ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 09-CV-389450
DATE: 20150806
B E T W E E N:
doug kechnie and KECHNIE financial group inc.
Plaintiffs
- and -
sun life assurance company of canada, sun life financial investment services (canada) inc. and sun life financial distributors (canada) inc.
Defendants
Jeffrey Larry and Alysha Short, for the Plaintiffs/Defendants by Counterclaim
Stephen F. Gleave and Richelle Pollard, for the Defendants/ Plaintiffs by Counterclaim
AND BETWEEN:
sun life assurance company of canada, sun life financial investment services (canada) inc. and sun life financial distributors (canada) inc.
Plaintiffs by Counterclaim
- and –
doug kechnie, kechnie financial group inc., JEFFREY Kechnie and KECHNIE HEALTH and wealth management inc.
Defendants by Counterclaim
HEARD: September 8, 9, 10 and 12, 2014
STEWART J.
Nature of Action
[1] Kechnie Financial Group Inc. (“KYFG”) has brought this action seeking a declaration that Sun Life Assurance Company of Canada, Sun Life Financial Investment Services (Canada) Inc. and Sun Life Financial Distributors (Canada) Inc. (“Sun Life”) are obligated to pay to it the amount of $22,435.19 per month for 120 months beginning November, 2008. It also seeks those same claimed payments as damages for breach of contract by Sun Life.
[2] Doug Kechnie and KYFG also claim the sum of $1,000,000.00, being what they claim is the value of what they allege to be the value of their “book of business” which they say they were prevented from realizing upon as a result of the wrongful actions of Sun Life.
[3] Sun Life denies that any amounts are owing to the Plaintiffs.
[4] The Counterclaim advanced against the Plaintiffs in these proceedings is not being pursued by Sun Life.
Background
[5] Doug Kechnie is an insurance professional who sold insurance and financial products of Sun Life (previously Clarica) to clients for more than 30 years through his company KFYG.
[6] Over the years of their association, KFYG had entered into a series of Advisors’ Agreements and Mutual Fund Advisors’ Agreements (“Agreements”) with Sun Life which authorized it to sell Sun Life products to clients. Under these Agreements, KYFG was paid commissions on products it sold, depending on the type and nature of the products.
[7] In 1989, the parties entered into a new system for payment of compensation. Before doing so, extensive consultation with advisors occurred. In addition to receipt of regular commissions, advisors like KYFG were eligible to receive certain payments called “CORe”, an acronym for Commissions on Release. CORe payments were to be payable upon termination of the Agreements on the condition that advisors must release and assist in the transition of policies and clients to other Sun Life advisors.
[8] In KFYG’s case, the requirement for receiving CORe payments referred to those Sun Life clients’ in-force policies and accounts that KYFG/Kechnie serviced at the time of termination of the Agreements. Upon compliance, CORe payments were to be made in equal monthly payments over a period of ten years following termination of the Agreements.
[9] As described by Sun Life, the system is designed to promote the growth of the network of advisors who sell Sun Life insurance and wealth products. Upon the departure of an advisor, clients are “transitioned” to other Sun Life advisors. New advisors pay a value for the right to service these clients, the value of which is established under the CORe programme. Sun Life brokers the arrangement but does not earn any money as a result. As described, the system is designed to be financially “net neutral” to Sun Life
[10] Sun Life terminated its relationship with KYFG in October, 2008. Although Kechnie and KYFG may not agree with Sun Life’s reasons for so doing which involve a belief that Kechnie did not comply adequately with certain rules and procedures, they do not challenge Sun Life’s contractual entitlement to make the decision to terminate nor do they claim any damages as a result of the termination itself.
[11] As a result, much of the evidence of the circumstances leading up to the termination of the relationship, the reasons for doing so and the wisdom or fairness (or lack thereof) is entirely irrelevant to the fair and just determination of the issues raised by the parties in this action. The issues raised principally involve the terms of the Agreements entered into by them and their implications for payment of any moneys following termination.
