Collins Ins. v. Elsley Estate (1978), 20 N.R. 1 (SCC)
MLB headnote and full text
J.G. Collins Insurance Agencies Limited v. Elsley’s Estate
Indexed As: Collins (J.G.) Insurance Agencies Ltd. v. Elsley Estate
Supreme Court of Canada
Laskin, C.J.C., Martland, Ritchie, Pigeon, Dickson, Beetz and Pratte, JJ.
March 7, 1978.
Summary:
This case arose out of the plaintiff’s claim for damages for breach of a restrictive covenant and an injunction. The plaintiff general insurance agent purchased the general insurance business of a competitor. The plaintiff then hired the defendant owner of the competitor to manage its general insurance business. The contract of employment contained a covenant that the defendant would not engage in the general insurance business in the area for five years after leaving his employment with the plaintiff and the defendant agreed to pay $1,000 as liquidated damages for breach of the covenant. After managing the plaintiff’s business for 17 years the defendant left and re-entered the general insurance business, taking upwards of half the plaintiff’s clients with him. The plaintiff brought an action for damages for breach of the restrictive covenant and for an injunction. The Ontario Supreme Court allowed the action, granted the plaintiff an injunction and held that the plaintiff was entitled to damages for the loss of premiums paid by the clients taken from the plaintiff. The defendant appealed.
The Ontario Court of Appeal dismissed the appeal with one variation, holding that the plaintiff was entitled to damages for the loss of commissions on all contracts of general insurance sold by the defendant to the date of the injunction. The defendant appealed.
The Supreme Court of Canada allowed the appeal in part. The Supreme Court of Canada held that the plaintiff was required to elect between bringing an action for an injunction and the liquidated damages sum stipulated in the agreement. The Supreme Court of Canada held that, because the plaintiff elected to bring an action for an injunction, he could recover damages for the actual loss sustained up to the date of the injunction, not to exceed the stipulated sum of $1,000.
Deeds and Documents – Topic 5055
Rectification – When available – The parties made two agreements in which it was agreed that $1,000 would be paid by the defendant “for each and every breach’ of a restrictive covenant – A superseding agreement merely provided that $1,000 would be paid as liquidated damages for breach of the covenant – Although the parties agreed that a restrictive covenant should be in the third agreement, the drafting was left to a solicitor – There was no further evidence of the parties’ intention – The plaintiff asked for rectification of the third agreement to make $1,000 payable “for each and every breach” – The Supreme Court of Canada held that rectification should not be ordered in the absence of evidence of mutual mistake leading to the conclusion that the true agreement of the parties was other than recorded – See paragraphs 4 to 5.
Contracts – Topic 6723
Contracts contrary to public policy – Contracts in restraint of trade – Interpretation – The Supreme Court of Canada held that the validity of a restrictive covenant not to compete in an employment agreement can be determined only by an over all assessment of the covenant, the agreement in which it is found and all of the surrounding circumstances – See paragraphs 12 to 15.
Damages – Topic 1104
Liquidated damages – Penalty – Effect of penalty – The Supreme Court of Canada held that a penalty clause should function as a limitation of the damages recoverable, while still being ineffective to increase damages above the actual loss sustained where such loss is less than the penalty – See paragraphs 38 to 39.
Damages – Topic 6701
Contracts – Employment contracts – Breach of covenant not to compete – The plaintiff hired the defendant insurance agent to manage its general insurance business – In the contract of employment the defendant covenanted not to engage in the general insurance business in the area for five years after leaving his employment and agreed to pay $1,000 as liquidated damages for breach of the covenant – After managing the plaintiff’s business for 17 years the defendant left and started his own general insurance business, taking upwards of half the plaintiff’s clients with him – The plaintiff brought an action against the defendant for damages for breach of the covenant and an injunction – The Supreme Court of Canada held that the covenant was enforceable – The Supreme Court of Canada held that the plaintiff was entitled to an injunction and proveable damages not to exceed $1,000 – The Supreme Court of Canada held that the plaintiff had to elect between an action for an injunction and the liquidated sum for damages – The Supreme Court of Canada stated that, having elected an injunction, the plaintiff was limited to proveable damages up to the amount of the liquidated sum suffered prior to the injunction – See paragraphs 27 to 44.
Master and Servant – Topic 1323
Contract of hiring – Covenants in restraint of trade – Whether reasonable – General – The plaintiff hired the defendant insurance agent to manage its general insurance business – In the contract of employment the defendant covenanted not to engage in the general insurance business in the area for five years after leaving his employment and agreed to pay $1,000 as liquidated damages for breach of the covenant – After managing the plaintiff’s business for 17 years, the defendant left and started his own general insurance business, taking upwards of half the plaintiff’s clients with him – The plaintiff brought an action for breach of the covenant against the defendant – The Supreme Court of Canada held that the covenant was enforceable – The Supreme Court of Canada discussed the considerations to be taken into account in determining the validity of a covenant not to compete – The Supreme Court of Canada held that, because the defendant had acquired a special and intimate knowledge of the plaintiff’s clients, the covenant was enforceable – The Supreme Court of Canada stated that an agreement not to solicit the plaintiff’s clients would not have been adequate – The Supreme Court of Canada held that enforcement of the clause was not contrary to the public interest, because there was an adequate number of general insurance agents in the area to service the public – See paragraphs 17 to 26.
