REASONS FOR JUDGMENT

Introductory Comments

[1] The following is a list of acronyms and short forms used in this judgment:

[2]

People, Corporations and Other Entities

Acronym

Air Transport Association of Canada

ATAC

Ash, Calvin (PAL - Chief Operating Officer)

Ash

Beaver Air Charter Consultants Inc.

Beaver

Beaver, Gerry

G. Beaver

Canadian Coast Guard (also Coast Guard)

CCG / CG

Cassell, Trevor (PAL – Director of Operations)

Cassell

Charter Transportation Agreement

CTA

Cranford, Janet (PAL - Charter Manager)

Cranford

Exclusive Standing Offer

ESO

First Atlantic Region Standing Offer

FARSO

Halliday, Robert (PAL - Corporate Secretary/Director of Contracts and Business Development)

Halliday

Howell, Amanda (a contracting authority to CCG)

Howell

Human Logistics Inc.

Ministry of Fisheries and Ocean

MFO

Mitchell, Aaron (HL – principal)

Mitchell

National Master Standing Offer

NMSO

O’Reilly, Mitchell (PAL - Contract Manager)

O’Reilly

PAL Airlines Ltd.

PAL

Public Services and Procurement Canada (website: www.buyandsell.gc.ca)

PSPC

Public Works and Government Services Canada

PWGSC

Request for Proposal

RFP

Restrictive Covenant/s

RC/s

Second Atlantic Region RFP

SARRFP

Skylink Aviation

Skylink

Skyservice Airlines

Skyservice

I have also appended this as Schedule “A” at the end of the reasons for ease of reference.

[2] On agreement, this trial proceeded based on the affidavit evidence (as the direct evidence with some explanation and clarification); cross‑examination; and re‑examination. As a result a lot of evidence was efficiently packed into four trial days.

[3] Subsequently, I was provided with comprehensive written submissions from which I have drawn extensively in writing these reasons. I have checked all of the provided references to the evidence and accept that they accurately reflect the evidence. Accordingly, I have not provided those references in these reasons. I also note that it was very helpful to have been provided with the transcripts of the trial evidence.

The Parties and Background

Human Logistics Inc.

[4] HL is a charter flight broker founded by Mitchell in 2012. Prior to founding HL, Mitchell had extensive experience in the air transportation business. He was VP Sales for Skylink, a large international air charter and logistics company, from 2010 to 2012. He also worked at Skyservice, an air charter service, from 2008 to 2010, mainly as Manager of Charter Sales. He has a degree in commerce (with a focus on commercial aviation) and a Master of Business Administration degree.

[5] HL specializes in brokering, managing and supporting air charter services. HL connects clients who need air charter services with airlines that have appropriate aircraft available to provide those services. It also arranges a number of ancillary services for its clients, such as fuel procurement, emergency management services and consulting services. HL is based in Toronto, Ontario. In order to connect clients with airlines that can meet their needs, HL needs strong relationships with many different airlines that have different kinds of planes and different support services.

PAL Airlines Ltd.

[6] PAL is a commercial airline based in St. John's, Newfoundland that provides both regularly-scheduled passenger flights and charter flights. It has been in operation since the mid-1970s and is a direct subsidiary of Provincial Aerospace, a global aerospace and defence company, and an indirect subsidiary of Exchange Income Corporation, a TSX-listed company that had revenue of more than $1 billion in 2017. PAL currently employs over 500 employees.

[7] PAL operates a number of turboprop aircraft and three small jets, each of which can accommodate eight passengers.

[8] PAL operates a scheduled flight service with 28 destinations throughout Newfoundland and Labrador, Nova Scotia, New Brunswick, and Quebec. PAL also operates a charter division that provides charters to a variety of customers, both public and private, using aircraft that are not required at a particular time for scheduled operations. PAL has performed hundreds of charters for various departments of the federal government since the 1990s, including for CCG ships operating in CCG’s Atlantic Region out of PAL’s base in St. John’s.

The Canadian Coast Guard

[9] CCG is a special operating agency reporting to the MFO. It is divided into three operating regions – the Western Region; the Central and Arctic Region (as this case is only concerned with Arctic charters, the reference to such charters will be to the “Arctic Region”); and the Atlantic Region. Each region is led by an Assistant Commissioner who reports to the Commissioner of CCG. Each Assistant Commissioner is responsible for directing the day-to-day programs and services in their respective region.

[10] Each operating region of CCG has an ongoing need for air charters to rotate the crews of its ships and to provide for their resupply when they are away from their home port (“crew/cargo changes”).

PAL’s Charters for CCG

[11] PAL provides charters for various departments of the federal government, including CCG in the Atlantic Region, by:

(a) submitting a tender in response to a public RFP issued by PSPC, formerly PWGSC;

(b) responding to a call-up pursuant to a federal government standing offer commonly referred to as a NMSO, also issued by the PSPC. PAL has held a NMSO from the federal government continuously since the 1990s; or

[12] From 1995 to 2013, PAL performed about 150 charters for CCG in the Atlantic Region pursuant to its NMSO and through quotes provided to Beaver, which obtained the charters through individual RFPs.

[13] In 2013, the federal government changed the way it awarded charters for CCG crew/cargo changes in the Atlantic Region. The federal government decided that charters for CCG crew/cargo changes in the Atlantic Region would be awarded only pursuant to an ESO and not pursuant to individual RFPs. Beaver was awarded the FARSO, which was effective for two years with an option to extend for two years. Under this new FARSO, when CCG required an aircraft for a crew/cargo change it would call up Beaver, who would then contact an air carrier about aircraft availability.

[14] Beginning in 2013, PAL obtained charters for CCG in the Atlantic Region solely through Beaver, pursuant to the FARSO. PAL performed these Atlantic Region charters for this period of time mainly because they originated from St. John’s, where PAL is based.

[15] Between July 2013 and July 2014, PAL performed 14 charters for CCG Atlantic Region pursuant to call‑ups under Beaver’s FARSO.

[16] In June of 2015, the federal government decided not to extend the FARSO. It put out a RFP, on which Beaver and HL both bid, as will be discussed further below. Beaver won the contract – the SARRFP. The offer was upon the same terms, except price, as the FARSO, with an option to extend for two one-year periods.

[17] Charters for CCG ships operating in the Arctic Region are not covered by these standing offers. Instead, these charters – such as the one that is the subject of this litigation – continued to be solicited through separate RFPs found on the government website (www.buyandsell.gc.ca) that provides free access to all federal government tenders without any requirement to register.

[18] Prior to 2014, PAL had never provided charters for Arctic Region crew/cargo changes because its turboprop aircraft were not big enough to carry the required passengers and cargo to re-supply ships located in Arctic Region ports. Other air carriers performed these charters using jet aircraft – primarily the much larger 737 model aircraft.

Mitchell starts working with PAL

[19] In October of 2013, a close friend of Mitchell’s father and a principal of a lender to PAL introduced Mitchell to PAL. Mitchell sent an email to Ash, PAL’s Chief Operating Officer, on October 14, 2013 inquiring about opportunities to work together.

[20] In the spring of 2014, Mitchell made HL’s first successful bid for an Arctic Region crew/cargo change, using a 737 jet aircraft belonging to another air carrier. That charter was subsequently performed on August 12, 2014. He had other pre‑existing business with CCG through previous employers as well. He secured two more CCG crew/cargo changes around that time, which were subsequently performed on September 18 and 19, 2014.

[21] In June of 2014, Mitchell learned from a contact at CCG (Howell) with whom he had previously worked during his time with Skyservice and Skylink that CCG needed to run a crew/cargo change from St. John’s to Iqaluit. This information was not yet publicly available. Mitchell believed that PAL could provide the flight more cheaply than anyone else, because PAL was based in St. John’s. He believed as it turned out, incorrectly, that PAL had never flown any charters for CCG before. Mitchell believed that if this Arctic charter went well, it could be a significant new source of business for both HL and PAL.

[22] On June 6, 2014, Mitchell contacted Ash, who referred him to PAL’s Charter Manager Cranford, to inquire about bidding for this charter (St. John’s, Newfoundland to Iqaluit return – the “2014 RFP”). This charter could be completed using turboprop aircraft.

[23] Mitchell knew that PAL was a large, sophisticated regional airline that had a charter department of its own. He was concerned that once PAL knew about the crew/cargo change, it could charter directly with CCG. Mitchell asked Cranford to deal with HL exclusively on this crew/cargo change. After internal deliberations, PAL agreed not to bid on this RFP or to give a quote to another broker in return for Mitchell’s assurance that he would not seek a quote from another carrier for this crew/cargo change. PAL provided a quote and other information to enable Mitchell to bid on the 2014 RFP. HL won the bid, and was awarded the charter.

Negotiation of the Charter Transportation Agreement

[24] In evidence are internal emails between PAL employees assessing whether they should agree to exclusivity with HL. The evidence includes the following:

(a) Following negotiations with Mitchell, when the 2014 RFP was publicly released on June 19, 2014, Cranford sent an email to Ash which stated that “HL requested that we NOT supply bids to any other brokers; however, this Coast Guard request just came out as a Public Works RFP on June 19^th.” PAL had been requested to provide quotes by two other brokers.

(b) In her email, Cranford asked Ash whether PAL should bid on the 2014 RFP directly. Ash responded that PAL should “quote on the RFP [directly] unless you feel that being a part of HL’s bid gives us an advantage.”

[Mr. Mitchell] seems very knowledgeable and I believe he's able to provide a decent repeat connection with the coast guard. He must have an inside lead on this RFP because he asked for quotes a full week before it was announced by public works – I’d say like a Gerry Beaver with contacts all through coast guard... .

Guess I didn’t see the opportunity for us to bid on this one in the original request but worried now that it was a public works tender. But full tariff all the way around plus fees and this could be a nice piece of charter work! Figure it could lead to more work with this guy as well.

[25] PAL ultimately provided an exclusive quote to HL to complete the charter with a Dash 8-100 airplane. Technically this airplane did not have the capacity required by the 2014 RFP, in fact none of PAL’s available airplanes did, but Mitchell believed that the 2014 RFP overstated the capacity required for the charter, and that the Dash 8-100 was large enough. He approached Howell, a contracting authority to CCG, to request an amendment to the 2014 RFP in order to make the Dash 8-100 compliant. CCG through Howell, agreed and issued an amendment which made the Dash 8-100 compliant. The 2014 RFP was awarded to HL. PAL received charter fees for the flight in question. That flight went ahead on September 4, 2014.

[26] On July 29, 2014, Mitchell sent PAL the CTA for PAL to provide charter services pursuant to the 2014 RFP. The CTA contained a “non-solicitation and non-circumvention provision”. PAL refers to it as a non‑competition clause. I will use the term restrictive covenant (“RC”) throughout this judgment for consistency. The highly disputed clause in issue is as follows:

Carrier agrees not to i) solicit Charterer’s customer directly or indirectly (through any third party or broker) and/or offer charter services, or ii) offer charter services directly or indirectly (through any third party or broker) if requested by Charterer's customer for a period of no less than 5 years after the date of the last scheduled Flight or Flights for this Agreement with Charterer for charter services. Carrier agrees that, if they are approached by the Charterer's client directly or indirectly (through any third party or broker), Carrier will redirect the Client, and any third party broker, to the Charterer.

[27] Mitchell’s evidence is that the RC is a standard term in HL’s contracts and that it is based on a provision that was used in charter agreements by Mitchell’s previous employer Skylink. Mitchell testified that it did not prevent PAL from continuing to work with CCG. It simply required PAL to work through HL for CCG work over a five-year term. Mitchell would have been prepared to negotiate the terms of the CTA if the terms were not acceptable. He believed that PAL returned the signed CTA because it agreed with its terms.

[28] Cranford read the CTA. She testified that she did not understand the RC. She flagged three provisions for PAL’s Director of Operations Cassell’s attention and forwarded it to him for signature. She testified that it was not her job or concern to analyze contracts other than for logistics. Cassell signed and returned the CTA the next day.

[29] Cassell testified that he also reviewed the CTA, but that he made the deliberate decision not to review it in detail. Cassell acknowledged that he sometimes sent contracts for review by PAL’s lawyers or contract experts, but chose not to do so in this case.

Mitchell learns that PAL is still working with CCG through Beaver

[30] In 2014 and 2015, HL continued to seek quotes from PAL. PAL in turn provided quotes when its aircrafts were available and suitable. HL did not win any bids using those quotes.

[31] After it signed the CTA, PAL continued to provide flights to CCG, using Beaver as a broker. Mitchell testified that he had no knowledge of this until April of 2015.

[32] Mitchell finally found out that PAL was performing CCG flights without HL’s involvement in April of 2015, when he was seeking a quote from PAL for a CCG flight from St. John’s to Iqaluit taking place on August 5, 2015 – the ”2015 RFP”. During a conversation with Cranford about this RFP, Cranford told Mitchell that PAL had already given a quote to Beaver. Mitchell immediately indicated that this was a breach of the RC. Matters subsequently blew up between HL and PAL, as described in detail below.

[33] There is a live issue as to whether Mitchell knew about the work that PAL did for CCG through Beaver’s FARSO in June and July of 2014, while he was negotiating the 2014 RFP and CTA with PAL. PAL alleges that Mitchell became aware that PAL was providing flights to Beaver from communications with Howell, on or before June 25, 2014. Although he acknowledged that Howell had sent him an email with a link to the FARSO on June 25, 2014, Mitchell testified that he did not open or check the link because it was not relevant to him at the time as that standing offer would not be out for tender until the following year.

[34] Despite being presented with this email, Mitchell testified and I accept (further dealt with below) that he first learned of the FARSO in the context of this litigation. PAL alleges that Mitchell’s evidence is not credible because:

(a) He admits that he had a call with Howell about Atlantic work for CCG before June 25, 2014. During this call, he asked her about “some charters taking place on the east coast” based on “information [provided to him] by CCG.” He admits that during this call, Howell “told [him] that it had been awarded.” He further admits that she told him “it was for more than one-plus year away before being renewed.”

(b) On June 25, 2014, Howell sent an email to Mitchell, in response to his request in their earlier phone call about a “solicitation/contract… that covered the Atlantic Region for an extended period instead of being flight specific”, with the subject line “Atlantic Charter Services.” Howell attached the link to the FARSO, which had been awarded to Beaver and covered charters for “Canadian Coast Guard ships operating in the Atlantic Region”, with “flights originating Halifax, Nova Scotia and St. John’s NL and destinations include PE, QC NB, NS and NL.”

(c) In December of 2014, Mitchell followed-up with Howell regarding the URL she had sent earlier for the FARSO. He asked her whether the “award will be extended or posted for re-bid.”

(d) In May of 2015, Mitchell followed-up again with Howell. He asked her “Would you happen to know if the tender linked to the URL below was renewed?”

[35] PAL submits that this evidence shows that Mitchell’s position that he never clicked on the URL link in Howell’s email on June 25, 2014 lacks credibility. Mitchell’s business relied on his ability to know about flight opportunities within his network of potential customers, and he followed-up regarding this URL twice. PAL further submits that even if this court were to accept Mitchell’s assertion that he did not click on the link, the evidence still shows that he knew about the pertinent aspects of the FARSO. At a minimum, Mitchell knew, before June 25, 2014, that there was an arrangement for “some charters taking place on the east coast” for CCG that had been awarded, and the arrangement was a year away from being renewed.

[36] I find that PAL’s position that Mitchell had knowledge of Beaver’s continued involvement with PAL despite PAL signing the CTA containing the RC is nonsense and made up after the fact. It is dealt with further in the next section of these reasons titled “gotcha litigation and credibility issues”.

The dispute arising from PAL’s alleged breach of the CTA

[37] After Mitchell raised the issue of the breach of the CTA, PAL provided a non‑compliant quote to HL for the 2015 RFP. HL alleges that PAL knew the request did not comply with the requirements of the 2015 RFP and that this was intentionally done. HL further alleges that PAL provided a quote to Beaver that did comply with the requirements of the 2015 RFP.

[38] This issue does not matter because in spite of the non‑compliant quote provided by PAL, Mitchell’s bid for this charter was successful.

[39] On May 15, 2015, Mitchell sent an email to Cranford informing PAL that HL had won the 2015 RFP.

