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Advertisement in trade magazine, launching of website establish prima facie breach of non-solicit agreement

Jurisdiction: - British Columbia
Sector: - Insurance

In Hub International (Richmond Auto Mall) Ltd. v. Mendham, 2011 BCSC 1780, the BC Supreme Court found that a former employee's advertisement for his new marine insurance company in a trade magazine and the launching of his new company's website established a prima facie breach of the non-solicit agreement he had entered into with his former employer, Hub International.

Specifically, the court stated:

...I accept Hub's counsel's position that Mendham has become increasingly active in the marine insurance market (viz the full page advertisement in the December issue of Pacific Yachting and his web site). I accept Hub has made out a prima facie case such activity offends clause 8.02(b) of the employment agreement..In my view, Hub has established a fair case to argue that Mendham's recent advertising activity has crossed the line and infringes the language of clause 8.02(b) in that it is an attempt to "solicit or entice, or attempt to solicit or entice, either directly or indirectly, any customer, client...of the Company to transfer their business from the Company...".  I am satisfied Hub has established a prima facie case the party who has altered the status quo is Mendham.  While he is entitled to compete with Hub in the marine insurance business, he is not entitled to solicit its clients (para. 87).

The advertisement in question in Pacific Yachting magazine had been described by the judge earlier in the decision as follows:

In the December 2011 issue of Pacific Yachting magazine, Navis placed a large advertisement clearly soliciting marine insurance business, advising readers to "call us for a quote" and adding "we are committed to providing the best coverage at a competitive price".  The advertisement contains the photographs of four individuals who were then working for Navis but who, prior to March, 2011, had been employees of Hub.  A portion of the advertisement is directed to yacht club members:  "If you are a member of a yacht club or trade association we can often build a specific insurance program to fit the specific needs of the group and at the same time reduce the premiums you spend." (para. 44).

This ruling  - that the placing of an advertisement in a trade magazine was a prima facie breach of a non-solicit agreement - is interesting in light of the decision of the BC Court of Appeal in Dr. P. Andreou Inc. v. McCaig, 2007 BCCA 159, a case that was not referenced in the Hub International decision.

In Dr. P. Andreou case, the BC appeal court stated:

...Unlike the trial judge, I do not accept that the advertisements announcing the opening of the new practice were in breach of the non-solicitation covenants the appellants gave to the respondent in their agreements.  In my view, had the parties intended to exclude informational advertising, they would have included a clause saying so or one like that included in the draft of the 1999 Kilistoff/McCaig share/purchase agreement.  I understand solicitation as requiring something more than a general informational advertisement to the public.

The first issue on this appeal is whether the ads can reasonably be considered to come within the prohibition not "to communicate either directly or indirectly for the purpose of soliciting" a patient.  I am of the view this comes to the same question of law Dickson J. posed in Elsley, whether soliciting includes advertising to announce the location of a new practice.

Most of the authorities to which the appellants referred were considering the word "soliciting" in a criminal, regulatory or statutory context.  They are helpful only insofar as they give them reason to maintain that the phrase "for the purpose of soliciting" imports an element of "importuning", of which there is no evidence in this case. 

The respondent relies on the same phrase to argue the subjective intention of the covenantors is controlling, a submission the trial judge seems to have accepted when she wrote (at para. 66) "[he] said he ran the ad so former patients would know how to reach them" and (at para. 81) "[t]he only purpose, which was admitted, was to notify former patients of the new practice" and then found a violation of the covenant.  Implicit in these conclusions are the propositions that the ad was a "communication" and that its purpose was to "solicit" business.

I can see no useful purpose or meaning in a distinction between a covenant not "to communicate for the purpose of soliciting", as stated in the agreements, and a covenant not "to solicit".  The action restricted is the same because one cannot "solicit" if one does not "communicate".  The communication element is redundant.  One can communicate with the effect of obtaining business without soliciting or intending to solicit business, particularly if the person who receives the communication is dissatisfied with the service he is receiving or for some other reason looking for a new service provider. The purpose of the action of communicating for the purpose of soliciting or the action of soliciting is the same, to seek business. The prohibition in the agreements is against soliciting business from former clients. Therefore, we must turn to the question posed by Dickson J. in Elsley (paras. 22-26).

The court then went on to review several cases on this issue before concluding that:

  • there was common acceptance that a newspaper ad announcing a new business location without mention of a previous association with the former employer does not breach a non-solicitation clause (para. 33); and 
  • "something more" than a general advertisement  was needed to constitute a breach of a non-solicitation covenant (para. 35).