What Constitutes Consideration To Uphold An Agreement?

Author:Ms Catherine Coulter
Profession:Fraser Milner Casgrain LLP
 
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In the recent decision of Downey v. Ecore International Inc., the Ontario Court of Appeal found that a confidentiality agreement signed by a consultant on his first day of work was not void for lack of consideration.

Paul Downey entered into discussions with Ecore in 1999 for employment with the company. One of the key terms of his employment was to be the signing of a confidentiality agreement, due to the nature of Ecore's business and Downey's position. He then asked whether he could instead provide services to Ecore as a consultant through his company CSR Industries Inc., as it would be more advantageous from a tax perspective, and a consulting agreement was subsequently executed between Ecore and CSR. Although Downey was not a signatory to the consulting agreement, he was described within it as a "Key Person of the Consultant". A couple of weeks later, on the first day of work, Downey executed a confidentiality agreement in favour of Ecore, in his personal capacity.

In 2011 Downey commenced an action against Ecore on the basis that it allegedly owed him compensation for his assignment to the company of inventions he had created. In response, the consulting agreement was terminated. A central question in the resulting jurisdictional motion was whether or not the confidentiality agreement signed by Downey was invalid due to a lack of consideration. The initial motions judge determined that it was indeed invalid, as it was CSR rather than Downey who was a party to the related consulting agreement and deriving compensation as a result of the arrangement.

The Court of Appeal had a different view of the matter. Simply put, it found that the confidentiality agreement formed part of a single transaction between Ecore, Downey and CSR, constituted by both the consulting agreement and the confidentiality agreement. It came to that conclusion upon a review of each agreement, as well as the evidence of initial employment discussions between Ecore and Downey. When looking at the totality of the evidence of the intentions of the parties as well as an interpretation of the agreements, the court found that the true business reality of the relationship emerged.

Importantly, the court also decided that the company's grant of permission to Downey to access Ecore's proprietary information in order to perform services under the consulting agreement, had been...

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