For the London Free Press – March 1, 2010

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Companies have been sent a clear message — deal with complaints because dispute resolution is too impractical to pursue.

A recent Ontario Court of Appeal ruling confirms an evolving trend to protecting consumers from enforcement of mandatory arbitration clauses in consumer agreements.

The plaintiff in Griffin v. Dell Canada alleged Dell had sold computers with latent defects that made them prone to overheating, power failure, inability to “boot up” and unexpected shutdowns.

Griffin sought certification of the case as a class action. In reply, Dell moved to stay the proceeding in favour of private individual arbitration under the mandatory arbitration clause in each consumer contract. The arbitration clause directed that complaints must be taken to the (now defunct) National Arbitration Forum in Minnesota.

Dell relied on sec. 7(1) of the Ontario Arbitration Act, which requires the court to stay a proceeding where there is a valid mandatory arbitration clause.

A lower court had dismissed Dell’s motion and conditionally certified the case as a class action. The appeal court dismissed Dell’s appeals and refused to stay the class proceeding.

The appeal court relied on provisions of the Consumer Protection Act that invalidate mandatory arbitration clauses in consumer contracts. These provisions took effect in 2005, after the consumer contracts with Dell were entered into. But the court chose to rely on them because damages did not arise until after the provisions took effect.

Interestingly, the court also ensured the rights of non-consumers within the class were protected. The Consumer Protection Act restricts the definition of a “consumer” to an individual who “acts for personal, family or household purposes and does not include a person who is acting for business purposes”. But the court found it unreasonable to separate the claims of consumers and non-consumers.

In applying the consumer protection law, the appeal court made a point of noting that Dell’s mandatory arbitration clauses were simply unfair to Canadian consumers.

Writing for the court, Justice Robert Sharpe said: “In my view, it is clear beyond any serious doubt on this record that staying any claims advanced in the action will not result in any of the stayed claims being arbitrated. I agree with the motion judge that there is a lack of reality to Dell’s argument that the claim should proceed by way of arbitration. There will be no arbitration. The choice is not between arbitration and class proceeding; the real choice is between clothing Dell with immunity from liability for defective goods sold to non-consumers and giving those purchasers the same day in court afforded to consumers by way of the class proceeding.”

The appeal court has sent a clear message that consumer rights must be taken seriously. Large corporations will now have more difficulty avoiding responsibility for addressing consumer complaints by making dispute resolution too impractical to pursue.

For the London Free Press – August 17, 2009

[Note: Due to a technical glitch, this column has not yet been posted on the Free Press or Canoe websites]

VERDICT:  A recent Ontario Court of Appeal decision showed that it’s possible to enforce oral contracts under the right circumstances 

Oral contracts can be difficult to enforce. As famed movie producer Samuel Goldwyn once observed: “An oral contract is as good as the paper it’s written on.” 

The absence of written documentation can make it very difficult to prove in court that an actual agreement was reached. The judge is left to decipher the intent of the parties based upon what they claim the arrangement was. This is often to the disadvantage of the person claiming an agreement existed, who may have a hard time showing sufficient evidence to prove it. 

But a recent Ontario Court of Appeal decision may lend strength to those trying to enforce promises made through an oral contract. In UBS Securities Canada, Inc. v. Sands Brothers Canada, Ltd. the court found that an oral agreement was sufficient to enforce an agreement to buy shares. 

A representative of the plaintiff, UBS Securities, agreed to an oral contract to buy shares from a representative of the defendant’s company, Sands Brothers Canada. The plaintiff then entered into an agreement to sell the shares to a third party, relying on the oral contract. 

The defendant refused to comply with the terms of the oral contract, claiming that the agreement had not been finalized in writing. The shares remained with Sands Brothers Canada and UBS Securities sued for specific performance to receive the shares for which they contracted. 

The trial judge found in the plaintiff’s favour, deciding that there was a binding and enforceable agreement between the parties. UBS Securities was granted specific performance of the contract, entitling them to the 100,000 shares they were promised. 

