Martin v. ConCreate USL Limited Partnership et al., (2013) 301 O.A.C. 363 (CA)

• Judge: Weiler, Juriansz and Hoy, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: November 07, 2012
• Jurisdiction: Ontario
• Citations: (2013), 301 O.A.C. 363 (CA);2013 ONCA 72

Martin v. ConCreate USL (2013), 301 O.A.C. 363 (CA)

MLB headnote and full text

Temp. Cite: [2013] O.A.C. TBEd. FE.003

Derek Martin (applicant/appellant) v. ConCreate USL Limited Partnership and Steel Design & Fabricators (SDF) Ltd. (respondents/respondents in appeal)

(C55361; 2013 ONCA 72)

Indexed As: Martin v. ConCreate USL Limited Partnership et al.

Ontario Court of Appeal

Weiler, Juriansz and Hoy, JJ.A.

February 5, 2013.

Summary:

During the 20 years that Martin worked at ConCreate USL Ltd. ("ConCreate") he acquired a minority interest in ConCreate and a related business, Steel Design & Fabricators (SDF) Ltd. ("SDF"). The businesses were sold to entities controlled by TriWest Construction Limited Partnership ("TriWest LP"). Martin retained an indirect interest in ConCreate and SDF (the respondents). In conjunction with the sale, Martin signed agreements (the "Agreements") containing restrictive covenants in favour of the respondents. The restrictive covenants would end 24 months after Martin disposed of the indirect interest in the respondents he acquired in the sale transaction. Martin could not dispose of that interest without the approval of the board of TriWest LP's general partner and any required approvals from the respondents and their subsidiaries' lenders from time to time. Martin applied for a determination that the restrictive covenants were unenforceable.

The Ontario Superior Court, in a decision reported at [2012] O.T.C. Uned. 1840, dismissed the application. Martin appealed. The central issue was whether the duration of the general non-competition and non-solicitation covenants in the Agreements was ambiguous or otherwise unreasonable and therefore unenforceable. A related issue was whether the prohibition on the use of confidential information in the Agreements was enforceable.

The Ontario Court of Appeal allowed the appeal to the extent of declaring the general non-competition and non-solicitation provisions in the Agreements unreasonable and therefore unenforceable. The court did not disturb the application judge's conclusion that the prohibition on the use of confidential information was enforceable.

Business Law - Topic 2511

Sale of a business - Non-competition or non-solicitation clauses - During the 20 years that Martin worked at ConCreate USL Ltd. ("ConCreate") he acquired a minority interest in ConCreate and a related business, Steel Design & Fabricators (SDF) Ltd. ("SDF") - The businesses were sold to entities controlled by TriWest Construction Limited Partnership - Martin retained an indirect interest in ConCreate and SDF (the respondents) - In conjunction with the sale, Martin signed agreements containing non-competition and non-solicitation covenants in favour of the respondents - Martin's application for a determination that the restrictive covenants were unenforceable was dismissed - Martin appealed - He argued, inter alia, that the application judge erred in failing to find that the territorial scope of the covenants (Canada wide) was overbroad - The Ontario Court of Appeal found no basis to interfere with the application judge's finding that the parties envisaged that "the scope of the business was and would be national" - The court concluded that the geographical scope of the restrictive covenants was reasonable - The court also held that the "entire agreement" clause in the agreement of purchase and sale did not preclude the application judge from considering other documents connected to the transaction - A Confidential Information Memorandum and slideshow presented to the respondents were relevant in determining the parties' reasonable expectations of the scope of the purchased business - See paragraph 57.

Business Law - Topic 2511

Sale of a business - Non-competition or non-solicitation clauses - During the 20 years that Martin worked at ConCreate USL Ltd. ("ConCreate") he acquired a minority interest in ConCreate and a related business, Steel Design & Fabricators (SDF) Ltd. ("SDF") - The businesses were sold to entities controlled by TriWest Construction Limited Partnership ("TriWest LP") - Martin retained an indirect interest in ConCreate and SDF (the respondents) - In conjunction with the sale, Martin signed agreements (the "Agreements") containing non-competition and non-solicitation covenants in favour of the respondents - The restrictive covenants would end 24 months after Martin disposed of the indirect interest in the respondents he acquired in the sale transaction - Martin could not dispose of that interest without the approval of the board of TriWest LP's general partner and any required approvals from the respondents and their subsidiaries' lenders from time to time - Martin's application for a determination that the restrictive covenants were unenforceable was dismissed - Martin appealed - The Ontario Court of Appeal held that the general non-competition and non-solicitation provisions had no fixed, outside limit on their term and they were unreasonable and unenforceable - The court stated that "the duration is unreasonable because it depends on any required consents of third parties, is therefore for an indeterminate period, and there is no fixed, outside limit. ... the duration is potentially tied to the consent of unascertainable future third parties ... Further, the third parties owe no contractual duty to Martin to act promptly or reasonably" - The application judge also erred by shifting the onus to Martin to establish that the lenders would not give their consent - Further, tying the general non-competition provision and the non-solicitation covenant to the period during which Martin had an indirect interest in the limited partnership units of TriWest LP was unreasonable - While Martin acknowledged the reasonableness of the provisions in signing the Agreements, and he was represented by counsel, that did not immunize the provisions from scrutiny - See paragraphs 58 to 67.

