Could a court grant an injunction to restrain breaches of the duty of honest performance?

[3] In this appeal, the applicable good faith doctrine is the duty of honesty in contractual performance. As Cromwell J. explained in Bhasin, at para. 73, the duty of honesty applies to all contracts as a matter of contractual doctrine, and means “simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract”. Callow says Baycrest’s failure to exercise its right to terminate in keeping with the mandatory duty of honest performance amounted to a breach of contract. It points to the trial judge’s findings that Baycrest withheld the information that the contract was in danger of termination. Baycrest then continued to represent that the contract was not in danger and knowingly declined to correct the false impression it had created and under which Callow was operating. This dishonesty continued for several months, “in anticipation of the notice period” wrote the trial judge and, claims Callow, resulted in it foregoing the opportunity to bid on other winter contracts and thereby justifies an award of damages (2017 ONSC 7095, at para. 67 (CanLII)).

[...]

[42] Callow relies on the duty of honest performance in contract formulated in Bhasin. This duty, which applies to all contracts, “requires the parties to be honest with each other in relation to the performance of their contractual obligations” (para. 93). While this formulation of the duty refers explicitly to the performance of contractual obligations, it applies, of course, both to the performance of one’s obligations and to the exercise of one’s rights under the contract. Cromwell J. concluded, at paragraphs 94 and 103, that the finding that the non-renewal clause had been exercised dishonestly made out a breach of the duty:

The trial judge made a clear finding of fact that Can‑Am “acted dishonestly toward Bhasin in exercising the non-renewal clause”: para. 261; see also para. 271. There is no basis to interfere with that finding on appeal. It follows that Can‑Am breached its duty to perform the Agreement honestly.

. . .

As the trial judge found, this dishonesty on the part of Can‑Am was directly and intimately connected to Can‑Am’s performance of the Agreement with Mr. Bhasin and its exercise of the non-renewal provision. I conclude that Can‑Am breached the 1998 Agreement when it failed to act honestly with Mr. Bhasin in exercising the non-renewal clause. [Emphasis added.]

This same framework for analysis applies to this appeal. The trial judge here made a clear finding of fact that Baycrest acted dishonestly toward Callow by representing that the contract was not in danger even though a decision to terminate the contract had already been made (paras. 65 and 67). There is no basis to interfere with that finding on appeal. As I will explain, it follows that Baycrest deceived Callow and thereby breached its duty of honest performance.

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[47] The specific legal doctrines derived from the organizing principle rest on a “requirement of justice” that a contracting party, like Baycrest here in respect of the contractual duty of honest performance, have appropriate regard to the legitimate contractual interests of their counterparty (Bhasin, at paras. 63‑64). It need not, according to Bhasin, subvert its own interests to those of Callow by acting as a fiduciary or in a selfless manner that would confer a benefit on Callow. To be sure, this requirement of justice reflects the notion that the bargain, the rights and obligations agreed to, is the first source of fairness between parties to a contract. But by the same token, those rights and obligations must be exercised and performed, as stated by the organizing principle, honestly and reasonably and not capriciously or arbitrarily where recognized by law. This requirement of justice, rooted in a contractual ideal of corrective justice, ties the existing doctrines of good faith, including the duty to act honestly, together. The duty of honest performance is but an exemplification of this ideal. Here, based on its failure to perform clause 9 honestly, Baycrest committed a breach of contract, a civil wrong, for which it has to answer.

[48] When, in Bhasin, Cromwell J. recognized a duty to act honestly in the performance of contracts, he explained that this duty “should not be thought of as an implied term, but a general doctrine of contract law that imposes as a contractual duty a minimum standard of honest contractual performance” (para. 74). Characterizing this new duty as a matter of contractual doctrine was appropriate, Cromwell J. wrote, “since parties will rarely expect that their contracts permit dishonest performance of their obligations” (para. 76). The duty therefore applies even where — as in our case — the parties have expressly provided for the modalities of termination given that the duty of good faith “operates irrespective of the intentions of the parties” (para. 74). No contractual right, including a termination right, can be exercised dishonestly and, as such, contrary to the requirements of good faith.

