Court File No.

C50964

COURT OF FLAVELLE

BETWEEN:

ETHIOPIAN SPICE IMPORTS LIMITED

Appellant
(Applicant)
-and-

KASSA’S KITCHEN LIMITED

(Respondent)

FACTUM OF THE RESPONDENT

KASSA’S KITCHEN LIMITED

David McQuillan
david.mcquillan@mail.utoronto.ca

Quinn Harrington
q.harrington@mail.utoronto.ca

Lawyers for the Respondent, Kassa’s Kitchen Limited

TO: Jie (Humphrey) Yuan

humphrey.yuan@mail.utoronto.ca

Stephanie Okeke

stephanie.okeke@mail.utoronto.ca

Lawyers for the Appellant, Ethiopian Spice Imports Limited

 TABLE OF CONTENTS

I. NATURE OF THE APPEAL 3

II. OVERVIEW 3

IV. ISSUES 5

V. ARGUMENT 5

V. RELIEF REQUESTED 9

VI. INDEX 10

CERTIFICATE 11

SCHEDULE A - LIST OF AUTHORITIES 12

 I. NATURE OF THE APPEAL

[1] This is an appeal from the order of Justice Laskey in Kassa’s Kitchen v Ethiopian

Spice Imports Ltd [Kassa’s Kitchen]. In Kassa’s Kitchen, Justice Laskey concluded that

a restrictive covenant included in a contract between the appellant, Ethiopian Spice

Imports Ltd (“ESI”) and the respondent, Kassa’s Kitchen Ltd (“Kassa”) was

unenforceable. Justice Laskey dismissed ESI’s application to enforce the restrictive

covenant.

II. OVERVIEW

[2] In its application, ESI sought to enforce a restrictive covenant against Kassa. The

covenant is a restraint on trade that would prevent Kassa from selling any of its

products in the Greater Toronto Area (“GTA”) for two years after the termination of a

distribution contract between the parties.

[3] By properly applying the law of restraint of trade covenants to the facts of the

case, Justice Laskey found the restrictive covenant to be unreasonable and therefore

unenforceable. Justice Laskey found the covenant to be unreasonable because of a

geographical ambiguity in the term “Greater Toronto Area.” Further, Justice Laskey

found this ambiguity to be incurable through severabilty. In the alternative, Justice

Laskey found the covenant to be an unreasonable restraint on trade, even if its terms

were not ambiguous.

 III. FACTS

A. The Contract Between Kassa and ESI

[4] Kassa is a US-based producer of Ethiopian food products. One of Kassa’s

products is a distinctive Ethiopian dish called kitfo.

[5] ESI is the exclusive distributor of Kassa’s kitfo product in Canada.

[6] The first distribution contract (with its successors the “Distribution Contract”)

between Kassa and ESI was signed in 1996.

[7] The contract had a term of five years and was renewable upon mutual consent of

ESI and Kassa. ESI and Kassa renewed the contract in 2001 and 2006, but decided not

to renew the contract in 2010.1

[X] Justice Laskey focused on two provisions in the contract. The first is the

restrictive covenant itself:

4(b): For two years following the termination of this agreement, Kassa will not sell
any Products in the Greater Toronto Area directly or indirectly.

The second provision is an “entire agreement” clause:

14: This Agreement encompasses the entire agreement of the parties, and
supersedes all previous understandings and agreements between the parties,
whether oral or written.

B. ESI sought to enforce the restrictive covenant

[X] After choosing not to renew the contract in 2010, Kassa wanted to continue

selling kifto in Canada. Kassa found a new distributor and ESI also found a new supplier

of kifto. ESI brought an application to enforce the restrictive covenant to prevent Kassa

from selling kifto in the Greater Toronto Area.

1
[X] Kassa submits that the covenant is unenforceable because the term “Greater

Toronto Area” is ambiguous and the restrictive covenant is unreasonable. The Greater

Toronto Area is the only region in Canada where Kassa can sell its products because it

is the only region with a substantial Ethiopian population.

