SUPREME COURT OF NOVA SCOTIA
Citation:- Canadian Elevator Industry Education Program v. Gilby,
2012 NSSC 274
Date: 20120927 Docket: Hfx. No. 383979A Registry: Halifax
Between:
The Canadian Elevator Industry Educational Program
-and-
Andrew Gilby
LIBRARY HEADING
Judge: The Honourable Justice Robert W. Wright
Heard: July 17, 2012 in Halifax, Nova Scotia
Written
Decision: September 27, 2012
Subject: Small Claims Court Appeal - error of law - interpretation of stipulated remedy clause in contract - treatment of solicitor-client costs.
Summary: In 2001 the appellant, a union sponsored educational body, entered into a contract with the respondent whereby it agreed to provide a four year training program to enable the respondent as a student to acquire the necessary skills and experience to become a mechanic in the elevator industry. In exchange for being provided with this training program free of charge, the respondent agreed to accept employment in the elevator industry, only with a unionized employer, for a period of five years thereafter. The student further agreed that the cost of training provided by the appellant over the four year period was $10,000 and that in the event of a breach, the appellant would be entitled to recover the full cost of training, along with solicitor-client costs for any collection proceedings and interest at a specified rate.
The respondent completed the four year training program following which he accepted employment with a unionized employer for approximately four and half years thereafter. At that point, however, he accepted employment with a new employer who was non-unionized and thereby committed a breach of the contract. The appellant initially brought an action for recovery of the full $10,000 plus legal expenses and interest in the Supreme Court of Nova Scotia but the proceeding was later transferred to the Small Claims Court for trial. At the time of the transfer, the parties agreed that the solicitor-client costs referenced in the contract would be treated as a “monetary award in respect of a matter or thing arising under a contract” as described in s.9(a) of the Small Claims Court Act.
In his decision rendered January 30, 2012 the adjudicator upheld the contract in all respects except one. He decided that because the stipulated remedy clause in the contract was not pro-rated to the unexpired portion of the five year payback period during which the respondent was obligated to serve a unionized employer, it took on the character and quality of a penalty and coloured the entire contract. He therefore decided to sever that part of the stipulated remedy clause which called for the recovery of the full cost of training, and essentially replaced it by ordering that the respondent pay only a pro-rated amount to reflect the unexpired portion of the five year payback period. Rounding that off to 10%, the adjudicator therefore awarded the appellant $1,000 plus prejudgment interest of $100. He declined to order costs of any kind. The appellant then brought this appeal.
Issues:
(1) Should the stipulated remedy clause be interpreted as a genuine pre-estimate of damages (which is enforceable) or a penalty (which is not enforceable)?
(2) Did the adjudicator err in applying the doctrine of severance in the manner described?
(3) Did the adjudicator err in declining jurisdiction to award recovery of legal expenses in the manner proposed before him?
(4) Did the adjudicator err in his interpretation of the interest provision in finding that it pertained only to legal expenses payable as opposed to any damages payable under the contract?
Held:
(1) The adjudicator erred in his interpretation of the contract in characterizing the stipulated remedy clause as a penalty clause rather than a genuine pre-estimate of damages. He was lead to that error by erroneously judging the terms of the contract and its surrounding circumstances as at the time of the breach rather than at the time the contract was made. Given its proper interpretation, the stipulated remedy clause was valid and the respondent was required to pay the full cost of training of $10,000.
(2) The statutory phrase “a monetary award in respect of matter or thing arising under a contract” should be interpreted as referring to a form of damages. A claim for solicitor-client costs could not be transformed into a claim for damages by an agreement made by counsel. Since the jurisdiction of the Small Claims Court cannot be contracted out of, the agreement so made was void. In the result, the adjudicator was correct in declining jurisdiction to award any recovery for legal expenses.
(3) The adjudicator erred in his interpretation of the interest provision by finding that it pertained only to legal fees payable under the contract, rather than to the damages recoverable. The appellant was therefore entitled to recover interest at the specified rate in the contract on the full $10,000 from the date of the breach.
THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THE COVER SHEET.