Bhasin v. Hrynew et al., 2011 ABQB 637

• Judge: Moen, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: May 02, 2011
• Citations: 2011 ABQB 637;(2011), 526 A.R. 1 (QB)

Bhasin v. Hrynew (2011), 526 A.R. 1 (QB)

MLB headnote and full text

Temp. Cite: [2011] A.R. TBEd. NO.065

Harish Bhasin carrying on business as Bhasin & Associates (plaintiff) v. Larry Hrynew, Canadian American Financial Corp. (Canada) Limited, a Subsidiary of Allianz Life Insurance Company of North America and Allianz Education Funds Inc. (defendants)

(0203 02295; 2011 ABQB 637)

Indexed As: Bhasin v. Hrynew et al.

Alberta Court of Queen's Bench

Judicial District of Edmonton

Moen, J.

November 4, 2011.

Summary:

Canadian American Financial Corp. (Canada) Limited (CAFC) was in the business of selling education savings plans. To do so, it contracted with "Enrollment Directors" across the country. In 1989, Bhasin, then about 44 years old, signed his first contract with CAFC, and worked successfully for many years. In 1998, Bhasin signed a standard contract with CAFC, for a term of three years, automatically renewable for three year periods. The contract provided for several discretionary powers, including non-renewal by either party. In 2000, CAFC appointed Bhasin's competitor, Hrynew, to the position of Provincial Trading Officer and directed that Hrynew was to audit Bhasin's operation. Bhasin objected. CAFC did not renew the contract and did not provide a reason for the non-renewal. Bhasin lost his business. He sued CAFC and Hrynew, claiming several causes of action, including breach of contract by CAFC, intentional inducement of breach of contract by Hrynew, and civil conspiracy against CAFC and Hrynew.

The Alberta Court of Queen's Bench found that CAFC and Hrynew caused injury to Bhasin. CAFC breached the 1998 agreement, causing Bhasin to lose his business. Hrynew induced CAFC to breach the contract and thereby gained an advantage. Although Bhasin was able to join another company, it was not at the level that he had achieved at CAFC. The court determined Bhasin's claim for loss of income and loss of his business. Bhasin was not entitled to punitive damages or any damages for emotional stress.

Contracts - Topic 2051

Terms - Implied terms - General - [See second Contracts - Topic 3502 ].

Contracts - Topic 2122

Terms - Express terms - Exclusionary clauses - Bars - [See fifth Contracts - Topic 3502 ].

