Executive Summary: Key Legal and Evidentiary Issues

• The franchisee sought an urgent interlocutory injunction to stop the termination of a franchise agreement.

• The injunction was characterized as mandatory and thus required a strong prima facie case, not merely a serious issue to be tried.

• Evidence revealed unauthorized use of third-party chemicals and mislabelling of products, supporting termination by the franchisor.

• The court found no irreparable harm, as any losses could be compensated by monetary damages if the plaintiff succeeded at trial.

• The balance of convenience weighed against the injunction due to the franchisor’s interest in controlling use of its brand and systems.

• The motion was dismissed, and the franchisor awarded $100,000 in partial indemnity costs due to the compressed litigation timeline.

Background and termination of the franchise

Kalbow Restorations Inc., a franchisee of Goodbye Graffiti Inc., operated a graffiti removal business under a franchise agreement. The dispute arose when the franchisor terminated the agreement, alleging the franchisee had used unauthorized products, including chemicals purchased from an unapproved supplier, Superchem. Kalbow denied wrongdoing and sought an urgent interlocutory injunction to prevent enforcement of the termination and to compel restoration of its rights under the franchise.

Kalbow argued that the injunction it sought was merely prohibitory and that it only needed to meet the lower legal standard of showing a serious issue to be tried. However, the court found that the injunction would require the franchisor to take affirmative steps, such as restoring system access and business support, making it a mandatory injunction. As a result, Kalbow was required to demonstrate a strong prima facie case to succeed.

Assessment of the legal test for injunction

Justice Parghi applied the three-part test for injunctive relief: whether there is a strong prima facie case (or serious issue to be tried), whether the plaintiff would suffer irreparable harm, and whether the balance of convenience favored granting the injunction.

The court found that Kalbow failed to meet any of the three elements. Kalbow’s own evidence showed that it had repeatedly used unauthorized chemicals in violation of the franchise agreement. The principal of Kalbow admitted to mixing an unapproved product into Goodbye Graffiti’s proprietary gel and using it over many years. He lacked knowledge about the composition, safety, or effects of the chemical and failed to inform either customers or the franchisor.

The court concluded that these actions constituted incurable material defaults under the franchise agreement, justifying termination by the franchisor. Kalbow also failed to provide clear evidence about when the unauthorized use ceased and offered no documentation to support its claims. The court noted that any harm Kalbow might suffer from losing the franchise could be quantified in monetary terms and did not rise to the level of irreparable harm.

Outcome and costs

Justice Parghi dismissed the motion for an injunction, finding that Kalbow had not demonstrated a strong prima facie case, irreparable harm, or that the balance of convenience favored relief. Kalbow’s alternative request for relief from forfeiture under section 98 of the Courts of Justice Act was also denied, as the court found the termination did not constitute a forfeiture or penalty warranting equitable relief.

Given the tight timeline and complexity of the motion, the court awarded the franchisor $100,000 in costs on a partial indemnity basis. This amount reflected the reasonable legal effort required to respond on short notice and the success achieved in opposing the injunction.

The decision reinforces that franchisees must strictly adhere to the terms of their agreements, particularly concerning product use and brand integrity, and that courts will require strong evidence and procedural compliance before granting equitable relief.