[40] After he raised the issue of the breach of the CTA, Mitchell was directed to O’Reilly, PAL’s then-contract manager, to discuss the RC. Mitchell and O’Reilly spoke on May 13, 2015, when Mitchell learned for the first time about Beaver’s FARSO with CCG. On May 20, 2015, O’Reilly requested that Mitchell sign a release letting PAL out of the CTA, including the RC. Mitchell did not believe that this was a fair request and refused to sign the release. PAL in turn refused to honour its quote to HL for the 2015 RFP which HL had won. As a result, Beaver obtained the 2015 RFP.

[41] Because of the dispute, PAL also did not provide a quote to HL for an RFP from CCG to replace the FARSO, (the SARRFP). By June of 2015, PAL learned that CCG would not be exercising its option to extend that standing offer and would instead be issuing an RFP for a replacement standing offer to provide charter services to the Atlantic Region CCG. The vast majority of these charters were to depart from St. John’s, Newfoundland or Halifax, Nova Scotia. Because of the location of its home base, a quote from PAL had a high chance of winning the standing offer.

[42] HL requested that PAL provide a quote for SARRFP. PAL refused to provide a quote because HL refused to release PAL from the RC. Instead, PAL provided a quote to Beaver, which ultimately won the SARRFP.

This action

[43] HL is suing for damages (both liquidated damages and breach of contract damages for lost profit) as a result of PAL’s alleged breaches of the CTA. The alleged breaches are with respect to PAL’s refusal to honour its quote to HL for the 2015 RFP; PAL’s failure to provide any quote for the SARRFP; and the charters that PAL provided for Beaver for CCG crew/cargo changes in the Western Region, Central and Arctic Region, and the Atlantic Region.

[44] Before the 2014 RFP, PAL had never performed CCG crew/cargo changes in the Arctic because its aircraft were not large enough to carry the number of passengers and cargo required. After the 2014 RFP, PAL has not performed any charters for CCG crew/cargo changes in the Arctic. It continues to provide charters for CCG in the Atlantic Region.

Issues

[45] The issues in this lawsuit include the following:

(a) the shifting nature of HL’s claim;

(b) “gotcha” litigation and credibility issues;

(i) is the RC clear and unambiguous?

(ii) is the temporal scope of the RC reasonable?

(iii) is the geographic scope of the RC reasonable?

(iv) is the RC contrary to public policy/interest?

(v) does the RC protect HL’s legitimate proprietary interest?

(d) whether rectification is available;

(e) whether HL is entitled to damages for the PAL’s refusal to honour its quote to HL for the 2015 RFP, failure to provide a quote for the SARRFP, and charters provided to Beaver in breach of the CTA:

(i) the effect of section 17(b) of the CTA on damages;

(ii) liquidated damages;

(iii) breach of contract damages for lost profit.

I. Comments Regarding the “Shifting” Nature of HL’s Claim as Alleged by PAL

[46] PAL takes issue with what it calls the shifting nature of HL’s claim in terms of the types of damages claimed and the regions which the damages arise from.

[47] Initially, Mitchell claimed damages only for Arctic Region charters that PAL performed in breach of the CTA, but he now claims damages for lost charters in all CCG regions. PAL submits that, after Mitchell alleged that the RC applied to charters for CCG crew/cargo changes in the Arctic Region, he realized that there were no recoverable damages because PAL had not performed any such charters. PAL submits that, as a result, Mitchell took the position that the RC applied to charters for CCG crew/cargo changes anywhere in Canada (not just in the Arctic Region).

[48] Mitchell is not a lawyer. He is an educated businessman. He has retained very competent counsel whose role is to advocate on his behalf. His counsel are not bound by Mitchell’s opinions about the state of the law, whether they are regarding contract analysis or the assessment of damages. His counsel have maintained a claim throughout this trial for both liquidated and compensatory damages.

[49] The fact that there was some delay on HL’s part in asserting its rights to claim damages arising from CCG charters operating in all CCG regions does not preclude HL from making such a claim. It is not alleged that such a claim is statute barred.

[50] All litigation is a shifting beast. Legal ideas and theories of one’s case inevitably change over time. In fact, judges sometimes start writing reasons for judgment certain of one outcome only to be persuaded otherwise.

[51] The CTA was not drafted by any identified lawyers. In fact, it appears that it was modelled after a CTA used by one of Mitchell’s prior employers, Skylink.

[52] Further, contrary to PAL’s claims, there was nothing improper in Mitchell seeking legal assistance to draft his email on May 13, 2015 alleging that PAL was in breach of the RC by providing charters to CCG ships operating in the Atlantic Region.

[53] PAL is attempting to paint an incorrect and unfair picture of Mitchell.

II. “Gotcha” Litigation and Credibility Issues

[54] I will deal with these issues at this point, as these findings have a direct impact on my subsequent findings.

[55] PAL submits that this is “gotcha” litigation. It submits that HL seeks to take advantage of a RC that Mitchell surreptitiously inserted in a CTA for a single air charter. It also submits that Mitchell lied about not knowing that PAL was performing Atlantic Region charters on a standing offer held by Beaver. Essentially, PAL submits that I should find Mitchell to be a liar and perjurer.

[56] I do not make that finding, and in fact I find Mitchell to be a credible, believable and reliable witness. I find that PAL has attempted to cobble together a defence blaming Mitchell for its mistake. Its attempt to do this has no air of reality.

[57] PAL submits that Mitchell did not raise the issue of the RC during the negotiation of the CTA, and that it was not discussed with PAL’s representatives. The problem with this submission is that Mitchell had no obligation to draw PAL’s attention to the RC. Cassell did not read the CTA and did not refer it to PAL’s lawyers or contract experts. The law is clear that a party who does not read a contract is generally stuck with the consequences. Mitchell had no obligation to point out the various sections in the CTA and their meanings. Further, given that PAL signed the CTA, there is no onus on HL to show that PAL agreed to the inclusion of the RC. The reality is that if Cassell had read the CTA, he no doubt would have been in touch with Mitchell, who consistently indicated that he would have been willing to negotiate the terms of the CTA with PAL. Mitchell even testified at trial that he was still willing and hoping to do that. Mitchell had no way of knowing that Cassell/PAL had not read the CTA and was not aware of the RC.

[58] PAL also alleges that, in an attempt to explain why he waited ten months before alleging a breach of the RC, Mitchell created the false narrative that he was not aware until told by PAL that PAL was performing CCG charters and that CCG charters in the Atlantic Region were subject to a standing offer held by Beaver.

[59] My finding on the issue of Mitchell’s awareness of Beaver’s continuing relationship with PAL is that Mitchell had no knowledge of the “offending charters” until April of 2015, when he contacted Cranford to obtain a quote for the 2015 RFP. His surprise and outrage were legitimate, understandable and justified.

[60] PAL has attempted to paint Mitchell as a liar regarding his knowledge of the offending charters. The only direct evidence about Mitchell’s knowledge comes from the email that Mitchell received from Howell indicating that the standing offer had been awarded to Beaver. I accept Mitchell’s evidence that he did not open the link Howell sent him because she had told him that the offer was not yet open to bid. This is consistent with Mitchell’s surprised reaction to learning during his April 21, 2015 conversation with Cranford of the quote PAL provided to Beaver for the 2015 RFP. Mitchell did not delay acting on the CTA for illegitimate reasons.

[61] During trial and in its submissions, PAL’s counsel suggested that this case amounts to “gotcha litigation”, referring to the court’s decision in Alguire v. Manufacturers Life Insurance Co. That case, however, is of no assistance to PAL. In Alguire, the plaintiff relied on a “table of nonforfeiture values” in his life insurance policy that provided grossly inflated paid-up values that were obviously inconsistent with the actuarial quote that had been given previously. The defendant insurer had obviously made a clerical/mathematical error, describing values as “per $1,000 of face amount” when they should have been “per $5,000 of face amount.” The plaintiff alleged that the table in question was inserted into his policy in response to his request for “inflation protection”. The court found that “the theory of the plaintiff’s case seems to lack an inherent, objective air of reality” and that “the plaintiff’s story [was not] credible.” The court found instead that the table was a “clerical, mathematical error” on the part of the defendant, which the plaintiff tried to take advantage of decades later when memories had faded and at least one key witness had died. It was those findings of fact that led the court to suggest that the plaintiff’s attempt to take advantage of the parties’ bilateral (as opposed to unilateral) mistake amounted to “gotcha litigation” and to grant rectification.[^1]

[62] The facts in Alguire are very different from the facts of this case. This RC was not a clerical/mathematical error made by PAL, which HL is belatedly attempting to justify and take advantage of. It is a standard term in HL’s contracts. Skylink, Mitchell’s prior employer, also used this term in its contracts. Mitchell sent the CTA to PAL for its review and reasonably believed that PAL had reviewed and accepted the CTA, including the RC. As Beaver acknowledged, HL had the same arrangement with another airline, Canadian North Inc. There was no reason for Mitchell to believe that PAL was making a mistake. There is no “gotcha” litigation going on here.

Other Credibility Issues

[63] Credibility issues arise in relation to another issue raised in this case: whether, in addition to avoiding doing business with HL, PAL attempted to prevent HL from obtaining membership in ATAC, a major Canadian air transport industry association.

[64] HL alleges that at an ATAC meeting held in November of 2016, Ash, PAL’s Chief Operating Officer (who is also a Director of ATAC) attempted to convince ATAC directors to refuse HL’s application for membership to the organization. Mitchell candidly acknowledged that he had no direct evidence of this – only hearsay evidence.

[65] When Ash was asked in cross-examination whether he attempted to convince ATAC members to adopt a boycott against doing business with HL, he indicated that he could not recall. This is very surprising evidence, particularly since that issue has been a live issue since the commencement of this litigation. He did concede that he tried to exclude HL from joining ATAC.

[66] In any event nothing really turns on this point (other than credibility), but it does illustrate the extent of the breakdown of the relationship between HL and PAL.

[67] HL has provided its submissions on credibility, with which I largely agree. My findings regarding credibility are as follows:

(a) I have commented above on Mitchell’s credibility. In addition, under aggressive cross‑examination he was straightforward and not prone to advocacy or exaggeration. He did not evade questions.

(b) Halliday, PAL’s Corporate Secretary/Director of Contracts and Business Development, was not particularly credible. He was effectively impeached on the issue of the identity of HL’s customer for the 2014 RFP. Halliday’s position was that HL’s customer for that RFP was “Coast Guard Arctic Region” but PAL’s customer for the standing offers was “Coast Guard Atlantic Region.” I agree with HL’s submission that this is fundamentally inconsistent with:

(i) the contemporaneous documents, none of which drew such a distinction;

(ii) the fact that CCG itself recognizes an operational “Central and Arctic Region” but not an Arctic Region; and

(iii) his testimony that the operating region for CCG was determined by destination, in circumstances where PAL repeatedly flew to the Central and Arctic Region namely (Quebec) under the standing offers.

(c) Cranford was mostly credible, particularly with her evidence regarding the benefits she perceived HL to bring to the table for PAL. Her evidence attempting to delineate CCG regions and convince the court that HL’s customer was “Coast Guard Arctic Region” was, to use HL’s words, half‑hearted and unpersuasive.

(d) Cassell was mostly credible. He was understandably defensive about his failure to read the CTA but credible in that evidence. He conceded that from an operational point of view the “Coast Guard is the Coast Guard”. He further conceded that a quote is not a binding agreement, which I agree contradicts PAL’s argument that there was an existing binding oral agreement even without the CTA. Cassel characterized PAL’s argument about the Arctic Region delineation as an “accounting” issue.

(e) Beaver was a credible non-party witness caught up in this litigation. He testified in cross that:

(i) absent this litigation he would have worked with HL under the FARSO provided they could still provide the best price;

(ii) his customer under the FARSO was the Coast Guard.

(f) Ash was largely credible. He conceded that PAL chose to provide a quote for the 2014 RFP to HL based on Cranford’s recommendation that HL offered value to PAL. He conceded that he tried to exclude Mitchell from joining ATAC.

[68] I do not accept the findings of credibility urged upon me by PAL.

III. Is the RC enforceable?

Law

[69] The general position of the common law is that restraints on trade such as RCs are contrary to public policy and therefore void “because they interfere with individual liberty of action and because the exercise of trade should be encouraged and should be free.”[^2] Restrictions are unenforceable unless they are reasonable with regard to the interests of the parties and reasonable with regard to the public interest.[^3] Courts will scrutinize them carefully for validity.

[70] That said, courts approach RCs in commercial contracts differently than those in the employment context. Unlike in the employment context, the starting point in the commercial context is that a RC is prima facie enforceable. The onus is on the party seeking to avoid its obligation to show that the RC is unreasonable and thus not enforceable, on a balance of probabilities.[^4]

[71] The difference in approach is driven by the fact that parties to commercial contracts are presumed to be on equal footing, and they do not suffer from the same power imbalance that characterizes the relationship between an employee and employer.[^5]

[72] In commercial cases involving sophisticated parties, courts should defer to the parties’ agreement about a RC. Competently advised parties with equal bargaining strength, expertise, experience and access to resources are the best judges of what is reasonable as between them.[^6]

[73] The reasonableness of a RC is determined by considering whether the clause is reasonably necessary to protect the beneficiaries’ legitimate interests.[^7] Courts consider the temporal scope of the RC and, in the case of non‑competition clauses, the geographical scope. Territorial limitations are not absolutely necessary for a non-solicitation clause to be valid.[^8]

The Parties’ Positions

[74] HL’s position includes the following:

(a) The RC must be assessed using the deferential standard applicable to commercial contracts. The CTA is a commercial contract between sophisticated commercial parties who had access to experienced legal counsel. In fact, PAL even had an in-house “contract specialist” whose job was to review and advise on contracts. The fact that PAL’s management chose not to read the CTA in detail, or engage counsel before signing the CTA, cannot relieve PAL from the bargain that it freely entered into. Nor can it impose a more onerous standard for assessing the validity of the RC.

(b) There is no power imbalance in favour of HL. In fact, PAL is the significantly larger, more experienced, and more powerful party. These circumstances militate in favour of upholding the parties' freedom to contract and enforcing the RC.

(c) In the circumstances, the RC is prima facie enforceable, and the burden is on PAL to prove that it is unreasonable. PAL cannot satisfy the burden of establishing the exceptional circumstances that would warrant the court’s intervention. The RC is unambiguous and it is reasonable as to the activities prohibited, the geographic and the temporal scope.

(d) The test for enforcement of a RC is whether it is reasonable – not whether, with all the benefit of hindsight, it was an optimal or even beneficial bargain for PAL. PAL’s principal defence in this case – that it has not needed HL’s services to obtain business from CCG – entirely misses the point. Impressed by HL’s abilities, foreknowledge of the 2014 RFP for the Arctic charter and the potential to obtain additional CCG work, PAL made a calculated decision in 2014 to work with HL. Instead of exercising other options, PAL signed the CTA, which included the RC. That was a reasonable bargain at the time that it was made and it should be enforced.

[75] PAL’s position includes the following:

(a) The RC in this case is a non-competition clause. Its terms prohibit PAL from performing charters directly itself or indirectly through a broker for a deliberately undefined “customer” or “client”. It is also a non-solicitation clause.

(b) The RC is void and unenforceable for five reasons:

(i) It does not protect a legitimate proprietary interest of HL;

(ii) It does not have a fixed temporal scope;

(iii) It is ambiguous with respect to the scope of prohibited activities;

(iv) It is overly broad with respect to the territory and activities to which it applies;

(v) It is against the public interest as a prohibition against general competition.

[76] I will now use the following framework to analyze the various issues. There is some overlap between the issues:

(a) Is the RC clear and unambiguous?

(b) Is the temporal scope of the RC reasonable?

(d) Is the RC contrary to public policy/interest?

(e) Does the RC protect a legitimate proprietary interest?

i. Is the RC clear and unambiguous?

Law

[77] An apparent ambiguity does not automatically render a RC unenforceable. An RC will only be unenforceable for ambiguity if the ambiguity cannot be resolved.[^9]

[78] The factual matrix, including the knowledge of the parties at the time that they contracted, must be taken into account when assessing whether a RC is ambiguous.[^10] The Supreme Court of Canada in KRG Insurance Brokers (Western) Inc. v. Shafron specifically acknowledged that an ostensible ambiguity in a RC could be resolved by reference to the understanding of the parties at the time that they contracted. In that case, the Supreme Court of Canada refused to resolve the ambiguity because there was no evidence of the parties' understanding of the ambiguous term.[^11]

[79] If a RC “is ambiguous, in the sense that what is prohibited is not clear as to activity, time, or geography, it is not possible to demonstrate that it is reasonable. Thus, an ambiguous RC is, by definition, prima facie unreasonable and unenforceable.”[^12]

The Parties’ Positions

[80] HL’s position is that the RC is clear and unambiguous. Its submissions include the following:

(i) PAL alleges that the RC is ambiguous because it applies in respect of HL's “customer” and “client”, and those terms are not defined in the CTA.

