IN THE SUPREME COURT OF NOVA SCOTIA
Citation: 2703203 Manitoba Inc. v. Parks, 2002 NSSC 265
Date: 20021211
Docket: S. H. 188275
Registry: Halifax
Between:
2703203 Manitoba Inc.
Applicant
v.
David Parks, Ross Parks, Lloyd Smith and
Parrcom Atlantic Concepts Incorporated
Respondents
Judge: The Honourable Justice Walter R. E. Goodfellow
Heard: December 4th and 10th, 2002, in (Chambers) at Halifax, Nova Scotia
Written Decision: December 11th, 2002
Counsel: William L. Ryan, Q.C. and Victoria Apold, for the Applicant
Thomas W. Jarmyn, for the Respondents
By the Court:
BACKGROUND
[1] Jean Daum is the founder and president of 2703203 Manitoba Inc. which carries on business as a franchisor of the Coffee News and has done so since 1988. Coffee News operates in 27 countries. She developed and designed a format and style of content of the Coffee News which is essentially a newssheet with stories of general interest, horoscope, trivia questions, etc. and the franchisee sells advertising space in the Coffee News publication which is offered to the public free of charge at restaurants and other places of business.
[2] The Coffee News is a well organized franchisor that provides its franchisees with considerable assistance, manual, etc. The Coffee News entered into a franchise license the 1st of September, 1998 with a John Schimmel of North Vancouver, British Columbia and whatever happened with that license is the root of the present difficulties between Coffee News and its franchisee, Lloyd Smith, who, at one time, held several franchises for districts, other than Halifax, in Nova Scotia. Lloyd Smith’s first franchise appears to be by license of the 28th of February 2000 and, when he began his relationship with the Coffee News, there was no full disclosure and quite possibly no requirement of disclosure that Ross Parks was heavily involved in the franchise. The franchise fees were paid to Coffee News by cheques through Parrcom Incorporated, a Nova Scotia company and Coffee News did not make the association of this company with John Schimmel or Ross Parks. The Coffee News learned that Ross Parks had financed Lloyd Smith’s acquisition of the Coffee News licenses and Coffee News took strong exception to any involvement by Ross Parks and was adamant that he was not to be involved in the franchises, other than as a person providing financial assistance. I read the evidence to indicate that the Coffee News accepted Ross Parks’ involvement only to the extent that he was acting in essence as a banker or financier to Lloyd Smith. With the passage of time, Coffee News realized that the relationship between Lloyd Smith and Ross Parks was much closer and far different than simply Ross Parks acting as a banker. The evidence clearly indicates that although the licenses were held by Lloyd Smith, the financing, management and really ultimate control lay in the hands of Ross Parks and that essentially Lloyd Smith was a commissioned sales person who happened to hold the license.
[3] Lloyd Smith expressed to the Coffee News a very favourable opinion of Ross Parks which was not shared by the Coffee News and Smith did at one time make an inquiry if there was any basis upon which he could continue now that the full extent of Ross Parks’ involvement was known to the Coffee News. Ross Parks takes the view that he was financially mistreated by John Schimmel, etc. and the Coffee News takes the position that it was financially mistreated, etc., by John Schimmel.
[4] Lloyd Smith determined that he was unable to continue some of the franchises and so advised Coffee News. Coffee News took the position that no franchise could continue due to Lloyd Smith’s involvement with Ross Parks and purported to terminate the remaining franchise of Lloyd Smith. Lloyd Smith contacted the advertisers and, it should be remembered, the contract with the advertisers was between Lloyd Smith as franchisee and I saw nothing untoward in his arranging to reimburse and address the position of the individual advertisers in their contractual relationship with him. It seemed to me to be the appropriate course of conduct in the circumstances. The fact that Ross Parks gave one of the advertisers a copy of the notice prepared by Lloyd Smith is yet further proof of his relationship with Lloyd Smith.
[5] In the end, Ross Parks set up a competitive publication, the Flying Cow. The Coffee News made its determination that Lloyd Smith had broken its license contract, including confidentiality clauses and non-competition clauses and demanded all the information, advertiser lists, etc., be returned by Lloyd Smith.
[6] When you review Ross Parks’ affidavit, it appears that his relationship with Lloyd Smith has strong similarities to his relationship with John Schimmel. Ross Parks comments in para. 30 of his affidavit that he has no knowledge about the business model of Coffee News and his description of the operation of the Coffee News franchise in terms “it appears ...” is probably inaccurate. Ross Parks in his evidence indicated that his brother, David Parks, had no involvement in the matters before the Court; however, at para. 18 of his affidavit, it is clearly to the contrary and the business card or information in exhibit 8 referencing Flying Cow, refers to Ross Parks as the franchise owner and David Parks as president. It may or may not be possible at trial to establish some involvement by Lloyd Smith in Flying Cow. With respect to Coffee News, I would take a contrary position to Lloyd Smith’s statement in para. 6 of his affidavit that he maintained responsibility for sales and all final decisions. My distinct impression is that, from the outset, Lloyd Smith, although the technical holder of the franchise license, was, as I previously said, really a commissioned salesman. I also have the distinct impression that, from the very outset, Ross Parks knew his involvement in Coffee News would not be acceptable to Ms. Daum, that Lloyd Smith knew this to be the situation and they conducted themselves accordingly.
