COURT FILE NO.: CV-09-03997

(Brampton)

DATE: 2013-02-05

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

W.I. MEDIA INC.

Plaintiff

– and –

R. BLAIR TULLIS

Defendant

Edwin G. Upenieks, Counsel for the Plaintiff

Kyle C. Armagon, Counsel for the Defendant

HEARD: January 8, 9, 10 and 11, 2013

REASONS FOR JUDGMENT

GRAY J.

[1] In this action, the plaintiff claims that the defendant, a former officer, director and shareholder of the plaintiff, has violated his common law and contractual obligations to refrain from competing with and soliciting clients of the plaintiff, thereby causing it to incur substantial damages.

[2] For the reasons that follow, the action is dismissed.

Background

[3] There is some dispute as to the nature of the business of the plaintiff, but in essence it is in the business of publishing trade magazines for the wood industry. The wood industry in this context means manufacturers of wood products, and suppliers of equipment and material for wood product manufacturers. As is the case with virtually any trade magazine, its revenue is derived almost exclusively from advertising. There is no circulation revenue, as the magazine is distributed free to manufacturers and suppliers involved in the wood industry.

[4] The current sole shareholder of the plaintiff is Kerry Knudsen. He commenced working with the defendant, Blair Tullis, in 1997. Prior to that, he had worked in the United States in the magazine publishing industry.

[5] In 1997, Mr. Knudsen joined Mr. Tullis, at Mr. Tullis’ invitation, as an editor. Mr. Tullis was working for Action Communications, and one of the magazines published by that organization was Woodworking Magazine, of which Mr. Tullis was the publisher. Mr. Knudsen commenced working for Action Communications as the editor of Woodworking Magazine.

[6] Action Communications was subsequently sold to CLB Media. Mr. Tullis became dissatisfied with the situation after CLB Media became involved, and in 2004 he suggested to Mr. Knudsen that they should start their own magazine. Ultimately, in 2005, it was agreed that they would do so.

[7] Mr. Knudsen and Mr. Tullis had discussions as to the respective roles that would be played by each of them. Mr. Tullis had significant contacts in the wood industry, and it was agreed that he would be primarily responsible for sales and administration. Mr. Knudsen’s strengths were in editorial work, and it was agreed that he would be responsible for the editorial content of the magazine, art, production of the magazine, and circulation. It was agreed that Mr. Tullis would be president and treasurer of a company to be incorporated, and Mr. Knudsen would be vice-president and secretary.

[8] At Mr. Tullis’ insistence, he was to have 55% of the shares of the company, and Mr. Knudsen was to have 45%. In every other respect, they were to be considered equal partners. On any sale of the company, the proceeds would be divided 55% to Mr. Tullis, and 45% to Mr. Knudsen.

[9] Mr. Tullis recommended a lawyer, a Mr. Tim Carter, to act as the solicitor to incorporate the Corporation. He also suggested an accountant and the corporation’s banker. The head office was to be Mr. Tullis’ home address.

[10] The parties entered into a shareholders’ agreement, which contains certain provisions that have some importance. Those provisions are reproduced as follows:

2.1 The parties shall cause the Corporation to create and publish a Canadian magazine called “Wood Industry” and to generally carry on all ancillary and related activities which in the mutual operation of the parties will enhance the Corporation’s income and profit. Distribution will be predominately in Canada. Advertisers will be solicited from Canada, the United States, Europe and the rest of the world. It is anticipated that there will be six (6) regular issues per year. In future, the parties will consider other opportunities.

2.2 The parties agree to allocate business responsibilities as follows:

• R. Blair Tullis - Billing, accounting/tax issues, collections, marketing and sales

• Kerry Knudsen - Circulation, editorial and production

Each party will have the final say in their areas of responsibility. Other issues will be decided by consensus or by consensus allocated to a party as his area of responsibility.

