Executive Summary: Key Legal and Evidentiary Issues

• Characterization of the relief sought as mandatory injunctions, requiring the plaintiff to meet the “strong prima facie case” standard rather than only showing a “serious question to be tried.”
• Disputed validity of the franchisee’s rescission of the franchise agreement under the Arthur Wishart Act (Franchise Disclosure), 2000, based on alleged non-disclosure of material changes, including the replacement of the Air Miles Points Program with the MOI Points Program and other changes.
• Interrelationship between the franchise agreement and the head lease/sublease structure for the premises, and whether the lease could be treated separately from the franchise arrangement.
• Assessment of whether the plaintiff established irreparable harm in light of its detailed sales and profit records, its operation of over 400 other pharmacy franchises, and the ability to calculate damages.
• Significance of the fact that the defendant has operated a Pharma Choice pharmacy at the premises for over 12 months since giving notice of rescission, with no earlier action taken by the plaintiff.
• Balance of convenience analysis comparing the impact on the defendant of being required to cease operating under the Pharma Choice banner and revert or deliver up the premises, versus the plaintiff’s ability to be compensated by damages.

Facts and contractual framework

Le Groupe Jean Coutu (PJC) Inc. is the franchisor of a network of pharmacies. Helene Lauzon has operated a Jean Coutu pharmacy in the Town of Alexandria, Ontario, since 1994, a period of approximately 30 years, under a franchise agreement with the plaintiff. The franchise agreement renews automatically every five years for a further term of five years, unless the franchisee gives 12 months’ notice of termination before the renewal date. The agreement renewed automatically on April 20, 2024, because Lauzon did not give notice of termination by April 19, 2023.

The numbered company 1733643 Ontario Inc., whose shares are owned by Lauzon, owns the premises at 439 Main Street South in Alexandria. That company entered into a head lease with Jean Coutu, which in turn subleased the premises back to Lauzon’s corporate pharmacy. The head lease will terminate on October 31, 2028. The possible termination dates for the head lease and the franchise agreement do not occur at the same time. The sublease from Jean Coutu contains a term that Lauzon’s corporate pharmacy will operate a Jean Coutu pharmacy at the premises during the term of the sublease.

On September 2, 2024, Lauzon gave notice to rescind the franchise agreement with Jean Coutu. She did so on the basis that the franchisor had failed to comply with the disclosure requirements under the Arthur Wishart Act (Franchise Disclosure), 2000, with regard to four material changes that she submits were made to the franchise agreement. On or about September 2, 2024, she ceased operating under the Jean Coutu banner and has operated a Pharma Choice pharmacy at the premises since that date.

Lauzon’s evidence is that she was losing money under the franchise agreement with Jean Coutu, at least in part based on material changes made to the franchise agreement by the franchisor. Her evidence is that the change from the Air Miles Points Program to the MOI Points Program was a material change requiring full financial disclosure, that the MOI Points Program will become more expensive for the franchisee over time, and that it will cost more than the previous Air Miles Points Program. She also raised changes relating to a sign maintenance agreement and the implementation of the “AI Circulaire” as part of her material change argument. Whether these changes required disclosure under the Arthur Wishart Act is a matter the court identifies as to be decided at trial.

Relief sought and nature of the injunctions

The plaintiff brought a motion seeking interlocutory injunctive relief. It sought an interlocutory injunction requiring the defendants to continue to operate as a Jean Coutu pharmacy at the Alexandria premises in accordance with the franchise agreement. In the alternative, it requested an interlocutory injunction requiring the defendants to deliver up possession of the premises to Jean Coutu. In the further alternative, it requested an order restraining the defendants from carrying on any business at the premises other than a Jean Coutu pharmacy. The plaintiff also sought an interlocutory injunction prohibiting Lauzon from selling any Jean Coutu private label products or infringing on the franchisor’s intellectual property.

The defendants submitted that the plaintiff was in substance seeking mandatory injunctions and therefore had to meet the stricter legal test applicable to that form of relief. They argued that the plaintiff had failed to demonstrate a strong prima facie case, had failed to prove irreparable harm that could not be compensated by damages, and had not shown that the balance of convenience favoured granting the injunctions requested.

The court applied the three-part test for interlocutory injunctions from RJR-MacDonald Inc. v. Canada (Attorney General): (a) a serious question to be tried; (b) irreparable harm if the relief is not granted; and (c) balance of convenience, that is, which party will suffer the greater harm from the granting or refusal of the injunction. The court also relied on R. v. Canadian Broadcasting Corp. for the principle that where the injunction is mandatory in nature, the first stage of the test requires the applicant to establish a strong prima facie case rather than only a serious question to be tried.

In Canadian Broadcasting Corp., the Supreme Court described a mandatory injunction as one that has the effect of forcing the enjoined party to take positive actions, and instructed that the application judge should examine whether the overall effect of the injunction would be to require the defendant to do something or to refrain from doing something. In this case, the first two requests for injunctive relief required Lauzon to carry on business as a Jean Coutu pharmacy or to deliver up her premises to Jean Coutu. The judge held that these requests would require her to “do something,” and therefore the strong prima facie case test applied. The judge further found that the third alternative request, although framed as restraining Lauzon from carrying on any business other than a Jean Coutu pharmacy, was in substance another way of stating the first request, namely that she continue to operate a Jean Coutu pharmacy. The court therefore treated this relief as mandatory in nature as well.