[12] The present dispute arises because Sun Life has taken the position that KYFG refused to co-operate in the transfer or transitioning of client policies to Sun Life after their relationship was terminated. Sun Life further alleges that upon his departure Kechnie joined his son at Kechnie Health & Wealth Management (“KHWM”) and then systematically advised, counselled or induced clients to replace accounts and policies of Sun Life clients with other products secured through KHWM provided by other financial institutions, thus failing to fulfil the obligations imposed by the Agreements.
[13] When Sun Life became aware of this conduct, it terminated the balance of the stream of CORe payments to be made to KYFG. Only one payment of approximately $22,000.00 was made.
[14] Kechnie and KYFG claim that Sun Life has breached its obligation to pay the CORe payments owing to KYFG and claim entitlement to receive the balance of all payments outstanding.
[15] Sun Life takes the position that it was entitled to terminate CORe payments pursuant to the terms of the Agreements.
Issues:
A: Are Kechnie and/or KYFG entitled to receive CORe payments from Sun Life pursuant to the Agreements?
B: Are the provisions of the Agreements disentitling Kechnie and/or KYFG to receive CORe payments unenforceable as punitive forfeiture clauses or an unreasonable restraint of trade?
C: Are Kechnie and/or KYFG entitled to receive any further payments from Sun Life on any other basis?
Issue A: Are Kechnie and/or KYFG entitled to receive CORe payments from Sun Life pursuant to the Agreements?
[16] At the time of the termination by Sun Life of its relationship with KYFG, the parties’ rights and obligations were governed by the provisions of an Advisor’s Agreement dated January 1, 2003, and a Mutual Funds Advisor’s Agreement dated February 9, 2004.
[17] Section 6 of the Advisor’s Agreement provides for entitlement to and payment of commissions. In particular, s. 6.7 thereof addresses the nature and availability of CORe payments, as follows:
6.7.1 Payment of Commissions on Release: Upon the termination of this Agreement, the Advisor is to cease Servicing all Policies that were being Serviced by the Advisor immediately prior to the termination of this Agreement, whether they are Personal Policies, Assigned Policies or Replacing Policies. After termination of this Agreement, otherwise than by the death of the Representative, Commissions under Schedule VI are paid to the Advisor, on all such Policies that are of a type referred to in that Schedule. No further Commissions are payable to the Advisor on any Policy whatsoever, under any provision of this Agreement or under any Commission Schedule whatsoever, other than Schedule VI.
6.7.2 Termination of CORE: If, after the termination of this Agreement and while Commissions under Schedule VI continue to be paid to the Advisor, the Advisor or the Representative, on the Advisor’s behalf, on the Representative’s behalf, on behalf of a Financial Institution or Intermediary or on behalf of any other person, either directly or indirectly, advises, counsels or induces a Client holding a Policy on which such Commissions are being paid, to:
(a) terminate, surrender, cancel or Replace the Policy;
(b) to allow the Policy to lapse; or
(c) to reduce the amount of the Premiums being paid under the Policy.
Thereafter no further Commissions are payable to the Advisor, under any provision of this Agreement or under any Commission Schedule, on any Policy whatsoever.
If the Advisor or the Representative Replaces or attempts to Replace a Policy on which Commissions are being paid under section 6.7.1, thereafter no further Commissions whatsoever are payable to the Representative on any Policy whatsoever, under any provision of this Agreement or any Commission Schedule.
6.7.3 Clients: The Company will, upon a request made after the termination of this Agreement, advise the Advisor whether a particular person named in the request is a Client referred to in section 6.7.2 of this Agreement.
6.7.4 Termination of CORE:
The Advisor acknowledges and agrees that:
(a) Commissions payable on Released Policies, after the termination of this Agreement, are calculated based upon the Premiums expected to be received on those Policies, after the termination of this agreement;
(b) in agreeing to the terms of Schedule VI and in making the calculations described in Schedule VI, the Company assumes that the Advisor and the Representative will not engage in the conduct referred to in section 6.7.2 of this Agreement;
(c) any such conduct would fundamentally adversely affect the actuarial assumptions upon which Schedule VI and the Commissions calculated thereunder are based; and
(d) the provisions of this section 6.7 are reasonable in the circumstances and are necessary for the protection of the legitimate business interests of the Company, its Affiliates and Portal Suppliers.