3.1 The Corporation shall be organized as follows:

(h) The by-laws of the Corporation shall provide or shall be deemed hereby to be amended to provide amongst other things, as follows:

v. any Director shall have the right at any time and from time to time to call a meeting of the board of directors on not less than two (2) weeks’ notice;

6.7 No transactions shall occur with a person not at arms length to a Shareholder without full disclosure to and approval by the other Shareholder;

9.1 If either party wishes to dispose of his Common Shares, he (thereinafter called the “Offeror”) shall offer in writing all his shares to the other party (hereinafter called the “Offeree”) on the terms and conditions set out in Section 9.2.

9.2 The offer shall contain only the following:

a) an unqualified offer to sell all the Common Shares owned or controlled by the Offeror at a stipulated Canadian dollar price per share (hereinafter the “Shotgun Purchase Price”):

b) an unqualified offer to purchase all the Common Shares owned or controlled by the Offeree at the same price per share;

c) an undertaking to close the purchase or sale (as selected by the Offeree’s response or lack thereof according to Section 9.3) on a date fixed not less than sixty (60) days and not more than ninety (90) days from the service of the offer on the Offeree at the time and place fixed in the offer and in accordance with the Sale Provisions of this Article and Article 12.

9.3 (a) If the Offeree accepts the offer under Section 9.2(a), the Offeror (hereinafter called the “Shotgun Vendor”) shall sell all his shares to the Offeree (hereinafter called the “Shotgun Purchaser”) show shall purchase and pay for them on the date and at the place stated in the offer and for the Shotgun Purchase Price.

(b) If the Offeree accepts the offer under Section 9.2(b), the Offeree (hereinafter called the “Shotgun Vendor”) shall sell all his shares to the Offeror (hereinafter called the “Shotgun Purchaser”) who shall purchase and pay for them on the date and at the place stated in the offer and for the Shotgun Purchase Price.

(c) If the Offeree does not accept either of the alternative offers described in Section 9.2 within thirty (30) days of his receipt of the offer, he shall be deemed to have accepted the Offeror’s (hereinafter called the “Shotgun Purchaser”) offer to buy all the Common Shares of the Offeree and the Offeree (hereinafter called “the Shotgun Vendor”) shall sell on the date and at the place stated in the offer and for Shotgun Purchase Price.

16.1 Each of the parties hereto shall consider as confidential and use his best efforts to prevent communication to others, both during the term of this Agreement and thereafter, of any trade secret, knowledge, patent, know-how, technical data, technical expertise, customer lists, financial information, employee information or any other information relative to the Corporation (hereinafter called “Confidential Information”) which is not publicly known and that shall have been acquired because of his relationship with the Corporation.

16.2 In addition to the obligations of the parties hereto not to disclose any Confidential Information, no party shall make use of any such Confidential Information whatsoever except to further the interests of the business of the Corporation and under appropriate conditions of non-disclosure.

16.3 Each party covenants and agrees that during such time as he is a Shareholder of the Corporation and for a period of two years thereafter, he will not directly or indirectly solicit or attempt to solicit any employee, supplier, or customers of the Corporation’s business from the Corporation, nor will he compete directly or indirectly with the Corporation’s business through a competitive business that operates within the Canadian magazine marketplace.

16.4 The parties hereto acknowledge to each other that the limitations set forth in this Article have been considered by them and are, with respect to their respective interests, reasonable as to time, scope, geography and otherwise, having regard to all relevant circumstances.

18.7 This Agreement expresses the final understanding between the parties with respect to all matters herein and no representations, inducements, promises or agreements or otherwise between the parties not embodied herein shall be of any force and effect. This Agreement shall not be altered, amended or qualified except by a memorandum in writing, signed by all of the parties, and any alteration, amendment or qualification thereof shall be null and void and shall not be binding upon any such party unless made and recorded as aforesaid.

[Emphasis added]

The Corporation was also a party to the Agreement.

[11] Pursuant to Mr. Tullis’ agreement with CLB Media, the earliest date that he was entitled to compete with CLB Media was July 4, 2005. That was the date that the plaintiff Corporation was incorporated.

[12] After the incorporation of the plaintiff, it commenced publishing a trade magazine called “Wood Industry”. Ultimately, that magazine became the leading trade magazine for the wood industry.

