In Revel Realty Inc. v. Costabile et al, a decision of the Ontario Superior Court of Justice released on June 28, 2022, the court dismissed Revel Realty Inc.’s (“Revel”) motion for an injunction against eight of its former real estate agents who left Revel and set up a competing office. There were three reasons for the court’s dismissal. First, Revel had breached the agreements which it was seeking to enforce against the agents and did not come to the court with “clean hands”. Second, the non-competition clause was unenforceable: the territory description was ambiguous, and the time limitations were unreasonable. Third, Revel did not have any proprietary rights to be protected by the injunction.
Revel operates a real estate brokerage in southern Ontario, with about eighteen offices and 250 agents.
On January 25, 2019, Revel and one of its agents, Chris Costabile, entered into an agreement for Mr. Costabile to act as an Independent Contractor/Head Coach of the new Revel office in Brantford, Ontario. Mr. Costabile hired seven other real estate agents to work with him at the Brantford office.
Mr. Costabile’s agreement and all other seven agents’ agreements with Revel contained non-competition covenants against recruiting, soliciting and competing with Revel. The length of time in the non-competition agreement with Mr. Costabile was five years after termination or expiration of the agreement, and three years in the agreements with the other agents. The territory limitation in Mr. Costabile’s agreement was “Brantford Peninsula”; for all other agents it was “Niagara Peninsula”.
In or about September 2021, Revel advised Mr. Costabile that it was approached by another real estate agent who wanted to join Revel and open another office in Brantford as the Broddick team.
However, Revel’s Head Coach agreement with Mr. Costabile stated that his consent was required for Revel to open any other office in Brantford. Despite that, Revel’s principal told Mr. Costabile that he was going ahead with the plan despite his and the other agents’ objections.
Revel alleged that, in or about February 2021, Mr. Costabile’s fiancé started plans to open a branch of another real estate brokerage. In or about January 2022, Mr. Costabile participated in the planning of the Agency. Its office in Brantford was less than a three-minute walk from the Revel Brantford Office.
Mr. Costabile recruited and solicited six of the seven agents from Revel to join him and his wife at the new brokerage, in direct competition with Revel’s Brantford office. On February 28, 2022, Mr. Costabile resigned as an agent at the Brantford office of Revel. That same day, six other agents resigned from the Brantford Revel Office. In addition to resigning from Revel, all the agents announced that they were joining the new brokerage.
Revel brought an injunction application restraining Mr. Costabile and the other agents from working together at the other brokerage pending the trial of the action and to return Revel’s confidential proprietary information.
The court dismissal
The Clean Hands Doctrine
The court held that Revel did not come to court with “clean hands”, and therefore it was not entitled to an injunction. Revel breached its agreement with Mr. Costabile by not seeking his consent to have the Broddick team join Revel and open a new office in Brantford. The court found that Revel had conducted itself in a manner that placed Mr. Costabile and the other agents in a position of disadvantage relative to their ability to compete in their careers. The court held that it was because of this disadvantageous position that the non-competition covenants were unenforceable.
Ambiguity in the Territory Description
The court found that there was no such geographical area known as the “Brantford Peninsula”, which is what was indicated in the non-competition covenant with Mr. Costabile. There is the “City of Brantford” and “Brantford County”, and surrounding areas and cities that are often referred to as “Greater Branford”. None of the possible surrounding areas were referred to in the Mr. Costabile’s agreement.
These other names were similarly not referred to in the other agents’ agreements, which only referred to the Niagara Peninsula.
Revel submitted that, regardless of the wording of the territory, everyone knew that the restrictions applied to Brantford. The court dismissed this argument and found the covenants in all the relevant agreements with Revel were legally unenforceable for containing unclear territory description and thus for being unambiguous.
As to the non-competition agreements with the other agents, they were not in breach of those agreements, which specified Niagara Peninsula.
Unreasonableness of the Time Restriction
Another reason for striking down the non-competition covenant was the time restriction in them. The court found that the five-year and three-year restrictions in them were excessive.
In addition, the agents’ ability to carry on their trade had already been restricted by the actions of Revel when it brought on board the Broddick team without the knowledge and consultation of any of those other agents.
No Proprietary Interest
The court also held that there was no proprietary interest of Revel that was worthy of protection. A substantial part of the trade connections in real estate are personal to the agents. There was no sufficient evidence of any trade secrets or confidential information and trade connections that had to be protected.
The court held that Revel had not shown that denying its injunction application would result in irreparable harm. The court accepted the evidence presented by Mr. Costabile and other agents that damages, if any, can be calculated and agreed with their expert evidence about the available methodology to calculate potential damages (if potential damages can be calculated, there would be no irreparable harm and thus no injunction can be granted).
Balance of Convenience
The court found that Mr. Costabile and other agents would suffer the greater harm if Revel’s injunction application was granted. Revel created an atmosphere that has restricted the agents’ ability to compete. If the injunction was granted, the agents would have very limited ability to compete outside of Revel.