COURT FILE NO. 12-CV-444966

DATE: March 21, 2012

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Derek Martin

Applicant

• and -

ConCreate USL Limited Partnership and Steel Design & Fabricators (SDF) Ltd.

Respondents

COUNSEL:

• Jonathan F. Lancaster and Keri A. Gammon for the Applicant

• Eric R. Hoaken and Ranjan K. Agarwal for the Respondents

HEARING DATE: February 28, 2012

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[1] The Applicant Derek Martin signed Non-Competition and Non-Solicitation Agreements with the Respondents ConCreate USL Limited Partnership (“ConCreate”) and Steel Design & Fabricators (SDF) Ltd. (“SDF”). In this Application, Mr. Martin seeks a declaration that the agreements in their totality are unenforceable as an illegal restraint of trade. In the alternative, he seeks a declaration that sections 2.1, 2.2, and 2.3 of the agreements are unenforceable as an illegal restraint of trade. For the reasons that follow, I dismiss the Application.

[2] In order to explain my reasons, I will begin by discussing the law about contracts in restraint of trade and I will identify the critical elements of the parties’ competing arguments and foreshadow my conclusions that lead to the ultimate conclusion that the Non-Competition and Non-Solicitation Agreements in the case at bar (the “covenants”) are reasonable with respect to the interests of the parties and the public. Next, I will describe the evidentiary, factual, and procedural background of the case at bar. Then, in the final sections of these Reasons, I will apply the law to the facts to arrive at my conclusion that Mr. Martin’s Application should be dismissed.

B. CONTRACTS IN RESTRAINT OF TRADE

1. Introduction

[3] In this section, I have three purposes. I will first describe the law’s regulation of covenants in restraint of trade and second foreshadow my conclusions about several key elements of the analysis for the case at bar. Third, I will describe an analytical framework to determine whether a covenant in restraint of trade is enforceable or unenforceable. I will use this framework for the analysis later in this judgment.

2. The Law of Covenants in Restraint of Trade

[4] A contract in restraint of trade is one in which a party to a contract agrees to restrict his or her liberty in the future to freely carry on trade with other persons not parties to the contract: Stephens v. Gulf Oil Canada Ltd. (1975), 1975 CanLII 711 (ON CA), 11 O.R. (2d) 129 (C.A.) at p. 138-9; Esso Petroleum Co. Ltd. v. Harper’s Garage (Stourport), [1968] A.C. 269 (H.L.) at p. 317.

[5] Generally speaking, there are two types of covenants in restraint of trade, sometimes called restrictive covenants; namely, non-competition clauses and non-solicitation clauses: Lyons v. Multari (2000), 2000 CanLII 16851 (ON CA), 50 O.R. (3d) 526 at para. 31 (C.A.); H.L. Staebler Co. v. Allan, supra, at para. 38. The more demanding covenant, the non-competition covenant, precludes a contracting party from engaging in a business that competes with the business of the other contracting party. The less demanding covenant, the non-solicitation covenant, permits competition but precludes a contracting party from competing by soliciting business from or through the clientele, employees, or suppliers of the other contracting party. The non-solicitation clause allows competition but controls the manner of the competition.

[6] All restraints of trade are contrary to public policy and are prima facie void unless they can be justified as being reasonable with respect to the interests of: (a) the parties; and (b) the public: Nordenfeld v. Maxim Nordenfeld Guns & Ammunition Co. Ltd., [1894] A.C. 535 at p. 565; Elsley v. J.G. Collins Ins. Agencies Ltd., 1978 CanLII 7 (SCC), [1978] 2 S.C.R. 916; Doerner v. Bliss & Laughlin Industries, 1980 CanLII 50 (SCC), [1980] 2 S.C.R. 865.

[7] I foreshadow to say that both types of covenant are present in the case at bar. There is also an associated confidentiality agreement. Significantly, there is also a non-competition agreement in the Limited Partnership Agreement.

[8] In Elsley v. J.G. Collins Ins. Agencies Ltd., supra, Justice Dickson observed that there are two public policy forces engaged in determining whether a covenant in restraint of trade should be enforced. On one hand, there is the policy of discouraging restraints on trade and labour productivity. On the other hand, there is the policy of freedom of contract. In Elsley, Justice Dickson stated at pp. 923-4:

A covenant in restraint of trade is enforceable only if it is reasonable between the parties and with reference to the public interest. As in many of the cases which come before the courts, competing demands must be weighed. There is an important public interest in discouraging restraints on trade, and maintaining free and open competition unencumbered by the fetters of restrictive covenants. On the other hand, the courts have been disinclined to restrict the right to contract, particularly when that right has been exercised by knowledgeable persons of equal bargaining power.

[9] In H.L. Staebler Co. v. Allan, 2008 ONCA 576, [2008] O.J. No. 3048 (C.A.) at para. 34, the Court of Appeal commented about the test described in Elsley and stated:

34. This test reflects the competing principles that must be balanced when a court is called on to decide the validity of such a covenant. On the one hand, there is the "important public interest in discouraging restraints on trade, and maintaining free and open competition unencumbered by the fetters of restrictive covenants". Open competition benefits both society and the affected employees. Society benefits from having greater choice and employees benefit as they have greater employment opportunities. On the other hand, however, "the courts have been disinclined to restrict the right to contract, particularly when that right has been exercised by knowledgeable persons of equal bargaining power".

[10] This general rule, which is that covenants in restraint of trade are unenforceable unless they can be justified as reasonable, can be explained as a matter of public policy because it is in society’s interest to remove obstacles to economic activity, productivity, employment, and livelihood, but, exceptionally, economic activity, and particularly the value and marketability of property, depends upon eliminating competition or solicitation, and, thus, sometimes a restraint of trade is justifiable and should be enforceable.

[11] The paradigm of a justifiable restraint on trade is the situation of the sale of a business, including its goodwill, where in order for the vendor to attract purchasers, the vendor may need to agree not to compete against his or her former enterprise. See Mason v. Provident Clothing and Supply Co., [1913] A.C. 724 (H.L.) at p. 738. Enforcing the covenant in these circumstances is consistent with economic activity and also advances the public policy supporting freedom of contract.

[12] The classification of what contracts are in restraint of trade is fluid and the categories are never closed: Esso Petroleum Co. Ltd. v. Harper’s Garage (Stourport) Ltd., supra at p. 337. The demands of public policy also change as economic conditions change; public policy is not a constant: Vancouver Malt & Sake Brewing Co. v. Vancouver Breweries Ltd., 1934 CanLII 271 (UK JCPC), [1934] 2 D.L.R. 310 at p. 314; Stephens v. Gulf Oil Canada Ltd., supra at p. 137.

[13] To determine whether a covenant in restraint of trade is enforceable, a four-part inquiry is employed: Tank Lining Co. v. Dunlop Industrial Ltd. (1982), 1982 CanLII 2023 (ON CA), 40 O.R. (2d) 219 (C.A.). First, does the covenant restrain trade? Second, is the restraint one of the exceptional cases (for example, covenants associated with leases of commercial tenancies may contain enforceable restrictive covenants) where restraints of trade are permitted? Third, is the restraint justifiable as reasonable between the parties? Fourth, is the restraint justifiable as reasonable with respect to the interests of the public?

[14] The party seeking to enforce the covenant bears the onus of showing that the covenant is reasonable as between the parties, and the party seeking to avoid the covenant bears the onus of showing that the covenant is not reasonable in the public interest: Stephens v. Gulf Oil Canada Ltd. supra; Tank Lining Co. v. Dunlop Industrial Ltd., supra.

[15] The question of reasonableness between the parties and in reference to the public interest is determined in the context of the facts of the particular case: Elsley v. J.G. Collins Ins. Agencies Ltd., supra, at p. 924; Doerner v. Bliss & Laughlin Industries, supra at p. 874; Tank Lining Co. v. Dunlop Industrial Ltd., supra at p. 230. In Elsley, Justice Dickson stated:

In assessing the opposing interests the word one finds repeated throughout the cases is the word "reasonable." The test of reasonableness can be applied, however, only in the peculiar circumstances of the particular case. Circumstances are of infinite variety. Other cases may help in enunciating broad general principles but are otherwise of little assistance.

[16] Reasonableness is determined in the light of circumstances existing at the time the contract is made, which includes the parties’ expectations of what possibly could happen in the future: Stephens v. Gulf Oil Canada Ltd., supra; Doerner v. Bliss & Laughlin Industries, supra at p. 879; Tank Lining Co. v. Dunlop Industrial Ltd. at para. 18.

[17] Examining the surrounding circumstances requires an examination of both the nature of the business to be protected by the covenant, including its trade secrets, confidential information, and trade connections, and also the role and circumstances of the person to be bound by the covenant, including whether he or she was an ordinary employee or whether his or her activities were or would be integral to the business and whether he or she was in a senior position or a position of influence: H.L. Staebler Co. v. Allan, supra, at paras. 47, 55-58; Reed Shaw Osler Ltd. v. Wilson, [1981] A.J. No. 693 at para. 18 (Alta. C.A.); Mason v. Provident Clothing and Supply Co., supra at p. 742.