[13] There are a number of trade shows that are put on for participants in the wood industry. Some of those are in Europe, some in the United States, and some in Canada. In addition to publishing Wood Industry magazine, the Corporation published show guides for some trade shows.

[14] From the outset, the plaintiff, and specifically Wood Industry magazine, did very well.

[15] As noted, the company was incorporated in July, 2005. For the period ending December 31, 2005, the company had sales revenue of $202,229. For the year ending December 31, 2006, sales revenue was $877,313. For the year ending December 31, 2007, sales revenue was $1,211,340. For the 11 months ending December 1, 2008, sales revenue was $1,000,312.63.

[16] Besides Mr. Knudsen and Mr. Tullis, certain other people were employed. A salesperson named David Smith was employed in January, 2006. An assistant editor was also hired. Cam Tullis, Blair Tullis’ son, was also hired as a salesperson. This turned out to have some significance later.

[17] Mr. Knudsen’s wife was retained as a consultant to assist with art direction and production. Another person was retained, not as an employee, to assist with circulation.

[18] The plaintiff obtained another trade magazine, called “Coverings”, which was published for the floor coverings market.

[19] Mr. Knudsen testified as to the involvement of himself and Mr. Tullis in trade shows. As noted earlier, the plaintiff published show guides for various trade shows. However, trade shows also presented a good opportunity to meet and socialize with existing and potential clients of the magazine. Accordingly, Mr. Tullis and Mr. Knudsen would regularly attend trade shows.

[20] Mr. Knudsen testified that he and Mr. Tullis had, on occasion, discussed the possibility of buying one or more trade shows, or perhaps starting their own trade show. However, nothing ever came of this.

[21] Mr. Knudsen testified as to the potential marketing opportunities available to a publisher of a magazine such as Wood Industry magazine. He used the example of Cottage Life which, after publishing a magazine for some time, then established its own trade show, its own television show, and a website. As a result, it became a leader in the market and its name became synonymous with anything to do with cottaging in Canada.

[22] However, as noted, the business of the plaintiff was essentially restricted to publishing trade magazines and publishing trade show guides. Apart from revenue from trade show guides, the plaintiff received no revenue from trade shows, and Mr. Tullis and Mr. Knudsen simply attended trade shows in order to maintain and solicit business for the magazines.

[23] As noted earlier, Cam Tullis was hired as a sales representative. Blair Tullis wanted to hire him and put him in charge of sales. It was understood that, if hired, Cam Tullis would be the heir apparent, to ultimately take over Blair Tullis’ role.

[24] At the time Cam Tullis was hired, the plaintiff already had a sales representative, David Smith.

[25] From Mr. Knudsen’s perspective, Cam Tullis was not effective as a salesperson. He testified that there were conflicts between David Smith and Cam Tullis.

[26] Mr. Knudsen testified that in late 2007, he tried to discuss with Blair Tullis ways in which Cam Tullis could be assisted in improving his performance. Mr. Knudsen testified that Blair Tullis made it clear that as far as he was concerned, this was not Mr. Knudsen’s concern.

[27] Mr. Knudsen testified that as far as he was concerned, Cam Tullis’ attitude towards him was poor. Cam Tullis regarded himself as Mr. Knudsen’s boss. He was pushy, and he would hang up the phone on Mr. Knudsen. He testified that Cam Tullis brought in almost no new business, his expenses were extremely high, and he irritated existing customers to the point where he lost business.

[28] Mr. Knudsen testified that there was no apparent improvement in the situation in 2008. He tried to discuss the situation with Mr. Tullis. Ultimately, he told Mr. Tullis that if necessary he would schedule a board of directors’ meeting to deal with the problem.

[29] The situation became untenable. A review of correspondence between Mr. Knudsen and Mr. Tullis discloses open hostility.

