Morton's Musings

From the Notebook of James C. Morton

August 13, 2008

Loans Without Terms Not Necessarily Demand Loans

Is a loan made without specified terms a demand loan as a matter of law?

The recent Superior Court decision in Animal House Investments Inc. v. Lisgar Development Ltd., 2008 CanLII 39607 suggests not.

The Court writes:

[15] The applicant argues that numerous decisions compel the Court to conclude that the phrase “no specified terms of repayment”, and similar iterations, mean, as a matter of law, that the shareholder loan is payable on demand or within a reasonable period of time. I do not agree.

[16] This analysis skips a step. The issue of contractual interpretation always involves a determination of the intention of the parties. In the cases upon which the applicant relies, the courts did not impose an arbitrary rule in the manner he suggests. Instead, they concluded that the intention of the parties was that the loans would be repayable on demand or within a reasonable time, given the particular circumstances of each case.

[17] Accordingly, the fact that the loan agreements are described in the financial statements and elsewhere as having “no specified terms of repayment” does not necessarily mean that the loans are payable on demand.

August 11, 2008

Setting Aside a Guilty Plea

Today's reasons in R. v. Hanemaayer, 2008 ONCA 580 makes it clear that the Court retains the power to set aside a guilty plea even years after it was accepted and even if the plea is, on its face, proper.

The Court writes:

[19] Even though the appellant’s plea appears to meet all the traditional tests for a valid guilty plea, as pointed out by Doherty J.A. in T. (R.) at p. 519, this court retains a discretion, to be exercised in the interests of justice, to receive fresh evidence to explain the circumstances that led to the plea and that demonstrate a miscarriage of justice occurred.

[20] As a necessary corollary of the power to receive fresh evidence in these circumstances, the court has the power to set aside the guilty plea in the interests of justice, even though many years have passed. This is obviously one of those cases. The fresh evidence proves beyond doubt that the appellant did not commit the offences to which he pleaded guilty. One miscarriage of justice would be compounded by another if this court had no power to intervene. As I have said, the Crown agrees that this is a proper case for setting aside the guilty pleas and entering acquittals.

August 11, 2008

Investigatory Detention

Today’s Court of Appeal decision in R. v. Nesbeth, 2008 ONCA 579 provides a good summary of when police may detain an individual for investigatory purposes.

[13] In R. v. Mann (2004), 185 C.C.C. (3d) 308 at para. 16, the Supreme Court of Canada noted that “police officers must be empowered to respond quickly, effectively, and flexibly to the diversity of encounters experienced daily on the front lines of policing”. This is a classic case of police officers faced with a rapidly evolving situation to which they attempted to respond quickly and effectively. In Mann, the court recognized a limited power of investigative detention to assist police in carrying out their duties in circumstances such as this. A police officer may briefly detain an individual for investigative purposes “if there are reasonable grounds to suspect in all the circumstances that the individual is connected to a particular crime and that such a detention is necessary”: at para. 45. Such a detention will not violate s. 9. In this case, the trial judge found that when the police initiated the chase and gave the respondent the command to stop, they did not have the requisite reasonable grounds to detain and therefore violated his rights.

August 7, 2008

Validity of Restrictive Covenants

Yesterday’s Court of Appeal decision in H.L. Staebler Company Limited v. Allan, 2008 ONCA 576 contains a useful discussion of when restrictive covenants are enforceable:

[33]          There is no dispute about the legal principles that apply when determining whether a restrictive covenant in an employment contract is enforceable, as those principles have long been settled. Several decades ago in Elsley, the seminal Canadian case on this matter, Dickson J. described the principles as “well-established”. He stated the test in plain terms: such a covenant is enforceable “only if it is reasonable between the parties and with reference to the public interest”.

[34]          This test reflects the competing principles that must be balanced when a court is called on to decide the validity of such a covenant. On the one hand, there is the “important public interest in discouraging restraints on trade, and maintaining free and open competition unencumbered by the fetters of restrictive covenants”. Open competition benefits both society and the affected employees. Society benefits from having greater choice and employees benefit as they have greater employment opportunities. On the other hand, however, “the courts have been disinclined to restrict the right to contract, particularly when that right has been exercised by knowledgeable persons of equal bargaining power”.

[35]          While an overly broad restraint on an individual’s freedom to compete will generally be unenforceable, the courts must recognize and afford “reasonable protection to trade secrets, confidential information, and trade connections of the employer.” In the present case, there is no suggestion that trade secrets or confidential information is involved. It is Staebler’s “trade connections” that warrant protection.

