COURT FILE NO.: CV-13-484468
DATE: 20140619
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CANACCORD GENUITY CORP.
Plaintiff
– and –
KRISHNA SAMMY and MICHAEL MINGHELLA
Defendants
Clarke Tedesco, for the Plaintiff
Robyrt H. Regan, for the Defendant Krishna Sammy
HEARD: June 11, 2014
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION
[1] The Plaintiff Canaccord Genuity Corp. is an investment dealer. It had an agency relationship with the Defendant Krishna Sammy, who was an investment advisor.
[2] Under the written Agency Agreement between Canaccord and Mr. Sammy, Canaccord made a substantial forgivable loan to him, but if the agency relationship was terminated - for cause or without cause or for other reasons, including the resignation of Mr. Sammy - the loan to Mr. Sammy was to be repaid immediately with interest.
[3] In circumstances that I will describe below, the agency relationship did end, but Mr. Sammy did not repay the loan. He also did not repay a loan made to the co-defendant, Michael Minghella, for which loan’s repayment, Mr. Sammy was also liable.
[4] Canaccord sues for repayment of the loans, and it has made a partial recovery from Mr. Minghella, with whom it has reached a settlement.
[5] Canaccord now brings a motion for a summary judgment against Mr. Sammy. It seeks repayment of $668,643.91 for the loan to Mr. Sammy and $26,665.71 for the balance of the loan to Mr. Minghella.
[6] Mr. Sammy has a counterclaim for damages for breach of the Agency Agreement. He submits that Canaccord lured him into the agency relationship in order to acquire his book of business with the intent of then terminating the relationship and keeping the business.
[7] Mr. Sammy submits that Canaccord is liable for misrepresentation and for unjust enrichment and that it breached its contractual duty to act in good faith.
[8] He submits that Canaccord’s breach of its duty of good faith has discharged him from his obligation to repay the loans, and in the alternative, he submits that if the loans are repayable, he has an overtopping claim for damages. He claims an equitable set-off.
[9] Mr. Sammy resists the summary judgment motion, and he seeks a trial of his counterclaim for damages.
[10] For the reasons that follow: (a) I grant Canaccord a partial summary judgment of $668,643.91; (b) I adjourn the matter of the Minghella loan for the delivery of further evidence on this motion for summary judgment; and (c) I order Mr. Sammy’s counterclaim to trial in the ordinary course.
[11] I do not stay the execution of the summary judgment.
B. FACTUAL BACKGROUND
[12] Canaccord is an investment dealer registered with the Ontario Securities Commission (“OSC”) and a member of the Investment Industry Regulatory Organization of Canada (“IIROC”), a self-regulatory organization, which is recognized by the OSC.
[13] In the investment industry, investment dealers sell securities to clients through the services of investment advisors. The investment advisors may be employees or they may be independent contractors with an agency relationship with the investment dealer.
[14] In order for an investment advisor to trade in securities, he or she must be registered with IIROC, and one of the pre-conditions for registration as an investment advisor is that he or she be sponsored by an investment dealer that is a member of IIROC. Once registered, the investment dealer will supervise the investment adviser in his or her dealings with clients.
[15] The client will have an account and a contractual relationship with the investment dealer but his or her interpersonal relationship will be with the investment advisor. The investment advisor earns a living from his or her so-called “book of business” with clients.
[16] Mr. Sammy had been involved in the financial services and investment industry since 1989. Before his relationship with Canaccord, Mr. Sammy, who now lives in Georgetown Guyana, was a successful investment advisor associated with Dundee Wealth Management and its predecessors.
[17] Mr. Sammy had an office and his own staff in Brampton, Ontario. In 2010, his gross income was $1,155,635.00. In 2011, his gross income was $884,893.00.
[18] In the fall of 2011, George Karkoulas, the managing director of Canaccord, invited Mr. Sammy to resign as an agent for Dundee and to join Canaccord.
[19] Mr. Sammy says that to induce him to move from Dundee to Canaccord, Mr. Karkoulas represented that Canaccord would make an advance payment to compensate Mr. Sammy for his “down time” and for the expenses of moving his book of business to Canaccord.
[20] After some negotiating during the fall, on December 15, 2011, Canaccord signed an Agency Agreement with Mr. Sammy. The Agency Agreement made Mr. Sammy an agent of Canaccord, but not an employee. Under the Agreement, he received remuneration for providing services to the investor clients. His Agency Agreement included a loan of the nature discussed with Mr. Karkoulas.
[21] Mr. Sammy also signed the Associate Agent Agreement between Canaccord and Mr. Minghella, who had been a member of the staff at the Brampton office. Pursuant to Schedule “C” of the Associate Agent Agreement, Mr. Sammy agreed that in the event that a loan to Mr. Minghella was not repaid, the obligation to repay would become Mr. Sammy’s obligations.