Sands Brothers argued UBS Securities was under a duty to mitigate (or reduce their losses) by buying replacement shares at the time of the breach of contract. However, the court found that similar shares were not readily available at the date the contract was breached, leaving them unable to mitigate. 

In addition to the judge finding the plaintiff to be a credible witness, two additional considerations swayed the court in reaching its decision.

First, the plaintiff’s case was enhanced by electronic communications made during the course of the negotiation. The plaintiff produced detailed exchanges, made before the oral contract, outlining specifics of the agreement. The e-mails traced the proposed agreement from its origin until it was nearly completed. 

The use of e-mail resulted in more evidence being available. It resulted in creation of a time-stamped record of interactions that could be used to recreate the intention of the parties. 

Second, the appeal court found that it was common practice in the securities industry to make binding agreements orally. The fast-paced nature of the securities trade makes oral contracts necessary for the market to operate efficiently. In the time necessary to reduce the agreement to writing, the impetus to complete the transaction may have passed. 

So, in some instances, an oral contract is better than the paper it’s written on.

For the London Free Press – March 16, 2009

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The Supreme Court of Canada recently rejected a lower court’s decision that you can’t enforce a contract that you’ve demonstrated no intention to comply with.

In Jedfro Investments (U.S.A.) Ltd. vs. Jacyk Estate, the top court actually upheld the outcome of the Ontario Court of Appeal’s decision, but on very different grounds. The Court of Appeal decision was the subject of a column published Nov. 3, 2006 (see canton.elegal.ca/2006/ 11/06/ignoring-written-deals-risky).

In the Jedfro case, three investors entered into a joint-venture agreement to purchase, develop and sell property in the United States.

The investors bought the property using cash and a promissory note. They intended to make payments on the promissory note by selling lots. But when the real estate market plummeted, the investors couldn’t meet their payment obligations, and the noteholder threatened to foreclose.

The joint-venture agreement contained provisions to deal with such a situation by providing a method for one party to buy any of the other parties out.

But instead of this occurring, one of the investors paid off the note on behalf of the other two, with no new agreement as to how he’d be compensated.

One of the other investors agreed to a profit-sharing deal to compensate the investor for paying off the promissory note.

The third investor, however, couldn’t come to terms about what he’d give the payer, so the plaintiff sued the payer of the note, arguing he had breached the original joint-venture agreement under which all were to share proportionally any profits of the joint venture.

The trial judge dismissed the action, holding that none of the parties had relied on the joint- venture agreement and it was therefore inappropriate for the court to force the parties to abide by its terms.

The Court of Appeal upheld the trial judge’s decision, saying that if parties ignore the terms of a deal, they can’t later enforce the ignored terms against the others.

Essentially, the appeal court held that contracting parties can’t ignore an agreement when it doesn’t benefit them, then ask the court to enforce the same agreement when it does benefit them.

The matter was further appealed to the Supreme Court, which upheld the previous decisions but disagreed with the lower courts’ reasoning.

The top court held that there are many ways to discharge a contract, including by performance, agreement, frustration, or by repudiatory or fundamental breach. But unless a contract is discharged by one of these methods, it remains in force and the parties remain bound by it.

Specifically, the Supreme Court held that, “while the parties may have ignored the joint-venture agreement, the obligations under it remained in effect.”

This decision represents a significant effort by the Supreme Court to reel in previous case law and send a clear message that contracts will remain in force and binding on the parties until discharged.

In other words, simply ignoring a written contract will not make the agreement go away.

For the London Free Press – October 29, 2007

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For more than fifty years, contract law has been haunted by the spectre of fundamental breach.

From its inception in the law courts of the United Kingdom in the 1950s it was controversial. In essence, it is a way for courts to look beyond a contract, or at least not to enforce limitation of liability clauses contained in a contract, to provide a remedy for very serious contractual breaches.

Regardless of the theory, we simply need to remember that no-one can hide behind a limitation of liability clause in a contract if they don’t perform at all, or fail miserably — even if the limitation clause is a typical one.

