Contractual Terms – What You Read May Not Define Your Case

 Interpreting the Contract

Often many people believe that the clearly stated words in a contract will govern their legal rights. They may be mistaken in this presumption.

Take, for example, the case of a contract which was described as an “Independent Consulting Agreement” which allowed the company the right to terminate the agreement for any reason in its best interests without any form of compensation. Most people would believe that these words would deny them any form of legal remedy, should the company choose to terminate them.

A recent decision provides a good illustration of the need to obtain legal advice no matter how apparently futile the case may appear to be at first blush.

Termination Term & Good Faith

Mitchum Mohamed (MM) entered into an independent consulting agreement with Information Systems Architects (ISA), a company which provided digital technology services through its consultants to Canadian Tire. MM advised ISA prior to signing the agreement that, while in high school, he had been convicted of assault with a weapon.

MM had an initial part time contract with ISA which concluded. He was then offered a second full time contract with the company which he accepted and resigned his prior full-time employment.

After his second assignment to Canadian Tire, that company did its own criminal record search of MM and discovered the prior criminal conviction. It requested ISA to terminate the consultant which ISA did, and relying upon the contract, it chose to offer MM no financial compensation, believing its contract allowed this action with impunity. It was wrong.

The termination provision in the contract allowed ISA to terminate:

  1. At its sole discretion, where the work quality is below standard;
  2. If the customer cancels the contract;
  3. If ISA believes that termination is in its best interests;
  4. Immediately, on written notice for any breach of the agreement.

MM testified that he read the agreement but believed that the company would not act frivolously.

Principles of Interpretation

Although a preliminary reading of the contract appeared to give the company the unfettered right of termination, there are two important principles of interpretation that allowed for an opposite conclusion.

The first is the legal concept that an agreement which contains an ambiguity must be read in a manner against the writer of the contract. The theory is that it is the drafter of the contract that is able to make clear the intent of the agreement. If it fails to do so, then it is only fair to read the apparent contradiction against that party.[1]

The second important rule of interpretation is known as the doctrine of good faith in the performance of contracts. This principle comes from an important Supreme Court of Canada decision.[2] MM rightly believed that ISA must act in good faith and it could not rely upon a reason for termination which was known to it when the contract had been signed. For that reason, ISA could not use this as a reason to terminate the contract.

The termination clause was also found to be ambiguous. The requirement to give notice of termination for a violation made by MM, the court ruled, made no sense. It was illogical for the agreement to require no notice where MM had done nothing wrong yet demand notice when MM was in default. The termination clause was hence ruled unenforceable for this reason as well.

No Offset for New Income

Because the contract was for a fixed time period and contained no term dealing with the impact of alternative post-termination employment or other income, MM was awarded the total sum due under the contract of $82,000.

Advice is Critical

This case provides a vivid example of the need to take legal advice no matter what you may think of the likelihood of your success in a claim. The law is a complicated creature. Legal advice on contracts of this nature is important not only when facing the impact of termination but also when considering a new business or employment engagement.

Contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues and defend your position. Contact us online or by phone at 519-821-5465 to schedule a consultation.

 

 

 

[1] Lawyers refer to this as the “contra proferentem”rule.

[2] Bhasin v Hrynew