Laursen v. 0743202 B.C. Ltd.

2011 BCSC 1224 Laursen v. 0743202 B.C. Ltd.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Laursen v. 0743202 B.C. Ltd., 2011 BCSC 1224 Date: 20110912 Docket: 45808 Registry: Vernon Between: Frede Laursen Plaintiff And 0743202 B.C. Ltd. doing business as Royal Volkswagen and Denhil Investments Ltd. doing business as Royal Volkswagen Defendants And Denhil Investments Ltd. doing business as Royal Volkswagen Third Party Before: The Honourable Mr. Justice Rogers Reasons for Judgment Counsel for the Plaintiff: M.J. Yawney Counsel for the Defendants: A.C. Kempf Counsel for the Third Party: K.D. Watts Place and Date of Trial/Hearing: Kelowna, B.C. September 7, 2011 Place and Date of Judgment: Vernon, B.C. September 12, 2011 Introduction [1] These are cross-applications by the defendants for declarations relating to a discrete contractual issue. The defendants seek orders that they each indemnify the other for all or a portion of their potential liability to the plaintiff. That potential liability arises from termination of the plaintiff's employment. [2] The defendants' dispute centers on the agreement they made by which one defendant sold its business assets to the other. That agreement contemplated an allocation of economic risk between the defendants arising from the firing by the selling defendant and rehiring by the buying defendant of the business's employees. The plaintiff was one of those employees. The Facts [3] At

all material times before January 6, 2010, the defendant, 0743202 B.C. Ltd., operated a car dealership in Vernon under the name Royal Volkswagen. 0743202 employed numerous people at the dealership. The parties are agreed that the plaintiff was among those employees. For the purposes of this ruling but without prejudice to the eventual trier of fact's discretion to find differently, I assume that since 2003 0743202 had employed the plaintiff as a sales manager. As of the events that led to this litigation, then, the plaintiff had been working at Royal Volkswagen for about seven years. [4] In or around the fall of 2010, 0743202 decided to sell the dealership to Denhil Investments Ltd. 0743202 and Denhil negotiated a contract for the sale of the dealership assets. The price Denhil was to pay for the dealership assets was $1,080,000. [5] 0743202 and Denhil were concerned about their respective obligations to the dealership's employees. Their contract provided: 6.08 The Vendor covenants and agrees, upon execution of this Agreement by all parties, to give notice of termination to all employees of the Business. The Vendor covenants with the Purchaser to be responsible for all severance obligations to these employees, under both Statue and Common Law, attributable to the period of their employment prior to Closing and to indemnify and save harmless the Purchaser from and against all

claims by any employee of the Vendor for wages, salaries, bonuses, pension or other benefits, severance pay, notice or pay in lieu of notice and holiday pay in respect to same, and the Purchaser covenants to be responsible for severance obligations to these employees attributable to the period of employment as of and after Closing and to indemnify and save harmless the Vendor from and against all claims by any employee of the Purchaser for wages, salaries, bonuses, pension or other benefits, severance pay, notice or pay in lieu of notice and holiday pay in respect to same. Notwithstanding anything to the contrary contained in this Agreement, this provision and the covenants herein shall survive Closing. 5.11 there is no employee who cannot be dismissed on nor more than one year's notice without further liability, except as disclosed on Schedule "G": Employees attached hereto. The names, wages and salaries and terms of employment of all of the Vendor's employees are set out on Schedule "G" attached hereto. 8.01 the Purchaser covenants with the Vendor to offer employment at the time of closing on terms and conditions then in effect to all employees of the Vendor then employed in connection with the Vendor's Business, which employees are names on the Schedule of Employees attached hereto. [6] On or around November 9, 2009, 0743202 delivered notice to the plaintiff that his

employment with 0743202 would be terminated on December 1, 2009. 0743202 did not offer the plaintiff any money or other consideration in addition to or in lieu of that approximately one month's notice of termination. [7] The defendants agreed that the closing date would be postponed to January 6, 2010. On January 4, 2010, 0743202 gave the plaintiff a record of employment. That document stipulated that January 2, 2010, was the plaintiff's last day of employment with 0743202. [8] On January 6, 2010, Denhil assumed operation of the dealership. The plaintiff continued to perform his duties of employment, and he continued to receive the pay stipulated in Schedule G to the defendants' contract of purchase and sale of the dealership. On January 27, 2010, Denhil terminated the plaintiff's employment and paid him approximately one month's wages in lieu of notice. According to the record of employment Denhil gave to the plaintiff, the plaintiff's last day of employment with Denhil was January 30, 2010. [9] In early February 2010, the plaintiff commenced this proceeding. In it he alleges that 0743202 and Denhil breached an implied term of his contract of employment. The implied term was, according to the plaintiff, an obligation by his employer to give him reasonable notice of the termination of his employment. Oddly, the plaintiff alleges only one termination date: February 3, 2010. For