[18] Reflecting the reality that employees typically have limited bargaining power, restrictive covenants in employment contracts are subject to a more rigorous analysis of reasonableness: Elsley v. J.G. Collins Ins. Agencies Ltd., supra, at p. 924; Audience Communications Inc. v. Sguassero, [2008] O.J. No. 1539 at para. 31 (S.C.J.), affd 2010 ONCA 510.

[19] Restrictive covenants in employment contracts are scrutinized more strictly than restrictive covenants in sale contracts. The rationale for this differentiation of treatment was provided by Vice-Chancellor James in Leather Cloth Co. v. Lorsont (1869), L.R. 9 Eq. 345 at p. 354, where he stated:

The principle is this: Public policy requires that every man shall be at liberty to work for himself, and shall not be at liberty to deprive himself of the State of his labour, skill, or talent, by any contract that he enters into. On the other hand, public policy requires that when a man has by skill or by any other means obtained something which he wants to sell, he should be at liberty to sell it in the most advantageous way in the market; and in order to enable him to sell it advantageously in the market it is necessary that he should be able to preclude himself from entering into competition with the purchaser.

This passage was approved of and adopted in the leading case of Herbert Morris, Ltd. v. Saxelby, [1916] 1 A.C. 688 and more recently by the Supreme Court of Canada in Shafron v. KRG Insurance Brokers (Western) Inc., supra at para.21.

[20] In the determination of whether a covenant in restraint of trade is reasonable, there is more freedom of contract in contracts between buyer and seller than between employer and employee: Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 at paras. 18-23. In Nordenfeld, supra at p. 566 and the many cases that followed, courts have allowed more freedom of contract in vendor and purchaser contracts than in employer and employee contracts.

[21] When parties freely enter into agreements, courts are reluctant to allow them to escape their obligations, and thus when parties with equal bargaining power enter into a business agreement, it is only in exceptional circumstances that the courts are justified in over-ruling the parties’ judgment as to what is reasonable in the respective interests: Tank Lining Co. v. Dunlop Industrial Ltd. supra at paras. 21-22; North Western Salt Co. v. Electrolytic Alkalik Co. Ltd., [1914] A.C. 461 (H.L.) at p. 471; Rogers Communications Inc. v. Shaw Communications Inc., [2009] O.J. No. 3842 at para. 39 (S.C.J.).

[22] Since employment contracts are sometimes an aspect of a vendor and purchaser contract, the courts will analyse whether or not it is appropriate to scrutinize the reasonableness of the contract as an employment contract or as a commercial or sale contract. In the leading case of Elsley v. J.G. Collins Ins. Agencies Ltd., supra, Mr. Elsley sold his general insurance business to J.G. Collins Insurance and also entered into an employment contract. Both agreements contained a five-year non-competition agreement. Shortly after the sale, the initial employment contract was replaced by a separate employment contract. There followed a series of employment contracts over the next seventeen years, during which Mr. Elsley managed the insurance business. He then departed, and without any solicitation by him, half of the book of business followed him to his competing insurance business.

[23] In Elsley v. J.G. Collins Ins. Agencies Ltd., supra, the Supreme Court concluded that the non-competition clause in the sales agreement was spent and Justice Dickson for the Court analyzed the reasonableness of the covenant in the context of an employment contract. The Court applied the more rigorous analysis associated with employment contracts to conclude that the non-competition and non-solicitation clause in the employment contract was enforceable. Justice Dickson concluded that a covenant just against solicitation would not have been adequate to protect J.G. Collins Insurance’s proprietary interest in its business from competition from Mr. Elsley, who had significant personal knowledge and influence over the company’s customers. Justice Dickson stated at pp. 928-29 that, “[N]ot all covenants in restraint of trade are bad. Elsley v. J.G. Collins Ins. Agencies Ltd., supra, demonstrates that even though subject to a more strict analysis, restrictive covenants in employment contracts may be found enforceable.”

[24] For the case at bar, I foreshadow to say that my conclusion is that the covenants are connected to a sale of a business.

[25] In both the commercial and the employment context, if a covenant is ambiguous in the sense that it does not clearly define the prohibited activities, the territory of its operation, and the time of its operation, it is unreasonable and unenforceable: Shafron v. KRG Insurance Brokers (Western) Inc., supra at paras. 27, 43; Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344 at para. 14. A covenant will be ambiguous if it is impossible for the person bound by it to predict what activities are precluded by the covenant: Globex Foreign Exchange Corporation v. Kelcher, 2011 ABCA 240 at paras. 13-19.

[26] I again foreshadow to say that I conclude in the immediate case that within their parameters, the covenants are strict and comprehensive but they are not ambiguous.

[27] In both the commercial and the employment context, to enforce a covenant in restraint of trade, the party seeking enforcement must have a legitimate business or property interest that needs protection by the restraint of competing trade: Tank Lining Co. v. Dunlop Industrial Ltd. at para. 16.

[28] To be reasonable as between the parties, the restrictive covenant should not go beyond what is adequate to protect the interest of the party seeking to uphold the covenant: Herbert Morris, Ltd. v. Saxelby, supra; Tank Lining Co. v. Dunlop Industrial Ltd. at para. 20.

[29] In the employment context, normally, the less intrusive non-solicitation clause will usually be sufficient to protect the employer’s interest: H.L. Staebler Co. v. Allan, supra at paras. 40-42; Lyons v. Multari, supra at para. 33. However, as noted above, Elsley v. J.G. Collins Ins. Agencies Ltd., supra demonstrates that a non-solicitation clause may be inadequate to protect the employer’s proprietary interests and a non-competition clause may be reasonable and justified in the employment context. See also Steele v. Ingram, [2009] O.J. No. 3665 (S.C.J.).

[30] An employer will go too far in restraining the trade of employees if the covenant prevents the employee from using the skill and knowledge of the trade or profession learned in the course of employment: Mason v. Provident Clothing and Supply Co., supra at p. 740; Sherwood Dash Inc. v. Woodview Products Inc.. [2005] O.J. No. 5298 at paras. 68-69 (S.C.J.). I foreshadow here to say that I do not regard the covenants in the case at bar as going too far and they do not prevent Mr. Martin from using his skill and business acumen.

[31] As a general rule, in determining reasonableness, courts will consider three elements: (1) the extent or scope of the activities prohibited; (2) the territory covered by the covenant; and (3) the duration of the prohibition: Shafron v. KRG Insurance Brokers (Western) Inc., supra at para. 26; Elsley v. J.G. Collins Ins. Agencies Ltd., supra, at p. 925; H.L. Staebler Co. v. Allan, supra, at para. 36; Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344 at para. 16.

[32] A covenant in restraint of trade may be reasonable even if it precludes business activities that have not yet been carried out by the vendor or employer or even if the prohibition extends to territory beyond which the vendor or employer has historically carried on business. The reasonableness of the scope and territory of the restrictive covenant depends upon the reasonable expectations of the parties at the time of contracting about the future activities and marketplace for the business: Tank Lining Co. v. Dunlop Industrial Ltd. at paras. 23-27; Connors Bros., Ltd. v. Connors, 1940 CanLII 349 (UK JCPC), [1940] 4 All E.R. 179 at pg. 194 (H.L.).

[33] Thus, where a business is confined to a particular area it may or it may not be reasonable to preclude a contracting party from engaging in trade in a wider area. If it was a reasonable expectation that the nature of the business might grow or that the business could and would trade in the wider area, then the scope of the restrictive covenant might reasonably be extended beyond the current business: Tank Lining Corp. v. Dunlop Industrial Ltd., supra at paras. 23- 27.

[34] In contrast, Steele v. Ingram, [2009] O.J. No. 3665 (S.C.J.) is an example where the expectations of the parties about the future territory for the business was unreasonable and the covenant in restraint of trade was held to be wider than necessary and hence unreasonable and unenforceable.

[35] To foreshadow, in the case at bar, I conclude that the substantive, territorial, and temporal scope of the covenants are reasonable as between the contracting parties.

[36] If the covenant in restraint of trade is reasonable as between the contracting parties, it will nevertheless be struck down if the covenant is injurious to the public: Tank Lining Co. v. Dunlop Industrial Ltd. supra at para. 30.

[37] Where the covenant clearly contravenes the Competition Act, R.S.C., 1985, c. C-34, it will be ruled unenforceable: Tank Lining Co. v. Dunlop Industrial Ltd. supra at para. 40.

[38] If the covenant is reasonable as between the parties and the party seeking to avoid the covenant cannot show any injury to the public interest, the covenant is enforceable: Tank Lining Corp. v. Dunlop Industrial Ltd., supra at para. 47.

[39] To foreshadow the discussion below, in the case at bar, Mr. Martin argued that because the bulk of ConCreate’s business was for the public sector for tendered contracts, it was not in the public interest to prevent his new construction corporation to compete for those contracts, which are awarded to the most competitive bidder. My conclusion, however, is that Mr. Martin has not meet the onus of showing that the covenants in restraint of trade are illegal as unreasonable in the public interest.

