-In the Court of Appeal of Alberta
Citation: Bhasin v. Hrynew, 2013 ABCA 98
Date: 20130318
Docket: 1203-0178-AC
Registry: Edmonton
Between:
Harish Bhasin, carrying on business as Bhasin & Associates
Respondent (Plaintiff)
- and -
Larry Hrynew, Canadian American Financial Corp. (Canada) Limited, a subsidiary of Allianz Life Insurance Company of North America, Allianz Education Funds Inc.
Appellants (Defendants)
The Court:
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The Honourable Mr. Justice Jean Côté
The Honourable Madam Justice Marina
Paperny The Honourable Mr. Justice R. Paul Belzil
Memorandum of Judgment
Appeal from the Judgment by
The Honourable Madam Justice A.B. Moen
Dated the 29th day of June, 2012
Filed on the 20th day of July, 2012
(2011 ABQB 637, Docket: 0203-02295)
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Memorandum of Judgment
The Court:
A. Introduction
[1] The basic issue here is whether the trial court properly restrained use of a contractual right not to renew a contract when it expired. That raises legal questions about the court’s varying or supplementing a contract’s words, implying a duty of good faith, and acting on parol evidence where the contract has no ambiguity. (The appellants also question the damages calculated.)
B. Facts
[2] The appellants appeal from a trial judgment giving heavy damages for breach of a broad duty of good faith performance which the trial Reasons read into a commercial contract.
[3] Canadian American markets registered education savings plans for parent-investors. They do so through retail dealers, two of whom were Mr. Bhasin and Mr. Hrynew.
[4] For years, such dealers had operated under the terms of one contract wording with Canadian American. After both men had been dealers for some years (Mr. Bhasin about 9), Canadian American proposed a change to the wording of the contracts.
[5] Canadian American gave the dealers an opportunity to study the proposed wording. It offered some obvious new advantages for dealers. A council of dealers which included both these two men got a legal opinion about the new wording from a Toronto law firm, disseminated the opinion to its members, and considered it. The legal opinion suggested many changes in wording, a number of which Canadian American accepted. Mr. Bhasin received and read a copy of the legal opinion. The renewal clause (3.3) which is the focus of this suit was expressly negotiated. Most of the dealers signed the new negotiated contract. Mr. Bhasin signed it about 11 months after a new version of the contract was first proposed.
[6] Some dealers chose to remain under the old wording (Reasons, para 7).
[7] The Alberta Securities Commission regulates this industry, and became concerned about inadequate compliance with certain aspects of its regulation. After several other attempts, it finally directed Canadian American to select a single person in its organization to monitor compliance. It was understood that (as part of that) the person selected would audit the dealers. Mr. Hrynew was selected as the person who would carry out those functions.
[8] Mr. Bhasin had no objection to being audited, but he did not trust Mr. Hrynew, partly because Mr. Hrynew was a competitor, so Mr. Bhasin feared misuse of confidential information.
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Also Mr. Hrynew wished to amalgamate his dealership with Mr. Bhasin’s, and Canadian American encouraged that (partly to placate the Securities Commission). Mr. Bhasin said that he would not permit any audit which included Mr. Hrynew among the auditors. He actually turned away a two- person audit team which included Mr. Hrynew.
[9] When Mr. Bhasin told Canadian American that he was concerned about improper use of information got by audit, they replied that they did not disagree in principle. Mr. Bhasin did not state that he would permit the audit if Mr. Hrynew signed a confidentiality agreement.
A. The Contract
[10] The new contract between Canadian American and Mr. Bhasin ordinarily ran for a three-year term, but it had provisions in clauses 8.3 and 8.4 allowing termination on short notice, in the event of misconduct or similar happenings. Canadian American did not make use of those clauses.
[11] Instead, Canadian American gave Mr. Bhasin a timely notice that when the contract next came up for renewal, they would let it lapse and not renew it. They relied on its cl 3.3, whose last few lines allowed that:
3.3 The term of this Agreement shall be for a period of three years from the date hereof (the “Initial Term”) and thereafter shall be automatically renewed for successive three year periods (a “Renewal Term”), subject to earlier termination as provided for in section 8 hereof, unless either CAFC or the Enrollment Director notifies the other in writing at least six months prior to expiry of the Initial Term or any Renewal Term that the notifying party desires expiry of the Agreement, in which event the Agreement shall expire at the end of such Initial Term or Renewal Term, as applicable.
B. The Lawsuit
1. Judgment
[12] Mr. Bhasin sued Canadian American. The trial lasted a long time, from May 2 to May 26, 2011. The respondent Mr. Bhasin himself was on the stand for four days. Thirteen witnesses testified. Much parol evidence was heard, plus evidence about what the persons concerned thought, or would have thought, and about their intentions and assumptions.
