BFI Canada Inc. v. Persia Food Products Inc. Date:, 2010 BCPC 308

Citation: BFI Canada Inc. v. Persia Food Products Inc. Date: 20101202 2010 BCPC 0308 File No: 10-29827 Registry: Vancouver IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: BFI CANADA INC. CLAIMANT AND: PERSIA FOOD PRODUCTS INC. DEFENDANT REASONS FOR JUDGMENT OF HIS WORSHIP DARRELL W. ROBERTS Counsel for the Claimant: Ashley Syer Appearing for the Defendant: Parviz Behrouzi Place of Hearing: Vancouver, B.C.

Date of Hearing: November 24, 2010 Date of Judgment: December 2, 2010 [ 1 ] The Claimant seeks liquidated damages of $1,495.61 plus costs from the Defendant pursuant to a written customer service agreement dated June 18, 2009 for the supply of waste services. The agreement is for the pick up of mixed paper and cardboard waste at 118 - West 15 th Street, Vancouver, a premises of the Defendant, Persia Food Products Inc.

The agreement was entered into by Maryam Behrouzi on behalf of the Defendant with Waste Services Inc., the supplier of the pick-up service, and was assigned by written contract of assignment by Waste Services Inc to the Claimant, BFI Canada Inc., on August 1, 2009.

Notice was given to the Defendant of the assignment and its enforceability by the Claimant as assignee is not called into question in this proceeding. [ 2 ] The pick-up service is from a 6 yard container at the Defendant’s premises for a monthly charge rate of $64.95, and written on the first of the two pages of the customer service agreement is the term of the contract in long hand: “As per existing CSA – expires 9/1/2013.” [ 3 ] Counsel attending the hearing for the Claimant, Ashley Syer, said this amended the language in printed paragraph 2 of the agreement as to the agreement’s term which states it is for an initial term of 60 months.

Instead, by reason of the long-hand above, the initial term is from June 18, 2009 to September 1, 2009, or 18 days less than 51 months, but thereafter the agreement is automatically extended for additional terms of 60 months unless either party gives the other party written notice by registered mail of termination in accordance the following language, also part of printed paragraph 2:

This Agreement shall automatically be extended for additional terms of sixty (60) months each, unless either party gives the other party written notice (by registered mail) of termination at least ninety (90) days, but not more than one hundred eighty (180) days, prior to the termination of the then current term. [ 4 ] Most strikingly, this provision limits the right of termination of this lengthy agreement to a 3 month window of maximum 180 days (6 months) and minimum 90 days (3 months) before September 1, 2013.

Except for some force majeure language in the miscellaneous paragraph of the agreement, there is no other right given in the agreement to terminate this waste service contract. [ 5 ] On December 16, 2009, the Defendant gave written notice of cancellation of the agreement. Their letter is contained in the Claimant’s Trial Statement and Counsel for the Claimant said at the hearing that it was an illegal termination of the agreement and is the sole basis of the Claimant’s claim in the Notice of Claim in this proceeding.

In other words, as confirmed by counsel at the hearing, all invoices for the waste services provided by the Claimant have been paid by the Defendant and the claim is entirely based on the rights given to the supplier of the waste service (the Company) in paragraph 7 of the agreement: 7. LIQUIDATED DAMAGES.

In the event the Customer terminates this Agreement prior to the expiration of any Term, or in the event the Company terminates this Agreement for the Customer’s default, the Customer agrees to pay, in addition to the Company’s legal fees, disbursements, court costs, agency charges, and all amounts owing to the date of the customer’s default, the following liquidated damages: (1) a sum equal to fifty (50) percent of the average monthly charge for the most recent six (6) full months of service multiplied by the number of months remaining in the Term of this Agreement, or.... [ 6 ] In the Claimant’s calculation of their claim as set out in the Trial Statement the claim of $1,495.61 is “calculated using 50% of the average monthly charge for the most recent six full months of service, multiplied by 43 months remaining under the agreement”.

