Jun 28, 2020

Wife Cannot Compel Husband to Sign "Non-Compete" in Sale of Family Business

Lun v Lun, 2020 BCSC 871 (CanLII)

In Lun v. Lun 2020 BCSC 871 the court considered whether the sale of the family insurance business, as ordered by the court, provided the court with jurisdiction to order the husband to sign a Non-Compete Agreement, as part of the sales contract, in circumstances where the husband resisted signing.

The parties owned a business that sold commercial insurance products and motor vehicle insurance. The wife brought an application to court for the sale of the business, which was contested. The court granted the order sought, with joint conduct of sale to the parties.

A condition of the sale was that Mr. Lun sign a non-competition agreement that would prevent him from being involved in the insurance industry for a period of two years. The clause read:

“… directly or indirectly, either alone or in conjunction with any individual, firm, corporation or any other entity (except for or on behalf of the Protected Entities), whether as principal, agent, employee, shareholder or in any other capacity whatsoever carry on, be engaged in, concerned with or interested in any Person carrying on any business that is competitive in whole or in part with the Business anywhere in the Territory, or advise, lend money to, or guarantee the debt or obligations of any Person that is carrying on any business anywhere in the Territory that is competitive in whole or in part with the Business.”

Mrs. Lun brought an application asking the court to order Mr. Lun to agree to the non-compete term in the contract. Mr. Lun opposed the application as he had been in the insurance industry for 20 years and wished to continue in the industry.

The court posed this question: “On what basis could the court prevent Mr. Lun from engaging in legal business activities?” and remarked that the answer would be found in the Family Law Act. However, the court determined that Part 5 of the Act did not provide jurisdiction to make the order sought

The wife then argued that Supreme Court Family Rule 15-8 (3) applied, which permitted a court to order terms of sale, including “a direction that any document necessary to complete the sale be executed on behalf of any person by a person designated by the court”. The court disagreed saying that an order allowing Mrs. Lun to sign the non-compete on behalf of her husband fell outside the purpose and intent of the rule.

Finally, Mrs. Lun argued that S. 222 (b) of the Family Law Act could be used
to make the order sought, as it authorized a court to manage behaviours that might frustrate the resolution of a family law dispute. Again, the court ruled that Mr. Lun’s refusal was a legally justifiable position and declined to accede to Mrs. Lun’s argument.

Mrs. Lun was left with renegotiating the sale to exclude a non-competition clause or entertain other offers.