IN THE SUPREME COURT OF NOVA SCOTIA Citation: Goodman Rosen Inc. v. Sobeys Group, 2002 NSSC 264 Date: 20021106 Docket: SH 188355 Registry: Halifax Between: Goodman Rosen Inc. Plaintiff v. Sobeys Group Inc. and Docket: SH 188340 Registry: Halifax Between: Shoppers Realty Inc., body corporate, Shoppers Drug Mart Inc., body corporate M.C. LeBlanc Drugs Limited, body corporate Plaintiffs v. Sobeys Group Inc. Defendant Judge: The Honourable Justice Gerald R. P. Moir Heard: November 1, 2002 at Halifax Written Release: November 9, 2002 Counsel: Peter Bryson, Q.C. for Shoppers Realty Inc. et al Robert G. Grant, Q.C. for Sobeys Group Inc. Michael S. Ryan, Q.C. and Michael Messenger for Goodman Rosen Inc. Moir, J. (orally): [1] In the late 1970s developer and supplier of premises assembled land and constructed shopping centre at North Sydney. The landlord and Sobeys made twenty-five year lease expiring at the end of 2005 for 22,000 square feet that became supermarket. The lease includes this recital: The lessee has agreed to establish and operate business in the Shopping Centre consistent with the planning of the lessor for the merchandising unity of the Shopping Centre and on the terms and conditions set forth in this Lease ... Consequently, article 4.03 of the lease provides: ... the Lessee shall use the Leased Premises only for the purposes of the business of the retail sale of complete line of food products, as well as general retail merchandising, as carried on by the rest of the majority of its stores. Consistent with this, the landlord promised to restrict competition by other tenants. Article 4.32 of the lease includes: ... the Lessor shall not ... permit any part of the Shopping Centre ... to be used for the purpose of carrying on the business of the sale of food in any form except as hereunder expressly permitted. The article then excepts restaurants, bakeries, delicatessens and stores selling certain kinds of food such as candy. The article goes on to make this provision fundamental term of the lease, breach of which justifies termination by Sobeys, and to provide that the landlord will extract similar covenant from purchasers or mortgagees. [2] The lease was amended in 1996 to allow for an expansion of the mall and of the Sobeys store. The amending agreement provided for the continuation of terms and conditions such as those found in articles 4.03 and 4.32. [3] In March 1980, about year after the Sobeys lease, the landlord leased about 8,000 square feet for twenty years to Imasco and one of its subsidiaries, now Shoppers Drug Mart. This lease has been amended number of times and the term now extends to the end of 2010. Article 35 restricts use of the Shoppers space and, consistent with the Sobeys lease, the tenants covenanted not to use the leased premises for “the sale of groceries, meat, fish, fowl, frozen food, fruit or vegetables, or any combination thereof”. The mall includes department store anchor tenants, and Shoppers Drug Mart also promised not to use the premises as “a department store, junior department store, or variety store, or an order office thereof”. This article contains reference similar to “as carried on by the rest of the majority of its stores” in the Sobeys restriction. In the case of Shoppers Drug Mart, the landlord acknowledged that it is not breach of the covenants restricting use if the operation at the Shoppers Drug Mart space is carried on “in the same manner as the majority of the other Shoppers Drug Mart stores in Nova Scotia”. On the other hand, the landlord covenanted with Imasco and Shoppers Drug Mart against allowing other tenants to operate drug store in any part of their premises. In article 98, the landlord covenanted: ... not to permit ... any other premises or part of premises in the shopping centre ... to be operated as drug store, dispensary and pharmacy, or for the retail sale of items requiring the supervision of registered pharmacist ... An exception was made for department stores: “This paragraph shall not apply to any premises leased to the department store tenants, including those premises initially leased to Zellers [and] Peoples Department Stores.” [4] The Owl Drug Store has operated for many years in the downtown of North Sydney. It is owned through company by pharmacist, Mr. Daniel McKoegh. Lately Mr. McKoegh has found it difficult to hire other pharmacists to work with him and he has had to reduce the store hours. His customers are more elderly now, and they find his location difficult to get into. Further, his business is too small to attract discounts on some wholesale purchases. Mr. McKoegh negotiated with both Sobeys and Shoppers Drug Mart to sell his business and to become an employee. Last August he reached agreement with Sobeys. Sobeys began to renovate its premises in the North Sydney mall to include pharmacy. In the meantime, the present owner of the mall had been placed in receivership and the receiver/manager is now taking steps to sell the mall. [5] In response to the prospect of pharmacy in the Sobeys store, Shoppers Drug Mart placed demands on both Sobeys and the receiver. It demanded Sobeys desist, and it demanded that the receiver take steps including proceedings to give effect to article 98 of the Shoppers Drug Mart lease. The receiver applied, by way of originating