Court File and Parties
COURT FILE NO.: CV-14-1212 DATE: 20170508 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: ROBERT CONNOR Plaintiff – and – SCOTIA CAPITAL INC. (aka SCOTIA MCLEOD) Defendant
COUNSEL: A. Chapman for the Plaintiff D. Di Paolo and C. Sainsbury for the Defendant
HEARD: September 23, 2016 & April 25, 2017
Reasons for Decision
VALLEE, J.
[1] Mr. Connor was employed by Scotia Capital Inc. as an investment advisor. When he was hired in 2010, the Bank of Nova Scotia provided him with a $380,000 loan.
[2] Scotia terminated Mr. Connor when it learned that he had breached various policies, procedures and Dealer Member Rules of the Investment Industry Regulatory Organization, known as IIROC. The matter initially came to Scotia’s attention when it learned that Mr. Connor had made unsuitable investment recommendations which resulted in financial losses for his clients. Mr. Connor had personally paid money to his clients to compensate them. He did not tell Scotia that he was doing this. He was suspended with pay on September 12, 2012. Subsequently, he was terminated on October 19, 2012.
[3] Pursuant to an IIROC rule, Scotia was required to report Mr. Connor’s dismissal to IIROC and did so on October 31, 2012.
[4] Between September and December, 2012, Mr. Connor and Scotia negotiated a settlement with respect to Mr. Connor’s termination. The amount owing on the loan on October 23, 2012, was approximately $267,000. One of the settlement terms was that Mr. Connor agreed to pay $35,094.31 by the end of the year toward the loan. Scotia agreed to pay the remaining amount down to a balance of $46,118.03. Mr. Connor also agreed to pay $46,118.03 toward the loan in three installments between January 2, 2013 and August 30, 2013.
[5] At the end of December, 2012, Mr. Connor signed a settlement agreement and a release in favour of Scotia. One of the settlement agreement terms states that Mr. Connor, “waives any rights that he has had or may have under the terms of his employment agreement dated August 27, 2010”. The release contains similar language.
[6] Subsequently, IIROC brought a regulatory proceeding against Mr. Connor. They reached a settlement agreement dated November 2, 2015. In that agreement, Mr. Connor admitted that between March 2011 and September 2012:
a) he made unsuitable recommendations in a client’s account, contrary to IIROC Dealer Member Rule 1300.1 (q);
b) he compensated clients without his member firm’s knowledge or consent and made unauthorized trades in clients’ accounts, thereby engaging in conduct unbecoming a registrant or detrimental to the public interest, contrary to IIROC Dealer Member Rule 29.1; and,
c) he engaged in discretionary trading in client accounts without the accounts having been accepted or approved as discretionary accounts, contrary to IIROC Dealer Member Rule 1300.4
[7] In the IIROC agreement, Mr. Connor agreed to pay a $30,000 fine. His registration was suspended for one year.
[8] Mr. Connor commenced this civil action on October 14, 2014, claiming damages for wrongful dismissal, defamation and conversion of his book of business.
[9] Scotia brings this motion to dismiss the action on the grounds that the settlement agreement and the release are enforceable and preclude Mr. Connor from making any claim with respect to his employment.
Issues
- Did Scotia breach a duty of good faith in its negotiations with Mr. Connor?
- Did Scotia make any fraudulent misrepresentations?
- Is the agreement unconscionable?
- Did Mr. Connor obtain legal advice? If not, is the agreement unenforceable?
Applicable Law
[10] Between parties, there is a general duty of honesty in contractual performance. The parties must not lie or mislead each other about matters related to the performance of the contract. Parties must be honest, candid and forthright. (See Bhasin v. Hrynew, [2014] SCC 71, para. 73 and Evans v. Paradigm Capital Inc., (2016) ONSC, par 81)
[11] According to Mongillo v. Mongillo (1999) 91 ACWS (3d) (391), para. 52, there are four requirements for a representation to be fraudulent:
(a) it must be untrue;
(b) the defendant must know that it is not true or be untrue or is indifferent to its truth;
(c) the representation must be intended or calculated to induce the plaintiff to act upon it; and,
(d) the plaintiff must act upon it and suffer damages.
[12] Before a contract will be set aside on the grounds of unconscionability, two elements must be established: proof of inequality of bargaining power and substantial unfairness. (see Principal Investments Ltd. V. Thiele Estate, 1987 CarswellBC 76 para. 19)
[13] Inequality of bargaining power alone does not render a contract unconscionable or unenforceable. The question is not whether there was an inequality of bargaining power. Rather, the question is whether there was an abuse of bargaining power. (See Birch v. Union of Taxation Employees, Local 70030, 2008 ONCA 809, 93 OR (3d) 1.)