[22] For present purposes, the relevant terms of the Agency Agreement between Canaccord and Mr. Sammy are set out in Schedule “A” to these Reasons.
[23] As already noted, pursuant to the the Agency Agreement, Mr. Sammy received a loan, in the amount of $622,000.00, which was paid to him in six installments between December 2011 and June 2012. The interest rate after default was at the prime rate of interest charged by the Bank of Montreal for Canadian dollar loans plus 2.5% per annum, calculated and compounded monthly.
[24] Mr. Sammy says that the loan under the Agency Agreement was the advance of which Mr. Karkoulas had spoken during their negotiations in the fall of 2011 and an integral non-severable part of the Agency Agreement.
[25] Pursuant to the Associate Agent Agreement, Canaccord lent $60,000 to Mr. Minghella.
[26] After signing the Agency Agreement, Mr. Sammy brought his book of business to Canaccord and the Dundee clients transferred their accounts to Canaccord.
[27] In 2012, Canaccord’s compliance department came to have concerns about investments that had been made by Mr. Sammy’s investors in Northcore Technologies (“NTI”) and Mahdia Gold (“MGD”), ‘small-cap’ mining and resource companies that had lost significant value by the time the clients’ accounts had been transferred to Canaccord.
[28] Canaccord learned that these investments comprised over 25% of the assets that Mr. Sammy was managing. Canaccord considered this to be a serious regulatory violation. Further, the clients were expressing concerns about these investments. Further still, it appeared that Mr. Sammy was having undisclosed meetings with NTI’s and MGD’s senior management.
[29] The IIROC was also concerned about the clients’ investments in NTI and MGD, and on June 20, 2012, Jeff Kehoe, the Vice-President of the Enforcement Department at IIROC, sent a letter to Bruce Maranda, Chief Compliance Officer at Canaccord, informing him that a formal regulatory investigation of Mr. Sammy was underway.
[30] Canaccord decided to end its relationship with Mr. Sammy, and on August 16, 2012, it terminated the relationship without cause and on 90-days’ written notice. The termination was to be effective on November 15, 2012.
[31] Canaccord says that it acted in this way to ensure that Mr. Sammy would face no further regulatory scrutiny and so that his reputation would not be harmed. It says that the 90-day notice period was provided so that Mr. Sammy could seek out and enter into another contract for services with another IIROC Dealer Member.
[32] It strikes me that if there were genuine concerns about Mr. Sammy’s compliance with regulatory requirements, it might have been inappropriate for Canaccord to proceed in this fashion, but, in any event, Mr. Sammy denies any wrongdoing. He states that the allegations against him are unproven and are fabrications that were designed to provide an excuse to end the relationship and to appropriate his book of business.
[33] Mr. Sammy says that the termination of the Agency Agreement was a breach of an implied duty of good faith. He says that because of the abrupt termination, he was unable to transfer his book of business to another dealer and that he lost his substantial income.
[34] In any event, with the termination of the agency relationship, Canaccord demanded repayment of its loans to Mr. Sammy and Mr. Minghella. However, Mr. Sammy says that the wrongful termination of the Agency Agreement discharged his obligation to repay the loans.
[35] On November 15, 2012, Mr. Sammy and Mr. Minghella both resigned from Canaccord. Under the terms of the Agency Agreement a resignation would also trigger the requirement to repay the loans made by Canaccord.
[36] It is not clear to me why Mr. Sammy resigned after he had already been given notice that the agency relationship was to terminate on November 15, 2012.
[37] After his relationship with Canaccord had ended, Mr. Sammy did not re-register with the IIROC. He did not continue to act as an investment advisor. He was unable to transfer his clients’ investments, his book of business, to another investment dealer and apparently most of the clients continued to do business with Canaccord.
[38] Canaccord continued to service Mr. Sammy’s clients after his departure.
[39] When Canaccord received a valid authorization from a former client of Mr. Sammy to transfer his or her assets or accounts to another dealer member, it did so.
C. POSITION OF THE PARTIES
[40] Mr. Sammy submitted that it was an implied term of the Agency Agreement that it would not be terminated except with cause. Further, he submitted that there was an implied term that the parties would deal with each other in good faith.
[41] Mr. Sammy argued that the loan was an integral part of the Agency Agreement and that his liability could not be determined without a “holistic view” as to the circumstances that led to the Agreement and whether Canaccord was in breach of the Agreement.
[42] He submitted that this was not a simple case of a default under a loan agreement and that there were issues requiring a trial: about whether the parties were ad item; about how to interpret the Agency Agreement; about whether Canaccord had breached the Agreement; and about whether Mr. Sammy was discharged from repaying the loan.
