IN THE SUPREME COURT OF JUDICATURE
HIGH COURT
Civil Jurisdiction
No. 611 of 2003
BETWEEN:
AND
AMERICAN LIFE INSURANCE COMPANY Defendant
Before the Honourable Madam Justice Elneth O. Kentish, Judge of the High Court.
2005: March 29, 30
2006: May 29
Ms. Liesel Weekes, attorney-at-law for the plaintiff.
Mr. Bryan Weekes, attorney-at-law for the Defendant.
DECISION
Nature of Action
[1] This is a claim of Henderson Franklyn (“Franklyn”) against American Life Insurance Company (“Alico”) for damages for breach of contract, interest on those damages and costs arising out of a contract (“the contract”) dated
The Issues
[2] The issues which arise for determination are:
(1) Whether Franklyn was employed as an independent contractor or as an employee of Alico;
(2) Was there a unilateral variation of the contract by Alico? If so, was the variation waived by Franklyn? If not waived, did the variation constitute a breach of the contract entitling Franklyn to damages? And, if so, in what amount?
(3) Did Alico terminate the contract in breach of the provisions thereof? If so, is Franklyn entitled to damages for such breach and in what amount?
The Backgound
[3] By the contract headed “Career Agent Agreement” Alico appointed Franklyn one of its agent in
[4] It is common ground between the parties that up to 1987 Franklyn was a good agent and performed well. On the basis of that performance he received a bonus and had the benefit of attendance at overseas conventions at the expense of the company.
[5] Gradually, over time, Franklyn’s performance deteriorated and by 1999 he was not meeting the minimum targets of applications. Alico became concerned and began to warn him in writing about his poor performance.
[6] When the performance did not improve Alico demanded that Franklyn secure and continue to secure two life applications and one personal Accident weekly failing which it threatened to provide him with a “special contract to operate outside of the company.” That threat was later carried out. Franklyn was given notice that effective
[7] I now turn to deal with the issues in the order set out above.
1. Contract for services or Contract of service?
It is the submission of Ms. Liesel Weekes, Counsel for Franklyn that he was an employee of Alico, and was not an independent contractor. In support she cited Market Investigations [1968] 3 ALL ER 732 and Moren v Swinton [1965] 2 ALL ER 349. Mr. Weekes, Counsel for Alico contends to the contrary. He submits that except for the deduction of P.A.Y.E. and N.I.S. nothing else was dictated to agents and that by deducting P.A.Y.E. and N.I.S. Alico was performing a service which the agents would have to perform themselves. He therefore argued that the terms of the contract were consistent with a contract for services.
[8] Clause 1 of the general conditions of the contract expressly provides that Franklyn is an independent contractor free to exercise his own judgment as to the persons within [Barbados] from whom he will solicit business, the time and place of such solicitation and that nothing in the [contract] or in [Franklyn’s] relationship with [Alico] shall be deemed to constitute the relationship of employer and employee between [Alico] and [Franklyn] subject to underwriting restrictions established by [Alico]. (Emphasis added).
[9] That the parties expressly sought to exclude the existence of an employer/employee (“contract of service”) relationship between them is clear from this clause. The question is, did they succeed in excluding that relationship?
[10] It is a well established principle that an express clause in a contract does not by itself either exclude a contract of service or create the relationship of an independent contract or (“contract for services”)
[11] The distinction between a contract for services and a contract of service has not been easy to define. The authorities on the distinction are many and over time different tests have been advanced to assist in determining whether a given contract is one for services or is one of service. A useful review of these authorities is to be found in the cases of Whittaker v Minister of Pensions and National Insurance [1966] 3 ALL ER 531 and Ready Mix Concrete (South East) v Minister of Pensions and National Insurance [1968] 1 ALL ER 433.
[12] It is now clear from the authorities that no one test may be sufficient to determine the issue and that a number of factors may have to be considered.
[13] In Market Investigations, earlier referred to, Cooke J. observed at para. 737 that:
“in determining the question whether a contract is a contract for services or a contract of service the most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor and that factors, which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has and whether and how far he has an opportunity of profiting from sound management in the performance of his task.”
[14] In that case the issue under consideration was whether a Mrs. I was an employed person for the purposes of the National Insurance Act 1965 of the
[15] In this case, on one hand, there are some factors which point to the contract being one for services. First, the contract is silent on the issue of holiday. It is the testimony of Franklyn under cross-examination that he was free to take vacation whenever he chose and that vacation could be for whatever period.
