Case

Shafron v. KRG Insurance Brokers (Western) Inc.,2009 SCC 6

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Morley Shafron sold his insurance agency to KRG Insurance Brokers Inc. ("KRG") and KRG Management Inc., which owned KRG. Following the sale, Shafron entered into a contract with KRG to stay on as an employee with KRG. As part of his employment contract with KRG,

Shafron agreed that if he left KRG he would not be employed in the business of insurance brokerage for three years in metropolitan Vancouver. Shafron subsequently entered into another employment contract with the respondent, after it was renamed KRG Western, and this contract retained the same requirementthat is, that Shafron could not work in the insurance brokerage business in "Metropolitan City of Vancouver" for three years after leaving KRG Western. As Shafron's employment contract was about to expire, he did leave KRG Western's employment and began working as an insurance salesman for another agency, Shaw Insurance Agency Ltd. ("Shaw"), in Richmond, British Columbia.

KRG Western commenced an action in the Supreme Court of British Columbia claiming that Shafron was wrongly competing with it. KRG Western made additional claims, one of which was that when he began to work for Shaw, Shafron breached a fiduciary obligation owed to, and a duty to deal fairly with, KRG Western not to use confidential information and solicit KRG Western's clients.

In this case, the BC Supreme Court found that the term "Metropolitan City of Vancouver" was unclear and unreasonable. The court also found that Shafron did not owe a fiduciary duty to KRG Western and that he had not breached any duty relating to confidential information.

Cases and Discussion Questions

Case

Shafron v. KRG Insurance Brokers (Western) Inc.,2009 SCC 6

Restrictive Covenants

What is a restrictive covenant? In the case ofShafron v. KRG Insurance Brokers (Western) Inc., what was the restrictive covenant?

1.Queen (Ont.) v. Ron Engineering,[1981] 1 S.C.R. 111; 1981 CanLII 17

In response to a call for tenders, Ron Engineering submitted both its bid to do the work for $2 748 000, together with the required deposit of $150 000. The tender documents included a term that if a tender was withdrawn the owner could retain the deposit. Once the submitted tenders were opened by the owner, Ron Engineering saw it was the low bidder by a substantial margin. Only then did it discover that they had made a mistake in calculating their total bid price. Ron Engineering informed the owner of the mistake and tried to have the offer changed. The change was refused, the contract was given to another company, and the owner kept Ron Engineering's bid deposit. Ron Engineering sued to get their deposit back, claiming mistake. The owner counterclaimed for costs incurred as a result of having to go with a different bidder.

Should the deposit be returned? Will the Court rectify the bid? Does the mistake made by Ron Engineering enable it to get a remedy from the courts?

2.Shafron v. KRG Insurance Brokers (Western) Inc.,2009 SCC 6 (CanLII)

Shafron sold his insurance agency to KRG and was subsequently employed by its successor,KRG Insurance Brokers (Western) Inc. Each employment contract contained a restrictive covenant whereby Shafron agreed that for three years after leaving his employment, he would not work for an insurance brokerage within the "Metropolitan City of Vancouver." When he left the respondent company and began working as an insurance salesman for another agency in Richmond, BC, KRG Western commenced an action to enforce the restrictive covenant. The trial judge dismissed the action, finding that the term "Metropolitan City of Vancouver" in the restrictive covenant was neither clear, certain, nor reasonable. The trial decision was reversed on appeal. The appeal court agreed that the term "Metropolitan City of Vancouver" was ambiguous; however, it severed that term and held that the term means the "City of Vancouver, the University of British Columbia Endowment Lands, Richmond and Burnaby." By working in Richmond, Shafron was in violation of this reworded covenant.

Did the Court of Appeal essentially rectify the contract? Is rectification an appropriate remedy where a contractual term is ambiguous? What if Shafron contends he never imagined that he was being restricted from working outside Vancouver? What arguments can he raise to challenge enforcement of the restrictive covenant?

3.Royal Bank of Canada v. Gill(1988), 47 D.L.R. (4th) 466 (B.C.C.A.); 1988 CanLII 2970 (BC CA)

[Note: Your instructor may assign this case as a Shared Writing activity.]

The younger Mr. Gill was fluent in English and a sophisticated businessperson. He had worked in a credit union for a number of years and had managed his father's berry farm. To take advantage of a business opportunity, he arranged with the Royal Bank to borrow $87 000. During the negotiations, it became clear that he could get a more favourable rate of interest if his father guaranteed the loan. In fact, the son had done a considerable amount of banking on behalf of his father, who was also a customer of the same bank. The elder Gill could not read, write, or speak English and relied on his son in all his business dealings. The documents were prepared, and the son brought his father to the bank to sign. At no time did he explain to his father that he was signing a personal guarantee, and the evidence is clear that the father had no idea what he was signing other than that it was a document associated with a loan transaction. Gill, Sr., had implicit faith in his son's handling of his business affairs. Gill, Jr., on the other hand, was so excited about the deal that he apparently never explained the nature of the documents to his father. It is clear in this situation that at no time was there any misrepresentation to the father or the son on the part of the bank. When the son defaulted on the loan, the bank turned to the father for payment.

Should Gill, Sr., be held responsible for this debt? What precautions should the bank have taken? Identify the best arguments of the father. What arguments should the bank advance?

4.Metropolitan Stores of Canada Ltd. v. Nova Construction Co.; [1988] N.S.J. No. 112 (N.S.C.A.).

Nova, upon taking over ownership of a shopping mall, tried to evict Metropolitan. Instead, a new lease was negotiated for a 20-year term, containing a clause promising that no stores in competition with Metropolitan would be allowed to be located in the mall. This non-competition clause, however, would not apply if there was any expansion to the existing shopping centre.

When questioned about this exception, Nova's representative knowingly made a false statement. He falsely assured Metropolitan that the only expansion that would take place would be within the present boundaries of the mall and that clauses in the agreement protected Metropolitan from competition within those boundaries. Nova later purchased surrounding property, expanded into that area, leased space to another department store, and claimed that the exemption clause permitted this.

The misleading representations did not appear as terms in the lease agreement that the parties signed. Had a fraudulent misrepresentation had taken place? Metropolitan claimed it was induced by it to enter into the lease. Does the parol evidence rule restrict consideration of any outside or extrinsic evidence that conflicts with the plain meaning of the contract? Does this case fall within an exception to the parol evidence rule? Should evidence of the misstatements be admissible?