Case information

Contracts – Commercial contracts – Restrictive covenants – Interlocutory injunctions – Interlocutory injunction granted to enforce a non-competition agreement entered into following sale of a business – Court of Appeal applying severance to strike portions of unreasonable geographic scope of agreement – Whether the test for blue pencil severance articulated in Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157, applies to restrictive covenants in a commercial context – Whether the distinction between restrictive covenants in commercial agreements and employment agreements is relevant to the application of the doctrine of blue pencil severance – What is the correct test to apply to restrictive covenants in a commercial context? – In assessing the reasonableness of a geographic scope in a sale of business non-competition agreement, should it be limited to the location of the purchased goodwill and the area where purchased business primarily conducted business?

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

The applicant, Mr. Poole, operated a vehicle towing business in and around Edmonton, Alberta. He sold his assets in that business to the respondent, City Wide Towing and Recovery Service Ltd. (“City Wide”). The sale included a non-competition agreement restraining Mr. Poole from competing with City Wide for a period of five years in Alberta, British Columbia and Saskatchewan. During this period, Mr. Poole commenced work with DRM Recovery Ltd., a business that City Wide says is in direct competition with them. City Wide brought an action against Mr. Poole and DRM for breaches of the non-competition agreement and an application for an interlocutory injunction. A judge of the Court of Queen’s Bench granted an interlocutory injunction restraining Mr. Poole from competing against City Wide within the geographical area of Alberta, British Columbia and Saskatchewan. A majority of the Court of Appeal allowed Mr. Poole’s appeal in part. It held that while the restrictive covenant was unreasonably broad in its geographic scope, there was a strong prima facie case that it was enforceable upon severance of some of its language. It amended the interlocutory injunction by excising words from it so that the remaining scope was Alberta. A dissenting judge would have allowed Mr. Poole’s appeal and would have set aside the interim injunction rather than applying severance to it.