The recent decision of the Ontario Superior Court in Mottillo v. O.E. Canada Inc. provides a useful reminder of the purpose of independent legal advice (or “ILA”) in the context of a subsequent action that tests the enforceability of a contract.
In this case, the Plaintiff entered into an employment agreement with O.E. Canada Inc. which included, as part of his remuneration, equity and profit sharing provisions.
In addition to an employment agreement, the Plaintiff signed an option agreement and an option amending agreement at his employer’s request.
The Plaintiff’s employment was terminated. The Plaintiff sued for damages for wrongful dismissal as well as damages for oppressive conduct. As part of the claim, the Plaintiff challenged the validity of the option amending agreement on the basis that prior to his signing, it had not been explained to him and he had not been advised to obtain independent legal advice.
The Defendant brought a motion for partial summary judgment, seeking an order declaring the option agreement and the option amending agreement were valid and enforceable.
First addressing the question of whether or not these documents were explained to the Plaintiff, the Court concluded that the Plaintiff did not require them to be explained to him. They were drafted in English which the Plaintiff was able to read and understand. There was no suggestion that the Plaintiff was forced to sign these documents and in fact, his own evidence was that before signing them, the effect of the agreements were explained to him and any questions had been answered by his employer to his satisfaction. In addition, he was not required to sign them immediately. In the case of the option amending agreement, he had the agreement in his possession for almost three weeks before signing it.
The Court found that the Plaintiff was an experienced, business-savvy individual with extensive experience in negotiating contracts. The Court pointed out that there is no duty on a party to explain the provisions of an agreement to the other party where the other party has the opportunity to read the agreement and any potentially offending terms are clearly set out in the document.
In his pleading, the Plaintiff alleged that the Defendant had failed to advise him to obtain ILA. The Court observed that ILA is not a pre-condition to the enforceability of a contract. It simply reduces the risk that a party to a contract will later claim that he or she did not understand its terms and his or her obligations and entitlements. Accordingly, a failure to ensure that a party obtains ILA before signing a contract does not of itself create a defence to the contract’s enforceability.
The situation would be different if the party signing the contract is misled as to its contents, if it contains provisions that one would not ordinarily expect to find in a contract of the nature being discussed, and if the party putting the contract forward knows or should have known that the other party would not actually read the contract. In that type of case, the contract cannot be said to represent the true intention of the person being asked to sign it, and the signing party might very well be able to have the contract invalidated. ILA should remove that possibility.
In that sense, ILA does not simply protect the interests of the party obtaining the independent advice. It actually protects the interests of both sides. Assuming that both sides are acting in good faith, ILA might be unnecessary but it is hard to think of an instance in which it would be inadvisable.