C. The impact of the restrictive covenant on Kassa

[X] Kassa will lose 90% of its business if the restrictive covenant is enforced.2 The

immediate loss of 90% of its business will likely result in Kassa going out of business.

[X] “The GTA, Kassa submits, is the only region in Canada with an Ethiopian

population large enough to sustain its business. At present, there are 60,000 to 70,000

people of Ethiopian origin in the Greater Toronto Area. This makes the region the only

area in Canada with a market for Kassa’s products”

D. Justice Laskey’s Judgment

[X] Justice Laskey found the restrictive covenant to be unenforceable because:

(a) The term “Greater Toronto Area” was ambiguous between the parties and could

not be cured by severance, and;

(b) The restrictive covenant was unreasonable because the effect of the covenant

would destroy Kassa’s business.

IV. ISSUES

[X] There are two issues on this appeal:

2
Kassa at para 25.
 (1) Is the term “Greater Toronto Area” in the restrictive covenant

ambiguous and, if it is, can severance be applied to resolve the

ambiguity?

(2) If the meaning of “Greater Toronto Area” is not ambiguous, is the

restrictive covenant an enforceable restraint of trade?

V. ARGUMENT

A. The Standard of Review is Palpable and Overriding Error

[X] Justice Laskey’s interpretation of the restrictive covenant is a question of mixed

fact and law. While the appellants correctly point out that extricable questions of law

should be reviewed on a standard of correctness,3 Justice Laskey cited the correct

authorities and applied the correct questions of law to the facts of the case. Laskey’s

application of these legal principles to the contractual relationship between ESI and

Kassa involved factual findings. This court owes deference to Laskey’s findings as to

the ambiguity of the term “Greater Toronto Area” and to the reasonableness of the

restrictive covenant.

[X] The appellant submits that Justice Laskey applied an incorrect legal principle in

interpreting the restrictive covenant. 4 The respondent disagrees. Justice Laskey’s

interpretation did not turn on whether there is a uniformly accepted definition of “Greater

Toronto Area,” but on whether there was an objective definition of the term shared

between the parties at the time that the contract was concluded. 5

3
4
Appellant’s factum at para 15.
5
Kassa at para
[X] Justice Laskey’s consideration of whether there is a uniform definition of “Greater

Toronto Area'' constitutes extrinsic evidence to help determine the objective meaning of

the term. It is the correct legal principle to apply extrinsic evidence of the factual matrix

to determine how a reasonable person would interpret a contractual term. 6 Justice

Laskey considered extrinsic evidence and found, as a matter of fact, that the term

“Greater Toronto Area” was ambiguous between the parties.

[x] To the extent that the task of interpreting a contractual term includes

consideration of extrinsic evidence, the trial judge is involved in making a finding of fact,

or drawing inferences from a finding of fact. 7 Questions of fact and inferences from fact

are entitled to deference and are not to be overturned except in the case of palpable or

overriding error,8 or its "functional equivalents": "clearly wrong", "unreasonable", and

"not reasonably supported by the evidence." 9

[X] The standard of review for Justice Laskey’s finding that the term “Greater

Toronto Area” was ambiguous between the parties at the time of concluding the

contract is therefore reviewable on the standard of palpable and overriding error.

[X] For any extricable questions of law, Justice Laskey’s judgment meets the

standard of correctness, because Justice Laskey cited and applied the correct

interpretive legal principles to the facts of this case.

6
Hanna Collision Repair Ltd v Insurance Corp of British Columbia, BCCA 2010
7
Hayes Forest Services v Weyerheauser Co, BCCA 2008 at para 42
8
MacDougall v MacDougall ONCA 2005 at para 31
9
L. (H.) v. Canada (Attorney General) SCC 2005 at para 110
 B. Appellant has not established the restrictive covenant is unambiguous

[] As Justice Rothstein points out in Shafron an ambiguous restrictive covenant is prima

facie unenforceable and unreasonable, and the onus is on the party seeking to enforce

the restrictive covenant to demonstrate its reasonableness. 10

[X] The evidence relied on by the Appellant to support its argument that “Greater

Toronto Area” was unambiguously understood by the parties to mean the City of

Toronto in conjunction with its neighbouring regional municipalities of York, Durham,

Peel and Halton (the “ESI geography”) cannot be relied on for contractual interpretation.