[16] Second, it is also silent on the question of where the responsibility for the payment of P.A.Y.E. and N.I.S. contributions lay. In this regard, it is the testimony of Franklyn, which was not contradicted by Alico, that from 1974 to 1978, Alico deducted and paid both N.I.S. contributions and P.A.Y.E. for the agents, such deductions being made from their commissions earned; that after 1978 Alico ceased deductions for N.I.S. contributions claiming that the agents were self-employed but nonetheless continued to deduct P.A.Y.E.; that in 1989 Alico again started to pay N.I.S. for the agents and a pension scheme was then introduced under which deductions were taken from the agents’ commissions; that other benefits included a bonus depending on the production of the agent and he received such a bonus and also had the benefit on the basis of performance to attend overseas conventions at Alico’s expense by its provision of a ticket and cash. Further, it was his testimony that if an agent chose not to attend that benefit could be converted into cash. In explanation of Alico’s deduction of N.I.S. and P.A.Y.E. its Branch Manager, Neval Greenidge testified in chief that “it is considered a statutory deduction and as a result the company has an obligation to deduct it and pay it over to the government.”
[17] Third, the fact that the contract specifically allows Franklyn to perform the job at such time and place as he chose and did not limit him to any hours of performance is also consistent with its being a contract for services.
[18] Now, while the absence of a provision relating to holiday and freedom in the terms of performance would be consistent with a contract for services, the deduction of P.A.Y.E. and N.I.S. contributions, the provision of a bonus based on the productivity of Franklyn and the provision of attendances at overseas conferences at Alico’s expense and the provision of pension scheme to which Franklyn contributed are inconsistent with the contract being one for services and consistent with a contract of service.
[19] On the other hand, there is one significant factor which points to the contract being a contract of service when taken together with factors identified above in the preceding paragraph. Franklyn was obliged under the contract – “at all times to use his best efforts to promote the business of [Alico] and to do nothing contrary to [its] best interests”. (See clause 4 of the General Conditions).
[20] Now the contract did not allow expressly Franklyn to act in
[21] Having regard to the fact that the contract expressly provided that Franklyn was “free to exercise his own judgment” in performing the task, the test of control is of no assistance in determining this issue.
[22] Taking all the circumstances into account, I consider that the test which may best determine this issue is to ask the question whether Franklyn was performing the services under the contract as a person in business on his own account?
[23] There is no evidence before me that Franklyn hired his own helpers, took any financial risks, had any responsibility for investment and management of that business or had any opportunity to profit from sound management in the performance of his job. In this regard it is the testimony of Neval Greenidge in cross-examination that a non-performing agent is an expense to the company because of the monthly expenses the agent incurs in terms of office space, utilities and secretarial staff when he brings in no applications to meet these expenses.
[24] I therefore find that, when examined, the provisions of the contract and the manner in which the contract was operationalized by the parties are consistent with its being a contract of service and that Franklyn was an employee of Alico.
2. Was there a unilateral variation of the Contract?
Clause 9 of the General Conditions of the contract provided that the agreement could be terminated on a number of grounds. As it relates to this issue of variation, clause 9(d) specified that the agreement shall be terminated by [Franklyn’s] failure to meet any one of the following criteria:
(1) During any ninety day period to procure and transmit to the Company three life applications upon which a policy is issued and the full first premium thereon is paid in cash;
(2) To produce a minimum of 25 paid for life applications per Company accounting year; or
(3) To maintain a persistency of at least 80% according to the Company’s Persistency Study then in effect.
[25] On the basis of this clause Ms. Weekes submits that Franklyn under the contract was required to produce a minimum of 25 paid for life applications during any accounting year of Alico. This was admitted by Mr. Greenidge in his testimony in-chief.
[26] By its letter dated 17 December 2001 admitted into evidence Alico wrote to Franklyn recording its dissatisfaction with his continued poor performance and requesting that “with immediate effect [he] reach the minimum requirements for maintaining a contract of 2 life applications and 1 personal Accident weekly (emphasis added).
[27] This demand, submits Ms. Weekes, constituted a unilateral variation of the agreement having regard to the provisions of clause 18 of the contract which provided, among other things, that “the Conditions of this Agreement shall not be modified except by written amendment duly executed by each party.”
[28] The demand by Alico that Franklyn provide two life applications and one personal accident weekly was indeed a material variation of the contract. And I so find.
[29] Further, in so far as Alico has not established that this variation was reduced to writing and signed by both parties, it was also a unilateral variation made in breach of clause 18 of the contract.
