LEGAL MEMO
To>>Street Dogs Inc.
From” Dewey Sooem L
.L.P.
Re” Legal Issues memo affecting Street Dogs Inc. and its rights and obligations with respect to the various parties mentioned.
Date” 3/22/2020
After meticulous evaluation and consideration of the facts presented, the following are possible legal issues for determination.
- Whether the actions and conduct of Jason constitute a breach in the terms of the employment with A.B.C. Inc., and their enforceability.
- Whether Lucy, a lawyer, is liable for professional negligence.
- Whether the contract between Jason and Aunt Olivia constitutes a valid enforceable contract, in particular, her capacity to contract.
- Whether the Toronto Daily E is liable for defamation against Street Dogs Inc.
- Whether Omar, Jason and Street Dogs Inc. are liable for misrepresentation against their vegan consumers.
- The enforceability of the sale of goods contract between Zam and Street Dogs Inc.
- Whether there was a valid contract between Jason Freer and Eyeballs.
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- Whether DOWI is liable for damages caused by its defective carts
The aforementioned legal issues are herein discussed comprehensively, coupled with an analysis of the legal issues and conclusions of the same.
- Whether the actions of Jason Freer constitute a breach of the terms of employment with A.B.C. Inc., and their enforceability.
The company A.B.C. Inc. seeks to rely on their employment contract with their former employee, Jason Freer, in particular the restrictive clause that provides that “the employee will not operate a competing business in any field or enterprise that directly competes with A.B.C. Inc.’s ventures, or use skills and information obtained while in the employ of A.B.C. Inc. to do so.” This is in light of the conduct of Jason Freer, which constitutes perceived breaches of the aforementioned contract.
Prima facie, Jason Freer’s actions do constitute a breach of the terms of employment with the company of A.B.C. Inc. He not only set up and incorporated a competing business, namely Street Dogs Inc., but also used the skills and information obtained while in the course of employment of the company to further his business interests. For instance, he approached a company that he knew was bankrupt from his dealings with A.B.C., and offered to and purchased six of their carts for 50,000 dollars. Furthermore, Jason solicited the six of the vender employees of A.B.C. Inc. and offered to contract with them into his new company. Under the new agreement, they would be co-owners with the company.
It is undeniable that Jason’s actions gravely constitute a breach of the terms of his former employment contract. Upon finding his liability, the next pertinent issue to determine is the enforceability of the restrictive clause in the contract.
The validity of any employment contract demands three qualifications. First, there must have been an offer and acceptance of the contract. Second, the terms of the contract must not be unconscionable or illegal. Lastly, there must include sufficient consideration”>>. The first and last suffice, as it is already established Jason was indeed in the employment of the company of A.B.C. Inc. What therefore remains is the legality, unconscionability, and enforceability of the terms of the contract.
The clause by A.B.C. Inc. limiting the employee constitutes a restrictive clause. Notably, courts are often hesitant to enforce such clauses. The enforceability of a restrictive clauses rests on three premises, as established in the case of J.G. Collins Insurance Agencies Ltd. v. Elsey Estate.[1] The three questions to determine the enforceability of a restrictive clause are.
- “Does the employer have a proprietary interest to protect?
- Is the clause reasonable in terms of duration and geographic scope?
- Does the covenant prohibit competition generally or is limited to barring solicitation of former clients?”
Concerning the nature of proprietary interest, the evaluation and determination are done on a case to case basis. The clause should be reasonable in terms of duration and geographical scope, which are inversely related <<>>the bigger the geographic; scope, the less the duration limit. In light of the third question, the courts’ stance is mostly against the non-competition clause, with that of non-solicitation variant on the facts of the case.
An evaluation of Jason’s breach of the employment contract using the enforceability test renders the terms of the contracts void and enforceable. Notably, the terms seek to restrict competition, and the application of the skills and information acquired in another business. As per the courts, such clauses are a mechanism to limit market competition. Furthermore, they restrict the ability of the former employees to contract independently and employ the skills obtained to their advantage. As such, such restrictive clauses are contrary to public policy, hence void and unenforceable. As seen in the case of Lyons v Multari, the Ontario Court of Appeal stated that “the non-competition clause is a more drastic weapon in the employer’s arsenal[2] Therefore, courts will not uphold a non-competition clause where a non-solicitation would have sufficed.
