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Contractor in "intermediate category" entitled to 9 month notice period

Jurisdiction: - British Columbia
Sector: - Retail Trade

In Marbry et al. v. Avrecan International Inc., 1999 BCCA 172, the majority of the BC Court of Appeal ruled that a contractor in the "intermediate category" was entitlted to 9 months notice that the relationship would be terminating.

In reaching this conclusion, the majority of the court stated:


[39]   With respect to the first factor of duration and permanency of the relationship, Marbry and Avrecan conducted business from 1983 until 1993, a period of ten years.  In 1989 and again in 1990, the terms of the oral agreement were confirmed by the then president of Reebok Canada Inc.  In early 1993, Marbry was told by the defendant that they should not take on any other non-Reebok lines so as to concentrate on sales of Reebok products.

[40]   The nature of the relationship was that Marbry was required to purchase and maintain an inventory of sample Reebok products.  This inventory was housed in Marbry's showroom at Marbry's expense.  Avrecan correctly notes that this degree of expenditure is not on similar footing as that found in Western Equipment, supra, and therefore Marbry's capital was not as exposed as the plaintiff's was in that case.  It is also true that Marbry was not a wholesale distributor and therefore did not purchase the Reebok product line (expect for sample products) and then attempt to re-sell them.  While this is an important factor it is not in itself determinative.  I would agree with the trial judge below when he stated that while the inventory purchased by Marbry was not an overly large investment, that, in conjunction with the establishment and maintenance of a showroom and the length of the relationship are indicative of a longer term relationship.

[41]   The second factor concerns the degree of reliance or closeness of the relationship between Marbry and Avrecan.  Between 1983 and 1992 the commission earned by Marbry from the sales of Avrecan's products amounted to approximately 75 percent of Marbry's total sales.  For the twelve months ending May 1993, this percentage had increased to approximately 90 percent.  In addition, Marbry relieved Avrecan of all sales problems and expenses in relation to virtually all non-national accounts in British Columbia.  I think it is fair to say that Avrecan also relied on Marbry but admittedly not to same degree as Marbry relied on them.  I also note, as did the learned Chambers judge, that it was because of the efforts of Marbry, in part, that the Reebok product line greatly increased its market share in British Columbia.

[42]   The last of the three factors involves the degree of exclusivity of the contract.  The appellant submits that this relationship lacked exclusivity as Marbry was entitled to, and in fact did, sell other product lines.  Avrecan continues and states that the only exclusivity was of the manufacturer (Avrecan) to the agent (Marbry).  In other words the constraint was on Avrecan and not Marbry.  This is an important factor that is not to be overlooked.  Had the exclusivity ran in both directions this factor would more heavily weigh in favour of a classification more akin to employer/employee.  Nonetheless, there was since the first year of the agreement a high degree of exclusivity on the part of Marbry.  As stated above, for the twelve months ending in May 1993, 90 percent of Marbry's revenues were from the sale of Avrecan's products.  This in combination with the suggestion by Avrecan's sales manager to Marbry that it not take on any other non-Reebok products amounts to a high degree of exclusivity.

[43]   In this context I find that the exclusivity need not be 100 percent exclusivity, a conclusion supported by the Supreme Court of Canada's findings in Hillis Oil, supra.  In that decision, Wynn's distributed its products through wholesale distributors and chose only one distributor in each region.  Hillis was given the exclusive rights to distribute originally in Nova Scotia and later other provinces were added to the sales territory.  By 1978 the sale of Wynn's' products was accounting for about 90 percent of Hillis' profits.  Hillis sold other company's products which accounted for the remainder of the profit.  At issue was the interpretation of the written distributor contract between the parties and whether it provided for termination without notice.  While the distributor agreement did not expressly prohibit Hillis from selling other products that would be competitive with Wynn's there was "a clear understanding from Wynn's that Hillis should not do so."  Mr. Justice LeDain writing for the unanimous court classified this as an exclusive distributorship agreement and held at 67:

If a distributorship agreement does not contain a provision for termination without cause it is so terminable only upon giving reasonable notice of termination.

[44]   I also wish to make some comments respecting the degree of control that Avrecan had over Marbry.  During the term of the agreement Marbry was required to do the following:

(a)         maintain a showroom containing an inventory of demonstration products;

(b)         represent Reebok Canada in customer relations in matters of stock shipments, defective product and quality control;

(c)         conduct account collections and monitor accounts receivable on behalf of Avrecan;

(d)         distribute invoices and collect cheques for Avrecan during postal strikes;

(e)         conduct product knowledge sessions for Reebok customers retail sales staff;

(f)         assist Avrecan in tracking down counterfeit Reebok products; and

(g)         devote time to finding athletes and sports teams to use and promote Reebok.

[45]   Having regard to Lord Denning's "business integration" test in Stevenson, supra, I find that Marbry's activities formed an integral part of Avrecan's business.  It was Marbry who assisted the set up of the distribution network and distributed Avrecan's products through that network.  Without this function Avrecan's products could not have been sold to those customers that Marbry serviced.  It can not be said that Marbry performed a function that was only accessory to Avrecan's pursuit. 

[46]   For all of the reasons expressed above I would classify the relationship between Marbry and Avrecan as more akin to employee/employer than that of independent contractor or strict agency.  As such, this relationship falls in that intermediate category as identified in Carter v. Bell, supra, where the agreement may only be terminated with reasonable notice.