COURT OF QUEEN'S BENCH OF MANITOBA

Transcription

1 Date: Docket: CI (Winnipeg Centre) Indexed as: Western Fashion Group Inc. v. The Richman Consulting Group Inc. c.o.b. as Richman Group et al. Cited as: 2018 MBQB 186 COURT OF QUEEN'S BENCH OF MANITOBA B E T W E E N: WESTERN FASHION GROUP INC., ) Counsel: ) plaintiff, ) MICHAEL J. CLARK ) for the plaintiff - and - ) ) THE RICHMAN CONSULTING GROUP INC. carrying on business as RICHMAN GROUP and the said THE RICHMAN CONSULTING GROUP INC., MORI LEE ASSOCIATES (CANADA) LTD., MORI LEE ASSOCIATES (CANADA) LIMITED PARTNERSHIP, and MORI LEE CANADA LTD., ) ) ) ) ) ) ) MATTHEW SOKOLSKY for the defendants ) JUDGMENT DELIVERED: defendants. ) NOVEMBER 30, 2018 SUCHE J. [1] The plaintiff is a sales agency that represents manufacturers and importers of women s fashions. For approximately 55 years it was the exclusive representative for the defendants in an area extending from Thunder Bay to Vancouver Island. The defendants terminated the relationship in February 2013

2 Page: 2 without cause. The issue in this action is the plaintiff s entitlement to damages in lieu of notice. FACTS [2] The plaintiff sold the defendants bridal and prom wear to retailers and received a fixed commission in return. The arrangement was exclusive in that the plaintiff was the defendants only sales force within the territory. The defendants lines were the only bridal and prom wear sold by the plaintiff, although it did sell other women s wear. Gary Brenner, one of the principals of the plaintiff, was dedicated full time to selling the defendants lines. The defendants only had one other sales representative, who serviced the rest of Canada. [3] The plaintiff paid all of its own costs and expenses, including travel, which was substantial. Brenner went to trade shows, attended meetings with the defendants in Toronto and visited retailers throughout the territory. The plaintiff purchased samples and shipped them to various locations for purposes of making sales. Over the duration of the relationship, the plaintiff created substantial infrastructure: it employed three part time salaried sales people to assist Brenner; established permanent showrooms in Vancouver, Edmonton and Winnipeg; and maintained a customer service department with two employees. Of course, some of this also benefited the plaintiff s other clients. The defendants products represented between 25% and 28% of the plaintiff s annual income. [4] Brenner met with the defendants representatives twice a year to review and make decisions regarding lines for the upcoming season. He would place

3 Page: 3 bookings with retailers thereafter. The spring line was usually booked from late August through October and shipped December through February. The fall line was booked in March and April and shipped in June and July. The spring line, which covered the vast majority of bridal orders as well as prom dresses, represented 75% to 80% of the defendants annual sales in the territory. [5] The defendants paid the plaintiff commission on all bookings made and any special orders placed thereafter. A special order is a customer order placed at a retailer for an item not in stock. Commissions were paid 30 days after goods were shipped. [6] Brenner actively participated in the meetings regarding each season s line. He provided advice to the defendants regarding their products and was an ongoing means of communication with retailers on a variety of issues unpaid accounts, product concerns, and other things. He was in frequent, sometimes daily communication with the defendants. The defendants acknowledge that Brenner was effectively the face of the defendants in the territory. [7] The circumstances regarding the termination on February 26, 2013 are not significantly in dispute. Brenner had spent the day in Toronto meeting with Neil Berg and the defendants other representatives regarding the fall line. Berg drove him to the airport and on the way told Brenner that the defendants would not require the plaintiff s services after the fall season. This came as a shock to Brenner. Their versions of the details of the conversation varied, but ultimately the difference is not important. The defendants wanted Brenner to work the fall