[49] Cromwell J.’s choice of language is telling. It is not enough to say that, temporally speaking, dishonesty occurred while both parties were performing their obligations under the contract; rather, the dishonest or misleading conduct must be directly linked to performance. Otherwise, there would simply be a duty not to tell a lie, with little to limit the potentially wide scope of liability.

[50] The duty of honest performance is a contract law doctrine, setting it apart from other areas of the law that address the legal consequences of deceit with which it may share certain similarities. One could imagine analyzing the facts giving rise to a duty of honest performance claim through the lens of other existing legal doctrines, such as fraudulent misrepresentation giving rise to rescission of the contract or the tort of civil fraud (see, e.g., B. MacDougall, Misrepresentation (2016), at §1.144‑1.145). However, in Bhasin, Cromwell J. wrote explicitly that while the duty of honest performance has similarities with civil fraud and estoppel “it is not subsumed by them” (para. 88). For instance, unlike estoppel and civil fraud, the duty of honest performance does not require a defendant to intend that the plaintiff rely on their representation or false statement. Cromwell J. explicitly defined the duty as a new and distinct doctrine of contract law, not giving rise to tort liability or tort damages but rather resulting in a breach of contract when violated (paras. 72-74, 90, 93 and 103). We are not asked by the parties to depart from this approach.

[51] In light of Bhasin, then, how is the duty of honest performance appropriately limited? The breach must be directly linked to the performance of the contract. Cromwell J. observed a contractual breach because Can‑Am “acted dishonestly toward Bhasin in exercising the non-renewal clause” (para. 94). He pointed, in particular, to the trial judge’s conclusion that Can‑Am “acted dishonestly with Mr. Bhasin throughout the period leading up to its exercise of the non-renewal clause” (para. 98; see also para. 103). Accordingly, it is a link to the performance of obligations under a contract, or to the exercise of rights set forth therein, that controls the scope of the duty. In a comment on Bhasin, Professor McCamus underscored this connection: “Cromwell J was of the view that the new duty of honesty could be breached in the context of the exercise of a right of non-renewal. That was the holding in Bhasin” (“The New General ‘Principle’ of Good Faith Performance and the New ‘Rule’ of Honesty in Performance in Canadian Contract Law” (2015), 32 J.C.L. 103, at p. 115). While the abuse of discretion was not the basis of the damages awarded in Bhasin, the duty of honest performance shares a common methodology with the duty to exercise contractual discretionary powers in good faith by fixing, at least in circumstances like ours, on the wrongful exercise of a contractual prerogative.

[52] Importantly, Callow does not seek to bar Baycrest from exercising the termination clause here; like in Bhasin, it only seeks damages flowing from the fact that the clause was exercised dishonestly. In other words, Callow’s argument, properly framed, is that Baycrest could not exercise clause 9 in a manner that breached the duty of honesty, however absolute that right appeared on its face.

[53] Good faith is thus not relied upon here to provide, by implication, a new contractual term or a guide to interpretation of language that was somehow an unclear statement of parties’ intent. Instead, the duty of honesty as contractual doctrine has a limiting function on the exercise of an otherwise complete and clear right because the duty, irrespective of the intention of the parties, applies to the performance of all contracts and, by extension, to all contractual obligations and rights. This means, simply, that instead of constraining the decision to terminate in and of itself, the duty of honest performance attracts damages where the manner in which the right was exercised was dishonest.

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[86] Moreover, I note that Cromwell J. described the requirements of the duty of honesty negatively: while the duty of honest performance does not require parties to act angelically by subordinating their own interests to that of their counterparty (Bhasin, at para. 86), they must refrain from lying or knowingly misleading their counterparty (para. 73). As a “negative” obligation — that is, in the absence of a recognized duty to act, the injunction it imposes is one not to act dishonestly — it sits more plainly with the ordinary objectives of corrective justice and what one scholar sees as the traditional posture of the common law in favour of contractual autonomy and individual freedom in private law. [translation] “It is clear”, wrote Professor Daly in a comment on the common law method consecrated in Bhasin, “that the duty of honesty recognized in Bhasin is a negative obligation — not to lie — rather than a positive obligation — to act in good faith” (pp. 101-2). This same orientation has been observed as animating the analogous contractual duty of good faith in the civil law. While positive obligations to cooperate in performance may be otherwise required by the law of good faith, scholars have observed that the notional equivalent of the duty of honest performance in Quebec civil law most typically imposes negative obligations — to refrain from lying, for example — in the measure of the abuse of a contractual right (Baudouin and Jobin, at No. 161). Care must be taken, I hasten to say, not to confuse the [translation] “duty to act faithfully” recognized in this regard, with the fiduciary duty of loyalty that stands outside of good faith in both legal traditions.

