Benfield Corporate Risk Canada Limited v. Beaufort International Insurance Inc., 2011 ABQB 602

Court of Queen ’ s Bench of Alberta Citation: Benfield Corporate Risk Canada Limited v. Beaufort International Insurance Inc., 2011 ABQB 602 Date: 20111011 Docket: 1001 04265 Registry: Calgary Between: Benfield Corporate Risk Canada Limited Applicant - and - Beaufort International Insurance Inc. and Beaufort Insurance Services Inc. Respondents _______________________________________________________ Memorandum of Decision of the Honourable Mr.

Justice Peter Michalyshyn _______________________________________________________ [ 1 ] Benfield Corporate Risk Canada Limited ("Benfield") applies by Originating Notice for an Order that $486,123.12 interpled and paid into Court be paid out to it, together with interest and costs. The application is opposed by Beaufort International Insurance Services Inc. and Beaufort Insurance Services Inc. ("Beaufort"). For reasons which follow, I find that the funds should be paid out to the Applicant. Facts

[ 2 ] At issue is the

interpretation of an Asset Purchase Agreement ("APA") between the parties herein, together with Kigoriak Holdings, Inc. "as shareholder", and W. Dougal Simpson ("Simpson") "as Guarantor". The APA is dated October 10, 2007, with a closing date of November 7, 2007. At the time of the purchase Simpson was President and CEO of the Beaufort companies. [ 3 ] The critical provision of the APA is s. 3.3. The parties agree that it was the subject of "extensive negotiation".

Section 3.3 provides as follows: The purchase price shall be paid and satisfied, as follows:

a) at Closing, by the Purchaser assuming the Assumed Liabilities;

b) at Closing, by the Purchaser paying an amount equal to the 2006 Revenues of the Business by bank draft, certified cheque or electronic funds or wire transfer of immediately available funds, as directed by the Vendors at least 2 Business Days prior to Closing; and

c) provided that the Guarantor is employed and has been continually employed with the Purchaser (or an affiliate of the Purchaser) at the relevant time of each payment referred to below, by the Purchaser paying to the Vendor an additional amount by bank draft, certified cheque or electronic funds or wire transfer of immediately available funds, as directed by the Vendors, equal to one of the following:

i) if the 2007 Revenues of the Business derived from the insurance book of business included in the Purchased Assets are more than 90% of the 2006 Revenues of the Business by paying an amount equal to one half (2) of the 2007 Revenues of the Business 12 months after the Closing Date and a further one half (2) of the 2007 Revenues of the Business 24 months after the Closing Date; or ii) if the 2007 Revenues of the Business derived from the insurance book of business included in the Purchased Assets are equal to or less than 90% but equal to or more than 75% of the 2006 Revenues of the Business, by paying an amount equal to one half (2) of the Reduced Earnout Amount 12 months after the Closing Date and a further one half (2) of the Reduced Earnout Amount 24 months after the Closing Date; or iii) in the event that the 2007 Revenues of the Business derived from the insurance book of business included in the Purchased Assets are less than 75% of the 2006 Revenues of the Business, then no further payments are payable by the Purchaser to the Vendors.

Notwithstanding

Section 3.3(c), should the Guarantor die, or become sick or disabled and unable to work, any payments outstanding pursuant to

Section 3.3(

c) shall be payable by the Purchaser on the terms and conditions set forth therein as if the Guarantor continued to be employed by the Purchaser. [ 4 ] The

interpretation of s. 3.3(

c) is in dispute. For the moment, it is enough to say that it deals with payment of the purchase price stipulated in the APA. All else being equal, the purchase price was payable in three parts. Only the third

part is particularly relevant.

Section 3.3(

c) says the third

part is payable only if at 24 months after the closing date, the Guarantor Simpson remains employed and has continuously remained employed by Benfield. The third

part is in the previously mentioned sum of $486,123.12. [ 5 ] The APA required that Simpson enter into an employment agreement "...on terms satisfactory to the Purchaser". Simpson however acknowledged he obtained independent legal advice "with respect to the nature and consequences of entering into [the employment] agreement". The APA is no more specific regarding the nature and consequences of the employment agreement required or eventually entered into by Simpson and Benfield.

