COURT FILE NO.: CV-08-354317
DATE: 20121019
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Romani & Associates Insurance Brokers Ltd.
Plaintiff
– and –
SurNet Insurance Group Inc.
Defendant
Enio Zeppieri, for the Plaintiff
Richard J. Mazar, for the Defendant
HEARD: October 15-17, 2012
E.M. Morgan J.
I. The Plaintiff’s claims
[1] The Plaintiff in this trial brings two discreet claims: (a) damages for breach of contract and/or obligations owed to it in equity by the Defendant; and (b) an accounting of certain bonus payments earned during the course of its contractual relationship with the Defendant, 1999-2007.
[2] These two claims, in turn, raise two discreet legal issues: (a) can a Defendant incur liability by terminating a contract in compliance with its termination clause? and (b) can an accounting be awarded as a final remedy where the Plaintiff is seeking not to quantify its claim but to discover whether it has one?
II. The Agreement
[3] The Plaintiff is an insurance brokerage firm whose principal, Flavio Romani (“Romani”), has been in the insurance for over 47 years and has been a licensed broker since 1967.
[4] The Defendant is a company that serves as an umbrella network of independent insurance brokers through which the brokers access the insurance companies who provide the coverage for their customers.
[5] After a number of years operating as a broker under the rubric of Dagmar Insurance Brokers Ltd., the Plaintiff joined the Defendant’s insurance brokerage umbrella by entering into an agreement with the Defendant on May 1, 1999 (the “Agreement”).
[6] The Agreement called for brokerage commissions to be shared 85% for the Plaintiff and 15% for the Defendant. The commissions were calculated by the insurance companies that paid them to the Defendant based on the premium collected from the customer and the type of policy sold (homeowner, commercial, or auto). The Defendant then paid the Plaintiff its 85% share. The Plaintiff raises no dispute here about the payment of commissions.
[7] The Agreement also called for annual bonus payments, or, as they are called in the Agreement, Contingent Profit Commissions (“CPC”). Under para. 7 of the Agreement, CPC was to be paid by the Defendant to the Plaintiff on a calendar basis for each year that the Agreement was in full effect on December 31st, and was calculated in accordance with the same 85/15 split. That is, the insurance companies paid the Defendant CPC on an annual basis in accordance with their own formula, and this was then shared with the brokers under the Defendant’s umbrella, including the Plaintiff. The Plaintiff contends that while it did receive its CPC payments from the Defendant, it has been unable to get the backup documentation from the insurance companies to confirm whether or not the Defendant, and it, received the correct CPC payments.
[8] The term of the Agreement was an indefinite one. Under para. 9 of the Agreement, each party could terminate the Agreement for cause. A specific list of causes for termination of the Plaintiff is found at para. 9(B) and for termination of the Defendant at para. 9(G). In addition, under paras. 9(A) and 9(C) of the Agreement, each party could terminate without cause by giving the other 90 days’ notice of in writing.
[9] The parties maintained their separate legal and business identities. The Defendant was, of course, reliant on the Plaintiff to give it access to customers, while the Plaintiff was, of course, reliant on the Defendant to give it access to insurance companies; beyond this mutual contractual relationship, they carried on business as independent firms. Para. 12 of the Agreement expressly states that the parties are independent contractors, and that nothing in it creates the relationship of employer and employee between the Defendant and the Plaintiff. Para. 11(A) stipulates that all business written by an insurer for a customer introduced by the Plaintiff remains the sole property of the Plaintiff and that the policyholders are the Plaintiff’s customers. Para. 13 states that the Plaintiff has no authority to bind the Defendant on any legal instrument. The Agreement strains to avoid suggesting that the parties have joined together or carry on business in partnership or in any way other than at arm’s length.
III. The contract/good faith claim
[10] On August 14, 2007, the Defendant delivered written notice to the Plaintiff stating that the Agreement will terminate on November 30, 2007. In his testimony, Romani conceded that the 90 day requirement under para. 9(A) of the Agreement was met by this written notice.