[116] Notably, the court concluded that the duty of honest performance attracts damages rather than a declaration continuing the contract between the parties. Damages were awarded in the Bhasin and Yildir decisions. Nothing in this decision precludes the Tenants from commencing a claim for damages, however I see no basis in law that would permit the Tenants to use alleged Park breach of a duty of honest performance as a basis for some form of estoppel.

At the first stage, an applicant for interlocutory relief in a Charter case must demonstrate a serious question to be tried. Whether the test has been satisfied should be determined by a motions judge on the basis of common sense and an extremely limited review of the case on the merits. The fact that an appellate court has granted leave in the main action is, of course, a relevant and weighty consideration, as is any judgment on the merits which has been rendered, although neither is necessarily conclusive of the matter. A motions court should only go beyond a preliminary investigation of the merits when the result of the interlocutory motion will in effect amount to a final determination of the action, or when the constitutionality of a challenged statute can be determined as a pure question of law. Instances of this sort will be exceedingly rare. Unless the case on the merits is frivolous or vexatious, or the constitutionality of the statute is a pure question of law, a judge on a motion for relief must, as a general rule, consider the second and third stages of the Metropolitan Stores test.

At the second stage the applicant must convince the court that it will suffer irreparable harm if the relief is not granted. `Irreparable' refers to the nature of the harm rather than its magnitude. In Charter cases, even quantifiable financial loss relied upon by an applicant may be considered irreparable harm so long as it is unclear that such loss could be recovered at the time of a decision on the merits.

The third branch of the test, requiring an assessment of the balance of inconvenience, will often determine the result in applications involving Charter rights. In addition to the damage each party alleges it will suffer, the interest of the public must be taken into account. The effect a decision on the application will have upon the public interest may be relied upon by either party. These public interest considerations will carry less weight in exemption cases than in suspension cases. When the nature and declared purpose of legislation is to promote the public interest, a motions court should not be concerned whether the legislation actually has such an effect. It must be assumed to do so. In order to overcome the assumed benefit to the public interest arising from the continued application of the legislation, the applicant who relies on the public interest must demonstrate that the suspension of the legislation would itself provide a public benefit (p. 348 - 349).

[15] In my view, on an application for a mandatory interlocutory injunction, the appropriate criterion for assessing the strength of the applicant’s case at the first stage of the RJR — MacDonald test is not whether there is a serious issue to be tried, but rather whether the applicant has shown a strong prima facie case. A mandatory injunction directs the defendant to undertake a positive course of action, such as taking steps to restore the status quo, or to otherwise “put the situation back to what it should be”, which is often costly or burdensome for the defendant and which equity has long been reluctant to compel.^[25] Such an order is also (generally speaking) difficult to justify at the interlocutory stage, since restorative relief can usually be obtained at trial. Or, as Justice Sharpe (writing extrajudicially) puts it, “the risk of harm to the defendant will [rarely] be less significant than the risk to the plaintiff resulting from the court staying its hand until trial”.^[26] The potentially severe consequences for a defendant which can result from a mandatory interlocutory injunction, including the effective final determination of the action in favour of the plaintiff, further demand what the Court described in RJR — MacDonald as “extensive review of the merits” at the interlocutory stage.^[27]

[1] Burquitlam Care Society ("Burquitlam") seeks an injunction. It asks the Court to restrain the Fraser Health Authority ("FHA") from terminating an agreement between the parties.

[2] The main issue is whether Burquitlam can show a serious question that the FHA, in its intended termination of the agreement, has run afoul of the Supreme Court of Canada's direction in Bhasin v. Hrynew, 2014 SCC 71, that parties to a contract not lie to, or otherwise knowingly mislead, each other about matters directly linked to the performance of the contract.

[...]