(ii) Both PAL and HL understood at all times that HL's customer and client was CCG.

(iii) In Shafron v. KRG, the Supreme Court of Canada acknowledged that an ambiguity could be resolved by reference to the understanding of the parties at the time that they contracted. In that case, the court refused to resolve the ambiguity because there was no evidence of the parties’ understanding of the ambiguous term. The analysis of this issue is dealt with below. I note however that in this case there is substantial evidence demonstrating that the parties' mutual understanding was that HL's client was CCG. Again, I stress that this litigation has come about because PAL did not read the CTA before signing it. Likely had PAL put its mind to the RC it would either not have agreed to it or made it exclusively with respect to the Arctic. It is too late however to be raising this distinction. Mitchell made it clear, even at trial, that he was willing to try and come to terms with the RC and the CTA.

(iv) This is consistent with PAL’s internal records, which were prepared contemporaneously with the execution of the CTA. In particular, Cranford’s internal correspondence with Ash about whether to work with HL referred to the CG as the client on four separate occasions. Similarly, the flight manifest that was prepared by PAL for the flight at issue states that the “Client Name” is “Human Logistics (Coast Guard)”.

(v) PAL produced a substantial number of internal records that reflect its understanding that it was always providing flights for CCG, and not any other entity, or operating region of CCG. In particular:

(a) PAL’s internal correspondence repeatedly refers only to the "Coast Guard" or “CCG”;

(b) PAL's correspondence with Beaver concerning flights for the CG refers exclusively to the “Coast Guard”;

(c) PAL's internal record management system, “PCS”, states that the “customer” for flights provided to CCG through Beaver is “Beaver Air Charter Consultants Ltd./Coast Guard”;

(d) PAL’s flight manifests for flights provided to CCG through Beaver state that the “Client Name” is “Beaver Air Charter Consultants Ltd./Coast Guard”; and

(e) PAL’s invoices are addressed to the “Customer”, the “Canadian Coast Guard”.

(vi) When asked during examinations for discovery whether the Coast Guard was an agency of the DFO, Cassell responded that:

Coast Guard is Coast Guard. I am not going to get into the legal names of who is who, but from all my dealings with either the Coast Guard directly or through other brokers, it has always been just Coast Guard to me from an operational point of view.

(vii) PAL’s attempt to parse CCG into a variety of potential government entities or regions is an artificial analysis that was never employed by PAL until this litigation arose. In the normal course of its business, PAL has always understood that it was providing flights for CCG and not any other government department or regional division of CCG. There is no contemporaneous evidence that PAL thought HL’s customer was Her Majesty the Queen; PWGSC; the DFO; CCG Arctic Region, or any other post hoc invention. Those rationalizations only emerged after this litigation commenced.

(viii) Perhaps the most compelling evidence on this point came from G. Beaver, who has no direct interest in the outcome of the litigation and who, like the parties, has a firm understanding of the factual matrix in respect of flights for CCG. During G. Beaver’s re-examination, counsel for PAL asked him who was the customer for flights into the Arctic. G. Beaver responded unequivocally that the customer was “the Coast Guard”. Counsel’s attempt to lead G. Beaver to the preferred answer by following up to ask “What region of the Coast Guard?” only served to emphasize how harmful was the original, unprompted answer.

(ix) The truth is that the customer could be no entity other than CCG. There is no rational basis on which to suggest that PAL’s pre-existing customer was CCG Atlantic Region, or that HL’s customer was CCG Arctic Region. There are at least three reasons that this is the case:

(a) while CCG has regional operating divisions, there is no such thing as the “Arctic Region” of CCG. The regions are (i) the Western Region, (ii) the Central and Arctic Region, and (iii) the Atlantic Region;

(b) PAL offered flights that originated in the Atlantic Region (Halifax or St. John’s) and were destined to the Central and Arctic Region (Quebec), for ships located in the Central and Arctic Region (Quebec). Similarly, the flight procured by HL originated in the Atlantic Region (St. John’s) and was destined to the Central and Arctic Region (Nunavut);

(c) while PAL suggested that the destination of invoices is somehow different for different regions of CCG, Beaver acknowledged that invoices for CCG flights originating from St. John’s are sent to the same place, regardless of whether those flights remain in the Atlantic Region, or go to the Central and Arctic Region.

(x) The artificial nature of PAL’s position was best exposed during Halliday’s cross-examination. Halliday claimed that there was a distinction between “Coast Guard Atlantic Region” and “Coast Guard Arctic Region”. He also maintained that the customer was determined by the destination of the flight. When confronted with evidence that PAL consistently flew to destinations in the Central and Arctic Regions both before and after the September 4, 2014 flight – meaning that even on PAL’s artificial distinction, it had violated the RC – he refused to concede the point despite having no plausible justification for his position. He was an advocate, not a fair witness, and PAL’s entire strained argument about the client identity should be disregarded.

(xi) In its closing submissions, PAL suggests that the RC is ambiguous because it refers to HL’s “customer” and “client”, and that, based on the presumption of consistent expression, each of those terms must have a different meaning. That, however, is an overly literal interpretation of the CTA. It is clear that HL’s “customer” and “client” is CCG.

(xii) Although there is a presumption that a draftsperson uses consistent expressions, that is not an immutable principle of interpretation. As the Supreme Court of Canada held in R. v. Steele (in that case, in the context of statutory interpretation): “Context will be paramount… [T]here may be situations in which the presumption of consistent expression is clearly rebutted by other principles of interpretation…”.[^13]

PAL

[81] PAL’s submission is that the RC is not clear and unambiguous. Its submissions include the following:

(i) The RC is ambiguous about the identity of the unidentified “customer” and “client”. The ambiguity with respect to the scope of the RC is evident from the face of the CTA and this ambiguity cannot be resolved by reference to the factual matrix.

(ii) The CTA does not identify the “customer” or “client” subject to the RC. The RC refers to separate potential parties: the “customer” and “client”. The CTA has no defined term for either of these potential parties. Mitchell cannot, and does not, dispute this point. The RC is therefore, on its face, ambiguous.

(iii) This ambiguity was not merely an oversight by HL. In fact, Mitchell intentionally ensured that the identities of the “customer” and “client” were ambiguous. In his opening submissions, counsel for HL stated that the customer is intentionally not identified in the CTA. As he explained, “…the customer isn’t specified in this ‘because you want to get the signature on the document before you disclose who the customer is’.”

(iv) This intentional ambiguity is evidence that there was no “meeting of the minds” or “certainty” regarding the identity of the customer or the client. Rather, Mitchell intentionally maintained ambiguity around the “customer” and “client” identity until after the formation of the CTA, and then waited for ten months before identifying a “customer” that would be most beneficial to his interests. The identity of the “customer” and “client” is a fundamental term, without which there can be no enforceable RC.

(v) The “customer” and “client” cannot be the same entity. Mitchell’s position is that the “customer” and the “client” refer to one entity – CCG in all regions in Canada. However, this argument belies a central principle of contractual interpretation – the presumption of consistent language, a principle summarized by the court in Healy v. Gregory:

With respect, although the Respondents purport to rely on a principle of interpretation, which they describe as the presumption of consistent expression, they misapply the principle. The presumption of consistent language entails that: (a) a draftsperson will use language consistently; (b) a draftsperson's use of different words indicates an intention to refer to different things; (c) a draftsperson will not use different words to refer to the same thing; and (d) different words should not be interpreted to mean the same thing.[^14]

(vi) According to the rules of contractual interpretation, it is presumed that Mitchell means something different when referring to “customer” and “client”. Mitchell has only led evidence suggesting that the “customer” and “client” are both the “Coast Guard.” If HL is correct that the “client” is CCG – who is the “customer”? This inconsistency renders the RC ambiguous.

(vii) The ambiguity regarding the identity of the “customer” and “client” cannot be resolved by reference to the factual matrix. In its closing submissions, HL pin-points every instance where the term “CCG” is used in reference to PAL’s work under the NMSO; the FARSO; and the 2014 Arctic charter and suggests that there therefore is no ambiguity regarding the identity of the “customer” and the “client”. However, HL omits the many references to other potential clients or customers of the 2014 Arctic charter. Upon a full review of all of the different references to a multitude of potential clients and customers, it is clear that the ambiguity in the RC cannot be resolved by reference to the factual matrix.

(viii) For example, with respect to the 2014 RFP:

(a) the document, starting at the Table of Contents page is entitled “Department of Fisheries and Oceans – CCG Services Arctic Travel Services”;

(b) the contracting authority for the RFP is PWGSC;

(d) the issuing office for the RFP is PWGSC;

(e) the “Destination of Goods, Services and Construction” is listed as the “Department of Fisheries and Oceans”; and

(f) the ultimate beneficiary of the charter is the “Leonard J. Cowley” ship.

(ix) With respect to Mitchell’s bid submission for the 2014 RFP:

(a) Mitchell addressed his bid to Howell at PWGSC;

(b) Mitchell wrote in the body of his letter, “thank you for the opportunity to assist PWGSC and DFO with this transport requirement”; and

(x) The contract for the 2014 RFP was executed by HL and PWGSC and contained the title “Department of Fisheries and Oceans – CCG Services Arctic Travel Services”.

(xi) The 2015 RFP states that it is for “Arctic Travel Services”.

(xii) If any further proof is needed to conclude that the reference to an unidentified “customer” or “client” in the RC is ambiguous and capable of different interpretations depending upon what result is desired, one need not go any further than the statement of claim. When issued in July of 2015, Mitchell claimed that his customer was the DFO. During the trial Mitchell claimed that his customer was CCG, and amended his statement of claim accordingly. While CCG is a special operating division of the DFO, the DFO itself is a separate customer for charters. The apparent ease of changing the identity of the “customer” and the ability to then argue that the new “customer” meets the wording in the RC highlights the ambiguity of the wording.

(xiii) As explained by Cranford, PAL’s correspondence and internal documents refer to only the “Coast Guard” and not to any particular region of CCG because PAL had only conducted charters for CCG in the Atlantic Region until it performed the 2014 Arctic RFP. Further, PAL’s aircraft were too small to complete flights for Arctic crew changes. Accordingly, there was no operational need to make a distinction between the different operating divisions of CCG until the 2014 Arctic RFP charter. Mitchell’s invoices do not refer to the “Coast Guard”. Instead, his invoices are directed to “Fisheries and Oceans Canada”, with an Invoice Number starting with a prefix of “DFO”.

(xiv) When Mitchell asked Cranford about the RC in April of 2015, she was confused. In addition to not knowing about the existence of the RC, Cranford was unable to identify the “client” and “customer” in the CTA.

Analysis

[82] The RC is clear and unambiguous with respect to client/customer. Both parties knew that HL’s customer, and the customer intended to be the subject of the RC, was CCG. Cassell’s evidence says it all – “Coast Guard is Coast Guard… it has always just been just the Coast Guard to me from an operational point of view.” When asked who the customer was for flights into the Arctic, Beaver also said the Coast Guard, rather than CCG Arctic Region.

[83] In the event that I am incorrect and the RC is not clear and unambiguous, the ambiguity can be resolved. There is substantial evidence confirming Mitchell’s and Cranford’s mutual understanding that the customer and client was CCG. Cranford’s internal emails confirm this, as does the flight manifest. PAL’s own internal records confirm that the customer was CCG.

[84] The evidence from Cassell is important. I find that he was testifying honestly about the reality of the identity of the client – the “Coast Guard is the Coast Guard.”

[85] G. Beaver’s cross‑examination, as well, confirmed that it was common knowledge in the industry that the client for these types of charters was CCG.

[86] PAL suggests that the RC is ambiguous because it refers to HL’s “customer” and “client” and that based on the presumption of consistent expression, each of the terms must have a different meaning. I agree with HL that this is an overly literal interpretation of the CTA. It is clear that the “customer” and “client” were one and the same, and is CCG.

[87] I agree that other principles of interpretation – including the factual matrix – rebut the presumption of consistent expression. The words “customer” and “client” do not refer to different entities. They do not result in any ambiguity and none of the witnesses (including Beaver), showed any confusion as to who was the customer or client. I agree that the claimed ambiguity is a post hoc invention for litigation purposes.

[88] I have already found that Mitchell did not surreptitiously insert the RC into the CTA. Similarly he did not intentionally ensure that the identities of the customer and client were ambiguous in order to “score” a recovery to which he knew he was not entitled.

[89] The RC does not draw a distinction between the various regions of the CCG. The most natural reading of the RC in the absence of the evidence to the contrary is that the customer/client is the CCG.

ii. Is the temporal scope of the RC reasonable?

Law

[90] When considering whether the term of a RC is reasonable, it is necessary to consider the specific circumstances, including the nature of the business and the nature of the activities to which the RC applies.[^15] For example, in Guay v. Payette, the Supreme Court of Canada found that the highly specialized nature of the business’s activities weighed in favour of the validity of a period of up to five years.[^16]

[91] According to the Supreme Court of Canada, “a non-competition clause in a commercial contract must of course be limited as to time, or it will be found to be contrary to public order and a court will refuse to give effect to it.”[^17] The Ontario Court of Appeal recently affirmed this principle, holding that a RC is unenforceable where “there is no fixed, outside limit.”[^18]

[92] That said, the courts have held that five, and even ten years is a reasonable period of time for RCs in commercial contracts.[^19]

The Parties’ Positions

[93] HL’s submission is that the temporal scope of the RC is reasonable. HL’s submissions include the following:

(a) When the RC is read as a whole and using plain and common sense, it is clear that the RC is intended to apply for only five years. There would have been no reason to include any period of time at all if, as PAL suggests, the RC was intended to apply indefinitely or for any period longer than five years.

(b) The plain and ordinary meaning of the RC is that PAL agreed not to circumvent HL “for a period of no less than five years”. This means that for five years, PAL agreed to work with HL on CCG flights. After five years, the obligation lapses. PAL remains free to continue working with HL but is not required to do so. After five years, the requirement to work with HL for “no less than five years” has been satisfied. There can be no reasonable suggestion that the clause would continue to apply after five years, and there is, therefore, no ambiguity.

(c) When considering whether the term of a RC is reasonable, it is necessary to consider the specific circumstances, including the nature of the business and the nature of the activities to which the RC applies.[^20]This RC is minimally intrusive as it does not prohibit PAL from providing charter services to, and profiting from business with, CCG. All it does is require that PAL work with HL for CCG business over a five-year period. PAL may even work with another broker like Beaver, provided that HL is included.

(d) In light of the highly specialized nature of HL's business, and the limited activities to which the RC applies, five years is a reasonable period of time for the RC to apply in order protect HL’s interests.

PAL

[94] PAL’s submission is that the temporal scope of the RC is not reasonable and therefore unenforceable. PAL’s submissions include the following:

(a) The RC is not limited as to time. It applies to a period of “no less than five years”, setting a minimum of five years with no maximum or definitive period.

(b) The RC prohibits PAL from offering charter services to HL’s customer directly or through a third party broker “for a period of no less than five years after the date of the last scheduled flight or flights for this agreement... .”

(c) The plain meaning of these words is that five years is the lowest possible period that PAL is prohibited from dealing with HL’s customer but that a longer period is possible. There is no way to ascertain from the wording or from the surrounding circumstances what the period might be. Mitchell arbitrarily chose five years. However, he just as easily could have arbitrarily chosen six years, 50 years, or an unlimited period, all of which would be in accordance with the wording of “for a period of no less than five years.”

Analysis

[95] The temporal scope of the RC is reasonable, clear and not ambiguous. Despite the wording of “no less than five years”, common sense and plain reading lead easily to the conclusion that it applies for a period of five years from September 4, 2014.

[96] PAL did not read the CTA and was unaware of this RC until HL contacted Cranford in April of 2015 to obtain a quote for the 2015 RFP. PAL is desperately trying to find a way out of this CTA that it signed without reading.

[97] The RC is minimally intrusive. It does not prohibit PAL from providing charter services to and profiting from business with CCG. It just requires PAL to work with HL for this one client, for five years and can even include Beaver. Gerry Beaver, in his evidence, confirmed that he would work with HL alongside PAL, as long as Beaver’s profit was the same. He had worked with PAL before.

[98] If I am incorrect in finding that the phrase “for a period of no less than five years” clearly means five years from September 4, 2014, I will now consider the doctrine of blue pencil severance.

