KRG Insurance Brokers (Western) Inc. v. Shafron et al., (2007) 236 B.C.A.C. 116 (CA)

• Jurisdiction: British Columbia
• Court: Court of Appeal (British Columbia)
• Judge: Huddart, Thackray and Chiasson, JJ.A.
• Citation: (2007), 236 B.C.A.C. 116 (CA),2007 BCCA 79
• Date: 14 November 2006

KRG Ins. v. Shafron (2007), 236 B.C.A.C. 116 (CA);

    390 W.A.C. 116

MLB headnote and full text

Temp. Cite: [2007] B.C.A.C. TBEd. FE.044

KRG Insurance Brokers (Western) Inc. (appellant/plaintiff) v. Morley Shafron and Shaw Insurance Agency Ltd. (respondents/defendants) and Shaw Sabey & Associates Ltd. and Prosperous Financial Insurance Services Ltd. (defendants)

(CA33390; 2007 BCCA 79)

Indexed As: KRG Insurance Brokers (Western) Inc. v. Shafron et al.

British Columbia Court of Appeal

Huddart, Thackray and Chiasson, JJ.A.

February 12, 2007.

Summary:

KRG Insurance Brokers (Western) Ltd. brought an action seeking to restrain Shafron from carrying on business as an insurance agent in the "Metropolitan City of Vancouver" contrary to the provisions of a restrictive covenant and from soliciting insurance business from any of KRG's clients in breach of a fiduciary duty owed by Shafron to KRG.

The British Columbia Supreme Court, in a decision reported at [2005] B.C.T.C. 1611, dismissed the action. The court refused to enforce the restrictive covenant, finding that it was unreasonable, unclear and wider than necessary to protect KRG's interests. The court also found that there was no fiduciary relationship. KRG appealed.

The British Columbia Court of Appeal allowed the appeal, finding that the restrictive covenant was enforceable. The court remitted the matter to the Supreme Court to assess damages.

Contracts - Topic 1806

Severable agreements - Circumstances when contract will be severed - [See Master and Servant - Topic 1312 ].

Equity - Topic 3607

Fiduciary or confidential relationships - General principles - Relationships which are not fiduciary - [See Equity - Topic 3648 ].

Equity - Topic 3648

Fiduciary or confidential relationships - Breach of fiduciary relationship - By employee - Solicitation of business - KRG Insurance Brokers (Western) Ltd. sought to restrain its former employee, Shafron, from soliciting insurance business from KRG's clients in breach of a fiduciary duty owed by Shafron to KRG - The British Columbia Court of Appeal affirmed that there was no fiduciary relationship between the parties - Although Shafron was a very important employee, the evidence was clear that for some time prior to his leaving KRG he did not exercise managerial authority and he had a limited ability to bind KRG contractually - While Shafron had considerable influence with KRG's customers, with a consequential risk of loss of customers to KRG if Shafron were to compete with it, there was no power imbalance between the parties - See paragraph 26.

Master and Servant - Topic 343

Fiduciary duty - When owed - [See Equity - Topic 3648 ].

Master and Servant - Topic 1312

Contract of hiring (employment contract) - Covenants in restraint of trade - Restrictive covenants - Severability - A restrictive covenant prohibited Shafron from carrying on the business of insurance brokerage within the "Metropolitan City of Vancouver" for a period of three years after he left the employment of KRG Insurance Brokers (Western) Ltd. - The British Columbia Court of Appeal held that the restrictive covenant was reasonable and enforceable - The court noted the difficulty arising from the use of the phrase "Metropolitan City of Vancouver" to describe the geographic reach of the restrictive covenant - The court stated that "To strike the word 'metropolitan' would not reflect the obvious intention of the parties. They clearly intended a geographic reach that included the City of Vancouver and something more. The 'blue pencil' approach would distort that intention" - The court concluded that "In view of the clear direction of the Supreme Court of Canada that it is permissible to use notional severance to attempt to give effect to the substance of an agreement and to avoid having that substance subverted by an unfortunate choice of language, I would construe 'Metropolitan City of Vancouver' to prevent Mr. Shafron from competing in the City of Vancouver and municipalities directly contiguous to it. Geographically, I would include the City of Vancouver, the University of British Columbia Endowment Lands, Richmond and Burnaby" - See paragraphs 57 to 63.

Master and Servant - Topic 1323

Contract of hiring (employment contract) - Covenants in restraint of trade - Restrictive covenants - Whether reasonable - General - [See Master and Servant - Topic 1325 ].