[30] Ultimately, Mr. Knudsen requisitioned a board of directors meeting, to occur on October 15, 2008. At the meeting, Mr. Tullis presented an offer, pursuant to Article 9 of the Shareholders Agreement, to purchase all of Mr. Knudsen’s shares at a defined price. Pursuant to Articles 9.2(a) and 9.3(a) of the Agreement, Mr. Knudsen had the right to purchase Mr. Tullis’ shares for the same price per share as that contained in Mr. Tullis’ offer. Ultimately, by letter dated October 28, 2008, Mr. Knudsen elected to purchase Mr. Tullis’ shares for the shotgun price of $220,000. The deal closed on December 1, 2008.

[31] In some of the email communications between Mr. Knudsen and Mr. Tullis, there was a suggestion by Mr. Tullis that if Mr. Knudsen purchased Mr. Tullis’ shares, he would retire. After Mr. Knudsen elected to purchase Mr. Tullis’ shares, Mr. Tullis made it clear that he was not intending to retire in the sense that he would not do anything at all. In an email dated November 11, 2008, he stated, “I have no intention of retiring – indeed, I cannot retire as I don’t have the money to do so. I will be working in the wood industry, doing some sort of consulting work, or even running an association.”

[32] Mr. Knudsen testified that the staff at the magazine were advised on October15, 2008 that Mr. Tullis had invoked the buy/sell provisions of the Shareholders Agreement. He testified that Mr. Tullis did not consult him before advising the staff.

[33] Ultimately, in an announcement made to the wood industry, Mr. Knudsen advised:

Following 36 years of working for the publishing industry, both independently and as a friend and colleague, W.I. Media publisher Blair Tullis has decided to semi-retire in order to take some time to give back to the industry he so enjoys. Consequently, he has decided to sell his shares in W.I. Media. After careful consideration, I have accepted his offer and we will purchase the remaining company shares on December 19. Blair will be staying on through the transition to offer training and counsel, then will be looking at opportunities to consult within the wood industry.

The wording of the announcement had been discussed and agreed to between Mr. Knudsen and Mr. Tullis.

[34] After Mr. Tullis ended his involvement with the plaintiff, he did engage in some activities which are the subject of this action.

[35] On March 19, 2009, the solicitors for the plaintiff wrote to Mr. Tullis and, among other things, stated:

On behalf of our client, we hereby demand that you immediately cease and desist from soliciting the Corporation’s customers and suppliers and from representing yourself to be the owner of the Corporation and that you honour all other obligations that you have to the Corporation and to its shareholder.

[36] On December 22, 2008, Mr. Tullis incorporated his own company called Tullis & Associates Ltd.

[37] Commencing in December, 2008, Tullis & Associates commenced invoicing a number of industry associations for work done by Mr. Tullis. Essentially, these form the basis of the action, and I will discuss them in some detail.

[38] From December, 2008 until December, 2009, Tullis & Associates invoiced the Canadian Kitchen Cabinet Association (“CKCA”).

[39] Mr. Tullis had been on the board of directors of the CKCA, and upon ceasing his involvement with the plaintiff he resigned his seat on the board. He recommended to the CKCA that Mr. Knudsen replace him on the board.

[40] The work for which he invoiced the CKCA was of two types. First, he was asked by the CKCA to develop a “standard” for kitchen cabinets and vanities. Second, he was asked to make phone calls to members of the Association, to persuade them to renew their memberships.

[41] Mr. Tullis testified that the plaintiff had never been involved in either activity. After some probing on cross-examination, Mr. Knudsen acknowledged this, but took the position that these were activities that could have been engaged in by the plaintiff.

[42] Tullis & Associates invoiced for work done with respect to certain trade shows. He was engaged to sell booth space for a trade show in Milan, and he attended a trade show in Las Vegas to attempt to get companies to attend a trade show in Italy.

[43] Mr. Knudsen acknowledged that the plaintiff had never done work of this kind, but he took the position that the plaintiff could have done it.

[44] Tullis & Associates also invoiced Vance Communications for some consulting he did in recommending a seminar program for a trade show. Mr. Tullis actually recommended Mr. Knudsen as someone who could lead one of the seminars. He testified that the plaintiff had never done consulting work of this sort, and Mr. Knudsen did not suggest otherwise.