4 Page: 4 line until August, in return for which they would continue to pay commissions. Brenner refused, saying he would only continue to work if properly compensated. This is where matters ended. [8] Brenner attempted to find other manufacturers/importers to replace the defendants. This was challenging. Changes in the fashion industry over the previous decade had reduced the number of retail stores and the number of manufacturers in business. He secured a minor bridal wear line and several small sportswear lines. None generated significant income. Ultimately, the smaller lines simply were not viable. Meanwhile, many of the plaintiff s infrastructure costs, including rent on showrooms and employee wages, could not be eliminated or reduced quickly. The loss of 25% to 27% of its revenue, without replacement income, stripped the plaintiff of its sustainability. The corporation was wound up in Mr. Brenner retired. POSITIONS OF THE PARTIES [9] The plaintiff says the longstanding duration and nature of the relationship between the parties entitles it to reasonable notice, which, in the circumstances, is 24 months. [10] The defendants dispute any notice was owed, but say if it was their offer of one season s working notice (which they claim was gratuitous) was based on a standard in the fashion industry, and should be applied. They also maintain that despite Brenner s rejection of their offer to work the fall line, they paid the plaintiff commissions for the working period, and should be credited accordingly.

5 Page: 5 [11] In response, the plaintiff acknowledges that an industry standard for notice exists but says it applies to short term relationships of a different kind. The standard also assumes two seasons a year, which is the situation in other types of fashion. Bridal/prom wear, however, really has only one season given that 80% of the sales occur in the spring. [12] The plaintiff has experience in the application of this standard. It represented a manufacturer of ladies sportswear that terminated their relationship without cause. It paid the plaintiff an amount equal to one season s commission, over and above monies owing to the plaintiff for commissions earned but not yet paid. The defendants disagree that this is how notice should be applied, but Berg testified that he has no experience in the application of the notice period and only learned of it from asking around. [13] In cross-examination, Brenner was asked about a line of bridal veils and accessories he sold for the defendants. They ended the arrangement without notice. Brenner s response was that he had not been successful in selling the product and he was in agreement with their decision. His evidence on this was not contradicted. [14] The plaintiff also says that money paid in lieu of notice is to compensate for commissions not yet earned. This is different from commissions already earned but not paid, which are owing regardless of any notice. It says the amounts the defendants paid after February 26, 2013 were for commissions already earned;

6 Page: 6 that is, for the spring line, specifically special orders. This was the last line that the plaintiff sold. THE LAW [15] The law is well settled that some commercial service contracts have an implied term requiring reasonable notice of termination in the absence of cause. A term will be implied where something [is] so obvious that it goes without saying. 1 [16] Such contracts where the party providing the work or service are referred to as dependent contractors, as distinct from independent contractors are known as intermediate contracts, falling between an independent contractor or mere agent and an employee. Carter v. Bell & Sons 2 is the earliest Canadian authority on this point. Masten J.A. commented that there is a broad field of implied obligations which may attach to a contract given its other terms and the surrounding circumstances. [17] In Marbry Distributors Ltd. v. Avrecan International Inc. 3, the court stated that at the heart of an inquiry in such a situation is the true nature of the relationship, which is a question of fact to be decided based on all of the circumstances. This starts with the business integration test formulated by Lord Denning in Stevenson Jordan and Harrison, Ltd. v. MacDonald and Evans 4, 1 Shirlaw v. Southern Foundries (1926) Ltd., [1939] 2 K.B. 206 (C.A.), p [1936] 2 D.L.R. 438 (Ont. C.A.) BCCA 172 (CanLII) 4 [1952] 1 T.L.R. 101 (C.A.)