Master and Servant – Topic 1324
Contract of hiring – Contracts in restraint of trade – Whether reasonable – Interest protected – The plaintiff hired the defendant insurance agent to manage its general insurance business – In the contract of employment the defendant covenanted not to engage in the general insurance business in the area for five years after leaving his employment and agreed to pay $1,000 as liquidated damages for breach of the covenant – After managing the plaintiff’s business for 17 years, the defendant left and started his own general insurance business, taking upwards of half the plaintiff’s clients with him – The plaintiff brought an action for breach of the covenant against the defendant – The Supreme Court of Canada held that covenant was enforceable – The Supreme Court of Canada held that the plaintiff had a proprietary interest in his trade connection through his clients, which he was entitled to protect – See paragraphs 17 to 18.
Contracts – Topic 4044
Breach of contract – Breach by employee of covenant not to compete – Remedies of employer – General – Injunction and damages – An employment contract contained a covenant by the employee that he would not compete with the employer for five years after leaving his employment and provided for the payment of liquidated damages of $1,000 for breach – After the employee left his employment he competed with the employer contrary to the covenant – The Supreme Court of Canada set out the employer’s remedies – The Supreme Court of Canada held that, where a fixed sum was stipulated for liquidated damages for breach, the plaintiff must elect between liquidated damages and an injunction – The Supreme Court of Canada held that, if the plaintiff elected to take the liquidated damages, he may recover that sum irrespective of his actual loss – The Supreme Court of Canada held that, if the stipulated sum was a penalty, the plaintiff could only recover such damages as he could prove, but which must not exceed the sum stipulated – The Supreme Court of Canada held that, if the plaintiff elected to take an injunction and not the liquidated sum stipulated, he could recover damages in equity for the actual loss sustained up to the date of the injunction, but not exceeding the amount stipulated – The Supreme Court of Canada held that, where a liquidated damages sum is stipulated as payable for each and every breach of the covenant, a covenantee could recover the sum for each breach and he could also be granted an injunction to restrain future breaches – See paragraph 42.
Cases Noticed:
Herbert Morris Limited v. Saxelby, [1916] 1 A.C. 688, appld. [para. 11].
Stenhouse Australia Ltd. v. Phillips, [1974] 1 All E.R. 117, appld. [para. 11].
Robert W. Maguire v. Northland Drug Company Limited, [1935] S.C.R. 412, appld. [para. 11].
Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co., [1894] A.C. 535, appld. [para. 12].
Mason v. Provident Clothing and Supply Co., [1913] A.C. 724, appld. [para. 12].
Attwood v. Lamont, [1920] 3 K.B. 571, appld. [para. 12].
Scorer v. Seymour-John, [1966] 3 All E.R. 347, appld. [para. 12].
Gledhow Autoparts Ltd. v. Delaney, [1965] 1 W.L.R. 1366, appld. [para. 12].
Silverman v. Silverman (1969), part II, Sol. J. 563, dist. [para. 16].
Fitch v. Dewes, [1921] 2 A.C. 158, appld. [para. 19].
Marion White v. Francis, [1972] 1 W.L.R. 1423, appld. [para. 19].
P.C.O. Services Ltd. v. Rumleski, [1963] 2 O.R. 62, appld. [para. 19].
Campbell, Imrie and Shankland v. Park, [1954] 2 D.L.R. 170, appld. [para. 19].
Putsman v. Taylor, [1927] 1 K.B. 637, consd. [para. 21].
Jones v. Heavens (1877), 4 Ch. D. 636, appld. [para. 29].
National Provincial Bank of England v. Marshall (1888), 40 Ch. D. 112, consd. [para. 30].
Snider v. McKelvey (1900), 27 O.L.R. 339, consd. [para. 31].
General Accident Assurance Corporation v. Noel, [1902] 1 K.B. 377, consd. [para. 32].
H.F. Clarke Limited v. Thermidaire Corporation Limited, (1974), 3 N.R. 133; [1976] 1 S.C.R. 319, appld. [para. 34].
Cellulose Acetate Silk Company Limited v. Widnes Foundry (1925) Limited, [1933] A.C. 20, consd. [para. 38].
Wilbeam v. Ashton (1807), 1 Camp. 78, appld. [para. 39].
Imperial Tobacco v. Parslay, [1936] 2 All E.R. 515, appld. [para. 41].
Statutes Noticed:
Judicature Act, R.S.O. 1970, c. 228, sect. 21 [para. 35].
Authors and Works Noticed:
Cheshire & Fifoot, The Law of Contract (8th Ed.), p. 369 [para. 20].
Halsbury’s Laws of England (4th Ed.), vol. 12, para. 118, p. 422 [para. 39].
Spry, Equitable Remedies (1971), p. 552-4 [para. 36].
Story, Equity Jurisprudence (14th Ed.), s. 1728 [para. 39].
Counsel:
G.J. Smith, Q.C., for the appellant;
R.A. O’Donnell and R.F.L. Rose, for the respondent.
This case was heard on October 31, 1977, at Ottawa, Ontario, before LASKIN, C.J.C., MARTLAND, RITCHIE, PIGEON, DICKSON, BEETZ and PRATTE, JJ., of the Supreme Court of Canada.
On March 7, 1978, DICKSON, J., delivered the following judgment for the Supreme Court of Canada:
