Unfair Contracts May Be Unenforceable

As the end of the year approaches, some of those contracts that are an important part of your business operations may be coming up for renewal. Rather than simply agree to the same terms or sign a document placed before you, read the agreement;. If you don’t understand some of it, read it again; and if you still don’t understand the agreement or the purpose of a contractual term, ask your lawyer for help.

Generally, a contract that is freely made should be enforced, including those terms that result in one side having a legal advantage over another. However, contract terms that are grossly one-sided or very harsh are the exception to this rule; contracts that are unfair or contain unfair terms will not be enforced.

The basic principle which governs contracts is that a person’s word is their bond and, as such, parties to a contract should be free to choose how to structure their contract. Generally, courts will not protect a person from irresponsibly made or reckless agreements. But protection from unfair contracts or contractual terms may occur in exceptional circumstances because of the significant harm that may arise from such unfairness. This harm may take the form of a large economic loss to one party, an increase in litigation, result in moral disapproval or result from an abuse of power.

Let’s discuss two examples which we can take from prior cases heard before courts. The first deals with inequality in bargaining power. In an older English Court of Appeal case (which impacts our legal principles), an elderly farmer (and loving father) agreed to guarantee the debts of his son’s business, and as such, mortgaged his property so his son could obtain a loan. The farmer’s son defaulted on the loan and the bank took action to foreclose on the farmer’s only asset, his farm. The farmer challenged the bank and raised many defences. The Court of Appeal set aside the mortgage. One judge based his decision on the inequality of bargaining power between the parties. It was noted that where a party, without independent advice, enters into a very unfair contract or gives property for grossly inadequate consideration, possesses little bargaining power due to his or her own needs, ignorance or infirmity and experiences undue influence or pressures for the benefit of another person, judicial relief may be required.

The second example deals with burdensome terms found in standard form contracts. These terms must be drawn to the attention of the contracting party who did not prepare the contract. The party who presents the contract cannot simply rely on the other party’s signature, but must draw this term to signing party’s attention before he or she signs the contract. This requirement can be met by typing these terms in capital letters, a larger font or different color. One great example of this concept has to do with car rentals and insurance exclusions for alcohol consumption. In an Ontario Court of Appeal case, a driver rented a car and purchased collision insurance. The driver signed a standard form agreement which included a term which denied insurance coverage to any driver who consumed liquor in whatever quantity. The driver was in a car accident and had consumed alcohol (albeit not to the point of intoxication) before the accident. The rental car agency denied insurance coverage. After trial on this issue, the court did not allow the rental car agency to enforce this contractual term as the clause had not been specifically drawn to the driver’s attention before the contract was signed. Along the same lines, a contract may be found to be unenforceable if a party does not have the entire contract when it is signed.

Now is a great time to review your existing contracts. If you will be negotiating a contract, take the time to review all its terms. Seek legal assistance to help you through this process. Your lawyer will be able to assist you in identifying any potentially problematic agreements or terms. If you would to learn more about unfair contract terms, see your lawyer or review the reports of the British Columbia Law Institute on this topic available on its website.

Court of Appeal Rules Maximum Penalty for Breach of Liquor Licence Reasonable

The B.C. Court of Appeal released its decision on New Year’s Eve regarding the 3 day liquor licence suspension imposed on Kelowna’s Liquid Zoo night club for breach of the terms of its liquor licence. All three Judges who heard the appeal agreed that the suspension was reasonable and that the penalty fell within the range of possible and acceptable penalties.

The range of suspension for a first contravention of the type imposed upon the Liquid Zoo is 1 – 3 days (Schedule 4, Liquor Control and Licensing Regulation). However, under the Act, a longer suspension may be imposed if it is in the public interest.

Liquid Zoo’s liquor licence contained some additional provisions that were added because of the club’s previous history which included gang activity and business dealings with gang members. These provisions include a requirement that no customers/employees enter the club if they have any gang affiliated items and, if such items are later revealed after entry, that person be immediately removed from the club.

Liquid Zoo’s contravention and subsequent suspension arose from the presence of a customer in the club who was wearing a cap which stated “Kingpin Crew MC” which is a motorcycle gang with ties to the Hells Angels.

