COURT FILE NO. CV-18-00607674-0000
DATE: 20230822
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
PATRICK FARRELL
Plaintiff
– and –
RONALD RILEY
Defendant
Christopher H. Freeman, lawyers for the Plaintiff
Christopher Perri and Veromi Arsiradam, lawyers for the Defendant
HEARD: May 23, 24 and 25, 2023
REASONS FOR DECISION
G. DOW, J.
[1] The plaintiff, Patrick Farrell seeks to recover $90,000.00 that he alleges is owed to him as a result of an agreement reached with the defendant, Ronald Riley. It arises from their employment at Gravitas Securities Inc. (“Gravitas”). The trial proceeded under Simplified Rules with the evidence in chief of the plaintiff, his other witness, Christopher Foster, the defendant and his other witness, Ralph Santoli submitted by affidavit.
[2] At the outset of the trial, the defendant objected to the plaintiff tendering the evidence of Christopher Foster on the basis it contained hearsay, opinion and lacked relevance. Upon review of the affidavit, exhibits and submissions I ruled it was admissible given it contains statements and emails made by the parties upon which there could be cross-examination. I deferred ruling on its truthfulness pending hearing his cross-examination, the balance of the evidence and submissions.
[3] The Trial Record contained the pleadings and affidavits. The parties submitted an “Agreed Bundle of Documents for Trial” which was marked as Exhibit “1”. The plaintiff’s Request to Admit December 15, 2021 and the defendant’s Response to Request to Admit dated December 20, 2021 were marked as Exhibits “2” and “3”. It contained the defendant’s submissions that in the 36 months following October 2, 2017, the defendant derived not less than $180,000.00 in fees and commission income from servicing various client accounts defined in the Statement of Claim to be the plaintiff’s “book of business”.
[4] A further plaintiff Request to Admit dated January 19, 2022 and the defendant’s Response to Request to Admit dated February 17, 2022 were marked as Exhibits “4” and “5”.
Background
[5] The parties were in general agreement regarding the factual background. In 2013, the plaintiff joined Gravitas (actually its predecessor, Portfolio Strategies Securitas Inc.) bringing with him a portfolio of several dozen clients having investments being managed with a value of in excess of $20 million. As an Investment Advisor, the plaintiff’s discretion to make trades required client approval. This is more limited and the difference between an Investment Advisor and a Portfolio Manager who is empowered by the client to buy and sell securities without seeking their instructions to do so beforehand.
[6] From 2013 until 2016, the clients brought to Gravitas by the plaintiff who agreed to have their investments handled by a Portfolio Manager were handled by an individual named John Poulter. The buying and selling of securities in the book of business generated in or about $250,000.00 to $320,000.00 per year of revenue to the firm. Gravitas kept 40% of this revenue with the remaining 60% split between the plaintiff and John Poulter.
[7] The defendant replaced John Poulter when he retired on July 20, 2016 and the above-described financial arrangement continued. The plaintiff had the long-term relationship with the clients but the defendant became the listed Portfolio Manager for most of the book of business. By May, 2017, the defendant began to assert his involvement by contacting the clients to update their investment needs. The plaintiff, then 68 years of age, was upset with the manner of the defendant’s action, chiefly, not advising the plaintiff in advance of such contact which was interpreted as an attempt to take over the book of business.
[8] This resulted in a meeting between the two of them June 6, 2017. The plaintiff summarized what occurred in an email (Exhibit “1”, Tab 10). It detailed the disagreement involving the plaintiff’s view of the defendant’s activities and attempting to obtain actual control over the book of business. The defendant responded (Exhibit “1”, Tab 11) further describing their disagreement and adding some particulars. This included previous defendant proposals to acquire what were called participation rights (or a portion of the fees generated by trading in securities) and his plan to consult with the Branch Manager, Ralph Santoli about preparing a retirement package for the plaintiff.
[9] The plaintiff responded by email on June 22, 2017 (Exhibit “1”, Tab 14) leaving open the door for the defendant to “acquire my Accounts”. The defendant responded by email July 9, 2017 copied to Myra Cameron (the Chief Financial Officer of Gravitas) to stop paying the plaintiff the previously paid split of participation rights. It also referenced having made the plaintiff “a very generous offer to buy out those participation rights” which the plaintiff denied had occurred.
[10] This resulted in the July 28, 2017 meeting with Ralph Santoli and Dan Bowering (the Chief Compliance Officer at Gravitas) where the amount of $74,400.00 paid over a two year period was discussed along with a Promissory note signed by not only Gravitas but the defendant to ensure the defendant’s ongoing liability in the event the defendant moved to another firm and attempted to lure the book of business to follow him.
[11] The defendant responded by email July 29, 2017 (Exhibit “1”, Tab 20) and raised “sticking” points. It began with the defendant having “been asked by the firm to reach out directly”. This is because and I find that the defendant was going to be responsible for the payment to the plaintiff given he was going to be the principal beneficiary of the ongoing stream of income generated by trades in the effected book of business.
[12] However, unbeknownst to the plaintiff until litigation ensued, the defendant also sent an email on his private email address to the private email address of Ralph Santoli to “keep your earmuffs on!” (Exhibit “1”, Tab 21). This departed from firm policy on how communications were to be made between members of the firm about firm business. The plaintiff submitted this demonstrated the defendant’s lack of good faith and/or honesty.
[13] The next event of note was a September 26, 2017 meeting at Gravitas between the plaintiff and defendant, the content of which was summarized by the defendant in a memorandum prepared that evening and indicated the defendant’s commitment to come back with a proposal that had the support of the Gravitas executive within the next two days. This resulted in an email of September 27, 2017 which the plaintiff characterized as the defendant’s offer.