A non-solicitation clause is operable, but the drafter must make sure that it is not a non-competition clause. In the case Ontario Court of Appeal case, Donaldson Travel Inc. v. Murphy.[3] The non-solicitation clause at issue stated that the employee
“agrees that in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by the employee], directly or indirectly…”
The court declared that the clause was unreasonable and unenforceable as the phrase “or accept business” rendered the non-solicitation clause into a non-competition clause.
In conclusion, the actions of Jason, though constituting a breach of his employment contract with A.B.C. Inc., are unenforceable as they inhibitive of trade, thus contrary to public policy.
- Whether Lucy, a lawyer, is liable for professional negligence.
This issue arises from Lucy’s actions, which constituted relaying to the client, Jason Freer, that she, though inexperienced in the field, thought such a contract was unenforceable. Jason went on to act on her advice, despite her offering to connect him with an experienced inexpensive consultancy firm to advise him better. Lucy’s conduct raises the question of professional negligence and her immunity from such.
Since 1860, an attorney was not liable for any mistake or indiscretion or error of judgment of any sort, as established by Pollock C.B in Swinfen v. Lord Chelmsford (1860), 5 H. & N. 890, at p . 924. [4]The existence of such an immunity came under scrutiny in Hedley Byrne & Co. Ltd v. Heller and Partners.[5] The doubts of the existence and extent of such immunity were dealt with in the case of Rondel v. Worsley, where the court unanimously agreed that a barrister was entitled to such immunity, specifically those arising from the conduct of proceedings. The case was decided on the public policy grounds, noting that “the claim of an individual to a remedy for injustice suffered is held to be prejudicial to the sound administration of justice and, being a matter of overriding public interest, must prevail.”[6] However, they did not determine the extent of such immunity.
The public policy grounds relied on the determination of immunity are:
- “An attorney owes a duty to the court, which must be carried out fearlessly and independently, and that duty is superior to the duty owed to his client.
- A negligence action against an attorney would involve a retrial of the original case, thereby prolonging litigation.
- An attorney is under an obligation to accept any case despite the difficulty and undesirability of the client.”
Notably, Lucy’s actions occurred in her chambers. The court addressed this issue in the case of Saif Ali v. Sydney Mitchell & Co. The issue was, “what is the extent of a barrister’s immunity, if any, against a claim for damages for negligence in the performance of his professional duties out of court?”[7] The court extended such immunity to the actions of attorneys in chambers, with the majority of the bench agreeing that the policy considerations become irrelevant when “the scene of the exercise of the barrister’s judgment… is shifted from the hurly-burly of the trial to the relative tranquility of the barrister’s chambers”[8]. As such, the lawyer is immune to such an action of negligence.
From the preceding, Lucy is, therefore, not liable for professional negligence. Her conduct does not constitute professional negligence, as established in Swinfen v. Lord Chelmsford. Additionally, her liability is further mitigated when she offered the client to set him up with a more experienced consultancy firm.
- Whether the contract between Jason and Aunt Olivia constitutes a valid, enforceable contract with in particular regard on her capacity to contract.
This question arises due to the perceived mental health issues of Aunt Olivia, like confusing Jason with his father, which affects her ability and capacity to contact. Notably, the law in Canada requires that an individual must possess a requisite level of mental capacity or decision-making ability. The rules are established in order to protect the best interests of the person.
The test of mental capacity as a basis for legal capacity is established in various legislations such as Ontario’s Substitute Decisions Act, Health Care Consent Act, Saskatchewan’s Adult Guardianship and Co-decision-making Act, and the Manitoba’s The Vulnerable Persons Living with a Mental Disability Act<< “. The test involves the assessment of an individual’s ability to understand and appreciate issues. It answers the following questions;
- “Whether an individual understands the relevant information
- Whether the individual possesses the ability to contemplate and appreciate the foreseeable consequences of her actions.”
The finding of mental incapacity removes the capacity of an individual to contract in law.