7 Page: 7 which posits that in a contract of service the work done is an integral part of the business. Work done under a contract for service is an accessory to the business. Notice is required in the former and not the latter. [18] The court in Marbry also observed, as earlier cases had done, that such relationships lie on a continuum. It offered this approach, which has been followed by many other courts since: I suggest that the following factors be considered. While I do not suggest that this list is exhaustive I find it helpful in determining where on the continuum a relationship of this nature resides. These factors are: (i) (ii) Duration/Permanency of the Relationship. The longer the duration of the relationship or the more permanent it is militates in favour of a reasonable notice requirement. Amongst other evidence, the purchase and maintenance of inventory, which contains a permanency aspect, should be considered; Degree of Reliance/Closeness of the Relationship. As these two interrelated sub-factors are increased the more likely it is that the relationship falls on the employer/employee side of the continuum. Included in this factor is whether the sale of the defendant's products amounted to a significant percentage of the plaintiff's revenues; and (iii) Degree of Exclusivity. An exclusive relationship favours the master/servant classification. None of these factors are by themselves conclusive and not every factor need be present in order to classify a relationship as one requiring notice to terminate. [Italics added] [19] The Supreme Court of Canada has determined that distributorships require reasonable notice of termination. The appellant was the exclusive distributor of the respondent s products in Nova Scotia for 18 years when it was terminated without cause. The question before the court was the interpretation of the

8 Page: 8 agreement between the parties and whether it gave the respondent the right to terminate without notice in the absence of cause. Having concluded it did not, the court went on to say (p. 67):... If a distributorship agreement does not contain a provision for termination without cause it is so terminable only upon giving reasonable notice of termination. See Martin-Baker Aircraft Co. v. Canadian Flight Equipment, Ltd., [1955] 2 All E.R. 722 (Q.B.), at p. 736; Paper Sales Corporation Ltd. v. Miller Bros. Co. (1962) Ltd. (1975), 55 D.L.R. (3d) 492 (Ont. C.A.), at p. 498 [1975 CanLII 555 (ON CA)]; C. C. Hauff Hardware, Inc. v. Long Mfg. Co., 19 ALR3d 191 (Iowa 1965). A right to terminate a distributorship agreement without cause with immediate effect must be expressly provided for in the agreement. (It is not necessary for purposes of the present appeal, in view of the conclusion with respect to ambiguity, to consider whether a provision for the termination of a distributorship agreement without cause with immediate effect should be held to be void for unconscionability or subject to some good faith limitation.... See also Western Paint & Wallcovering Co. v. Benjamin Moore & Co. 5 [20] The plaintiff describes itself as an exclusive distributorship. I disagree. It is a sales agency. A distributor, or wholesaler, is a link between a manufacturer and the retailer, as is a sales agency. A distributor stocks inventory that it sells to retailers, who then sell to consumers. A sales agent takes orders from retailers, to whom the manufacturer ships the product. [21] However, as the cases reveal, the relationship between manufacturers and sales agents vary greatly. Some sales agencies are much closer to a distributorship. The terminology is often blurred. Many of the decision in this area refer to sales and even service contracts as exclusive distributors. Again, this makes the point that the key is the nature of the relationship MBQB 1

9 Page: 9 [22] For example, in Paper Sales Corporation Ltd. v. Miller Bros. Co. (1962) Ltd. 6, referred to in Hillis, the Ontario Court of Appeal found that the plaintiff sales agency was entitled to reasonable notice of termination of its agreement. The parties had very close interconnected working arrangements. The plaintiff provided the complete sales force for the defendant, maintained sales facilities and its address was designated as the defendant's for doing business. There was constant and direct teletype communication between the two companies and only 5% of the defendant's products was disposed of without the plaintiff's assistance. Forty percent of the plaintiff s facilities were devoted to the defendant s products. [23] In JKC Enterprises Ltd. v. Woolworth Canada Inc. 7, the plaintiffs provided trucking services to the defendants, who were their only customer. Coutu J. concluded that the plaintiff fell into the category of an exclusive distributor. [24] In Western Equipment Ltd. v. A.W. Chesterton Co. 8, one of the plaintiffs had been the exclusive sales agent of the defendants' products in British Columbia for 15 years. When it expanded into Alberta, it incorporated the second plaintiff to act as exclusive sales agent for the defendants in that province. The defendants considered the plaintiffs to be among their best agents in North America. The plaintiffs maintained an inventory of the defendants products of considerable value. The defendants terminated their agreements without cause. 6 (1975), 55 D.L.R. (3d) 492 (Ont. C.A.) ABQB 791 (CanLII) 8 [1982] B.C.J. No. 395 (B.C.S.C.) (QL)

