It is rare that there are follow-up decisions from franchise injunctions, but a recent British Columbia Supreme Court (BCSC) decision demonstrates that if a franchise party does not comply with an injunction order, there can potentially be escalating, serious consequences under Canadian civil contempt laws. In Garcha Bros. Meat Shop Ltd. v SJP Enterprises Ltd.,1 the BCSC held that parties who had breached an injunction order were in contempt of court. The Court issued fines against the parties and made a further order for special costs against them, giving a warning that courts will not look kindly upon the failure of any party (even those without contractual obligations) to abide by terms of an injunction order. (The original Cassels article can be found here.)
The case involves a franchise dispute between the franchisor, Garcha Bros. Meat Shop Ltd. (Garcha), and the franchisee, SJP Enterprises Ltd. (SJP), the principals of which were Parwinder Kaur and Kuldip Singh. Pursuant to a franchise agreement, SJP operated a retail butcher shop in Burnaby, British Columbia (the Franchised Location). On September 24, 2020, Garcha terminated the franchise agreement, which contained a post-term restrictive covenant that prevented SJP and Parwinder Kaur from operating at the Franchised Location for 30 months from the date of termination. Despite the post-termination restrictive covenant, following termination the principals continued operating a butcher shop from the Franchised Location under a newly incorporated company, 112, and with the help of other parties, including Parwinder Kaur’s cousin (the defendants).
On March 19, 2021, the BCSC granted an injunction order prohibiting the defendants from continuing to violate the post-term non-competition covenant. Certain of the defendants (those who were not party to the post-termination restrictive covenant) appealed the injunction. The BC Court of Appeal upheld the injunction and found that even non-signatories to the franchise agreement could be bound by the injunction if they were conspiring to avoid the consequences of the restrictive covenant.
Shortly after the injunction order was granted, Garcha discovered that the defendants were continuing to operate a butcher shop from the Franchised Location in violation of the injunction order. In response, Garcha filed a civil contempt application with the BCSC on May 2, 2022.
On the civil contempt application, the BCSC held that the defendants were, indeed, in contempt of court due to their breach of the injunction and ordered that each defendant – including those that were not party to the franchise agreement – pay a fine plus special costs of Garcha in connection with the contempt application. The Court further ordered that two of the defendants were prohibited from being within 500 meters of the Franchised Location.
Further sanctions were also threatened, with the Court stating that, “any future findings that the respondents continue to be in contempt of court of the Injunction Order, would inevitably attract more significant fines and penalties.”
This case is an important lesson that courts are willing to enforce post-term restrictive covenants against both parties and non-parties to an agreement where there is a clear group effort in continuing to defy and circumvent those post-term restrictive covenants.
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1 Garcha Bros. Meat Shop Ltd. v SJP Enterprises Ltd. 2022 BCSC 2009 (CanLII).
2 https://cassels.com/insights/the-butchers-block-bc-court-of-appeal-enforces-injunction-based-on-breach-of-non-competition-provision/.