In reaching its decision, the Court of Appeal confirmed that the decision of the hearing adjudicator who imposed the suspension was reasonable and should be given deference unless the adjudicator’s reasoning was seriously flawed. In this case, the adjudicator found Liquid Zoo’s contravention to be serious and at the heart of the LCLB’s concern regarding gang affiliation with the club. As the findings of adjudicator were not seriously flawed and the suspension imposed was within the range of acceptable penalties, the Court of Appeal ruled that the suspension was reasonable and properly imposed.

In a judicial review of a contravention such as this, the findings of the adjudicator regarding the seriousness of the contravention, threat to public safety and well-being of the community will be given deference. If a liquor licence holder is issued a suspension due to a contravention, a judicial review of the adjudicator’s decision is not a second “kick at the can” such that the Judge who hears the review can simply substitute what they believe is fair in place of the decision of the arbitrator. The question for the judge is not “how should I impose what I believe the appropriate penalty to be”, but whether the penalty imposed by the adjudicator falls within the range of possible and acceptable outcomes based upon the facts and applicable law.

-Denese Espeut-Post (January 5, 2013)

Holman Farms Foreclosure

Imagine going from owning 22 properties throughout the South Okanagan, 7 wineries and a distillery to receivership, liquidation and a financial loss of all your equity and then some.  That is the unfortunate fate of the Holmans, the former owners of the Holman Farms, Lang Vineyards and other associated wineries.  According to a March 14, 2013 article in the Penticton Herald, Battle continues over controversial foreclosure, a bank foreclosure resulted in a significant financial loss given the appraised value of various business assets that were sold to pay outstanding debt.  They lost their businesses, they lost their financial growth, they lost their home.

This, of course, is a sad state of affairs that business owners do not anticipate when they nourish and grow their entrepreneurial dreams and start their business.  However, the reality is that many businesses fail for various reasons.  Those who own a business can learn from those who have failed despite considerable effort and planning. Keith Holman is quoted as stating “You’d better realize if you start getting the bank on you, you’d better get to [the] lawyers and be very careful about what you sign.”  I would take this one step further and say that you should not wait until the bank is on you.  Develop a relationship with a lawyer you trust who can act as your advisor throughout the life of your business.  It may cost you some time and some of your start up funds, but these will far outweigh the potential costs you will experience if you become involved in a contractual dispute or court battle.


The Economic Impact of the Canadian Wine Industry

I spent some time on the BCWineChat website considering tonight’s topic regarding the Economic Impact of the Canadian Wine Industry.  I understand the catalyst for this topic was the recently published Economic Impact Study on the Canadian wine industry completed by Frank, Rimerman and Co. LLP, a US-based certified public accounting firm which provides various services including wine industry research and consulting.  As a non-accountant with minimal knowledge of the methodology of the economic analysis of an industry, to me, the study confirms what I believe most people feel is the case, the wine industry undoubtedly has a serious impact on our provincial and national economy.  With a full national economic impact of $6.8 billion in terms of revenue, taxes and wages, of which $3.69 billion can be attributed to 100% Canadian wine, I think everyone in the industry should take a much deserved bow/curtsey and be congratulated on a job very well done.  The Canadian wine industry and more specifically, the BC wine industry, has come a long way since the time of Prohibition when alcoholic beverages were banned altogether. The industry has developed into an important economically significant commercial enterprise.  The industry adds value to our collective wealth and resources, promotes tourism, creates jobs and generates revenues.

Often economic impact studies are completed at the time legislative changes are proposed or requested at the behest of a person lobbying for change.  This study was commissioned by the Canadian Vintners Association, Winery and Grower Alliance of Ontario, BC Wine Institute and Winery Association of Nova Scotia.  Given the study results, it would be nice to see the promotion and growth of the industry further supported by federal government legislative changes which enforce the principles of economic unity among the provinces and territories as it relates to intoxicating beverages and support of interprovincial commerce and the shipment of wine between provinces beyond the personal consumption exemption. Additional support from the provinces would also be a welcome outcome, as various provincial governments enact legislative changes which modernize our liquor laws and fully recognize how the industry has and continues to change and develop from the days of Prohibition.  Much like the “living tree doctrine” I learned in a law school class some time ago, like our Constitution, the wine industry should be treated as organic and must be handled in a broad and progressive manner, adapting to the changing times.

I for one am pleased to see quantifiable and tangible economic impact for our wine industry and hope the corresponding outcomes are reflective of the results. To join the discussion and to share your thoughts on the study, head to Twitter tonight, Wednesday March 13th, from 8-9pm and search #BCWineChat.