[40] Returning to the description of the law, sometimes a covenant in restraint of trade is enforceable by applying the doctrine of severability. The Court has the jurisdiction to enforce a covenant in restraint of trade notwithstanding that the covenant goes beyond what is adequate to protect the interest of the party seeking to enforce the covenant where: (a) a reasonable covenant is severable while preserving the intent of the agreement of the parties; or (b) where the severable part is clearly severable and the excess is of trivial importance or merely technical and not a part of the main purport or substance of the clause: Mason v. Provident Clothing and Supply Co., supra at pp. 745-46.

[41] The Court will not re-write the contract for the parties and will apply the doctrine of severance only if the severance leaves intact the bargain made by the parties and does not make a new bargain for the parties, albeit it is a reasonable bargain: Canadian American Financial Corp. (Canada) Ltd. v. King (1989), 1989 CanLII 252 (BC CA), 60 D.L.R. (4th) 293 at pp. 305-06; Pembroke Police Services Board v. Kidder 1995 CanLII 7172 (ON SC), [1995] O.J. No. 682 at para. 30 (Gen. Div.). See also ACS Public Sector Solutions Inc. v. Arntsen, 2005 BCCA 605.

[42] Severance is not available where the contracting parties do not provide for it in their agreement: Steele v. Ingram, supra at para. 38. That the clause might have been enforceable, had it been drafted in narrower terms, will not save it: H.L. Staebler Co. v. Allan, supra at para. 43; Steele v. Ingram, supra at paras. 39-50.

[43] In T.S. Taylor Machinery Co. Ltd. v. Biggar (1968), 1968 CanLII 588 (MB CA), 67 W.W.R. 246 (Man. C.A.), Dickson J.A., as he then was, said at p. 257:

In certain circumstances an agreement in restraint of trade, which is in part reasonable and in part unreasonable, may be severed and the part which is reasonable enforced. The conditions under which severance will be permitted in an employer-employee agreement are strictly limited. The severed parts must be independent of one another; the excess to be severed must not be part of the main purport of the clause.

[44] There are two kinds of severance: (1) “blue-pencil severance”, which removes part of the covenant to give effect to the intention of the parties; and (2) “notional severance,” which reads down the covenant to give effect to the intention of the parties: Shafron v. KRG Insurance Brokers (Western) Inc., supra at paras. 2, 29-32; Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7.

[45] In the employment context, “notional severance” for an unreasonable covenant in restraint of trade is not available and “blue-pencil severance” may only be resorted to in rare cases where the part being removed is trivial and not part of the main purport of the restrictive covenant: Shafron v. KRG Insurance Brokers (Western) Inc., supra at paras. 33-44; Mason v. Provident Clothing and Supply Co., supra at p. 745; T.S. Taylor Machinery Co. Ltd. v. Biggar.

[46] In the case at bar, there is a severance provision. I foreshadow to say here that I do not rely on the doctrine of severance. It is not necessary to do so. However, since the point was fully argued, I will address it briefly and, to foreshadow, my conclusion is that the doctrine of severance would not have been available to read down the covenants in the case at bar to make them reasonable.

[47] Finally, before concluding this part and moving on to provide an analytical framework and to discuss the facts of the case at bar, I make one observation about two issues that may ultimately be before the Court in the action to enforce the covenants, but that are not before me on this particular Application. The two issues are whether Mr. Martin was wrongfully dismissed and, if so, whether the General Billpostings Rule applies in the circumstances. Under the General Billpostings Rule, when an employee is dismissed without cause, the employer cannot enforce a restrictive covenant otherwise binding on the employee: General Billposting Co. Ltd. v. Atkinson, [1909] A.C. 118 (H.L.); Globex Foreign Exchange Corporation v. Kelcher, 2011 ABCA 240 at paras. 48-58. I make no finding about whether the General Billpostings Rule applies in the circumstances of the case at bar.

3. Analytical Framework

[48] The above survey of the case law about the enforceability of covenants in restraint of trade suggests the following analytical framework to determine whether a particular covenant in restraint of trade is reasonable between the parties and in reference to the public interest:

• The question of the enforceability of a covenant in restraint of trade is determined in the context of the facts of the particular case.

• Examining the circumstances of the particular case requires an examination of both the nature of the business to be protected by the covenant, including its trade secrets, confidential information, and trade connections, and also the role and circumstances of the person to be bound by the covenant, including whether he or she was an ordinary employee or whether his or her activities were or would be integral to the business and whether he or she was in a senior position or a position of influence.

• Does the covenant restrain trade? If so, is the covenant a non-competition clause or a less intrusive non-solicitation clause?

• Is the restraint one of the exceptional cases where restraints of trade are permitted? (This is not a factor in the case at bar.)

• Is the covenant ambiguous in the sense that it does not clearly define the prohibited activities, the territory of its operation, and the time of its operation or is the covenant ambiguous in the sense that the person bound by the covenant is unable to predict what activities are precluded by the covenant? If yes, then no further analysis is required; the covenant is unreasonable and unenforceable.

• If the covenant is not ambiguous, then is the covenant connected to a sale or commercial transaction or is the covenant connected only to an employment contract?

• If the context of the covenant in restraint of trade is essentially to govern an employment relationship, then there is a more rigorous analysis of reasonableness and less freedom of contract than is the case for a covenant in the context of a sale or commercial transaction.

• Is the restraint justifiable as reasonable between the parties? (The onus is on the party seeking to enforce the covenant to establish that it is in reasonable as between the parties.)

• Reasonableness is determined in the light of circumstances existing at the time the covenant was made. The circumstances include the parties’ reasonable expectations of the business’ prospects in the future.

• Does the party seeking to enforce the covenant have a legitimate business or property interest that needs the protection of a restraint on trade? If the answer is no, then the covenant is unenforceable.

• If the answer is yes, does the covenant go further than necessary to adequately protect the parties’ commercial or property interest? If the covenant overreaches, then it is unreasonable, and subject to the severance doctrine, the covenant is unenforceable.

• Is the scope of the covenant reasonable having regard to: (1) the extent of the activities prohibited; (2) the territory covered by the covenant; and (3) the duration of the prohibition? If the covenant overreaches in scope, then it is unreasonable, and subject to the severance doctrine, the covenant is unenforceable.

• If the covenant is reasonable as between the parties, is it reasonable with respect to the interests of the public? (The onus to show that the covenant is against the public interest is on the party seeking to avoid enforcement.)

• If the covenant is not reasonable, then is the very limited doctrine of severability applicable?

[49] I will employ the above analytical framework to the facts of the immediate case. It will be helpful to the reader of these Reasons to keep this framework in mind while reading the discussion of the facts that immediately follows.

C. EVIDENTIARY, FACTUAL, AND PROCEDURAL BACKGROUND

[50] In this section, I will describe the evidentiary, factual, and procedural background.

[51] The record for this Application (12-CV-444966) consisted of affidavits delivered for this Application and also for ConCreate’s and SDF’s action (11-CV-441888), which is an action against Mr. Martin and his corporation Innovative Civil Constructors Inc. (“Innovative”).

[52] The Record for the Application consisted of affidavits from: (a) Mr. Martin; (b) J. Norman Rokosh, who is a director of ConCreate and SDF and of TriWest Capital Partners III (2007) Inc. (“TriWest”); (c) Tony Thoms, who is a construction manager for ConCreate; (d) Randy Martin, who is a general superintendant at ConCreate; (e) Brand Martin, who is a general superintendant at ConCreate; and (f) Steve Skinner, who is a project manager for ConCreate. Messrs. Martin, Rokosh, Randy Martin, Brad Martin, and Skinner were cross-examined, and their transcripts are part of the evidentiary record for the Application.

[53] In 2005, SDF was incorporated. At the time of incorporation, its majority shareholder, president, and a director was Gord Tozer. Its minority shareholder, vice-president, and a director was Mr. Martin.

[54] SDF was incorporated to make structural steel for Underground Services (1983) Limited (“Underground Services”), another corporation owned by Mr. Tozer through Gordawn Holdings Ltd., a holding corporation.

[55] Around the time of the incorporation of SDF, Mr. Martin, who began work at age eighteen, had been an employee of Underground Services for fifteen years as a general labourer, project foreman, and latterly a general superintendent in projects in Southern Ontario.

[56] In addition to becoming a vice-president of SDF, Mr. Martin was promoted to a vice-president of Underground Services, and he began to do some work in the Calgary area for ConCreate USL Calgary Ltd. (“ConCreate Calgary”), a related corporation also owned by Mr. Tozer.

[57] On January 1, 2007, ConCreate Calgary and Underground Services amalgamated to form ConCreate USL Ltd. (“Old-ConCreate”). Mr. Martin became a vice-president of Old-ConCreate. Mr. Tozer promised to make Mr. Martin a shareholder of Old-ConCreate, and although it is unclear whether the shareholding was documented, Mr. Martin paid $1,667 for a 25% interest, which was acknowledged by Mr. Tozer in December 2010.