The APA also provided that Benfield was entitled to take out "key man" insurance on the life of the Guarantor and was entitled to Simpson's cooperation in that regard. [ 6 ] On their face these provisions together with the employment agreement itself suggest Simpson was to play a role in

Benfield's takeover of the Beaufort companies' assets and business. Much other evidence in this regard was referred to before the court. For reasons stated below it is mostly inadmissible. [ 7 ] Attached to and forming part of the APA are numerous Schedules. The APA is defined, at s. 1.1, as "this asset purchase agreement and all schedules attached to it..." This is repeated at s. 1.8 of the APA which provides that "The schedules attached to this Agreement form an integral part of it for all purposes of this Agreement." (All references to "APA" in this memorandum of decision refer to the APA and Schedules.) In contrast, the employment agreement mandated by s. 7.1 of the APA is not a

Schedule as such. The APA however defines "Ancillary Agreements", again at s. 1.1, as "all agreements, certificates, documents, materials and other instruments delivered or given pursuant to this Agreement".

There is an issue whether the employment agreement is an Ancillary Agreement. [ 8 ] Finally, the APA contains an "Entire Agreement" clause as follows: This Agreement, and the Ancillary Agreements, constitute the entire agreement between the Parties with respect to the transactions contemplated by this Agreement and supercedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties including the Heads of Terms dated July 27, 2007.

There are no representations, warranties, covenants, conditions or other agreements, express or implied, collateral, statutory or otherwise, among the Parties in connection with the subject matter of this Agreement or concerning any of the Purchased Assets, except as specifically set forth in this Agreement or any Ancillary Agreements. If there is any conflict or inconsistency between the provisions of this Agreement and the provisions of any Ancillary Agreements, the provisions of this Agreement shall govern. [ 9 ] As to the employment agreement itself, its

preamble makes reference to the APA, including the condition mentioned above that entering into the employment agreement was a condition of the APA closing. The

preamble notes Benfield's wish that Simpson be retained as its Chief Executive Officer. There is nothing else in the employment agreement that ties it specifically to the APA. [ 10 ] The effective date of the employment agreement is November 7, 2007. Again, that date coincides with the APA closing date. The employment agreement provides for an initial period of 24 months' employment subject to termination for cause. That 24 months coincides with the 24 months mentioned in s. 3.3(

c) of the APA. Whether that coincidence has any legal effect remains to be determined. [ 11 ] It was disputed before the court whether or not the employment agreement is ancillary to the APA. Reading ss. 1.1 and 7.1 together, it is clearly an agreement "delivered or given pursuant to" the APA and is thus ancillary to it. Whether that assists Beaufort's arguments around the

interpretation of s. 3.3(c), or its cause to become a party to the employment agreement, is dealt with below. [ 12 ] Simpson remained employed with Benfield until April 22, 2009. At that time he was terminated. It is not disputed that Benfield (or its successor Aon Canada Inc., as of November 28, 2008) breached its employment agreement with Simpson in that he could be terminated during the first 24 months only for cause, of which there was no evidence. [ 13 ] Nor however is it disputed that on April 26, 2009, Simpson agreed to accept $136,301.37 on account of the wrongful dismissal.

Simpson signed a release April 26, 2009 which states: In accordance with your November 7, 2007 employment agreement, payment of the amounts set out in

section 1 of this letter is conditional upon you agreeing to a full and final release in Benfield's favour.

Your acceptance of this offer, as indicated by your signature on the attached copy of this letter, shall constitute a release in favour of Benfield Corporate Risk Canada Ltd. and Aon Corporation, and their respective affiliates and subsidiary companies, and all of their respective employees, officers and directors (collectively, the "Indemnified Parties") of and from any and all liability, actions, claims and demands which you have may have at any time arising from or related in any way to your employment or the termination thereof, including any entitlement to severance pay, vacation pay or pay in lieu of notice, whether under statute, contract or otherwise.

You acknowledge that, having knowledge of your rights under applicable employment standards and human rights legislation, you have no complaint under such legislation against the Indemnified Parties. You agree that this offer will not be construed as an admission of liability and part of the Indemnified Parties and you undertake to keep this offer and its terms confidential. You acknowledge that you were given sufficient time to review the terms and conditions of this offer and to seek independent legal advice before accepting this offer.