reasons known only to the plaintiff, he makes no allegation that the termination notice of November 2009 constituted a breach of an implied term of his employment contract with 0743202 to provide reasonable notice of termination. The Applications [10] The defendants have brought what might be called cross applications for declarations against one another, and 0743202 seeks judgment against Denhil for damages as well. [11] Denhil wants a declaration that pursuant to clause 6.08 of the agreement that it is entitled to indemnity from 0743202 for any damages and costs it may liable to the plaintiff for severance pay that is attributable to the plaintiff's employment with 0743202 before January 6, 2010. [12] 0743202 wants a declaration that no such obligation to indemnify arises out of clause 6.08. 0743202 also wants judgment for losses, damages and expenses it suffered as a result of breaches of contract it alleges were committed by Denhil. The Parties' Positions Denhil [13] Denhil argues that the defendants were careful to delineate and separate their respective obligations to the dealership's employees. Denhil submits that the only sensible way to read the contract's provisions relating to the employees is that 0743202 agreed to fire everyone as of the closing date and to not try to visit on Denhil the economic consequences of those firings. In return, Denhil agreed to offer jobs

to the employees on the same terms and conditions as before and to not try to visit on 0743202 the economic consequences of any subsequent decisions Denhil might make with respect to those employees. [14] Denhil notes that in accordance with its contractual obligation, 0743202 fired the employees, including the plaintiff, and that their employment with 0743202 ended in early January 2010. Denhil says that any lack of legally required notice or severance pay given by 0743202 to the employees at that time constitutes a liability of 0743202 to the employees, including the plaintiff. According to Denhil, 0743202 must indemnify Denhil for the cost of defending and satisfying any employee claims that are attributable to the employment period before January 2010. Denhil seeks a declaration to that effect. 0743202 [15] 0743202 argues that the employment "terms and conditions" Denhil was obliged to offer to the employees, including the plaintiff, under clause 8.01 of the contract comprised not only their rates of pay and hours of work, but also an implied term that the employees were entitled to reasonable notice of termination of their employment, such reasonable notice to be geared to the employees' overall length of service at the dealership. According to 0743202, the terms and conditions of the plaintiff's employment with 0743202 included an obligation on the employer to give him

termination notice based on, among other things, his seven years of service. 0743202 says that the contract binds Denhil to provide that exact same notice on the exact same basis. [16] 0743202 argues that Denhil failed to give the plaintiff notice based on his seven years of service at the dealership and that that failure constituted a breach of Denhil's obligation under clause 8.01 to give the employees employment on the same terms and conditions as they had with 0743202. [17] 0743202 maintains that two consequences flow from Denhil's breach of its duty under clause 8.01. The first consequence is that, having manufactured the plaintiff's claim by its own malfeasance, Denhil may not employ the indemnity clause to visit the cost of that malfeasance on 0743202. The second, more draconian, consequence of Denhil's alleged breach is, according to 0743202, that Denhil fundamentally breached the contract; a breach that entitles 0743202 to repudiate any obligations it might have to indemnify Denhil. [18] Finally, 0743202 points out that the plaintiff's pleading references only the end of January 2010 termination notice and says that the plaintiff must, therefore, be taken to have confined his claim for damages to damages arising out of his employment with Denhil. Not having advanced a claim against 0743202 based on the November 2009 termination notice, 0743202 says that the plaintiff

cannot pursue a claim against it. If there is no claim against 0743202, then there can be no damages attributable to the plaintiff's employment with 0743202. If no damages arise out of employment with 0743202, then there is nothing for which 0743202 must indemnify Denhil. Discussion [19] 0743202's claim for judgment in damages against Denhil cannot be dealt with in a summary fashion. That is because, at this stage, no party has been held to owe damages to the other. Rather than dismiss this claim for relief, I find that it is currently not capable of summary determination. [20] The declarations that the parties seek require the court to interpret their contract as it relates to the dealership's employees. In my opinion, clauses 6.08 and 8.01 of the contract operate to distribute risk. When 0743202 issued its termination notices in November 2009, it became at risk for employment dismissal claims. That risk was ameliorated by Denhil's commitment to offer the employees employment on the same terms and conditions. 0743202's risk was therefore decreased as former employees mitigated their loss of employment with 0743202 by accepting jobs with Denhil. 0743202's risk could potentially have been further decreased had Denhil kept those people on its payroll. The longer they stayed on Denhil's payroll, the more any termination notice to which they might be entitled would be geared to