Did Scotia Breach a Duty of Good Faith in its Negotiations with Mr. Connor?
The Plaintiff’s Position
[14] The plaintiff states that during the negotiations, Scotia did not act in accordance with the minimum standard of honesty as set out in Bhasin. The loan was provided by a division known as Scotia Private Client. Mr. Connor made payments up until September 28, 2012. After that, the loan went into default. A loan document shows that on October 23, 2012, the balance owing was zero. Scotia paid it out during settlement negotiations. Mr. Connor states that at the time, he did not know that the loan had been paid out.
[15] Mr. Connor states that Scotia did not provide any loan documents to him. Even though Scotia paid out the loan on October 23, 2012, Scotia continued to assert that Mr. Connor was responsible for it. Scotia used this to pressure Mr. Connor to sign the settlement agreement. Scotia was not honest in its negotiations with Mr. Connor after October 23, 2012. It continued to assert that the loan existed and that he was responsible for the principal and interest when there was no loan.
[16] The plaintiff also states that Scotia failed to disclose the sale of his book of business and the amount received. In the plaintiff’s third affidavit filed in defense of the motion, the plaintiff states at para 30, “The assets [book of business] are sold in October, 2012, and I later learn that the funds from those sales are applied to my loan…”
Analysis
[17] Mr. Connor’s documents include numerous emails between Mr. Connor and primarily Mr. Jenkins, Scotia’s regional manager, regarding settlement negotiations. There were at least four meetings and a number of telephone calls.
[18] Emails between Mr. Connor and Mr. Jenkins during negotiations and after October 23, 2012, show that Mr. Jenkins made a number of references to the loan. Mr. Connor stated in emails that he was responsible for it. In an email from Mr. Connor to Mr. Jenkins, he stated, “I will bring the loan and overpayment [regarding compensation] up to date.” In an email from Mr. Jenkins to Mr. Connor dated December 14, 2012, he stated, “You agree to catch up your loan (principal and interest) to December 31st – we will provide the number ($YYYY).”
[19] There is no dispute that the loan went into default in October, 2012. According to Scotia’s evidence which I accept, pursuant to a corporate agreement between the Bank of Nova Scotia and Scotia Capital, once the loan went into default, if Mr. Connor was unable to bring it into good standing, Scotia became liable for it. In his affidavit sworn January 18, 2014, at para 5, Mr. Jenkins stated that Scotia paid out the loan and the debt was transferred to Scotia’s books.
[20] The emails between the parties show that Scotia was going to resolve the loan on certain terms as part of the settlement. Scotia did pay out the loan; however, that did not change the fact that Mr. Connor had borrowed money and remained responsible for paying it back. Scotia’s referring to the loan in its negotiations with Mr. Connor after it was paid out was not done in bad faith. Scotia was liable for it on default. Mr. Connor’s responsibility for the loan and how much he could pay was one of the main issues in the negotiations. When Scotia referred to the amount that Mr. Connor owed, it was simply stating a fact. According to Mr. Jenkins, the payout was not a gift to Mr. Connor. In the end, Mr. Connor paid only $35,000 toward the loan.
[21] The emails between the parties show that Mr. Connor made suggestions for revisions to the text of the agreement throughout the negotiations. Scotia accepted some of his suggestions. In the end, Scotia ended up paying approximately $768,000 with respect to Mr. Connor’s clients’ complaints. Scotia assumed a large portion of Mr. Connor’s liability with respect to his clients’ complaints and the loan.
[22] On October 26, 2012, during negotiations, Mr. Connor knew that his book of business had been sold. In an email to Scotia’s counsel, Ms. Smele, dated November 21, 2012, Mr. Connor stated, “At this point it has been acknowledged that the book of business that I had with BNS has been sold. That was confirmed in my meeting with Dave Jenkins on October 26, 2012.” In another email to her a week later, he stated that he “had no indication as to what the details were with respect to what the assets were sold for.”
[23] On February 4, 2016, Mr. Jenkins was cross-examined on this issue. He stated that the book of business that Mr. Connor serviced was distributed to other advisors in the office. Scotia would not know what the advisors paid for their portions of the book of business until a long time after Mr. Connor had left the firm. It would depend on whether Mr. Connor’s clients stayed with Scotia and the revenue that was generated from those clients who did stay. Mr. Jenkins stated that he did not know the amounts paid by the advisors who took over portions of Mr. Connor’s book. Calculating that would be difficult.