notice, for a permanent injunction against Sobeys. Shoppers Drug Mart sued Sobeys and applied for an interim injunction. The Shoppers Drug Mart store in the North Sydney shopping centre is operated by M.C. LeBlanc Drugs Limited as licensee. M.C. LeBlanc is co-plaintiff and the motion for interlocutory relief is joint. [6] Both applications were brought in chambers on November 1st. They were argued together and the evidence, both the affidavits and cross-examination, were treated as going to both proceedings. Sobeys opposes the application for an interim injunction on the grounds that the evidence does not establish grounds for permanent injunction at the required threshold, that the plaintiffs have not established that they will suffer harm not compensable in damages if their claim is right and if interim relief is not given, and that the balance of inconvenience is with Sobeys not Shoppers Drug Mart or its licensee. Sobeys opposes the receiver’s application for a permanent injunction on the ground that “the disputed questions of fact and law [are] beyond the scope of a summary proceeding”, to quote from Mr. Grant’s brief at para. 14. [7] begin with the application of Sobeys and M.C. LeBlanc for an interim injunction. [8] For reasons that will become apparent, think it right not to reach or express conclusion on the question of threshold proof. I will dismiss the application for an interim injunction on the basis that neither Shoppers Drug Mart nor M.C. LeBlanc have established irreparable harm. [9] The plaintiffs rely upon Miller v. Toews, 1990 CanLII 2615 (MB CA), [1991] W.W.R. 604 (MCA) and Canada v. Saskatchewan, 1991 CanLII 3951 (SK CA), [1992] W.W.R. 712 (SCA) for the proposition that the enquiry into irreparable harm is less vigorous or less telling in cases of breach of negative covenant. The logic of these decisions proceeds from the proposition that permanent injunction is the presumed final remedy for breach of negative covenant: Doherty v. Allman (1878), App. Cas. 709 (HL). In Miller, the Manitoba Court of Appeal extended the reasoning in Doherty v. Allman to interim remedies. Its conclusion is at pp. 607 608 of the decision: That is not to say that either the absence of irreparable harm or the presence of much greater inconvenience to the covenantor is totally irrelevant. It is question of emphasis. What it means is that, when negative covenant of this kind is reasonable on its face, the person who gave it will have heavy burden to show that his escape from the bargain will not cause irreparable harm to the covenantee and that the balance of convenience so substantially favours him (the person who gave the covenant) that it would be unjust to restrain his activities until the trial. The decision of the Saskatchewan Court of Appeal in Canada v. Saskatchewan Water Corp. adopted Miller, which had been decided in Manitoba just six months earlier. The Saskatchewan court expressed an analytical approach for interim restraint of alleged breaches of negative covenant: In summary, we find that to apply the appropriate test where an interlocutory injunction is sought on the basis of breach of negative covenant the judge should use the following approach. To satisfy the first test he must undertake preliminary and tentative analysis of the strength of the case put forward by the plaintiff. Is it overwhelming? Is it strong prima facie case? Is it prima facie case? Is it less than prima facie case? Similarly he must make tentative and preliminary assessment of the possible defences which may be offered, all with view to estimating the extent to which those defences reduce the strength of the case initially shown by the plaintiff. At the end of that process the judge must answer the question: Is the plaintiff left with at least prima facie case? If the answer is yes, the first test has been satisfied. As for the second and third tests, the strength of the case that the plaintiff is left with will determine how heavily the balance of convenience and irreparable harm must be weighed in the context of negative covenants. If the plaintiff is left with strong prima facie case approaching plain and uncontested breach of clear covenant, then an injunction ought to be granted without much regard to the balance of convenience and irreparable harm. If the plaintiff is left with only prima facie case then more regard needs to be had to the balance of convenience and irreparable harm. One might question whether the last mentioned standard of proof is so strong as to suggest there is no need for trial. That is, that the more appropriate remedy is summary judgment. [10] The Saskatchewan Court of Appeal did, at para. 32, recognize the opposite approach to interim restraint in cases of alleged breach of negative covenant. The court referred to this passage from para. 672 of the then edition of Sharpe on Injunctions, R.J. Sharpe, Injunctions and Specific Preformance (Toronto: Canada Law Book, 1983): For rather different reasons, neither does the Doherty v. Allman principle apply with the same force to interlocutory injunctions.. There, the court does not have the advantage of full review of the facts and law, and the validity or enforceability of the covenant may not be upheld at trial. The ordinary criteria determining the availability of interlocutory injunctions