Executive Summary: Key Legal and Evidentiary Issues

• Central issue was the enforceability and reasonableness of a non-compete clause in a franchise agreement between Chatters and the defendants.

• The court analyzed whether the non-compete clause was unambiguous, reasonable in geographic scope, and necessary to protect a legitimate or proprietary interest.

• Evidence was reviewed as to whether the defendants’ new business was “similar to” or “directly competitive with” the former franchise location.

• The plaintiff’s claims of irreparable harm and potential impact on the franchise system’s integrity were closely examined.

• The balance of convenience and the existence of any actual or threatened harm to the plaintiff’s business or reputation were considered.

• The application for an interlocutory injunction was dismissed due to failure to establish a strong prima facie case, a legitimate interest, and irreparable harm.

Facts of the case

Chatters Limited Partnership, by its General Partner, Chatters GP Inc (“Chatters”), applied for an interlocutory injunction restraining Chatters Deerfoot Meadows Limited (“CDML”), The White Rabbit Beauty & Blowout Bar Limited (“White Rabbit”), and Tania Larko (“Larko”) from owning, maintaining, operating, engaging in, or having any interest in any business the same as, similar to, or directly competitive with the Chatters “Deerfoot Meadows” salon located at 8180 – 11 Street SE in Calgary (“DM Salon”). The application was based on a non-compete clause in a November 6, 2019 franchise agreement between Chatters, CDML, and Larko (as indemnifier).

Chatters also sought to restrain the defendants from operating a salon business at a specific location in the Seton area of Calgary (“Seton Business”), which it asserted was owned and operated by White Rabbit/Larko in breach of the non-compete clause. The statement of claim, filed in fall 2024, alleged breach of the franchise agreement by CDML and Larko, conspiracy by unlawful means, and unlawful interference with economic interests. By consent, no statement of defence had yet been filed, but the parties engaged in an evidentiary process through affidavits and questioning from November 2024 to July 2025. The hearing was set for August 19, 2025.

Larko had operated the DM Salon as a Chatters franchisee since 2006, and by 2010 was the sole operator. In December 2014, CDML and Chatters Canada Limited entered into a franchise agreement for the DM Salon, which included a non-compete clause similar to the one at issue. In November 2019, the relevant franchise agreement was executed. At the time, Larko resided in Seton, about one mile from the Seton Business location. In early 2023, CDML sought rent relief from Chatters, and in February 2023, Larko again raised the possibility of a Chatters location in Seton, but Chatters did not pursue it.

CDML stopped paying royalties in December 2023, and a royalty deferral was agreed for January to June 2024. Beginning in April 2024, Larko took steps to sell the DM Salon franchise and start the Seton Business. On April 23, 2024, Larko incorporated White Rabbit. On May 29, 2024, CDML agreed to sell the DM Salon franchise to 2611689 Alberta Ltd (“261 Alberta”), and on or about June 12, 2024, White Rabbit entered into a commercial lease for the Seton Business. The sale of the DM Salon franchise closed on July 1, 2024, and a Franchise Termination Agreement was executed. In July 2024, CDML changed its name to 1169960 Alberta Limited. Larko accepted a $168,500 plus GST quote for fixturing the Seton premises on July 13, 2024. Looking Glass Treatment Room Ltd (“Looking Glass”) was incorporated in July 2024, with Larko and her sister as shareholders, to provide esthetician services at Seton. The Seton Business officially opened in February 2025, soft-launched in March 2025, and had its grand opening in May 2025.

Chatters filed its statement of claim and the injunction application after learning of Larko’s plans in September 2024. During the injunction process, Larko and White Rabbit continued preparations and opened the Seton Business. Two employees at Seton had previously worked at the DM Salon (one receptionist and one hair stylist).

Discussion of policy terms and clauses at issue

The non-compete clause in the franchise agreement (clause 12.2) prohibited the franchisee from owning, maintaining, operating, engaging in, or having any interest in any business “the same as or similar to or directly competitive with the Salon and which is located at the Premises or within a ten mile radius of the Premises” for two years after termination or expiration. “Salon” was defined as the DM Salon. The court found the clause unambiguous as to duration and geographic scope, and that it applied to businesses resembling or sharing essential characteristics with the DM Salon as operated at the time of franchise termination.

Analysis of the legal framework and findings

The court applied the three-part test for interlocutory injunctions: (1) a strong prima facie case, (2) irreparable harm, and (3) balance of convenience. Both parties agreed the “strong prima facie case” standard applied. The court found that the Seton Business was not the same as the DM Salon, but was “similar to” it, given the focus on hair services and retail hair products. However, there was insufficient evidence that Seton was “directly competitive” with the DM Salon, as there was no proof of business being drawn away or customer confusion, and the businesses were nearly ten miles apart.

The court found that Chatters failed to establish a legitimate or proprietary interest warranting protection by the non-compete clause. Chatters’ interest in a potential future Seton location was not sufficient, and there was no evidence that Larko or White Rabbit used Chatters’ trade secrets, customer lists, or goodwill. The court also found the ten-mile geographic restriction unreasonable, as Chatters provided no evidence that such a broad area was necessary to protect the DM Salon, especially as there were several other Chatters salons within that radius.

Ruling and overall outcome

Justice M.A. Marion dismissed Chatters’ application for an interlocutory injunction, finding Chatters had not met the burden of establishing a strong prima facie case for enforceability of the non-compete clause, nor had it demonstrated irreparable harm. The clause was not reasonable in its geographic scope, and Chatters lacked a legitimate proprietary interest tied to the DM Salon that would justify enforcement. The defendants were successful on the application and were presumptively entitled to costs, with the process for determining costs set out if the parties could not agree within one month. No specific monetary award was granted in this decision, as the matter concerned injunctive relief, not damages.