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - The Alberta Court of Queen's Bench considered the duty of good faith in the performance of commercial contracts - "To date, Canadian common law courts have not recognized a stand-alone, general duty of good faith between commercially contracting parties ... They do, however, recognize such a duty in specific cases and in certain categories of cases. Courts have implied a duty of good faith to ensure that 'parties do not act in a way that eviscerates or defeats the objectives of the agreement' ... Canadian jurisprudence 'has not produced a comprehensive, authoritative account of when the good faith term will be implied' into a contract. ... [C]ommercially contracting parties have been held to a standard of good faith in three areas: contractual negotiation; contractual performance; and contractual enforcement. In this case, we focus on the duty of good faith in the context of contractual performance. This is also the area where most of the case law is found" - See paragraphs 59 to 65.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - The Alberta Court of Queen's Bench stated that "[f]or certain classes of contracts, a good faith term is implied (by operation of law, legislated or common-law) because the court or legislature deems it to be appropriate as a matter of public policy. In these cases, a term of good faith is implied due to the nature of the relationship between the parties, which typically involves one inherently vulnerable party at the time of entering into the contract. ... The courts have characterized contracts of certain classes as good faith contracts - for example, employment, franchise, and insurance contracts, which prima facie have a good faith term implied - because an imbalance of power is inherent in the nature of the contract ... However, there is nothing in the case law to suggest that these classes of contracts are closed. Further, a contract that falls outside of these classes may well be so similar to these classes that it cannot on a principled basis be excluded as a contract which has a good faith term imposed by operation of law" - The type of agreement in the case at bar was close in character to both an employment contract and a franchise contract - In the end result, the court imposed a term of good faith - See paragraphs 67 to 72.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - The defendant was in the business of selling education savings plans - To do so, it entered into standard contracts with Enrollment Directors across the country, including the plaintiff - The plaintiff argued that the defendant breached its duty of good faith which, the plaintiff alleged, was an implied term in the standard contract - The Alberta Court of Queen's Bench found that a good faith term was implied by operation of law - The very nature of the contract was not balanced from its inception - Viewing the relationship between the parties at the time they entered into the agreement, there was an inherent imbalance of power between them - "Implying a term of good faith is necessary in a practical sense to the fair functioning of the agreement, given the relationship between the parties" - See paragraphs 75 to 86.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - The Alberta Court of Queen's Bench determined if a good faith term ought to be implied between commercially contracting parties because it reflected their unstated intentions at the time of the formation of the contract - "Where a term of good faith is implied by virtue of the parties' intentions, the analysis must be done on a case by case basis. ...The evidence to support a finding that the parties agreed to a good faith term is derived from sources other than the parties' after-the-fact stated intentions. ... It is appropriate to use the commercial context of the parties' agreement to determine what the parties agreed to ... The 'officious bystander test' identifies implied terms based on what the imagined officious bystander would say should be the case ... A proper application of the officious bystander and business efficacy tests allows the court to draw an inference as to whether the parties factually intended that a good faith term would govern the contract" - In the end result, the court found that the parties intended that the agreement be performed in good faith because of the way the defendant had operated up to the time of the agreement and continued to operate - See paragraphs 87 to 109.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - The defendant was in the business of selling education savings plans - To do so, it entered into standard contracts with Enrollment Directors across the country, including the plaintiff - The plaintiff argued that the defendant breached its duty of good faith which, the plaintiff alleged, was an implied term in the standard contract - The defendants relied on an "entire agreement" clause in the contract - The Alberta Court of Queen's Bench stated that "Where there is an imbalance of power, as in the case before me, parties to a contract will not be permitted to rely on an exclusion clause to avoid contractual obligations ... [T]he exclusion clause is not conclusive evidence that the parties did not intend to be governed by an implied term of good faith ... Courts have refused to let a party shelter under an entire agreement clause where it would be unjust or inequitable to do so" - See paragraphs 110 to 118.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - The standard contract between the defendant CAFC and the plaintiff enabled the plaintiff to establish and operate an agency selling the defendant's education savings plans, as an "Enrollment Director" - The agreement provided for several discretionary powers, including non-renewal by either party - CAFC did not renew the contract and did not provide a reason for the non-renewal - The Alberta Court of Queen's Bench found that CAFC breached the implied term of good faith (1) when it required the plaintiff to submit to an audit by a competitor (the defendant Hrynew, the Enrollment Director of the largest agency in Alberta), and to provide access to the plaintiff's business records for that purpose; and (2) when it exercised the non-renewal provision in bad faith - CAFC used the non-renewal clause to force the plaintiff into a position where he had to either merge agencies with Hrynew or leave CAFC's organization - CAFC acted dishonestly in exercising the non-renewal clause - That conduct amounted to a breach of the implied term of good faith, and was fairly attributable to Hrynew - Hrynew induced CAFC to breach the agreement - He did more than advise CAFC to breach the agreement - His conduct clearly entered the realm of persuasion - By making veiled threats, Hrynew provided incentive for CAFC to act - He also had sufficient knowledge of the terms of the standard contract such that he understood he was causing CAFC to act in a way that breached the agreement - Hrynew intended to cause CAFC to breach the agreement, particularly the implied term of good faith - See paragraphs 261 to 314.

Contracts - Topic 3524

Performance or breach - Breach - Bad faith - [See sixth Contracts - Topic 3502 ].

Damages - Topic 1420

Special damages - Loss of business or professional income - General - In 1989, the plaintiff (then about 44 years old) first contracted with the defendant CAFC to establish and operate an agency selling CAFC's education savings plans as an "Enrollment Director" - In 2001, the plaintiff (then 56) refused to merge his agency with the defendant Hrynew's - CAFC did not renew the plaintiff's contract - Although the plaintiff joined another company, it was not at the level that he had achieved at CAFC - The Alberta Court of Queen's Bench found that the defendants were liable for breach of contract (the implied term of good faith) - In determining the quantum of damages, the court considered the nature of the standard contracts with the Enrollment Directors and the difficulty involved in quick conversion of their skills to another career or business - The court found that the plaintiff's loss of income period was from November 2001 (at the end of the contract) to May 31, 2010 (when the plaintiff turned 65) - The value for the plaintiff's agency for the purpose of determining his income after he turned 65 was based on a trailing 12 month period - "Effectively, I find that the loss of [the plaintiff's] business was a loss of an income stream to him and that the value of this business was very little because of CAFC's degree of control and its ability to block any sale or merger by [the plaintiff] with another agency or small business" - See paragraph 524.

Practice - Topic 1300

Pleadings - General principles - Stating material facts - [See Practice - Topic 1463 ].