6.7.5 Definition of “Replace”: in this section 6.7, “Replace”, means,
(a) either directly, or indirectly advising, counseling, or inducing a Client to
i. terminate, surrender, cancel or rescind a Policy,
ii. allow a Policy to lapse,
iii. reduce the amount of the Premiums being paid under a Policy, or
iv.effect any transaction involving a Policy which would constitute a replacement of a contract of life insurance as defined by Law; or
(b) either directly or indirectly, facilitating, participating in or assisting in an event, or series of events which results in, or is designed to result in,
i. the termination, surrender, or replacement of a Policy,
ii. the lapse of a Policy,
iii. a reduction in the amount of Premiums being paid under a Policy, or
iv. a transaction, in respect of a Policy, which would constitute the replacement of a contract of life insurance, as defined by law; or,
(c) completing or signing as advisor, a Life Insurance Disclosure Statement Regarding Replacement of Contracts of Life Insurance, Prior Notice replacement of a life Insurance policy, or other similar document, in respect of a Policy.
6.7.6 Severability: Notwithstanding the provisions of section 11.9, none of the provisions of this section 6.7 are severable from the remainder of section 6.7. If any portion of section 6.7 is determined to be invalid or unenforceable in a legal proceeding before a competent tribunal, the whole of section 6.7 shall be deemed to be invalid and unenforceable for the purposes of that particular legal proceeding, or any related proceedings.
[18] The Advisor’s Agreement also contains a Non-Solicitation After Termination provision, as follows:
8.1 Non-Solicitation – All Clients – 1 year: Neither the Advisor nor the Representative shall, for a period of one year from the date of termination of this Agreement, on the Advisor’s behalf, on the Representative’s behalf, on behalf of any Financial Institution or Intermediary, or on behalf of any other person, either directly or indirectly, contact (in connection with the provision of financial products or services) solicit business from or service.
8.1.1 any person who is, on the date of termination of this Agreement a Client; or
8.1.2 any person who is, on the date of termination of this Agreement, a Client and is known, by the Advisor or the Representative at the time of such contact, solicitation or provision of service, to have been a Client at the date of termination of this Agreement.
8.2 Non-Solicitation – Personal and Assigned Clients - 2 years: Neither the Advisor nor the Representative shall for a period of two years from the date of termination of this Agreement, on the Advisors behalf, on the Representative’s behalf, on behalf of any Financial Institution or Intermediary, or on behalf of any other person either directly or indirectly, contact, solicit business from or service, (in connection with the provisions of financial services) any person who is, on the date of termination of this Agreement, a Client, if the Advisor or the Representative have, at any time, whether before this Agreement was entered into, while it is in force, or after its termination, received any Commission or any other form of compensation from the Company, or any of its Affiliates, arising from a transaction involving that Client.
8.3 Injunction and Appropriate Remedy: Without prejudice to, and in addition to any other recourses or remedies which the Company or its Affiliates may have in the event that the Advisor or the Representative violates any of the provisions of the section 8, including without limitation, an action in damages, the Company or its Affiliates has the right to obtain an injunction enjoining any such violation. The Advisor and the Representative acknowledge and agree that, in the event of any such violation, the Company or its Affiliates will suffer irreparable harm for which monetary damages are not an adequate remedy and that an interim, interlocutory and permanent injunction, or any one of them, would therefore be necessary and appropriate remedies in the circumstances.
8.4 Group Insurance: Nothing in this section 8 prevents the Advisor or the Representative, after the termination of this Agreement, from contacting, soliciting business from or servicing, in competition with the Company, any person, solely in respect of a contract of group insurance (as defined by Law).
8.5 Clients: The Company will, upon a request made after the termination of this Agreement, advise the Advisor whether a particular person named in the request is a Client referred to in this section.
8.6 Reasonable Provision: The Advisor and the Representative acknowledge and agree that the provisions of this section 8 are reasonable in the circumstances and are necessary for the protection of the legitimate business interests of the Company and its Affiliates.
[19] The Mutual Fund Advisor’s Agreement embraces these provisions and also contains a non-solicitation clause. Other agreements entered into, including a Distributor’s Agreement and Investment Services Agreement, contain similar descriptive detail of what generally is considered to be replacement activity.