[30] The real issue, however, is whether Franklyn accepted the variation. There is no evidence before me that Franklyn either objected to this variation either orally or in writing. Ms. Weekes in response to a query from the court in this regard stated that in so far as Franklyn did not procure the two applications and one accident per week, that conduct was
indicative of his objection. I reject this submission. There was nothing demonstrably different in the conduct of Franklyn after the demand that he procure additional applications on a weekly basis from his conduct prior to the demand which would have unambiguously signalled to Alico any objection of Franklyn to the variation.
[31] Indeed that letter was dated
“Alico C/O ALGICO
American Life Insurance Company
Fax No.: 1-868-623-4923.
Mr. Henderson Franklyn Tel.: 6-ALGICO
Salters
St. George
Dear Mr. Franklyn:
This letter is to advise that your Career Agent Agreement dated
We would appreciate your returning to our local office, if you have not already done so, our Rate Book and all other documents belonging to the company.
Kindly be advised of the following:
Vested Commissions: You are entitled to vested commissions, that is, first year plus fifty (50%) renewal commissions for 24 years.
Deductions: Effective immediately all standard deductions will cease and you should make alternative arrangements to ensure that those payments area made.
Group Coverage: You are entitled to convert your Group Coverage within thirty-one (31) days of receipt of this letter.
Pension: We have attached a form that should be completed and returned to us for the necessary calculations to be made.
Yours sincerely,
Sgd. S. DeBoulet
SANDRA DE BOULET
MANAGER – LIFE MARKETING DEPT.
c.c. Mr. Neval Greenidge.”
[32] I therefore hold that Franklyn accepted the variation in the contract by his failure to object thereto in a reasonable time. Accordingly, he is not entitled to any damages for the unilateral variation of the contract by Alico in breach of clause 18.
[33] 3. Was the contract wrongfully terminated by Alico?
It is the submission of Mr. Weekes that the contract was terminated in accordance with the provisions of clause 9(d) which gave Alico the right to terminate the contract upon Franklyn’s failure to meet any one of the criteria set out in that clause already referred to.
[34] Under cross-examination Franklyn testified as follows:
“I was aware of clause 9(d); in the year 1999 I cannot remember how many life policies I secured, nor do I recall the number I secured for 2000; nor do I recall the number for 2001. I do recall receiving warnings from the defendant that my performance was not up to standard. I do recall receiving warnings from the company directing my attention to clause 9(d). I received the letter dated
[35] So it is not in dispute that Franklyn was not performing under the contract. The real question is whether the contract was terminated in accordance with the provisions contained therein for termination.
[36] Clause 9 of the contract provided six grounds on which the contract was determinable:
(1) by mutual written agreement;
(2) by either party giving the other at least thirty (30) days prior written notice by registered mail;
(3) by violation by Franklyn of any of the terms of the contract;
(4) by the failure of Franklyn to meet any of the criteria set out in clause 9(d);
(5) by Franklyn taking up permanent residence
outside
(6) by the death or total or permanent disability of Franklyn.
[37] So there was an express term in the contract providing for its termination. It is well settled that where there is such an express term in the contract, the law will hold the parties to the term. (See June Clarke v American Life Insurance Company Civil Appeal No. 33 of 1998 at para. 29 (unreported); Chitty On Contracts 28th edn Vol. 1 General Principles at para. 23-046).
[38] It is also well settled law that where reliance is placed on the procedure laid down in the contract for termination, that procedure must be strictly followed. (See Chitty On Contracts cited above at para. 23-047).
[39] The submission of Ms. Weekes is that Alico did not strictly comply with that procedure. She argues that Alico contends that the contract was terminated with cause under clause 9(d) – that is the failure of Franklyn to meet the requisite procurement of life applications and extensive evidence was lead by Alico as to the breach of clause 9(d), yet the letter of termination dated 17 May 2002 does not mention clause 9(d) nor does it mention the prior warnings. Rather, the letter purports to terminate the contract under an entirely different clause - clause 18(c) which is in fact a non-existent clause. She contends therefore that the error in referring to clause 18(c) is fatal and Alico having purported to terminate under a non-existent clause cannot rely on the provisions of clause 9(d).
[40] I accept the submission of Ms. Weekes since it was the obligation of Alico to comply strictly with the modes of determination specified in the contract and a reliance on a non-existent clause cannot so comply.