[ 14 ] In June, 2009 Benfield advised of its position that owing to Simpson's termination, the s. 3.3(

c) requirement that he remain continuously employed with Benfield 24 months post-closing would obviously not be met, and that accordingly funds then held in escrow would not be paid to Beaufort. Beaufort objected to the non-payment.

The funds were subsequently paid into court pending the outcome of this application. [ 15 ] Simpson's affidavits filed November 15, 2010 and April 8, 2011 were before the court though the latter was filed late and was objected to by the Applicant. [ 16 ] Much is stated in Simpson's affidavits regarding the intentions of the parties to the APA, both standing alone and in conjunction with the employment agreement.

For reasons set out below it is unnecessary to summarize that evidence extensively in this memorandum. [ 17 ] That being said, there is evidence before the court regarding Simpson's execution of the April 26, 2009 release which, of course, post-dated the APA and employment agreement and is relevant and admissible regarding that aspect of the application. [ 18 ] In his November 10, 2010 affidavit Simpson does not deal in detail with his reasons for signing the release, or with any relevant communications he may have had with Benfield or its successor Aon Canada Inc. in connection with it.

Simpson simply deposes that if he had chosen not to accept the lump sum offer in the release, ...I would only be entitled to 1 weeks [sic] pay in lieu of notice and my group benefits would only be continued for a period of 1 week. [ 19 ] One John King ("King"), a Director of Benfield and of Aon Canada Inc., deposes in an Affidavit filed March 23, 2010 that he dealt with Simpson regarding the termination. On behalf of Benfield, King sent the April 26, 2009 release. King deposes that at the time Simpson signed the release, King was unaware of s. 3.3(

c) of the APA. He further deposes that: At no time prior to signing the Release or at all did Mr. Simpson bring this clause to my attention or raise any concern that his termination may conflict with any of the terms of the [APA]. [ 20 ] Simpson addresses King's evidence regarding the alleged conflict in his own Affidavit of November 15, 2010. Simpson states that he: ...take[s] issue with [King's] conclusion that he had no knowledge of the impact my termination would have on the terms of the APA. [ 21 ] Simpson repeats this evidence in his subsequent affidavit filed April 8, 2011.

Other than taking issue however he provides no other evidence directly on King's or Aon's actions. Simpson's affidavit also attaches responses to interrogatories directed to King arising from his March 23, 2010 affidavit.

No interrogatory was posed to King regarding what Simpson implies was his knowledge of the impact of Simpson's termination on the terms of the APA. [ 22 ] In his November 15, 2010 affidavit Simpson deposes indirectly that prior to his termination he had discussions about a deal with Aon and a "special arrangement regarding the remaining escrowed purchase price and some type of severance package". Nothing more concrete is stated in this affidavit. The assertion of a special arrangement is not repeated in any way, shape or form in Simpson's April 8, 2011 affidavit.

Issues [ 23 ] The following issues are before the court:

1: Does a plain reading of the APA entitle the Applicant to relief? 2: Does the employment agreement form part of the APA such that it helps inform the

interpretation of the APA? 3: What is the effect of the release in the April 26, 2009 letter? 4: Is there is any evidence of bad faith? 5: Is there is any evidence of unconscionability? 6: Was there any misrepresentation? Issue 1: Does a plain reading of the APA entitle the Applicant to relief? [24] There was no serious argument before the court and no basis for a finding that the APA is unclear or ambiguous on its facesuch that extrinsic evidence is required: Scott v. Wawanesa Mutual Insurance Co. (SCC), [1989] 1 S.C.R. 1445; EliLilly & Co. v. Novopharm Ltd. (SCC), [1998] 2 S.C.R. 129.

As such, the dispute between the parties must be decidedon a plain reading of the agreement and without regard for the extrinsic evidence contained in Simpson's affidavits. Issue 2: Does the employment agreement form part of the APA such that it helps inform the

interpretation of the APA? [25] For reasons already stated, I have concluded the employment agreement is ancillary to the APA, and in that sense is related tobut does not formally constitute part of it. What remains to be decided is whether that assists Beaufort's arguments around theinterpretation of s. 3.3(c), or its cause to become a party to the employment agreement between Benfield and Simpson. [26]