As Justice Rothstein points out in Sattva, for the purposes of contractual interpretation,

extrinsic evidence can only be relied on if it was or reasonably ought to have been

within the knowledge of both parties at the time of contracting. 11 Of the published

definitions of “Greater Toronto Area” in the evidence furnished by the Appellant, those

published before or on the date of contracting are from policy reports on air quality, and

legislation concerning film production tax credits , disability benefits for individuals, and

financial assistance schemes for individuals.12 These topics are far removed from the

commercial context of producing and distributing food products in which the parties

made their agreement. As a US-based producer of food products Kassa cannot

reasonably be expected to have had familiarity with these publications or relied on them

at the time of contracting.

10
2009 SCC 6 [Shafron SCC].
11
Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at 58 [Sattva].
12
Kassa at para 13.
[x] The fact that the parties currently agree that substantially all of the Ethiopian

Community in the GTA have resided in the ESI Geography since 1995 13 (the “Customer

Concentration Statistic”) does not support a conclusion that Kassa understood the term

“Greater Toronto Area” to refer to the ESI geography at the time of contracting. While

the respondent concedes that the geographic concentration of kitfo consumers is a

relevant aspect of the commercial context in which the parties contracted, the specific

concentration within the ESI Geography is one of many possible considerations the

parties had or ought to have had in mind at the time of contracting. The parties might

also have considered the concentration of kitfo customers in smaller geographies

contained within the ESI Geography, and the possible future growth or migration of the

Ethiopian Community beyond the boundaries of the ESI Geography over the term of the

parties’ commercial relationship. In the absence of evidence that the Customer

Concentration Statistic was of special importance to Kassa in forming its understanding

of the term “Greater Toronto Area,” it should not be treated as a privileged element of

the Contract’s surrounding circumstances.

C. The ambiguity cannot be resolved through severance

[x] Two forms of severance are available to render an invalid contractual provision

enforceable: “notional severance” and “blue-pencil severance.” 14

[x] Justice Lackey correctly determined that notional severance cannot be used to

render the covenant enforceable. As Justice Rothstein explains in Shafron the doctrine

13
Kassa at para 14.
14
Shafron at para 29.
of notional severance dictates that an invalid contractual provision may be read down to

make it legal and enforceable with reference to a bright-line test available to distinguish

what is legal from what is not.15 The doctrine does not permit a court to rewrite a

contractual provision to reflect the court’s view of what the parties’ reasonable

consensus ad idem might have been at the time of contracting.16 In the case at hand the

restrictive covenant is unenforceable because of the ambiguity of the term “Greater

Toronto Area.” There is no bright-line test available to evaluate the reasonableness of a

contractual provision.17

[x] Justice Lackey correctly determined that blue-pencil severance cannot be used to

resolve the ambiguity. Blue-pencil severance entails removing a part or parts of a

contractual provision as to render the provision enforceable. 18 The parts removed must

be trivial and not a part of the “main purport of the clause,” and can only be removed

only if the “parties would have unquestionably agreed” to the clause in its altered state. 19

Neither Kassa or ESI have offered evidence that they would have agreed to a restrictive

covenant with a geographic scope defined by the term “Greater Toronto Area” altered

by the removal of one or more of the words “Greater” “Toronto” or “Area”, and the set of

possible resulting terms (for example, “Toronto”) either have their own meanings plainly

distinct from “Greater Toronto Area” or present the same ambiguity as the contracted

term.