In more technical terms, if a party commits a radical breach of a contract — then uses an exculpatory clause to take all the benefits of the contract but none of the burdens — the courts will prohibit that party from relying on that exculpatory clause irrespective of how clearly it is drafted, because to do so would be unfair to the other contracting party.

To this day, legal theorists and even judges are unable to agree exactly what amounts to a fundamental breach of contract, or if such a thing should even exist.

In a recent article in the Canadian Bar Review entitled Return of the undead: fundamental breach disinterred, Richard F. Devlin, Associate Dean at Dalhousie Law School, looks at how the principle seems to stick around despite efforts by some judges to eliminate fundamental breach as a concept of Canadian contract law.

While judges, academics and lawyers struggle with the differences, theories, and appropriateness of the concept of fundamental breach, or alternate concepts such as unconscionability or good faith – the practical effects on the enforcement of contracts are virtually the same.

In one instance the doctrine of fundamental breach was used to prevent a storage company from relying upon a limitation of liability clause. Under questionable circumstances, after the rent on a storage locker fell behind, the storage company sold the goods contained within, valued at $60,000, to an auctioneer for $800. The court held this action amounted to a fundamental breach of the contract.

In another case, a company was hired to move household possessions. They left the moving truck parked on the street overnight without any security or monitoring and the goods were stolen. The court found they could not rely upon their limitation of liability clause as their breach of contract was unconscionable.

As the courts struggle with the concept of fundamental breach and some judges try to get rid of the concept entirely, the reality is that courts will find a way to provide remedies for significant breaches of contract by whatever legal theory is available to them.

Despite the uncertainty provided by the presence of the doctrine of fundamental breach, there is little question that limitation of liability clauses will remain standard fare. In most cases they serve a useful purpose and can be applied quite successfully. In the end, however, no one can safely hide behind a limitation clause in situations where they don’t perform their obligations under a contract at all, or fail miserably to do so.

For the London Free Press – October 8th 2007

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Courts seem to be scrutinizing non-solicitation clauses of former employees more closely. Businesses would be wise to take a look at their existing non-solicitation provisions to take this into account.

A non-solicitation clause prevents employees from soliciting customers of their former employer to sell them a competitor’s goods or services.

Conventional legal wisdom was that non-solicitation clauses were easier to enforce than non-competition clauses (which state a former employee can’t work for a competitor). Non-competition clauses must be narrow in scope to be enforced. Recent case law says non-solicitation clauses in employment contracts also will be looked at to ensure they do not go beyond legitimate business protection.

Courts want to ensure the restrictions within the clauses do not overly limit the employee’s ability to find new employment, while still providing protection for proprietary rights of the former employer. The kind of restrictions or limitations the courts used to accept as necessary to protect the integrity of the business are narrowing.

When a court considers non-solicitation clauses, it will not correct deficiencies in the wording. If it is found to be restrictive in one particular aspect, they will deem the entire section to be inoperable.

Two recent decisions of the Ontario Superior Court and the Ontario Court of Appeal indicate that employers are held to a high standard of reasonableness when restricting the future earning potential of former employees.

Often geographical restrictions are too broad. The courts prefer limitations on solicitation of those who that particular employee specifically dealt with or knew of, rather than on all current and prospective clients of the business.

This was the case in a decision called IT/NET Inc versus Cameron, in which a sub-contractor signed a non-solicitation agreement which prevented him from soliciting clients not only at his job site, but in other locations within the company. The clause would have applied whether the contractor knew his target was an IT/Net client or not, and it had no spatial limit, so would apply anywhere in Canada.

The court found it was unreasonable to require such a covenant between the two parties, and that IT/Net did not require that kind of protection.

In Trapeze Software Inc. versus Bryans, the court considered the grounds on which a covenant has to be reasonable.

They include: that the employer actually had a proprietary interest to be protected, that the limitations on geographic work zones, or the duration of the covenant was not too broad to impede the ability of the employee to gain new employment, and that it is not against competition generally.

This means it is permissible to restrict contact between customers and former employees, but it may be necessary to limit that to customers the employee dealt with or was aware of.