Practice - Topic 1452

Pleadings - Statement of claim - Purpose of - [See Practice - Topic 1463 ].

Practice - Topic 1463

Pleadings - Statement of claim - General - Requirement of disclosing cause of action - The Alberta Court of Queen's Bench stated that "[t]he [rationale behind the law relating to sufficiency of pleadings rests in the theory of natural justice. Defendants must have notice of allegations made against them and must not be subject to ambush at trial. ... It is not necessary for a plaintiff to plead a cause of action, or a legal conclusion. Rather, a plaintiff uses the statement of claim to allege a platform of facts. To support a cause of action, the plaintiff must plead material facts sufficient to give rise to the cause of action. If the facts alleged in the statement of claim are true, would these facts satisfy the essential elements of the cause of action? If yes, the cause of action is properly pleaded ... Two principles emerge which guide issues relating to sufficiency of pleadings: 1. The plaintiff must plead material facts, not causes of action; and 2. The defendant(s) have the right to know the case to meet and a fair opportunity to meet that case." - In the present case, the court concluded that the facts pleaded by the plaintiff supported each cause of action - "The defendants seek to rely on highly technical arguments, not natural justice" - See paragraphs 23 to 25, 48.

Torts - Topic 5084

Interference with economic relations - Conspiracy - Unlawful conduct or unlawful means conspiracy - The standard contract between the plaintiff and the defendant CAFC enabled the plaintiff to establish and operate an agency selling CAFC's education savings plans, as an "Enrollment Director" - The defendant Hrynew was the Enrollment Director of the largest agency in Alberta - The Alberta Court of Queen's Bench found that CAFC and Hrynew were liable as parties to a conspiracy by unlawful means - The defendants were in agreement to force a merger of the plaintiff's agency with Hrynew's agency, and that if that was not achievable, the plaintiff's contract should be ended - There was unlawful conduct on the part of the defendants; namely, CAFC breached the implied term of good faith in the contract, and Hrynew induced that breach - The conduct of the defendants was directed towards the plaintiff and his agency, and the defendants should have known that injury would likely result to the plaintiff if and when CAFC triggered non-renewal of the agreement - Finally, the plaintiff had established a resulting injury done to him and his business - See paragraphs 318 to 329.

Torts - Topic 5121

Interference with economic relations - Unfair competition - General - The standard contract between the plaintiff and the defendant CAFC enabled the plaintiff to establish and operate an agency selling CAFC's education savings plans, as an "Enrollment Director" - The defendant Hrynew was the Enrollment Director of the largest agency in Alberta - Both defendants wanted to merge the plaintiff's agency with Hrynew's - The plaintiff refused the merger proposal - CAFC did not renew the plaintiff's contract - The plaintiff alleged that the defendants' conduct breached the Competition Act; namely, that competition in the registered education savings plan (RESP) industry would be reduced when the plaintiff was eliminated as Hrynew's competitor - The Alberta Court of Queen's Bench, based on the evidence, was unable to find that the attempt by the defendants to force the plaintiff's merger and the non-renewal of his contract constituted a breach of s. 45(1) of the Competition Act - The court was not satisfied that the defendants' actions (and/or their market clout) impacted the RESP or the scholarship savings plan market in such a manner or scale of magnitude that competition in that industry was reduced, lessened or restricted - See paragraphs 330 to 333.

Torts - Topic 5208

Interference with economic relations - Contracts - Inducing or procuring breach of contract - [See sixth Contracts - Topic 3502 ].

Trade Regulation - Topic 701

Competition - Unfair competition - General - [See Torts - Topic 5121 ].

Cases Noticed:

Rodaro et al. v. Royal Bank of Canada et al. (2002), 157 O.A.C. 203; 59 O.R.(3d) 74 (C.A.), refd to. [para. 21].

Miller (Ed) Sales and Rentals Ltd. v. Caterpillar Tractor Co. et al. (1994), 151 A.R. 1; 17 Alta. L.R.(3d) 251 (Q.B.), refd to. [para. 24].

Tree Savers International Ltd. et al. v. Savoy et al. (1992), 120 A.R. 368; 8 W.A.C. 368; 87 D.L.R.(4th) 202, refd to. [para. 29].

Transamerica Life Canada Inc. et al. v. ING Canada Inc., [2003] O.A.C. Uned. 565; 68 O.R.(3d) 457 (C.A.), refd to. [para. 62].

Ceapro Inc. v. Saskatchewan et al. (2008), 326 Sask.R. 7; 2008 SKQB 237, refd to. [para. 63].

Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701; 219 N.R. 161; 123 Man.R.(2d) 1; 159 W.A.C. 1, refd to. [para. 68].

Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3; 350 N.R. 40; 227 B.C.A.C. 39; 374 W.A.C. 39; 2006 SCC 30, refd to. [para. 68].

Shelanu Inc. v. Print Three Franchising Corp. (2003), 172 O.A.C. 78; 64 O.R.(3d) 533 (C.A.), refd to. [para. 68].

Markakis v. Yuck et al., [2003] A.R. Uned. 91; 2003 ABQB 122, refd to. [para. 73].

Lefebvre v. HOJ Industries Ltd.; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986; 136 N.R. 40; 53 O.A.C. 200, refd to. [para. 74].

Liverpool City Council v. Irwin, [1976] 1 Q.B. 319 (C.A.), refd to. [para. 74].

Mesa Operating Limited Partnership v. Amoco Canada Resources Ltd. (1994), 149 A.R. 187; 63 W.A.C. 187, leave to appeal refused (1994), 179 N.R. 80; 162 A.R. 318; 83 W.A.C. 318 (S.C.C.), refd to. [para. 93].

Double N Earthmovers Ltd. v. Edmonton (City) et al., [2007] 1 S.C.R. 116; 356 N.R. 211; 401 A.R. 329; 391 W.A.C. 329; 2007 SCC 3, refd to. [para. 95].

M.J.B. Enterprises Ltd. v. Defence Construction (1951) Co. et al., [1999] 1 S.C.R. 619; 237 N.R. 334; 232 A.R. 360; 195 W.A.C. 360, refd to. [para. 95].

Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; 77 N.R. 161; 21 O.A.C. 321, refd to. [para. 96].

Klewchuk et al. v. Switzer et al. (2003), 330 A.R. 40; 299 W.A.C. 40; 2003 ABCA 187, refd to. [para. 98].

921250 Alberta Ltd. v. 762910 Alberta Inc. (2003), 334 A.R. 363; 2003 ABQB 81, refd to. [para. 111].

Gainers Inc. v. Pocklington Holdings Inc. (2000), 255 A.R. 373; 220 W.A.C. 373; 2000 ABCA 151, refd to. [para. 112].

Manufacturers Life Insurance Co. v. Executive Centre at Manulife Place Inc., [2011] A.R. Uned. 252; 2011 ABQB 189, refd to. [para. 114].

Mason v. Freedman, [1958] S.C.R. 483; 14 D.L.R.(2d) 529, refd to. [para. 116].

CivicLife.com Inc. v. Canada (Attorney General) (2006), 215 O.A.C. 43 (C.A.), refd to. [para. 117].

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1, refd to. [para. 117].

Paddon Hughes Development Co. v. Pancontinental Oil Ltd. et al. (1998), 223 A.R. 180; 183 W.A.C. 180; 1998 ABCA 333, leave to appeal refused (1999), 243 N.R. 199; 244 A.R. 400; 209 W.A.C. 400 (S.C.C.), refd to. [para. 119].

Guaranty Properties Ltd. et al. v. Edmonton (City) (2000), 261 A.R. 376; 225 W.A.C. 376; 2000 ABCA 215, refd. to. [para. 119].

Eli Lilly & Co. et al. v. Novopharm Ltd. et al., [1998] 2 S.C.R. 129; 227 N.R. 201, refd to. [para. 119].

Woodridge Lincoln Mercury Sales Ltd. v. Paramount Towing Ltd. (2000), 261 A.R. 372; 255 W.A.C. 372; 2000 ABCA 147, refd to. [para. 120].

Dover Towing (1995) Ltd. v. Paramount Towing Ltd. - see Woodridge Lincoln Mercury Sales Ltd.

Hawrish v. Bank of Montreal, [1969] S.C.R. 515; 2 D.L.R.(3d) 600, refd to. [para. 120].

Millbourne Maytag Just Like Home Laundrymat Ltd. v. V.K. Thapar Professional Corp. (2004), 356 A.R. 278; 2004 ABQB 236, refd to. [para. 120].

AGP Inc. v. Chinook Grain Co. (1999), 254 A.R. 1; 1999 ABQB 857, refd to. [para. 120].

Gateway Realty Ltd. v. Arton Holdings Ltd. and LaHave Developments Ltd. (1991), 106 N.S.R.(2d) 180; 288 A.P.R. 180 (T.D.), affd. (1992), 112 N.S.R.(2d) 180; 307 A.P.R. 180 (C.A.), refd to. [para. 129].