10 Page: 10 The court found that the plaintiffs were entitled to reasonable notice, and also implied a term into the agreement requiring the defendants to buy back the unsold inventory. [25] In Marbry, the plaintiff was a sales agency that sold the defendant s sportswear to retailers. In concluding that reasonable notice of termination was required, the court described the relevant aspects of the relationship 9 : 3... Until the termination of the Agreement, Marbry Ltd. had performed numerous functions under the Agreement including the following: (a) (b) (c) (d) (e) (f) it purchased and maintained an inventory of sample merchandise in its own showroom in order to promote and market Reebok products to potential customers. It would sell that sample merchandise at the end of the sample year usually at a profit to itself; it employed one salesperson in addition to the plaintiff, Gordon Marbry; it visited customers and potential customers for Reebok products in order to secure orders for Reebok merchandise and increase Reebok's market share. Reebok periodically set sales targets to meet and provided marketing and distribution assistance. There was, however, no consequence of not meeting targets nor any specific reward for achieving targets; it handled problems with defective merchandise or returns to Reebok after shipment by Reebok. Return of merchandise would result in reduced commissions; it performed collections on behalf of Reebok on overdue accounts. Its ability to collect impacted upon its own commissions; plans were established that in the event of a postal strike, it would distribute Reebok's invoices for Reebok and would collect payment on those invoices; 9 Supra

11 Page: 11 (g) (h) it was required to conduct product knowledge seminars for Reebok's customers, in order to promote Reebok products; and it spent considerable time finding athletes to wear Reebok products in order to promote Reebok's shoes and apparel. Marbry Ltd. was given a yearly discretionary fund by Reebok in an amount set by Reebok for expenses incurred on promotions. In January of 1993, Reebok had set the yearly amount of discretionary funds at $18,000. As of May 1993, when the Agreement was terminated, the sale of Reebok's products represented at least 75% of the total sales commissions earned by Marbry Ltd. and perhaps as high as 90%, depending on when calculations are made and what is included in those calculations. Marbry Ltd.'s other earnings came from one other line of athletic clothing which Marbry Ltd. also represented.... [26] In Wayne Stephenson Sales Agencies Inc. v. Avrecan International Inc. 10, the plaintiff was a commission sales agency that sold the defendant s sportswear to retailers for nine years. The defendant also sold directly to several large retailers, but otherwise was its exclusive agent within the territory. The defendant s products represented 50% to 60% of the plaintiff s sales. The principal of the plaintiff was in frequent communication with the defendant and was required to attend regular meetings. It established a showroom and hired employees to assist in sales. The court found the plaintiff was entitled to reasonable notice on termination. [27] A different conclusion was reached in Sherman (c.o.b. Sherman Agencies) v. Les Importations Ango Mode Inc. 11, relied on by the 10 [1996] O.J. No (Ont. C.J. (Gen. Div.)) (QL) 11 [2002] O.J. No (Ont. S.C.J.) (QL)