These two cases are not a dramatic change, but clarify what has been known for many years; that any restrictive clauses in employment contracts must be reasonable.

Reasonableness is hard to define, but these cases tell us that so long as the former employee is not completely blocked from the industry, and not completely prevented from gainful employment, and so long as the employer has something legitimate to protect, like client lists, or trade secrets, the covenants will stand up to the court’s scrutiny.

For the London Free Press – September 10, 2007

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Letters of intent are often used as a starting point to negotiate various arrangements. But they can be risky.

The March decision in the Ontario Superior Court of Justice of Wallace v. Allen et al considered whether a particular letter of intent bound the parties.

The case centered on two friends who had entered into a gentleman’s agreement regarding the sale of Mr. Allen’s business interests. These friends started their agreement with a letter of intent that stated “there was still much legal work to be done,” and they would eventually need to enter into a binding agreement.

These friends negotiated over the span of several months, and the buyer started working alongside the seller to learn the business and meet the clients. Ultimately an agreement was drafted, but never signed. The seller lost his faith in the deal and called it off when the buyer was out of town on the day the deal was to close.

The buyer sued his former friend to enforce the letter of intent, saying it created a binding agreement for the sale of the business. The court found, however, that because of the very clear terms in the letter of intent indicating it was only to be a preliminary document, it wasn’t binding.

The court referred to the fact the letter of intent was drafted before negotiations were completed. This turns out to be a key point: If that same letter had been drafted and accepted after negotiations were complete and after a large majority of the terms of the agreement had been decided, the judge may have found it formed a binding agreement.

What protected the would-be seller from having the letter of intent enforced was that there had never been any indication the letter was to be binding. All parties at all times were aware they still had to draft and sign an agreement, and the letter was just a starting point.

When the plaintiff buyer tried to enforce the letter of intent the court refused, finding there was no meeting of the minds. The friends had never meant for the letter to be the final agreement, and they couldn’t now claim otherwise.

The judge referred to the seller’s unfortunate temper, and his all-consuming pride. In this situation, where an agreement between friends was ready to sign, they had begun to work together and visited with each other socially, one minor delay shouldn’t have caused the whole deal to fall apart. The judge, however, couldn’t read into the letter of intent clauses or terms that were simply not there. The language was clear and unambiguous, and the court had to find there was no binding agreement for the sale of the business.

This case illustrates the importance of carefully worded documents, and making sure the parties’ true intent is reflected. A letter of intent can be a useful tool for negotiation, but should the deal sour, a poorly worded letter of intent could turn into a weapon to be used in future litigation.

For the London Free Press – August 20, 2007

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The Supreme Court of Canada recently dismissed a class action suit against Dell launched in Quebec. The case has some useful observations about e-commerce.

The issue arose from Dell’s mistaken posting of incorrect low prices on its website. Dell refused to honour those prices.

The case turned on the enforceability of Dell’s terms and conditions and in particular a section that said consumers had to use arbitration rather than class actions. The decision is now academic in some provinces, such as Ontario and Quebec, which have recently enacted legislation to make terms that deny consumer resort to class proceedings unenforceable.

Despite that and despite the case being decided under the Quebec civil code, the court made some observations that bode well for e-commerce in general.

Click wrap agreements — where one clicks “I agree” to be bound by an agreement — are binding, but there has been some question whether terms found on links on a page are binding on users.

Part of the case hinged on whether linked documents formed part of the main web pages. The court stated that: “The evidence . . . shows that the consumer could access the page of Dell’s website containing the arbitration clause directly by clicking on the highlighted hyperlink entitled Terms and Conditions of Sale. This link reappeared on every page the consumer accessed. When the consumer clicked on the link, a page containing the terms and conditions of sale, including the arbitration clause, appeared on the screen . . . (The) clause was no more difficult for the consumer to access than would have been the case had he or she been given a paper copy of the entire contract on which the terms and conditions of sale appeared on the back of the first page.”