[20] On October 21, 2008, a few days before the actual termination date of these Agreements, Kechnie caused to be sent out to many customers and policy holders with whom he had dealt while with Sun Life a letter, printed on Sun Life Financial letterhead, as follows:
Re: Moving to Kechnie Health and Wealth Management Inc. (KHWM Inc.)
Dear (Name of Client),
Throughout my thirty plus years in the Financial Services Industry, I have had to deal with a lot of challenges, and the current Credit Crisis in the World Markets is right up there with the biggest of them!
Concurrently I am advising you that Kechnie Young Financial Group Inc. and Sun Life (formerly Clarica) were not able to reach a mutually satisfactory agreement for the continuation of our relationship.
Therefore, effective October 30th, 2008, KYFG Inc. will be ceasing its operations.
However, I am pleased and excited to announce that I will be rejoining my son, Jeff, at Kechnie Health and Wealth Management Inc. the following day. I will continue providing the same services that I have for the past thirty plus years.
Please note: there will be no change in location or phone numbers, and my new email address will be doug@kechnie.com should you wish to contact me. The choice is yours for who you wish to assist you with your future financial and investment needs.
Despite the hardships that all of us are going through right now in dealing with the changes in the market, there are always good things that come out of these type of events. Our mantra over the years has always been, “if it’s not good for the client, it’s never good for us.” In all the challenges that we have had to face, this has been at “the core” of how we deal and process everything we do.
If you have any questions, feel free to contact me. Thank you for your support and understanding.
Warmest Regards,
Doug
[21] When these communications came to the attention of Sun Life, objections were raised with Kechnie. As a result, Kechnie stopped sending such communications on Sun Life letterhead and also altered the specific content of his communications to clients. Subsequent correspondence from him to clients stated as follows:
From: Doug Kechnie [mail to: Doug@kechnie.com]
Sent: November 7, 2008 3:06 PM
To: Doug Kechnie
Subject: [Bulk] New Email Address
After 33 yrs. of working with Mutual Life, Clarica and Sun Life, I decided to implement our long term strategy of rejoining my son Jeff at Kechnie Health and Wealth Management and in order to continue my relationship with so many of my friends and clients in the new environment I needed to change my email address, as of the end of Oct/08. My NEW EMAIL ADDRESS is doug@kechnie.com. At the end of November, the link between my old email address and this new one will be severed.
Let me be one of the first people to wish you a Very Merry Christmas, and all the best for 2009!
Warmest Regards,
Doug
Doug Kechnie, Partner
KECHNIE Health & Wealth Mgmt. Inc.
262 Queen Street South
Kitchener, ON N26 1W3
[22] Sun Life is not pursuing damages against the Plaintiffs on the basis of the non-solicitation provisions or any other aspect of the Agreements. Sun Life only argues that the Plaintiffs are not entitled to continue to receive CORe payments as a result of their replacement activities, of which these precipitous efforts to alert clients to the move are evidence of Kechnie’s lack of intention to comply with the relevant terms of the Agreements.
[23] The Plaintiffs take the position that in order to justify termination of CORe payment Kechnie must be demonstrated to have “advised, counselled or induced” clients to terminate or replace their Sun Life products and policies. They argue that this provision is narrower than a straightforward non-solicitation or a non-service clause and submit that the trial evidence does not establish a basis sufficient for disentitlement.
[24] Sun Life argues that the Plaintiffs have advised, counselled or induced clients to terminate or replace products and policies, a conclusion that can be readily inferred from the evidence. It is Sun Life’s position that the Agreements prevent KFG and Kechnie from servicing former Sun Life clients if the prohibited conduct occurs, whether those clients come voluntarily or as a result of being pursued by them.
[25] In determining the legal rights and obligations of the parties under a contract, the primary task of a reviewing court is to ascertain the objective intentions of the parties and the scope of their understanding regarding the rights and obligations at issue. In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, the Supreme Court, reiterated the principle that courts are to undertake this task with a view to “the contract as a whole, giving the words used their ordinary and grammatical meaning consistent with the surrounding circumstances known to the parties at the time of formation of the contract” (see also: Martenfeld et al v. Collins Barrow LLP et al 2014 ONCA 625 (Ont. C.A.)).