Notably, capacity is not static and depends on the context of the case. As such, courts are often hesitant to declare a lack of capacity despite the individual being mentally ill. In Clark v Clark, Justice Matheson declared that despite his inability to speak and his intellectual disability, the plaintiff was mentally competent as he could effectively communicate his wishes through symbols[9]. As such, he had the capacity to contract.
The lack of capacity also not judged on the content of the decision but the process of reaching the decision. As per Justice Quinn, “The right to be foolish is an incident of living in a free and democratic society…As such, he right knowingly to be foolish is not unimportant; the right to voluntarily assume risks is to be respected. The State has no business meddling with either.”[10] Additionally, as per Hart v O’Connor, Lord Brightman states “… the validity of a contract entered into by a lunatic who is ostensibly sane is to be judged by the same standards as a contract by a person of sound mind, and is not voidable by the lunatic or his representatives by reason of ‘unfairness’ unless such unfairness amounts to equitable fraud which would have enabled the complaining party to avoid the contract even if he had been sane”[11]. Therefore, courts are more concerned with the ability of an individual to make decisions, rather than the absurdity of such decisions.
From the preceding, it suffices the contract between Jason and Aunt Olivia constitutes a valid, enforceable contract. Despite her mental lapses, her decision-making process is unaffected; hence she can contract. She even holds Jason to the promise of not dirtying the family name by pulling a copy of the newspapers and denies him money. This would suffice in court, and therefore the contract is valid.
- Whether the Toronto Daily Enquirer is liable for defamation.
In light of the publishing of an unfriendly article by Toronto Daily, the question of whether the information published by the Toronto Daily Enquirer about Streets Dogs Inc. is defamatory begs for attention. Notably, the paper refers to the company as a scheme that exploits vendors in unprecedented measures and binds them in indebted servitude.
Defamation in Canada refers to harming another person’s reputation by making a false written or oral statement about that person to a third party. It exists as slander and libel. As observed in Hill v Church of Scientology of Toronto (1995), to successfully make a cause in defamation, one must prove that;”
- A statement was made or published,
- The statement was defamatory,
- For slander, the plaintiff suffered damages due to the statement.”[12]
In the case, the court awarded damages of 1.5 million for defamation. Publication involves the making of a statement to a third party. For a statement to be defamatory, it must lower the person’s reputation in the eyes of the right-thinking persons in society.
Notably, in Grant v Torstar (2009)[13]A defense of responsible communication for journalists was established. The court noted that the defamation law in Canada is too strict, and may inhibit the publication of reliable information that the public ought to know. Therefore, journalists are allowed to report false allegations if the news is urgent and essential to the public, provided that they attempted to verify the content. As such, the media got a reprieve from claims of defamation, only if they proved such a defense successfully.
It is irrefutable that the article on Street Dogs is very defamatory. It was published in a newspaper and lowered the reputation of Jason Freer in the eyes of his grandmother, who even denies him a loan. The claims of indebted servitude are uncalled for, and the journalist did not take measures to verify the information as highlighted by the fact that he made no mention of it being a co-ownership. As such, the newspapers are liable for defamation, and action in a court of law would award Jason the appropriate damages.
- Whether Omar, Jason, and Street Dogs Inc. are liable for misrepresentation to their customers.
Omar has an advertisement that his cart serves only vegan, non-animal based products, and the cart “has never and will never serve meat!” Information comes out that the grill he had been used for beef; as such, his customers felt aggrieved and want to sue. His actions generally constitute misleading advertisements.
Section 74 of the Competition Act provides for provisions on misleading advertisements. It “prohibits representations to the public to promote a product or any business interest that is false or misleading in a material respect[14] Section 52 further provides that misleading advertisements criminal if it is made intentionally.
The test for misleading advertisements as per section 74 is; “
- a representation has been made;
- to the public;
- to promote a product or business interest;
- the representation is false or misleading; and
- the representation is material.”[15]
From the preceding, it is clear that the statements by Omar were indeed misleading advertisements. They were meant to promote sales. As such, in a court of law, the defendants would all be reliable for misleading advertisements. However, the court may exonerate Jason Freer as the actions of Omar were not that of an employee, but a co-owner.
- The enforceability of the sale of goods contract between Zam and Street Dogs Inc.