[24] The evidence before me does not include the financial details regarding the sale of the book of business or what was done with the proceeds; however, Mr. Connor and Scotia continued to negotiate after he sent these emails. In the emails that followed, Mr. Connor did not make further inquiries. Mr. Connor signed the settlement agreement and release more than two months after he knew that the book of business had been sold. He had the opportunity in the interim to insist on further information. When he signed the settlement agreement, he acknowledged in paragraph 14 that no further payments whatsoever would be made to him pursuant to the terms of the Employment Agreement that had not already been paid as of October 19, 2012.
[25] The test in Bhasin does not seem to extend to contractual negotiations. Rather, it is focused on performance. Nevertheless, I find that there is no evidence to support Mr. Connor’s allegations that Scotia did not act with honesty. Mr. Connor had an obligation to pay back the amount he had borrowed. Scotia did not lie to him or mislead him. Scotia acted in good faith when it was negotiating with Mr. Connor.
Did Scotia make fraudulent misrepresentations to Mr. Connor?
The Plaintiff’s Position
[26] The plaintiff points again to the issue of the loan and states that Scotia misrepresented to him that the loan was outstanding. In addition, Scotia told Mr. Connor during the negotiations that his clients were complaining about their losses on investments. Scotia provided no details at the time to Mr. Connor about the complaints. The plaintiff states that he did not compensate his clients because they were complaining. In fact there were no complaints. He compensated them for their investment losses because he believed he had a personal and moral obligation to do so.
[27] Scotia said that clients had made complaints prior to Mr. Connor’s suspension. Pursuant to an undertaking, Scotia provided a list of client complaints; however, the earliest complaint listed was made in October, 2012, after Mr. Connor had been suspended.
[28] The plaintiff states that Scotia misrepresented facts to Mr. Connor to obtain his agreement. They were fraudulent misrepresentations because they were untrue. Scotia knew them to be untrue or was indifferent to their truth. The misrepresentations were intended to induce Mr. Connor to act on them. He acted on them and suffered damages. He was unemployed. He lost his ability to act as an investment advisor because he had no employer to supervise him. He suffered a mental breakdown on September 21, 2012. He suffered from a moderate to severe major depressive disorder which was diagnosed in September of 2013. The facts in this matter show that Scotia made fraudulent misrepresentations to Mr. Connor during negotiations. Therefore, it cannot benefit from the release he signed.
Analysis
[29] Mr. Connor sent an email to Scotia, dated September 25, 2012, in which he set out the various personal payments he had made to clients to compensate them for their losses and the reasons for them. The dates of these payments range from December, 2011 to March, 2012.
[30] According to Scotia’s evidence, at a meeting on September 8th, 2012, Mr. Connor said that he had been personally compensating his clients for their losses. This was corroborated by Mr. Connor’s admission in the IIROC agreement.
[31] Scotia received a number of complaints from Mr. Connor’s clients. Seven were made in October, after Mr. Connor was suspended. Whether Scotia received the complaints before Mr. Connor’s suspension or termination is immaterial to Mr. Connor’s signing the settlement agreement and release. When he signed the settlement agreement and release at the end of December, 2012, Scotia was dealing with approximately ten of his clients’ complaints. He knew this before he signed the documents.
[32] As noted above, Scotia’s references in negotiations to the amount that Mr. Connor owed on the loan, after Scotia paid it out, do not constitute fraudulent misrepresentations. Mr. Connor borrowed money. He owed the balance regardless of whether it was in the form of a loan held by the Bank of Nova Scotia or whether the debt had been transferred to Scotia’s books.
[33] I find that the test for misrepresentation has not been met. Scotia did not make any representations to Mr. Connor which were untrue.
Is the agreement unconscionable?
The Plaintiff’s Position
[34] The plaintiff states that the agreement was significantly unfair to Mr. Connor for these reasons: he was told that he had to pay back the loan together with interest when there was no loan; his book of business was sold and he received no proceeds; he had no employment; he gave up his claim for wrongful dismissal and he suffered from a major depression. He applied for disability benefits. He believes that Scotia failed to supervise him adequately. This was the reason for the problems that ensued.
[35] Mr. Connor’s indebtedness and unemployment were weighing on him. Scotia took advantage of Mr. Connor’s vulnerability during negotiations. It pressured Mr. Connor to sign the settlement agreement and release.
Analysis
[36] There is nothing unfair about Scotia’s position that Mr. Connor had to pay back the loan. He had borrowed money and was responsible for paying it back.
[37] As noted above, Scotia did sell Mr. Connor’s book of business. In an email from Mr. Connor to Scotia dated November 29, 2012, he stated, “Lastly, I still have no indication as to what the details were with respect to what the assets were sold for.” The negotiations continued after this email. There were several drafts of the settlement agreement. Ultimately, Mr. Connor signed it at the end of December. It does not mention the sale of the book of business. If the related financial details were relevant, one would think that Mr. Connor might have insisted on that disclosure prior to signing the agreement. He knew when he signed the settlement agreement and release that he would not receive any further funds from Scotia.