The court also noted that, in this case, there was no ongoing relationship between the parties. Lauzon had given notice of rescission in September 2024, over 12 months before the hearing, rescinding the franchise agreement on the basis that the franchisor allegedly failed to make full financial disclosure of several material changes. For more than 12 months, she had been operating her pharmacy under a new agreement with a different franchisor, Pharma Choice. The judge found that, in substance, the plaintiff was seeking a mandatory injunction because the requested orders would not maintain the status quo; instead, they would require Lauzon to cancel her agreement with Pharma Choice, dispose of her inventory from Pharma Choice, and go back to operating a Jean Coutu pharmacy.

Franchise rescission, material change, and contractual rights

Jean Coutu submitted that it was seeking to enforce contractual rights and argued that, for this reason, it should only be required to show a serious issue to be tried. It relied on TDL Group Ltd. v. 1060284 Ontario Ltd., where the court characterized certain relief as prohibitory rather than mandatory because the order prevented denial of a right created by the parties rather than establishing a new right. The plaintiff argued that its motion similarly involved enforcement of previously agreed contractual rights.

The court noted that whether Lauzon breached the contract depended on whether her exercise of the statutory right of rescission was valid. If rescission was validly exercised, there would be no breach of contract by Lauzon. The judge distinguished the situation from the authority cited by the plaintiff, emphasizing that here there was no ongoing franchise relationship and that Lauzon had been operating for over a year under a different franchisor.

On the merits of the rescission issue, the plaintiff submitted that it did not have an obligation to make full financial disclosure of the changes relied on by Lauzon to rescind the franchise agreement because the changes were not material under the Arthur Wishart Act. Lauzon submitted that the plaintiff had not provided sufficient evidence that her grounds for rescission were doomed to fail. Her evidence was that the change from the Air Miles Points Program to the MOI Points Program was a material change requiring full financial disclosure, and that the new program would become more expensive over time and would cost more than the previous program.

The judge held that whether the change to the MOI Points Program constituted a material change requiring the franchisor to make financial disclosure was not sufficiently clear on the motion record to conclude that the plaintiff would ultimately be successful at trial. On that basis, the court found that the plaintiff had failed to show a strong likelihood that it would succeed on this issue at trial. The judge observed that whether the plaintiff was required to make full financial disclosure because of the change to the sign maintenance agreement and the implementation of the “AI Circulaire” were not frivolous or vexatious issues, though they were not likely material changes, and that these matters would also be decided at trial.

Property rights, head lease, and their connection to the franchise

The plaintiff also submitted that it was seeking to enforce a property right under its lease and argued that this characterization supported the application of the lower threshold of a serious issue to be tried. It further argued that Lauzon should not be permitted to profit from her alleged breach of the franchise agreement and the lease.

The judge held that the head lease and sublease back to Lauzon’s pharmacy formed part of the franchise structure and that the head lease terminated on a different date than the possible termination dates in the franchise agreement. The court stated that whether specific performance of the head lease would be granted was a question for trial, particularly given that Lauzon had been operating as a Pharma Choice pharmacy for over 12 months without any action being taken by the plaintiff. The judge concluded that, in substance, the lease was part of the franchise arrangement to operate a Jean Coutu pharmacy at that location and could not be separated from the question of whether Lauzon had grounds to give notice of rescission.

Irreparable harm and adequacy of damages

On the second part of the test, the court considered whether the plaintiff would suffer irreparable harm if the injunction was not granted. The decision referred to the description of irreparable harm in Manitoba (A.G.) v. Metropolitan Stores Ltd. as harm not susceptible or difficult to be compensated in damages.

The court found that Jean Coutu had detailed financial records of sales and profits made over the past 30 years from Lauzon’s Alexandria pharmacy. It also operates over 400 other pharmacy franchises, mostly in Québec but some in Ontario, and has detailed knowledge of sales, costs, and profits from each pharmacy. The judge held that if it were determined at trial that Lauzon did not have grounds for rescission and breached the terms of the franchise agreement and lease, the plaintiff would be able to calculate its lost profits and damages could be readily determined.

The plaintiff submitted that it would lose goodwill in Alexandria if the injunction was not granted. The court found that the franchisor did not provide evidence that it could not establish another Jean Coutu pharmacy in Alexandria. The decision also noted that Alexandria has a population of approximately 3,000 people, and concluded that any loss of goodwill in Ontario would be minimal.

The court cited with approval the statement that in most cases, lost customers, sales, and market share can be compensated in damages and calculated based on sales histories and sales projections, and found that in this case, the plaintiff possessed sales histories spanning a lengthy period and was able to make accurate sales projections based on extensive financial information. For these reasons, the court found that the plaintiff had failed to show that it would suffer irreparable harm that could not be compensated in damages.

Balance of convenience and practical consequences

On the balance of convenience, the judge found that Lauzon would suffer greater inconvenience than the plaintiff if the requested injunction were granted. The decision notes that she would have to cease operating under the Pharma Choice banner and dispose of, then reacquire, inventory. By contrast, the court held that the plaintiff’s damages would be an adequate remedy and could be readily calculated using the extensive financial information in its possession. This supported the conclusion that the balance of convenience did not favour granting the injunction.

Outcome and costs

Having considered all three stages of the test and the characterization of the relief as mandatory, the court dismissed the motion. The decision states that, for the above reasons, the plaintiff’s motion for the injunctions requested is dismissed. On costs, the decision provides that Lauzon can make submissions on costs within 10 days, the plaintiff shall have 10 days to respond, and Lauzon shall have 7 days to reply. The court did not fix any specific monetary amount for costs or damages in this decision. Accordingly, while the motion for interlocutory injunctions was dismissed and the parties were directed to exchange written submissions on costs, the total monetary amount ordered in favour of any party cannot be determined from this decision because no amounts were specified.