Executive Summary: Key Legal and Evidentiary Issues

• CBDFI sought an interlocutory injunction in Ontario to enforce post-termination obligations under a franchise agreement while pursuing its action for other claims in California.
• The parties disagreed on whether CBDFI had to show a strong prima facie case or only a serious issue to be tried, but the court found it unnecessary to decide.
• Serious issues to be tried were found, including the alleged repudiation, the enforceability, time limits, and breadth of the non-compete clause, and the calculation of damages.
• Irreparable harm was not established, because CBDFI's losses could be quantified using almost 20 years of sales data and there was no evidence the defendants were judgment proof.
• Evidence indicated that Dream Spaces sold kitchen cabinets CBDFI does not offer and did not use CBDFI's confidential information, and the defendants had returned all of CBDFI's materials.
• Third-party interests, including up to 19 employees, a landlord under a five-year lease, and customers with partially completed projects, weighed against granting the injunction.

Facts of the case

CBD Franchising Inc. (CBDFI) owns the franchise system for Closets by Design. In June 2022, Todd Clifford and Darren Clifford bought the shares of 2340993 Ontario Limited (234), a predecessor franchisee. They began operating the franchise through 234 upon the execution of a consent and assumption agreement (CAA) on or about September 14, 2022. The parties to the CAA included the previous owner of 234, Clifford Holdings Inc., Darren, Todd, and CBDFI. [The decision refers to the franchisor as "CBCFI" at para. 3 and "CBFDI" at para. 7; elsewhere it uses "CBDFI."] Not every defendant signed the CAA, but for convenience the court referred to all of them together as the "Defendant franchisee."

Operations began in the fall of 2022 in the allotted territory of Peel Region, York Region, Simcoe County, and Dufferin County. On April 29, 2026, counsel for the Defendant franchisee alleged that CBDFI had repudiated the agreement and advised that 234 intended to start operating a competitive business effective May 1, 2026. CBDFI replied by letter on May 1, 2026, stating that the April 29 allegation was itself a repudiation and that it was terminating the agreement because of the Defendant franchisee's multiple breaches. That same day, a competing business called Dream Spaces began operating within the franchise territory. It operated through a new company incorporated and ostensibly controlled by Todd and Darren's parents, George and Susan Clifford.

There was evidence that the break had been planned well before April 29, 2026. That evidence included Todd's admission that concrete efforts to separate from CBDFI were made in November 2025, statements that employees and representatives of the Defendant franchisee and Dream Spaces made to investigators, and the incorporation of the Dream Spaces operating company by George and Susan Clifford in February 2026.

Policy and legislative provisions at issue

Under the agreement, CBDFI could seek this relief in Ontario while pursuing its action for other claims in California. It was not seriously contested that the CAA bound the Defendant franchisee to the agreement's post-termination obligations. Those obligations included the following:

• turning over immediately all pending leads and pending orders, along with related deposits and other sums;
• returning all confidential information, including customer records, and deleting all copies;
• not engaging, directly or indirectly, in any competitive business within the territory or within 75 miles of its perimeter or of any other CBDFI franchisee's territory;
• not identifying as former CBDFI franchisees or using CBDFI's confidential information, such as trade secrets, forms, customer lists or records, or price book information;
• turning over possession of the business to CBDFI.

The court referred to the third and fourth of these obligations together as the "non-compete clause." To obtain the injunction, CBDFI had to meet the three-part test from RJR-MacDonald Inc. v. Canada (Attorney General): a serious issue to be tried (or, in some situations, a strong prima facie case), irreparable harm, and a balance of convenience favouring the injunction.

Reasoning and analysis

On the threshold standard, CBDFI relied on TDL Group Ltd. v. 1060284 Ontario Ltd. to argue that any positive obligations arising from the injunction already existed and flowed from the parties' contract. The defendants argued that the strong prima facie case standard applies to restrictive covenants in franchise agreements. Justice McCarthy noted, however, that all but one of their authorities concerned employment agreements rather than franchise agreements. Relying on Second Cup Ltd. v. Niranjan, the defendants also argued that the higher standard applies where an injunction would amount to a final determination of the parties' rights. The court agreed with Cavanagh J. in Romijay Enterprises Ltd. v. 11 Yorkville Partners Inc. that the standard depends on each case's facts. Even so, it found it unnecessary to choose between the two standards because the motion failed on the remaining prongs.