Is blue pencil severance available as it relates to the temporal aspect of the RC?

[99] Blue pencil severance is permissible where the part being removed is trivial and not part of the main purport of the RC. In Shafron, the Supreme Court of Canada addressed when the doctrine of pencil-severance may be invoked to resolve an ambiguous term in a RC:[^21]

“Blue pencil” severance consists of removing part of a contractual provision. …notional severance is not an appropriate mechanism to cure a defective restrictive covenant. As for blue-pencil severance, it may only be resorted to in rare cases where the part being removed is trivial, and not part of the main purport of the RC.

[100] In Veolia ES Industrial Services Inc. v. Brulé, the Court of Appeal held that a provision relating to the duration of a restriction was part of the main purport of the clause and could not be severed.[^22]

[101] The Supreme Court also held in Shafron that blue pencil severance is only appropriate where the parties would have “unquestionably” agreed to remove the impugned term.[^23]Where there is no evidence of such mutual agreement, the clause cannot be severed.

[102] In GDL Solutions v. Walker, the court held that blue pencil severance may be used in commercial agreements to sever a portion of a RC that is unreasonable, while enforcing the balance of the RC. In that case, the court severed a portion of a non‑competition clause that extended the geographic scope of the clause to within ten kilometres of Ontario because that extension was unreasonable in the circumstances.[^24]

[103] As the court acknowledged in GDL Solutions Inc. v. Walker, those cautions are less applicable in commercial contracts, in which case blue-pencil severance may be resorted to more liberally.[^25]

The Parties’ Positions

[104] HL’s submission is that if I find the RC to be ambiguous with respect to the temporal issue that I should utilize blue pencil severance. HL’s submissions include the following:

(i) To the extent that the words “no less than” result in any ambiguity, they should be severed from the RC using blue pencil severance. In GDL Solutions Inc. v. Walker, the court held that blue pencil severance may be used in commercial agreements to sever a portion of a RC that is unreasonable while enforcing the balance of the covenant.

(ii) In this case, the words “no less than” are clearly severable and are not part of the main purport of the RC. The words are trivial and cannot be construed as extending the effect of the RC beyond five years. They are simply excess verbiage that serve no purpose. Accordingly, to the extent that they create any ambiguity, the words “no less than” should be severed from the RC using blue pencil severance.

PAL

[105] PAL submits that if I find the RC to be ambiguous with respect to the temporal issue, I should not utilize blue pencil severance. PAL’s submissions include the following:

(i) Blue pencil severance is only permissible where the part being removed is trivial and not part of the main purport of the provision.

(ii) Provisions relating to the “duration of a restriction … are part of the main purport of the clause” and cannot be severed.[^26] The words “no less than” relate to the duration of the RC. Therefore, these words cannot be severed.

(iii) The Supreme Court of Canada held that blue pencil severance is only appropriate where the parties would have “unquestionably” agreed to remove the impugned term.[^27] Where there is no evidence of such mutual agreement, the clause cannot be severed.

Analysis

[106] In this case, I have not found the temporal aspect of the RC to be ambiguous. It is clear and valid and runs for five years. In the event that I am incorrect in that finding, I am prepared to utilize blue pencil severance and sever the words “no less than”. I agree that these words are trivial and excess verbiage that serve no purpose. The five-year term is a part of the main purport of the clause. Removing the words “no less than” does not alter the duration, or main purport, of the RC. As blue pencil severance can be used more liberally in commercial cases than in other contexts, I find it is permissible to sever the words “no less than” and enforce the remainder of the RC.

[107] With respect to PAL’s position that there was no mutual agreement about the clause, I have already found that PAL’s failure to read the clause is its problem and not HL’s. PAL cannot complain that there was no mutual agreement because it did not read the contract. Here,there was no meeting of the minds with respect to the length of the time period of the RC. PAL did not even agree to the RC itself, let alone the period of time of its application. If PAL had been asked to agree to delete the words “no less than”, it would have undoubtedly demanded that the full RC be deleted or at least limited to the Arctic flights

[108] This is however a commercial case, and, as discussed above, I prefer the line of cases that hold a party responsible for the consequences of its failure to read a commercial contract that it signs. Cassel candidly admitted that he did not read the CTA, including the RC, and that he had access to a contracts expert and/or lawyer. Mitchell testified that, had he been contacted by PAL regarding the CTA, he would have been prepared to undergo negotiations. He was not contacted and had no knowledge that PAL had not read the CTA until he contacted Cranford in April of 2015.

iii. Is the geographic scope of the RC reasonable?

Law

[109] Both non‑solicitation and non‑competition clauses are RCs. The RC in this CTA is labelled “Limitation on Use of Confidential Information, Non‑Solicitation and Non‑Circumvention”.

[110] The less strict a RC, the less strict the requirement that it be geographically limited. For instance, the geographic scope of a strict non-competition clause is typically limited to the area in which the beneficiary of the clause conducts business. In contrast, a non-solicitation clause does not necessarily need a territorial limit, because the object of such a clause is narrower than a non-competition clause.[^28]

[111] That said, the Supreme Court of Canada has acknowledged that the geographic scope of a non-competition clause may reasonably be expanded in the context of a “mobile” crane rental business whose activities depend on the location of construction sites, rather than the location of the business.[^29]Additionally, a RC that extends beyond the actual operating area of a company can be upheld where there is a reasonable expectation between the parties that the business will expand.[^30]

[112] By contrast, in Semiconductor Insights Inc. v. Kurjanowicz, the court held that it would be very difficult to draft a valid non‑competition clause for employees of a consulting business with a global customer base which dealt in rapidly changing technologies and markets.[^31]

The Parties’ Positions

[113] HL’s submission is that the geographic scope of the RC is reasonable. HL’s submissions include the following:

(i) The RC is reasonable even though it is not expressly limited geographically. In practice, it is limited to places CCG flies and PAL services, which is a relatively narrow and well-defined territory. The lack of explicit geographic limitation is reasonable and appropriate in light of the minimally intrusive nature of the RC and the parties' business.

(ii) Even under the more onerous test applicable to RCs, it is reasonable that the RC does not contain an explicit geographic limitation. The Supreme Court of Canada has specifically acknowledged that the geographic scope of a non-competition clause may reasonably be expanded in the context of a “mobile” crane rental business whose activities depend on the location of construction sites, rather than the location of the business.[^32] That logic applies with even greater force in this case.

(iii) While PAL and HL provide different services, they are both engaged in the air travel industry. The business depends more on where the appropriate aircraft are located and can fly, than on the physical location of the businesses.In these circumstances, it is reasonable that the RC is not explicitly limited geographically.

(iv) HL is a global business that operates around the world. The geographic scope of the RC is far narrower than the area in which HL conducts business because of the limited geographic range in which PAL flies. RC’s are typically defined by the geography in which the covenantor has operated historically – for example, the vendor of a business would be barred from competing in the territory of the business it is selling. In this case, the RC is properly limited to the area in which HL operates.

PAL

[114] PAL’s submission is that the geographic scope of the RC is not reasonable. PAL’s submissions include the following:

(i) The RC is silent on its geographical scope. It is ambiguous as to whether it applies to charters for CCG in all of Canada, or to CCG charters for ships operating in the Arctic and/or the Atlantic Region;

(ii) This ambiguity cannot be resolved by reference to the factual matrix. In correspondence regarding the 2014 RFP, Cranford referred to Mitchell’s ability to secure “a number of coast guard changes in the north.” The documentary evidence in this matter contains a variety of references to CCG Arctic Region, Arctic Travel Services and CCG Atlantic Region. The amended statement of claim does not specify any particular operating region, which would imply all of Canada. This shows that the geographical scope of the RC is unclear, therefore making it ambiguous and unenforceable.

Analysis

[115] This RC is reasonable even though it does not expressly set out geographical limitations. It is limited to the places where HL flies and PAL services. It is minimally intrusive.

[116] HL is based in Toronto and PAL in St. John’s. These locations do not matter in assessing whether the geographical scope of the CTA is reasonable.

[117] Although both PAL and HL provide different services, they are both engaged in the air travel industry. The business of air travel necessarily implies different, distant sites. As in Guay Inc. v. Payette, the activities of this type of company depend more on where its customers need flights to, rather than where HL or PAL’s head offices are located.[^33] The RC operates only with respect to flights for CCG. This means that the relevant sites are where the appropriate aircraft and CCG flight destinations are located. Although they may be geographically far apart, there are relatively few destinations or charters for which PAL could provide CCG flights. Practically, the territorial limits of the RC are relatively narrow and well-defined.

iv. Is the RC contrary to public policy/interest?

Law

[118] A RC is valid and enforceable only if it is both (a) reasonable to the parties and (b) reasonable in light of the public interest.[^34]

[119] Canadian courts have long recognized that there is an important public interest in maintaining free and open competition and that contractual RCs that merely limit competition and restrain trade should be discouraged.[^35]

[120] The public interest in this context is not restricted to economic and social effects which have acquired the status of legal dogma.[^36] Numerous factors are relevant to this assessment, including the scope of the restrictions in time, geography, and market[^37] as well as the degree of competition in the relevant market. Courts should also consider the general public interest in competitive markets.

[121] A RC in a highly concentrated market is more likely to conflict with the public interest in maintaining competitive market.[^38] For instance, in Rogers Communications Inc. v. Shaw Communications Inc., where a non-competition clause had the effect of not simply restricting competition but eliminating it, the court found that “Shaw has a good case that the non-competition covenants are contrary to the public interest.”[^39]

[122] In contrast, in Elsley v. J.G. Collins, the Supreme Court found that since there were 20-22 general insurance agents in Niagara Falls employing 80-90 employees, “there was nothing to suggest that the People of Niagara Falls would suffer through the loss, for a limited period, of the services of Elsley in the general insurance business.”[^40]

The Parties’ Positions

[123] HL’s submission is that the RC is not contrary to public policy/interest. Its submissions include the following:

(i) The RC does not limit competition. PAL, in co‑operation with HL, as its exclusive broker for CCG, can still submit proposals to CCG. PAL is not even prohibited from working with Beaver for CCG flights. It simply has to engage with Beaver through HL. The result is no different from that of other exclusive broker or exclusive distributor agreements. The RC affects only approximately 1% of PAL’s business.

PAL

[124] PAL’s submission is that the RC is contrary to public policy/interest. Its submissions include the following:

(i) Mitchell alleges that the RC by its terms prohibits PAL from submitting tenders directly to the federal government in response to public RFPs for CCG charters in any region in Canada or from performing charters obtained from call‑ups under PAL’s NMSO or under the FARSO and the SARRFP.

(ii) Mitchell also wants to require PAL to submit a price quote to HL in response to any new RFPs for CCG charters in any region of Canada. HL would then add its own profit markup to the tender bid, either:

(a) increasing the cost of the charter to the federal government if the tender is accepted; or

(b) causing the tender to be uncompetitive if it is not the lowest quote.

Such a result prevents free and open competition and is against the public interest.

(iii) Mitchell wants to require PAL to refer any call‑up under PAL’s NMSO for a CCG charter in any region or under the FARSO or SARRFP to HL. It is not clear what the result of this process would be or how HL would obtain any benefit. Under the standing offers, the federal government is entitled to obtain the charters at the previously agreed standing offer quoted prices from PAL and Beaver respectively – and Beaver is entitled to obtain the charters from PAL under the FARSO at the previously agreed quoted prices.

Analysis

[125] In applying the above law, the RC is not contrary to public policy/interest. Under the RC, PAL can still submit bids to CCG and is not prohibited from working with Beaver. PAL simply has to include HL in the process. I agree that this is a form of an exclusive distributorship agreement. The work HL will obtain only affects approximately 1% of PAL’s business.

[126] Unlike in Rogers Communications Inc. v. Shaw Communications Inc., the RC does not eliminate competition. In no way is this RC a prohibition against general competition. Although the RC by its terms prohibits PAL from submitting tenders directly to the federal government in response to public RFPs for CCG charters in any region in Canada, or from performing charters obtained from call‑ups under PAL’s NMSO or under the Standing Offers for the Atlantic Region, PAL can still submit tenders through Beaver or HL. In addition, Beaver continues to provide competition to HL in CCG charter market. Beaver had secured the FARSO long before HL was involved with PAL and Beaver obtained the SARRFP as a result of PAL’s “shenanigans” (and at no fault of Beaver).

v. Does the provision protect a legitimate proprietary interest?

Law

[127] The Supreme Court of Canada has held that a RC will be found to be unreasonable if it does not protect a legitimate proprietary interest.[^41] The existence of a legitimate proprietary interest will be scrutinized to the same degree in both the commercial and the employment context.[^42]

[128] Courts have found that goodwill, trade secrets, customer names, methods of operation and trade connections all constitute legitimate interests that justify RCs.[^43]

[129] In the context of a RC in favour of a broker in the trucking industry, the Alberta Court of Queen’s Bench held that the broker had a legitimate interest in its pricing structure and customer list even though those things “may not be extremely valuable” to the counterparty to the RC. The court also noted that the legitimate interest may be prospective, and that “RCs can be written with the foresight that [the counterparty] will develop associations with customers and become privy to confidential information that will require protection.”[^44]

[130] In IBM Canada Ltd. v. Almond, the defendant left IBM to work for a competitor, and then solicited IBM’s client, Alberta Health, in response to a public RFP. While IBM’s application for an interim injunction was dismissed, the Alberta Court of Queen’s Bench held that “the fact [that] the client in question is Alberta Health, a government agency, and that the contract in question is the subject of a public RFP, do not negate IBM’s legitimate proprietary interest – its relationship with Alberta Health.”[^45]The injunction was instead dismissed on the basis that IBM had not established a strong prima facie case that the defendant had breached the non-solicitation clause in question.

[131] On the other hand, the desire to eliminate or control competition does not constitute a valid proprietary interest. The Supreme Court of Canada has consistently held that the analysis must be anchored around a legitimate interest of the promisee, not simply the desire to avoid having another competitor in the market.[^46]

[132] A proprietary interest may not exist where the parties “share many of the same customers in the global market-place”, and neither party has “trade secrets or customer lists.”[^47]

[133] A proprietary interest may not exist where a party does not have “long term loyalty” of clients. For example, in Premore Advantage Realty Ltd. v. Oliveira, the Ontario Superior Court found that a non-competition clause was unenforceable because the plaintiff had no long‑term relationship with the clients on the “list of names” over which the plaintiff claimed a proprietary interest:[^48]

Unlike those cases in which a proprietary interest was found to exist in names, here there is no long term loyalty of clients; clients are free to consult with other agencies simultaneously until they enter into a listing agreement; not all of the names contained in the Premore list had actually entered into a transaction with Premore as agent; and, those that had, could not be described as regular clients.

The Parties’ Positions

[134] HL’s submission is that it has a legitimate proprietary interest in safeguarding its relationship with CCG and building a relationship with PAL. HL’s submissions include the following:

(i) HL’s success depends on a strong network of relationships with both airlines and its clients. HL commits a significant amount of time and resources to establishing and maintaining its trade connections, client relationships and goodwill.

(ii) HL is always vulnerable to air carriers replicating the flight model that HL creates for its clients, and cutting HL out of future business. It is for this reason that HL has always included a RC in its contracts with air carriers that prevents them from circumventing HL in the future. The RC goes no further than necessary to protect HL’s trade connection by ensuring that it cannot be cut out of the relationship with CCG.

(iii) HL has a legitimate interest in its goodwill; its method of operations; its logistical expertise; and its trade connections with CCG – including specifically its ability to win RFPs for CCG flights in the Arctic and elsewhere. HL’s legitimate interest is evidenced most clearly by HL’s ability to secure both the 2014 RFP and (had PAL honoured its quote) the 2015 RFP (both of which were won despite the fact that the bid was non-compliant). This expertise manifested itself in at least three ways:

(a) as a result of its trade connections with CCG, HL knew about the 2014 RFP nearly two weeks before it was released to the public;

(b) HL and, by extension, PAL were only able to secure the 2014 RFP by leveraging HL’s goodwill and trade connections with CCG. In particular, PAL did not have a plane that was capable of satisfying the initial requirements of the 2014 RFP. Mitchell approached one of his contacts at CCG (Howell) to request an amendment in order to make PAL’s Dash B‑100 plane compliant, thereby relying on HL’s goodwill and trade connections with CCG. PAL had never before won a bid to fly into Nunavut. With respect to the 2015 RFP, HL was able to secure the tender even without an amendment to the RFP, and with PAL intentionally providing HL with a non-compliant quote;

(c) HL was able to successfully perform the 2014 RFP by drawing on its knowledge of air charters to Canada’s north; its relationships with various vendors; its troubleshooting expertise; and its relationships throughout the industry. HL created a model that was of value and that was susceptible to appropriation by PAL or Beaver. HL arranged for repair of PAL’s plane in Nunavut when it was punctured by a forklift. Cranford acknowledged that “getting experience doing those flights [to the Arctic] would be advantageous for PAL”, presumably because that experience would make it more likely that PAL could obtain the work in the future (with or without HL).

