injunctions and safeguard orders regarding franchise agreements:

(a)          in matters where contractual interpretation is involved, including the question of the legality of certain contractual clauses or their application, the provisional injunction must limit the inconvenience of the party against whom it is ordered while ensuring that such an order does not, in effect, decide any issues on a final basis, a decision which must be left to the trial judge after a full hearing;[13]

(b)          provisional execution of the provisional judgment may be ordered notwithstanding appeal where the delay of any appeal could result in further serious and irreparable harm to the Franchisor;[14]

(c)          ensuring standards of quality and cleanliness - assuming such standards are created in the franchise agreement as here - is  fundamental for the franchisor to maintain its image and reputation as a food service provider.  So as to maintain high and uniform standards, breaches will be deemed serious, irreparable and urgent[15];

[15]      considering that a dispute between the parties arose as early as October 28, 2013 as confirmed by a demand letter  [exhibit D-1] sent on behalf of 12 different franchisees (including the Respondent Franchisee) alleging, amongst others, that:

(a)          royalty fees and advertising fees were not being earned by the Franchisor   as a result of the declining quality and efficiency of the Franchisor's support to its franchisees;

(b)          that the franchisees were required to purchase all approved supplies from only approved suppliers. However, these approved suppliers paid approximately 10% of what they received from the Franchisees back to the Franchisor as a "surcharge".  The affidavit filed on behalf of the Respondents, affirms that such a surcharge eliminated the Respondents' profit margin making it financially difficult to stay in business; and

(c)          legal proceedings would be instituted within 15 days, in default of any agreement. While no agreement was reached, the group of 12 franchisees  have not instituted any legal proceedings;

[16]      CONSIDERING that the alleged breaches of the Franchise Agreement which are relevant for the provisional injunction and safeguard order are - followed by the Court's analysis of the Respondents’ position -:

(a)          failure to pay  royalty fees, call centre contributions and advertising contributions.  The Court is in no position to evaluate the assertions of the Respondents regarding non-performance by the Franchisor.  On a safeguard basis, it is appropriate that the full amount of such fees owed under the Franchise Agreement continue to be paid provided that an appropriate invoice showing what services were rendered by the Franchisor to merit such fees be provided every time there is a deduction for such fees by the Franchisor;

(b)          as for the surcharge. In the affidavit filed on behalf of the Respondents, named employees of the Franchisor have confirmed that such a surcharge is being received by the Franchisor from the authorized supplier, Conan Foods.  On a provisional and safeguard basis, it is appropriate that the Respondent pay only 50% of this alleged 10% surcharge.  Since the Respondents allege that the surcharge is 10% of what they pay for their supplies, they should continue to pay the full price to Conan Foods but the Franchisor must immediately provide a set-off for one half of 10% alleged surcharge of each of the Franchisees’ bills paid to Conan (i.e. 5% of the total Conan bill) and reduce this amount from any royalty and advertising fees being charged.  The Respondents must provide weekly proof to the Franchisor - of what they have paid for supplies to Conan Foods - which will then allow the Franchisor on a weekly basis to undertake the appropriate compensation ("set-off") for any royalty and advertising fees that may be owed;

(c)          the Court is satisfied, on a prima facie basis, that there have been certain breaches of operating norms by the Franchisee, including without limitation: the purchase of unauthorized products from unauthorized suppliers; failure on one occasion to accept orders, and certain issues regarding cleanliness.  The Franchisor is entitled to ensure that such operating standards are maintained by inspections carried out on a reasonable basis which do not interfere with the Franchisee's operations in any material way nor become abusive. The Court determines that, save for exceptional circumstances, two inspections during the duration of this 10-day judgment , are reasonable;

[17]      CONSIDERING in a similar franchise case (see footnote 1), the Court of Appeal confirmed security in the amount of $15,000.  In the absence of further proof, this Court finds the sum of $10,000 reasonable as security in the present case. For the importance of the Court to award security in injunction matters, see Danielle Ferron et al, "L'injonction et les ordonnances Anton Piller, Mareva et Norwich" (LexisNexis: Montreal, 2009) at p. 85 and following;