[58] Almost 95% of Old-Concrete’s projects were in the public sector for government bodies or government general contractors that had called for tenders from contractors or sub-contractors.

[59] Before 2011, Old-Concrete had projects in British Columbia (4), Alberta (23), Saskatchewan (3), Ontario (53), New Brunswick (2), Nova Scotia (1) and Yukon (1) and no projects in Manitoba, Québec, Newfoundland, Prince Edward Island, Northwest Territories nor Nunavut.

[60] Mr. Martin testified that the scope of services provided by Old-ConCreate was narrow. He testified that Old-ConCreate essentially limited its business to the concrete work for old bridges (rehabilitation and strengthening services, typically to bring a structure “up to code”) and work for new bridges (new construction). Accordingly to Mr. Martin, it did some rehabilitation work for parking structures and some one-off rehabilitation projects; namely, one tunnel, one dam, and one silo. Old-ConCreate did some one-off new construction; namely, the Vancouver Olympic luge track, two culverts, and two retaining walls. Mr. Martin testified that Old-ConCreate’s rehabilitation services did not include aqueducts, locks, reservoirs, domes, grain elevators, or after 2006 geotechnical works and its new construction did not include water reservoirs, domes, or other structures generally.

[61] The Respondents disputed Mr. Martin’s evidence and referred to the activities of ConCreate after the completion of the purchase of the assets of Old-ConCreate as demonstrating the national scope and nature of the business activities.

[62] Mr. Martin testified that SDF’s business was confined to manufacturing and installing structural steel for bridge rehabilitation and some railing for new bridges. Its projects came mainly from Old-ConCreate with a few tendered projects. More than 90% of the SDF business came directly from Old-ConCreate.

[63] Before 2011, SDF had projects in British Columbia (1), Alberta (11), Ontario (33), New Brunswick (1), and Yukon (1) and no projects in Saskatchewan, Manitoba, Québec, Nova Scotia, Newfoundland, Prince Edward Island, Northwest Territories nor Nunavut.

[64] In mid-2010, Mr. Tozer decided to sell the businesses of Old-ConCreate and SDF, and although Mr. Martin was reluctant to sell, once he learned about Mr. Tozer’s decision, Mr. Martin co-operated in the efforts to sell the businesses. TriWest Capital Partners III (2007) Inc. (“TriWest”) was one of the potential purchasers that had been identified by Mr. Tozer.

[65] Before signing any agreements, TriWest was provided with a Confidential Information Memorandum (“CIM”) that described the businesses of Old-Concrete and of SDF. The CIM describes Old-ConCreate as “one of the nation’s leading players in infrastructure services” and “a market leader with national reach.” In a slideshow presentation for TriWest, Old-ConCreate was described as having a “highly mobile group able to service customers on a national basis” and Mr. Martin was described as a Senior Vice President who “oversees all construction projects across Canada”.

[66] TriWest controls TriWest Construction Holdings Limited Partnership, which owns TriWest Construction Limited Partnership (“TriWest LP”). TriWest LP’s general partner is TriWest Construction GP Inc. In September 2010, TriWest made an offer to purchase interests in Old-ConCreate and SDF, and on October 6, 2010, the parties entered into a letter of intent under which TriWest would purchase Old-ConCreate and SDF.

[67] On February 1, 2011, in what is referred to as the TriWest Purchase, Old-ConCreate sold its assets including its business undertaking to the Respondent ConCreate and thus ConCreate acquired the business carried on by Old-ConCreate. Mr. Tozer and Mr. Martin also sold their shares in SDF to 7721099 Canada Ltd., which thus acquired the business of SDF. Subsequently, 7721099 Canada Ltd. amalgamated with SDF, and the amalgamated company is what is now referred to as SDF.

[68] In the TriWest Purchase, TriWest was represented by Bennett Jones LLP. The vendors, including Mr. Martin and Mr. Tozer, were represented by Fraser Milner Casgrain LLP. There is no dispute that both sides of the transaction received competent independent legal representation and advice.

[69] Under the TriWest Purchase, ConCreate acquired the assets and business of Old-ConCreate and 7721099 Canada Ltd. acquired the shares and then amalgamated to become SDF. Under the TriWest Purchase, Mr. Martin’s corporation, 2272322 Ontario Ltd., became a unit holder of a 25% interest in ConCreate through TriWest LP, a limited partnership. The partners were governed by a Limited Partnership Agreement.

[70] Mr. Martin’s partnership units in TriWest LP were assigned an unappraised book value of $6.5 million. For reasons that will become clearer later, it will be important to note that Mr. Martin’s corporation’s ability to dispose of the partnership units is constrained by the Limited Partnership Agreement.

[71] And it will be important to note that the Limited Partnership Agreement contained a non-competition agreement binding Mr. Martin’s corporation and Mr. Martin personally from competing with ConCreate and SDF.

[72] Under sections 6.1 (1) and 6.3 (h) of the TriWest Purchase Agreement, Mr. Tozer and Mr. Martin agreed to enter into Employment Agreements with ConCreate and SDF. The Employment Agreements were schedules to the TriWest Purchase Agreement. Performance of the TriWest Purchase Agreement was conditional upon Mr. Tozer and Mr. Martin entering into an employment agreement with ConCreate and SDF. Mr. Tozer was to become the CEO of ConCreate and of SDF, and Mr. Martin was to become the president of ConCreate and of SDF.

[73] Mr. Martin’s Employment Agreements are the subject matter of this Application. The Employment Agreements provided that Mr. Martin’s employment could not be terminated prior to December 31, 2012, except for just cause.

[74] The Employment Agreements with ConCreate and SDF included non-competition and non-solicitation agreements. Mr. Martin challenges sections 2.1 (non-competition), 2.2 (non-solicitation) and 2.3, the confidentially provision, which Mr. Martin submits is a “dressed-up restraint of trade.”

[75] I foreshadow the discussion below to say here that my conclusion is that the challenged covenants were part of a commercial and sale transaction and were not just covenants for an employment agreement.

[76] For present purposes, the relevant terms of Mr. Martin’s Employment Agreements are set out below. It may be noted that ConCreate’s and SDF’s businesses are identically defined in the Employment Agreements, the TriWest Purchase Agreement, and the Limited Partnership Agreement.

NON-COMPETITION AND NON-SOLICITATION AGREEMENT

… WHEREAS Concreate USL Ltd. ("Concreate"), 2266997 Ontario Inc., 2267037 Ontario Inc. ("MartinCo"), U .S.L. Restorations Ltd, Triwest Construction Limited Partnership, Target LP, 7721099 Canada Ltd. ("AcquisitionCo"), Gordon Tozer and Martin are parties to an acquisition agreement dated January 11, 2011 (the “Acquisition Agreement"); …

AND WHEREAS pursuant to the terms and conditions of the Acquisition Agreement it was agreed that Martin, as an indirect shareholder of Concreate, would enter into this Agreement;

AND WHEREAS this Agreement was negotiated together with the Acquisition Agreement;

AND WHEREAS this Agreement represents a material element of the transactions contemplated by the Acquisition Agreement and its execution and delivery is a condition precedent to the closing of the transaction contemplated by the Acquisition Agreement;

AND WHEREAS Martin is not receiving any proceeds of the transaction of purchase and sale contemplated in the Acquisition Agreement but Martin is the indirect beneficial owner of a 36% interest in Concreate and is the sole legal and beneficial owner of all of the shares in the capital of 2272322 Ontario Inc. ("MartinEquityCo") that will receive limited partnership units in Acquisition LP (the "ALP Units") with an initial value of $6,500,250.00 and which carry the potential for increase in value as the value of the Business acquired by Target LP increases; …

ARTICE 1 – DEFINITION AND INTERPRETATION

1.1 Defined Terms

Unless otherwise defined herein, all capitalized terms appearing in this Agreement shall the meaning ascribed to them in the Acquisition Agreement. In this Agreement, the following terms shall have the following meanings: …

(b) “ConCreate’s Business” means:

(i) concrete rehabilitation and strengthening including for bridges, dams, aqueducts, locks, parking garages, reservoirs, culverts, silos, tunnels, grain elevators and other structures;

(ii) construction of new bridges, water reservoirs, domes and specialty structures;

(iii) concrete production including expansion joint system installations, waterproofing and traffic topping system application; and

(iv) geotechnical works including foundation support, shoring, slope protection, slurry walls and water cut off barriers; ….

(e) “Prohibited Area” means Canada;

(f) “Prohibited Period” means “a period commencing on the date of this Agreement and ending twenty-four (24) months after the disposition by Martin of his direct or indirect ownership interest in the [TriWest LP] Units;” and

(g) SDF Business” means steel fabrication.