12 Page: 12 defendants. There, Bellamy J. found that the plaintiff, a sales representative for a men s fashion manufacturer, was more akin to that of an agent than to an employee (paragraph 66). Thus, reasonable notice was not required. The court also refused to imply one season s notice into the contract. [28] The first aspect of the ruling was based on the facts, described this way by the court: 65 In our case, Mr. Sherman had a contract for service with Ango Mode which lasted six years, and with Horst for about two years. During that time, while Mr. Sherman represented Ango Mode and Horst in the Greater Toronto Area, he also represented other manufacturers and served as commissioned sales agent for other companies while he was involved in the arrangement with Ango Mode and Horst. About 56% of his commission income was derived from the defendants. From the defendants' perspective, Mr. Sherman was not their only agent, either in Ontario or in Canada. Even in Toronto, they sold directly to at least one retailer, Winners. About 13% of the Ango Mode sales were made by Mr. Sherman, and about 9% of Horst Inc. He did not invest in any "tools" of the defendant, other than buying samples at the beginning of the season, which he was then able to sell at the end of the season. He had asked Mr. Octeau to establish a showroom in Toronto, which he did use, but he also visited and sold directly to retailers and also used the showrooms of the other manufacturers for their products. He established his own hours and days of work. He was paid exclusively by way of commission; there were no remittances by the defendant for payment of income tax, CPP or employment insurance. He spent money on his expenses as he saw fit. He did not share in the risk or benefit from the profit of the company. He did not integrate his business operations with the business operations of Ango Mode in any way. [29] The court s refusal to imply a notice period of one season into the contract was based on lack of evidence: the plaintiff testified on this issue but it turned out he had no experience with the application of the standard. In fact, another manufacturer had terminated its relationship with him without notice. He also called two experts, both of whose evidence was rejected. In the first instance, the

13 Page: 13 witness was a friend of the plaintiff and found to lack independence. The second individual was lacking in sufficient experience to be considered an expert, and, in any event, his testimony contradicted a report he prepared for the trial. The president of the defendants testified as to many examples where he had terminated relationships with sales representatives with no notice. [30] In refusing to imply a term of reasonable notice, Bellamy J. was careful to limit her conclusion to the facts: 74 It may very well be that there will be a case like this one where the facts before the trial judge will be such that the trial judge will be able to imply a notice period into the contract. This is not that case. [31] Here, the defendants also argue that economic dependence is the defining or essential component, and rely on the following comments in JKC Enterprises: [67] Economic dependence is often cited as a strong factor in favour of classifying the relationship in the intermediate category. In Mancino v. Nelson Aggregate Co., [1994] O.J. No (Ct.J.) (QL), the plaintiff was a self-employed trucker and Lederman J. relied on the plaintiff s economic dependence (due to the exclusivity of their relationship), to classify the plaintiff in the intermediate category, concluding (at para. 9): Although the plaintiff in fact ran his own business, an examination of the relationship between the parties shows that there was a dependency which was mutual and permanent in nature.... The haulage work that they performed was virtually exclusively for the defendant. This group of truckers which included the plaintiff, in essence, formed the full-time delivery staff of the defendant. [32] They also point out that in most of the cases found to require notice the manufacturers products represented 50% to 100% of the contractors income. Here, in contrast, sales of their goods represented under 30% of the plaintiff s annual income.

14 Page: 14 [33] As the cases show, economic dependence is not all or nothing. Rather, it is a matter of degree. The totality of the circumstances must be weighed. So, for example, in Clarke, Irwin & Company Ltd. v. George G. Harrap & Company Ltd. 12, the plaintiff company was the exclusive distributor of the defendants dictionaries for 67 years, sales of which accounted for 20% of the plaintiff s income. In Western Paint, the defendants products accounted for less than one-third of the plaintiff s overall sales. In Paper Sales, the defendant s products were 40% of sales. [34] I turn then to the situation before me. The relationship is very similar to those in Marbry and Wayne Stephenson, where reasonable notice was implied. Moreover, applying Lord Denning s business integration test, the plaintiff s services were clearly an integral part of the defendants business, not an accessory. [35] I turn to the factors identified in Marbry and other cases. The 55-year relationship demonstrates permanence, and was exclusive in the sense that the plaintiff was the defendants entire sales force within its territory. It was also one of only two sales representatives in the country. They relied on Brenner for much more than sales, including product advice and customer service he was the face of the business in the territory. The plaintiff did not sell any other bridal and prom wear, it invested in infrastructure, built up a staff of half a dozen employees, and maintained three permanent showrooms, which, while not all for the sole benefit of the defendants, were mostly intended for them. It purchased sample inventory 12 (1980), 9 B.L.R. 97 (H.C.J.)

