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Hoffer Adler LLP’s Legal Insight Series - Injunctions in Franchise Disputes - Part 2

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July 3, 2019

What Are the Requirements to Obtain an Injunction in a Franchise Dispute?

This is the second installment in Hoffer Adler LLP’s continuing Legal Insight Series focusing on injunctions in franchise disputes. For Part 1 of this Series, click here.

In this article, we consider the following question:

What Are the Requirements to Obtain an Injunction in a Franchise Dispute?

As we discussed in Part 1 of this Series, our courts regard injunctions as extraordinary remedies. Reflecting its extraordinary nature, an injunction will not be awarded unless the party seeking it can meet a series of strict requirements.

(a)    The Party Seeking an Injunction Must Show the Strength of Its Case Right from the Start

One of the reasons the courts view injunctions as extraordinary is that injunctions are typically sought at the outset of the legal dispute and on a temporary and urgent basis until trial, before the parties to the dispute have had an opportunity to put forward all of the evidence that a court hearing a trial would normally have available to it.

Accordingly, the party seeking an injunction must be in a position to provide the court with some degree of comfort that the party has a strong case to make should there eventually be a trial after the injunction is temporarily issued.

Depending on the precise nature of the injunction being sought, the strength of the case the party seeking the injunction must be able to show can be relatively low, or quite high.

In most cases, the court will require that the party seeking an injunction is merely raising a “serious issue” that will eventually be tested at trial after the injunction is first granted.

In some cases, the injunction sought will have the effect of making a trial unnecessary, because the injunction will effectively determine the position of the parties. In the franchise context, an example of such a more “final” injunction is one in which the franchisor is asking the court to shut down a former franchisee’s new competing business.

In those cases where the injunction is more “final” in nature, the courts will often require the party seeking an injunction to show that it has a “strong prima facie” case – that party must, effectively, be in a position to show that it would most likely succeed should there eventually be a trial of the dispute after the injunction is issued.

(b)   The Party Seeking an Injunction Must Show that it Will Be Irreparably Harmed if an Injunction is Not Granted

The party seeking an in injunction must show that it will be “irreparably harmed” if an injunction is not granted. The courts consider harm to be “irreparable” if the more customary award of damages instead of an injunction would constitute an insufficient remedy to the innocent party.

A monetary award might not be a suitable remedy if, for instance, there is no principled way to translate into a monetary sum the harm being done (or the harm that stands to be done) to the party seeking an injunction.

In the franchise context, a franchisor seeking an injunction might argue, for instance, that permitting a franchisee that is not complying with brand standards to continue to operate could irreparably harm the franchisor’s brand; that argument could forcefully be made, for instance, in the food industry, when the franchisee has refused or is incapable of complying with the franchisor’s health and safety standards, and where customer safety is in issue. A franchisee seeking an injunction to stop a proposed termination pending trial might argue that the effect of the termination would be to shut down its business (not uncommonly a family business) and deprive the franchisee of its sole source of income, and that no price can be placed on the resulting harm.

(c)   The Party Seeking an Injunction Must Show that it Will Suffer the Greater Harm if an Injunction is Not Granted

The court’s decision as to whether or not to grant an injunction will undoubtedly have an effect on both parties to a franchise dispute. The court will take into account what harm will result to both parties should an injunction issue or not. This exercise is known as a “balance of convenience.”

Typically, the stronger the case the party that is seeking an injunction can present, the more likely the court will tip the balance of convenience in favour of that party.

In the franchising context, the court might weigh, for instance, the harm to a franchisor’s goodwill and brand against the harm to a franchisee’s livelihood, when considering whether to grant an injunction restraining termination.

(d)   The Party Seeking an Injunction Must Undertake to Abide by Any Award of Damages Against It Should it Ultimately Appear that the Injunction Ought Not to Have Been Granted

As discussed above, injunctions are typically sought on a temporary and urgent basis, at the outset of the dispute, and before the court has the benefit of the full evidentiary record that is normally available at trial. In those circumstances, there is at least some likelihood that, when all of the evidence becomes available with time, it will become apparent that an injunction granted at the outset ought not to have been granted at all.

Accordingly, as a condition of granting the injunction, the court will typically require the party seeking an injunction to undertake to abide by any future award of damages that may be made against it should it ultimately appear that the injunction ought not to have been granted.

In the next Part of this series, we will discuss some of the reported franchise cases in which the court was asked to grant an injunction in favour of the franchisor or the franchisee.