apply, and plaintiff who sues upon an express negative covenant will not be awarded interlocutory injunctive relief automatically. This passage is consistent with the recognition in American Cyanamid of the difficulty or impossibility of assessing merits on an interlocutory basis: see Gateway Realty Ltd. v. Arton Holdings Ltd (1990), 1990 CanLII 2410 (NS CA), 96 N.S.R. (2d) 82 (C.A.). American Cyanamid provides the analytical framework most often employed by this court on applications for interim injunctions. However, this court has often recognized that the overriding principle is that interim relief must be just and convenient. Thus, there are occasions for assessing the evidence for the cause of action or defence more closely than American Cyanamid might suggest. “The particular circumstances between the parties should always be considered in deciding whether it is just and equitable to grant an interlocutory injunction”: EIT Explosives Technologies International (Canada) Ltd. v. East Coast Explosives Ltd. (1994), 1994 CanLII 4265 (NS SC), 135 N.S.R. (2d) 142 (S.C.) at para 29. “[T]he tendency is for the court to apply test which is likely to produce just result.”: Gateway Realty Ltd. at p. 84. While we allow for departure from the American Cyanamid analytical framework, it is on the basis of the particular circumstances of the dispute rather than the nature of the cause. Thus, the position taken in Manitoba and Saskatchewan on negative covenants is inconsistent with our approach. Our court would not automatically engage in prolonged examination of the merits just because breach of negative covenant is alleged. Injunction is the presumed final remedy for breach of negative covenant, but no such presumption applies in Nova Scotia with respect to interim remedies. [11] The plaintiffs submit that if, pending trial, Sobeys operates pharmacy, then the plaintiffs will suffer permanent loss of good will, the operation may well be made unprofitable and the plaintiff, M.C. LeBlanc, may go out of business. would estimate that case of this kind, advanced by the defendants, could be tried within three years. Shoppers Drug Mart maintains excellent records. Its financial systems are sophisticated. While damages may be difficult to calculate, in the circumstances of this case, the court will be able to assess damages. There is no other reason why the plaintiffs would be unable to prosecute their claim and, if successful, collect on money judgment. Shoppers Drug Mart and M.C. LeBlanc have not established that they will suffer losses not compensable in damages if Sobeys operates pharmacy pending trial. Therefore, will dismiss their application. [12] The receiver applies for final remedies. It applies for a declaratory judgment that Sobeys cannot operate a pharmacy at the North Sydney shopping centre and for a permanent injunction preventing Sobeys from doing so. The objection from Sobeys is that these applications take us into controverted issues of fact requiring a trial. [13] Rule 9.02(b) authorizes applications for the final determination of causes where the proceeding is one “in which there is unlikely to be any substantial dispute of fact”. Where the issues are of law, it serves the purposes expressed in Rule 1.03 that the issues should be determined on affidavit and cross-examination in chambers rather than through trial: Halifax v. Nova Scotia (1996), 1996 CanLII 5423 (NS SC), 149 N.S.R. (2d) 390 (SC) However, by its terms, Rule 9.02 (b) is preclusive of an application where there is likely to be substantial dispute of fact. similar situation pertains to Rule 25 concerning determination of issues preliminary to trial: Binder v. Royal Bank of Canada (1996), 1996 CanLII 5599 (NS CA), 150 N.S.R. (2d) 234 (CA). However, Rule 9.02 (a) also allows for final determination by application where “the sole or principal question at issue is, or is likely to be, question of law, or one of construction of an enactment, will, contract, or other document”. Strictly speaking, the presence of substantial dispute of fact is not preclusive of an application under 9.02 (a). Of course, the judge would have the discretion to order trial under 37.10 (e), and substantial dispute of fact would be strong reason to do so. See City of Toronto and 1291547 Ontario Inc. (2000), 2000 CanLII 22398 (ON SC), 49 O.R. (3d) 709 (OSCJ). This may be difference without distinction where substantial differences can only be resolved by findings of credibility. In Chisholm v. Equisure Financial Network Inc. (1998), SK 7407 (NSSC), Justice Haliburton dismissed an application to interpret and apply contract for such reason. This court has also dismissed applications under Rule 9.02 where the affidavits did not precisely frame the issues or causes of action: Haupt v. Eco-Nova Multi-Media Productions Ltd. (2000), 2000 CanLII 5074 (NS SC), 190 N.S.R. (2d) 274 (SC). The onus is upon Sobeys to show that the application does not meet the requirements of 9.02 (a): Smith v. Canadian Institute of Strategic Studies, [2001] N.S.C.A. 179 and 4C Concerned Citizens v. Cumberland (1997), S408/26 (NSSC). [14] This proceeding is one in which the principal question at issue is of construction of contract. It is squarely within 9.02 (a) and must decide whether the proceeding is likely to involve significant