15
Shafron at para 30.
16
Shafron at para 47.
17
Shafron at para 38.
18
Shafron at para 29.
19
Canadian American Financial Corp. (Canada) Ltd. v. King (1989), 60 D.L.R. (4th) 293 (B.C.C.A.)
pp.305-6.
 C. The covenant is unenforceable unless ESI shows that it is reasonable

[X] Restraints on trade are contrary to public policy and therefore presumed to be

void ab initio – this is a general rule dating back to Nordenfelt v Maxim Nordenfelt Guns

and Ammuntition Co Ltd [Nordenfelt]20 in 1894 and confirmed in Canadian law in

Shafron.21 There is, of course, an exception to this general rule; restrictive covenants

are enforceable when they are reasonable both between the parties and with reference

to the public interest.22 The onus is on the party seeking to enforce the restrictive

covenant to establish the reasonableness of its terms according to both standards. 23

[X] The determination of the reasonableness of a covenant is a mixed question of

fact and law, which warrants deference from appellate courts. 24 ESI failed to convince

Justice Laskey of the reasonableness of this restraint on trade. 25 This finding that should

only be overturned if this court finds palpable and overriding error in Justice Laskey’s

judgment.

E. The relationship between the parties

[X] The appellant submits that ESI and Kassa are both “sophisticated corporations”

of relatively equal bargaining power. 26 The respondent concedes that both parties

began their relationship as similarly situated corporate entities, but this fact does not

alleviate ESI of its onus to establish the reasonableness of the covenant.

20
21
Shafron at para 16, Nordenfelt at para 564, Elsley at 923
22
Elsley at para 13.
23
Shafron at para 27.
24
25
26
Appellant factum at para
[X] Further, whatever the positions of the parties when they negotiated the initial

contract, Justice Laskey notes that Kassa has become dependent on ESI in the

intervening years in the Canadian market, where it does 90% of its business. 27 Kassa’s

reliance on ESI has grown over time. A degree of inequality existed between the parties

when they agreed to renew the contract in 2006. As Brown J points out in Uber v Heller,

imbalance in bargaining power is a relevant consideration in determining the

unreasonableness of restrictive covenants, but the degree of vulnerability necessary to

establish unconscionability is not required. 28

[X] Generally, courts draw a distinction between restrictive covenants in the context

of employment and those in the context of a sale of business. 29 Proving the

reasonableness of restrictive covenants in employment contexts is usually more

onerous because of an inequality of bargaining power between employees and

employers.30 The corollary of this is not that the requirements to establish

reasonableness are relaxed for restraints of trade outside of the context of employment

– it merely stands for the fact that there are extra protections for employees.

[X] While the contractual relationship between Kassa and ESI is not an employment

relationship, it is also not a sale of business. Courts generally enforce restraints of trade

in the context of the sale of businesses so that the vendor of the business can “be

27
Kassa at para 26
28
Uber v Heller at para
29
Elsley
30
competent in law to bind himself or herself to refrain from competition” and thereby

protect the value of the very asset being sold.31 Without such a guarantee, the asset

might be worthless and the vendor unable to sell, particularly if the asset being sold is

the goodwill of the business.32 This case, however, is not a sale of business, so the

covenanting parties do not have the same mutual interest in protecting the value of the

business.

F. The covenant is unreasonable because it is overbroad

[X] The restraint of trade in the covenant is unreasonable because it is

overbraodoverbroad. To establish whether a restrictive covenant is reasonable with

reference to the interests of the parties, the court must consider its duration, the

geographic scope of the limitation, and the nature of the activity restricted. 33 A covenant

that restricts an individual’s freedom to work for other or carry out their trade is void

unless it is designed to protect legitimate business interests and is no wider in

application than reasonably necessary.34

[X] The respondent concedes that, as the appellant points out, 35 two2 years is

usually held to be a reasonable temporal limit to a restrictive covenant and is usually

enforceable.36 The respondent disagrees, however, that this is a “modest” duration, as 2

years is generally considered the upper limit of what is considered reasonable. 37

31
32
Nordenfelt at p 555.
33
Mason v Chem-Trend at paras 21-31;
34
Connors Brothers Ltd v Connors
35
Appellant factum
36
37
[X] ESI does not require that Kassa refrain from selling its products in the GTA for

two2 years in order to protect its business interest. ESI has already found another

supplier of kifta.38 ESI can therefore continue to distribute products to its customers in

the GTA uninterrupted. The fact that another competing distributor is also selling kifta in

the area does not interfere with ESI’s ability to distribute its products. Further, Kassa

has already found another distributor in the area. Therefore, ESI is not the only

distributor in the area and has no legitimate interest in excluding Kassa from

participating in the market.