The 50 percent monthly average is $34,7816 x 43 months, for a liquidated damages claim of $1,495.61, following precisely the language in paragraph 7. [ 7 ] In the course of the hearing, when I raised the question as to the reasonableness of the restriction on the right to terminate the agreement, not until a 3 month period at the end of the more than 4 year term, and of the claim for damages under paragraph 7 of the agreement, counsel for the Claimant submitted that it was a standard form of agreement in the industry and that it was not a matter for the court to consider as this question had not been raised by the Defendant.

Counsel also referred to the language in paragraph 10 entitled “Miscellaneous” which appears to excuse a default by a party to the agreement caused by events beyond a parties reasonable control such as strikes, riots, fires, acts of God, and all those matters commonly referred to as force majeure. [ 8 ] It is of course the law that the courts in this province and in Canada are bound to apply the law whether it has been identified by a party or not, and that the force majeure language in the agreement in no way eased the apparent draconian nature of the language in paragraphs 2, Term, and 7, Liquidated Damages.

The purpose of the liquidated damages provision appears intended to bind a party to the agreement and to put that party in fear of the consequence of attempting an early termination. Despite its language it does not appear to have any relationship to the damages that might be suffered by an early termination.

If 3 months notice is sufficient at the end of the term, then surely that is a reasonable notice period at any time, the purpose being the reasonable length of time for the Company to find another customer to replace the leaving customer. [ 9 ] During the course of the hearing I referred the parties to Fridman, The Law of Contract , 5 th Edition at 770: (ii) Liquidated damages As long ago as 1829, Tindal C.J. said that the courts saw “nothing illegal or unreasonable in the parties, by their mutual agreement, settling the amount of damages, uncertain in their nature, at any sum upon which they may agree.” Such an agreement must be differentiated from one which settles upon an amount of money (which might even cover the damages suffered by the injured party but is not based thereon) and is intended to ensure the performance of the contract.

In other words, it is not meant to be a genuine pre-estimate of loss suffered, but is a threat, something held over the other party in terrorem . It is a question of construction whether the clause in question creates a penalty or fixes liquidated damages. It is the language of the contract as a whole, as Estey J. explained in one case, that must determine the intent and purpose of the parties, and while the particular words used are important, the mere use of the words “liquidated damages” or “penalty” is not conclusive.

It is a question of law, in every case, whether the conventional sum is a penalty or liquidated damages, and it is decided on a consideration of the whole agreement. In Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co. , Lord Dunedin laid down some general rules for the guidance of the courts. These were culled from earlier decisions, and have been accepted by courts in Canada, which, indeed operated on those principles before 1915 and still do so.

(1) The sum in question will be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss that could possibly follow from the breach.... [ 10 ] Relying on the

summary of the law on this subject in Fridman’s Law of Contract, it is my view the language in paragraph 7 of the agreement providing for liquidated damages is not meant to be a genuine pre-estimate of loss suffered, but is indeed, borrowing from Fridman, “a threat, something held over the other party in terrorem ”. The three months notice, i.e. 90 days before the end of the specified current term, identifies the greatest loss that could possibly follow from a breach. In other words, the Claimant operating a waste disposal business needs no more than three months notice in order to try and replace the customer.

A claim for damages based upon the multiple of the number of months remaining in a 4 or 5 year contract where the right to terminate is confined to the end of such lengthy term is, again to borrow from Fridman, “extravagant and unconscionable in amount in comparison with the greatest loss that could possibly follow from the breach”. [ 11 ] Therefore, it is my conclusion that the claim of the Claimant based as it is on the liquidated damages provision of paragraph 7 of the customer service agreement is unconscionable, is in fact a penalty, and as such is against the public policy of the law of contract and should not be allowed.

[ 12 ] Therefore, as I held at the conclusion of the oral hearing on the evening of Wednesday, November 24, 2010, the claim of the Claimant is dismissed. ______________________ Darrell W. Roberts, Q.C. Adjudicator