Big dough on the line as B.C. pizza chain takes aim at former franchisees

Big dough is at stake — both literally and figuratively — as the owners of Freshslice Pizza pursue a pair of former franchisees in B.C. Supreme Court for breach of contract in relation to the overnight rebranding of nine pizza restaurants.

This week, a judge refused to grant Freshslice — a B.C.-based pizza chain — an injunction that would have shuttered all HellCrust Pizza and Yummy Slice Pizza locations pending the hearing of a lawsuit.

Although Justice Christopher Giaschi found Freshslice has —at first blush — a strong argument against its former business partners, the judge said the bigger pizza chain had failed to prove it would suffer "irreparable harm" if the injunctions were refused.

By contrast, Hellcrust director Jaskirat Singh and Yummy Slice proprietor Theepan Kanagarajah each claimed they would be "financially crippled" if an injunction were granted.

"In view of the fact that the defendants have completely rebranded their restaurants, there is no realistic possibility of customer confusion or damage to the reputation, brand or goodwill of Freshslice," Giaschi wrote.

"Further, any loss of sales or revenue suffered by Freshslice can be adequately compensated for with an award of damages."

A mysterious overnight transformation

The legal battle sheds light on the mysterious transformation of three pizzerias in Burnaby, Vancouver and Maple Ridge in the night between March 31 and April 1, 2021 — they went to bed as Freshslice and woke up HellCrust.

Six Freshslice locations in Vancouver and Richmond were similarly rebranded as Yummy Slice in the middle of the night two months later.

The former franchisees sent notices purporting to rescind the agreements they had with Freshslice, whose owner Ray Russell said he learned about the situation in both cases when he received photographs of the rebranding on the morning after it happened.

According to Giaschi's ruling, the rebranding "consisted of removing all Freshslice marks; replacement of Freshslice dough with dough purchased from other suppliers; changing of telephone numbers; cessation of use of Freshslice social media accounts; introduction of a new menu; and, implementation of a new point-of-sale system."

On July 6, 2021, Freshslice sought to reclaim its slice of the Lower Mainland's pizza pie with lawsuits accusing Singh and Kanagarajah of breaching non-competition terms and seeking the injunction Giaschi would later deny.

'Systematic, unfair, and oppressive conduct'

In considering whether to order HellCrust and Yummy Slice to close their doors, the judge first had to consider the strength of Freshslice's case.

On termination of the contracts, the agreements required franchise operators not to carry on any business at the franchised location and not to carry on any business "involved in the sale of pizza and other Italian food items" within five kilometres.

Giaschi said that was reasonable with the exception of one location, whose 100-kilometre restriction the judge said was not fair "in the context of restaurants that predominantly sell takeout pizza."

The owners of HellCrust and Yummy Slice claim Freshslice implemented a "program of systematic, unfair, and oppressive conduct" aimed at forcing them to sell their locations at a reduced price.

They claim they were forced to buy dough at above market prices and then to agree to promotions like a 50 per cent price cut on second pizzas, free slices for BCAA members and coupons for free pizza and combo meals.

The judge said none of that seemed out of line with the kind of deals most franchises offer to attract customers. He also said it wasn't unreasonable to expect a pizzeria to not let pizza sit in a warming oven for longer than 90 minutes.

A pizza chef with a devil fork

While Giaschi concluded Freshslice has a strong case as the fight heads to trial, he wasn't convinced the new pizzerias would confuse customers in the meantime.

"The Freshslice logo is red and green on a white background with a small pizza slice. The HellCrust logo is black with a cream background and contains a prominent picture of a pizza chef in devil red with a devil fork. The Yummy Slice logo is red and yellow with a large cartoonish picture of a pizza slice," the judge wrote.

"Other than the circular shape, the three logos are markedly dissimilar. There is no possibility that these logos could cause anyone to confuse a HellCrust or Yummy Slice Restaurant with a Freshslice restaurant."

Giaschi said there were similarities between the menus, but that "is not surprising given that pizza is the main food being sold and many pizza topping combinations are ubiquitous."

As such, the judge said it was a "key consideration" in denying the injunctions that the restaurants had been rebranded to the point where Freshslice wouldn't suffer any loss to its goodwill or reputation with customers.

The judge said he accepted the fact Freshslice had lost market share, but he said that didn't mean it was necessarily the type of "irreparable harm" that would lead to an injunction ahead of a trial.

"This is a loss that can be calculated and compensated for in damages," the judge said.

The decision does not say when a trial might happen.