[38] Regarding the plaintiff’s position that Scotia did not supervise him properly, in an email from Scotia to Mr. Connor dated, November 30, 2012, Mr. Jenkins agreed with Mr. Connor that Scotia could have done things differently. He also stated, “I want to be clear though why your employment was terminated for cause: 1. You were writing cheques to people. 2. You lied to us (Manager and Director of Compliance) about what was happening.”
[39] Mr. Connor admitted to violating internal policies and IIROC Rules. Mr. Connor’s liability for the loan was significant. According to Scotia, it paid over $700,000 to Mr. Connor’s clients to settle their complaints.
[40] I find that Scotia did not abuse its bargaining power. The record shows that Scotia was open to discussing various issues during negotiations and sought Mr. Connor’s input. There is no evidence of any substantial unfairness in the bargain obtained by Scotia nor is there any evidence that Scotia abused its bargaining power. The settlement agreement is not unconscionable.
Is the agreement unenforceable because Mr. Connor did not obtain legal advice?
The Plaintiff’s Position
[41] Mr. Connor states that he suffered from significant depression after he was terminated. Medical records confirm this. On September 25, 2012, the date of his suspension with pay, he made an inquiry of his long term disability insurer regarding how to make a claim. When he did seek medical treatment in 2013, he told the physician that he had felt depressed in 2011, prior to the termination. Mr. Connor states that he suffered a “mental breakdown” on September 21, 2012. He was diagnosed with a moderate to major depressive disorder one year after his suspension. He was not well during negotiations. He did not obtain legal advice. Therefore, the agreement and release should be set aside.
Analysis
[42] The emails between the parties show that Mr. Connor had ample opportunity to obtain independent legal advice. Scotia encouraged him to do this several times. He represented to Scotia that he had sought legal advice. Mr. Connor stated on his cross-examination that he had in fact sought legal advice.
[43] On one occasion, he sought legal advice because Scotia had reviewed his bank account to determine the extent of the payments that he had been making to his clients. He took exception to that. He stated that he did not receive legal advice from this particular lawyer about the negotiations. On another occasion, he consulted with a lawyer who was a family friend. On cross-examination, he guessed that he had sent the draft settlement agreement to this lawyer.
[44] Scotia encouraged Mr. Connor to seek legal advice. Scotia invited Mr. Connor to bring legal counsel, a friend or his wife to participate in one of the telephone calls to discuss settlement. He did speak with lawyers during the negotiations and led Scotia to believe that he was seeking legal advice. It is disingenuous for him to say that the settlement agreement should be set aside because he did not have legal representation.
[45] Regarding Mr. Connor’s mental state, no doubt he would have been upset about losing his job. On his cross-examination, Mr. Jenkins stated that Mr. Connor was calm, collected, rational and professional in their discussions. There was nothing about Mr. Connor to suggest that there was any problem. Mr. Connor raised certain tax issues and made a number of suggestions during negotiations with respect to the terms in the agreement. Scotia incorporated some of his suggestions into the agreement.
[46] The plaintiff states that he suffered a “mental breakdown” on September 21, 2012. The expression “mental breakdown” is vague. There is no medical evidence to suggest that Mr. Connor’s decision making process was impaired during negotiations. Mr. Connor did not seek any psychiatric treatment until 2013, a year after his suspension.
[47] The evidence shows that Mr. Connor was rational and able to make suggestions regarding tax implications, among other things, during negotiations. His emails have a professional tone. Their contents are logical. According to the medical evidence, he was diagnosed with a “moderate to severe major depressive disorder” a year later. There is no evidence that Mr. Connor was mentally compromised during negotiations and when he signed the settlement agreement and release. I find that there is no basis to set aside the settlement agreement and release on this ground.
Conclusion
[48] Mr. Connor signed a clear and unambiguous settlement agreement and release. He released Scotia from any claims regarding his employment and termination. The release covers the scope of the claim which he now makes in this civil action. There is no reason to conclude that the settlement agreement and release are unenforceable. Accordingly, Mr. Connor is precluded from bringing this action.
[49] The defendant’s motion is granted. The action is dismissed.
Costs
[50] The parties provided costs outlines. In submissions, counsel for the plaintiff stated that the plaintiff would expect to pay $47,000 to the defendant if he was unsuccessful. Counsel for the defendant stated that he would expect to receive $35,000 if the defendant was successful. Accordingly, the plaintiff shall pay $35,000 to the defendant for costs within 30 days.