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Contract - Interpretation - Ambiguity (2). F45 Training Canada Limited v. 2685802 Ontario Limited
In F45 Training Canada Limited v. 2685802 Ontario Limited (Ont CA, 2026) the Ontario Court of Appeal allowed a franchise contract appeal, this brought against the lower court's conclusion that "both the non-competition clause and the non-solicitation clause were ambiguous as to the scope of restricted activities, and therefore unenforceable by the franchisor against the former franchisees".
Here the court considers the task of "determining the enforceability of a restrictive covenant" as a matter of contractual interpretation, with a central focus on 'ambiguity':[29] The first question in determining the enforceability of a restrictive covenant is to determine its meaning as to restricted activities, time and geography. As Zarnett J.A. noted in M & P Drug Mart at para. 36, “a covenant that is ambiguous on any of these matters is prima facie unenforceable … because it is not possible to show, in the face of unresolved ambiguity, that the covenant is reasonable” (emphasis added).
[30] In Shafron, the Supreme Court held at paras. 27, 36 and 43 that, if a restrictive covenant is ambiguous such that the ambiguity cannot be resolved, it is not necessary to determine whether the covenant is reasonable, as it will be unenforceable. Before concluding that there is unresolved ambiguity, the court must interpret the restrictive covenant. The question is whether, when properly interpreted, the meaning can be ascertained, or whether it remains unclear.
[31] The principles of contract interpretation were summarized in Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 65, rev’d on other grounds, 2019 SCC 60, [2019] 4 S.C.R. 394. A judge interpreting a contract should:(i) determine the intention of the parties in accordance with the language they have used in the written document, based upon the “cardinal presumption” that they have intended what they have said;
(ii) read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, 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;
(iii) read the contract in the context of the surrounding circumstances known to the parties at the time of the formation of the contract ….;
(iv) read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed. [32] While the plain meaning of the words used by the parties will be important, the meaning of a document is derived not just from the words used, but from the context or the circumstances in which the words were used. “To find ambiguity, one must come to certain conclusions as to the meaning of the words used”: Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at paras. 52, 54.
[33] The validity of a restrictive covenant can be determined only upon an overall assessment of the clause, the agreement within which it is found, and all of the surrounding circumstances: Elsley, at p. 924. As Dickson J. (as he then was) cautioned in Elsley, at pp. 923-924:It is important, I think, to resist the inclination to lift a restrictive covenant out of an employment agreement and examine it in a disembodied manner, as if it were some strange scientific specimen under microscopic scrutiny. The validity, or otherwise, of a restrictive covenant can be determined only upon an overall assessment of the clause, the agreement within which it is found, and all of the surrounding circumstances. [34] Further, the principles of interpretation should not lead a court to “strain to create an ambiguity where none exists”: Chilton v. Co-Operators General Insurance Co. (1997), 1997 CanLII 765 (ON CA), 32 O.R. (3d) 161 (C.A.), at p. 169. It is an extricable error of law for a court to identify an ambiguity where none exists after applying the relevant principles of contractual interpretation: Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, at paras. 63-64; 1401380 Ontario Limited (Wilderness North Air) v. Hydro One Remote Communities Inc., 2025 ONCA 827, at paras. 42-44, leave to appeal to S.C.C. requested, 2026 S.C.C.A. No. 22.
[35] In my view, the application judge erred in law by failing to apply the relevant principles of contractual interpretation, including considering the restrictive covenants in the context of the franchise agreement as a whole and the surrounding circumstances. Instead, she took a decontextualized approach, identifying ambiguities in the language of the clauses as to the scope of prohibited activities. The question is whether there are, at the end of the analysis, “unresolved ambiguities” with respect to the scope of the activities sought to be precluded, not whether the words, when considered in the abstract, are capable of more than one meaning.
[36] Applying the correct principles, I am unable to conclude that the scope of the activities covered in each of the restrictive covenants is ambiguous.
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[48] To be enforceable, the restrictive covenants must be reasonable as between the parties. The factors to be considered are: (1) whether there was a proprietary interest entitled to protection; (2) whether the temporal or spatial limits are too broad; and (3) whether the covenant is overly broad in the activity it proscribes: Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344, 106 O.R. (3d) 72, at para. 16, citing H.L. Staebler Company Ltd. v. Allan, 2008 ONCA 576, 92 O.R. (3d) 107, at para. 36; Martin v. ConCreate USL Limited Partnership, 2013 ONCA 72, 359 D.L.R. (4th) 123, at para. 54. In the context of a franchise agreement the question is whether the franchisor has “a legitimate or proprietary interest to protect in the goodwill in its … system, including the trade secrets, method of operation, contacts and other benefits that are obtained by a franchisee”: MEDIchair LP, at para. 39. Whether the restriction is reasonable must be considered in the context of “the clause, the agreement within which it is found, and all of the surrounding circumstances”: Elsley, at p. 924.
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[51] Whether a restrictive covenant is unreasonably broad however is not a function of the way it was breached. The issue is whether, when considered in the context of the appellant’s legitimate proprietary interests, the restrictive covenant is enforceable. ....
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