[21] The parties are on common ground that a two‑part injunction analysis should be employed here, in keeping with what our Court of Appeal said in British Columbia (Attorney General) v. Wale (1986), 1986 CanLII 171 (BC CA), 9 B.C.L.R. (2d) 333 (C.A.), affirmed 1991 CanLII 109 (SCC), [1991] 1 S.C.R. 62; and in Canadian Broadcasting Corporation (CBC) v. CKPG Television Ltd. (1992), 1992 CanLII 560 (BC CA), 64 B.C.L.R. (2d) 96 (C.A.); as well as in more recent decisions.

[22] Is there a serious question to be tried, and where does the balance of convenience lie?

[23] Counsel for Burquitlam, in his able submissions, acknowledged that his case for a serious question being found rests or falls on the proper application of Bhasin.

[24] I respectfully agree with that, but I am unable to find a serious question that the FHA has offended the principle which was expressed in Bhasin. That decision is authority for the principle, noted earlier, that parties to a contract must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. On the evidence before me, in my opinion, that has not happened and there is not a serious question that it has.

[25] Burquitlam has provided for many years, and continues to provide, very good service overall for its residents. I therefore cannot help but sympathize with its wish to continue operating indefinitely. But that wish must be assessed against the statutory right of the FHA to allocate funding to facilities it believes best serve the long‑term needs of existing and future residents of long‑term care facilities. This application, and Burquitlam's claim more generally, are not about whether the FHA is taking the best steps, or not, in meeting the public's needs. It is instead about whether the FHA has lied to or knowingly misled Burquitlam leading up to the intended termination of the agreement. I do not see on the evidence a serious question that the FHA either lied to, or knowingly misled, Burquitlam at any stage in the proposed termination. In practical terms, I note that Burquitlam has received two and a half years notice of the termination instead of only one year as contemplated in the agreement.

[26] Above, I observed that in the meeting on May 3, 2013, the FHA said to Burquitlam that it could sell to another care provider its right to own and operate the 76 beds. The FHA believed that to be the case when it said that. As I also said above, Burquitlam never took steps toward such a sale. However, before me, Burquitlam addressed the point further. I quote paragraph 66 of Burquitlam's written argument, except that I substitute the personal names found in paragraph 66 with the FHA and Burquitlam as appropriate:

When Burquitlam asked FHA at the January [28, 2014] meeting about Burquitlam's right to sell the Agreement and Beds to another care provider, FHA replied that if Burquitlam had wanted to sell the Agreement and the Beds, it should have already done so as the Beds had now been given to Baltic Properties. Burquitlam was shocked by FHA's response, as FHA has never advised Burquitlam that it might purportedly lose its opportunity to sell the Agreement and Beds if it did not act within a particular, limited timeframe.

[27] When the FHA spoke in May of 2013 of Burquitlam being able to sell its interests, the FHA did so honestly. Approximately nine months then passed, between the May 2013 meeting and the January 2014 meeting, during which Burquitlam took no steps to sell. Yet it is apparent from Burquitlam's December 8, 2013 e‑mail, quoted in part above, at paragraph 17, that Burquitlam knew by December 2013 that the ending of funding was likely imminent. Burquitlam expressed no wish or intention then of selling its interests. Most important for this application, there is no evidence underlying any of those facts to even suggest that the FHA lied to Burquitlam or knowingly misled it about any right to sell which it may have had. The further observation I make about Burquitlam's possibly lost opportunity to sell is that it would be a claim sounding in damages only rather than one giving rise to injunctive relief.

[28] Turning to assessing the balance of convenience, but for my finding that there is not a serious question to be tried, I would have granted the injunctive relief sought against the termination of the agreement.

[29] As I noted earlier, any claim of a lost opportunity for Burquitlam to sell its rights to own and operate the facility sounds only in damages. What follows addresses the balance of convenience for the claim that the intended termination is unlawful.

