Hail The ROFR: Another Non-Compete Bites The Dust At The Ontario Appeal Court

Last January, the Court of Appeal for Ontario (Appeals Court) provided judicial clarity on the interplay between specific real estate documentation and broader commercial agreements in the context of a share purchase transaction. In Goodlife Fitness Centres Inc. v. Rock Developments Inc.,1 the Appeals Court emphatically overturned a lower court's decision, and in clear language pronounced that:

in the absence of express wording to the contrary, a specific right of first refusal (ROFR) cannot be superseded by a related and broadly worded non-competition agreement (Non-Compete Agreement); and courts should not rely on evidentiary material from the parties' negotiations when interpreting final executed agreements. Background

In June 2014, Goodlife Fitness Centres Inc. (GFC), as operator of health and fitness facilities across Canada, entered into an agreement to purchase the shares of a Windsor-based competitor, Lifestyle Family Fitness Centre Inc. (LFF). At the time, LFF's principal was Rocco Tullio (Tullio). In addition, Tullio was an owner and the controlling mind of Rock Developments Inc. (RDI) and of certain other entities. RDI was the registered owner of the property known as 650 Division Rd, Windsor, Ontario (Property 1); the other entities controlled by Tullio owned two other commercial sites in the Windsor area (Property 2 and Property 3, respectively).

Before the closing date of the share purchase deal (November 30, 2014), GFC requested assurances from Tullio that he would not engage in competing fitness club operations in the Windsor area. GFC initially sought to place restrictive covenants on each of Property 1, 2 and 3, prohibiting the use of these properties as health and fitness facilities. Tullio accepted the restrictions on Property 2 and 3, but not on Property 1. Instead of a restrictive covenant on Property 1, Tullio executed a ROFR in favour GFC. Under the ROFR, GFC had the option to lease Property 1 on the same terms as those contained in a lease offer made by a third-party fitness facility operator; if GFC declined to so exercise the option, Tullio could then lease it to the third-party offeror.

On the closing of the share purchase transaction, Tullio also executed an Non-Compete Agreement in favour of GFC, pursuant to which Tullio would be barred from (among other things) having a "business or financial interest" in a fitness-related business, and from "providing ... development services ... to any person engaged in" a...