factual disputes, such that should order trial. must approach this question by examining the extent of factual dispute, which, if sufficiently substantial, would necessitate trial but which, if insubstantial, would favour an application. must, in any case, consider procedural fairness, including whether trial or an application would serve the purposes identified in Rule 1.03. [15] The case for the receiver is much simpler than that for Sobeys and M.C. LeBlanc because the landlord is party to the Sobeys lease and is entitled to enforce the lease as party. Unencumbered by the standing issues, the factual complication of the receiver’s case is to be assessed simply in light of the lease terms and the conduct which is alleged to be breach of those terms. [16] There is no factual dispute concerning the legal formation of the Sobeys lease. It was entered into effectively and it is to be enforced according to its terms. There is no suggestion, for example, of mistake in the expression of the terms. There is no dispute as to the lease amendments. There is no dispute that the lease is presently enforceable according to its terms as amended. The essential aspects of the conduct alleged to constitute breach are known and uncontraverted. Sobeys has put forward evidence which, if its interpretation of the lease is correct, may show that it is in compliance. For example, it has put forward evidence concerning the percentage of stores that include pharmacies. This is uncontraverted. [17] The potential, and emphasize the word potential, for controversy would be evidence to be introduced of the circumstances surrounding the formation of the lease. Such evidence would be admissible to prove some of the external context, context always being relevant to the interpretation of words. There is no suggestion of ambiguity. There is the potential for some disagreement over contractual context. [18] The potential for factual dispute over the declaratory judgment is insubstantial. Normally, an injunction requires trial because of the broad facts relevant to the exercise of discretion. See the City of Toronto case. However, injunction is the presumed remedy for breach of negative covenant and nothing has been made to appear which would suggest against an injunction if breach is found. [19] Perhaps such contractual dispute is rare. Perhaps that is why determination of issues of this kind by application rather than trial is rare. However, have concluded that the room for factual dispute is insubstantial, and too insubstantial to take this case out of rule 9.02 (a) or to move my discretion to order trial. [20] As regards procedural fairness, agree that the time frames provided by the rules for the average case are inappropriate here. I accept Mr. Grant’s submissions that his client should have time to make investigations, conduct any necessary discoveries, acquire productions and present any further evidence. [21] have proposition to propose to Sobeys. I am proposing either that you accept an adjournment or that you move for my further consideration. My proposal respecting adjournment would take us, suspect, few months away from now giving Sobeys sufficient opportunity to deal with those issues but commensurate with what you would expect with an application. It would be few months down the road because will not be available until then. I would propose to set a timetable for conduct of discoveries, production by the receiver of any documents the receiver may be able to find, etc. would propose ordering that the affidavits and exhibits in the Shoppers case should become evidence in this case. would, as say, require the receiver to make productions, and would allow the receiver also to make discoveries and to produce further evidence if it chose to do so Or, can give my decision on the interpretation of the Sobeys lease and the application for permanent injunction. assure the parties that have come to no conclusion on either of those at this time.
The defendant had a 25 year lease in a shopping centre which provided that the defendant would only use the premises for the purposes of the business of the retail sale of a complete line of food products, as well as general merchandising, as carried out by the rest of the majority of its stores. The defendant proposed to open a pharmacy on the premises. Another tenant in the shopping centre already operated a drug store and their lease provided that no other tenant would operate a drug store in any part of their premises. The other tenant brought an application for a interim injunction against the defendant. The receiver of the shopping centre also brought an application for a declaration that the defendant could not operate a pharmacy on its premises. The defendant objected to the receiver's application on the basis that it involved controverted issues of fact requiring a trial. Application for interim injunction dismissed on the basis that the applicant had not established irreparable harm; the receiver's application could proceed as an application as the potential for a factual dispute was insubstantial; defendant provided with the option of either accepting an adjournment to allow time for further investigation, the conduct of discoveries and the presenting of any further evidence or moving for the court's further consideration.