[41] Further, clause 9 of the contract provides for the consequences of the termination of the contract. In so far as material to this aspect it reads thus:
“… Upon termination of this Agreement pursuant to clause (c) above, all Agents’ rights hereunder and under any and all previous contracts, including the rights to any compensation payable thereafter shall immediately cease. In the event of termination for any other reason, the Agent shall be entitled to the termination benefits pursuant to the Schedules.”
[42] The effect of that clause is that where the contract is terminated for cause by Alico all rights to compensation cease to be payable on the date of termination. Thus, if Alico was indeed terminating the contract with cause, Franklyn would not be entitled to any compensation on the termination of the contract.
[43] However, in its termination letter, Alico informed Franklyn of his entitlement to vested commissions as provided in clause (c) of the Schedules of Compensation which would only be payable where the termination was not for cause under clause 9(c). In so doing, Alico lost the right to complain of the misconduct of Franklyn as it condoned his mis-conduct by its very letter of termination. (See: “The Executive Firing Line – “Wrongful Dismissal and the Law” by Brian A Grossman, Q.C., B.A., LLB., LLM. at pp 53-55).
[44] In the Canadian case Tracey v Swansea Construction Co. Ltd. 47 DLR (2d) 295 (
“If there was misconduct or default sufficient to justify discharge [the defendant] had one of two courses open to it. It could have summarily dismissed for cause or it could have decided to overlook, waive or condone the misconduct and terminate upon notice or payment in lieu of notice, in accordance with the provision of the contract … It could not do both, for one would operate as a repudiation of the contract for a breach thereof, and the other conversely, would operate as an affirmation of the contract and the adoption of its provisions for termination … Intention is an essential element of condonation, and I look upon the giving of notice in the manner in which it was given as almost conclusive evidence of condonation and of the intention to condone under the existing circumstances, no intimation of existing cause having been indicated.”
[45] In response Mr. Weekes cites Boston Deep Sea Fishing and Ice Company v Ansell (1888) 39
[46] That is the principle of law established by The
[47] I therefore find that the termination of the contract was wrongful and Franklyn is entitled to damages for such wrongful termination of the contract.
Damages for wrongful termination
[48] In his statement of claim Franklyn claims as damages as follows:
“PARTICULARS OF LOSS OF DAMAGE
OF THE PLAINTIFF
Loss of remuneration/commissions from
Loss of remuneration/commissions
From date of filing to pension age 65 37,163.50
Loss of collateral benefits:
Group Health Policy
Group Life Policy
Pension Benefits.
[49] However, the contract expressly provided under clause 9(b) that the contract could be terminated by either party giving to the other at least 30 days prior written notice. In light of this express provision I consider that damages for the breach of the contract are not at large as computed in the statement claim. Damages must be calculated with reference to the period of notice since that is the measure of damages Franklyn would have been entitled to had Alico determined the contract under clause 9(b) as it was entitled to do without any reference to any of the other grounds of termination specified in clause 9. Clause 9(b) speaks of a notice period of at least 30 days. (Emphasis added). By the use of the phrase “at least” the parties clearly intended 30 days to be the minimum period of notice but at the same time contemplated the possibility of a period of notice longer than 30 days.
[50] In light of the fact that Franklyn was an employee of some 28 years standing at the time of dismissal, I consider that damages calculated by reference to a 30 day minimum notice period would be inadequate. Mr. Weekes was of some assistance to the court by his indication that he considered that the damages should be equivalent to commissions for a period of six months in the event the court found the termination to be in breach of the contract.
[51] I am obliged to Counsel for this indication as I had arrived at a computation of such damages based on a period of six months having regard, by analogy only, to the approach adopted by the Court of Appeal in the June Clarke case referred to earlier at paras. 39 et seq.
[52] I must point out that despite the issue raised as to whether the contract was a contract for services or a contract of service, in the end nothing turned on this issue in light of the express provisions of the contract relating to the consequences of termination under clause 9.
Disposal
[53] I therefore find that Franklyn’s contract was wrongfully terminated by Alico. It is ordered:
(1) that Alico pay to Franklyn damages equivalent to the value of six months commissions determined by taking the average commissions earned by Franklyn in the last six months of his contract immediately preceding the date of the termination letter of 17 May 2002;
(2) Alico shall pay interest on such damages from the date of the filing of the writ at 4% and from today’s date at the rate of 8% per annum until payment in full; and
(3) The plaintiff shall have his costs of the action to be agreed or taxed.
Elneth O. Kentish
Judge of the High Court.