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Injunctions in Franchise Disputes - Part 1

May 17, 2019

What is an Injunction, and What Role Does it Play in Franchise Disputes?

As is true of almost any commercial relationship, it is sometimes the case that a dispute can develop between the franchisor and one or more of its franchisees. When such a dispute develops, it is often the case that one or more of the parties will seek the court’s assistance to resolve it.

The courts make available a variety of remedies to compensate the innocent party in such disputes. Most typically, the remedy takes the form of a judgment requiring the party found to be wrong to pay a certain amount of money as compensation to the innocent party. A judgment for the payment of money would be appropriate, for instance, if a franchisee was found to have owed the franchisor unpaid royalty fees; or if a franchisee was found to have validly rescinded the franchise agreement and thereby become entitled to rescission “damages”.

In certain cases, however, a monetary judgment is not the right remedy for the dispute. It may be, for instance, that the innocent party is asking the court to stop one of the other parties from doing something that will harm the innocent party, or to force one of the other parties to do something. When the court agrees to do, the resulting court order is known as an injunction.

This series will describe some of the franchising-specific considerations that have emerged as a result of recent court cases, with respect to injunctions. In this article, we consider the following question:

What is an Injunction and What Role Does it Play in Franchise Disputes?

An injunction is a court order that requires a party either (i) to stop doing something that has been harmful to the party seeking the order; or, less typically, (ii) to do something that stands to be helpful to the party seeking the order. The former is known as a “prohibitive” or “prohibitory” injunction, and the latter a “mandatory” one. A variation on the prohibitory injunction would be an order requiring a party to abstain from doing it is proposing to do that stands to be harmful to the party seeking the order.

Injunctions are regarded as an extraordinary remedy for at least two reasons. First, our courts have traditionally been more comfortable and more accustomed to issuing monetary judgments, which merely require the payment of money, rather than to issuing injunctions, which compel a party to act a certain way or stop acting a certain way; second, 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.

Nonetheless, they are routinely issued by our courts, provided that the party seeking the injunction can meet certain strict requirements, which will be the subject of our next entry in this series.

When might an injunction be appropriate in the franchising context?

A franchisor might seek an injunction if, for instance, it wishes to stop or prevent a former franchisee from competing in the face of a non-competition provision. Similarly, a franchisor may wish to prevent a recently terminated franchisee from continuing to use the franchisor’s trademarks or system. 

A franchisee, on the other hand, may wish to respond to a termination notice by asking the court to stop the franchisor from proceeding with the proposed termination of the franchisee’s franchise agreement. A franchisee may also seek an injunction to restrain the franchisor from opening a competing franchise within the territory granted to that franchisee.

In short, injunctions serve as an exceptional and powerful potential remedy to both franchisors and franchisees who are engaged in a franchise dispute. In the next entry in this series, we will describe the requirements that must be met before the court will grant an injunction.