Master and Servant - Topic 1325

Contract of hiring (employment contract) - Covenants in restraint of trade - Restrictive covenants - Whether reasonable - Term - A restrictive covenant prohibited Shafron from carrying on the business of insurance brokerage within the "Metropolitan City of Vancouver" for a period of three years after he left the employment of KRG Insurance Brokers (Western) Ltd. - The restrictive covenant was first contained in a 1988 management agreement entered into by Shafron after he sold the insurance agency business and the name of the business was changed to KRG - Shafron continued his employment with the business and the restrictive covenant was repeated in subsequent agreements until Shafron left KRG in 2000 - KRG sued to enforce the restrictive covenant - The British Columbia Court of Appeal held that the restrictive covenant was reasonable in terms of its temporal length, the spatial area covered, the nature of the activities prohibited and its overall fairness - The terms of the covenant were clear in that there was no doubt that the parties intended to prevent Shafron from competing in the City of Vancouver and an area beyond the City - A reasonable construction of the word "Metropolitan" was therefore possible - The restraint was also reasonable in terms of the public interest - See paragraph 80.

Master and Servant - Topic 1326

Contract of hiring (employment contract) - Covenants in restraint of trade - Restrictive covenants - Whether reasonable - Area - [See Master and Servant - Topic 1312 and Master and Servant - Topic 1325 ].

Cases Noticed:

Trego v. Hunt, [1896] A.C. 7 (H.L.), refd to. [para. 19].

Burgess v. Industrial Frictions & Supply Co. (1987), 12 B.C.L.R.(2d) 85 (C.A.), refd to. [para. 20].

Aurum Ceramic Dental Laboratories Ltd. v. Hwang, [1998] B.C.T.C. Uned. 87 (S.C.), refd to. [para. 22].

Unisource Canada Inc. v. Network Paper and Packaging Ltd. et al., [2000] B.C.T.C. 156; 2000 BCSC 396, refd to. [para. 23].

Napier Environmental Technologies Inc. v. Vitomir et al., [2002] B.C.T.C. 716; 2002 BCSC 716, refd to. [para. 23].

MD Management Ltd. v. Dhut, [2004] B.C.T.C. Uned. 234; 2004 BCSC 513, refd to. [para. 23].

Yellow Pages Group Co. v. Anderson et al., [2006] B.C.T.C. Uned. 238; 2006 BCSC 518, refd to. [para. 23].

Canadian Fur Auction Sales Co. (Quebec) Ltd. v. Neely (1954), 11 W.W.R.(N.S.) 254 (Man. C.A.), refd to. [para. 32].

Salloum v. Thomas (1986), 12 C.P.R.(3d) 251 (B.C.S.C.), refd to. [para. 33].

Mason v. Provident Clothing & Supply Co., [1913] A.C. 724 (H.L.), refd to. [para. 33].

Collins (J.G.) Insurance Agencies Ltd. v. Elsley's Estate, [1978] 2 S.C.R. 916; 20 N.R. 1, consd. [para. 33].

ACS Public Sector Solutions Inc. et al. v. Courthouse Technologies Ltd. et al. (2005), 219 B.C.A.C. 220; 361 W.A.C. 220; 48 B.C.L.R.(4th) 328; 2005 BCCA 605, refd to. [para. 47].

Transport North American Express Inc. v. New Solutions Financial Corp., [2004] 1 S.C.R. 249; 316 N.R. 84; 183 O.A.C. 342; 2004 SCC 7, consd. [para. 48].

Canadian American Financial Corp. (Canada) Ltd. v. King (1989), 36 B.C.L.R.(2d) 257 (C.A.), refd to. [para. 48].

Thomson (William E.) Associates Inc. v. Carpenter (1989), 34 O.A.C. 365; 69 O.R.(2d) 545 (C.A.), refd to. [para. 64].

Phillips v. Campbell, [1994] B.C.J. No. 3241 (S.C.), refd to. [para. 73].

Doerner v. Bliss & Laughlin Industries Inc. et al., [1980] 2 S.C.R. 865; 34 N.R. 168, refd to. [para. 76].

Authors and Works Noticed:

Aust, A. Edward, Jenner, Catherine A., Bussières, Hélène, and Girard, S. Alexandra, Executive Employment Law (1993 Looseleaf), para. 11.23 [para. 72].

Counsel:

T. Delaney and C. Martin, for the appellant;

D.W. Buchanan, Q.C., and V.S. Dixon, for the respondents.

This appeal was heard on November 14, 2006, at Vancouver, British Columbia, before Huddart, Thackray and Chiasson, JJ.A., of the British Columbia Court of Appeal. The following judgment of the Court of Appeal was delivered by Chiasson, J.A., on February 12, 2007.