[13] Then written Reasons for Judgment awarded Mr. Bhasin about $381,000. That amount represented the value of the dealership, plus the estimated present worth of all its earnings for the next 9 or 10 years, until Mr. Bhasin’s planned voluntary retirement at age 65. Prejudgment interest and costs were added to that. See 2011 ABQB 637.
[14] The trial Reasons expressly found that this was not a contract designed to give enjoyment or peace of mind (paras 511-12). Nor had the parties contemplated that failure to renew would cause mental distress (Reasons, para 512). Nor did the Reasons ever find that the notice of non-renewal had been done in a harsh or insulting or unnecessarily-distressing manner.
[15] Instead, the Reasons premised the finding of liability on finding an implied term in the contract that any decision whether or not to renew the contract had to be carried out in “good faith” (Reasons, paras 126 and 263). (The words quoted took on broader meanings at some points in the Reasons.) The decision had to respect Mr. Bhasin’s interests to that standard (Reasons, paras 234, 236; cf para 256).
[16] The Reasons concluded that a duty of “good faith” was implied in all employment contracts and franchise contracts. They held that this contract was analogous to such contracts (Reasons, paras 67 ff). The implied term was also based on another view, that in fact the parties to the present contract had intended such a term (Reasons, paras 100-104).
[17] So the judgment suggested that Canadian American had to have “a very good reason” not to renew the contract, even if that reason did not have to be explained at the time (Reasons, para 104, cf paras 233-34). Mr. Bhasin’s factum says that his attack was not based on Canadian American’s reasons for not renewing (para 21). So did his oral argument.
[18] (At one point, the Reasons also seem to suggest that the six months’ notice called for in cl
3.3 was not enough; and that longer warning should have been given (para 260). But that was little developed.)
1. Pleadings
[19] Carefully checking the statement of claim confirms one complaint by Mr. Hrynew. He complains that the issues on which the Reasons for Judgment were based were never pleaded. The trial Reasons correctly stated that causes of action need not be pleaded, only facts (paras 24-25). However, the majority of the facts upon which the Reasons based those conclusions were not pled either. An allegation that the respondent Mr. Bhasin was “wrongfully terminated” is a conclusion, not a fact. The Reasons found for the respondent Mr. Bhasin on the basis of bad faith and dishonesty toward him. But old R 115 and new R 13.6(3) require a party to plead the matter to be relied on where there is illegality, fraud, malice or ill will, or wilful default.
[20] Therefore, all the evidence was heard before Canadian American had a clear idea of the case against it. No one asked to amend the pleadings. Canadian American objected to raising some of the issues because they had not been pleaded (Reasons, para 21). Evidence closed before anyone argued the topics on which the Reasons proceeded.
A. Arguments on Appeal
[21] The factum of the appellants raises these grounds of appeal:
- implying a duty of good faith not in the words of the contract
- finding that duty sufficiently pleaded
- finding inducing breach of contract and conspiracy
- miscalculating damages
[22] The respondent Mr. Bhasin does not argue that the written contract is ambiguous or otherwise unclear. The trial Reasons also find that the written contract is clear and unambiguous (para 124). Instead, the respondent Mr. Bhasin suggests that the written contract does not cover what happened. Accordingly, the parol evidence and the court’s inferences supplement the written contract, he suggests.
[23] However, the contract contains an entire-contract clause:
11.2 This Agreement expresses the entire and final agreement between the parties hereto and supersedes all previous agreements between the parties. There are no representations, warranties, terms, conditions or collateral agreements, express, implied or statutory, other than expressly set out in this Agreement.
F. Comments on the Arguments
[24] Clause 3.3 says that the contract runs for only three years at a time, and that it takes complete silence to renew it. It says that if either party gives timely notice that it does not want the contract renewed, “the Agreement shall expire”. Are the terms clear on their face, or are there implied preconditions to non-renewal? That is the issue.
[25] The Reasons conclude that non-renewal has preconditions. We disagree. The Reasons’ conclusion very significantly altered the written words, particularly the words “in which event the Agreement shall expire . . .”. The trial Reasons’ interpretation effectively creates a perpetual, or at least indefinite, contract. Had Mr. Bhasin been younger, or uninterested in retiring, the judgment could have created a contract lasting 40 or 50 years.
[26] Moreover, the thoughts or impressions of the parties
cannot be used to vary the express terms of a contract. Cf Ko v Hillview
Homes,
G. Applicable Legal Rules
[27] A number of fundamental propositions of law are relevant, and much authority can be cited for each. To control the length of this judgment, we simply summarize a number of applicable settled legal rules.
1. There is no duty to perform most contracts in good faith. See Transamerica Life Canada v ING Canada (2004) 68 OR (3d) 457 (para 51). Mesa Operating Partnership v Amoco Canada Resources (1994) 149 AR 187 (CA) and Klewchuk v Switzer, 2003 ABCA 187, 330 AR 40 found no such general duty, and involved very different types of contract.
