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Mr. Schmidt worked as a partner in the Abbotsford accounting firm of Peat Marwick Thorne, when he informed the partnership that he wanted to retire and help his sons on their farms. The partnership agreement notice period was reduced considerably and the firm agreed to pay out Mr. Schmidt over $125 000 for goodwill from a previous merger, $65 000 for work in progress, a $55 800 disposition fee payable over five years, and a two-year consulting contract to cover the transition. The agreement also included a term that if he did enter into practice again the disposition fee would not be payable, but that there would be no other ramifications. In fact, he never did intend to retire but had arranged to join another accounting firm, Ernst and Young, and take his clients with him. He eventually took 65 clients with him and had actually been soliciting several other accountants of the firm to go with him during the time he had been negotiating the early retirement agreement. The firm learned of his plans just after he left and stopped payment on the cheques they had issued. Schmidt sued to enforce the contract, and Peat Marwick Thorne sued for the losses associated with the clients lost.

• What is the main issue?
• Explain the arguments on both sides and the likely outcome.

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