[X] The geographic scope of the restrictive covenant is unreasonable. The

geographic scope, even if it is not ambiguous, encompasses the entire Canadian

market for Ethiopian food products. The covenant would have the effect of excluding

Kassa entirely from the Ethiopian food product market in Canada. 39 ESI could have

protected its business interest by imposing a less onerous restriction on Kassa’s access

to the Canadian market.

[X] The restrictive covenant is also overbroad because it targets too broad a class of

activity. The covenant restricts Kassa from distributing “any Products” in the Greater

Toronto Area “directly or indirectly.” 40 ESI could have protected its position in the

Ethiopian food product market in Canada by restricting Kassa from selling a narrower

class of products.

38
Kassa at para
39
Kassa at para 25.
40
Kassa at para 8.
[X] Alternatively, the covenant could restricts Kassa from selling its products in the

Greater Toronto Area directly. Kassa’s new distributor is already active in the Greater

Toronto Area, so ESI does not have a legitimate interest in preventing that distributor

from selling products in the same market. ESI should not be able to restrain Kassa’s

new distributor, who is a third party to the covenant, from purchasing food products from

Kassa.

G. The covenant is unreasonable in the Public Interest

[X] The covenant is unenforceable because it is unreasonable in view of the public

interest. Even if a covenant is reasonable with reference to the interests of the parties, it

is unenforceable if it is “injurious to the public interest.” 41 There is an important public

interest in discouraging restraints on trade and maintaining free and open

competition unencumbered by restrictive covenants. 42

[X] Justice Laskey’s finding that the restrictive covenant is unreasonable in view of

the public interest is a finding of fact that deserves deference. The public interest is a

variable standard that evolves over time with social and economic changes. 43 Courts

are “well-equipped” to approach the public interest as a finding of fact based on

contextual, economic, and social considerations relevant to the restrictive covenant

rather than as a matter of law.44

41
Weidman v Shragge at para
42
Elsley at para 13
43
Tank Lining Corp
44
Tank Lining Corp v Dunlop Industries
[X] There is a distinction between a restraint of trade based on protecting a

legitimate proprietary interest and one designed solely to prevent competition. As the

appellant acknowledges, this restraint of trade is designed to prevent Kassa from

competing with ESI.45 Removing Kassa, a major producer of Ethiopian food products

sold in the GTA, would have the effect of reducing competition in the area. Reducing

competition is contrary to the public interest. 46

[X] Preventing Kassa from selling its products in the Greater Toronto Area does not

protect any legitimate proprietary interest. Any goodwill that ESI has derived from selling

Kassa’s food products is a combination of its business practices as a distributor and the

quality of Kassa’s products. Any goodwill that ESI has built up independently of selling

Kassa’s products will be unaffected by Kassa’s products remaining in the market in the

hands of a different distributor. ESI has already found another supplier and can continue

to distribute products uninterrupted. The only effects of the covenant would be to

exclude Kassa, destroy its business, and reduce competition in the market.

V. RELIEF REQUESTED

[X] The respondent respectfully requests thatis this Court to dismiss ESI’s the appeal

and order ESI to pay for Kassa’s the appellants be ordered to pay the respondent’s

costs of thisfor the current appeal and the original motion.

45
Appellant factum at para
46
Shafron at para 16-17.
ALL OF WHICH IS RESPECTFULLY SUBMITTED this 25th day of January, 2023.
VI. INDEX
 CERTIFICATE

We, David McQuillan and Quinn Harrington, lawyers for the respondent, certify that:

(i) The record and the original exhibits from the court or tribunal from which the appeal is taken

are not required.

The estimated time of our oral argument is 40 minutes, not including reply.

January 25, 2023

 SCHEDULE A - LIST OF AUTHORITIES

1.