Gainers Inc. v. Pocklington Holdings Inc. (2000), 271 A.R. 280; 234 W.A.C. 280; 2000 ABCA 307, refd to. [para. 262].

369413 Alberta Ltd. v. Pocklington - see Gainers Inc. v. Pocklington Holdings Inc.

Parks West Mall Ltd. v. Jennett et al. (1995), 178 A.R. 45; 110 W.A.C. 45 (C.A.), refd to. [para. 269].

Sherritt Gordon Mines Ltd. and TIW Industries Ltd. v. United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, Locals 179 and 264, [1988] 1 W.W.R. 289; 59 Sask.R. 104 (C.A.), refd to. [para. 270].

Garry v. Sherritt Gordon Mines - see Sherritt Gordon Mines Ltd. and TIW Industries Ltd. v. United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, Locals 179 and 264.

Brae Centre Ltd. v. 1044807 Alberta Ltd. et al. (2008), 446 A.R. 10; 442 W.A.C. 10; 2008 ABCA 397, refd to. [para. 293].

OBG Ltd. et al. v. Allan et al., [2007] 4 All E.R. 545; 369 N.R. 66; [2007] UKHL 21, refd to. [para. 298].

Indutech Canada Ltd. v. Gibbs Pipe Distributors Ltd. et al. (2011), 508 A.R. 1; 2011 ABQB 38, refd to. [para. 298].

Emerald Construction Co. v. Lowthian, [1966] 1 W.L.R. 691 (C.A.), refd to. [para. 298].

Miller (Ed) Sales and Rentals Ltd. v. Caterpillar Tractor Co. et al., [1996] 9 W.W.R. 449; 187 A.R. 81; 127 W.A.C. 81 (C.A.), refd to. [para. 301].

Canada Cement LaFarge Ltd. et al. v. British Columbia Lightweight Aggregate Ltd. et al., [1983] 1 S.C.R. 452; 47 N.R. 191, refd to. [para. 320].

Archer v. St. John et al. (2008), 439 A.R. 260; 2008 ABQB 9, refd to. [para. 321].

Tree Savers International Ltd. et al. v. Savoy et al. (1991), 81 Alta. L.R.(2d) 325 (Q.B.), varied (1992), 120 A.R. 368; 8 W.A.C. 368 (C.A.), refd to. [para. 322].

Franklin Supply Co. et al. v. Midco Supply Co. et al. (1995), 172 A.R. 264 (Q.B.), refd to. [para. 325].

R. v. Nova Scotia Pharmaceutical Society (No. 2), [1992] 2 S.C.R. 606; 139 N.R. 241; 114 N.S.R.(2d) 91; 313 A.P.R. 91; 93 D.L.R.(4th) 36, refd to. [para. 332].

Hadley v. Baxendale (1854), 9 Ex. 341; 156 E.R. 145, refd to. [para. 498].

Whiten v. Pilot Insurance Co. et al., [2002] 1 S.C.R. 595; 283 N.R. 1; 156 O.A.C. 201; 2002 SCC 18, refd to. [para. 514].

Hill v. Church of Scientology of Toronto and Manning, [1995] 2 S.C.R. 1130; 184 N.R. 1; 84 O.A.C. 1, refd to. [para. 514].

321665 Alberta Ltd. v. ExxonMobil Canada Ltd. et al. (2012), 529 A.R. 276; 2012 ABQB 76, refd to. [para. 528].

Statutes Noticed:

Competition Act, R.S.C. 1985, c. C-34, sect. 45(1) [para. 330].

Authors and Works Noticed:

Fleming, John G., The Law of Torts (8th Ed. 1992), p. 694 [para. 297].

Fridman, Gerald Henry Louis, The Law of Torts in Canada (3rd Ed. 2010), pp. 723 [para. 320]; 733 [para. 325].

Klar, Lewis N., Tort Law (4th Ed. 2008), pp. 685-686 [para. 269]; 700 [para. 320].

McCamus, John, The Law of Contracts (2005), pp. 804-805 [para. 131].

O'Byrne, Shannon Kathleen, The Implied Term of Good Faith and Fair Dealing: Recent Developments (2007), 86 C.B.R. 193, generally [para. 59].

Waddams, Stephen M., The Law of Contracts (4th Ed. 1999), p. 232 [para. 122].

Counsel:

Pierre Asselin, for the plaintiff;

James T. Nielsen, Robert P. James and Lana Jackson, for the defendants.

This action was heard on May 2, 2011, before Moen, J., of the Alberta Court of Queen's Bench, who delivered the following memorandum of decision dated at Edmonton, Alberta, on November 4, 2011.