[26] Under this approach, while the circumstances surrounding the formation of the disputed contract are relevant as an interpretive aid, they cannot overtake the written words used by the parties. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.
[27] In my view, the nature and calculation of CORe payments demonstrates that they are not deferred commissions or part of a compensation package to which an advisor is absolutely entitled. Similarly, they cannot be characterized as a retirement allowance or pension. Rather, entitlement to CORe is conditional upon compliance with the conditions set out in the Agreements.
[28] The clear language of the Agreements demonstrates that the parties intended that continuation of the CORe payments was to be contingent upon compliance with the obligations imposed upon the Agents, and refraining from interfering with Sun Life’s arrangements to retain the business of those clients historically serviced by the Plaintiffs. If the Plaintiffs were not prepared to comply, they were free to engage in such conduct subject to any non-solicitation provision. By so doing, however, they would give up all entitlement to receipt of CORe payments.
[29] The documents produced by Sun Life and the evidence presented by Sun Life at trial cause me to reach the conclusion that Kechnie intended to carry on business in competition with Sun Life following his departure, took active steps to transfer policies, engaged in conduct specifically prohibited by the Agreements he had entered into, thereby breaching those Agreements.
[30] The evidence amply demonstrates that after termination of the Agreements Kechnie/ KHWM deliberately pursued their former Sun Life clients and advised, counselled or induced them to change or cancel their Sun Life policies and sold other financial products to them. Their phone started ringing right after clients received their missives. It would be naïve in the extreme to consider the significant shifts in business from Sun Life to other product providers to be coincidental.
[31] Kechnie sent out the letter and mass e-mail described above to clients in late October 2008 informing them that he was leaving Sun Life and joining his son at KHWM where he would be providing the same services. He sent this letter during the “financial meltdown” of 2008. His communications conveyed the message that KYFG was no longer operating and that his services were only available at KHWM.
[32] Kechnie also advised, assisted and counselled clients to transfer their insurance and wealth products from Sun Life to his new business. Kechnie is a regulated Mutual Fund and insurance provider, and in order to meet his professional duties and protect the clients’ interests, he is mandated to provide advice and expertise to assist in cancellation of insurance contracts and the transfer money from or closing down of Mutual Funds and Segregated Funds. This servicing of clients is evident from the cancellation of life insurance forms and the mass migration of mutual and segregated funds to his new business.
[33] Kechnie’s replacement activities were significant and represented a systematic attack on the goodwill in the former block of business from which he expected that KYFG would be paid CORe. Sun Life knows of at least 60 life insurance disclosure forms signed by Jeff Kechnie as part of transferring Sun Life’s existing clients’ life insurance contracts to his new business.
[34] In addition, there is no indication that Kechnie ever actively attempted to assist in the transition of clients to the individuals designated by Sun Life for that purpose. Rather, Kechnie was disparaging of the abilities of anyone other than himself to provide high quality advice and service.
[35] Kechnie asserts that these clients decided on their own and purely voluntarily to switch their business. He also professes that he himself did not sign transfer forms for life insurance clients who “moved over”, suggesting that by getting his son to sign the requisite transfer forms he is somehow insulated from any argument that he breached the Agreements. I reject these positions as being wholly untenable in face of the weight of evidence to the contrary.
[36] In sum, I consider that Kechnie’s conduct falls far short of the required active co-operation in transfer of business contained in the Agreements.
[37] The evidence of Sun Life as to the value of the business serviced by the Plaintiffs establishes a market loss in value following Kechnie’s departure. Kechnie transferred over 600 Sun Life clients to KHWM.
[38] Kechnie has either refused or been slow to disclose the total revenue and assets under administration relating to Sun Life clients that moved to his new business. He ultimately did disclose information to show that he received $440,000 in net revenues or commissions from these clients from November 2008 to October 2010, excluding annuities, GICs and traditional insurance products.
[39] On the eve of trial, Kechnie disclosed that he earned an additional $206,000 in commissions from insurance products sold to 350 former Sun Life clients. Over the ten year period when CORe would have been paid, therefore, Sun Life estimates that Kechnie could earn between $2 - $3,000,000.00 in revenue from the business that he was required to release to Sun Life in order to be paid CORe.
