Napanee Harvey’s, Swiss Chalet allowed to reopen pending legal proceedings

The combined Harvey’s and Swiss Chalet in Napanee has been closed for months during legal proceedings. Image via Google Maps.

A popular pair of restaurants in Napanee has been closed for months while a legal battle continues “behind closed doors,” but that is about to change.

Superior Court Justice William LeMay has granted an appeal that will allow the combined Harvey’s and Swiss Chalet restaurant in Napanee to open pending ongoing legal turmoil. 

The restaurant has been at the centre of that legal battle, which saw franchisees Morgan and Mishelle Rayer locked out of their location in Napanee on Wednesday, Dec. 13, 2023. On Friday, Apr. 5, 2024, LeMay granted their appeal for an interlocutory injunction (a court order granted before the issues in dispute have been decided) and referred the matter back to a different judge of the Ontario Superior Court of Justice. 

Pending that referral, the decision requires that Recipe Unlimited Corporation (Recipe), one of Canada’s largest restaurant companies, allow the family to operate the restaurant until the end of the interlocutory injunction proceeding, including any appeal of the next injunction. 

According to court documents, in late 2013, First of Five Incorporated (First of Five), the Rayer family’s business, obtained the rights to a franchise for a combination Harvey’s and Swiss Chalet restaurant in Napanee through an agreement with Recipe, which operates 20 restaurant brands throughout Canada. These include the Harvey’s and Swiss Chalet brands, through both company-owned restaurants and franchises.

The franchise agreement ran to Friday, May 31, 2024, and included a clause that allowed First of Five to renew it for 10 more years.

The judge wrote that in November 2022, First of Five gave notice that it would be seeking to renew its franchise agreement. At that time, Recipe told First of Five it did not meet the requirements to renew the agreement. In February 2023, Recipe determined it would terminate First of Five’s franchise agreement early because of First of Five’s defaults.

It is important to note that the lease for the restaurant property is between Recipe and JSM Corporation (Ontario) Limited (JSM), the landlord company that owned the building where the restaurant was operating. First of Five has a sublease agreement with Recipe, which is tied to the expiry of the franchise agreement — it was Recipe that “locked out” First for Five as the lease holder.

Court documents show that after Recipe made the decision to terminate First of Five’s franchise agreement, First of Five then brought an action against Recipe and JSM, seeking various orders from the court, including an order requiring Recipe to renew the franchise agreement and requiring JSM to continue the lease on the property so First of Five could continue operating the restaurant. In the meantime, First of Five sought an interlocutory injunction to prevent the termination of its franchise agreement until the underlying action could be tried. However, LeMay reported that Justice Thomas J. Carey had released brief reasons denying the injunction in December of 2023.

LeMay wrote that the issues in dispute between the parties focus on four different areas: a small claims court action that First of Five started in 2017; the failure of the heating, ventilation, and air conditioning (“HVAC”) equipment in 2020; the decision of Recipe and the landlord to seek reimbursement for additional common area maintenance expenses under the lease; and the concerns of Recipe as to whether the business was meeting the standards set out in Recipe’s guidelines. 

LeMay clarified that it was not his intention to determine who is responsible for these issues because “that is the responsibility of the judge rehearing the injunction and, ultimately, the trial judge.” However, LeMay summarized those four issues in order to explain his decision to grant the appeal.

First, he wrote, in 2017, First of Five took JSM and Recipe to small claims court for a number of issues, including ongoing repairs to the HVAC system, sewer backups, and arrears of hydro payments that First of Five says that it was required to pay for a period when it was not in the property and the landlord failed to pay the hydro bill. The judge noted that this action is ongoing against Recipe and JSM. He also noted in particular that ,in its statement of defence, Recipe has relied on the provisions in the franchise agreement that require First of Five to indemnify Recipe from any legal actions and has sought a dismissal of the action and all of its costs.

The second issue involves the HVAC equipment. The judge stated that, in January 2020, the HVAC equipment in the restaurant suddenly failed; a result, First of Five had to pay to have it replaced. There was a dispute over who was responsible for paying the costs to replace this equipment, and First of Five ultimately withheld lease payments to account for these costs. LeMay noted that because of the terms of the sublease agreement, Recipe argues that First of Five cannot withhold rent or dispute the HVAC issues that way.

Third, under the lease terms, Recipe can make rent adjustments to First of Five to account for “common maintenance expenses.” First of Five said these rent adjustments were meant to be calculated annually, but Recipe held up the calculations for several years before passing them on. The landlord says that they were negotiated. The judge wrote, “It is clear that the charges were passed along years after they had been incurred. It is less clear who was responsible for the delay or what the legal effect of it was.”

Finally, Recipe had concerns about First of Five’s business management. LeMay found no evidence of Recipe raising any concerns with First of Five’s franchise management between the beginning of the pandemic in 2020 and October 2022.

Ultimately, LeMay decided to grant the appeal and refer the matter back to a different judge of the Superior Court to determine the Rayers’ request for an interlocutory injunction. Pending that referral, he required Recipe to continue to permit the operation of the franchise until the end of the interlocutory injunction proceeding, including any appeal of the next injunction.

Leave a Reply

You cannot copy content from this page, please share the link instead!