[11] The termination letter assured the Plaintiff that it could continue to write business and receive the appropriate commissions pending termination, although it advised the Plaintiff that it must get confirmation from the Defendant before binding it to any new insurance risk. The Plaintiff does not contend that any business was turned away by the Defendant during the notice period. Indeed, it was in the mutual interest of both parties that any new business introduced by the Plaintiff be written.
[12] Further, the termination letter reminded the Plaintiff that customers must be advised of the forthcoming change. The Defendant wrote: “we would like to do this with your assistance so as to protect your relationship with your clients.” Again, the Plaintiff does not contend that any business or customers were appropriated from it by the Defendant upon termination. Romani gave evidence that it was he who advised the customers of the transition; there is no evidence that the Defendant interfered in any way in that process.
[13] Shortly after the November 30, 2007 termination date, the Plaintiff joined Pearson Dunn Insurance Inc. (“Pearson Dunn”) as a replacement for the Defendant. Of the five insurance companies with which the Plaintiff did business under the Defendant’s umbrella, all but one – ING Insurance Co. – was equally available to it under the Pearson Dunn arrangement.
[14] The Plaintiff has produced a list of some 19 customers who had ING policies that could not be transferred when the Plaintiff moved to Pearson Dunn. That list showed that the gross premiums paid by those customers came to just over $30,000, but it did not calculate the commissions payable on those policies (which would have amounted to a fraction of that amount). Beyond that, the Plaintiff has produced no evidence of any other customers lost in the transfer. In fact, there is evidence that the Plaintiff used the change to Pearson Dunn as an opportunity to recruit new customers.
[15] Moreover, the Plaintiff has produced no financial records showing whether it actually sustained lost revenues upon transferring to Pearson Dunn. As counsel for the Defendant points out, it is altogether possible that Pearson Dunn is a highly profitable relationship for the Plaintiff and that the transition actually increased its business overall.
[16] The Plaintiff produced its accountant, Mario Sgro (“Sgro”), to testify about the CPC information that it seeks. In the process, Sgro confirmed that he has prepared the Plaintiff’s financial statements and tax returns since 2006. It is telling, therefore, that he produced no information and provided no testimony as to the profits or losses of the Plaintiff. A comparison of the Plaintiff’s final year with the Defendant (2007) with the Plaintiff’s first year with Pearson Dunn (2008) would have gone a long way to establish whether the transition caused any loss, but no such evidence was presented by the Plaintiff.
[17] The one example provided by the Plaintiff of a cost incurred due to the termination was that the extra work of transferring the business from the Defendant to Pearson Dunn caused it to hire a new contract employee, Ms. Franca Brocca, the following year. Sgro identified Ms. Brocca’s T4A for 2008 as showing employment income of just over $7,000, but he did not know what work she performed. The Plaintiff also produced its office manager, Ms. Ms. Dana Gaspari, as a witness. Interestingly, when Ms. Gaspari was asked about Ms. Brocca, she testified that Ms. Brocca had been retained to look after new customers that were recruited under the Pearson Dunn regime, and not to tend for the customers transferred from the Defendant. The Plaintiff has not led any evidence as to how many new customers the Pearson Dunn move produced or how profitable (or not profitable) that move actually was.
[18] Even more important than the fact that the Plaintiff has not proved any real loss is that the notice of termination was properly issued. The Plaintiff complains that the timing of the notice meant that it was deprived of CPC for the 2007 calendar year since the termination did not extend until December 31st. However, this was precisely as spelled out in the Agreement. As counsel for the Defendant points out, in 1999, the first year of its relationship with the Defendant, the Plaintiff only started work in May but received CPC for the year. Para. 7 specified that CPC would be paid if the Agreement was in force on December 31st, and that CPC would not be paid if the Agreement was not in force on December 31st. Inevitably, the Plaintiff would benefit from this in the first year and not benefit from this in the final year.
[19] There was no breach of contract. Indeed, the Plaintiff concedes that point. Romani was a knowledgeable witness who has dealt for over four decades with insurance brokerage agreements; to his credit he was also an honest witness, even when a particular answer may have been contrary to his interest. He was specifically asked in cross-examination: “So they didn’t do anything wrong under the contract?” His answer was short and to the point: “Apparently not.”