[40] In addition, Sun Life has determined from internal records of transfers of Mutual Funds and Segregated Funds that, from October 2008 to June 2014, $20,100,000.00 of Mutual Funds assets moved from Sun Life to Kechnie’s new business.
[41] I agree with Sun Life that the revenue he will earn from these clients is at least equal to or greater than the CORe payments that he would have received if he had complied with the Advisors’ Agreements.
[42] Andrew Brown, CSF Strategy and Partnership Development at Sun Life estimates that Sun Life has lost profits from the Plaintiffs’ replacement activities in the range of $800,000 to $1,400,000.00 million dollars.
[43] As a result of this conduct, I conclude that Kechnie and KYFG breached the requirements set out in aforementioned sections of the Agreements. Correspondingly, Sun Life was entitled in accordance with the terms of the Agreements to cease payment of any further CORe payments to them.
Issue B: Are the provisions of the Agreements disentitling Kechnie and/or KYFG to receive CORe payments unenforceable as punitive forfeiture clauses or an unreasonable restraint of trade?
[44] The Plaintiffs argue that if the applicable provisions of the Agreements interpreted as disentitling them to receipt of CORE payments, as in this case, then those provisions should be declared to be unenforceable on grounds of public policy, unconscionability or related considerations.
[45] Sun Life takes the position that there is nothing unconscionable or grossly unfair about the provisions under attack. Kechnie had a choice when these Agreements were terminated. He could comply with his obligations under the Agreements by co-operating and taking steps to release his “block of business” to Sun Life and thereby continue to receive CORe payments. Alternatively, he could pursue and alter or replace the clients’ in-force policies and accounts and thereby give up any claim to receive all CORe payments.
[46] A court has a broad discretion to award relief from forfeiture. Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C. 43 states:
A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.
[47] Relief from forfeiture has been held to be available in a wide range of cases, including cases involving a failure to renew a lease: (see: 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., [1993] O.J. 801 (C.A.), at para. 9; 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 2003 57436 (ON CA), 67 O.R. (3d) 161 (C.A.), at para. 80.
[48] The test for granting relief from forfeiture was recently restated by the Ontario Court of Appeal in Kozel v. Personal Insurance Co., 2014 ONCA 130, 119 O.R. (3d) 55, at para. 31:
In exercising its discretion to grant relief from forfeiture, a court must consider three factors: (i) the conduct of the applicant, (ii) the gravity of the breach, and (iii) the disparity between the value of the property forfeited and the damage caused by the breach.
[49] Kechnie was directly involved in the various internal discussions which occurred surrounding the rollout of the new system. He had full opportunity to seek legal advice before he executed the Agreements. After the implementation of CORe, Kechnie and KYFG worked within the compensation framework of the Agreements and were paid accordingly for many years. Had he been dissatisfied with the arrangement he had agreed to, he was free to move elsewhere.
[50] Kechnie and KYFG did not suffer in any way as a result of this contractual arrangement. In particular, I agree with Sun Life that CORe payments are not deferred compensation in which Kechnie or KYFG enjoy a vested interest. Rather, as the Agreements state and the evidence of Sun Life demonstrates, they are calculated based upon the premiums expected to be received on those policies after termination of the Agreements.
[51] The cessation of CORe payments is not punitive in nature or a penalty. On the contrary, their availability provides an incentive to advisors to comply with their contractual obligations and assist clients in an orderly transition of business to other advisors. If they do not supply this requirement, CORe payments will stop.
[52] I do not see any aspect of these Agreements to be contrary to public policy. The Agreements were entered into by sophisticated, experienced business people. I find that Kechnie knew very well the nature of the provisions he had contracted to and their implications for conduct following termination.
[53] In particular, I am unmoved by Kechnie’s evidence that he was motivated principally by the desire to ensure that his clients got the best coverage and deals possible Such a concern, even if accepted as true, does not serve to justify an entitlement to continuation of receipt of CORe in face of a flagrant breach of contractual obligations.
[54] Having found that there is no penalty in cessation of CORe payments, the principles of relief from forfeiture are not engaged. Even when the factors articulated in Kozel v. Personal Insurance, supra, are considered, there is an adequate basis on these facts to grant relief from the necessary impact of the provisions of the Agreements upon the Plaintiffs.
