*CONTRACTS & EMPLOYMENT LAW: RESTRICTIVE CONVENANTS

*/Morley Shafron v. KRG Insurance Brokers (Western) Inc./ (B.C. February

12, 2007) (31981)

"In 1987, S sold his insurance agency to KRG.  KRG renamed the agency

KRG Western and in 1991, sold the agency to another party.  S was

employed by KRG Western from 1987 to 2001 pursuant to a series of

employment contracts.  Each employment contract contained a similarly

worded restrictive covenant in which S agreed that for three years after

leaving his employment for any reason other than termination without

cause, he will not be employed in the business of insurance brokerage

within the "Metropolitan City of Vancouver".  In January 2001, S began

working as an insurance salesman for another agency in Richmond, B.C.  

KRG Western commenced an action to enforce the restrictive covenant.  It

also claimed that S had breached fiduciary and equitable obligations.  

The trial judge dismissed the action, finding that  the term

"Metropolitan City of Vancouver" in the restrictive convenant is neither

clear, certain nor reasonable.  He also found that S owed no fiduciary

duty to KRG Western.  The Court of Appeal set aside the decision.  While

the court found that there was no fiduciary duty, it held that the

restrictive convenant was enforceable.  The court agreed that the term

"Metropolitan City of Vancouver" is ambiguous; however, it applied the

doctrine of notional severance and held that the term means the "City of

Vancouver, the University of British Columbia endowment lands, Richmond

and Burnaby".

The S.C.C. (unanimously) allowed the appeal.

    Justice Rothstein wrote as follows (at paragraphs 1-3)

    The central issue in this appeal is whether, in an employment

    contract, the doctrine of severance may be invoked to resolve an

    ambiguous term in a restrictive covenant or render an unreasonable

    restriction in the covenant reasonable.  The issue arises because

    the term "Metropolitan City of Vancouver" in the restrictive

    covenant contained in the contract between the parties has no

    legally defined meaning and is therefore ambiguous.

    Severance, when permitted, appears to take two forms. "Notional"

    severance involves reading down a contractual provision so as to

    make it legal and enforceable. "Blue-pencil" severance consists of

    removing part of a contractual provision.  For reasons I set out

    below, notional severance is not an appropriate mechanism to cure a

    defective restrictive covenant.  As for blue-pencil severance, it

    may only be resorted to in rare cases where the part being removed

    is trivial, and not part of the main purport of the restrictive

    covenant.  These circumstances are not present in this case and

    hence the ambiguity cannot be cured by severing the word "Metropolitan".

    A secondary issue is whether rectification may be invoked to resolve

    the ambiguity.  In my opinion, it cannot.  There is no indication

    that the parties agreed on something and then mistakenly included

    something else in the written contract.  The doctrine of

    rectification cannot be invoked to rewrite the bargain between the

    parties".

--

Jason Neyers

Associate Professor of Law &

Cassels Brock LLP Faculty Fellow in Contract Law

Faculty of Law

University of Western Ontario

N6A 3K7

(519) 661-2111 x. 88435