2.
The
only duty of good faith in employment contracts is relatively narrow: not to
announce or implement their termination in a harsh or demeaning way. That duty
does not extend to the reasons for termination, but to the manner of
termination. Even if we accepted the contract here to be an employment
contract, or a melded contract including an employment contract, that would not
help the plaintiff. The two governing cases say that employment contracts are
not generally contracts of good faith in all respects. See Wallace v
United Grain Growers
3. (a) Courts can imply terms in contracts which are not explicit only when the new term is
(i) so obvious that it was not even thought necessary to mention, or
(ii) truly necessary to make the contract work at all, not merely reasonable or fair.
(b) Mere foresight of a possible happening is not enough; both parties must have intended the term.
(c) The law’s presumption is against implying terms.
On (a)(i), see Reigate v Union Manufacturing Co [1918] 1 KB 592, 605, 87
LJKB 724, 730 (CA); Shirlaw v Southern Foundries etc [1939] 2 KB 206,
[1939] 2 All ER 113, 124 (CA), affd [1940] AC 701, [1940] 2 All ER 445
(HL); 1 Chitty on Contracts, para 13-008 (31st ed 2012). On (a)(ii), see Anson’s Law of Contract 147 (28th ed 2002); 1 Chitty on Contracts, para 13- 010 (31st ed 2012); Luxor (Eastbourne) v Cooper [1941] AC 108, [1941] 1 All ER 33, 52-53 (HL(E)); British Movietonews v London & District Cinemas [1952] AC 166, [1951] 2 All ER 617 (HL(E)); Trollope & Colls v
North West Hospital Board [1973] 1 WLR 601, 609C, [1973] 2 All ER 260,
268 a-b (HL(E)); Liverpool City Council v Irwin [1977] AC 239, [1976] 2
All ER 39, 50 (HL(E)); CP
Hotels v Bank of Montreal
99 AR 321, 63 DLR (4th) 74, at pp 84, 85 (CA), lv den (SCC 1990) 108 NR
170; MJB Enterprises v
Defence Construction etc
4. Notwithstanding #3, a term cannot be implied
in a contract which would contradict an express term of that contract. See 1
Chitty on Contracts, para 13-010 (31st ed 2012); BP Refinery
(Westenport) Pty v Hastings (Shire) (1977) 180 CLR 266, 283 (PC(Aust));
Carman Construction v CPR
5. Though Mr. Bhasin’s case at trial emphasized mental suffering, it is not compensated in contracts law (partly subject to #2 above on harsh modes of termination).
6. Some degree of inequality in bargaining
power, need, or knowledge, is not enough to upset or amend the terms of a
contract, short of actual unconscionability. (Or a request for equitable
remedies to enforce, or statutory duties or rights to rescind.) See Cain
v Clarica, supra (paras 31-33, 35, 45-54); Hunter
Engineering Co v Syncrude Canada
462 d-e,
329 (para
34); Pacific National Investments v Victoria (City),
7. Parol evidence is not to be used directly to interpret a contract
(a) if its words are unambiguous,
(b) or to look at the actual subjective intent of one or both parties.
On (a), see Forest
Hill Real Estate v Harvey Kalles Real Estate,
see Eli
Lilly & Co v Novopharm, supra (paras 54-56); Gainers v
Pocklington, 2000 ABCA 151, 255 AR 373 (paras 20, 23-24); Dow
Chemical Canada v Shell Chemicals Canada,
8. A contract can validly exclude or nullify parol evidence, previous negotiations, representations, terms, promises or conditions, not found in the written document (absent actual fraud). See Ko v Hillview Homes, supra (para 131); Gainers v Pocklington Holdings, supra (paras 15, 18).
9. Courts should be especially wary of altering or interpreting creatively formal contracts carefully negotiated and written, with legal advice. See Duke of Westminster v Guild [1985] QB 688, 699-700, [1984] 3 All ER 144 (CA); cf. Sullivan v Newsome (1987) 78 AR 297, 304 (para 20), 38 DLR (4th) 1 (CA), leave den (1988) 87 NR 74 (SCC).
10. Courts should not attempt after the fact to
rewrite a contract to accord with what the court now thinks, or one party now
believes, is more just or more businesslike, especially in the full light of
hindsight. See Lord Atkin in Bell v Lever Brothers [1932] AC 161,
226, [1931] All ER Rep 1, 32A, 101 LJKB 129 (HL(E)); Ko v Hillview,
supra (para 7); 1 Chitty on Contracts, paras 1- 039 to 1-041
(31st ed 2012); Jedfro v Jacyk,
H. Applying the Legal Rules
[28] This trial was lengthy. A large amount of testimony elicited went outside the contract. There was evidence about how the contract was negotiated, about what the parties felt and wished and expected, and about alleged oral promises. The Reasons for Judgment placed heavy emphasis on that evidence (paras 105 and 125), and used it in particular to find an implied term of good faith in deciding whether or not to renew the contract.