[36]          Reasonableness is the mechanism by which a court decides whether a covenant is “overly broad” or is only that which is reasonably required for the employer’s protection. But how is a court to determine whether any given restrictive covenant is “reasonable”? Elsley offers a framework for making such a determination. The starting point is “an overall assessment of the clause, the agreement within which it is found, and all of the surrounding circumstances”. Thereafter, three factors must be considered. First, did the employer have a proprietary interest entitled to protection? Second, are the temporal or spatial features of the covenant too broad? And, third, is the covenant unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employer?

[37]            Before turning to an assessment of the Restrictive Covenant and a consideration of the three factors, two additional principles that operate in this area warrant mention.

[38]          The first such principle relates to the nature of the restrictive covenant. A restrictive covenant may restrain either competition or solicitation. A non-competition clause restrains the departing employee from conducting business with former clients and customers whereas a non-solicitation clause merely prohibits the departing employee from soliciting their business.

[39]          In Lyons v. Multari (2000), 50 O.R. (3d) 526 ( C.A. ) at para. 31, MacPherson J.A. explained the difference between the two types of clauses in these terms:

The non-competition clause is a more drastic weapon in an employer’s arsenal. Its focus is much broader than an attempt to protect the employer’s client or customer base; it extends to an attempt to keep the former employee out of the business. Usually, non-competition clauses are limited in terms of space and time.

[40]          Elsley makes it clear that a non-solicitation clause is normally sufficient to protect an employer’s proprietary interest and that a non-competition clause is warranted only in exceptional circumstances. At pages 925 and 926 of Elsley, Dickson J. wrote:

The next and crucial question is whether the covenant is unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employer. In a conventional employer/employee situation the clause might well be held invalid for that reason.

                                                …

Nevertheless, in exceptional cases, of which I think this is one, the nature of the employment may justify a covenant prohibiting an employee not only from soliciting customers, but also from establishing his own business or working for others so as to be likely to appropriate the employer’s trade connection through his acquaintance with the employer’s customers. This may indeed be the only effective covenant to protect the proprietary interest of the employer. A simple non-solicitation clause would not suffice. [Emphasis added.]

[41]          Similarly, at para. 33 of Lyons, MacPherson J.A. states, “Generally speaking, the courts will not enforce a non-competition clause if a non-solicitation clause would adequately protect an employer’s interests”.

[42]          In short, a general principle flowing from Elsley and reiterated in Lyons is that a non-solicitation clause -- suitably restrained in temporal and spatial terms -- is more likely to represent a reasonable balance of the competing interests than is a non-competition clause. An appropriately limited non-solicitation clause offers protection for an employer without unduly compromising a person’s ability to work in his or her chosen field. A non-competition clause, on the other hand, is enforceable only in exceptional circumstances.

[43]          The other legal principle that warrants mention is this: the fact that a clause might have been enforceable had it been drafted in narrower terms will not save it. The question is not whether a valid agreement might have been made but whether the agreement that was made is valid.

August 6, 2008

Sentence Appeals

The role of a court of appeal depends critically on what the court is doing. Sometimes the court will consider directly, as in an error of jurisdiction, whether the body appealed from was wrong. Other times the court will look more narrowly and ask if the decision below was unreasonable.

In considering a criminal sentence appeal the court's role is not to decide whether the sentence imposed was that the court of appeal would choose but rather whether the sentence was unfit.

An fit sentence may well differ from that which the court of appeal would have imposed at trial.

This point is illustrated in the recent British Columbia Court of Appeal decision in R. v. Godkin, 2008 BCCA 287. Here a very significant sentence was imposed on a remarkably inept robber (basically ten years although modified somewhat to reflect pretrial custody).

The tone of the Court of Appeal decision suggests some sympathy with the view the sentence was too high. That said, the Court found the sentence was fit and so the appeal was dismissed.

The Court held:

[11] I recognize that Mr. Godkin has expressed an intention to break his heroin use by participating in a treatment program, and it is very much to be hoped that he will do this as his offending is clearly related to his addiction. However, the issue before this Court is whether these sentences are unfit. As I have concluded they are not, the sentences must remain as they were imposed.

August 5, 2008

Engaged in Employment

The Superior Court decision in Collings v. Jew, 2008 CanLII 38259 (ON S.C.) deals with the interesting, albeit very narrow, issue of whether a person working out of town, on behalf of her employer, is engaged in her employment when driving from the day's work to the hotel she was staying at. The Court held she was saying:

[11] Accordingly, the narrow question to which I referred at the outset is whether the drive from the locale of the training session to the hotel contains the required connection or nexus to the employment of Christine Jew by Newell. I find that it does. It is not that the activities of Christine Jew while in Toronto were inexorably tied to her employment.