The Doctrine of Public Policy in Canadian Contract Law

The Doctrine of Public Policy in Canadian Contract Law 1 35
der of the enforceable contract (wherein the offending provisions are judicially
re-written).186
Although the "spectrum" approach from Transport serves as a useful
methodology for determining the effects of a contract that is tainted by statutory
illegality,'" it is uncertain whether the principles articulated by Arbour J.A.
apply to contracts which are tainted by "common law" illegality (or which
violate public policy in the more narrow sense identified earlier in the paper).
While there is authority that the courts may sever, via the "blue pencil" approach,
a provision in a contract which is contrary to public policy in order to preserve
the enforceability of the contract as a whole,"8 there, currently exists a disagreement
between the Alberta and British Columbia appellate courts regarding
whether the "notional severance" remedy should also be applicable to such
provisions.
In Globex Foreign Exchange Corp. v. Kelcher,'" the Alberta Court of
Appeal (in the context of an appeal from an interlocutory injunction application
brought to enforce the respondents' compliance with a restrictive covenant by
their former employer) held that notional severance was inapplicable to restrictive
covenants generally. Conversely, in ACS Public Service Sector Solutions
Ltd. v. Courthouse Technologies Ltd., the British Columbia Court of Appeal
(without referring to Globex) held that the Transport spectrum approach was
applicable to "any illegal contract provision, whether by common law or statute."°
More recently, in KRG Insurance Brokers (Western) Inc. v. Shafron,' 9'
the British Columbia Court of Appeal (again without referring to Globex)
186 Ibid. at para. 40. In considering which of these remedies is the most appropriate, Arbour
J.A. (at para. 42) directed that courts should have regard to the following factors: "1)
whether the purpose or policy of s. 347 would be subverted by severance; 2) whether
the parties entered into the agreement for an illegal purpose or with an evil intention; 3)
the relative bargaining positions of the parties and their conduct in reaching the agreement;
and 4) the potential for the debtor to enjoy an unjustified windfall."
187 It is worth noting that there exists some uncertainty regarding the extent to which the
Transport methodology applies to contracts which are not formed in violation of a
statute, but which merely contemplate performance in an illegal manner. On the consequences
of illegal performance generally, see Still v. Minister of National Revenue
(1997), [1998] 1 F.C. 549, [1997] F.C.J. No. 1622 (C.A.) at paras. 22-23 and 31-33. See
also Oldfield v. Transamerica Life Insurance Co. of Canada, 2002 SCC 22 at paras. 57-
59.
188 See, e.g., K. (E.) v. K. (D.), 2005 BCCA 425 (C.A.) at para. 4, holding that a contractual
provision which involved the stifling of a prosecution should be severed from the
remainder of the agreement. However, some courts and commentators have suggested
that no severance remedies should be applicable to contracts contrary to public policy
other than contracts in restraint of trade, contracts affecting marriage, or contracts which
oust the jurisdiction of the court: see Bennett v. Bennett, [1952] 1 K.B. 249 (Eng. C.A.)
at 260; Goodinson v. Goodinson, [1954] 2 Q.B. 118 (Eng. C.A.) at 120-121; and Cheshire,
supra note 7 at 407-408.
189 2005 ABCA 419 (C.A.) at paras. 44-46 [Globex].
190 2005 BCCA 605 at para. 59 [ACS].
191 2007 BCCA 79 (C.A.), leave to appeal filed [2007] S.C.C.A. No. 199 [KRG].