



COURT OF APPEAL FOR ONTARIO

CITATION: Goodlife Fitness Centres Inc. v. Rock Developments Inc., 2019 ONCA 58

DATE: 20190128

DOCKET: C66152

Rouleau, van Rensburg and Benotto JJ.A.

BETWEEN

Goodlife Fitness Centres
    Inc.

Applicant
(Respondent)

and

Rock Developments Inc. and Rocco Tullio

Respondents
(Appellants)

James Renihan, for the appellants

Michael Polvere, for the respondent

Heard: January 21, 2019

On appeal from the judgment
    of Justice Jonathon C. George of the Superior Court of Justice, dated November
    13, 2018, with reasons reported at
2018 ONSC 6755
.

REASONS FOR DECISION

[1]

Goodlife Fitness Centres Inc. (Goodlife) operates health and fitness
    facilities across Canada. Rocco Tullio, as a principal of Lifestyle Family
    Fitness Centre Inc. (LFF), owned and operated health and fitness facilities in
    Windsor, Ontario. Tullio, through his company Rock Developments Inc. (RDI),
    and other entities, also owned various other properties in the area.

[2]

Goodlife agreed to purchase LFF from Tullio, with the sale closing on
    November 30, 2014. Since then, Goodlife has operated the Windsor fitness
    facilities.

[3]

Email exchanges as early as a year before closing reveal that the
    parties were discussing restrictive covenants on three other properties owned
    by Tullio, preventing the use of these properties for health and fitness
    facilities. In October 2013, Tullio was prepared to provide restrictions on two
    of the properties but not on 650 Division Road (650) because he planned to
    divest himself of it. In May 2014, having decided not to divest himself of
    650, Tullio told Goodlife that the co-owners of 650 would not agree to provide the
    same restrictions on 650. On June 13, 2014, Goodlife advised that it was
    willing to move forward provided that  it got a right of first refusal (ROFR)
    with respect to any offers to lease 650.

[4]

Goodlife also sought and received a restrictive covenant in respect of
    the reciprocal access between 650 and a neighbouring property, owned by Windsor
    Commons Inc. (WCI), in which Tullio had an interest. The covenant sought to
    prevent parking rights to any owner or tenant of 650, if used for a fitness
    facility.
[1]

[5]

There were ultimately three agreements at issue between Goodlife and
    Tullio: (i) a Non-Competition and Non-Solicitation Agreement (NCA); (ii) an
    agreement creating restrictive covenants with respect to two properties owned
    by Tullio, preventing the use of the properties for fitness centres; and (iii)
    a ROFR in favour of Goodlife with respect to 650. The NCA was signed on
    November 30, 2014. The ROFR was signed the following day.

[6]

Section 6 of the NCA provided:

Without the prior written consent of the Purchaser, which
    consent may be arbitrarily withheld, the undersigned will not at any time
    during the Restricted Period, within the Restricted Territory, directly or
    indirectly, either individually or in partnership or jointly or in conjunction
    with any person as principal, agent, shareholder, partner, employee or in any
    other manner whatsoever: (i) carry on or be engaged in, or have a business or
    financial interest in, a business that is the same as or substantially similar
    to the Business or any separate aspect or component of the services or
    facilities of the Business, including, for greater certainty, a single business
    location or multiple business locations; or (ii) advise, assist, provide
    consulting or development services to, lend money to, or guarantee the debts or
    obligations of, any person engaged in or having a business or financial
    interest in a business that is the same as or substantially similar to the
    Business or any separate aspect or component of the services or facilities of
    the Business, including, for greater certainty, a single business location or
    multiple business locations, and further, for greater certainty, the
    restrictions in subclause (i) and (ii) shall include and extend to any business
    location or locations that focus on specific aspects or components of services
    of the Business, such as, for example, personal training facility or
    facilities, yoga studio or studios, or suntanning facility or facilities.

[7]

The NCA expires on November 30, 2019.

[8]

The ROFR provided that, if a competing fitness facility offered to lease
    650, Goodlife had the option to lease on same terms, and if Goodlife declined,
    Tullio could lease the premises to the offeror.

[9]

Four years later, in July 2018, RDI negotiated a lease with Movati
    Athletic (Group) Inc. (Movati) for the construction of a health and fitness
    facility on 650. Goodlife was given notice in accordance with the ROFR, but declined
    to exercise the right of first refusal. RDI went ahead with the lease to
    Movati.

[10]

Goodlife
    then brought an application seeking a declaration that the Movati lease was
    void because it violated the terms of the NCA and an injunction requiring
    Tullio to abide by the terms and conditions of the NCA.

[11]

The
    application judge reviewed the negotiations leading up to the signing of the closing
    documents and made findings of fact with respect to the meaning of the NCA and
    the ROFR. He rejected the argument that the ROFR granted the right to lease 650
    to Movati during the term of the NCA. Based on the email exchanges during
    negotiations and the timing of the signing of each agreement, the application
    judge concluded that the NCA took precedence over the ROFR and that the ROFR
    was intended to supplement the NCA by adding an additional layer of
    protection for Goodlife, and that for the first five years the two agreements
    would work together to prevent anyone other than Goodlife from operating a
    fitness facility on the property, unless Goodlife provided its written consent.
    He observed that the contrary interpretation would render the NCA ineffective
    and without meaning.

[12]

There
    are three problems with this analysis.