their service with Denhil rather than service with 0743202. [21] If 0743202's November 2009 termination notice to the plaintiff was effective to end his employment but did not give him sufficient notice of that termination, then it must be that the plaintiff has a cause of action against 0743202 for its breach of the implied condition to provide reasonable notice. As noted, it is odd that the plaintiff's pleading does not assert that proposition as a primary or alternate theory of recovery. Perhaps the release of these reasons may motivate the plaintiff to amend his claim. [22] If 0743202's November 2009 termination notice to the plaintiff was not effective to terminate his employment, then two things may be true. The first thing is that 0743202 may have breached its contractual duty to terminate its employees as of the closing of the defendants' purchase and sale agreement. If it breached that duty, then it may be liable to Denhil for damages that flow from that breach. The second thing that may be true is that, pursuant to the propositions of law laid down in Sorel v. Tomenson Saunders Whitehead Ltd. (1987), 15 B.C.L.R. (2d) 38 (C.A.), Denhil may be liable to the plaintiff for failing to give him adequate notice based on, among other things, the seven years of service he had at the dealership. In that case, Denhil would be liable to the plaintiff for damages attributable in

part to the plaintiff's period of employment with 0743202. That is precisely the situation contemplated by clause 6.08 of the contract. Only wishful thinking on 0743202's part could lead to any other interpretation or application of clause 6.08. [23] Turning more specifically to 0743202's arguments: the argument that the phrase "terms and conditions" of employment in clause 8.01 means that Denhil agreed to provide termination notice on the basis of the employees' pre‑closing service cannot survive rigorous analysis. The evidence demonstrates that before early January 2010, the plaintiff was employed by 0743202. His contract of employment was with that company. That contract of employment included an implied term that his employment would not be terminated except upon reasonable notice. The length of that notice would be determined in part by how long he had been employed by 0743202. The purchase and sale contract clearly contemplates the termination of the employment contracts between 0743202 and the employees, and the creation of new employment contracts between Denhil and howsoever many employees chose to go to work for Denhil. The "terms and conditions" of the new employment contracts with Denhil included the exact same implied notice term as was present in the contracts with 0743202. That implied term was that Denhil would provide termination notice of a length to be

determined in part by the length of the employment contract between the contracting parties, viz: the employee and Denhil. Clause 8.01 of the purchase and sale contract cannot be read to require Denhil to provide notice based on the employee's service with 0743202. To interpret clause 8.01 as 0743202 would have it would be to make pointless 0743202's obligation to fire the employees before closing, and it would render meaningless 0743202's clearly stated obligation to indemnify Denhil for damages attributable to an employee's service with 0743202. 0743202's position on this point would do too much violence to the clear and unambiguous language of the contract to be given effect. [24] It follows that Denhil's decision to not give the plaintiff notice based in part on his full length of service at the dealership could not constitute a breach of Denhil's obligation under clause 8.01. If there was no breach, 0743202 cannot argue that the contract was fundamentally breached or that Denhil by its own malfeasance created a situation in which it would be unfair to require 0743202 to indemnify it. In any event, even if Denhil had breached clause 8.01, 0743202's exposure to damages would be slight compared to the $1,080,000 price it received for the dealership. That disparity negates any concept here of fundamental breach. Conclusion [25] The question of whether 0743202's November 2009

letter to the plaintiff terminated the plaintiff's employment at the dealership as of the closing of the purchase and sale contract is not before me and I have not decided it. [26] I have decided, however, that if 0743202 did fire the plaintiff in early January 2010 and if by some strange turn Denhil becomes liable to the plaintiff for damages attributable to the plaintiff's employment with 0743202, then Denhil is entitled to indemnity from 0743202 for such damages, court costs and the cost of defending that portion of the claim. A declaration will go to that effect. [27] I have also decided that if 0743202 did not fire the plaintiff ahead of the closing of the purchase and sale contract and if Denhil is liable to the plaintiff for damages that are attributable to the plaintiff's service with 0743202, then 0743202 is liable to indemnify Denhil for those damages, plus court costs and the cost of defending that portion of the plaintiff's claim. A declaration will go to that effect. [28] Denhil has achieved success in its application and in its defence of 0743202's application. It is entitled to its costs against 0743202 for both applications in any event of the cause on Scale B. Those costs will be payable forthwith upon assessment. "P.J. Rogers, J." The Honourable Mr. Justice Rogers