[20] Counsel for the Plaintiff contends that although the Defendant may have complied with the specific termination provision of the Agreement, it was under an obligation to treat the Plaintiff better than provided by the Agreement’s strict terms. He cites Shelanu Inc. v. Print Three Franchising Corp. (2002), 2003 CanLII 52151 (ON CA), 64 OR (3d) 533 (Ont CA) where, at para. 71, the court held that, “the fact that contractual terms are ultimately complied with, does not mean that there has been no breach of the duty of good faith.” Counsel analogizes the relationship between the parties here to parties to a joint venture, who owe “fiduciary duties to each other similar to those owed by partners.” Hogar Estates Ltd. v. Shebron Holdings Ltd. (1979), 1979 CanLII 1880 (ON SC), 25 OR 543 (Ont. HC).
[21] To put the matter that way, however, is to overstate the case. While the Agreement created a business relationship that was of mutual benefit, each side was entitled, within the bounds of honest dealing, to take its own interest into account. The Agreement certainly did not create a fiduciary relationship such as that between trustee and beneficiary or full-fledged partners, where one party has to put the other’s interests before its own. As the Court of Appeal put it in the very case relied on by the Plaintiff: “if A owes a duty of good faith to B, so long as A deals honestly and reasonably with B, B’s interests are not necessarily paramount.” Shelanu, supra, at para. 69, citing Freedman v. Mason, 1958 CanLII 7 (SCC), [1958] SCR 483.
[22] In any case, even if the parties were seen to be joint venturers strictly speaking, the terms of the Agreement govern their relationship. “Where the agreement is, however, silent, the common law superimposes various duties between joint venturers.” Wonsch Construction Company Ltd. v. National Bank of Canada (1990), 1990 CanLII 7004 (ON CA), 1 OR (3d) 382 (Ont CA), at para. 26. In argument I asked counsel for the Plaintiff how, in his view, the termination clause should be interpreted. His response was that after eight years of business between the parties, a good faith interpretation of the termination clause would require one year’s notice.
[23] There is no allegation that the Agreement was entered into with unequal bargaining power between the parties or that it was otherwise unconscionable. The purpose of the duty of good faith is to fill in reasonable terms where there are contractual silences and, further, to ensure that parties treat each other honestly and that they do not manipulate contractual terms to gain an advantage that was never envisioned. The obligation of ‘good faith’ does not, however, ratchet up the express terms of the Agreement. Three months plus good faith does not add up to 12 months.
[24] As indicated above, there is no evidence that the Defendant deprived the Plaintiff of any of its rights, or that the termination caused any financial loss for the Plaintiff. While the Plaintiff no doubt had to work hard to transfer its business from one umbrella brokerage to a new brokerage, it led no evidence as to any change in its profitability. Furthermore, there is no evidence that the Defendant acted in an oppressive manner that caused the termination to be more difficult than it needed to be. Quite the contrary, the Defendant appears to have facilitated the termination, made no claim on the Plaintiff’s customers, permitted the Plaintiff to continue to earn commissions during the notice period, and generally deferred to the Plaintiff as to how to handle the transition.
[25] The parties remained very cordial throughout the termination period. Indeed, the relationship ended with Romani writing to the principals of the Defendant on September 13, 2007, wishing them “all the success in the world and please know that you will always be welcomed here.” While I do not mean to hold against Romani the fact that he is a polite gentleman, the truth is that there was nothing in the Defendant’s conduct to prompt animosity from the Plaintiff or to even hint of bad faith.
[26] I find that the Defendant acted in accordance with the Agreement and in good faith. In any case, there is no evidence that the termination of the Agreement caused the Plaintiff financial loss.
III. The claim for an accounting
[27] As explained above, the Plaintiff’s desire for an accounting is related to the CPC payments it received during the course of its business relationship with the Defendant.