[43] As it emerged during oral argument at the hearing of the summary judgment motion, the theory of Mr. Sammy’s defence to the summary judgment motion and the basis of his counterclaim for damages was that the manner of his termination was a breach of an implied duty of good faith. Mr. Sammy submitted that the breach of the duty of good faith discharged his liability to repay the loan and was also the basis of a breach of contract counterclaim for damages.
[44] He further argued that if the loan under the Agency Agreement was not discharged, his claim for damages provided an overtopping equitable set-off that was a defence to Canaccord’s debt claim.
[45] Relying on TD Waterhouse v. Little,^1 and Canaccord Genuity Corp. v. Beck,^2 Canaccord’s position was that the claim for repayment of the loan is a straightforward debt claim and all of Mr. Sammy’s defences are without merit.
D. DISCUSSION AND ANALYSIS
1. The Test for Summary Judgment
[46] There was no dispute between the parties about the test for a summary judgment.
[47] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if “the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.”
[48] Rules 20.04(2.1) and (2.2), which were introduced in 2010, provide the court with the power to weigh the evidence, evaluate the credibility of a deponent and draw reasonable inferences from the evidence.
[49] In Hryniak v. Mauldin,^3 a unanimous Supreme Court of Canada introduced a robust approach to granting summary judgment. In paragraphs 49 and 66 the Court stated:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
[50] Thus, in Hryniak v. Mauldin, the Supreme Court of Canada held that on a motion for summary judgment under rule 20.04, the court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record, without using the new fact-finding powers.
[51] Thus, the Supreme Court directs, for the first step on a summary judgment motion, that the court use the approach that existed before Rule 20 was amended. Thus, the court should first determine, based on the evidentiary record, whether there is a genuine issue requiring a trial. This analysis should be done without using the enhanced fact-finding powers available under rules 20.04(2.1) and (2.2) by reviewing the factual record and granting a summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and a summary judgment would be a timely, affordable and proportionate procedure.
[52] In the case at bar, for the reasons set out below, based on the evidence presented and without the use of the powers provided by rules 20.04(2.1) and (2.2), I am satisfied that summary judgment should be granted for the claim for repayment of the loans.
[53] As I shall explain, the liability to repay the loans is largely a matter of contract interpretation and, with an exception for Mr. Sammy’s liability for the loan to Mr. Minghella, the record is sufficient to decide the interpretative issue on a summary judgment motion.
[54] In the case at bar, it is not necessary to go on to the second step of the approach mandated by Hryniak v. Mauldin.
2. The Claim for Repayment of the Minghella Loan
[56] At the outset of the discussion of the merits of Canaccord’s summary judgment motion, I can quickly deal with Canaccord’s claim for repayment of $26,665.71 for the $60,000 loan to Mr. Minghella.
[57] I understand that the $26,665.71 is the balance outstanding for that loan after Canaccord reached a settlement with Mr. Minghella. Canaccord, however, did not place the terms of the settlement into evidence and, therefore, there is a genuine issue as to whether any sum is due from Mr. Sammy or whether the discharge of Mr. Minghella also discharged Mr. Sammy’s liability for that debt.
[58] Because this claim may be amenable to a summary judgment, I adjourn this part of the summary judgment motion, and I grant Canaccord leave to file additional material within 20 days if it wishes to pursue this claim.
[59] Mr. Sammy may file reply material, and either party may bring on the summary judgment motion. If, however, Canaccord does not file additional material within 20 days, then this part of the motion for summary judgment is dismissed.
3. The Claim for Repayment of the Loan to Mr. Sammy
[60] Turning now to Canaccord’s claim for repayment of the loan that it made to Mr. Sammy, I can summarize my analysis and its conclusions as follows.
[61] In my opinion, there are genuine issues requiring a trial: (a) about whether Canaccord’s right to terminate the Agency Agreement was infused with the principles of good faith; and (b) about whether Canaccord’s duty, if any, with respect to the termination of the contract was breached with consequent claims for breach of contract, misrepresentation, or unjust enrichment.
[62] However, in my opinion, there is no genuine issue requiring a trial that the loan made to Mr. Sammy pursuant to Schedule “D” of the Agreement is due and payable upon termination for whatever reason.
[63] In other words, in my opinion, the loan was repayable even if Canaccord breached a duty of good faith, if any. This is a matter of contract interpretation, and under the Agency Agreement, Canaccord can terminate with cause or without cause and then demand repayment of the loan.
[64] It follows from this analysis that Canaccord’s summary judgment motion for repayment of the loan should succeed and that Mr. Sammy’s counterclaim should proceed to a trial.
[65] Further, in the circumstances of this case, I would not exercise the court’s discretion to stay Canaccord’s judgment.
[66] Finally, by way of summary, apart from resolving the matter of Mr. Minghella’s loan, I also see no reason to remain seized of this action pursuant to the case management authority mentioned by the Supreme Court of Canada in Hryniak v. Mauldin, supra. Mr. Sammy’s counterclaim remains to be tried in the normal course.
