In a case involving a novel provision in a franchise agreement, 1318214 Ontario Ltd. v. Sobeys Capital Inc., 2010 ONSC 4141, several Price Chopper franchisees recently obtained an injunction to prevent Sobeys from terminating their franchise agreements on the basis that the franchisees used funds from their operations to finance the litigation against Sobeys.

The plaintiff franchisees operate or operated “Price Chopper” grocery stores under Sobeys’ “Low Equity Program” (the “LEP”), which provides a great deal of control to the franchisor. They brought action against Sobeys for alleged mismanagement of the operation and administration of the LEP, claiming breach of contract, breach of duty of fair dealing under the Arthur Wishart Act (Franchise Disclosure), 2000, breach of fiduciary duty and negligence.

The franchisees withdrew funds from their franchise businesses to fund the litigation. Sobeys took the position that by doing so the Franchisees breached the clause of their franchise agreements which restricts them from incurring legal and accounting expenses over $2,000 without Sobeys’ consent. Sobeys issued notices of default requiring the Franchisees to return the funds, failing which their franchise agreements would be terminated.

The franchisees therefore sought an interlocutory injunction restraining Sobeys from terminating their franchise agreements pending resolution of their claims in the underlying action. The court granted the relief on the ground that there was a serious issue to be tried as to whether the issuance of notices of termination amounted to interference with the franchisees’ ability to pursue the collective action. In addition, the franchisees would suffer irreparable harm if the injunction was not granted and the balance of convenience likewise was in their favour.