[45] Tullis & Associates invoiced a consulting corporation for some work he did to recommend ways to improve the wood industry in Grey and Bruce Counties. Mr. Tullis testified that the plaintiff had never done this sort of work, and Mr. Knudsen did not suggest otherwise.

[46] Tullis & Associates invoiced for a good deal of work done for Wood Manufacturing Council (“WMC”). This was the most significant and substantial work done by Mr. Tullis after leaving the plaintiff.

[47] WMC is a federally-sponsored council for the wood sector. Mr. Tullis was a founding member, and in 2008 was the chair of the council. After leaving the plaintiff, Mr. Tullis resigned from the council.

[48] Before Mr. Tullis left the plaintiff, WMC was a significant advertiser in Wood Industry magazine. It remained so after Mr. Tullis left. Indeed, there was virtually no change in the volume of advertising.

[49] Tullis & Associates was retained by WMC to advise on the basic skills of running a plant in the wood industry, and developing tools for assessing those skills. Tullis & Associates did some work on a scoping study, which was intended to look at the skills gap in the manufactured housing industry. Tullis & Associates had some discussions with suppliers, having to do with training for jobs in the industry. There was consulting on a marketing plan for the project. Mr. Tullis testified that none of this had ever been done by the plaintiff. Mr. Knudsen did not suggest otherwise.

[50] Tullis & Associates was retained to review the question of a national association for the industry. Mr. Tullis wrote a paper on the subject, and created advertising, most of which ran in Wood Industry magazine.

[51] Mr. Knudsen testified that the idea of a national association was originally his idea, and that he had proposed it to Mr. Tullis. However, he did not suggest that the plaintiff had been engaged in any work in such a project.

[52] Tullis & Associates was retained to conduct three days of outreach visits to wood products manufacturers in the GTA. While Mr. Knudsen testified that the plaintiff had been engaged in similar activities, he provided no specifics.

[53] For several years prior to leaving the plaintiff, Mr. Tullis had personally invoiced the Canadian Woodworking Machinery Dealers Association (“CWMDA”) for $3,000 each year. In essence, this was for services rendered by Mr. Tullis in assisting with that organization’s annual meeting. Mr. Tullis testified that he had done this, essentially as a favour to the organization, for many years, including years before joining Mr. Knudsen to incorporate the plaintiff. He insisted that he and Mr. Knudsen had discussed this, and Mr. Knudsen had no objection. Mr. Knudsen, on the other hand, testified that he had no knowledge of this arrangement until he discovered it in 2007. While he raised it with Mr. Tullis, he did not take the position that the money belonged to the plaintiff.

[54] After Mr. Tullis left the plaintiff, he continued to perform this service and invoice the association $3,000, although in one year when the meeting was in Atlanta, he invoiced for his hotel and airfare. I note that no invoice was produced for the year 2008.

[55] The only consulting work mentioned by Mr. Knudsen that was apparently done by the plaintiff was a small amount of work for Landscape Ontario in 2008, which was invoiced for $500.

[56] After Mr. Knudsen and Mr. Tullis parted ways, the plaintiff changed its year end to August 31st.

[57] Sales revenue for the period December 2, 2008 to August 31, 2009 was $514,073. Sales revenue for the year ending August 31, 2010 was $731,063. Sales revenue for the year ending August 31, 2011 was $628,396.

[58] As noted earlier, the overwhelming amount of revenue consists of advertising revenue. Indeed, I have no evidence that any revenue of the corporation, both before and after December 1, 2008, consisted of anything other than advertising revenue, except for the publishing of trade show guides.

[59] Both parties called experts to provide opinions on the damages suffered by the plaintiff. Those opinions were each premised on the assumption that the plaintiff could establish liability for the damages. As might be expected, the opinions as to the quantum of damages vary significantly as between the experts.

[60] In view of the conclusion I have reached on the question of whether there is any liability on the part of defendant, it is unnecessary for me to review the evidence respecting damages, including the opinions of the experts.