[67] Turning to the case law, it supports the above line of analysis.
[68] The case at bar is analytically quite similar to TD Waterhouse v. Little, supra.
[69] In the TD Waterhouse case, the plaintiff TD Waterhouse carried on business as an investment dealer. The defendant Mr. Little was its employee, hired to act as an investment advisor. TD Waterhouse sued Mr. Little for repayment of three loans that had been made as part of his employment contract. TD Waterhouse brought a motion for a summary judgment, which was resisted by Mr. Little. He argued that he was not liable to repay the loans because of the malicious manner of his termination. In the alternative, he argued that if he was liable for the three loans, he was entitled to an equitable set-off because of his wrongful dismissal counterclaim.
[70] In TD Waterhouse, the evidence at the summary judgment motion was that Mr. Little was recruited in 2001 to join TD Waterhouse’s London, Ontario office, and at the time of commencing his employment, he was granted a loan of $348,091.20 to be repaid over a five year term.
[71] Justice MacDonnell, on the summary judgment motion, held that Mr. Little had been terminated for cause in March 2006 and, therefore, the outstanding balance of the first loan, just $5,801.52 was due and payable. Justice MacDonnell also concluded that $450,855.00 was due and payable on the second and third loans because Mr. Little had been terminated in good faith.
[72] Justice MacDonnell, however, went further and decided that if he was wrong, as a matter of contract interpretation, the second and third loans were repayable “for any reason whatsoever and whether for cause or otherwise.”
[73] In other words, Justice MacDonnell’s opinion was that while the good faith or bad faith of TD Waterhouse would be relevant to Mr. Little’s wrongful dismissal claim, it was irrelevant to the issue of whether the loan that was part of the employment contract was repayable.
[74] The analytical reasoning in the TD Waterhouse case, which was affirmed by the Court of Appeal, applies to the circumstances of the case at bar.
[75] In my opinion, although Mr. Sammy may be able to assert that the duty of good faith applied with respect to the termination of the Agency Agreement, the parties have contracted out of good faith being a factor in the obligation for repayment of the loan agreement.
[76] In the TD Waterhouse case, Justice MacDonnell went on to decide that Mr. Little’s wrongful dismissal claim did not establish a defence of equitable set-off to the claim for repayment of the loan.
[77] For the case at bar, I do not need to decide whether Mr. Sammy’s claim for breach of the Agency Agreement can be set-off against Canaccord’s claim for repayment of the loan.
[78] The judgment in TD Waterhouse v. Little was relied on by Justice Chapnik in Canaccord Genuity Corp. v. Beck and not surprisingly Canaccord, which was the successful plaintiff in that case, relies on it in the immediate case to support its motion for summary judgment.
[79] The facts of Canaccord Genuity Corp. v. Beck were that Mr. Beck was an investment advisor working with the investment firm of Raymond James Ltd.
[80] Canaccord’s action was tried in November 2013 by Justice Chapnik.
[81] Justice Chapnik summarized her conclusions at paragraph 61 of her judgment as follows:
- At the end of the day, this is a simple action on a debt. The type of loan agreement at issue in the case at bar appears to be standard in the industry, and our courts have not hesitated to enforce them in the past.
[82] Returning to the case at bar, one can understand why Canaccord would rely on Justice Chapnik’s judgment in Canaccord Genuity Corp. v. Beck but upon analysis, it is a neutral case.
[83] In the case at bar, there is no genuine issue requiring a trial about the circumstances that the loan was made and not repaid. There is no genuine issue for trial about the interpretation and application of the terms of the loan agreement. By the termination of the agency relationship without cause and on 90-days’ notice or by the termination of the agency relationship by Mr. Sammy’s resignation, the loan became repayable. Accordingly, Canaccord is entitled to a summary judgment in the amount of $668,643.91.
4. The Request for a Stay of the Summary Judgment
[84] After granting a summary judgment, the court may stay its execution. The granting of a stay, however, is discretionary and will depend on the facts of the particular case.
[85] In the immediate case, I would not exercise my discretion to stay execution of the summary judgment on the loan.
[86] It was a part of Mr. Sammy’s bargain with Canaccord that it could demand and recover repayment of the loan should their relationship end. He may pursue his counterclaim against Canaccord, but as this juncture, whatever the merits of the counterclaim, of which I make no assessment, the existence of the counterclaim does not provide a sufficient reason to stay execution of the enforcement of the loan agreement.
E. CONCLUSION
[87] For the above reasons, I grant the summary judgment motion as aforesaid.
[88] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Canaccord’s submissions within 20 days of the release of these Reasons for Decision followed by Mr. Sammy’s submissions within a further 20 days.
Perell, J.
Released: June 19, 2014