ARTICLE 2 - COVENANTS

2.1 Non-Competition

(a) Subject to Sections 2.1(b) and 2.1(c), Martin shall not, without the prior written consent of [SDF or ConCreate], at any time during the Prohibited Period, in any manner whatsoever, including either individually or in partnership or jointly, or in conjunction with any other Person or Persons, as principal, agent, consultant, partner, shareholder, employee, investor, creditor, director, officer or otherwise, or in any other manner whatsoever, directly or indirectly, carry on, engage in, be interested in, be concerned with, advise, lend to, guarantee the obligations of or otherwise have a financial interest in, any business which competes with the [SDF Business or the ConCreate Business] in the Prohibited Area.

(b) Martin’s performance in connection with his employment with [ConCreate], SDF and/or their respective Affiliates will not constitute a breach of this Section 2.1.

(c) Nothing in this Section 2.1 shall be construed as preventing Martin from holding, during the Prohibited Period, an interest, either directly or indirectly, in a business which competes with the [SDF Business or the ConCreate Business] in the Prohibited Area, provided that the competing business is listed on a Canadian or United States stock exchange and Martin’s interest does not exceed five percent (5%) of the outstanding listed equity.

2.2 No-Solicit

(a) Subject to Section 2.2(b), Martin shall not, without the prior written consent of [SDF or ConCreate], at any time during the Prohibited Period, in any manner whatsoever, including either individually or in partnership or jointly, or in conjunction with any other Person or Persons, as principal, agent, consultant, partner, shareholder, employee, investor, creditor, director, officer or otherwise, or in any other manner whatsoever, directly or indirectly:

(i) knowingly solicit, interfere with or otherwise attempt to obtain the withdrawal of any employee or independent contractor of [SDF or ConCreate];

(ii) communicate or deal with any Person that is a customer, dealer, agent or distributor of [SDF or ConCreate] for the purpose of selling, servicing or promoting in the Prohibited Area any products or services that compete in the Prohibited Area with any products or services of [SDF or ConCreate] or submit a tender or proposal to any authority soliciting tenders or proposals for any products or services that compete with products or services offered by [SDF or ConCreate] in the Prohibited Area; or

(iii) communicate or deal with any Person that is a supplier, dealer, agent or distributor of [SDF or ConCreate] for the purpose of attempting to obtain a franchise, distribution or other arrangement in the Prohibited Area with that supplier in respect of any products or services that compete in the Prohibited Area with any products or services of [SDF or ConCreate].

(b) Martin’s performance in connection with his employment with [ConCreate], SDF or their respective Affiliates will not constitute a breach of this Section 2.2.

2.3 Confidentiality

Martin acknowledges that all records, material and information pertaining to [SDF or ConCreate] and its Affiliates, and any copies thereof obtained by Martin are and shall remain the exclusive property of [SDF or ConCreate] or the Affiliate, as the case may be. For so long as [SDF or ConCreate] carries on business, Martin shall keep in the strictest confidence, not disclose and not use, without the consent of [SDF or ConCreate], any non-public information pertaining to or concerning [SDF or ConCreate] or any of its Affiliates, including all budgets, forecasts, analyses, financial results, costs, processes, drawings, blueprints, margins, wages and salaries, bids, tenders and other business activities, all supplier and customer lists, price lists, all non-public intellectual property including trade secrets, unfiled patents, trade-marks, technical expertise, proposals, bid or tender packages, business opportunities and know-how, documentation including standard terms and agreements and all other information not generally known outside [SDF or ConCreate] or any of its Affiliates. However, Martin shall not be obliged to keep in confidence and shall not incur any liability for disclosure of information which:

(a) is already in the public domain or comes into the public domain without any breach of this Agreement;

(b) is required to be disclosed pursuant to applicable laws or pursuant to policies or regulations of any regulatory authority having jurisdiction over Martin;

(c) is required to be disclosed in any arbitration or legal proceeding arising under or in connection with this Agreement; or

(d) is made to a professional or other advisor of Martin and insofar as is reasonably possible, cause the recipient to comply with the terms of this Section as if he, she or it were a party to this Agreement.

Martin shall, upon request by [SDF or ConCreate] at any time, forthwith return any such confidential information to [SDF or ConCreate] or confirm in writing that any of such information in the possession of Martin has been destroyed.

2.5 Legal Review

(a) Martin hereby agrees that all restrictions contained in this Article 2 are reasonable and valid. Martin further agrees that enforcement of the restrictions set out herein shall not prevent him from earning a livelihood and providing for himself and his family. The provisions of this Article 2 shall not in any way derogate or limit the exercise of Martin’s right to engage in subsequent employment and are only intended to safeguard against Martin’s participating in competitive endeavors against the [SDF Business and Concreate Business] in the Prohibited Area. Accordingly, Martin hereby waives any and all defenses to the strict enforcement of these restrictions by [SDF or ConCreate] by any lawful means, including injunctive relief. [emphasis added]

(b) In addition to the foregoing, Martin further expressly acknowledges and agrees that:

(i) the [SDF Business and ConCreate Business] is carried on throughout the Prohibited Area and that the [SDF Business and ConCreate Business] is interested in and solicits or canvasses opportunities throughout the Prohibited Area;

(ii) the nature of the [SDF Business and ConCreate Business] is such that the on-going relationship between the [SDF Business and ConCreate Business] and its customers is material and has a significant effect on the ability of the [SDF Business and ConCreate Business] to continue to obtain business from its customers with respect to both long term and new projects; and

(iii) Martin is entering into this Agreement and making the covenants contained herein, pursuant to the Acquisition Agreement and to consummate the transactions contemplated by the Acquisition Agreement, and because [SDF or ConCreate] would not be prepared to complete its portion of the transactions contemplated by the Acquisition Agreement unless Martin agrees to the covenants contained therein.

ARTICLE 3 - GENERAL

3.1 Advice and Bargaining Power.

The parties hereto acknowledge and confirm that:

(a) they have each been independently advised by legal counsel in respect of the provisions of this Agreement and the obligations it imposes on them; and

(b) they have negotiated the provisions hereof on an equal footing based on equal bargaining power through extensive discussions and negotiations.

3.7 Severability

If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect without regard to the invalid, illegal or unenforceable term or provision. If the courts of any one or more jurisdictions shall hold all or any part of such term or provision wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties that such determination shall not bar or in any way affect [SDF or ConCreate]’s right to relief in the court of any other jurisdiction as to failures to observe such term or provision in such other jurisdictions, the above provisions as they relate to each jurisdiction, being, for this purpose, severable into diverse and independent provisions. In addition, each of the parties hereto recognizes that the covenants and restrictions contained in this Agreement are:

(a) properly required for the adequate protection of [SDF or ConCreate] and the [SDF Business or ConCreate Business];

(b) properly required for the adequate protection of the goodwill acquired by [SDF or ConCreate] pursuant to the Acquisition Agreement; and

(c) an inherent part of the consideration under the Acquisition Agreement.

Consequently, in the event that any covenant or other provision contained herein shall be deemed to be illegal, unenforceable or unreasonable by any court or tribunal of competent jurisdiction with respect to any part of the duration of such covenant or provision or the area covered thereby, the parties agree that the court or other tribunal making such determination shall have the power to reduce the duration or area of such covenant or provision and in its reduced form said covenant or provision shall then be enforceable.

[77] Several provisions of the TriWest Purchase Agreement are important to the interpretation and analysis of the non-competition clauses signed by Mr. Martin in his Employment Agreements with ConCreate and SDF. In this regard, the following provisions of the TriWest Purchase Agreement are important:

PURCHASE AGREEMENT

(Concreate, TozerCo, MartinCo and USL Restorations are collectively referred to as “Vendors” and individual each a “Vendor”)

(Acquisition LP, Target LP and AcquisitionCo are collectively referred to as the “Purchasers” and individually each a “Purchaser”

(Tozer and Martin are collectively referred to as the “Principals”)

WHEREAS:

A. Concreate and Steel Design & Fabricators (SDF) Ltd. (“SDF”) and engaged in the Business (as defined herein); …

ARTICLE I - INTERPRETATION

1.1 Defined Terms …

(k) “Ancillary Agreements” means collectively the Non-Competition Agreements, …

(qq) “Concreate Business” means that part of the Business carried on by Concreate;

(uu) “Concreate TLP Units” means limited partnership units in Target LP issued pursuant to Section 2.2 (c)

(ww) “Confidential Information” means any information which, by its nature, or by the nature of the circumstances surrounding its disclosure, out in good faith to be treated as confidential (including the confidential information of Third Parties) and “Confidential Information” shall include any reports, analyses, compilations or other materials prepared by a Party or its Affiliates or its directors, officers, employees, agents or advisors, which contain, in whole or in part, or would reasonably be expected to reveal, such information. Except as may otherwise be provided in a confidentiality agreement or other non-disclosure arrangement with a Third Party in respect of the information to which agreement or arrangement relates, “Confidential Information” shall not include information that is, in respect of Personal Information, publically available, and in respect of all other Confidential Information, is in the public domain (provided that where any part of such information is publically available or in the public domain, as the case may be, but a compilation of information which includes such part is not publically available or in the public domain, then such compilation shall not be treated as being publically available or in the public domain and shall be treated as Confidential Information hereunder.