Section 13.11 of the APA does state "This Agreement, and the Ancillary Agreements, constitute the entire agreement betweenthe Parties..." I am unable however to read this specific and single reference as creating one agreement to which all are "parties". I read s.13.11 rather as stipulating that each of the APA and the Ancillary Agreements are themselves "entire agreements" between the parties tothose agreements. [27] Dealing then with the

interpretation issue, as they are distinct contracts there is no requirement that I interpret the APA andemployment agreement together as much as possible to avoid rendering any portion of either contract meaningless or redundant or indeedin conflict with the other. In other words, the employment agreement does not help inform the

interpretation of the APA. [28] That being said, even if they must be read together, I would find no conflict between the contracts. Beaufort argues the partiesintended s. 3.3(

c) of the APA, read together with the employment agreement, to bind Simpson to remain employed for at least 24months. Beaufort also argues in essence that the parties intended that Benfield was similarly bound to keep Simpson employed for atleast 24 months, except for cause. Thus Beaufort argues the parties could not have intended that Benfield could avoid paying under s.3.3(

c) by terminating Simpson without cause. [29] I am unable to read the agreements together as evidencing the latter intention. In the context of the extensively-negotiated s.3.3(c), Beaufort's right to collect one or more of the payments was plainly contingent on Simpson's remaining continuously employed.The coincidence of 24 month periods in each agreement aside, there is nothing in the agreements amounting to the guarantee Beaufortseeks that Simpson would never be terminated without cause. Yet as noted by Benfield, the parties plainly did provide a guarantee ofpayment of the entire purchase price in the event of Simpson's death or inability to work owing to sickness or disability:

Notwithstanding

Section 3.3(c), should the Guarantor die, or become sick or disabled and unable to work, any payments outstandingpursuant to

Section 3.3(

c) shall be payable by the Purchaser on the terms and conditions set forth therein as if the Guarantor continued tobe employed by the Purchaser. [30] There is no similarly specific and concrete protection against Simpson's without-cause termination within 24 months. No suchintention can be read into the agreements. Granted, the APA might have been negotiated differently in an attempt to more fully secure orindeed guarantee Beaufort's entitlement to any disputed payments. That is not however the agreement before the court.

The law offers noremedy if, in the result, either of these agreements was a bad deal for Beaufort and Simpson: Trizec Equities Ltd. v.

Ellis DonManagement 1999 ABCA 306. [31] If I am wrong in this conclusion, Benfield argues correctly that in the alternative any conflict between the APA and theemployment agreement is resolved by s. 13.11 of the APA: If there is any conflict or inconsistency between the provisions of this Agreement [the APA] and the provisions of any AncillaryAgreements, the provisions of this Agreement shall govern. [32] For these reasons Beaufort does not succeed even if I am compelled to read the APA and employment agreement as one andthe same agreement. [33] What then of Beaufort's claim to be a party to the employment agreement?

For if a party, Beaufort suggests it can argue thatunlike Simpson, it has not released Benfield from liability for the wrongful dismissal, and can go forward to assert its legal rights. [34] Beaufort must overcome the doctrine of privity of contract. Many authorities were argued before the court going to exceptionsto privity without resort to which Beaufort would have no standing to enforce the employment agreement. Beaufort sought comfort inFraser River Pile & Dredge Ltd. v. Can Dive Services Ltd. (SCC), [1999] 3 S.C.R. 108.

Fraser River sets up anarguable exception to privity when amongst other things the parties to the contract intended to extend the benefit in question to the thirdparty seeking to rely on the contractual provision. Here however there is no evidence on a plain reading of the employment contract ofthe required intention of the parties to extend any benefit from that contract – the cause of action in wrongful dismissal – to the thirdparty Beaufort. [35] What is more, the employment agreement was carefully crafted and entered into by Simpson only after he obtainedindependent legal advice. In Landex Investments Co. v.

John Volken Foundation 2008 ABCA 333 at paragraph 9, the court found that: A non-party cannot imply covenants in an agreement when the parties to that agreement have precluded their right to do so.

Absent aspecific covenant to that effect, it is incorrect to read into the carefully negotiated [agreement] an intention of the parties to grant rightsunder it to strangers to the agreement. [36] Beaufort therefore fails to establish any exception to privity of contract and has no rights to assert under the employmentagreement. [37] Given that finding, it is strictly-speaking unnecessary to deal with Benfield's further argument that any principled exception tothe privity doctrine can be used only as a shield rather than, as here, a sword in the form of a cause of action for wrongful dismissal.