Submissions

[61] Mr. Upenieks, counsel for the plaintiff, submits that the defendant breached the Shareholders Agreement, and is liable to pay damages.

[62] Mr. Upenieks acknowledges that the overwhelming amount of revenue earned by the plaintiff consists of advertising revenue. However, he points out that the plaintiff did earn a small amount of consulting revenue, consisting of some work done for Landscape Ontario in 2008. While the revenue was only $500, nevertheless, it demonstrates that the plaintiff did more than simply publish magazines.

[63] Mr. Upenieks submits that Mr. Tullis was clearly in violation of his obligations to the plaintiff by earning a $3,000 annual consulting fee from the CWMDA, which was not disclosed to the plaintiff or to Mr. Knudsen.

[64] Counsel submits that the business of the plaintiff was defined in Article 2.1 of the Shareholders Agreement, which states that Mr. Knudsen and Mr. Tullis would cause the Corporation “to create and publish a Canadian magazine called ‘Wood Industry’ and to generally carry on all ancillary and related activities which in the mutual operation of the parties will enhance the Corporation’s income and profit.” In the same article, it is stated “In future, the parties will consider other opportunities.” Mr. Upenieks submits that the non-solicitation and non-compete provision, Article 16.3, must be construed broadly in view of the broad scope of the business contemplated in Article 2.1.

[65] It is clear, Mr. Upenieks submits, that the parties understood that the business of the Corporation was not confined to the publication of magazines. It was clearly contemplated that the business would include “ancillary and related activities” which would enhance the Corporation’s income and profit.

[66] Mr. Upenieks acknowledges that the specific activities undertaken by Mr. Tullis since his departure were not done by the Corporation prior to his departure. Nevertheless, they are clearly things that could have been done by the Corporation, and indeed some of them, including the running of trade shows, were specifically discussed between Mr. Tullis and Mr. Knudsen as possibilities. They are all directly related to the wood industry, and they must all be considered to be ancillary and related activities within the meaning of Article 2.1 of the Agreement.

[67] Mr. Upenieks submits that as a result of the activities of Mr. Tullis since his departure, the Corporation has suffered a serious decrease in its revenue, and it can only be concluded that Mr. Tullis is responsible for at least some of that decrease. While it is acknowledged that the recession in 2008 and 2009 undoubtedly contributed to the decrease, it is not reasonable to conclude that the recession was responsible for all of it.

[68] Mr. Upenieks specifically relies on Canadian Aero Service Ltd. v. O’Malley, [1973] S.C.J. No. 97; Di Florio v. Con Structural Steel Ltd., [2000] O.J. No. 340 (S.C.J.); and KJA Consultants Inc. v Soberman, [2002] O.J. No. 489 (S.C.J.).

[69] Mr. Armagon, counsel for the defendant, submits that there has been no violation of the Shareholders Agreement by his client.

[70] Mr. Armagon submits that the term “ancillary and related activities”, as used in Article 2.1 of the Agreement, must be interpreted in the context of what the Corporation actually did, as opposed to what it could theoretically do, but did not do. He submits that at no time has Mr. Tullis solicited or attempted to solicit any customer of the Corporation’s business, nor has he competed directly or indirectly with the Corporation’s business through a competitive business that operates within the Canadian magazine marketplace. Accordingly, there has been no violation of Article 16.3 of the Agreement.

[71] Mr. Armagon submits that none of the consulting activities undertaken by Mr. Tullis had ever been done by the plaintiff. The plaintiff had never run any trade shows, and had never advised on formulating seminar topics at trade shows, or selling booth space at trade shows. The most the plaintiff had done was to publish show guides. While there had been some discussion between Mr. Tullis and Mr. Knudsen about the possibility of purchasing or starting a trade show, nothing was ever done about it.

[72] The consulting activity done by Mr. Tullis for the Wood Manufacturing Council, including initiatives in the education secure and the manufactured housing scoping study, had never been contemplated, let alone done by the plaintiff. The study done to potentially improve things in Grey and Bruce Counties had never been contemplated nor done. The work done for the CKCA, including promotion of memberships, had never been contemplated or done.

