An Ontario judge has refused to stop a former Closets by Design franchisee and related defendants from operating the competing Dream Spaces business, finding the franchisor had not shown that financial compensation would be inadequate or that the balance of convenience favoured an injunction.
In CBD Franchising Inc. v. 2340993 Ontario Limited, 2026 ONSC 5451, Justice J.R. McCarthy of the Ontario Superior Court of Justice dismissed the franchisor’s motion on September 25, 2026. The ruling leaves significant contractual questions unresolved, including whether the non-compete clause is enforceable and what damages may be recoverable.
Todd and Darren Clifford acquired the shares of the franchise company in June 2022 and began operating that fall in Peel and York regions and Simcoe and Dufferin counties. Their post-termination obligations included returning confidential information, transferring pending leads and orders, and refraining from competitive business within the territory and specified surrounding areas.
The parties each accused the other of repudiating their agreement. On April 29, 2026, the franchisee’s counsel alleged repudiation by the franchisor and announced plans to compete. The franchisor responded on May 1 by terminating the agreement for alleged breaches. Dream Spaces began operating that day through a new company ostensibly controlled by the brothers’ parents.
The franchisor’s position raised concerns about protecting the franchise system and enforcing obligations assumed by contract. The judge noted evidence suggesting that preparations to leave the system predated the termination, including efforts to separate in November 2025 and the incorporation of the new company in February 2026.
Merits threshold left unresolved
The injunction test required a sufficient case on the merits, irreparable harm and a favourable balance of convenience. The parties disputed whether the first requirement demanded a strong prima facie case or merely a serious issue to be tried. McCarthy declined to choose between those standards because the franchisor failed on the other two requirements.
He found serious issues for determination, including the alleged repudiation, post-termination rights, the covenant’s duration and breadth, and the meaning of competitive business. He expressly declined to find a strong prima facie case, cautioning against factual findings that could unfairly constrain a later trial or summary judgment proceeding.
Sales records could support damages
On irreparable harm, the record did not establish present customer confusion or an obstacle preventing the franchisor from returning to the territory. It had already begun reintroducing its name and services and remained able to offer the franchise to someone else.
Calculating losses could be difficult, but difficulty did not make them incalculable. The franchisor’s customer-management software held sales information, and its Ontario operations since 2008 supplied almost 20 years of data. Its own records and information obtainable from the defendants could support a damages calculation. There was also no evidence that the defendants were judgment-proof or would become so.
Employees and customers weighed in balance
The practical consequences of an injunction weighed heavily. Dream Spaces employed as many as 19 people, and shutting down or disrupting its operations would affect customers with contracts and unfinished projects. The judge also considered the parents’ investment and the landlord’s recently signed five-year lease.
Although McCarthy acknowledged that a situation created by contractual breach should not receive favourable treatment, the motion record indicated that Dream Spaces had its own branding and had returned the franchisor’s materials. There was evidence it used ordinary industry practices rather than the franchisor’s confidential information or know-how. Kitchen cabinetry, which the franchisor did not offer, accounted for a quarter of its business.
The decision does not finally determine whether the defendants breached enforceable obligations. The franchisor’s damages action in California remains available, and the judge heard no evidence that it could not pursue that proceeding vigorously. Costs were left for agreement or a further appearance.