Business Law - Topic 2511

Sale of a business - Non-competition or non-solicitation clauses - During the 20 years that Martin worked at ConCreate USL Ltd. ("ConCreate") he acquired a minority interest in ConCreate and a related business, Steel Design & Fabricators (SDF) Ltd. ("SDF") - The businesses were sold to entities controlled by TriWest Construction Limited Partnership ("TriWest LP") - Martin retained an indirect interest in ConCreate and SDF (the respondents) - In conjunction with the sale, Martin signed agreements containing non-competition and non-solicitation covenants in favour of the respondents - The Ontario Court of Appeal held that the scope of the prohibited activities was not reasonable - The court stated that "The restrictions in s. 2.2(a) extended to communicating or dealing with any persons who were customers, dealers, agents, or distributors of SDF or Target LP, at the time of the sale transaction or afterwards. Further, the section is drafted in relation to 'any products or services that compete with products or services offered by [SDF or Target LP]', whether or not offered, or planned to be offered, by ConCreate or SDF at the time of the sale transaction. Moreover, the prohibitions are not limited by reference to the 'ConCreate Business' or 'SDF Business'. ... Section 2.2(a)'s prohibitions also extend to persons who did not start conducting business with the respondents, and products and services the respondents did not offer, until after Martin ceased to be a director of Target LP's and TriWest LP's respective general partners and SDF, and after MartinCo disposed of the Units" - It was not reasonable for a restrictive covenant, given in the context of the sale of a business, to extend to activities neither carried on nor in the parties' contemplation at the time of sale, while the covenantor was involved in the business post-sale, or even while the covenantor had an ownership interest in the business - See paragraphs 68 to 76.

Contracts - Topic 2116

Terms - Express terms - "Entire agreement" or "four corners" clause - [See first Business Law - Topic 2511 ].

Contracts - Topic 6732

Illegal contracts - Contrary to public policy - Restraint of trade - Agreements not to compete or solicit - [See all Business Law - Topic 2511 ].

Equity - Topic 3903

Fiduciary or confidential relationships - Breach of confidence - Confidentiality agreements - During the 20 years that Martin worked at ConCreate USL Ltd. ("ConCreate") he acquired a minority interest in ConCreate and a related business, Steel Design & Fabricators (SDF) Ltd. ("SDF") - The businesses were sold to entities controlled by TriWest Construction Limited Partnership - Martin retained an indirect interest in ConCreate and SDF (the respondents) - In conjunction with the sale, Martin signed agreements containing restictive covenants in favour of the respondents - At issue was whether the prohibition on the use of confidential information in the agreements was enforceable - Martin argued that the prohibition on his use of "know-how" prevented him from using the wisdom he accumulated over his 20 years with ConCreate for an unlimited period and was unreasonable - The Ontario Court of Appeal held that the confidentiality provision was reasonable and enforceable - "While 'know-how' is not specifically defined in the Agreements, it is a type of the respondents' non-public intellectual property ('all non-public intellectual property including trade secrets, unfiled patents....and know-how...'). It is reasonable for the respondents to seek to protect their proprietary interests" - See paragraph 77.

Cases Noticed:

Mason v. Chem-Trend Limited Partnership (2011), 280 O.A.C. 305; 2011 ONCA 344, refd to. [para. 42].

Collins (J.G.) Insurance Agencies Ltd. v. Elsley's Estate, [1978] 2 S.C.R. 916; 20 N.R. 1, refd to. [para. 49].

Stephens v. Gulf Oil Canada Ltd. (1975), 11 O.R.(2d) 129 (C.A.), refd to. [para. 50].

KRG Insurance Brokers (Western) Inc. v. Shafron et al., [2009] 1 S.C.R. 157; 383 N.R. 217; 265 B.C.A.C. 1; 446 W.A.C. 1; 2009 SCC 6, refd to. [para. 51].

Staebler (H.L.) Co. v. Allan et al. (2008), 239 O.A.C. 230; 2008 ONCA 576, refd to. [para. 53].

Tank Lining Corp. v. Dunlop Industrial Ltd. (1982), 40 O.R.(2d) 219 (C.A.), refd to. [para. 54].

Counsel:

Jonathan F. Lancaster and Keri Gammon, for the appellant;

Eric R. Hoaken and Ranjan K. Agarwal, for the respondents.

This appeal was heard on November 7, 2012, before Weiler, Juriansz and Hoy, JJ.A., of the Ontario Court of Appeal. The following judgment of the Court of Appeal was delivered by Hoy, J.A., and was released on February 5, 2013.