The dissent had a similar point of view, saying, “We are dealing with a different means of doing business than has heretofore been generally considered by the courts, with terminology and concepts that may not easily, though nevertheless must be, fit within the existing body of contract law . . “(As) e-commerce increasingly gains a greater foothold within our society, courts must be mindful of advancing the goal of commercial certainty . . . (The) context demands that a certain level of computer competence be attributed to those who choose to engage in e-commerce.

“It is true . . . that the hyperlink to the Terms and Conditions of Sale was in smaller print, located at the bottom of the Configurator Page. The evidence was that Dell places a hyperlink to its Terms and Conditions of Sale at the bottom of every shopping page on its site.

“This is consistent with industry standards. In fact, this is the placement that was at the time recommended by Industry Canada’s Office of Consumer Affairs (Your Internet Business: Earning Consumer Trust — A Guide to Consumer Protection for On-line Merchants (1999), at page 10).

“It is proper to assume, then, that consumers that were engaging in e-commerce at the time would have expected to find a company’s terms and conditions at the bottom of the web page.”

For the London Free Press – July 16, 2007

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UPDATE: This post was reproduced on the ITManagers blog and received some positive comments.

When negotiating an agreement for the purchase of goods or services, some buyers try to get the vendor down to the lowest possible price. That may not be the best approach, however, because it can affect the quality of services you receive and may end up costing more.

Sometimes the saying “you get what you pay for” is true. Often getting a reasonable price is better than getting the lowest price.

This is especially true for anything requiring ongoing work. It applies to virtually any service, from office cleaning to equipment repair. Let’s use a major software installation as an example.

You enter into an agreement with a vendor to purchase a new system that might include various pieces of software, hardware, training, installation and implementation, project management and ongoing maintenance.

If you grind the price down so far that it leaves little or no margin for the vendor, the vendor will be inclined to spend as little time as possible performing the services.

To make a profit, the vendor naturally will try to limit his costs by cutting corners. He may not be attentive to project details or buyer needs. He also will be more likely to provide the bare minimum services required by the deal and strictly construe its obligations in the agreement. The vendor will be less inclined to do extra work that comes up throughout the project without insisting on a further fee.

For example, training may be cut short, not enough attention might be paid to managing the project, and response times for service might be slow. You may end up doing things the vendor perhaps should have done. The implementation may take longer and have more frustrations than it should. In the end, all these things could cost you more time, frustration — and money.

It essentially becomes difficult to motivate the vendor, which will want to do only the minimum necessary. While having a clear, well-drafted agreement setting out the vendor’s obligations is important, no agreement will help if the vendor is not motivated to perform.

It is often said that an effective negotiation is one in which neither party is 100-per-cent satisfied with the result. That may sound odd, but it is far better for each party to feel it’s getting some value out of the arrangement, including the vendor feeling it will make a fair profit.

On the flip side, if you as a vendor negotiating a sale feel you’re getting badly beaten up over price and don’t like where the deal may be headed, it is sometimes better to end the negotiation than to get into a position where there is no profit in the deal. The natural inclination to do the bare minimum possible, and the lack of motivation may lead to substandard work and damage your reputation.

That’s the title of an article in the latest Info-Tech Advisor, a regular newsletter of the Info-Tech Research Group.

Creating meaningful, measurable, and effective service levels for service provider agreements is not easy. They can, however, be very important to the success of a service arrangement.

This article has some good insight into how to create an effective SLA.

The Info-Tech Advisor is only available by paid subscription, but a pdf of this article is at the link below, with their permission.

Read the Info-Tech article

Go to Info-Tech’s web site

According to Fierce Wireless, AT&T has sued Nascar as Nascar refuses to allow AT&T to put its branding on a car that is sponsored by Cingular. Since AT&T bouught Cingular, and is slowly changing its brand to AT&T – seems logical that they should be able to re-brand the car they sponsor.

The wrinkle is that Sprint Nextel is apparently a lead Nascar sponsor, with an agreement for exclusivity among telcos. Cingular was allowed to sponsor because it was grandfathered under that agreement – but only under the Cingular name.

Goes to show how tricky/dangerous exclusivity clauses can be for the party granting the exclusivity.

Read the FierceWireless post