(uuuu) “Non-Competition Agreements” means the confidentiality and non-competition agreements to be dated as of the Closing Date between each of the Principals, and Target LP and each of the Principals and AcquisitionCo in the forms attached as Schedule 1.1 (uuuu)

(bbbbb) “Person” includes any individual, corporation, limited liability company, unlimited liability company, body corporate, partnership, limited partnership, limited liability partnership, firm, joint venture, syndicate, association, capital venture fund, trust, trustee, executor, administrator, legal personal representative, estate, government, Governmental Agency and any other form of entity or organization, whether or not having legal status;

(mmmmm) “SDF Business” means that portion of the Business carried on by SDF;

(iiiiii) “Transferred Assets” means all of the assets of Concreate used in relation to, directly or indirectly, the Business (other than the Excluded Assets) including, without duplication, the following assets: ….

1.3 Schedules

The Schedules are incorporated into this Agreement by reference and are deemed to be part thereof.

ARTICLE II - ACQUISITION

2.2 Purchase of SDF Shares, Truro Lands and Transferred Assets

(a) Tozer Co and MartinCo agree to sell … the SDF shares ….. The total … consideration payable by AcquisitionCo to TozerCo and Martin Co … shall be Five Million Dollars ….

(c) Concrete hereby agrees to sell … the Transferred Assets …. The total … consideration payable by Target LP [shall] be Seventy Million Three Hundred Thousand Dollars … less the amount of the Assumed Indebtedness … which shall be satisfied by way of …

2.9 Other Tax Elections

(d) It is the intention of the Parties that no consideration be allocated to the Non-Competition and Non-Solicitation Agreements entered into by each of Tozer and Martin …

ARTICLE VI - CONDITIONS

6.1 Conditions to the Obligations of Acquisition LP

Notwithstanding anything herein contained, the obligations of Target LP and Acquisition LP to complete the Acquisition provided for herein will be subject to the fulfillment of the following conditions at or prior to the Closing Time, and each of the Vendors covenants to use all reasonable commercial efforts to ensure that such conditions that are within their control are fulfilled: …

(g) Ancillary Agreements. At the Closing Time, each of the Vendors shall have executed and delivered, or caused to be executed and delivered, each of the Ancillary Agreements;

(l) Employment Matters. On or before the date of this Agreement, Tozer and Martin shall have agreed to continue to continue working following Closing as CEO and President, respectively, of Target LP on the terms and conditions set forth in schedule 6.1 (l);

6.3 Notwithstanding anything herein contained, the obligations of the Vendors to complete the Acquisition and other transactions provided for herein will be subject to the fulfillment of the following conditions at or prior to the Closing Time, and Acquisition LP will use all reasonable commercial efforts to ensure that such conditions that are within its control are fulfilled: …

(e) Ancillary Agreements. At the Closing Time, the Ancillary Agreements shall have been executed and delivered to the Vendors;

(h) Employment Matters. On or before the date of this Agreement, each of Tozer and Martin shall have agreed to continue to continue working following Closing as CEO and President, respectively, of Target LP on terms and conditions mutually acceptable to Target LP and each of Tozer and Martin;

ARTICLE XIII - GENERAL PROVISIONS

13.10 Entire Agreement

This Agreement and the Schedules constitute the entire agreement between the Parties hereto and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter hereof, including the Letter of Intent as amended or extended to the date hereof; provided however, that the Confidentiality Agreement shall continue in full force and effect in accordance with its terms.

[78] Several provisions of the Limited Partnership Agreement are important to the interpretation and analysis of the non-competition clauses signed by Martin in his Employment Agreements with ConCreate and SDF. In particular, because article 1.1(f) of the Employment Agreements define “Prohibited Period” as a period commencing on the date of this Agreement and ending twenty-four (24) months after the disposition by Mr. Martin of his direct or indirect ownership interest in TriWest LP Units, it is necessary to consider, how the Limited Partnership regulates the disposition of units in the limited partnership. In this regard, the following provisions of the Limited Partnership Agreement are significant:

AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT

ARTICLE 1 – INTERPRETATION

1.1 Definitions

In this Agreement, the following words have the following meanings:

"Bank" means the principal banker of the General Partner, from time to time;

“Bonding Company” means collectively all Persons which from time to time have bonding facilities with the Partnership, the General Partner or any of the Subsidiaries including the Guarantee Company of North America

“Lenders” means “the senior secured Lenders to the Partnership and its Subsidiaries from time to time, including the Bank, the Bonding Company, and any senior secured debtholders of the Partnership or any of its Subsidiaries from time to time;”

“Management Investors” means the Persons listed in Schedule D and any corporation controlled by an employee of the Partnership, the General Partner or any Subsidiary to whom the Partnership issues any Units and whom the Board designates as a Management Investor until such corporation ceases to be a Partner in accordance with the provisions of this Agreement and “Management Investor” means any one of them;

“Transfer” means means a transfer of any Unit and includes any sale, exchange, transfer, assignment, gift, mortgage, pledge, encumbrance, hypothecation, alienation, transmission or other transaction, whether voluntary, involuntary or by operation of law, by which the beneficial ownership or a security interest or other interest in, any Unit passes from one Person to another Person, or to the same Person in a different capacity, whether or not for value, other than an involuntary transmission of any Units of a deceased, disabled or Mentally Incapacitated Partner to the legal personal representative of such Partner for so long as the Units continue to be held by the legal personal representative of such Partner, and "to Transfer", "Transferred", "Transferor" and "Transferee" and similar expressions have corresponding meanings;

9.1 General Prohibition

(a) No Partner shall Transfer, whether directly or indirectly, any Units or enter into any agreement or commitment to Transfer Units except, in each case:

(i) with the prior consent in writing of (1) the Lenders, if such consent is required by the terms of any loan agreement with such Lenders, and (2) the Board;

(ii) pursuant to and in accordance with the applicable provisions of this Agreement; …

any attempt to do so without such consent or not pursuant to such provisions or without such compliance shall be void.

(c) If at any time Martin's employment is terminated without cause, then the Partnership shall, subject to obtaining required approvals, if any, from the Lenders, have the right (but not the obligation) to purchase, and Martin Co shall have the obligation to sell if the Partnership exercises its right, the Martin Co Units provided that the Partnership provides written notice of such election to Martin Co within 12 months of the termination date; failing which, the Partnership shall be deemed to have forever waived its rights to call the Martin Co Units under this Section 9.22(c) and Martin Co shall then have the right to put to the Partnership the Martin Co Units, and if such right is exercised, the Partnership shall, subject to obtaining required approvals, if any, of the Lenders, have the obligation to purchase the Martin Co Units, provided that Martin Co provides written notice of such election within 90 days of the expiry of the foregoing 12 month period. …. The purchase of the Martin Co Units under this Section 9.22(c) shall be on the following terms:

(i) the closing date shall be the Business Day that the Partnership specifies within 90 days of the Partnership providing written notice to Martin Co, or if Martin Co exercises its put right, within 90 days of Martin Co providing written notice to the Partnership; …

(d) If at any time Martin's employment is terminated with cause, then the Partnership shall, subject to obtaining required approvals, if any, from the Lender, have the right (but not the obligation) to purchase, and Martin Co shall have the obligation to sell if the Partnership exercises its right, the Martin Co Units provided that the Partnership provides written notice of such election within 12 months of the termination date; failing which, the Partnership shall be deemed to have forever waived its rights to call the Martin Co Units under this Section 9.22(d) and Martin Co shall then have the right to put to the Partnership the Martin Co Units, and if such right is exercised, the Partnership shall, subject to obtaining required approvals, if any, of the Lenders, have the obligation to purchase the Martin Co Units, provided that Martin Co provides written notice of such election within six months of tire expiry of the aforementioned 12 month period. The purchase of the Martin Co Units under this Section 9.22(d) shall be on the following terms:

(i) the closing date shall be the Business Day that the Partnership specifies within 90 days of the Partnership providing written notice to Martin Co, or if Martin Co exercises its put right, within 90 days of Martin Co providing written notice to the Partnership;

(e) If at any time Martin resigns, then the Partnership shall, subject to obtaining required approvals, if any, from the Lenders, have the right (but not the obligation) to purchase, and Martin Co shall have the obligation to sell if the Partnership exercises its right, the Martin Co Units, provided that the Partnership provides written notice of such election within 12 months of the resignation date; failing which, the Partnership shall be deemed to have forever waived its rights to call the Martin Co Units under this Section 9.22(e) and Martin Co shall then have the right to put to the Partnership the Martin Co Units, and if such right is exercised, the Partnership shall, subject to obtaining required approvals, if any, of the Lenders, have the obligation to purchase the Martin Co Units, provided that Martin Co provides written notice of such election within six months of the expiry of the aforementioned 12 month period, on the following terms:

(i) the closing date shall be the Business Day that the Partnership specifies within 90 days of the Partnership providing written notice to Martin Co or if Martin Co exercises its put right, within 90 days of Martin Co providing written notice to the Partnership;

[79] As already noted above, it is important to note that the Limited Partnership Agreement contained a non-competition provision that bound Mr. Martin’s corporation and Mr. Martin personally. This agreement also included “No-Hire,” “Non-Solicitation” and a “Confidentiality” provision. For present purposes, it is sufficient to just set out the non-competition provision, which stated:

8.1 Non-Competition

(a) Each Management Investor who is a holder of Class A Units on the date hereof shall not, and each such Management Investor shall cause his or her Affiliates and each Person who controls such Management Investor to not, directly or indirectly, in any manner whatsoever (without the prior written consent of the Board), including either individually or in partnership or jointly, or in conjunction with any other Person or Persons, as principal, agent, consultant, partner, shareholder, employee, investor, creditor, supplier, landlord, subcontractor, director, officer or otherwise, or in any other manner whatsoever, directly or indirectly, carry on, engage in, be interested in, be concerned with, advise, lend to, guarantee the obligations of or otherwise have a financial interest in, any business which competes in the Territory with the Business while a Management Investor and thereafter for a period of:

(i) 12 months after ceasing to be a Management Investor.