[55] Kechnie argues that the clients in his Sun Life block of business is worth only something in the area of $410,000 in notional CORe value and that it is harsh and inequitable to deny him continued CORe payments based on the CORe value in the block of business as postulated by Sun Life.
[56] I agree with all aspects of Sun Life’s response to that argument. The Agreements themselves state that any replacement activities will result in termination of CORe payments. The number of clients and degree of assets moved from Sun Life to the Plaintiffs’ new business disclose systematic replacement activities which justify termination of the CORe payments under the Advisors’ Agreement. There is no express or implied mechanism available to adjust CORe based on clients taken and those left behind with Sun Life. Indeed, such an approach would defeat the purpose of CORe which it is meant to be an incentive to release and transition the entire block of business.
[57] Kechnie and KWHM have not produced the full underlying data nor produced their full master client list or complete revenues to show all former Sun Life clients who have done business with them over the past five years. I find the reconstructed data prepared by Sun Life to be generally more reliable than the figures offered by the Plaintiffs. These Sun Life calculations show a serious degree of damage and loss sustained by Sun Life as a result of the Plaintiffs’ conduct.
[58] Further, “notional CORe value” is basically a meaningless concept once replacement activities of a systematic nature have occurred as happened in this case. Payments of CORe over 10 years assumes the long-term retention of existing business and generation of new business from the clients. CORe payments are not guaranteed. They represent an economic incentive intended to align the advisors’ interests in receiving payments for the release of clients with Sun Life’s desire to assign those clients to other advisors.
[59] For these reasons, the submission that the Plaintiffs should receive relief from forfeiture fails.
Issue C: Are Kechnie and/or KYFT entitled to receive payments from Sun Life on any other basis?
[60] A further argument is advanced that Sun Life is liable to the Plaintiffs on a quantum meruit or some other similar equitable basis to compensate them for the value of the business built up over the years of their association with Sun Life and/or the loss of CORe payments.
[61] Success on the basis advanced would require a determination that the Plaintiffs enjoyed a property or other similar right in the clients serviced by them or that it would be inequitable to permit Sun Life to retain those clients’ business without compensation.
[62] In my view, there is nothing in the Agreements to suggest that they are entitled to compensation on either footing and nothing in the facts to support a finding that compensation on a quantum meruit basis should be paid to them by Sun Life.
[63] The Plaintiffs have offered as authority for the argument that they enjoy a vested or property entitlement to some or all of the CORe payments a series of decisions made in the family law context. In those decisions certain commissions or right to future payments were found to be property for the purposes of family property equalization (see: Dunham v. Dunham, [2012] O.J. No. 1658 (S.C.J.); Brandt v. Brandt, 1998 28188 (MB QB), [1998] M.J. No. 531 (Man. Q.B.)). In my opinion, those decisions must be read as having been predicated on an assumption that the CORe or commissions would be paid for certain because the recipients would adhere to all contractual obligations and thereby would ensure continued entitlement to their receipt. That did not happen in this case.
[64] For these reasons, recovery on any such basis must likewise fail.
Conclusion
[65] For these reasons, the action is dismissed.
[66] As noted above, the counterclaim was not pursued at trial. It is hereby also dismissed.
Costs
[67] If costs are being sought and the parties cannot agree on that subject, written submissions may be delivered by the Defendants within 30 days of the date of this decision and by the Plaintiffs within 20 days thereafter.
STEWART J.
Released: August 6, 2015
COURT FILE NO.: 09-CV-389450
DATE: 20150806
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
doug kechnie and kechnie financial group inc.
Plaintiffs
- and -
sun life assurance company of canada, sun life financial investment services (canada) inc. and sun life financial distributors (canada) inc.
Defendants
AND BETWEEN:
sun life assurance company of canada, sun life financial investment services (canada) inc. and sun life financial distributors (canada) inc.
Plaintiffs by Counterclaim
- and –
doug kechnie, kechnie financial group inc., jeffrey Kechnie and kechnie health and wealth management inc.
Defendants by Counterclaim
REASONS FOR JUDGMENT
STEWART J.
Released: August 6, 2015