[30] Given my finding that there is no serious question to be tried, I address the balance of convenience question relatively briefly. The status quo is the continuing operation of the Burquitlam facility. The authorities are legion in saying that the preservation of the status quo is ordinarily the preferred approach at the interlocutory injunction stage. A step to interfere with the continuing operation of the Burquitlam facility, and indeed calculated to bring it to an end, constitutes irreparable harm. See RJR‑MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311 at para. 59. Irreparable harm too is generally to be avoided at the injunction stage and is a factor supportive of an injunction being granted. Preserving the status quo and avoiding irreparable harm are thus two strong arguments for Burquitlam in the balance of convenience analysis. That is particularly so here, where there is the potential to disrupt elderly residents in the course of winding down the Burquitlam facility.

[31] In its argument addressing the balance of convenience, the FHA submitted on the other hand that damages are an adequate remedy against the intended termination, and that the public interest supports the FHA getting on with its work of reallocating patient beds. The FHA also points to the weakness of Burquitlam's claim and notes that the weakness of the claim is a factor to be considered not only in the first stage of an injunction application but also separately in the balance of convenience analysis. See Canadian Broadcasting Corp (CBC), cited above in paragraph 21.

[32] Perhaps to repeat, but for my conclusion that there is not a serious question that the proposed termination is unlawful, I would have granted the injunction on the balance of convenience analysis. The factors in that analysis in favour of Burquitlam are in my view more compelling than the counterpoints raised by the FHA. (I have not addressed Burquitlam's delay in bringing this application given the FHA's position in its pleading and other filings that Burquitlam's claim is premature until the FHA sends the notice of termination.)

[33] To summarize, if I had concluded there was a serious question to be tried, I would have granted the injunction to preserve the status quo until trial. However, given my finding that there is not a serious question, the injunction application to enjoin the intended termination is dismissed.

[61] Through this motion, the Plaintiffs seek to change the status quo and restore the parties to the positions they were in before the FIT Contracts were terminated. The substance of the requested relief is not to restrain a breach of contract that would result in termination of the FIT Contracts. The substance of the motion is to require the IESO to do something that, given that the FIT Contracts are terminated, it is not contractually required to do, that is, make payments to the Contracting Plaintiffs in accordance with the payment obligations in the FIT Contracts and refrain from enforcing their contractual right to seek repayment of the secured indebtedness. The Plaintiffs seek a mandatory injunction.

[62] The Plaintiffs must meet the modified RJR-MacDonald test and, at the first stage, demonstrate a strong prima facie case that they will succeed at trial. This means that they must show a strong likelihood on the law and the evidence presented that, at trial, they will be ultimately successful in proving the allegations in the statement of claim that would entitle them to the relief sought. See CBC, at para. 18.

Have the Plaintiffs shown a strong prima facie case?

[63] The Plaintiffs’ action is based on the allegation that the IESO breached its duty of honest performance by knowingly misleading the Plaintiffs about its intention to exercise the termination right provided for in the FIT Contracts from June or July 2018 until late March 2019.

[64] The Plaintiffs make three main assertions with respect to the merits of their claim. First, the IESO breached its duty of honest performance because it knowingly failed to correct a misapprehension created by its own conduct in the exercise of its contractual termination right by remaining silent until late March 2018 about its decision made months earlier to reassert its termination rights. Second, the IESO breached its duty to exercise contractual discretion in good faith because the exercise of its discretion to terminate the FIT Contracts was not rationally connected to the purposes for which it was granted – to give it flexibility to re-evaluate its changing electricity needs when deciding whether to move ahead with a delayed contract in light of current circumstances. Third, the IESO breached its duties to cooperate to achieve contractual objects and not to evade contractual obligations that were recognized by the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71. The Plaintiffs argue that in deciding to terminate the FIT Contracts, the IESO, rather than seeking to cooperate with the Plaintiffs, tried to evade its contractual obligations by taking advantage of its own act in sending the March 2019 letters, which created an industry scramble for resources that made it impossible for the Plaintiffs to meet their MCODs.

[65] The IESO contends that the Plaintiffs cannot demonstrate a strong case that they will succeed at trial (or even that there is a serious issue to be tried). The IESO submits that the essential issue in this action is the same as the issue that was decided in the prior proceedings, that is, the IESO’s entitlement to terminate the FIT Contracts as a result of the Contracting Plaintiffs’ failure to achieve commercial operation by the MCOD. The IESO argues that this issue has been decided, and relitigation of the same issue is precluded by the doctrine of issue estoppel. This doctrine prevents re-litigation of the material facts that the cause of action in the prior proceeding embraces, even where different causes of action are asserted in the new proceeding. See The Catalyst Capital Group Inc. v. VimpelCom Ltd., 2019 ONCA, at paras. 27 and 44.