There is some authority for that proposition in London Drugs Ltd. v. Kuehne & Nagel International Ltd. (SCC),[1992] 3 S.C.R. 299 at paras. 244 & 260. The issue was raised but not resolved, in Landex Investments, supra, at para. 11. Issue 3: What is the effect of the release in the April 26, 2009 letter?

[ 38 ] Benfield argues Simpson had a choice once he was terminated without cause: he could have rejected and thus fought the termination. Of course he opted to settle. [ 39 ] Why did he do it? As argued before me by Benfield's counsel, "The why, although of academic interest, is legally irrelevant" - doubtless owing to Benfield's position that Beaufort was not a party to the release. That is consistent with this court's findings. At the end of the day the effect of the release then was to extinguish Simpson's rights against Benfield for wrongful dismissal.

Once Simpson acceded to no longer being employed, Beaufort lost its right under the APA. [ 40 ] Notwithstanding my findings on that issue, out of an abundance of caution I will make findings arising from the evidence relevant to the remaining arguments before the court. [ 41 ] The "why" expressed above might be legally relevant in the face of any evidence the release was obtained improperly or unconscionably as that expression is understood in Cain v. Clarica Life Insurance Co. 2005 ABCA 437 . [ 42 ] Above, I reviewed the available evidence surrounding the release.

Really the only evidence coming from Simpson is that he felt he had no choice but to sign the release. Simpson then expresses skepticism regarding King's own affidavit evidence. What was on King's mind however misses a larger point: what was on Simpson's mind in the same regard when he signed the release? Of that there is virtually no evidence. Indeed there is virtually no evidence going to any of the Cain factors without which the release is unassailable. Issues 4 & 5: Is there is any evidence of bad faith?

Is there is any evidence of unconscionability? [ 43 ] Beaufort did not much distinguish in argument between what counsel referred to as the "nuances" that distinguish bad faith and unconscionability. (For that matter, in argument Beaufort also raised estoppel and unjust enrichment, neither of which was emphasized in its brief.) As Beaufort's counsel plainly stated before the court: "We're here seeking equity, there's no doubt about it." [ 44 ] However, in Calgary (City) v. Northern Construction Co. Division of Morrison Knudson Co. [1985] A.J.

No. 741 (C.A.) , Kerans J.A. noted: ... the preponderance of authority is that equity will not intervene to protect a party from a bad bargain unless it can see that one contracting party held unequal bargaining power. Again, there is simply no evidence before the court of any inequality of bargaining power. [ 45 ] Fundamentally Beaufort is not happy with the outcome of its commercial agreement, and/or with the result of Simpson's decision to release Benfield for wrongful dismissal.

Beaufort's bad faith and unconscionability arguments hinge on a finding that Benfield was bound to keep Simpson employed at least 24 months, and to terminate him only for cause. For reasons already stated I have rejected any such finding. Beaufort cannot therefore succeed in arguing as elements of bad faith that Benfield "took unfair advantage of contractual provisions", or "recklessly and carelessly exploited

Article 3.3(

c) as a means to sabotage the contract ..." [ 46 ] Also lacking in the agreements before me - unlike many if not all of the agreements featured in the good faith/bad faith authorities argued by Beaufort - is any provision requiring good faith in the

interpretation or performance of the contracts, for example in the exercise of any discretion provided for in the contracts. Issue 6: Was there any misrepresentation?

[ 47 ] Beaufort's final argument rests on extrinsic evidence of an alleged agreement between the parties that Benfield explained and represented to Beaufort during contract negotiations that it would not enforce s. 3.3(

c) arbitrarily or in bad faith. As noted above, no extrinsic evidence is admissible. Without such evidence, arguments based on misrepresentation go nowhere. Conclusion [ 48 ] The Applicant is entitled to the funds, together with interest and costs. If the parties are unable to agree, costs may be addressed by way of written submission and/or telephone application, within 60 days of the release of these reasons. Heard on the 18 th day of April, 2011. Dated at the City of Edmonton, Alberta this 30 th day of September, 2011. Peter Michalyshyn J.C.Q.B.A. Appearances: Michael Mestinsek Stikeman Elliott for the Applicant James G. Shea Shea Nerland Calnan LLP for the Respondents