The dealings between Zam and Jason are of particular concern. For one, the sale comprised of a very persuasive intermediary who manages to convince Jason into purchasing a large shipment of drinks for his business. Jason agrees to purchase the shipment, and in his own words, states he would see how it goes for him. Jason realizes his mistake and seeks to return the drinks, which the seller refuses.
Once a party intimates acceptance, a legally binding contract is formed. It, therefore, becomes tough to rescind such a contract, unless in exceptional circumstances. Luckily for Jason, the sale involved an intermediary, and the law, Consumer Protection Act[16], provides a cooling-off period for cancellation of the contract in the case of purchase from an intermediary. The statute categorically provides for ten days for which a party can cancel a contract without any consequences. The cancellation is valid even though there was no fault on either part of the parties, and all terms were legitimately met.
However, some sellers do impose conditions of acceptance of returns. Such terms may include that the goods be in their original packaging, and have no damage. In this case, the seller did not provide for such terms, and they can be construed against him. Notably, forcing Jason to remain with the drinks is inequitable, as it would occasion him hardships. As such, Jason Freer can be able to return the goods he bought within ten days, without any serious ramifications.
- Whether there was a valid contract between Jason and Eyeballs, and its enforceability
The dispute between the advertising company of Eyeballs and Jason is that Eyeballs wanted to advertise a movie considered offensive and vulgar by many on the carts of Jason. Jason had agreed to contract with the parties and had offered his space for advertisement. However, upon delivery of the material, he knew it would be a problem. Eyeball, however, insisted that they had a deal.
It is undeniable that there exists a contract between Jason and Eyeballs. However, the agreement is rendered unfavorable, as it is prejudicial to one party. The advertisement for such a movie on the cats of Jason would negatively affect his business. As such, even though they had an agreement, such is voidable as it would occasion detrimental hardships on the part of Jason. Furthermore, Jason was not filled in on the full details of the advertisement. This would, therefore, be unfair and inequitable. Therefore, the contract can be terminated on the part of Jason, who could, out of goodwill, cover a percentage of the costs incurred on the preparation of material by Eyeballs.
- Whether DOWI is liable for damages caused by its defective carts
The facts pertinent to this are that one of the carts designed by DOWI was defective, and had hereby occasioned an accident while in the control of a vendor. Those whose cars were destroyed are claiming for damages. Jason, on the other hand, seeks to determine the liability of DOWI, to pay the damages.
It is agreeable that DOWI is not liable for the damages due to its defective cart. This is because the negligence of the vendor had occasioned the accident. As such, he had no claim in law. Second, DOWI had given sufficient notice of the defects of its cart and even offered to repair them, in light of the provisions on the conditions of goods and services in the Consumer Protection Act, namely caveat emptor.[17] It admits that the model was defective, and instructed for the removal of the second set of the handle. Those who wished not to remove it remained with the model and were deemed to accept it for its stylishness.
As per the preceding, DOWI is not liable for the damages, as it had given a notice for the removal of the handles, which Jason confirmed to be true. Jason cannot claim a lack of knowledge, as ignorance is not a defense in law. Jason, together with the vendor, should, therefore, seek to cover the damages and accept DOWIs good gesture of fixing and repairing the cart.
[1] Collins Ins. v. Elsley Estate (1978), 20 N.R. 1 (SCC)
[2].” Lyons v. Multari (2000), 136 O.A.C. 281 (C.A.)
[3] Donaldson Travel Inc. v. Murphy, 2016 ONCA 649
[4] Swinfen v. Lord Chelmsford (1860), 5 H. & N. 890, at p . 924.
[5] Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
[6] Rondel –v- Worsley [1966] 3 ALL ER 657
[7] Saif Ali v Sydney Mitchell and Co [1978] 1 Q.B. 95; [1980] AC 198
[8] Ibid
[9] Clark v. Clark, 346 N.W.2d 383
[10] Ibid.
[11] Hart v O’Connor [1985] UKPC 1
[12] Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130.
[13] Grant v. Torstar Corp., 2009 S.C.C. 61, [2009] 3 S.C.R. 640
[14].” R.S.C., 1985, c. C-34
[15] Ibid.
[16] R.S., c. 92, s. 1.
[17]R.S., c. 92, s. 1.