(iv) PAL could have bid on the 2014 RFP itself or given quotes to the other brokers but chose not to do so. The fact that HL could help PAL fly to the Arctic for the first time, and that PAL could potentially develop relationships with other HL clients were specific proprietary interests that HL brought to its relationship with PAL.

(v) The RC is tailored to protecting only HL’s legitimate interests because it affects only a very limited amount of activity. It does not prohibit PAL from providing air charter services to anyone, including CCG, Beaver or other brokers. Instead, the RC merely provides that PAL must work with HL for future charter services involving CCG for a period of five years. PAL can continue to provide air charter services to the other 99% of its business that does not involve CCG. The RC places no limits whatsoever on PAL’s ability to use different brokers, or no broker at all, with clients other than CCG.

(vi) Cassell acknowledged that if PAL had provided a quote to HL for the SARRFP, PAL’s revenue and costs would have been identical if HL instead of Beaver had won that standing offer. PAL’s bottom line profit would have been the same.

(vii) PAL’s submission that it should only have to give HL exclusivity on CCG flights to the Arctic would have been a lopsided bargain in favour of PAL. HL was bringing a type of flight that PAL had never been able to perform. HL did not know about PAL’s pre‑existing relationship with CCG, but in hindsight with the benefit of that knowledge, it was entirely reasonable for HL to demand to participate in PAL’s existing CCG business in exchange for opening up an entirely new source of business (flights into the Arctic) with that customer.

(viii) PAL submits that no one can have any good will or trade connections with CCG that would be entitled to the legal protection resulting from a RC because CCG awards contracts through a public RFP process. That assertion, however, is wrong as a matter of law in view of IBM Canada Ltd. v. Almond set out above.[^49]

(ix) While PAL claims that HL had no good will or trade connections worthy of protection, the evidence is to the contrary. PAL has never been able to win a bid for a crew change in Nunavut before or after HL did so – twice. HL need not prove some kind of unique business model akin to intellectual property. It just needs to show that it brought something to the table that PAL lacked, and it has done so. Cassell acknowledged that Mitchell’s “strong contacts at the Coast Guard” enabled him to obtain the amendment to the 2014 RFP that allowed HL to win that RFP.

PAL

[135] PAL’s submission is that HL has no legitimate proprietary interest entitled to protection. Its submissions include the following:

(i) HL has not been able to describe any legitimate proprietary interest in CCG as a customer worthy of protection by such a RC. HL has put forward the following descriptions of alleged proprietary interests:

(a) When describing the reasons for including the RC, Mitchell stated in his affidavit: “This provision fosters long-term relationships, and ensures that airlines cannot copy a business model that HL has created, work directly with HLs’ clients, and cut us out of the relationship”;

(b) In his examination in chief, Mitchell reconfirmed his interest in “long-term relationships” and the protection of not being “cut out of a deal” but added the importance of maintaining “the single channel of communication”;

(c) In HL’s closing submissions, Mitchell abandoned long-term relationships and being cut out of a deal as examples of legitimate proprietary interests and introduced “goodwill, its method of operations, its logistical expertise, and its trade connections with CCG - including specifically its ability to win RFPs for CCG flights in the Arctic and elsewhere”;

(d) In his “assisted” email of May 13, 2015, Mitchell alleged that CCG was his customer and that he “brought” it to PAL. This allegation has not since been put forward as a reason for the RC.

(ii) None of these descriptions constitute legitimate proprietary interests. A desire to acquire more customers, a wish not to be “cut out of a deal” and attempts to force a long-term relationship with PAL (where none existed) do not constitute legitimate proprietary interests. Rather, these are all blatant attempts to eliminate competition, which cannot be proprietary interests worthy of protection.

(iii) Mitchell’s business model does not constitute a legitimate proprietary interest in CCG. It was shown in cross examination that this “business model” is nothing more than business “puffery” whereby Mitchell claims that he performs the functions of a broker better than other brokers.

(iv) Neither Mitchell nor anyone else could have any good will or trade connections with CCG that would be entitled to legal protection by a RC. Contracts for charters for CCG, as with all departments of the federal government, are obtained through public RFP’s or public standing offers which are awarded to the lowest qualified bidder - they are not awarded to someone who has a friend working for CCG. Furthermore, Mitchell did not have a pre-existing loyal relationship with CCG at the time the CTA was executed.

(v) PAL has performed about 150 charters directly for CCG in the Atlantic Region from 1995-2013 and over 100 more such charters through Beaver from 2000-2013. Mitchell admitted that PAL had a longstanding previous relationship with CCG before he approached PAL for a quote for the 2014 RFP. Mitchell did not bring CCG, operating in the Atlantic Region, to PAL. Rather, what Mitchell “brought” to PAL was a request for a quote to enable HL to submit a tender on a public RFP in 2014 for a single charter for CCG in the Arctic Region.

(vi) HL had not performed any charters for CCG in the Arctic or Atlantic Regions prior to the 2014 RFP: According to the PSPC website, www.buyandsell.gc.ca (which provides access to all federal government tenders), HL did not perform any charters for CCG in either the Arctic or the Atlantic Region prior to the 2014 RFP. HL had won, but not flown, charters for CCG in the Western and Arctic Regions before it approached PAL for a quote for the 2014 RFP. Thus, as in Premore Advantage Realty Ltd. v. Oliveira, HL had no proprietary interest in CCG in any region, because CCG was not a regular or loyal client.[^50]

(vii) Mitchell has no trade connections, confidential information or trade secrets with CCG. Mitchell attempts to elevate the inside information he received with regard to the 2014 RFP to the status of a trade connection. To do so would contravene the policy of the federal government. The government is not allowed to give brokers confidential information or trade secrets that would favour them in a bid because the government must assure transparency and fairness in public tenders. The government awards contracts for CCG’s air charter services to any qualified bidder who submits the lowest tender in response to a public RFP or to a request for a standing offer. The improper obtaining of inside information is not a legitimate proprietary interest worthy of protection by such a RC.

Analysis

[136] HL has a legitimate proprietary interest in its relationship with CCG that needs to be protected.

[137] I accept Mitchell’s evidence that he had worked with CCG on many occasions in his roles with Skylink and Skyservice. He decided to approach PAL for a quote for the 2014 RFP because, based on what he knew about CCG, he believed that PAL would be able to make a good offer for the flight.

[138] HL has goodwill, methods of operation and trade connections that are legitimate interests that justify the RC.

[139] HL clearly has a strong network of relationships with airlines and its clients. It is clear that Mitchell commits a significant amount of time and resources to establishing and maintaining its connections, relationships and goodwill with HL’s clients. He continued to maintain that position even at trial. I agree that HL created a “model” that was of value. HL’s strong network manifested itself in many ways. One example was when HL was able to arrange for the repair of PAL’s plane in Nunavut.

[140] These relationships are also evidenced by the fact that Mitchell knew about the 2014 RFP before it went public. There is nothing wrong, or unusual in the context of the business, with Mitchell having that knowledge. In fact, in various PAL emails Mitchell was described as a “potential Gerry Beaver” as a result of having that information. This shows that inside connections to CCG were a common, valuable part of the role of a broker in the air charter industry.

[141] I agree that HL’s legitimate interest and the goodwill it had with CCG is evidenced by its ability to secure both the 2014 RFP and, had PAL honoured its quote, the 2015 RFP even with non‑compliant airplanes. HL leveraged its connection with Howell to make this happen. I agree that PAL certainly thought that HL had a legitimate proprietary interest when it decided to work with HL for the 2014 RFP, despite the fact that it could have bid on the RFP directly or worked with one of the other brokers it received requests for quotes from. Cranford acknowledged in her testimony that HL’s experience with providing Arctic Region crew/cargo change flights was advantageous to PAL in securing the 2014 RFP.

[142] HL could also have a prospective legitimate interest in its relationship with PAL. Mitchell intended to develop a relationship with PAL that could potentially develop further business with CCG for both of them.

[143] Given these legitimate interests which the RC protects, the RC is not merely an attempt to eliminate competition. Furthermore, it does not prevent PAL from securing work from CCG. The RC only ensures that PAL will include HL in such work. The RC does no more than protect HL’s legitimate interests in continuing a relationship with PAL and maintaining its special trade connection and relationship with CCG.

Conclusion

[144] The RC is valid and enforceable. It is clear from the surrounding factual matrix that the clause was intended to protect HL’s relationship and connections with CCG – no other “customer” or “client”. The RC is also appropriate in temporal and geographic scope given the context of the business activities of an air charter company. Further, the RC does not violate the public interest by unduly restricting competition and free trade. Finally, the RC protects HL’s legitimate interest in its special relationship and connections with CCG.

IV. Is rectification available?

[145] PAL claims that it had an oral agreement with HL that did not include a RC, and that HL knew that PAL was making a mistake in agreeing to the RC. PAL seeks to have the agreement rectified to remove the RC.

Law

[146] Rectification is an equitable remedy that can be used to correct mistakes parties have made in recording their contractual intention.

[147] The rationale for the remedy of rectification in the context of unilateral mistake is that no one should be allowed “to take unfair advantage of another’s mistake.”[^51] In accordance with this purpose, the Supreme Court of Canada recently confirmed that rectification “should not be circumscribed by anomalous or artificial rules, but should be applied where appropriate in order to give better effect to equitable doctrines.”[^52]

[148] Rectification must be used with great caution. The Supreme Court of Canada has repeatedly stressed that a relaxed approach to rectification must not be used as a substitute for due diligence at the time that a document is signed. A casual approach to rectifying documents will undermine confidence in written contracts.[^53]

[149] In order to succeed on a claim for rectification as a result of unilateral mistake a party must prove:

(i) the existence and content of a “definite and ascertainable” prior agreement whose terms were not written down properly;

(ii) that the defendant either knew or ought to have known of the mistake in reducing the prior terms to writing; and that permitting the defendant to take advantage of the mistake would amount to fraud or the equivalent of fraud; and

(iii) the “precise form” in which the written instrument can be made to express the prior intention.[^54]

[150] The party seeking rectification has the onus of establishing all three branches with convincing proof, or “evidence exhibiting a high degree of clarity, persuasiveness and cogency.”[^55]

[151] Rectification requires the existence of a prior agreement with definite and ascertainable terms. The onus is on the party seeking rectification to establish that the terms previously agreed to were not recorded properly.[^56]

[152] Rectification is available where the plaintiff “knows or ought to know of the mistake” and where it would be “fraud or the equivalent of fraud” to allow the plaintiff to benefit from the mistake.[^57]

[153] In Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., Binnie J. cited McLachlin C.J.S.C. (as she then was) in First City Capital Ltd. v. British Columbia Building Corp. on the meaning of “fraud or the equivalent of fraud”[^58]:

In this context ‘fraud or the equivalent of fraud refers not to the tort of deceit or strict fraud in the legal sense, but rather to the broader category of equitable or constructive fraud. … Fraud in this wider sense refers to transactions falling short of deceit but where the Court of in the opinion that it is unconscientious for a person to avail himself of the advantage obtained.

Binnie J. added that “Fraud in the ‘wider sense’ of a ground for equitable relief ‘is so infinite in its varieties that Courts have not attempted to define it’ but ‘all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken’: Master University v. Wilchar Construction Ltd. (1971), 22 D.L.R. (3d) 9 (Ont. H.C.).”[^59]

[154] The party seeking rectification must prove the precise form in which the written agreement can be made to express the parties' alleged prior intention. The court must not “speculate about the parties' unexpressed intention, or impose what in hindsight seems to be a sensible arrangement that the parties might have made but did not.”[^60]

[155] Rectification is an equitable remedy and a court can consider additional factors when determining whether to grant rectification. Although a party's failure to read an agreement before signing it is not an absolute bar to a claim for rectification, it is clearly a relevant consideration militating against the exercise of the court's equitable jurisdiction to grant such relief.[^61]

[156] In 978011 Ontario Ltd. v. Cornell Engineering Co., the plaintiff's representative who signed a contract admitted that he did not read the contract before he signed it. The plaintiff argued that the defendant had an obligation to draw the impugned provision to the plaintiff's attention. The Ontario Court of Appeal held that the defendant had no such obligation and that parties are not entitled to expect that a party on the other side of a contract will look out for their interests. According to the Court of Appeal:

We have a judicial system that emphasizes individual responsibility and self-reliance. Generally, parties negotiating a contract expect that each will act entirely in the party's own interests… In keeping with the principle of self-reliance imposed by law on each party to a contract, the failure to read a contract before signing it is not a legally acceptable basis for refusing to abide by it. Nor is the fact that the clause was not subject to negotiations sufficient in itself.[^62]

The Parties’ Positions

[157] HL’s submission is that rectification is not available. HL’s submissions include the following:

(i) PAL is asking this court to use a relaxed approach to rectification as a substitute for due diligence which it did not exercise.

(ii) PAL fails on all branches of the test set out in Sylvan Lake. Equitable considerations also militate against granting rectification.

(A) There was no prior oral agreement

(i) Rectification requires the existence of a prior oral agreement with definite and ascertainable terms. The onus is on the party seeking rectification to establish that the terms previously agreed to were not recorded properly.

(ii) In this case, there was no prior agreement between HL and PAL with respect to the 2014 RFP. Prior to executing the CTA, Cranford had provided a quote to Mitchell for the 2014 RFP and had discussed the details of the proposed charter. Cassell acknowledged that there was no binding agreement to provide charter flights when PAL had provided a quote, even when PAL knew the details necessary to provide a charter flight. PAL could have walked away from the quote it provided to HL for the 2014 RFP even after Mitchell informed PAL that HL’s bid was successful. Cassell acknowledged that there is no binding agreement to provide a flight when a broker submits a bid. This was made apparent when PAL actually walked away after providing a quote for the 2015 RFP, not only after the bid was submitted by HL, but after it was awarded by CCG to HL.

(iii) The RC is an integral part of HL’s contracts with all the air carriers it works with. Accordingly, there could have been no prior agreement and no meeting of the minds before the parties agreed on the particular terms of the RC.

(iv) Indeed, in the very same email in which Mitchell advised Cranford that he had won the bid for the 2014 RFP, he also informed Cranford that he would be sending a CTA for signature by PAL. Cranford acknowledged that Mitchell would be sending her a contract for the charter.

(B) HL neither knew nor ought to have known about PAL’s mistake:

(i) PAL alleges that HL “knew or ought to have known” that PAL was making a mistake, because PAL could not have agreed to the RC at the time that it executed the CTA. PAL’s rationale is that it could not have agreed to work with HL on all CCG charters, because it had already agreed to work with Beaver, which held the FARSO at the time. HL submits that this position is fundamentally flawed for four reasons:

(a) The “mistake” that PAL seeks to rectify is Cassell’s “error in judgment” in failing to review the CTA in detail before signing it. The Supreme Court of Canada has explicitly held that rectification may not be used to relieve a party from a “belatedly recognized error of judgment”.[^63]

(b) PAL admitted that it did not, in fact, have an obligation to provide flights to Beaver pursuant to the FARSO. Accordingly, it is not true that PAL could not have agreed to the RC.

(c) Even if PAL had a legal obligation to provide flights to Beaver pursuant to the FARSO, PAL could have continued to do so. The RC simply requires that those flights be provided through HL. Beaver acknowledged: (i) that he had previously attempted to work with HL to secure a flight with Canadian North Inc., another airline with which Mitchell had exclusivity and (ii) he would work with PAL through HL in connection with the standing offers provided that PAL remained the lowest cost provider.

(d) The fact that PAL provided quotes and flights to Beaver for the FARSO was not publicly available information. In the face of vigorous cross‑examination on the point, Mitchell consistently maintained that he was not aware that Beaver held the FARSO at the time that he signed the CTA, let alone that PAL was providing flights under the FARSO. This is consistent with Mitchell’s spontaneous reaction in April 2015, which was to express surprise to Cranford that PAL had been providing charter services to CCG through Beaver.