(b) Each Management Investor who subscribes for Class A Units after the date hereof shall not, and each such Management Investor shall cause his or her Affiliates and each Person who controls such Management Investor to not, directly or indirectly, in any manner whatsoever (without the prior written consent of the Board), including either individually or in partnership or jointly, or in conjunction with any other Person or Persons, as principal, agent, consultant, partner, shareholder, employee, investor, creditor, supplier, landlord, subcontractor, director, officer or otherwise, or in any other manner whatsoever, directly or indirectly, carry on, engage in, be interested in, be concerned with, advise, lend to, guarantee the obligations of or otherwise have a financial interest in, any business which competes in the Territory with the Business while a Management Investor and thereafter for a period which is the greater of:

(i) 12 months after ceasing to be a Management Investor; or

(ii) such longer period as may be agreed by the General Partner or ConCreate and such Management Investor.

(c) Notwithstanding the foregoing, nothing in this Section 8.1 shall be construed as preventing a Management Investor from holding an interest, either directly or indirectly, in a competing business, provided that the competing business is publicly traded on a recognized North American stock exchange and such Management Investor's interest does not exceed 2% of the outstanding capital of the competing business.

(d) The Parties acknowledge that each of Gordon Tozer and Derek Marcin has entered into a non-competition agreement with each of ConCreate USL Limited Partnership and SDFL.

[80] Returning to the factual and procedural narrative, the TriWest purchase closed on February 1, 2011.

[81] Mr. Martin began his employment as president of ConCreate and SDF on February 1, 2011. On July 12, 2011, his employment was terminated allegedly for cause, which is disputed by Mr. Martin.

[82] On July 20, 2011, Mr. Martin incorporated Innovative. It allegedly competes against ConCreate for bridge construction and rehabilitation tenders. It employs a number of former ConCreate employees, including two TriWest LP unit holders and former members of ConCreate’s management team (Mr. Martin and Gary Van Norden).

[83] I pause here to note that I am not to be taken as making any findings that Mr. Martin has breached the covenants. That issue remains to be decided. The issue before the Court on this Application is whether the covenants are enforceable, not whether the covenants have been breached.

[84] In its first six months of operations, Innovative has secured at least $34 million of contract awards.

[85] In December 2011, ConCreate and SDF commenced an action for, among other things, an interlocutory and permanent injunction to restrain Mr. Martin and Innovative from breaching the Non-Competition Agreements. ConCreate and SDF have served a notice of motion and affidavit in support of an interlocutory injunction, which was originally returnable February 24, 2012, but has been adjourned to May 7, 2012.

[86] In the Statement of Claim, ConCreate and SDF alleged that: (a) Mr. Martin, through Innovative, is competing against ConCreate by bidding for public tenders on bridge construction and rehabilitation projects; (b) Mr. Martin has successfully solicited the respondents’ employees; and (c) Mr. Martin has disclosed the respondents’ confidential information to his lender and a potential business partner.

[87] On December 19, 2011, Mr. Martin resigned as a director of ConCreate USL (GP) Inc., TriWest Construction GP Inc. and SDF. He continues to hold an ownership interest in TriWest LP through his personal holding company.

[88] ConCreate and SDF submit that the covenants should be enforced because: (a) the restrictive covenants are part of a purchase/sale transaction involving the sale of goodwill, not an employment relationship; (b) Mr. Martin negotiated the Non-Competition Agreements with the benefit of competent legal advice and with equal bargaining power; (c) the temporal and spatial features of the Non-Competition Agreements are not overly broad; and (d) Mr. Martin expressly acknowledged the reasonableness of the restrictions and expressly waived any defence to their strict enforcement.

[89] In the Application that is now before the Court, Mr. Martin seeks a declaration that the various covenants in his Employment Agreements are illegal and unenforceable covenants in restraint of trade.

D. DISCUSSION

[90] In the case at bar, the parties agree that the non-competition, non-solicitation, and confidentiality provisions are covenants in restraint of trade and prima facie illegal and unenforceable. It was not suggested that the respective covenants in this case are of the exceptional type where the law accepts covenants in restraint of trade.

[91] Thus, the major issues in the case become whether the covenants can be justified as reasonable between the contracting parties and, if so, whether or not the covenants are contrary to the public interest even if they are reasonable as between the parties.

[92] Before these major issues can be examined, there is the preliminary issue of whether the covenants are ambiguous in the sense that the scope of their operation is uncertain or indeterminate or in the sense that Mr. Martin does not know what work or business activities would be a violation of the restrictive covenants.

[93] Not surprisingly, the parties differ on the intelligibility and clarity of the respective covenants. Using the non-competition covenant for an example, Mr. Martin refers to such words and phrases as: “in any matter whatsoever,” “with any other Person or Persons, which alludes to the expansive definition of “Person” “be interested in,” “be concerned with,” and “otherwise have a financial interest in” as amorphous, vague, and nebulous words that make the non-competition covenant ambiguous and uncertain in its operation.

[94] For their part, ConCreate and SDF submit that these words are not ambiguous and rather only make for a strict and clear; that is, a restrictive and comprehensive, prohibition on Mr. Martin engaging in any business that competes with the business of SDF or ConCreate, the nature of which business is very well-known to Mr. Martin.

[95] Similar competing arguments are made with respect to the non-solicitation covenant and the confidentiality covenant.

[96] On the preliminary issue of whether the covenants are ambiguous, I agree with the argument of ConCreate and SDF. In my opinion, the impugned covenants are not ambiguous and Mr. Martin is able to know whether or not his conduct would breach the covenants including the confidentiality provision.

[97] The essential meaning of the non-competition covenant is that Mr. Martin shall not, during the prohibited time and within the prohibited area, engage in activities that compete with ConCreate’s and SDF’s goods and services. The essential meaning of the non-solicitation covenant is that Mr. Martin shall not, during the prohibited time, solicit the withdrawal of employees or independent contractors, communicate with ConCreate’s or SDF’s customers or dealers for the purpose of selling goods and services that compete with the goods and services offered by ConCreate or SDF or to control a franchisee or distributor that competes with ConCreate or SDF in the prohibited area.

[98] The covenants in the case at bar are capable of interpretation to provide Mr. Martin with advance notice of what conduct is prohibited. As already noted above, it is for another day and I make no finding about whether Mr. Martin has breached the covenants, but a court will be able to interpret the covenants and determine whether Mr. Martin has complied with or breached them.

[99] The next issue is whether the covenants are connected only to Mr. Martin’s employment contracts and subject to a stricter standard of reasonableness or whether the covenants are connected to a commercial or sale transaction and subject to a review that gives more deference to the contractual autonomy of the contracting parties.

[100] In the case at bar, the employee Mr. Martin attempts to distance himself from the entrepreneurial Mr. Martin that was involved in the TriWest Purchase transaction and to make the covenants exclusively connected to his employment. This attempt is largely based on his diminishing the personal benefits; i.e., the consideration he personally received under the TriWest Purchase Agreement, and by his pointing to the fact that there are very few contract terms or conditions that directly refer to him in the agreements.

[101] It is true that the references to Mr. Martin in the TriWest Purchase Agreement are few, but they are important references, to the point of being a major, if not fundamental, part of the bargain. The consideration that Mr. Martin received directly, and also indirectly through his personal corporation, in cash, repayment of corporate loans, discharge of corporate debts, and the conveyance of 25% of the units in the limited partnership are not paltry consideration as he would seem to suggest.

[102] The Non-Competition Agreements were “Ancillary Agreements” appended as schedules to the TriWest Purchase Agreement. The schedules were incorporated by reference and the agreements were deemed to be a part of the TriWest Agreement. The purchasers’ and the vendors’ obligations in the TriWest Purchase Agreement were conditional upon Mr. Martin signing the Non-Competition Agreements and upon him entering into an employment relationship with ConCreate and SDF. Mr. Martin personally was a contracting party to the TriWest Purchase Agreement. The Non-Competition Agreements were negotiated and signed as part of the sale transaction. The parties contemplated a major continuing role for Mr. Martin as part of the negotiations. All these factors individually and collectively indicate that the covenants were a major part of the sale transaction.

