Executive Summary: Key Legal and Evidentiary Issues

Restrictive covenant enforceability was challenged on ambiguity grounds, yet the court found the two-year non-competition clause sufficiently clear in context. Deliberate circumvention of post-termination obligations occurred through incorporation of a competing business by the franchisee principal's spouse during the franchise collapse. Confidential information including the Operations Manual was removed without explanation, permitting inference of use by the successor entity. Irreparable harm to the franchise system is presumed in commercial contexts where franchisees obtain benefits then disregard contractual restrictions. Non-signatories were found to be alter egos permitting enforcement against third parties acting in coordination with breaching parties. Balance of convenience strongly favored franchisor protection over defendants' financial hardship stemming from deliberate breach.

Background and Franchise Agreement

Instant Imprints Canada Inc., an Ontario-based franchisor, entered into a Franchise Agreement with 738806 NB Inc. on March 10, 2023, granting it a retail store in Moncton, New Brunswick. Robert Reed and Keith Reed served as principals and signatories. The agreement required monthly royalty and brand fees (Articles 7.1 and 7.2) and monthly payments on a $20,000 promissory note. The store commenced operations in August 2023.

Breaches and Franchise Termination

The Franchise Defendants failed to remit fees, make promissory note payments, or maintain lease payments. Despite notice, they could not cure these breaches. On August 6, 2025, a Notice to Pay or Vacate was issued to the franchisee by the landlord. Instant Imprints terminated the Franchise Agreement effective August 13, 2025, and demanded approximately $36,000 in outstanding monies.

Suspicious Formation of Elevate

During franchise collapse, the Franchise Defendants vacated the premises in early August 2025, removing all equipment and materials without notice. Simultaneously, Krista Reed (Robert Reed's spouse) incorporated Elevate Promo & Apparel Inc. in early August 2025. Elevate operates from the same address as all defendants (259 Indian Mountain Road) in the identical business as Instant Imprints, within the restricted territory. Robert Reed told Instant Imprints he was "pulling up stakes on everyone" to "continue to operate under another company." Elevate used the same phone number and initially the same website and Facebook page as the Instant Imprints store. Evidence established Elevate contacted at least three vendors of the Plaintiff seeking similar services and pricing benefits obtained through the franchise system.

Removal of Confidential Information

Robert Reed removed equipment and materials, almost certainly including equipment covered by a security agreement and the Instant Imprints Operations Manual. The Defendants chose not to explain what was taken or whether Elevate uses such materials. Ms. Reed acknowledged assisting with the franchise and her husband assisting Elevate in operating equipment and preparing sales quotes. The Franchise Defendants have not returned any confidential information.

Restrictive Covenant Clauses

Article 15.4 prohibits the franchisee and principals for two years following termination from engaging in any competitive business (embroidery, screen printing, signs, banners, promotional products, heat transfers) located at the premises, within the defined Territory (Moncton area postal codes), within an eight-kilometer radius of the territory, or within a five-kilometer radius of any other Instant Imprints location. The covenant also prohibits diverting customers or suppliers, damaging goodwill and reputation of the system, and advertising competitive businesses within five kilometers of existing franchises. Article 15.5 includes a severability clause where the Franchise Defendants expressly agreed the restrictions are reasonable, not against public interest, and valid. All defenses to strict enforcement were irrevocably waived.

Article 13.2(a) requires that upon termination, the franchisee immediately cease representing itself as a Franchisee and discontinue use of the Trademarks. Article 13.2(a)(vii) requires transfer of business phone numbers, fax numbers, domain names, and email addresses to Instant Imprints.

Article 14 contained confidential information protections. Article 14.1 prohibited disclosure or use of confidential information except as permitted or required by law, and prohibited copying, duplicating, or reproducing the Operations Manual without prior consent. Article 14.5 required immediate return of all confidential information upon termination, including the Operations Manual and all documents containing such information, with deletion of electronic copies from computer systems. The agreement's recitals identified the Instant Imprints System as secret and confidential, including methods of design, production, and marketing of embroidered and screen-printed apparel, signs, banners, training, equipment, furniture, and quality standards.

Court's Analysis

The Court applied the three-part RJR McDonald test for interim injunctions: whether a strong prima facie case exists, whether irreparable harm will be suffered, and whether the balance of convenience favours the injunction. The Court rejected defendants' arguments that Article 15.4 was ambiguous or unreasonable, finding the business definition captures Elevate and the geographic scope is sufficiently clear. The Court found the Plaintiff has a legitimate proprietary interest in protecting its franchise system, noting that no evidence showed the Plaintiff abandoned intentions to operate in the restricted territory.

The Court held that restrictive covenants may be enforced against non-signatories if they are alter egos of signatories. The timing of Elevate's incorporation, its operation in the identical business at the same address, Ms. Reed's lack of credibility in claiming innocent involvement, and her husband's assistance in operating equipment and preparing quotes all supported the inference that Elevate and Ms. Reed were a front for the Franchise Defendants to avoid their contractual obligations.

Irreparable harm was found presumed in franchise contexts where franchisees obtain benefits then disregard obligations, as this weakens franchise contracts and encourages other franchisees to breach. The Court noted the Defendants had opportunity to obtain legal advice before signing and were contractually warned of irreparable harm in Articles 23.2 and 23.3. The balance of convenience favoured the injunction because the Franchise Defendants deliberately breached their contractual obligations, Elevate was incorporated to assist them in avoiding these obligations, and people who knowingly breach contracts should not flout them pending trial.

Regarding confidential information, irreparable harm is presumed as the owner cannot determine the extent of unauthorized use and cannot easily quantify damages. The Defendants' failure to explain what materials were removed or where they are located permitted inference that they retain possession of the confidential information and Elevate may be using it.

Outcome

Justice Richard G. Petrie granted an interim injunction effective immediately, enjoining all Defendants from engaging in competing businesses in the restricted territory, diverting customers or suppliers, employing franchise staff, damaging system goodwill, advertising competitive businesses within five kilometers of franchises, and using or disclosing Instant Imprints' Confidential Information. The injunction remains in effect pending trial but not longer than two years following termination of the Franchise Agreement (August 13, 2025). The Court ordered the Defendants to immediately return all confidential information, including the Operations Manual. Instant Imprints Canada Inc. was the successful party, and the Court awarded costs of $2,500.00 plus reasonable disbursements, payable by the Defendants jointly or severally.