[13]

First,
    neither the NCA nor the ROFR suggests one is paramount over the other. The
    plain language of the two documents, when read together, requires Tullio to
    abide by the terms of the NCA with an obligation to provide Goodlife with a
    right of first refusal should 650 be leased to a fitness, health or wellness
    facility.

[14]

Second,
    the application judge misunderstood what the negotiations actually said, giving
    rise to a palpable and overriding error of fact. The email exchange makes it
    clear that Tullio
refused
to grant the requested restrictive covenant
    over 650. The ROFR was agreed to with respect to 650 as a substitute for the
    restrictive covenant and specifically contemplates a lease to a fitness, health,
    or wellness facility.

[15]

Third, and most important, the application judge erred in relying
    on the negotiations to interpret the agreements. This court has repeatedly cautioned
    against looking  to negotiations to interpret a contract. The basic principles
    of commercial contract interpretation were summarized in
Salah v. Timothys
    Coffees of the World Inc.
, 2010 ONCA 673, 268 O.A.C. 279. At para. 16,
    Winkler C.J.O. stated:

When interpreting a contract, the
    court aims to determine the intentions of the parties in accordance with the language
    used in the written document and presumes that the parties have intended what
    they have said. The court construes the contract as a whole, in a manner that
    gives meaning to all of its terms, and avoids an interpretation that would
    render one or more of its terms ineffective. In interpreting the contract, the
    court must have regard to the objective evidence of the factual matrix or
    context underlying the negotiation of the contract,
but
    not the subjective evidence of the intention of the parties
. [Emphasis
    added.]

[16]

Likewise, in
The Canada Trust Company
    v. Browne
, 2012 ONCA 862, 115 O.R. (3d) 287, Feldman J.A.
    said at para. 71:

While the scope of the factual
    matrix is broad, it excludes evidence of negotiations, except perhaps in the
    most general terms  Ultimately, the words of the agreement are paramount.

[17]

Brown J.A. cited this in his decision in
Weyerhaeuser
    Company Limited v. Ontario (Attorney General)
, 2017 ONCA
    1007, 77 B.L.R. (5th) 175, at para. 112:

Canadian common law generally
    treats evidence of the parties specific negotiations as inadmissible for
    purposes of interpreting a contract  evidence of the factual matrix cannot
    operate as a kind of alternate means by which an adjudicator constructs a
    narrative about what the parties
must have
discussed or intended in
    their negotiations. In other words, evidence of the factual matrix cannot be
    used to do indirectly that which the principles of contract interpretation do
    not permit doing directly. [Emphasis in original; citations omitted.]

[18]

The plain wording of the ROFR contemplates that RDI may lease 650
    to a fitness, health or wellness facility. By relying on negotiations to
    interpret the ROFR, the trial judge made findings of fact that were both
    erroneous and not open to him. In the result, the application judge effectively
    superseded the plain wording of the agreement and rendered the ROFR
    meaningless.

[19]

Having
    found the lease to be void
ab initio
, the application judge then
    considered the work that Tullio had agreed to carry out under the terms of the
    lease.

[20]

The
    terms of the lease required RDI to prepare the property by grading, paving,
    landscaping, extending services such as sewer and water and so on. The
    application judge determined that this work violated the terms of the NCA
    because Tullio would be providing development services. He enjoined the
    appellants from doing any work in connection with the lease that would violate
    the NCA.

[21]

The
    application judges analysis is at paras. 34 and 35:

[Tullio]
is directly involved in preparing a
    fitness facility to compete with the Applicant. He is influencing the schedule
    of preparations and the speed at which the space will become operable as a
    fitness facility. He is allowing Movati (at no cost) to advertise on the
    property assisting with Movatis promotion and marketing, and he has guaranteed
    Movatis development charges beyond a capped amount.

Tullio argues that since the terms financial
    interest and development services are not defined in the NCA that I should
    interpret them in light of the overall purpose of the transaction. I agree,
    and in the result find that the overall purpose of the NCA was to prevent, for
    five years, a competitor from operating a fitness facility on the property. The
    only sensible conclusion is that while the NCA does not preclude Tullio from
    leasing the property, it does prevent him from leasing to the Applicants
    competitors.

[22]

The
    appellants submitted that the services set out in the lease, are those typical of
    a landlord to a tenant and are not restricted by the NCA. The application judge
    did not accept this submission. At para. 36, he stated:

Just
    because it is common for a landlord to provide services such as grading,
    installing sewer and drainage systems, landscaping, paving etc., does not mean
    they are not development services. They are, and they are prohibited under the
    NCA when the purpose is to prepare the space to be a fitness facility.

[23]

This conclusion cannot stand as it was tainted by the
    application judges erroneous conclusion that the purpose of the NCA was to
    prohibit a competing fitness facility at 650. Since RDI had the right to lease
    the property to Movati, it also had the right to provide the services normally
    provided as a landlord. To prevent RDI from preparing the property as part of a
    legitimate lease would result in a commercial absurdity and indirectly invalidate
    the lease.

[24]

Accordingly, the appeal is allowed.

[25]

Costs are ordered in accordance with the agreement
    between the parties. Costs of the appeal are payable to the appellant fixed at
    $12,000 inclusive of HST and disbursements; costs of the application will be paid
    by the respondent to the appellant in the amount of $20,000 all inclusive.

Paul Rouleau J.A.

K. van Rensburg J.A.

M.L. Benotto J.A.





[1]
An issue was raised during oral argument about the WCI parking. This issue was
    not in the Notice of Application and it was not before the application judge.
    Therefore, it is not before this court and does not need to be addressed.