[73] As far as the $3,000 annual honorarium for the CWMDA is concerned, this was entirely unrelated to the publication of any magazine, and had been done long before Mr. Tullis and Mr. Knudsen incorporated the plaintiff. Mr. Tullis believes he had told Mr. Knudsen about this, but Mr. Knudsen says he did not find out about it until 2007. In any event, even then Mr. Knudsen did not insist that the money be transferred to the Corporation. There was certainly nothing that was competitive with the plaintiff’s business.

[74] Mr. Armagon relies particularly on Aquafor Beech Ltd. v. Whyte (2010), 2010 ONSC 2733, 102 O.R. (3d) 139 (S.C.J.); Pizza Pizza Ltd. v. Gillespie (1990), 75 O.R. (2d) 225 (Gen. Div.); Tembro Truck & Auto Services Ltd. v. Brown (1996), 69 C.P.R. (3d) 163 (Ont. Gen. Div.); and GasTOPS Ltd. v. Forsyth, [2009] O.J. No. 3969 (S.C.J.); aff’d 2012 ONCA 134, [2012] O.J. No. 909 (C.A.).

Analysis

[75] This is a case where the parties have set out their bargain in writing. In such a case, in my view, common law concepts relating to the duty of fidelity, or fiduciary obligations, as discussed in such cases as Canadian Aero Service, supra, have little application. Where there is a written agreement, as here, it is to that agreement that the Court must look as the source of the parties’ obligations.

[76] As is the case in interpreting any commercial agreement, it must be interpreted in the context of a matrix of surrounding circumstances. As stated by Blair J.A. in Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 2007 ONCA 205, 85 O.R. (3d) 254 (C.A.), at para. 45:

Contracts are not made in a vacuum, and there is no dispute that the surrounding circumstances in which a contract is negotiated are relevant considerations in interpreting contracts. As this Court noted in Kentucky Fried Chicken, supra, at para. 25: “[w]hile the task of interpretation must begin with the words of the document and their ordinary meaning, the general context that gave birth to the document or its ‘factual matrix’ will also provide the Court with useful assistance.”

[77] It is also clear that, except in narrow circumstances, evidence of subjective intention is neither admissible nor helpful. As stated by Doherty J.A. in Dumbrell v. The Regional Group of Companies Inc. (2007), 2007 ONCA 59, 85 O.R. (3d) 616 (C.A.), at para. 50:

In my view, when interpreting written contracts, at least in the context of commercial relationships, it is not helpful to frame the analysis in terms of the subjective intention of the parties at the time the contract was drawn. This is so for at least two reasons. First, emphasis on subjective intention denudes the contractual arrangement of the certainty that reducing an arrangement to writing was intended to achieve. This is particularly important where, as is often the case, strangers to the contract must rely on its terms. They have no way of discerning the actual intention of the parties, but must rely on the intent expressed in the written words. Second, many contractual disputes involve issues on which there is no common subjective intention between the parties. Quite simply, the answer to what the parties intended at the time they entered into the contract will often be that they never gave it a moment’s thought until it became a problem: see Kim Lewison, The Interpretation of Contracts, 3rd Ed. (London: Sweet & Maxwell, 2004) at 18-31.

[78] In my view, the words “ancillary and related activities” in Article 2.1 must be interpreted in the context of what the incorporating parties had been involved with before they entered into this venture, and in the context of what the corporation actually did. The non-solicitation and non-competition covenants contained in Article 16.3 must also be interpreted in the same context.

[79] Before entering into the venture, Mr. Tullis and Mr. Knudsen had been employed by a publisher of trade magazines, and were engaged in the publication of a trade magazine for the wood industry. They became dissatisfied, and decided to publish another trade magazine to serve the wood industry. After the incorporation of the plaintiff, that is exactly what the Corporation did – it published “Wood Industry” magazine, and ultimately “Coverings” magazine.