15 Page: 15 that it shipped to its showrooms. The fact that the plaintiff earned less than 30% of its income from the defendants is just one consideration. [36] In my view, the description in Paper Sales applies equally here (at p. 495):... This was much more than a mere commission arrangement. It was a long-lasting, close relationship between two companies in which each placed complete reliance upon the other.... [37] My conclusion is that regardless of what title is used, the agreement between the parties in this case was one that gives rise to reasonable notice if terminated without cause. What was the appropriate notice period? [38] Western Equipment Ltd. v. A.W. Chesterton Co. 13, the companion case to the decision between the same parties referred to previously, is frequently cited regarding the length of notice in such circumstances. In concluding that the plaintiffs were entitled to 10 months notice, Hinds J. stated: 31 In the absence of a contract between the parties in this case stipulating the period of notice to be given, the factors to be considered are those in existence at the time of termination, not those in existence at the time the contract was made. I therefore turn to consider a number of factors in this case which I consider relevant to the determination of the length of notice which the defendants should have given to the plaintiffs. 1. The length and type of relationship between the parties The extent of the Chesterton sales force employed by the plaintiffs, the effort made, and the results achieved. 13 [1983] B.C.J. No (B.C.S.C.) (QL)

16 Page: Importance of the defendants' exclusive agencies to the plaintiffs. 4. Acquisition of inventory Time to permit the plaintiffs to acquire a replacement line of products and to re-establish a viable business in selling and distributing the replacement line of products The foregoing factors indicate that the defendants should have given the plaintiffs a substantial period of notice of termination. In my view, those factors are not quite as compelling as the factors which existed in Toronto Type Foundry, Paper Sales, and Clarke, Irwin because in those cases the relationship between the parties had existed for 70 years, 36 years, and 47 respectively, whereas in this case the relationship between the defendants and Western was 15 years, and with W.E.L. was 5 years. Moreover, in each of those cases, the percentage of the plaintiffs' sales of the defendants' products, compared to total sales, was substantially greater than the corresponding percentages in this case. I recognize that those factors are not the only factors to be considered, but they are important factors. [39] In JKC Enterprises, the plaintiffs provided trucking services to the defendants for 16 years. The defendants were their only customers. They purchased equipment and hired staff to meet the defendants needs. The notice period was fixed at nine months. The court stated: [119] For the reasons stated earlier, I have concentrated on the exclusive distributor type of cases: (a) In Clarke, Irwin & Company Ltd. v. George G. Harrap & Company Ltd. (1980), 9 B.L.R. 97 (H.C.J.) the plaintiff company was exclusive distributor of the defendant s dictionaries for 67 years and the court held 12 months was the reasonable notice period.

17 Page: 17 (b) The facts in Marbry, supra, are similar to this case. For ten years Marbry had the exclusive right to sell Reebok footwear. It had two staff, 90% of its business was from the defendant and it had a small inventory. The trial judge gave 15 months notice but the Appeal Court reduced this to 9 months. (c) In Western Equipment Ltd. and W.E.L. Industrial Sales Ltd. v. A.W. Chesterton Company, supra, the plaintiff company was the exclusive sales distributor of the defendants products for 15 years. Hinds J. assessed various factors, including the nature and length of the relationship, the extent of the sales force employed by the plaintiffs (five people), the importance of the defendant s exclusive agencies to the plaintiffs, acquisition of inventory ($480,000), and time to permit the plaintiffs to acquire a replacement line of products and re-establish a viable business in selling and distributing the replacement line. Hinds J. found a reasonable notice period was 10 months. (d) In Martin-Baker Aircraft v. Canadian Flight Equipment (1955), 2 All ER. 722, a four-year exclusive agreement to sell aircraft seats resulted in a twelve-month period of notice. (e) In Paper Sales, supra, the plaintiff had been the exclusive sales agent of the defendant for 36 years. The plaintiff had built up a large sales organization of which at least 40% devoted their time to the sale of the defendants products. The Ontario Court of Appeal affirmed the trial decision that 12 months was the reasonable period of notice of termination. (f) In Yamaha Canada Music Ltd. v. McDonald and Oryall Ltd. (1990), 1990 CanLII 545 (BC CA), 46 B.C.L.R. (2d) 363 (B.C.C.A.), the respondent was the exclusive distributor of the plaintiff s musical instruments for five years. At trial the court awarded sixteen months notice, which was reduced to six months on appeal. (g) In Hillis Oil & Sales Ltd. v. Wynn s Canada Ltd., 1986 CanLII 44 (SCC), [1986] 1 SCR 57 the appellant was an exclusive distributor of the respondent s products for 10 years. The one year reasonable notice awarded by the trial judge was not contested on the appeal (the appeal concerned other issues.) [40] Coutu J. found the length of relationship, time needed to re-establish replacement business, limited opportunities to find replacement business, and time needed to divest of infrastructure and lay off staff, all suggested a longer period of notice.