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[74] In their action, the Plaintiffs rely on the doctrine of good faith to support the declaration they seek that the deemed terminations are invalid, and the FIT Contracts are fully operational. The Plaintiffs submit that no bad faith claims could have been made in the prior litigation because no terminations had yet occurred. They argue that until the prior litigation was finally determined, the IESO remained free to depart from its pre-emptive decision and not exercise the termination right. The Plaintiffs say that only when the IESO failed to do so did the claims in this action arise.

[...]

[79] In Bhasin, the Supreme Court of Canada recognized that there is an organizing principle of good faith that underlies and manifests itself in various more specific doctrines governing contractual performance. That organizing principle is simply that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily. The Supreme Court of Canada held in Bhasin, under the umbrella of the organizing principle of good faith, that there is a general duty of honesty in contractual performance which means that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.

[80] In Callow, the Supreme Court of Canada decided an appeal from a decision of the Court of Appeal for Ontario. The action involved termination of a commercial contract. The Supreme Court of Canada focused, at para. 55, on the manner in which the termination right was exercised, which, it held, must not be confused with whether there was a contractual right to terminate the contract. The Court considered the organizing principle of good faith recognized in Bhasin and observed that the appellant, Callow, invoked two existing doctrines: the duty of honest performance and the duty to exercise discretionary powers in good faith. The Court held, at para. 44, that “[n]o expansion of the law set forth in Bhasin is necessary to find in favour of Callow. Rather, this appeal provides an opportunity to illustrate the existing doctrine that, I say respectfully, was misconstrued by the Court of Appeal”.

[81] In Wastech, the appeal raised the issue of whether a common law duty of good faith performance applied to the particular contract at issue and, more specifically, how principles of good faith might preclude the abuse of contractual discretionary powers. The Supreme Court of Canada held, at para. 53, that it had not been shown that the respondent performed its obligations or exercise its rights under the contract in a manner contrary to the applicable requirements of good faith and that the respondent breached neither the duty of honest performance nor the duty to exercise discretion in good faith. In so concluding, the Court, at para. 58, expressed its agreement with the parties that the duty to exercise contractual discretionary powers in good faith is well-established in the common law and that it was expressly recognized by Cromwell J. in Bhasin in his account of the organizing principle of good faith.

[82] Based on my review of the decisions in Bhasin, Callow, and Wastech, I conclude that the Plaintiffs have failed to show a strong likelihood that, at trial, they will be successful in their argument that the decisions in either Callow or Wastech changed the law in a material way so as to constitute special circumstances to warrant the exercise of discretion not to apply the doctrines of issue estoppel or cause of action estoppel.

[83] On this motion for an interlocutory injunction, I am not called upon to make a final decision on whether the Plaintiffs’ claims that the FIT Contracts were not lawfully terminated and remain fully operational because the IESO breached its contractual duty of good faith will succeed at trial. I am required to assess whether the Plaintiffs have shown a strong prima facie case that they are likely to be successful on this claim at trial.

[84] Given the decisions of the Courts in the prior litigation and the effect of the July Order which has resulted in the deemed terminations of the FIT Contracts, I am not satisfied that the Plaintiffs have shown a strong likelihood that, at trial, they will be successful in showing that (i) the Court of Appeal decided only that the IESO’s termination right existed, and did not decide the IESO was entitled to exercise its contractual right to terminate the FIT Contracts, (ii) the application judge and the Court of Appeal, when these Courts decided that the IESO was entitled to terminate the FIT Contracts, decided a different issue than the issue raised in this action, and (iii) their arguments based on the doctrine of good faith were not available to them and did not belong in the prior litigation.

[85] I am not satisfied that the Plaintiffs have shown a strong likelihood on the law and the evidence presented that, at trial, they will be ultimately successful in proving that the FIT Contracts were not validly terminated and are fully operational.

