When a Retiring Owner Came Back to Compete in Peterborough

The situation

Tomasz had spent eleven years as the general manager of a precision manufacturing business in Peterborough, a shop that machined parts for the aerospace and defence supply chain. He knew the client list, the shop floor, and the owner, Bilal, better than almost anyone. When Bilal decided to retire, he offered Tomasz first right to buy the business rather than list it publicly.

Tomasz worked full time as an air traffic controller and had run the shop's operations on the side under a management arrangement with Bilal for years, so he understood the business from the inside but had never owned a company. His spouse Kasia, a professional engineer, brought technical judgment and a share of the purchase capital. Together they agreed to buy the business for a price in the mid single-digit millions, financed through a combination of savings, a vendor take-back loan from Bilal, and a bank facility secured against the company's assets.

Our firm was retained to act for Tomasz and Kasia on the purchase. The deal itself was straightforward as business acquisitions go: an asset purchase, an allocation of the price across equipment, inventory, and goodwill, and a transition period where Bilal would introduce the buyers to key clients before stepping back. The part of the file that ended up mattering most was a single document most buyers treat as boilerplate: the restrictive covenant.

The covenant we negotiated — and the breach

A restrictive covenant is a promise, usually given by the seller of a business, not to compete with the buyer or solicit its clients and staff for a defined period after closing. Ontario courts will enforce a properly drafted covenant, but they scrutinize these clauses closely because they restrain a person's ability to earn a living. A covenant that is too broad in geography, too long in duration, or too vague in what it actually prohibits can be struck down entirely, leaving the buyer with no protection at all.

Because so much of the business's value sat in goodwill built on Bilal's decades of relationships in the aerospace supply chain, we treated the covenant as one of the central terms of the deal, not an afterthought. We negotiated a non-competition clause restricting Bilal from operating a competing precision manufacturing business within a defined radius of Peterborough, and a separate non-solicitation clause preventing him from approaching the company's existing clients or its employees, each running for a fixed number of years from closing. We kept the geographic and time limits tied to what the business actually needed — the real reach of its client relationships — rather than reaching further than necessary, which is usually where these clauses run into trouble if they are ever challenged. We also made sure the covenant was tied clearly to the sale of the business itself, with real consideration allocated to it in the purchase agreement, rather than folded loosely into an employment-style clause. Covenants attached to the sale of a business are generally given more latitude by courts than covenants in employment contracts, because the seller has been paid specifically for agreeing not to compete. That distinction, built in at the drafting stage, turned out to matter a great deal later.

The first fourteen months went the way these transitions usually do. Bilal made the introductions he had promised, stepped back from day-to-day involvement, and the business held its client base under Tomasz and Kasia's ownership. Then a former client called Tomasz directly to ask why a new supplier — a small operation Bilal had apparently set up — was underbidding the company's renewal quote on a contract worth roughly $180,000 a year.

Tomasz and Kasia looked closer and found a pattern. Bilal had registered a new manufacturing operation a short drive outside the restricted radius, but was working directly with at least three of the company's established clients inside the protected territory, using relationships and technical specifications he had only known because he built and ran the business for decades. Between the underbid renewal and two other contracts that shifted away that quarter, the company was on track to lose roughly $400,000 in annual revenue if the pattern continued.

This is the scenario a well-drafted covenant exists for. The clause did not require Bilal's new company to be inside the restricted radius — it required Bilal himself not to solicit the protected clients, regardless of where his new operation was based. That distinction, built into the drafting, closed off the argument Bilal's own advisor initially raised: that operating just outside the geographic line made the arrangement fine.

What we did

1. Documented the breach before doing anything else. We worked with Tomasz and Kasia to gather the client's account of being approached, the pricing on the underbid renewal, and internal records showing which staff and specifications had shifted. Restrictive covenant disputes turn heavily on evidence of what actually happened, not just what the contract says, and courts expect a clear factual record before granting urgent relief.
2. Sent a formal demand. We wrote to Bilal directly, setting out the specific solicitation, quoting the relevant covenant language, and demanding he stop approaching protected clients and account for the contracts already diverted. This step matters even when a breach seems obvious — it creates a clear paper trail, and it sometimes ends the dispute on its own if the other side did not realize how exposed they were.
3. Applied to the Superior Court for an interlocutory injunction. An interlocutory injunction is a court order made before a full trial, requiring a party to stop specific conduct while the underlying dispute is resolved. Because Bilal was actively soliciting clients and the harm was compounding with each contract cycle, we moved for urgent relief rather than waiting for a full civil claim to run its course, which in Ontario can take well over a year. We argued the case met the standard courts apply to this kind of order: a serious question to be tried, irreparable harm that money alone could not fully undo given the loss of long-term client relationships, and that the balance of convenience favoured Tomasz and Kasia, who had paid for the goodwill the covenant protected.
4. Kept pressing on parallel settlement talks. An injunction motion does not preclude negotiation, and in practice the two often move together — a well-supported motion tends to focus the other side's mind. We used the strength of the drafting and the evidentiary record to press for a resolution that would restore the diverted contracts and compensate for revenue already lost, rather than dragging the dispute through a full trial.

The outcome

The Superior Court granted the interlocutory injunction, restraining Bilal from any further contact with the company's protected clients and employees for the remainder of the covenant term. Facing an enforceable order and the prospect of a damages claim on top of it, Bilal's advisor came back to the table within weeks.

The parties settled. Bilal agreed to formally withdraw from the two contracts he had already secured, both of which returned to the company at close to their original value, and paid a settlement amount covering the revenue lost during the period of the breach — roughly $180,000, reflecting the underbid renewal and a portion of the disrupted business. Combined with the two recovered contracts, the total commercial outcome for Tomasz and Kasia was close to $400,000 in restored or compensated annual revenue, essentially the full scope of what the breach had put at risk.

The clause did exactly what it was drafted to do. Because the geographic radius, time limit, and scope had been calibrated to the business's actual footprint rather than drawn as broadly as possible, Bilal never had a credible argument that the covenant itself was unenforceable — the fight was only ever about whether he had breached it, and the evidence on that was clear. Tomasz and Kasia kept the business intact, and Tomasz was able to give notice at his air traffic control position within the year to run the company full time, the plan the couple had built the purchase around from the start.

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