[7] It must be remembered that this is an application for interim relief pending trial and this is not the trial.
[8] In reciting this background information, it should be clearly recognized that any comments I have made are not binding in any way upon the trial justice, should this matter unfortunately proceed to trial.
APPLICATION
[9] The Coffee News seeks an interim injunction pursuant to CPR 43.01, 37.10 and s.43.9 of the Judicature Act.
[10] The Supreme Court of Canada in RJR MacDonald Inc. v. Canada (A.G.), [1994] 1 S.C.R. 311 reaffirmed the applicability of the three-part American Cyanamid test that was adopted by the Court in Manitoba (Attorney General) v. Metropolitan Stores (M.T.S.) Ltd., [1987] 1 S.C.R. 110. Although RJR MacDonald, supra, addressed the question of what constituted the appropriate test on an application for a stay of proceedings, the Court held that the same principles apply on an application for an interlocutory injunction. In making a determination as to whether the granting of an interlocutory injunction is an appropriate remedy in particular circumstances, the Supreme Court of Canada in RJR MacDonald, supra, referred to its earlier decision in Metropolitan Stores, noting the three part test as follows at 334:
First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.
See the decision of Gruchy, J. in Atlantic Corrosion Control v. Rustcheck (1998), 167 N.S.R. (2d) at 310.
CONCLUSION
[11] The application involved evidence by way of several affidavits and documentation and the cross-examination of Jean Daum, Cameron Thompson, Lloyd Smith and Ross Parks.
[12] The affidavit of Ross Parks in para. 13 relates to an inquiry made by Mr. Parks and there does not appear to be any dispute that the only thing Coffee News has is a trademark for the words, “Coffee News, news to be enjoyed over coffee/while dining” and the main male mascot. Ms. Daum has developed a format and style; however, it is questionable if there is anything unique about a newsletter that has the advertisement running down the side of the page which such things as the horoscope, trivia and news items contained in the body. Coffee News attempts to give strong directions as to the format of the advertisements but in reality, in many cases the advertisement itself is owned by the individual who places the ad and, other than ads that might be in poor taste, any logo or design or form of ad would appear to be acceptable and it is difficult to reach the conclusion that a similar publication is the passing off of the goods of another, in this case, the Coffee News. There is some evidence suggestive of possible misleading in the manner in which the Flying Cow has been introduced. The evidence, at this stage, falls short of establishing the newssheet as being the exclusive property or otherwise of the Coffee News.
[13] The reason that I conclude injunctive relief, which is a heavy remedy, is not appropriate is the evidence does not establish irreparable harm. Clearly, there will be harm to Coffee News, if they do not get injunctive relief, because they will be facing some very aggressive, strong competition. On the other hand, the Flying Cow will clearly suffer if they are precluded from proceeding in the marketplace.
[14] The fact harm will take place is not sufficient. It must be irreparable harm and the evidence does not establish at this point this essential requirement for injunctive relief. Mr. Jarmyn, in his cross-examination of Mr. Smith and Mr. Thompson, the Halifax franchisee, brought out that there has not been anything approaching irreparable harm and, in fact, the franchisee fee for Mr. Smith’s former territory in the Valley has increased, although Ms. Daum says it is less than what she would have otherwise anticipated. Since Lloyd Smith’s departure and prior to the commencement of this action, Coffee News has sold the Valley franchise for a franchise fee of $1,700.00 plus the periodic continuing franchise payments. On the surface of it, Coffee News has, in Mr. Smith’s original territory, survived without irreparable harm. Cameron Thompson indicated he sells long-term, six months to a year, and he has not had any decline in renewals. He acknowledged that he has had no reduced ad rates, he is continuing as a franchisee and the reason he is late in his payments is that he wants to wait and see what happens in this litigation to determine how it will affect him and, to date, it has only provided some limited measure of confusion. All parties seem to be of some means and have resources. There is a strong probability that any ultimate damage established can be compensated in an award of damages. The competitive marketplace may well be the determining feature as to who survives and not litigation. Clearly, however, the evidence does not establish irreparable harm and accordingly, the application for interim injunctive relief must be dismissed.
COSTS
[15] Normally, I present counsel with an opportunity to advance their views with respect to costs. Costs are in the discretion of the Court and CPR 63.03 would normally result in the defendants receiving costs on the dismissal of the application. I conclude that the taking of the application was quite appropriate and based only on the evidence available at this stage of the proceedings, it is clear to me that if Lloyd Smith and Ross Parks had fully disclosed their relationship at the outset, the initial franchise would not have been granted. It may well be that they had no duty to disclose their relationship; however, they knew the only way they could operate the franchise with certainty was by avoiding full disclosure of their relationship. I want to repeat that all of my remarks and very limited findings are based only on what was available to me in this Chambers application and should not be considered by the trial justice in any way on the trial justice’s final determination with respect to issues of credibility and findings of fact. Nevertheless, I conclude that the defendants do not warrant the exercise of judicial discretion for costs and consider a more appropriate disposition of judicial discretion to make the costs of this application costs in the cause and I set the amount at $1,750.00. This means whichever party is ultimately successful will receive the costs of this application, provided the trial justice makes a determination of costs of the trial.
J.