Undertaking to maintain status quo pending “determination” of an injunction continues until appeal rights exhausted

Interlocutory injunctions routinely raise a similar issue - how are the parties to conduct themselves in the period prior to the injunction hearing? To avoid the need for an urgent preliminary hearing (commonly referred to as an interim injunction), it is common practice for a respondent to grant an undertaking that it will not engage in certain acts until the interlocutory injunction has been heard and decided.

The recent Divisional Court (Ontario) decision of First of Five Incorporated v Recipe Unlimited Corporation serves as a cautionary tale on carefully selecting language for such an undertaking. Specifically, the court found that an undertaking to maintain the status quo pending "determination" of an interlocutory injunction continues to be binding until all appeal rights are exhausted.

Although the decision was in part guided by the case's specific facts and the parties' conduct, the decision creates a risk that similarly worded undertakings that refer to the "determination" of an injunction will also be found to extend to the appeal period. As such, counsel for parties faced with an interlocutory injunction should generally avoid giving undertakings using similar language and expressly provide that any undertakings end upon the issuance of the decision at first instance.

The undertaking

First of Five Incorporated and Recipe Unlimited Corporation were parties to a franchise agreement. Under the franchise agreement, First of Five had a right to renew the agreement if certain conditions were met, and Recipe Unlimited had a right to terminate the agreement in the event of three defaults by First of Five.

In February 2023, Recipe Unlimited decided to exercise its right of termination following several alleged defaults by First of Five. First of Five commenced an action against Recipe Unlimited on April 21, 2023, and subsequently sought injunctive relief to prevent Recipe Unlimited from terminating the franchise agreement.

In response to that injunction, Recipe Unlimited's counsel gave the following undertaking pending First of Five's motion:

Further to the request in your letter that our client take no action to lock out your client while this matter is before the Court, please be advised that pending the determination of your client's motion for injunctive relief, Recipe will not terminate the Franchise Agreement or the Sublease (as defined in the Statement of Claim) on the basis of the defaults particularized in the Notices of Default dated October 5, 2022 December 6, 2022, and February 7, 2023. [emphasis added]

The decision and the appeals

On December 7, 2023, the motion judge denied First of Five's request for injunctive relief.

This led to requests and motions by First of Five to maintain the status quo pending the exercise of its appeal rights, which were resisted by Recipe Unlimited:

• First of Five brought a motion for a stay pending leave to appeal to the Superior Court on December 12, 2023;
• In the face of that motion, on December 13, 2023, Recipe Unlimited took possession of the premises and began to take steps to prepare them for a new business;
• The motion for a stay was heard on January 12, 2024, but not decided on the merits. It was transferred to the Divisional Court for want of jurisdiction;
• Leave to appeal the initial injunction decision was granted by the Divisional Court on February 2, 2024;
• The motion for an interim stay was heard by the Divisional Court on February 15, 2024;
• Before the decision on the interim stay, the appeal was heard on March 25, 2024.

The appeal decision was released on April 15, 2024. The Divisional Court granted the appeal and remitted the matter to be re-heard by the Superior Court. As part of determining the appeal on its merits, the court also determined the question of whether the undertaking was still binding.

The court found that Recipe Unlimited continued to be bound by its undertaking until all appeal rights are exhausted, commenting that the word "determination" used in the undertaking, "has to mean the resolution of the matter, and that has to include the right to appeal the decision." The court held that Recipe Unlimited would continue to be bound by its undertaking "until the end of the interlocutory injunction proceeding, including any appeal of the next injunction."

Implications for future undertakings

Typically, a party granting an undertaking pending an interlocutory injunction will want to limit its undertaking only until the determination of the injunction at first instance. To the extent the moving party wishes to maintain the status quo thereafter, it will be required to satisfy the court it is entitled to a stay pending leave to appeal and pending appeal.

However, given the court's decision, an undertaking to maintain the status quo until "determination" of the injunction may not achieve that result - there is a significant risk the undertaking will continue to be binding throughout the entire appeal period. This will allow the appellant to avoid satisfying the test for a stay pending appeal and can also lead to significant delays for a respondent in enforcing its rights.

To avoid a similar outcome, parties granting undertakings pending an interlocutory injunction hearing should include alternate and express language that clearly excludes the appeal period from the ambit of the undertaking.

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