Frozen out of partnership

Oral agreement to split management fees was a contract of employment, not a commercial contract

In 1991 Steve Pollock, Jonathon Coleman and Greg Belzberg formed a partnership and decided to acquire a permanent establishment with a liquor licence in order to carry on their business. Mr. Coleman found a company, Spattz Beanery, that had a liquor licence and lease that was for sale. The three partners incorporated a company in March 1992 called Bar None Enterprises Ltd.

An investment proposal was created which provided that Bar None would, as one of its expenses, have a management cost starting at $90,000 per year. It was agreed amongst the three partners that they would share equally the management fee. The three partners then incorporated BCP Management Ltd. in May 1992 with each partner being an equal shareholder.

A management agreement was entered into between Bar None and BCP in June 1992. The management agreement provided that BCP was to be solely responsible for the costs of on-site management and would receive $90,000 per year adjusted for the cost of living. It was determined in the agreement that BCP would provide its services exclusively to Bar None and would ensure that Mr. Belzberg, Mr. Pollock and Mr. Coleman would devote significant time and effort to the business.

After the assets of Spattz Beanery were acquired, the three partners spent most of their time working on organizing the bar, which opened in November 1992. After the opening the three partners managed the affairs of the bar. However this relationship quickly deteriorated. The partners’ meetings were often loud with many complaints voiced by all three partners.

The original agreement between the partners was to share management fees and bonuses equally. This agreement remained in place until 1995 when a disagreement arose with respect to the management of the business and with respect to the allocation of work amongst the three partners. They decided on a realignment of their respective duties. However this new arrangement did not work and they returned to the original agreement.

By 1997 most of the management of Bar None was being performed by employees rather than by the partners. They had a night manager, an assistant manager and a general manager. The three partners tended only to look after what they refer to as “big picture stuff.” Problems between the partners became even greater. The friendship between Mr. Belzberg and Mr. Pollock was destroyed because of their mutual complaints about each other.

An incident occurred where Mr. Belzberg was to order new chairs for the bar, but failed to do so. Subsequent to this incident Mr. Coleman and Mr. Pollock no longer invited or involved Mr. Belzberg in the management decisions. Mr. Coleman and Mr. Pollock were of the belief that they had to continue to pay Mr. Belzberg even though Mr. Belzberg was no longer involved in the management duties. It was not until they obtained legal advice about a year after the decision to cut Mr. Belzberg out of the management that a directors’ meeting of BCP was called and the decision was made to cease paying Mr. Belzberg one-third of the Bar None management fees and bonuses.

Mr. Belzberg brought an action against Mr. Pollock, Mr. Coleman and BCP Management Ltd. seeking a declaration that he was entitled to receive one-third of the management fee and bonus that BCP received from Bar None.

The issue at trial was whether the oral agreement to split management fees and bonuses was an employment contract or a commercial contract. Mr. Belzberg argued that it was a commercial contract and perpetual. Mr. Pollock and Mr. Coleman argued that it was an employment contract.

The Court agreed that it was an employment contract clearly providing BCP to provide management services. There was no credible evidence that the three partners could receive their share of the management fee and bonus from BCP without performing the necessary duties to carry out the terms and conditions of the management agreement between BCP and Bar None.

Having found that the agreement was an employment agreement, the Court then considered whether the agreement was terminated for cause. The Court concluded that Mr. Pollock and Mr. Coleman could not complain of Mr. Belzberg’s lack of involvement in the management when they were the ones who decided to freeze Mr. Belzberg out of the management.

Having found that there was no cause for terminating the employment contract, the Court awarded damages in lieu of reasonable notice in the amount of 16 months’ salary.

For more information:

Belzberg v. Pollock, 2001 BCSC 1478.

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