Lost In Contractual Interpretation: No Agreement At ABCA On Interpretation Of Multiple Contracts Within A Single Transaction

In a very recent decision of the ABCA, Benfield Corporate Risk Canada Limited v. Beaufort International Insurance Inc, 2013 ABCA 200, the Court attempted to address a host of interesting contract issues, some with potentially wide implication, such as how to interpret multiple contracts within a single transaction, including the effect of entire agreement clauses and the ability to benefit from a breach of one of the related contracts. Also mentioned are general duties of good faith, the role of fairness and implying terms. However, unique circumstances and a lack of agreement in the Court leaves us, unfortunately, without clear direction in an area affecting most complex commercial transactions. Further, the majority decision runs contrary to previous authorities from the ONCA and SCC.

Background and Decision Below

The Defendant (Beaufort) entered into an asset purchase agreement (APA) to sell its insurance brokerage business and related assets to the Plaintiff (Benfield). The APA contained a clause which provided that the APA and the "ancillary agreements" constituted the "entire agreement" between the parties. The final payment of the purchase price was contingent on a key employee of Beaufort (Simpson) remaining in Benfield's employment for two years, subject to certain exceptions for non-culpable behavior (i.e., death, sickness or disability).

In an ancillary employment agreement (stated to be one of the conditions of closing), Benfield agreed to employ Simpson for an initial 2-year fixed term with dismissal only for cause (after 2 years he could be dismissed with or without cause). But Benfield terminated Simpson's employment without cause before the expiry of the 2-year fixed term by paying him his full 2-years' salary and obtaining a full release from him. Then Benfield tried to rely on the fact Simpson was no longer employed to refuse final payment to Beaufort. Although, one unique aspect was that some months after the sale closed, a larger company bought Benfield, which introduced changes in business policy which Simpson did not agree with.

The chambers judge found for Benfield, concluding that the ancillary employment agreement did not form part of the interpretation of the APA because it involved a different party or, alternatively, that Benfield did not guarantee 2 years of employment. Beaufort appealed.

The ABCA Split Decision

On appeal, the majority of the ABCA dismissed the appeal. Conrad J.A., in dissent, would have allowed...

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