[28] The Plaintiff’s chief witness on this branch of its claim was Sgro. It is important to understand that the Plaintiff makes no specific claim that it was underpaid in any given year or that the CPC owed to it was miscalculated.
[29] Indeed, the Plaintiff concedes that the Defendant calculated the CPC payments correctly in the sense that the Plaintiff always received the right percentage of the Defendant’s own annual CPC. Its complaint is that without being able to verify the underlying calculations performed by the insurance companies when they paid the Defendant its CPC each year, the Plaintiff cannot be sure whether the Defendant was shortchanged – which would, in turn, have caused the Plaintiff to be shortchanged. As Sgro put it: “[t]his is strictly a fact finding mission in order to get to a position to ask questions”.
[30] On the witness stand, Sgro conceded that although the Defendant did not initially provide any of the underlying documentation that the Plaintiff sought, much information from the insurance companies has been supplied by the Defendant during the discovery stage of the present action. Sgro’s response was that information coming through the Defendant is not enough; he wants it directly from the insurance companies. Otherwise, he stated when cross-examined on the point: “[t]here is no way to determine if that is correct or not.”
[31] In other words, what the Plaintiff wants is raw data that is not in the hands of the Defendant, but rather that is in the hands of the insurance companies that paid the Defendant its CPC each year (and that then got divided up with the Plaintiff and other brokers under the Defendant’s umbrella). Some, although according to Sgro, still not all of that information was forthcoming as a result of a summons to witness served on a representative of the largest of the relevant insurance companies, Intact Insurance.
[32] When Sgro was asked specifically whether the Plaintiff was missing any CPC payments, his answer made it clear that he has no such evidence. As he put it: “I’m looking for completeness.” The Plaintiff’s claim is not for an accounting of a loss; it is a claim for an accounting in order to determine whether or not there may have been a loss.
[33] In Re State of Norway’s Application, [1989] 1 All ER 622 (HC), Lord Justice Kerr defined the term “fishing” as follows:
It is the search for material in the hope of being able to raise allegations of fact, as opposed to the elicitation of evidence to support allegations of fact, which have been raised bona fide with adequate particularization.
[34] This is precisely what the Plaintiff seems to be doing. In fact, the Plaintiff goes one step further than the usual search for information from the opposing party. It seeks an accounting that is really one step removed from the Defendant – i.e. information that comes from the insurance companies that paid the Defendant. There is there no basis in the Agreement for such a request. Moreover, one wonders where the need for “completeness” will end. After all, the insurance companies doubtless based their CPC payments to the Defendant on their own profitability in a given year, which will have been based on yet some further documentation that could conceivably be open for question, etc.
[35] As described by another common law court, “a fishing expedition…refers to the aimless trawling of an unlimited sea.” Thyssen Hunnebeck Singapore Pte Ltd. v. TTJ Civil Engineering Pte Ltd. (2003), 1 SLR 75 (Sing SC). That is an apt description of this form of extended search for information not from the Defendant but from parties who supplied the Defendant, and then possibly from parties who supplied the parties who supplied the Defendant, all without any actual allegation of miscalculation or wrong payment. It cannot, and does not, form the basis of a legitimate claim for relief.
IV. Conclusion
[36] There is simply no merit to any of the Plaintiff’s claims. The Agreement was not breached, the termination was effected in accordance with its terms, in good faith and resulting in no loss to the Plaintiff. Further, there is no cause for an accounting of CPC payments.
[37] The action is dismissed.
[38] The Defendant shall have its costs of this action. Counsel for the Defendant is to provide me with a Bill of Costs and any written submissions on costs within 10 days of the release of these reasons for judgment. If counsel for the Plaintiff finds it necessary to make any response, it shall be made in writing and delivered to me within 5 days of receiving the Defendant’s submissions.
Morgan J.
Released: October 19, 2012
COURT FILE NO.: CV-08-354317
DATE: 20121019
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Romani & Associates Insurance Brokers Ltd.
– and –
SurNet Insurance Group Inc.
REASONS FOR JUDGMENT
Morgan J.
Released: October 19, 2012