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Be Careful With Releases Between Related Parties

By Herb Silber, Q.C. (posts)

The recent case of Ralph’s Auto Supply (B.C.) Ltd. v. Ken Ransford Holding Ltd. et al, SCBC (April 23, 2010) involved an application by the Plaintiff to secure an interim injunction to enforce a Restrictive Covenant by one “partner” against a former “partner” and key employee.

The only substantive defence put forward by the Defendants was the existence of a subsequent Release by a company affiliated with the Plaintiff, which it contended, released the Defendants from their obligations under the Restrictive Covenant. The subsequent Release, although applicable in its scope to cover the parties, related to a transaction later in time and separate and apart from the subject matter of the transaction, which was the object of the injunction application.  Justice Brown of the B.C Supreme Court accepted, at least for the purposes of the injunction, that the Plaintiff had demonstrated a “strong case” referring to the B. C. Court of Appeal Decision in Keefer Laundry and the principle contained within that case “…that the interpretation of a Release is limited only to those matters that were in the contemplation of the parties at the time that the Release was given.  The rule allows the Court to consider a broad range of evidence in order to consider what was in the contemplation of the parties at the time…” The Court in Ralph’s Auto Supply went on to find that the burden of proving that the subsequent Release applied lay with the Defendants, who fell far short in overcoming that burden.

This case points out the importance of ensuring that there is clarity when a Release is exchanged between different, albeit related parties, so as not to inadvertently result in a release of prior obligations.

*the author was counsel for the Plaintiff in Ralph’s Auto Supply (B.C.) Ltd. v. Ken Ransford Holding Ltd.

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