[27] The legal test for an interlocutory injunction is well-established. As articulated over 26 years ago by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311 at 334:

a) Is there a serious question to be tried?

b) If so, will the applicant suffer irreparable harm if the injunction is refused?

c) Where does the balance of convenience lie? In other words, which of the parties will suffer greater harm if the injunction is granted or refused?

[28] Fundamentally, the question to be determined is whether granting the injunction is just and equitable in the circumstances: Cermaq Canada Ltd. v. Steward, 2017 BCSC 2526 at para. 53, citing British Columbia (Attorney General) v. Wale, 1986 CanLII 171 (BC CA), [1986] B.C.J. No. 1395 (C.A.).

[29] However, where, as here, the injunction being sought is a mandatory injunction (because it seeks to require that the defendant take a positive step), the applicant must show that it has a strong prima facie case: R. v. Canadian Broadcasting Corp., 2018 SCC 5 at para. 15:

[15] In my view, on an application for a mandatory interlocutory injunction, the appropriate criterion for assessing the strength of the applicant’s case at the first stage of the RJR-Macdonald test is not whether there is a serious issue to be tried, but rather whether the applicant has shown a strong prima facie case. A mandatory injunction directs the defendant to undertake a positive course of action, such as taking steps to restore the status quo, or to otherwise “put the situation back to what it should be”, which is often costly or burdensome for the defendant and which equity has long been reluctant to compel…

Has the plaintiff demonstrated a strong prima facie case?

[30] The plaintiff says that the defendant’s positive affirmations of the manner in which the plaintiff was operating the Ivy Lounge prior to February 25, 2021 were a breach of its duty of honesty, citing C.M. Callow Inc. v. Zollinger, 2020 SCC 45:

[5] I respectfully disagree with the Court of Appeal on whether the manner in which the termination clause was exercised ran afoul of the minimum standard of honesty. The duty to act honesty in the performance of the contract precludes active deception.

[31] The plaintiff points to the emails from the VPD and the Strata Council that were not provided to the plaintiff prior to the Notice of Termination, together with the defendant’s insistence that the plaintiff deal with the VPD, the Branch, and VCH directly as evidence of its dishonesty and deceitful conduct in its performance of the Licence Agreement.

[32] The plaintiff also submits that the Licence Agreement provisions on which the defendant relies in the Notice of Termination did not give it a right to terminate, because both of those provisions give the plaintiff the right to cure any alleged default and the plaintiff was never given that right. Moreover:

a) the event of default alleged under section 10(a)(ii) is not specified. It is unknown whether it was an asserted failure to observe the “Hotel Manager’s Standards”, which themselves are vague and subjective at best; and

b) the alleged reasonable belief on the part of the defendant which is relied upon as a default under section 10(a)(v) is unsupported by the evidence, particularly given that the plaintiff took pains to ensure that all concerns of the authorities, the Strata Council and the defendant were resolved in a timely way.

[33] In response, the defendant submits that it need not rely upon either of the Events of Default specified in the Notice of Termination. Rather, the defendant says that it was entitled to terminate the Licence Agreement because the Ivy Lounge’s business and conduct of the plaintiff or its representatives brought the Property or the Hotel into disrepute and had a material negative impact on the operation of the Hotel, which is an Event of Default under clause 10(a)(iv) of the Licence Agreement. The defendant argues this gave it the right to immediately terminate the Licence Agreement under clause 10(b)(iii)(1).

[34] I agree with counsel for the defendant that the issue for determination at trial is whether there was an Event of Default under Section 10 of the Licence Agreement. If so, the defendant was entitled to terminate the Licence Agreement by issuing a notice to that effect.

[35] I find that the plaintiff has failed to demonstrate a strong prima facie case that it will succeed at trial. To the contrary, I find that there is a “strong likelihood” on the law and the evidence that the defendant will ultimately succeed in demonstrating that the conduct of the plaintiff’s operation of the Ivy Lounge brought the Property into disrepute and had a material negative impact on the operation of the Property, including the Hotel. It takes no more than a modicum of common sense to recognize that the plaintiff’s ongoing, repeated, and flagrant disregard of Public Health Orders, liquor restrictions, as well as its apparent indifference (to put it at its most generous) towards the clientele it allowed to frequent the Licensed Area would negatively affect the reputation of the Property and the Hotel.