[103] In the case at bar, I conclude that the covenants are connected to a sale or commercial contract and they are not covenants just connected to an employment contract. I, therefore, further conclude that the covenants should be scrutinized giving deference to the contractual autonomy of the parties. In this regard, it should be noted that Mr. Martin was represented by an A-list law firm, and however humble his beginnings in the business world, it appears that he is an accomplished and successful businessman.

[104] As noted in the discussion of the law, when parties freely enter into agreements, courts are reluctant to allow them to escape their obligations, and thus when parties with equal bargaining power enter into a business agreement, it is only in exceptional circumstances that the courts are justified in over-ruling the parties’ judgment as to what is reasonable in the respective interests.

[105] Having concluded that the nature of the covenants is that they are part of a commercial or sale transaction, the next question is whether ConCreate and SDF have a legitimate business interest that needs the protection of a restraint of trade. I conclude that the answer to this question is yes.

[106] There was very little argument, if any, by Mr. Martin that the Non-Competition Agreements were unnecessary. It was not seriously challenged that ConCreate and SDF have business and property interests worthy of protection by a covenant in restraint of trade. The absence of argument on this point is understandable in the context of a multi-million dollar transfer of business assets and controlling shares of businesses in a financially risky business sector.

[107] I move on to consider whether the covenants in restraint of trade go further than necessary to adequately protect ConCreate’s and SDF’s commercial or proprietary interests and whether the covenants overreach and have an unreasonable scope having regard to the extent of the activities prohibited, the territory covered by the prohibitions, and the duration of the prohibition.

[108] My conclusion on these points is that in light of the circumstances existing at the time of their creation and the reasonable expectations of the parties, the covenants in the case at bar were reasonable as between Mr. Martin and ConCreate and SDF.

[109] As I understood it, the attack on the extent of the activities prohibited largely was focussed on the alleged ambiguity of the covenants. I, however, have concluded that the covenants are not ambiguous. I now conclude that the extent of the activities prohibited was reasonable as between the parties.

[110] The clear idea behind the covenants was to prohibit Mr. Martin from being a rival in the business endeavours that ConCreate and SDF had already staked out for themselves. All the agreements particularize and describe those business activities.

[111] There are other business activities in the construction industry that were not prohibited to Mr. Martin. This was noted by ConCreate and SDF in paragraph 80 of its factum, which stated:

80. Martin can build condominiums. Martin can subcontract electrical services. Martin can be an industrial landlord. Martin can solicit the respondents’ workers who have quit or been dismissed or who are on layoff. Martin can earn a livelihood through the other companies he owns and operates. But Martin cannot have anything to do with a company that, within Canada, bids on tenders for concrete construction, rehabilitation or protection projects or fabricates steel. Martin cannot solicit the respondents’ active employees and workers.

[112] In my opinion, the prohibitions imposed on Mr. Martin’s activities do not go farther than necessary to protect the legitimate business interests of ConCreate and SDF.

[113] In my opinion, the territorial scope of the covenants is also reasonable as between the parties. The debate here raged about ConCreate and SDF having staked out all of Canada as the “Prohibited Area” notwithstanding that there were Canadian provinces and territories in which historically ConCreate and SDF had never won a contract for goods and services.

[114] It is true, for example, that Old-ConCreate had no projects in Manitoba, Québec, Newfoundland, Prince Edward Island, Northwest Territories, nor Nunavut. However, it is also true that with a base largely in Ontario and Alberta, Old-Concrete had historically shown the mobility to provide goods and services for projects in British Columbia (4), Saskatchewan (3), New Brunswick (2), Nova Scotia (1) and Yukon (1). If a business is mobile enough to build bridges in British Columbia and New Brunswick, it would appear to be within the reasonable expectations of the parties to a sale of that business that Prince Edward Island and the other provinces are within the sphere of that business’ operations. Moreover, the evidence of the contractual negotiations shows that the parties envisioned that the scope of the business was and would be national.

[115] In my opinion, the territorial reach of the covenants does not overreach and in this regard, the covenants are reasonable as between the parties.

[116] Turning to the temporal extent of the covenants in restraint of trade, this was perhaps the most hotly debated issue. Mr. Martin’s argument was that given the terms of the Limited Partnership Agreement about the disposition of partnership units, it followed that the covenants in restraint of trade might last for an indeterminate period because he was bound by the covenants while his corporation was a unit-holder of the limited partnership plus 24 months. Thus, he argued that the indeterminate duration of the covenants was unreasonable.

[117] In his submission, part of the indeterminacy arose because of the provision in the prohibition on transfers that “no partner shall transfer … any units, except … with the prior consent in writing of … the Lenders, if such consent is required by the terms of any loan agreement with such Lenders.”

[118] In my opinion, connecting the duration of the covenants in restraint of trade to Mr. Martin’s corporation’s ownership of units in the limited partnership was not unreasonable. Mr. Martin has an indirect 25% ownership interest in ConCreate and SDF, and it is reasonable that while he is an owner, he should not compete with his own company. The issue then is whether the duration of time for divesting himself of the indirect ownership interest is unreasonable as between the parties.

[119] Putting aside the matter of obtaining the consent of any Lenders to a transfer of a unit in the limited partnership, as I understand the transfer provisions of the Limited Partnership, the longest duration for a transfer (which duration applies for both a dismissal for cause or for a dismissal without cause) is the length of time between the date of termination and 90 days after Mr. Martin gave notice to the Partnership that he was exercising the right “to put” his shares, which right would be available to Mr. Martin up to 90 days after the 12 months during which the Partnership had the right “to call” the shares.

[120] Thus, subject to obtaining the consent, if necessary, of the Lenders, the longest duration to complete a transfer is 12 months and 180 days and the longest duration for the operation of the covenants is three and a half years. In my opinion, this duration does not amount to any unreasonable duration for the operation of the covenants in restraint of trade.

[121] In my opinion, the duration does not become unreasonable because of the pre-condition to any transfer that the limited partnership’s lender’s consent to the transfer. Apart from the fact that the Partnership’s Lenders may not have contracted for the right to consent to any transfer of the shares and apart from the fact that the Lenders might give their consent, Mr. Martin agreed to this restraint on transfer as an incident of owning units in the limited partnership. In my opinion, it was reasonable for him to do so and it was reasonable for the parties to stipulate these restrictions on transfer.

[122] Particularly with respect to the duration of the covenant but also with respect to its territorial and operational scope, it is significant that as a part of the agreements, Mr. Martin acknowledged the reasonableness of the covenants in restraint of trade.

[123] I agree with Mr. Martin that the recitals, acknowledgments, and representations contained in the various agreements do not bind the Court and do not foreclose the Court deciding that the covenants were unreasonable as between the parties and unreasonable having regard to the public interest. I disagree, however, with him that these expressions by the parties are meaningless and should be ignored. It is to be recalled that there are two public policy forces at work, the public policy against restrains on trade and the public policy favouring freedom of contract. The capable and capability-advised Mr. Martin agreed to the covenants, and his expression of their reasonableness is not to be ignored, although the Court will make its own determination of reasonableness.

[124] Moving on again in the analysis, I conclude that the covenants are reasonable as between Mr. Martin and ConCreate and SDF. The next issue is whether the covenants are nevertheless unreasonable having regard to the interests of the public. The onus of proof on this issue rests with Mr. Martin. I conclude that he has failed to demonstrate that the covenants are unreasonable having regard to the public interest. Apart from his bald argument that the covenants would be harmful to the public interest in public sector contracts, there was little to base a finding that the covenants were contrary to the public interest notwithstanding their reasonableness as between the parties.

[125] I, therefore, conclude that the covenants in the case at bar have been justified and they are enforceable subject to the General Billpostings Rule or whatever other defences Mr. Martin may have, including his arguments that he has not breached the covenants.

[126] Having regard to the conclusion about the enforceability of the covenants, it is not necessary to address the issue of the doctrine of severability. However, as I noted above, this matter was fully argued, and as there may be an appeal, I will briefly set out my opinion about whether the doctrine of severability would have been available in the case at bar.

[127] In this regard, my answer is no. In the context of covenants in restraint of trade, the recent cases indicate that the doctrine of severability is of limited availability, and I would not apply it in the case at bar.

[128] In the immediate case, had I found that the covenants were unreasonable in the scope of their operation, their territoriality, or in their duration, I would not have been able to apply either the “blue pencil severance” technique or the “notional severance” technique because to do so would be to rewrite the contract for the parties.

E. CONCLUSION

[129] For the above reasons, I dismiss Mr. Martin’s Application.

[130] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with the Respondents within 20 days of the release of these Reasons for Decision followed by Mr. Martin’s submissions within a further 20 days.

Perell, J.

Released: March 21, 2012