Court can’t rewrite ambiguous language in insurer’s non-compete contract

The term “Metropolitan City of Vancouver” is ambiguous in a restrictive covenant, according to the Supreme Court of Canada.
In Shafron v. KRG Insurance Brokers (Western), Morley Shafron sold his insurance company to KRG in 1987. The company was renamed KRG Western; in 1991, it was sold to another party.
KRG Western employed Shafron from 1987 to 2001 under employment contracts that contained a restrictive covenant using the terms noted above. In that contract, Shafron agreed that for three years after leaving his employment for any reason other than termination without cause, he would not be employed in the business of insurance brokerage within the “Metropolitan City of Vancouver.”
In January 2001, Shafron started work as an insurance salesman in Richmond, B.C. for another agency. KRG Western commenced an action to enforce the restrictive covenant.
The trial judge dismissed the action, finding that the term ‘Metropolitan City of Vancouver’ is neither clear, certain nor reasonable.
The Court of Appeal set aside the decision. The Appeal Court agreed that the term was ambiguous, but it applied the doctrine of notional severance.
According to that doctrine, a court can re-write a contract covenant that is illegal or unreasonable in order to make it reasonable and enforceable.
A panel of seven Supreme Court of Canada judges unanimously found that the Court of Appeal erred.
“Nothing demonstrates a mutual understanding of the parties at the time they entered into the contract as to what geographic area the restrictive covenant covered, and it was inappropriate for the Court of Appeal to re-write the covenant,” the Supreme Court ruled.
It went on to note that in this instance, KRG Western could not point to any prior written or oral agreement that would explain the term “Metropolitan City of Vancouver.”
“Rectification is used to restore what the parties’ agreement actually was, were it not for the error in the written agreement,” wrote Supreme Court of Canada Justice Marshall Rothstein.
“In the present case, there is no indication that the parties agreed on something and then mistakenly included something else in the written contract. Rather, they used an ambiguous term in the written contract.
“The original restrictive covenant was drafted by a Toronto lawyer who apparently did not know that ‘Metropolitan City of Vancouver’ was not a legally defined term. The doctrine of rectification is not applicable.”