Serious issues to be tried plainly existed. They included the alleged repudiation, the parties' rights and remedies on termination, the enforceability, time limits, and possible overbreadth of the non-compete clause, the meaning of "competitive business," and the calculation of damages. Justice McCarthy described a finding of a strong prima facie case as both unnecessary and unwise. It was unnecessary because the other prongs were not met, and unwise because findings of fact at this stage could unfairly hamper the trier of fact at a trial or summary judgment if presented as res judicata.

The court reviewed several authorities. In MBEC Communications Inc. v. Nagel, a franchisor obtained an injunction where the franchisee appeared to be breaching a negative covenant. That decision held that non-compete clauses are designed to protect the integrity of the franchise system. In Scantron Corp. v. Bruce, Eberhard J. explained why the balance of convenience generally favours a plaintiff enforcing a restrictive covenant. Other authorities held that irreparable harm must be clear rather than speculative (RFSP Equipment v. Singh), that harm which has already occurred and is not ongoing is not irreparable (Liberty Tax Service, Inc. v. Pinto), and that irreparable harm is harm that cannot be quantified in money (Canada (Attorney General) v. Oshkosh Defense Canada Inc.). No authority was put before the court in which a court considering an injunction involving restrictive covenants in a franchise case did not consider the second and third prongs of the RJR test.

CBDFI failed to show irreparable harm. The defendants held no property or means of production at risk of being put beyond the reach of CBDFI or the court. Dream Spaces' occupation of the premises and its expertise or materials did not stop CBDFI from marketing and selling space organizers. [The decision refers to "Dream Scapes" at para. 21; elsewhere it uses "Dream Spaces."] There was no evidence that customers were currently confusing the two businesses. CBDFI remained free to offer the terminated franchise to a third party, and the evidence showed it had already begun reintroducing its trade name and services into the former territory. Nothing prevented it from advertising online or through radio, television, billboards, newspapers, or fliers.

Damages were also not shown to be unquantifiable. Quantifying them might be challenging, even daunting, but that did not make it impossible. CBDFI uses customer management software that holds sales information on all its franchisees' customers and potential customers. Having operated in Ontario since 2008, it has almost 20 years of sales data to draw on. The defendants were not all shell corporations: they included the two franchisees personally, and there was no evidence that these defendants were or would become judgment proof. Evidence suggested that customers are hardly repeat buyers, since custom-made closets are meant to be long-lasting or even permanent. Other franchisees had been invited to follow the defendants' lead but declined, and their franchises appeared profitable.

The balance of convenience likewise did not favour CBDFI. Justice McCarthy agreed that a status quo arising from a contractual breach should not be viewed favourably. Dream Spaces, however, appeared prosperous, employed as many as 19 people, and had entered a long-term lease. Todd and Darren could earn income from other sources, and CBDFI was equally able to reoffer its franchise and operate in the former territory. The court was not persuaded that CBDFI faced an "irretrievable disadvantage" that made an injunction the only practicable and just remedy.

Several further facts weighed against CBDFI. According to the evidence, kitchen cabinets, which CBDFI does not offer, made up a quarter of Dream Spaces' business. It also appeared to have its own branding and to provide services as far away as Alberta. There was evidence that it relied on practices, materials, and methods widely used in the carpentry and cabinetry industries rather than on CBDFI's confidential information. The defendants had returned all of CBDFI's materials, books, records, manuals, databases, and software. There was no evidence that Dream Spaces served former customers of 234, and any overlap with CBDFI's customer base appeared minimal to non-existent.

Third parties would also be affected. An injunction would terminate or severely disrupt the jobs of Dream Spaces' employees and could see George and Susan Clifford's investment disappear. It would also presumptively deny the landlord the benefit and security of a recently signed five-year lease. Neither Dream Spaces, George, nor Susan had any contractual relationship with CBDFI. The court took judicial notice that disrupting or suspending existing contracts and partially completed projects would greatly affect innocent third parties who had entered good faith business dealings with Dream Spaces. Finally, there was no evidence that CBDFI could not fully pursue its California action and recover appropriate damages there.

Ruling and overall outcome

Justice McCarthy held that CBDFI had not established two of the three conjunctive components of the RJR test, and the motion was dismissed. As a result, the responding defendants succeeded on this motion. No monetary award was made. On costs, the parties were directed to request an appointment through the trial coordinator at Barrie if they could not agree, so no costs amount was fixed in this decision.