In a recent decision of the Ontario Superior Court of Justice, a franchisee was unsuccessful in a motion seeking to continue an interim interlocutory injunction enjoining its franchisor from revising the franchisee’s market area and from appointing an additional dealer in the same area. In dismissing the motion, the Court focused on the fact that the restoration of competitive parity between the franchisee and the additional dealer would not cause irreparable harm to the franchisee.

In the case, Paul Sadlon Motors Inc. v. General Motors of Canada Ltd., 2011 ONSC 4432, Sadlon Motors, a franchisee, sought an injunction to prevent General Motors (“GM”), the franchisor, from revising Sadlon Motors’ market area in Barrie, Ontario and from appointing Georgian Pontiac Buick GMC Inc. (“Georgian”) as an additional dealer to sell Chevrolet vehicles in the Barrie marketplace.

The Ontario Superior Court of Justice dismissed the motion and dissolved the interim interlocutory injunction granted previously. There were several matters that were particularly pertinent to the decision. Specifically, Sadlon Motors sells Chevrolet and Cadillac vehicles and had been the only Chevrolet dealer in Barrie for nearly 40 years. Georgian, on the other hand, sells Buick vehicles. In the past, it had also sold Pontiac, but that brand and product line was discontinued by GM in 2009. Additionally, until Georgian lost the Pontiac brand, Georgian and Sadlon Motors had competitive parity in the products they sold. In this motion, Georgian contended that its loss of Pontiac destroyed that historic equality.

In reaching his decision, the Court noted that the purpose of an interlocutory injunction is to preserve the status quo until the legal right asserted by the plaintiff can be dealt with by a trial court. All parties to the motion agreed that in order to obtain such relief, Sadlon Motors had to satisfy the traditional tests for the granting of an injunction: (1) a serious question to be tried, (2) that it would suffer irreparable harm if the injunction was not granted, and (3) that the balance of convenience favoured granting the injunction. The Court determined that there were serious issues to be tried with respect to certain provisions of the Dealership Agreement between Sadlon Motors and GM, and with respect to whether GM breached its duty of good faith and fair dealing. As such, Sadlon Motors satisfied the first condition for an interlocutory injunction.

On the question of irreparable harm, the Court found that Sadlon Motors would suffer harm if the injunction was not granted, but that the harm would not be irreparable. Specifically, if an injunction was not granted, Sadlon Motors would suffer the loss of the competitive advantage of an excluded competitor, but that would not lead to an irreparable or permanent loss of market share or goodwill given that Sadlon Motors’ market area would be unchanged and it would still be entitled to compete for sales in the market. Sadlon Motors would continue to be able to advertise and market its dealership and the sale of new Chevrolet and Cadillac vehicles to the entire Barrie market area, and to promote its business appropriately. In contrast, if an interlocutory injunction was granted, Georgian would not be able to compete at all for a business it once had, namely selling lower priced, fuel-efficient, non-luxury vehicles. Because Georgian would be excluded from the marketplace of lower priced vehicles, its loss of business from returning customers would be irreparable. Finally, GM would also suffer irreparable harm if an injunction was granted enjoining its plans to have two dealers of Chevrolet. Further, that irreparable harm would be intensified by the interference with GM’s rights under the Dealership Agreement to shape its dealership network. Accordingly, the Court found that the balance of convenience favoured not granting an interlocutory injunction.

Franchisors should be encouraged by the court’s decision in this matter, as it demonstrates a willingness to look at the impact of injunctions on parties other than the franchisee seeking relief. The court’s balancing of the interests of other competing franchisees and the franchisor with the interests of the franchisee seeking the injunction is a helpful precedent that appreciates the complex commercial landscape that often exists in franchising.