(ii) There was no reason for HL to believe that PAL was making a mistake. PAL is a sophisticated commercial party. HL reasonably assumed that PAL had carefully read and understood the terms of the CTA before accepting them. The RC was a standard provision in HL’s contracts, which had also been used by Mitchell’s former employer, Skylink. Mitchell believed that it offered mutual benefits to PAL and HL. He had no reason to believe it would be so objectionable to PAL.

(iii) In any event, even if HL “ought to have been aware” that PAL was making a mistake by agreeing to the RC, it did not take advantage of the mistake in a manner that amounts to fraud or the equivalent of fraud. Notably, PAL has not alleged any conduct that amounts to fraud or the equivalent of fraud. The evidence does not support the allegation that HL knew PAL was making a mistake, let alone that it took advantage of that mistake in a manner that amounts to fraud or the equivalent of fraud.

(i) The party seeking rectification must prove the precise form in which the written agreement was made to express the parties' alleged prior intention. The court must not “speculate about the parties' unexpressed intention, or impose what in hindsight seems to be a sensible arrangement that the parties might have made but did not.”[^64]

(ii) PAL claims that the CTA should be rectified by deleting the RC. That RC in one form or another, is, however, an essential term of HL's contracts. Mitchell had consistently raised the issue of exclusivity with Cranford regarding the 2014 RFP, and as a result it should not have surprised PAL to learn that it would be an issue in the CTA. It would be impermissible speculation about the parties’ intentions for a court to deprive HL of the benefit of the RC but to leave all the other obligations intact.

Equitable considerations militate against rectification:

(i) Rectification is an equitable remedy and a court can consider additional factors when determining whether to grant rectification. Although a party's failure to read an agreement before signing it is not an absolute bar to a claim for rectification, it is clearly a relevant consideration militating against the exercise of the court's equitable jurisdiction to grant such relief.[^65]

(ii) PAL repeatedly emphasized in its submissions that Mitchell did not draw the RC to PAL’s attention. As a matter of law, however, HL had no duty to draw PAL's attention to any of the provisions of the CTA. Indeed, PAL has only itself to blame if it failed to notice the RC and such negligence militates against granting rectification. Rectification fails on each branch of the test.

PAL

[158] PAL’s submission is that rectification is available. PAL’s submissions include the following:

(A) There was a prior oral agreement:

(i) PAL does not wish to “re-visit” terms of the CTA, nor does it want to “re-write” the CTA. Rather, PAL seeks to rectify the CTA to reflect only the terms it negotiated with Mitchell. The contract should be rectified to reflect the prior oral agreement between Mitchell and PAL, which did not include the RC.

(ii) There was a prior oral agreement regarding the 2014 RFP that set out the definite and ascertainable terms of the agreement reached between Mitchell and PAL. This agreement enabled Mitchell to submit the tender by HL for the 2014 RFP.

(iii) The evidence demonstrating a prior oral agreement includes the following essential details of the agreement:

(a) the quote provided by PAL was for a Dash 8-100 aircraft, confirmed in writing by Cranford;

(b) as requested by Mitchell, PAL would provide the Dash 8-100 with 29 seats to accommodate the 22 passengers, 50 lbs. of baggage per passenger and up to a maximum of 2,200 lbs. of cargo;

(d) the charter would fly from St. John’s to Iqaluit return;

(e) PAL’s quote was provided to HL for a total of $46,845.00 plus tax on the basis of a one-time return charter; and

(f) all necessary certificates and licenses were valid and sent to Mitchell.

(iv) Mitchell confirmed with Cranford that the tender, containing the above noted essential details of the bid, was submitted to PWGC on July 7, 2014. Mitchell communicated that the bid was successful on July 16, 2014. The terms of the agreement between PAL and HL were as outlined above. The only new information provided after July 7, 2014 was administrative, such as official name, signing authority, address and fax number.

(v) On July 29, 2014, Mitchell sent Cranford the CTA, which was intended to reflect the agreement reached on July 7, 2014, outlined above. The prior agreement did not involve a RC. Mitchell did not request a RC and the parties did not discuss one. PAL’s evidence is that the parties did not discuss any exclusive arrangement other than the previous discussion with regards to the 2014 RFP in June of 2014. Mitchell was only prepared to swear that he “does not recall” whether there were any such discussions about a RC. This convenient lapse of memory demonstrates Mitchell’s lack of credibility and his willingness to shape his evidence to support his narrative. Cranford reviewed the CTA to verify the terms of the prior agreement with regard to the 2014 RFP and was satisfied that it reflected those terms – she did not understand the terms of the RC. She forwarded the CTA to her supervisor, Cassell, who also assumed that the CTA merely captured the terms of the 2014 RFP. After verifying the specific aircraft and flight dates, Cassell signed and returned the CTA without noticing the RC.

(B) HL Knew or Ought to have Known about PAL’s Mistake

(i) It is important to keep in mind that Mitchell is alleging that PAL (by signing the CTA) agreed to not perform charters for CCG anywhere in Canada “for a period of no less than five years.” Mitchell claims that he did not know or ought to have known that PAL made a mistake in signing the CTA with this RC that he surreptitiously inserted. The following evidence shows a “high degree of clarity, persuasiveness and cogency”[^66] to support PAL’s position that Mitchell knew or ought to have known that PAL made a mistake in signing the CTA with the inclusion of the RC:

(a) the evidence shows that there was no discussion of the RC at the time the agreement was formed or when the written CTA was executed;

(b) the essential details of the agreement regarding the 2014 RFP had already been agreed to by both parties three weeks before the delivery of the written CTA;

(c) the purported scope of the RC, as alleged by the HL, is overbroad and entirely disproportionate to the scope of the CTA between the parties – it was for a single return charter to the Arctic Region on September 4, 2014;

(d) Mitchell deliberately did not identify his “customer” in the CTA and now attempts to extend its reach from charters similar to the 2014 RFP to charters for CCG anywhere in Canada; and

(e) Mitchell knew at the time the CTA was signed that all charters for CCG in the Atlantic Region were subject to the exclusive FARSO held by Beaver and that PAL was performing charters for CCG that originated in St. John’s.

(i) PAL must show the “precise form” in which the written CTA can be made to express the prior intention. The court’s equitable jurisdiction is limited to putting into words only that which the parties had agreed to.[^67]

(ii) This is easily done. The evidence demonstrates that PAL and Mitchell had reached agreement, much of which is documented in the email exchanges between Mitchell and Cranford. The CTA related to:

(a) the provision of a return charter for CCG in the Artic;

(b) from St. John’s to Iqaluit on September 4, 2014;

(d) for a quoted price.

(iii) The details of this arrangement are set out in numerous emails between Cranford and Mitchell. Schedules A and B to the CTA accurately reflect these details.

(iv) The CTA can be properly rectified by merely deleting the provision from Article 26A.

Equitable considerations lead to rectification

(i) While the “…standard of proof to be applied to evidence adduced in support of a grant of rectification is…the balance of probabilities” the evidence must exhibit “…a high degree of clarity, persuasiveness and cogency… .”[^68]

(ii) PAL has met this standard. The existence of written documentation and the testimony of Cranford relating to the negotiation of the prior agreement between HL and PAL constitutes “convincing proof” that HL and PAL had a prior oral agreement which was summarized in the July 7, 2014 tender submitted by Mitchell. The overwhelming evidence in this case shows that Mitchell knew that PAL had made a mistake in not noticing the RC that he had surreptitiously inserted in the CTA. The fact that the RC had not been raised by Mitchell or discussed by the parties and the attempt by Mitchell to now allege that the RC extends to a long-standing customer of PAL constitutes convincing proof that it would be unfair for Mitchell to take advantage of his unconscionable conduct.

(iii) Should this court determine that the restrictive covenant is enforceable, it should be limited in application to only charters for crew changes for CCG - Arctic Region.

Analysis

[159] Rectification is not available on these facts for the following reasons.

[160] First, there was no due diligence on the part of PAL in dealing with the CTA provided by HL. Cassell admitted that he did not read the CTA nor did he send it to PAL’s lawyers or contract specialists. This lack of due diligence was Cassells’ error in judgment. The law is clear. Rectification cannot be used to relieve PAL from Cassell’s belatedly recognized error in judgment.

[161] Second, there is no reason to find that the CTA has incorrectly recorded the parties’ antecedent agreement with respect to the 2014 RFP. The RC represents HL’s desire to obtain exclusivity on its first dealing with PAL on the 2014 RFP. Contrary to PAL’s submissions, the RC did not “shut out” Beaver or PAL. Beaver acknowledged that it had previously attempted to work with HL to secure a flight with Canadian North Inc. under which HL had exclusivity. Beaver could have and would have worked with PAL through HL provided PAL remained the lowest cost provider. PAL could continue to provide planes for CCG it just needed to include HL in the deals.

[162] Third, PAL cannot establish that HL knew or ought to have known about the “mistake”. Permitting HL to rely on this CTA including the RC does not amount to fraud or the equivalent of fraud. HL had absolutely no reason to think that PAL would have a problem with the RC, and HL had no obligation to draw PAL’s attention to the RC.

[163] I again emphasize that there is no “gotcha” litigation going on here. Mitchell had no reason to believe that PAL did not read the CTA nor did not agree with it. I accept Mitchell’s evidence that had PAL wanted to negotiate the CTA, he would have done so in good faith. Mitchell testified that the RC was a standard term in HL’s contracts. HL had such an agreement with Canadian North Inc. There was no reason for Mitchell to believe that PAL was making a mistake. In any event there is absolutely no evidence on the part of HL/Mitchell that amounts to fraud or the equivalent. I have already provided my finding that Mitchell did not surreptitiously insert the RC into the CTA.

[164] In making these findings, I stress also that I accept Mitchell’s evidence that he was not aware that Beaver held the FARSO at the time he signed the CTA, let alone that PAL was providing flights under that standing offer. In April of 2015, Mitchell’s surprise to Cranford’s news that PAL had been providing charter services to CCG through Beaver was genuine. Bluntly put, he was “gobsmacked”.

V. Is HL entitled to damages for PAL’s refusal to honour its quote to HL for the 2015 RFP, failure to provide a quote for the SARRFP, and CCG charters PAL provided to Beaver in breach of the CTA?

i. The effect of the exclusion clause (17B)

[165] Section 17B of the CTA is what is commonly known as an “exclusion clause” – a provision in a commercial contract intended to exclude or cap the liability of a party for certain damages. As noted by Professor Waddams, exclusion clauses are common in commercial contracts.[^69] HL submits it is not applicable to its claim and PAL submits it is. This clause is primarily focused on Warsaw situations which govern international carriage. Frankly there is some difficulty with the wording which seems to blur the intention of the CTA. However when read in context with the intention, purpose and the overall factual matrix of the CTA it does not exclude a claim for loss of profits arising from its breach. The analysis is as follows:

[166] Section 17B reads as follows:

Liability. Carrier's liability for services provided under this Agreement is governed by the terms and conditions contained in its applicable tariffs, which are incorporated by reference and made part of this Agreement. Carrier may be subject to the rules and limitations relating to liability and to all other provisions established by the Montreal Protocol No.4 to Amend the Convention for the Unification of Certain Rules Relating to International Carriage by Air, Signed at Warsaw on October 12, 1929, as Amended by the Protocol Done at Hague on 28 September 1955 (the “Montreal Convention”), and by any other treaties, conventions, laws or regulations applicable to such carriage insofar as such carriage is “international carriage” as defined in the Montreal Convention. If the passengers' journey in respect of the air transportation provided hereunder involves an ultimate destination or stop in a country other than the country of departure, Carrier's applicable tariffs and the Montreal Convention shall apply to Carrier's liability as a carrier for death or personal injury and in respect of loss of or damage to baggage. Charterer shall take all such action as shall be necessary to afford Carrier and its respective directors, officers, employees and agents the full benefit of the Montreal Convention, Carrier's tariffs and any other law applicable to carriage by air performed under this Agreement. Except as otherwise provided in the Montreal Convention and Carrier's applicable tariffs, Carrier shall have no liability whatsoever for damage to any baggage or cargo. In no case whatsoever shall Carrier be liable for any consequential or special damages or losses including loss of profit or anticipated profit arising from its performance of or failure to perform the Flights or any of its obligations under this Agreement whether or not Carrier was negligent or has or should have had knowledge that such damage or loss might be sustained.

Law

[167] The Supreme Court of Canada’s decision in Tercon Contractors Ltd. v. British Columbia (Minister of Transportation and Highways) is the leading Canadian authority on exclusion clauses.[^70] It requires a three-step approach to the interpretation of such clauses:

(a) does the exclusion clause apply in the facts as found?

(b) if the clause applies, was the clause unconscionable at the time the parties entered into the agreement?

(c) if the exclusion clause applies and was not unconscionable, should the court, for policy reasons which are sufficiently strong to outweigh the public interest in the enforcement of contracts, decline to enforce the contract?

[168] In Tercon, Binnie J., dissenting but not on this point, noted that “policy reasons” in the context of the third question might include “conduct approaching serious criminality or egregious fraud.”[^71]

[169] The majority in Tercon set out the principles for interpreting an exclusionary clause at para. 64:

The key principle of contractual interpretation here is that the words of one provision must not be read in isolation but should be considered in harmony with the rest of the contract and in light of its purposes and commercial context. The approach adopted by the court in M.J.B. is instructive. The court had to interpret a privilege clause, which is somewhat analogous to the exclusion clause in issue here… In interpreting the privilege clause, the court looked at its text in light of the contract as a whole, its purposes and commercial context.

[170] In Chuang v. Toyota Canada Inc., the Court of Appeal considered an exclusion clause: “In the event of the termination of this LOC … Lexus … shall not be liable for any losses, damages and/or expenses of any kind whatsoever, suffered or incurred by you directly or indirectly … .”[^72] The court found that this “broadly written” clause reflected the parties’ allocation of risk in the contract.[^73] It upheld the conclusion of the trial judge that the exclusion clause protected Toyota from any obligation to pay damages or losses caused to Chuang by the termination of the agreement. It also dismissed Chuang’s argument that the clear meaning of the clause should be altered based on surrounding language in the contract.[^74]

The Parties’ Positions

[171] HL’s position with respect to section 17B is as follows:

(i) HL’s claim for damages is not precluded by section 17B of the CTA. Section 17B relates to PAL's liability in respect of personal injury to passengers and damage to baggage and cargo.

(ii) In its submissions at paragraph 166, PAL has underlined the last sentence of section 17B. It is not so underlined in the CTA. PAL quotes the underlined text divorced from the rest of 17B to argue that HL is not entitled to any damages for PAL's breach of 17B. That argument, however, violates a fundamental principle of contractual interpretation.

(iii) The expansive interpretation of the underlined portion would mean that the provision is deprived of all effect, as are all of PAL's obligations under the CTA. Such an interpretation cannot be correct. It would effectively deprive the provision – and, in fact the CTA – of all meaning.

(iv) Instead, in order to interpret the CTA as a whole in a manner that gives effect to all of its provisions, the underlined portion must be interpreted in its proper context. The only rational interpretation of the underlined portion is to limit its operation to the provision in which it is located. This is also consistent with the first sentence of section 17B, which provides that it applies “for services provided under this agreement.”

(v) It is clear from the context and the factual matrix that section 17B was intended to limit only liability for services provided by PAL under the CTA in respect of personal injury to passengers or damage to baggage and cargo. In particular, 17B deals with both airlines’ tariffs, and the “Montreal Convention”, both of which deal with rights and obligations as between an airline and its passengers, and the obligations of an airline towards cargo and baggage. They do not apply to an airline’s obligation to third parties, such as brokers. The underlined portion in 17B should be interpreted the same way.

(vi) In paragraph 175 of its closing submissions, PAL takes the position that section 17B of the CTA does not obviate all of PAL’s obligations under the CTA because it only excludes “consequential” damages. In support of that position, PAL cites an academic text that draws a distinction between direct damages and indirect damages, with “consequential” damages being examples of the latter. In other words, PAL’s position is that section 17B does not preclude claims for direct damages (or “actual damages”), but it does preclude claims for indirect damages.

(vii) The common law damages claimed by HL in this action are direct (or “actual”) damages. They flow naturally and directly from PAL’s breach of the RC. Section 17B simply does not apply to those damages. Although 17B refers to “loss of profits”, it only precludes recovery for loss of profits if the loss of profits are consequential or special damages. Given that section 17B is concerned with personal injury or damage to baggage, those would be the direct damages under that section, while loss of profit would be indirect damages occasioned by the damage to person or property. Section 17B does not preclude a claim for loss of profits where the loss of profits are direct damages (or where they are unrelated to personal injury or damage to cargo or baggage).