18 Page: 18 [41] The plaintiff relies on Keenan (c.o.b. Keenan Cabinetry) v. Canac Kitchens Ltd., a division of Kohler Ltd. 14 in support of its positon that reasonable notice in this situation is 24 months. There, the plaintiffs, who were husband and wife, worked for the defendant for 32 and 25 years, respectively. They were employees for many years until the defendant decided they would be independent contractors. Their duties remained the same thereafter and they were not allowed to work elsewhere. It was only because the defendant s production levels dropped so it could not provide the plaintiffs enough work that it then allowed the wife to take on other jobs. The Ontario Court of Appeal upheld the trial judge s finding that reasonable notice was 26 months. [42] Keenan stands alone in the length of notice awarded. However, a close examination of the facts makes it understandable. The plaintiffs spent their entire working careers with the defendant and were in their sixties when it terminated their contracts. Although on contract, they remained subject to the defendant s control. Clearly, the plaintiffs were, for all intents and purposes, employees. In deciding the length of notice, the Ontario Court of Appeal relied on cases involving wrongful dismissal. [43] This is very different from the situation before me. To begin with, the defendants only accounted for a portion of the plaintiff s income, so the dependency was less. In addition, the relationship between the parties was a true ONCA 79

19 Page: 19 business arrangement. The parties had their own interests to protect; the defendants did not exercise control over how the plaintiff conducted its affairs. [44] On this last point, the decision of the Ontario Court of Appeal in Ontario Inc. v. Boa-Franc (1983) Ltée 15 is instructive. The appellant was an exclusive distributor. The respondent terminated their agreement due to a breach by the appellant. The parties acknowledged that notice of termination was required if there was no cause, so the issue before the court was whether the appellant s conduct amounted to cause. Feldman J.A., writing on behalf of the court, had this to say: [47] The issue that arises from this background is, to what extent is it appropriate or necessary to apply employment law concepts to a commercial distributorship agreement. I share the concern of McEachern C.J.B.C. in Marbry that even if it may in some ways resemble an employment relationship, a distributorship agreement is a commercial contract negotiated by business entities, each with its own interests to protect. Because it is a business relationship governed by contract, there is no reason why the ordinary rules of contract, including the rules for implying a term and for determining the consequences of a breach of contract ought not to apply. The incorporation of the concepts of termination on reasonable notice or for cause appear to have arisen in one line of cases from an analogy to employment law. However, in the other line, adopted in the Hillis Oil case, the concept of termination on notice comes from the interpretation of the contract itself and not from an analytical comparison of the particular contractual relationship with that of employee or independent contractor. I conclude that at this stage in the development and application of the law, there is no need, nor is it appropriate in a commercial law context, to import employment law concepts to govern distributorship agreements. [45] While the question before the court was different, in my view its approach applies equally to the question of reasonable notice. 15 (2005), 260 D.L.R. (4 th ) 659

