In CSN Collision (Canada) Inc. v. Lift Auto Group Ltd., 2026 ONSC 1396, Justice Myers of the Ontario Superior Court granted a permanent injunction restraining a counterparty from walking away from a 25-year royalty and licensing relationship, even though the defendant openly offered to pay damages for the breach. For solicitors who spend their days papering long-term commercial relationships, this endorsement is a useful reminder that a well-drafted negative covenant can be considerably more powerful than the damages clause sitting next to it.

The Deal and the Walk-Away

CSN operates one of Canada’s largest networks of branded collision repair shops, mostly under a franchise-like licensing model. Lift Auto Group owns shops directly and, since 2018, had agreed to operate 65 of them inside the CSN network under a Royalty Agreement running to 2045. Lift agreed to negative covenants prohibiting it from acquiring competing shops without CSN’s consent, co-branding, or operating any collision repair business outside the CSN brand. CSN held a right of first refusal over individual shops and over Lift’s business itself. By 2025, Lift’s private equity investors wanted an exit, and CSN’s ROFR was an obstacle to any sale. Lift’s October 2, 2025 letter candidly told CSN that it intended to rebrand its shops as Lift Collision and walk, acknowledging this would breach the agreements and offering to pay whatever damages were owed.

Efficient Breach Rejected

Lift’s argument leaned heavily on the doctrine of efficient breach, contending that if a party can profit by breaching and paying damages, the law should let it. Justice Myers acknowledged the doctrine’s intellectual appeal and the citation to Bhasin v. Hrynew that supports it, but drew a sharp line. Efficient breach, he held, works for fungible goods and contracts with clean liquidated damages clauses. It does not work where the damages are complex, disputed, and stretch out over decades. The Royalty Agreement did contain a $40 million damages cap and a formula, but those applied only if CSN elected to terminate. CSN elected to keep the agreements alive, as it was entitled to do under Guarantee Co. of North America v. Gordon Capital Corp., and the cap therefore did not engage. The court refused to treat the existence of an optional liquidated damages mechanism as proof that all of CSN’s losses, including intangible harm to brand and goodwill, were readily calculable.

The court also leaned hard on the equitable preference for enforcing negative covenants by injunction, citing Lord Cairns in Doherty v. Allman and the Ontario authorities that have adopted it. While Justice Myers was unwilling to go as far as Gray J. did in Brand Solutions v. Elsey, where damages for breach of a restrictive covenant were characterized as a mere licence fee, he agreed that holding a sophisticated party to the bargain it negotiated with its eyes open is itself a substantial equitable factor. The usual concern with mandatory orders, that they require ongoing judicial supervision, did not apply: an order simply prohibiting Lift from rebranding would not require the court to micromanage anything.

Lessons for Drafters

1. The form of the restrictive covenant matters. The covenants in the Royalty Agreement were drafted as crisp negatives, telling Lift what it could not do. That structure made the equitable presumption in favour of injunctive relief available. Consider recasting positive obligations as parallel negative covenants where possible.
2. Beware the unintended signalling effect of a damages cap or liquidated damages clause. If a client wants the option of specific performance, the agreement should make clear that any liquidated damages mechanism is an alternative remedy available only on a particular election and is not the parties’ agreed measure of all loss.
3. An election clause is gold. The right to keep the contract alive in the face of an anticipatory breach, rather than being forced into termination and a damages reference, was central to CSN’s success. Build that election expressly into termination provisions.
4. Document the qualitative, hard-to-quantify aspects of the relationship in the recitals and operative provisions, such as brand reputation, national network reach, insurer relationships, and goodwill. The court relied on those features to conclude that damages could not keep CSN whole.
5. Candour does not save a breaching party. Lift was credited for being above-board and not manufacturing pretextual breach allegations, but the court still enjoined it.

Takeaways for Transactional Counsel

Clients who sign long-dated commercial agreements containing well-drafted negative covenants cannot assume that a cheque book and a willingness to litigate will buy them an exit. Where damages are speculative, multi-layered, or extend over decades, an Ontario court will hold sophisticated parties to the deal they made. Conversely, clients who rely on the durability of those relationships, especially in licensing and network arrangements, should insist on negative covenants, an express election right on breach, and language clarifying that any liquidated damages or cap is optional and not exhaustive. The drafting decisions made years before the dispute will determine whether your client gets an injunction or a long, expensive damages reference.