(viii) The limit on consequential damages in section 17B is aimed at addressing the classic Hadley v. Baxendale problem that PAL would otherwise be responsible for all foreseeable consequential (or indirect) damages flowing from personal injury or damage to cargo and baggage.[^75] The clause excludes, for example, the consequential (or indirect) damages for loss of profit that a commercial photographer would suffer if the airline lost the camera in the photographer’s luggage on a flight to a commercial photoshoot. The intent is clearly illustrated by the closing words of the provision which provide that PAL shall not be liable for such consequential damages “whether or not Carrier … should have had knowledge that such damage or loss might be sustained.”

(ix) In that regard, the underlined portion is integrally tied to the earlier portions of section 17B that deal with liability for personal injury and damage to baggage and cargo. Indeed, the sentence that immediately precedes it deals with direct damages for personal injury or damage to cargo or baggage, and the underlined portion deals with consequential damages for personal injury or damage to cargo or baggage (including consequential damages for loss of profit resulting from personal injury or damage to cargo or baggage). It does not, as PAL suggests, relate to the separate topic of direct damages caused by breach of the CTA itself.

(x) In any event, PAL’s interpretation of section 17B would certainly have the effect of depriving the provision of all meaning, which is contrary to the requirement to interpret a contract in a manner that gives meaning to all of its terms.[^76]

PAL

[172] PAL’s position with respect to section 17B is as follows:

(i) HL’s damages claim is precluded by section 17B of the CTA. The clause at issue falls under the general heading “Liability”, and contains a broadly worded exclusion of consequential and special damages clause.

(ii) Section 17B is commonly known as an “exclusion clause.” That is, a provision in a commercial contract intended to exclude or cap the liability of a party for certain damages. In this case, it excludes liability for consequential or special damages or losses including loss of profit or anticipated profit. Exclusion clauses are common in commercial contracts.

(iii) Section 17B on its face excludes PAL’s liability for any special, consequential or lost-profit damages “arising from… its failure to perform… any of its obligations under this agreement.” The damages claimed by HL in this case constitute lost profit flowing from PAL’s alleged breach of the provision. HL acknowledges there are no concerns about unconscionability in the formation of this CTA.

(iv) In attempting to avoid the application of section 17B, HL does precisely what it accuses PAL of doing: avoiding a clear contractual term by artificially manufacturing its meaning. The above quoted portion of section 17B does not relate to airline tariffs or the “Montreal Convention.” This is because the tariffs and the “Montreal Convention” concern obligations and liability between the airline and its passengers; it has nothing to do with liability between the charterer and the carrier as defined in the CTA.

(v) The relevant portion of section 17B discusses a new topic, separate and apart from any liability between PAL and its passengers under the Montreal Convention. It concerns the extent to which the carrier, PAL, can be liable for consequential and special damages or loss of profit and anticipated profit for its failure to perform obligations under the CTA. The CTA is with HL, and therefore, the clause relates to PAL’s liability to HL for certain heads of damages.

(vi) There is no principle of contractual interpretation that requires a clearly worded sentence in a contract to import words from the language that precedes it. In fact, Mitchell admitted that it would not make sense to change the meaning of the second part of an article to necessarily only relate to a separate topic discussed in the first section. The last sentence of section 17B does not deal with PAL’s liability for passengers and damage to baggage and cargo. Importing language that would limit this clause would change the meaning of the provision as drafted.

(vii) HL’s position that this interpretation deprives “all of PAL’s obligations under the agreement” of effect is incorrect. Section 17B specifically excludes liability for “consequential or special damages or losses including loss of profit or anticipated profit.” It does not exclude liability for actual damages, which are distinct from consequential or special damages.

(viii) Finally, it should also be remembered that the CTA was drafted by Mitchell, and therefore he inserted section 17B himself.

Analysis

[173] 17B is primarily focused on Warsaw situations which govern international carriage. As set out above, there is some difficulty with the wording which seems to blur the intention of the CTA. When however read in context with the intention, purpose and factual matrix of the CTA, it does not exclude a claim for loss of profits arising from its breach.

[174] PAL’s interpretation of section 17B is flawed and incorrect. It is clear from the context and the factual matrix that section 17B was intended to limit only liability for services provided by PAL under the CTA in respect of personal injury to passengers or damage to baggage and cargo. The content of Section 17B is focussed on airlines’ tariffs and the “Montreal Convention”, both of which deal with the rights and obligations as between an airline and its passengers and the obligations of an airline towards cargo and baggage. The first sentence of 17B provides that the section applies for services provided under the agreement. The section has no bearing on PAL’s rights and obligations to third party brokers.

[175] The common law damages claimed by HL are direct or actual damages – a claim for loss of profits or liquidated damages caused by a breach of the CTA itself.

[176] Section 17B does not preclude HL’s damages claim in this action.

ii. Liquidated Damages

[177] HL claims it is entitled to liquidated damages for PAL's breach of the RC because of section 26B of the CTA (the “liquidated damages clause”), which provides that in the event of a breach of the RC, PAL shall pay HL:

liquidated damages equal to 20% of the charter fees payable under this agreement for each flight that was solicited contrary to this agreement… (the “offending flights”).

Law

[178] The law in Ontario concerning the enforceability of liquidated damages clauses is somewhat unsettled. Traditionally, a liquidated damages clause was enforceable only if it provided for a genuine pre-estimate of damages. Otherwise, it was a penalty clause that was per se unenforceable at common law.[^77]

[179] Courts have, however, moved away from the strict application of that rule. Although the traditional approach has not been formally abolished in Ontario, the Ontario Court of Appeal in in 869163 Ontario Ltd. v. Torrey Springs II Associates Ltd. Partnership ("Peachtree II") “did not leave much doubt” that freedom of contract should generally prevail, and a penalty clause should be enforced unless it is unconscionable. In other words, in order to succeed under the more modern approach, a party seeking to avoid a liquidated damages clause must establish that the clause is unconscionable. The Ontario Court of Appeal in Peachtree II adopted the unconscionability analysis in respect of relief from forfeiture, and suggested strongly, without deciding the issue, that the same analysis should also apply in respect of penalty clauses.[^78] In Birch v. Union of Taxation Employees, Local 70030, the Ontario Court of Appeal subsequently stated that: "While the court in Peachtree II declined to decide the issue of whether a penalty clause in a contract remains per se unenforceable, Sharpe J.A. did not leave much doubt concerning where the courts should head when squarely faced with this issue."[^79]

[180] The unconscionability analysis is grounded in the court’s historical power to grant equitable relief from forfeiture, though Sharpe J.A. called this distinction potentially outdated in Peachtree II. In any case, a liquidated damages clause will be unconscionable where:

(a) there is an inequality of bargaining power and the stronger party has taken undue advantage of that inequality; and

(b) the terms of the agreement are very unfair.[^80]

[181] The common law approach to penalty clauses is different. At common law, a liquidated damages clause is penal where it cannot be regarded as a genuine pre‑estimate of damages and the amount payable bears no relation to the damages actually incurred.[^81]

[182] The court must assess whether the liquidated damages represent a reasonable pre‑estimate of damages at the time of contracting, not with the benefit of hindsight.[^82]

[183] In applying the common law rule, Canadian courts have often relied on one or more of the following presumptions set out by Lord Dunedin in Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co.[^83]:

(a) a clause will held to be a penalty clause if the amount required is extravagant and unconscionable, in comparison with the greatest loss which could conceivably be proved to have followed from a breach;[^84]

(b) it is a penalty clause if the breach consists only in not paying a sum of money, and the sum stipulated is greater than the sum which ought to have been paid;

(c) there is a presumption that a clause is an unenforceable penalty when a single lump sum is payable for compensation when one or several events occur, some of which may cause serious damages but others may cause only trifling damages;[^85]

(d) on the other hand, if the consequences of a breach are impossible or very difficult to quantify ahead of time, then it makes it more likely that the clause is a genuine pre-estimate of damages and not a penalty.

[184] Although courts have continued to rely on these presumptions, and the Court of Appeal has thus far not definitively rejected the common law approach, I reiterate Sharpe J.A.’s dictum in Peachtree II that “courts should, whenever possible, favour analysis on the basis of equitable principles and unconscionability over the strict common law rule pertaining to penalty clauses.”[^86]

The Parties’ Positions

[185] HL’s position with respect to liquidated damages is as follows:

(i) The liquidated damages clause is enforceable as it is neither unconscionable nor penal. It is a genuine pre‑estimation of damages. PAL acknowledged that it is very difficult to pre‑estimate profit on flights for CCG.

(ii) A liquidated damages clause will be unconscionable where:

(a) there is an inequality of bargaining power and the stronger party has taken undue advantage of that inequality; and

(b) the terms of the agreement are very unfair.

Neither requirement is satisfied in this case.

(iii) There is no inequality of bargaining power in favour of HL. Both PAL and HL are sophisticated, arms-length, commercial parties. If anything, as a subsidiary of a major global aerospace conglomerate and with 500 employees, PAL has substantially more bargaining power than HL. Its favourable fleet positioning in St. John’s made PAL almost essential to winning any CCG work out of that airport. HL, by contrast, was at the time of the events in question a two-year old company run solely by its founder, Mitchell. Any inequality of bargaining power was in favour of PAL. As the test for unconscionability is conjunctive, this should be the end of the analysis. There can be no unconscionability and the liquidated damages clause must be enforced.

(iv) Mitchell’s evidence is that the liquidated damages clause provides for liquidated damages in the amount of 20% of the charter fees payable under the CTA because 20% is a conservative estimate of the average profit margin he expected to earn on CCG flights, and that he expected that the charter fees payable under the CTA were likely to be representative of future fees.

(v) PAL claims that liquidated damages are unreasonable because they are based on 20 percent of the charter fees for a flight to the Arctic, while most “offending charters” were of lower value (the offending flights are the flights from which HL was cut out, either involving PAL alone or PAL with Beaver). This is entirely hindsight. HL had no way to know at the time of the CTA the nature of offending charters, because it did not know about PAL’s role in the FARSO. As it happens, HL’s CCG flights were for significantly greater value than the flight provided for in the 2014 RFP, averaging charter fees of $144,087.40.

(vi) PAL also claims that the liquidated damages clause should have been tied to the value of “offending charters” rather than the 2014 RFP flight, but HL had no way to determine the value of such “offending charters” without litigation.Relying on the flight that was the subject of the CTA was eminently reasonable in the circumstances.

(vii) In addition, the liquidated damages clause produces a damages figure in the same range as HL’s claim for common law damages for loss of profit. It provides liquidated damages in the amount of $9,369.00 for each “offending charter”.As of the end of February 2018, PAL had provided 108 “offending charters”. Accordingly, liquidated damages totalled $1,011,852.00 as of that date, beyond which no information was offered at this trial.

PAL

[186] PAL’s position with respect to liquidated damages is as follows:

(i) In the event that this court finds that the RC is enforceable and that it extends to charters for CCG in the Atlantic Region, HL is not entitled to liquidated damages.

(ii) Although the law is somewhat unsettled with respect to the enforceability of liquidated damage provisions, recent Ontario decisions have applied the following test: “a clause will be held to be a penalty clause if the amount required is extravagant and unconscionable in comparison with the greatest loss which could conceivably be proved to have followed a breach.”[^87]

(iii) Liquidated damages were not claimed in the original statement of claim issued on July 14, 2015 and were not claimed until November 21, 2017 by way of the first amended statement of claim. In the absence of an explanation for the original omission and subsequent long delay in claiming liquidated damages it could be assumed that HL itself regarded the liquidated damages article as unenforceable.

(iv) Mitchell’s calculation of liquidated damages is not a reasonable pre-estimate of damages which would be incurred by HL for a breach of the RC.

(v) The claim of $9,369.00 (20% of the charter fees for the 2014 RFP) for each “offending charter” is not a reasonable pre-estimate of damages because:

(a) This amount results in a profit margin on the “offending charters” far beyond HL’s purported average profit margin with CCG. HL itself claims in Mitchell’s affidavit sworn March 29, 2018 that its historical average profit margin for CCG charters is 25%. If HL were to be awarded $9,369.00 per “offending charter”, it would be awarded an average percentage profit of 48%.

(b) The majority of the “offending charters” are significantly smaller in scale and less expensive than the 2014 RFP. Therefore a liquidated damages clause that takes a percentage of the charter fees on the 2014 RFP, as opposed to the “offending charters”, creates a disproportionately large damages award and is not a reasonable pre-estimate. For example, $9,369.00 is more than double the entire fees of many Atlantic Region charters. The second charter listed in Mitchell’s damages chart has a gross amount of $4,260.14. Thus, liquidated damages of $9,369.00 would result Mitchell recovering 220% of the charter fees.

(c) The liquidated damages clause is based on the charter fees applicable to the 2014 RFP, not each “offending charter”. Any reasonable liquidated damages clause would need to be based on the fees associated with the “offending charters” – only then could the clause possibly be a reasonable pre-estimate of damages.

Analysis

[187] With regard to PAL’s arguments about HL not making a claim for liquidated damages in an earlier version of the statement of claim, I have already commented above on the fluid nature of litigation and the role of counsel in seeking amendments to claims or defences.

[188] However, awarding liquidated damages is not appropriate under these circumstances.

[189] I agree that the majority of the offending charters are significantly smaller in scale and less expensive than the 2014 RFP. I agree that using the value of that one flight to calculate liquidated damages is not a reasonable pre‑estimate of damages. Any reasonable liquidated damages need to be based on the fees associated with the offending charters.

[190] I find that the claim of $9,369.00 for each “offending charter” is not a genuine pre‑estimation of damages which would be incurred by HL for a breach of the RC. As a result the liquidated damages clause is not enforceable.

iii. Compensatory Damages for Breach of Contract

[191] Although I have found that the liquidated damages clause is not enforceable, HL does have a genuine legitimate claim for breach of contract damages for its loss of profit.

Law

[192] A plaintiff is still entitled to recover provable damages in the event that a liquidated damages clause is unenforceable.[^88] The court in Venture Capital USA Inc. v. Yorkton Securities Inc. gave a helpful summary of the law on damage claims for lost profit:[^89]

(a) a plaintiff seeking to recover damages for a loss of profit has the onus of proving both that it has lost future profits and the quantum of the loss;

(b) damages for economic loss can only be recovered where the loss directly and naturally flows from an alleged wrong in the sense that they are reasonably foreseeable to result from the breach of a contract at the time the contract is made;

(c) damages which are the natural consequence of the defendant's breach of contract and within the reasonable contemplation of the parties are recoverable;

(d) in Sunnyside Greenhouses Ltd. v. Golden West Seeds Ltd.[^90], the Supreme Court of Canada upheld the Alberta Court of Appeal's decision that loss of profit which is the direct and natural consequence of a contractual breach may be claimed only for the period during which the breach is the effective cause of loss;

(e) that damages are difficult to assess or an assessment cannot be made with mathematical accuracy is not a reason for depriving a plaintiff of compensation; and

(f) where a claim for loss of profits is made without there being a proven track record, the claim becomes more speculative.

Common law damages for breach of contract are also dealt with in Infinite Maintenance Systems v. ONC Management.[^91]

The Parties’ Positions

[193] HL’s position with respect to damages is as follows:

(i) This claim results from PAL’s breach of the RC. That breach resulted HL’s loss of (a) $64,636.07 in profit on the offending flights that PAL provided to CCG pursuant to the FARSO, and (b) $1,000,000.25 in profit that HL would have earned as the winner of the SARRFP. HL’s lost profits are summarized in the table below:

Lost Profit from FARSO

Charter Fees for offending flights (a)

$497,200.53

HL Profit Margin (b)

HL Lost Profit (a x b) = (c)

$64,636.07

Lost Profit from SARRFP

Revenue under SARRFP (d)

$4,000,001.00

HL’s Profit Margin (e)

HL’s Lost Profit (d x e) = (f)

$1,000,000.25

Total Lost Profit

HL Total Lost Profits (c + f)

$1,064,636.32

[194] Beaver won the SARRFP after PAL refused to provide HL with a quote. That standing offer had a total value of $4,000,001.00. I accept Mitchell’s evidence that, based on his experience, the profit to the broker would be approximately 25 percent of that amount. This is consistent with HL’s historic profit margin of 25.97% on CCG flights. I note that Mitchell’s evidence regarding the profit margin was not seriously challenged at trial, if at all.