[80] At no time was the Corporation engaged in preparing material for standards for kitchen cabinets and vanities; preparing or arranging for seminars at trade shows, or selling booth space at trade shows; analyzing means of improving prospects of the wood products manufacturing industry; consulting on skills awareness, or a manufactured housing scoping study; or assisting an organization with its annual meeting. I am not persuaded that the tiny, single instance of consulting work for Landscape Ontario for $500 in 2008 means that the plaintiff was in the consulting business, or that consulting on matters that do not involve magazine publishing constitutes ancillary and related activities.

[81] In my view, some indication of what the terms ancillary and related activities means can be gleaned from what the Corporation actually did that went beyond the publishing of the trade magazines. It is not in dispute that the Corporation published trade show guides. This was publishing work, and can easily be considered ancillary to, and related to, the publishing of a trade magazine for the wood industry. The Corporation was, and is, using its publication and editorial skills in publishing material for the wood industry, that would assist the Corporation in maintaining a relationship with the operators of trade shows and those industry representatives who attend them.

[82] I am not persuaded that Mr. Tullis, after severing his relationship with the plaintiff, solicited any customer of the Corporation’s business as prohibited by Article 16.3. There is no evidence that any customer of the Corporation did anything except advertise in one or both of the plaintiff’s magazines. There is no evidence that any of the revenue from any of the plaintiff’s customers was from anything other than advertising, save for the tiny amount billed to Landscape Ontario in 2008, and from publishing trade show guides. Mr. Tullis did not solicit any advertising client from the plaintiff. Nor did he publish any trade show guides. While the plaintiff’s advertising revenue certainly decreased, there is no evidence that any of the decrease was as a result of anything done by Mr. Tullis. The plaintiff acknowledges that at least some of the decrease was as a result of the recession. Mr. Tullis had significant contacts in the wood industry, and it is entirely possible that some advertisers decreased, or even discontinued, advertising in the plaintiff’s magazines once he was no longer there. However, in order to succeed, the plaintiff would need to show that Mr. Tullis solicited customers of the plaintiff’s business. It has not done so. Significantly, none of Mr. Tullis’ revenue since leaving the plaintiff was advertising revenue.

[83] I am also not persuaded that Mr. Tullis has competed, directly or indirectly, with the plaintiff’s business through a competitive business that operates within the Canadian magazine marketplace, as prohibited by Article 16.3. As discussed earlier, the consulting work done by Mr. Tullis is not work that was performed by the plaintiff, and cannot reasonably be considered part of the plaintiff’s business. For the most part, while the work was done for people involved in the wood industry, it really had nothing to do with the Canadian magazine marketplace. I am not convinced that developing standards for kitchen cabinets and vanities; persuading association members to renew memberships; selling booth space at trade shows; soliciting people to attend trade shows; recommending seminar programs for trade shows; recommending ways of improving the wood industry; advising on skills training; doing scoping studies and advising on skills in the manufactured housing industry; preparing a proposal for a national association for the wood industry; conducting outreach visits to wood products manufacturers; or assisting an organization with its annual meeting, are any part of the plaintiff’s business. They are not, in my view, ancillary and related activities within the meaning of Article 2.1 of the Agreement.

[84] In the result, I am not persuaded that any of the activities undertaken by Mr. Tullis and his company are prohibited by the Shareholders Agreement. Accordingly, I hold that he is not in violation of that agreement.

Disposition

[85] For the foregoing reasons, this action is dismissed.

[86] I will entertain brief written submissions with respect to costs, not to exceed three pages, together with a bill of costs or costs outline. Mr. Armagon will have five days to file his submissions at my chambers in Milton, and Mr. Upenieks will have five days to respond, also at my chambers in Milton. Mr. Armagon will have three days to reply.

GRAY J.

Released: February 5, 2013

COURT FILE NO.: CV-09-03997

DATE: 2013-02-05

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

W.I. MEDIA INC.

Plaintiff

– and –

R. BLAIR TULLIS

Defendant

REASONS FOR JUDGMENT

GRAY J.

Released: February 5, 2013