A British Columbia court has granted an interlocutory injunction preventing a former owner of dental clinics from engaging in competitive business activities, enforcing the non-competition and non-solicitation clauses agreed upon in the sale of the clinics to Dentalcorp Health Services.
In 2017, Dentalcorp Health Services purchased five dental clinics in Prince George, B.C., from Dr. J.M. and his corporation for about $11 million in cash and shares. The clinics, known as the Family Dental Care clinics (FDC Clinics), were acquired through a series of 11 related agreements, which included asset purchase agreements, a share purchase agreement, a services agreement, and non-competition/non-solicitation agreements.
Under the Agreements, Dr. J.M. agreed to continue providing dental services and to manage the FDC Clinics on a contract basis. The Restrictive Covenants prohibited him from engaging in any competitive business within a specified territory and for three years after the termination of the services agreement. Specifically, he “shall not, without the prior written consent of the Professional Corporation… carry on or be engaged in or concerned with or interested in any Competitive Business, anywhere within the Restricted Territory,” defined as a ten-kilometre radius around each of the FDC Clinics.
Despite these covenants, Dentalcorp alleged that Dr. J.M. became involved in opening new dental clinics, including the Southridge Clinic, located less than ten kilometres from one of the FDC Clinics, and in developing a franchise model called Smili Dental. Dentalcorp claimed that Dr. J.M.’s activities violated the Restrictive Covenants and sought an interlocutory injunction to prevent further breaches.
Dr. J.M. argued that the Restrictive Covenants were unreasonable and unenforceable, asserting they were overly broad in scope and duration. He also contended that Dentalcorp had consented to his activities or, alternatively, had waived their rights to enforce the covenants through their conduct. Furthermore, he claimed that his relationship with Dentalcorp had evolved into an employment relationship, which would subject the covenants to stricter scrutiny typically applied to employment contracts.
The court examined the nature of the relationship and determined it was fundamentally a commercial transaction. The court noted that the Agreements involved the sale of assets, including goodwill, for substantial consideration, and included express declarations that there was no employer-employee relationship. “I find that the Restrictive Covenants entered into in the present case are properly treated as being part of a commercial transaction,” it stated.
Addressing the reasonableness of the Restrictive Covenants, the court found them to be reasonable and necessary to protect Dentalcorp’s legitimate interests. The temporal length of three years post-termination was deemed appropriate, and the territorial scope was considered reasonable given the nature of the business and the areas in which Dentalcorp operates. The court emphasized that Dr. J.M. had agreed to the terms after receiving legal advice and had expressly acknowledged their reasonableness in the Agreements. “The defendants agreed that the terms were reasonable at the outset of the parties’ relationship,” the court noted. “This agreement was given after having received legal advice paid for, at least in part, by the plaintiffs.”
On the issue of ambiguity, the court dismissed the defendants’ claims, finding that the terms of the covenants were clear and unambiguous. It also rejected the argument that Dentalcorp had consented to the competitive activities, noting that any consent required under the Agreements had to be in writing, which was not provided.
In considering the defences of waiver, condonation, acquiescence, and estoppel, the court found insufficient evidence to support these arguments. The court stated that the defendants’ reliance on alleged informal approvals did not meet the stringent requirements for such defences, especially given the clear terms of the Agreements.
Regarding irreparable harm, the court held that the breach of the Restrictive Covenants would result in harm that could not be adequately compensated by damages. “It may be impossible to ‘unscramble the egg’ following a trial in order to determine damages,” the court said. It found that allowing Dr. J.M. to continue his competitive activities could lead to a permanent loss of market share and erosion of Dentalcorp’s goodwill, harms that are difficult to quantify.
On the balance of convenience, the court found it favoured granting the injunction. It noted that the defendants had altered the status quo by engaging in competitive activities and that the plaintiffs would suffer greater harm if the injunction were not granted. The court emphasized that the public interest in enforcing valid contractual obligations and protecting business goodwill outweighed any potential inconvenience to the defendants.
As a result, the court granted the interlocutory injunction, restraining Dr. J.M. from participating in the acquisition, consolidation, or management of any competitive dental clinics within British Columbia, specifically those located in Powell River and Prince George that breached the Restrictive Covenants. The injunction did not extend to the Southridge Clinic, as Dentalcorp had indicated it was not seeking relief in relation to that clinic at this time.
For more information, see Dentalcorp Health Services Ltd. v Dr. J.S. Minhas Dental Corp., 2024 BCSC 2006 (CanLII).