[18]      CONSIDERING that the Petition has met the legal tests for the following provisional relief requested;

[19]      FOR THESE REASONS, THE COURT:

[20]      GRANTS the Motion for the Issuance of Provisional Injunction in part;

[21]      ISSUES the present Provisional Interlocutory Injunction against Respondents to be valid until May 14, 2014 at 17:00 hours and ORDERS the parties to present themselves in Court on that morning at 9:00 hrs in Room 2.16 of the Montreal Court House to determine the next steps in these proceedings, including, the filing of any Agreed Schedule of Proceedings to bring the matter to an interlocutory hearing;

[22]      ORDERS the Respondents to provide all of the financial information required by the Franchise Agreement (Exhibit P-1), including but not limited to the weekly report of its gross sales, and this, on the Monday of each week;

[23]      ORDERS Respondents to deposit  and this, on the Tuesday of each week with notice to Petitioner and Counsel for Petitioner of said precise deposit and proof of deposit :

·        into court or into an interest bearing account under the control of the Petitioner's counsel: at the option of the Respondents who are to advise Petitioner's counsel in writing of the preferred option by Wednesday April 30, 2014 at or before noon;

·        50 % of  the weekly amounts due under the said Franchise Agreement (a) as royalty fees and order processing fees and [b] as advertising fees, plus applicable taxes on both [a] and [b],

[24]      ORDERS Respondents to accept Petitioner’s Call Center Orders;

[25]      ORDERS Respondents to deliver said client orders in a reasonable amount of time; 

[26]      ORDERS Respondents to remove from the premises and not use  in the operations of the Double Pizza franchise :

      [a]  any non-authorized products ; and

       [b] any products purchased from non-authorized suppliers, in contravention of the Franchise Agreement, Ex. P-1.

[27]      ORDERS Respondents to ensure all food inventory is stored in compliance with all provincial laws and regulations and in compliance with the Franchise Agreement;

[28]      ORDERS Respondents to refrain from contacting customers directly;

[29]      ORDERS Respondents to abide by the obligations stipulated in the Franchise Agreement pertaining to the operation of the franchise, as follows;

[30]      ORDERS Respondents to purchase only approved products from approved  suppliers in conformity with the Franchise Agreement and to sell only  approved products from approved suppliers  in conformity with the Franchise Agreement;

[31]      ORDERS Respondents to ensure that all staff wear clean, authorized  and appropriate uniforms;

[32]      ORDERS Respondents to permit representatives of Petitioner to enter and inspect the premises operated by them during business hours and examine the products and services offered by them on two occasions during the currency of this judgment:  [a] the day after the judgment, and [b] on the 8^th day after the judgment, and [c] at any other time in exceptional circumstances, for which, the Petitioner must advise the exceptional reasons to the Respondent’s counsel in writing at least two hours before the inspection visit and           

[33]      ORDERS the Petitioner to leave a carbon copy (or photocopy) of the inspection report with the Respondent at the end of the inspection visit;

[34]      ORDERS Respondents to cooperate fully in a respectful manner with the Petitioner and its representatives during any inspection and to provide the assistance requested during the examination and inspection of the products and services offered by them, to ensure that Respondents are operating the franchise restaurant in accordance with the Franchise Agreement;

[35]      ORDERS Respondents to pay Conan Foods Inc. on any payment basis that can be agreed between the Respondent Franchisee and Conan Foods Inc. and if no agreement can be reached immediately, then on a  Cash on Delivery (COD) with cash or certified cheques on all future orders as required by Conan Foods;

[36]      ORDERS the provisional execution of the present Provisional Order notwithstanding appeal;

[37]      DISPENSES the Petitioner from the requirement to serve this judgment on Respondents;

[38]      ORDERS Petitioner to post security in the amount of $ 10,000;

[39]      THE WHOLE with costs to follow.

 

			_____________________________    MARK G. PEACOCK,J.S.C.
	Me Moe Liebman Liebman Legal Inc. Attorneys for the Petitioner
	Mes Vikki-Ann Flansberry and Stephane Teasdale Dentons Canada LLP Attorneys for the Respondents
Hearing dates :		April 24, 2014 and April 28, 2014