[29] We cannot reconcile admitting and relying upon such evidence with legal proposition 7 in Part G above, nor with the authorities there cited. Still less can we do so in the face of the clear entire-contract clause here (cl 11.2), and the authorities in proposition 8 of Part G. The trial Reasons suggested that such a clause did not avail because of injustice or abuse (para 117). But that is circular. The clause excluding oral or implied terms was bypassed because of the implied term. Mr. Bhasin cites CivicLife.com v A-G Can, (2006) 215 OAC 43 (CA) (para 52). But the clause there was extremely brief. It did not say what “entire agreement” meant. The clause here expressly excludes “terms” which are not express. And CivicLife also involved a later oral amending contract.
[30] The Reasons relied on evidence of oral promises (paras 106, 107). The entire-contract clause bars such evidence, and makes such promises inoperative. This was not context or background knowledge. There were no ambiguous words. This evidence contradicted the contract’s clear words.
[31] To the extent that the Reasons founded the implied term of good faith upon operation of law, we cannot reconcile that with propositions 1, 2, or 3 of Part G, nor the authorities there cited. Even if employment contracts were contracts of good faith (which they are not), this is clearly not an employment contract in form or substance. And this is a case of non-renewal (expiry), not of termination.
[32] To the extent that the Reasons founded that implied term upon the intention of the parties, we cannot reconcile that with propositions 3, 4, 7, 9, and 10, nor the authorities there cited. The parties did not intend or presume a perpetual contract, as they contracted that either party could unilaterally cause it to expire on any third anniversary.
[33] Clause 3.3 of the contract says that it will expire at the end of three years if either party has given timely notice that it does not want the contract to renew itself automatically. Such notice was given. The Reasons find that such notice is ineffective, and that the contract will keep renewing itself automatically every three years, if the motive for giving the notice does not meet certain standards. That flatly contradicts the clause’s words.
[34] The Reasons also relied upon some inequality in bargaining power or sophistication. But we cannot reconcile that with propositions 6 to 10 inclusive in Part G, and the authorities there cited. Nor do we find that those factual conclusions are even arguable, given the historical evidence summarized above in Part B above.
[35] The contract expressly permitted and empowered giving a notice barring renewal. So this notice could not be a breach of contract. Mr. Bhasin’s claim for breach of contract must fail.
I. Other Claims
[36] Mr. Bhasin’s claim for conspiracy or deliberate infliction of harm also fails, as the only wrong or illegal act suggested was that same alleged breach of contract.
[37] Furthermore, even if some
wrong had been done by Canadian American, they had a right to end the contract
at the end of three years. The law of damages presumes that a party will use
the least expensive method to perform. So (for example) employment contracts do
not yield damages beyond the date at which the defendant could have ended the
contract. See Hamilton v Open Window Bakery,
J. Conclusion
[38] The appeal is allowed, and the lawsuit is dismissed.
[39] The appellant defendants all used the same law firm in the Court of Queen’s Bench, and again in the Court of Appeal (albeit a different law firm than the one retained in the first court). Therefore the appellant defendants will recover a single set of party-party costs from the respondent plaintiff Mr. Bhasin, in each court. Pursuant to R 608, the column of Schedule C will be that ordered in the Court of Queen’s Bench. Also recoverable as disbursements will be any expenses incurred in connection with the letter of credit which was a condition of the stay of execution pending appeal.
[40] If any further directions or amendment about costs or interest or repayment are needed or desirable, either party may apply promptly in writing to any member of this panel. That judge may decide part or all of the questions alone, or may refer the questions in part or whole to the full panel.
[41] Such application may be by letter (with a copy to opposing counsel or party), which letter should briefly outline the topics for which direction or amendment is desired. Such letter must be received by the Court of Appeal within four weeks of the date of this judgment. The judge applied to will then give deadlines and other directions for filing written argument on the topics in question.
[42] That is not an invitation to reargue liability or damages.
[43] We are grateful for both counsel’s assistance in helping us to navigate this case, and for their objective and professional manner of argument.
Appeal heard on February 26, 2013
Memorandum filed at Edmonton, Alberta this 18th day of March, 2013
Côté J.A.
Authorized to sign for: Paperny J.A.
Belzil J.
Appearances:
P.G. Asselin
for the Respondent (Plaintiff)
E.S. Lederman
J.E. Laxer
for the Appellants (Defendants)
AVIS :
Le lecteur doit s'assurer que les décisions consultées sont finales et sans
appel; la consultation
du plumitif s'avère une précaution utile.