[195] Although I inquired about a reduction in damages for a “loss of chance”, that calculation is not applicable. Whichever bidder had PAL’s offer to fly would have won the flights. The evidence is clear that a quote from PAL was an unbeatable trump card.

[196] Cassell confirmed in his cross-examination that the invoices dated June 30, 2015 and earlier in PAL’s Schedule of Offending Flights were for offending flights provided under the FARSO. Adding up the charter fees payable for those invoices dated June 30, 2015 and earlier gives the amount for charter fees for offending flights: $497,200.53.

[197] Mitchell’s unchallenged evidence is that HL’s historic profit margin on CCG flights is 25.97%. For flights that Pal provided under the FARSO held by Beaver, HL would have to share the profits with Beaver. HL is appropriately claiming half its profit margin with respect to the offending flights provided under that first standing offer.

[198] HL is entitled to damages in the amount of $1,064,636.32 together with prejudgment interest.

VI. Conclusion

[199] In conclusion, I find that the RC in the CTA between PAL and HL is valid and enforceable, being unambiguous in subject matter; appropriately limited in time and geography with regard to the relevant business activities; not contrary to public interest; and tailored to protect a legitimate proprietary interest of HL. In so finding, I have determined that this is not a case of “gotcha” litigation, and that there is nothing improper about the way that HL’s claims were brought. I have found that Mitchell was a credible witness for all the reasons set out above. With regard to damages, I have found that the exclusion clause in section 17B does not preclude HL’s claim. I have also found that the liquidated damages clause does not represent a genuine pre-estimate of the damages, and as a result should not be applied. Finally, I have found that HL is entitled to damages for the profits it lost as a direct result of PAL’s breach of the CTA in the amount of $1,064,636.32 plus prejudgment interest.

[200] If the parties are unable to agree on costs, they can provide written submissions. If that is the case, please agree on a timeframe and advise my assistant Lorie Waltenbury what that timetable is by email at: lorie.waltenbury@ontario.ca. Please note that I will not be reviewing any submissions before mid‑February 2019.

J.E. Ferguson, J.

Date: December 11, 2018

Schedule “A”

People, Corporations and Other Entities

Acronym

Air Transport Association of Canada

ATAC

Ash, Calvin (PAL - Chief Operating Officer)

Ash

Beaver Air Charter Consultants Inc.

Beaver

Beaver, Gerry

G. Beaver

Canadian Coast Guard (also Coast Guard)

CCG / CG

Cassell, Trevor (PAL – Director of Operations)

Cassell

Charter Transportation Agreement

CTA

Cranford, Janet (PAL - Charter Manager)

Cranford

Exclusive Standing Offer

ESO

First Atlantic Region Standing Offer

FARSO

Halliday, Robert (PAL - Corporate Secretary/Director of Contracts and Business Development)

Halliday

Howell, Amanda (a contracting authority to CCG)

Howell

Human Logistics Inc.

Ministry of Fisheries and Ocean

MFO

Mitchell, Aaron (principal HL)

Mitchell

National Master Standing Offer

NMSO

O’Reilly, Mitchell (PAL - Contract Manager)

O’Reilly

PAL Airlines Ltd.

PAL

Public Services and Procurement Canada (website: www.buyandsell.gc.ca)

PSPC

Public Works and Government Services Canada

PWGSC

Request for Proposal

RFP

Restrictive Covenant/s

RC/s

Second Atlantic Region RFP

SARRFP

Skylink Aviation

Skylink

Skyservice Airlines

Skyservice

COURT FILE NO.: CV-15-532383

DATE: 20181211

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Human Logistics Inc.

Plaintiff

– and –

PAL Airlines Ltd.

Defendants

REASONS FOR JUDGMENT

J. E. Ferguson J.

Released: December 11, 2018

[^1]: Alguire v. Manufacturers Life Insurance Co. (c.o.b. Manulife Financial), 2016 ONSC 5295, 58 C.C.L.I. (5th) 92, aff’d 2018 ONCA 202, 140 O.R. (3d) 1. [^2]: Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157 [Shafron v. KRG] at para. 16; see also Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co., [1894] A.C. 535 at p. 565 [Nordenfelt]. [^3]: Shafron v. KRG, supra note 2 at para. 16. [^4]: Guay Inc. v. Payette, 2013 SCC 45, [2013] 3 S.C.R. 95 at paras. 57-58 [Guay Inc. v. Payette]. [^5]: Ibid, at paras. 35-39; Brand Solutions by Promotion Solutions Inc. v. Elsey, 2015 ONSC 2895 at paras. 43-44 [Elsey]. [^6]: Guay Inc. v. Payette, supra note 4 at paras. 61-62, 71. [^7]: Guay Inc. v. Payette, supra note 4 at para. 61. [^8]: Guay Inc. v. Payette, supra note 4 at para. 73. [^9]: Shafron v. KRG, supra note 2 at para. 43. [^10]: Rhebergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97, 24 B.L.R. (5th) 80 at paras. 81 and 84 [Rhebergen]; GlobalCom Solutions Inc. v. Nothstein, 2009 BCSC 908 at paras. 18-21; Procter & Gamble Inc. v. Brushpoint Innovations, 2013 ONSC 5747 at para. 12; Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293, 135 O.R. (3d) 241 at paras. 38-39. [^11]: Shafron v. KRG, supra note 2 at para. 58. [^12]: Ibid, at para. 43. [^13]: R. v. Steele, 2014 SCC 61, [2014] 3 S.C.R. 138 at para. 51. [^14]: Healy v. Gregory (2009), 75 C.C.P.B. 178 (Ont. S.C.J.) at para. 79. [^15]: Guay Inc. v. Payette, supra note 4 at para. 63. [^16]: Ibid, at para. 64. [^17]: Ibid, at para. 63. [^18]: Martin v. ConCreate USL Limited Partnership, 2013 ONCA 72, 359 D.L.R. (4th) 123 at para. 59. See also Rogers & Rogers Inc. v. Pinehurst Woodworking Co. (2005), 2005 45977 (ON SC), 14 B.L.R. (4th) 142 (Ont. S.C.J.), at para. 94. [^19]: Elsey, supra note 5 at paras. 38 and 48; Guay Inc. v. Payette, supra note 4 at paras. 63-64, Rogers Communications Inc. v. Shaw Communications Inc. (2009), 2009 48839 (ON SC), 63 B.L.R. (4th) 102 (Ont. S.C.J.), at para. 41 [Rogers]. [^20]: Guay Inc. v. Payette, supra note 4 at para. 63. [^21]: Shafron v. KRG, supra note 2 at para. 36. [^22]: Veolia ES Industrial Services Inc. v. Brulé, 2012 ONCA 173, [2012] CLLC para. 210-024 at para. 29 [Veolia]. [^23]: Shafron v. KRG, supra note 2 at para. 50. [^24]: GDL Solutions Inc. v. Walker, 2012 ONSC 4378 at paras. 55-57 and 74-79 [GDL Solutions]. See also Shafron v. KRG, supra note 2 at para. 36. [^25]: GDL Solutions, supra note 24 at paras. 75-78. [^26]: Veolia, supra note 22 at para. 29. [^27]: Ibid at para. 21-22; Shafron v. KRG, supra note 2 at para. 50. [^28]: Guay Inc. v. Payette, supra note 4 at paras. 65, 69 and 72-73. [^29]: Guay Inc. v. Payette, supra note 4 at para. 67. [^30]: Tank Lining Corp. v. Dunlop Industries Ltd. (1982), 1982 2023 (ON CA), 40 O.R. (2d) 219 (C.A.), at para. 25 [Tank Lining]. [^31]: Semiconductor Insights Inc. v. Kurjanowicz (1995), 1995 7325 (ON SC), 63 C.P.R. (3d) 532, at para. 28 [Semiconductor Insights]. [^32]: Guay Inc. v. Payette, supra note 4 at para. 67. [^33]: Guay Inc. v. Payette, supra note 4 at para. 67. [^34]: Tank Lining, supra note 30 at para. 13. [^35]: Nordenfelt, supra note 2 at p. 565; Elsley v. J.G. Collins Insurance Agencies Ltd., 1978 7 (SCC), [1978] 2 S.C.R. 916, 83 D.L.R. (3d) 1 at p. 925 [J.G. Collins]; Shafron v. KRG, supra note 2 at paras. 15-16. [^36]: Tank Lining, supra note 30 at para. 45. [^37]: Guay Inc v. Payette, supra note 4 at paras. 61-62. [^38]: Wong v. Cook (1979), 1979 462 (BC SC), 102 D.L.R. (3d) 616 (B.C.S.C.) at para. 10; Baker v. Lintott, 1981 ABCA 243, 141 D.L.R. (3d) 571 at para. 5. [^39]: Rogers, supra note 19 at para. 64. [^40]: J.G. Collins, supra note 35 at p. 929. [^41]: J.G. Collins, supra note 35 at p. 925; Guay Inc. v. Payette, supra note 4 at para. 61; Tank Lining, supra note 30 at p. 224; MEDIchair LP v. DME Medequip Inc., 2016 ONCA 168, 129 O.R. (3d) 161 at para. 38 [MEDIchair]; Maguire v. Northland Drug Co., 1935 35 (SCC), [1935] S.C.R. 412 at para. 10 [Maguire]. [^42]: MEDIchair, supra note 41 at para. 37. [^43]: MEDIchair, supra note 41 at para. 39; J.G. Collins, supra note 35 at p. 6. [^44]: W-K Trucking Inc. v. Bidulock Oilfield Services Ltd., 1998 ABQB 959, 234 A.R. 363 at paras. 16 and 18. [^45]: IBM Canada Ltd. v. Almond, 2015 ABQB 336, 617 A.R. 321 at paras. 55 and 60, appeal dismissed as moot, 2016 ABCA 379, 26 Alta. L.R. (6th) 6 [IBM Canada]. [^46]: Maguire, supra note 41 para. 9; J.G. Collins, supra note 35 at p. 927, citing Herbert Morris Ltd. v. Saxelby, [1916] 1 A.C. 688, [1916-17] All E.R. Rep. 305 (U.K. H.L.). [^47]: Semiconductor Insights, supra note 31 at para. 23. [^48]: Premore Advantage Realty Ltd. v. Oliveira, 2005 CarswellOnt 10020 at para. 41 (Ont. Sup. Ct.), aff’d Premore Advantage Realty Ltd. v. Oliveira, 2007 ONCA 172 [Premore Advantage Realty]. [^49]: IBM Canada, supra note 45. [^50]: Premore Advantage Realty Ltd., supra note 48. [^51]: Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, [2016] 2 S.C.R. 720 at para. 57 [Fairmont]. [^52]: Ibid, at para. 57. [^53]: Shafron v. KRG, supra note 2 at para. 56, quoting Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678 at para. 31 [Sylvan Lake]. [^54]: Sylvan Lake, supra note 53 at paras. 37-40. [^55]: Fairmont, supra note 51 at para. 36. [^56]: Sylvan Lake, supra note 53 at para. 37. [^57]: Ibid, at para. 38. [^58]: Ibid, at para. 39, First City Capital Ltd. v. British Columbia Building Corp. (1989), 1989 2868 (BC SC), 43 B.L.R. 29 (B.C.S.C.) at p. 37. [^59]: Sylvan Lake, supra note 53 at para. 39. [^60]: Ibid, at para. 40. [^61]: Ibid, at paras. 31 and 66. [^62]: 978011 Ontario Ltd. v. Cornell Engineering Co. (2001), 2001 8522 (ON CA), 53 O.R. (3d) 783 (C.A.) at para. 32. [^63]: Sylvan Lake, supra note 53, at para. 31. [^64]: Ibid, at para. 40. [^65]: Ibid, at paras. 33 and 66. [^66]: Fairmont, supra note 51 at para. 36. [^67]: Sylvan Lake, supra note 53 at para. 40; Roxville Investments Ltd. v. Manahree Inc., 2017 ONSC 5306, 75 B.L.R. (5th) 61 at para. 78. [^68]: Fairmont, supra note 51 at para. 36. [^69]: S.M. Waddams, The Law of Contracts, looseleaf [Toronto: Canada Law Book, 2017] at s. 14. [^70]: Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69 at paras. 122-123. [^71]: Ibid, at para. 120. [^72]: Chuang v. Toyota Canada Inc., 2016 ONCA 584, 403 D.L.R. (4th) at para. 33. [^73]: Ibid, at paras. 32-34. [^74]: Ibid, at para. 27. [^75]: Hadley v. Baxendale (1854), 9 Ex. 341, 156 E.R. 145. [^76]: Elsey, supra note 5 at paras. 38-39. [^77]: 869163 Ontario Ltd. v. Torrey Springs II Associates Ltd. Partnership, 2005 23216 (ON CA), 76 O.R. (3d) 362 (C.A.) at paras. 23-24, leave to appeal ref'd, 215 O.A.C. 399 (note) (S.C.C.) [Peachtree II]. [^78]: Ibid, at paras. 29, 32-34 and 36. [^79]: Birch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809, 93 O.R. (3d) 1 at para. 34, leave to appeal ref'd, 261 O.A.C. 399 (note) (S.C.C.). [^80]: Ibid, at paras. 20 and 46. [^81]: Infinite Maintenance Systems Ltd. v. ORC Management Ltd. (2001), 5 C.P.C. (5th) 241 (O.N. C.A.) at paras. 7-9 and 14 [Infinite Maintenance]. [^82]: Peachtree II, supra note 77 at para. 24. [^83]: Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co., [1915] A.C. 79 (U.K. H.L.), at 86-88; Infinite Maintenance, supra note 81 at para. 14. [^84]: Infinite Maintenance, supra note 81 at para. 14; Rhebergen, supra note 10 at para. 51; Hitchcock v. Watson, 2015 ONSC 3145, 43 B.L.R. (5th) 126 at para. 6 [Hitchcock]. [^85]: Hitchcock, supra note 84 at para. 6, citing Roynat Inc. v. Transport Training Centres of Canada Inc., 2010 ONSC 4894, at para. 44. [^86]: Peachtree II, supra note 77 at para. 32; reaffirmed in Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374, at para. 22. [^87]: Hitchcock v. Watson, supra note 84, at para. 6. [^88]: J.G. Collins, supra note 35, at 938. [^89]: Venture Capital USA Inc. v. Yorkton Securities Inc. (2003), 2003 64232 (ON SC), 66 O.R. (3d) 760 (S.C.J.) at para. 80. [^90]: Sunnyside Greenhouses Ltd. v. Golden West Seeds Ltd., 1972 ALTASCAD 97, [1972] 4 W.W.R. 420. [^91]: Infinite Maintenance, supra note 81 at para. 15.

REASONS FOR JUDGMENT

Introductory Comments

The Parties and Background

Human Logistics Inc.

PAL Airlines Ltd.

The Canadian Coast Guard

PAL’s Charters for CCG

Mitchell starts working with PAL

Negotiation of the Charter Transportation Agreement

Mitchell learns that PAL is still working with CCG through Beaver

The dispute arising from PAL’s alleged breach of the CTA

This action

Issues

I. Comments Regarding the “Shifting” Nature of HL’s Claim as Alleged by PAL

II. “Gotcha” Litigation and Credibility Issues

Other Credibility Issues

III. Is the RC enforceable?

Law

The Parties’ Positions

i. Is the RC clear and unambiguous?

Law

The Parties’ Positions

Analysis

ii. Is the temporal scope of the RC reasonable?

Law

The Parties’ Positions

Analysis

Is blue pencil severance available as it relates to the temporal aspect of the RC?

The Parties’ Positions

Analysis

iii. Is the geographic scope of the RC reasonable?

Law

The Parties’ Positions

Analysis

iv. Is the RC contrary to public policy/interest?

Law

The Parties’ Positions

Analysis

v. Does the provision protect a legitimate proprietary interest?

Law

The Parties’ Positions

Analysis

Conclusion

IV. Is rectification available?

Law

The Parties’ Positions

Analysis

V. Is HL entitled to damages for PAL’s refusal to honour its quote to HL for the 2015 RFP, failure to provide a quote for the SARRFP, and CCG charters PAL provided to Beaver in breach of the CTA?

i. The effect of the exclusion clause (17B)

Law

The Parties’ Positions

Analysis

ii. Liquidated Damages

Law

The Parties’ Positions

Analysis

iii. Compensatory Damages for Breach of Contract

Law

The Parties’ Positions

VI. Conclusion

Schedule “A”

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Legal Tests 3