In Pet Valu Canada Inc. v. 1381114 Ontario
Limited, the Ontario Superior Court of Justice granted Pet
Valu's motion for an interim injunction to prevent the
operation of a competing business by a former franchisee, its
principal, the principal's husband, and their corporate alter
ego. The decision confirms that a former franchisee cannot evade
its obligations under a non-competition covenant by operating a
competing business through non-arm's length third parties.
The decision involved the expiration of a franchise agreement
between Pet Valu and the franchisee company, 1381114 Ontario
Limited. The franchise agreement contained a non-competition
covenant, non-solicitation covenant and other post-termination
obligations, which bound the franchisee company and its principal,
Robin Martin. Ms. Martin's husband, Mark Fingarson, was not a
signatory to the franchise agreement containing the restrictive
covenants. Prior to the expiration of the franchise agreement, Mr.
Fingarson established a new company, 2347687 Ontario Limited, which
then registered the business name Pet Stuff & Supplies.
Unbeknownst to Pet Valu, the competing Pet Stuff & Supplies
business was opened, and located only 450 metres away from the
closest Pet Valu store.
Pet Valu brought a motion for an interim injunction as against
the franchisee, Ms. Martin, Mr. Fingarson and the new numbered
company. Justice Backhouse granted the motion on August 15,
A unique aspect of the decision is that Justice Backhouse
enforced the non-competition covenant against non-parties to the
franchise agreement, i.e., Mr. Fingarson and his new company. Her
Honour did so on the basis that Mr. Fingarson had established the
new company to "hide Ms. Martin's involvement" in the
competing business and "for the purpose of assisting Ms.
Martin to compete with [Pet Valu] when she had undertaken not to do
so". Justice Backhouse described this as "a transparent
effort by all of the defendants to avoid the restrictive
covenants". On that basis, Justice Backhouse also ordered the
defendants to pay Pet Valu's costs of the motion on a joint and
several basis, in the total amount of $21,340.90 (unreported costs
endorsement of Justice Backhouse released September 18, 2013).
In the decision, Justice Backhouse specifically acknowledged
that a "fundamental aspect of any franchise system is the
protection of its method of operation, goodwill, products and
services", and noted that Pet Valu had provided "an
abundance of evidence" establishing irreparable harm and the
balance of convenience, traditional elements of the injunction
The decision represents an important authority for protecting
the integrity of a franchise system. It confirms that a departing
franchisee cannot evade its post-termination obligations simply by
purporting to operate a competing business through a non-arm's
length third party – such as a spouse or corporate alter ego.
It further confirms that equitable relief may be obtained against
such third parties, regardless of whether they are signatories to
the franchise agreement containing the restrictive covenant(s).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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