20 Page: 20 [46] Reconciling these two decisions from the Ontario Court of Appeal leads back to the fundamental question: What is the nature of the relationship? In Keenan, it was clearly so close to an employment relationship that the court decided the length reasonable notice by reference to decisions involving employment cases. In Ontario Inc., the relationship had lasted just under five years and the respondent accounted for between 50% to 80% of the appellant s income. The trial judge, whose decision regarding the period of notice was upheld, relied on Marbry to decide the notice period, which he found to be six months. [47] Whether I am correct about the approach in Ontario Inc. applying to assessment of reasonable notice or not, I am of the view that the situation here is so different from Keenan that it is of little assistance. [48] Looking at the balance of authorities, then, all of the factors referred to in Marbry that suggest a lengthy notice period, are present here. While the facts are very much like those in Marbry, where nine months was held to be reasonable notice, this relationship was decades longer, and the investment in infrastructure greater. The length of the relationship and percentage of income is very similar to Clarke, Irwin & Company Ltd. where notice was set at 12 months. [49] Having regard to all of the circumstances, I conclude reasonable notice is 12 months. DAMAGES [50] The question remains as to how to calculate damages for the notice period, being March 1, 2013 to February 28, Given the overlap in payment of

21 Page: 21 commissions between various seasons and over time, I conclude the only reasonable basis to do this is to determine the net amount of commissions lost during this period, less any expenses not incurred. [51] In this regard, the plaintiff s financial records show that the defendants paid $215, in commissions in In comparison, it only paid $155, in 2013, resulting in a loss of $60, After deducting income from the three replacement lines of $3,552.06, $1, and 14,352.95, respectively, the net loss was $40, [52] From January 1 to February 28, 2013, the defendants paid the plaintiff $4,936 and $3,242 for commissions for sales of its Fabulous line and $24,418 and $18,954 for the Mori Lee line, for a total of $51,550. Meanwhile, the plaintiff received replacement income during those two months in 2014 of $9, and $3,531.29, for a total of $12, The net loss was therefore $38, The total net loss in commissions during the notice period was therefore $79, [53] The plaintiff incurred approximately $40,000 per year in expenses servicing the defendants. Brenner testified that most of these costs continued initially while he was trying to find replacement lines, and when it became apparent that this was not feasible most of the costs, which included such things as salaries and lease payments, could not be reduced in the short term. Travel alone in 2014 was $27,000. On balance, I cannot say that there really was any appreciable reduction in the plaintiff s costs as of February 28, 2014, being the end of the notice period.

22 Page: 22 Treatment of commissions paid in 2013 [54] My findings herein make it unnecessary for me to decide several disputed matters that arose during the trial, because they are irrelevant to the result. For the sake of completeness, however, I will comment on them. [55] First is the parties disagreement regarding the breakdown of the $155, in commissions paid to the plaintiff in I conclude that $126,382 of this was commissions for the spring line, based on the defendants answer to an undertaking to provide this information. The plaintiff adopted the answer at trial. [56] Second, I agree with the plaintiff that all commissions arising from the spring line were payable to it, whenever paid. These commissions were earned by the plaintiff and were payable apart from notice, and even if notice was not required. [57] Finally, I am satisfied that the evidence established that there is a standard in the fashion industry of one season s notice of termination without cause. Had I not found that the agreement between the parties required reasonable notice, I would have implied this term based on the industry standard. [58] As to the application of the standard, the notion of one season does not fit the sales cycle in bridal and prom wear. One season is effectively six months notice. In this circumstance, the variations in sales during the calendar year must be accounted for. Accordingly, I would have awarded an amount equal to 50% of

23 Page: 23 the commissions paid to the plaintiff during the previous 12 months income (less adjustments for earned income and reduced costs). CONCLUSION [59] I, therefore, conclude that the plaintiff is entitled to judgment in the amount of $79,680.09, plus pre-judgment interest. [60] If counsel require clarification with respect to the calculation of damages, they may appear before me to make submissions. [61] The plaintiff is also entitled to costs. If counsel are unable to agree on the amount, they may appear before me to make submissions. J.