[14] The September 27, 2017 email sets out the offer to “buy out your historic participation rights for $90,000.00, payable in 36 equal monthly instalments of $2,500.00” beginning November 15, 2017 (Exhibit “1”, Tab 25). It appears the money would be paid by Gravitas given the statement in the second paragraph “The firm has agreed to pay”. This makes sense given the fees and commissions were charged and collected by Gravitas and a portion then redirected to the Investment Advisor or Portfolio Manager. It raised a discounted lump sum alternative figure of $76,500.00 payable November 15, 2017. It does not reference any Promissory Note or execution of a document upon which the plaintiff could rely in the event of non-payment.
[15] The following Monday, October 2, 2017, the plaintiff was terminated by Ralph Santoli and Dan Bowering. On October 4, 2017, the plaintiff emailed the defendant stating “I accept your offer” (Exhibit “1”, Tab 27). The manner of payment is left to the defendant’s choice. The note also included reference to the execution of a “simple Promissory Note and a Security Agreement” for the defendant to sign. It offers to assist in client introduction “in order to encourage them to continue their connection with you in the firm”.
[16] Again, unbeknownst to the plaintiff, the defendant forwards an email on his private account to Ralph Santoli on October 4, 2017 stating “Comedy!”. Ralph Santoli responded on his private email account “I wouldn’t give him a dime!” (Exhibit “1”, Tab 28).
[17] The defendant’s email response to the plaintiff, made on October 5, 2017, accused the plaintiff of not “negotiating in good faith” and that “all offers that I have made through this process are null and void” (Exhibit “1”, Tab 29). The plaintiff responded by email on October 6 which includes the statement “there is a firm and binding contract between us, and I intend to hold you to it”. It also attached a draft Promissory Note and General Security Agreement requesting it be signed and returned (Exhibit “1”, Tab 29). The defendant’s responding email of October 6 denies a “firm and binding contract” but under the statement “Lets get this done.” reiterates the defendant’s willingness to pay the plaintiff $2,500.00 per month for 36 months beginning November 15, 2007. It does so without any commitment to sign a Promissory Note or General Security Agreement and with payments contingent on the defendant being able to service customers “as a registrant in the financial services industry” (Exhibit “1”, Tab 29).
[18] The plaintiff’s responding email repeats his position of having accepted the offer of September 27 “unconditionally”.
[19] No payment or payments were made and the Statement of Claim was issued October 26, 2018.
[20] As part of the defendant’s cross-examination, reference was made to actions commenced by:
National Bank Financial Ltd. against the defendant arising from his employment there between July, 2007 until February, 2012 and an alleged failure to repay a loan (Tab 1);
RBC Dominion Securities against the defendant issued in 2014 alleging the defendant had failed to repay a loan made to him while employed there between January, 2012 and February, 2013 (Exhibit “1”, Tab 5);
Gravitas Securities Inc. in July, 2018 against the defendant seeking repayment of a forgivable loan following the end of his employment with Gravitas; and
Foster and Associates Financial Services Inc., the defendant’s subsequent employer, issued against the defendant in November, 2019 seeking return of funds allegedly loaned to the defendant arising from his employment there between May, 2018 and October 2019 (Exhibit “1”, Tab 46).
[21] It should also be noted that a separate action for wrongful dismissal was commenced by the plaintiff against Gravitas (Exhibit “1”, Tab 43) and was not part of this trial.
Analysis
[22] The first issue is whether the exchange of email statements between the plaintiff and the defendant constituted an offer and acceptance capable a formal and legal binding contract. The defendant relied on Bawitko Investments Ltd. v. Kernels Popcorn Limited (1991), 1991 CanLII 2734 (ON CA), 53 O.A.C. 314 (at page 13). I disagree with the defendant’s position that this is what occurred before me. In Bawitko Investments Ltd v. Kernels Popcorn Ltd, supra, the parties renegotiated the terms of the franchise agreement. As the Court of Appeal noted, the draft standard franchise agreement was approximately 50 pages and set out a multitude of terms. It was understood no franchise could open before the agreement was completed. When negotiations broke down, a deposit provided was returned. It was the intention of the parties to be governed by a formal written agreement.
[23] As a result, I would distinguish the situation before me from those circumstances. The essential terms in this matter was payment to the plaintiff by the defendant of either $2,500.00 per month for 36 months or the discounted amount of $76,500.00. This was offered and accepted.
[24] The defendant relied on the plaintiff’s statement in the July 31, 2017 email of “none of the suggestions below will either individually or taken together constitute an agreement unless and until they are set out in writing and signed by all relevant parties” (Exhibit 1, Tab 22). However, this was not acknowledged or agreed to by the defendant at that time. Further, I find that the statement must be read together with the phrase immediately proceeding it that it be “absolutely clear that the suggestions are made on an entirely without prejudice basis”. That is, when the defendant made his clear and unequivocal offer of September 25, it was capable of acceptance which occurred on October 4 by the plaintiff. I rely on the statement made by the Court of Appeal in Bawitko Investments Ltd v. Kernels Popcorn Ltd, supra (at page 12) when the parties “agree on all of the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding, they will have fulfilled all the requisites for the formation of a contract. The fact that a formal written document to the same effect is thereafter prepared and signed does not alter the binding validity of the original contract”.
[25] The defendant also relied on Olivieri v. Sherman, 2007 ONCA 491 (at paragraph 44) that the termination of a concluded agreement is to be measured by the “objective reading of the language chosen by the parties”. That is, when a reasonable person with knowledge of the material facts concludes that the parties had agreed on the essential terms by an objective reading of the language (as opposed to any inquiry as to the state of mind of either party), a contract has been formed. I find such had occurred highlighted by the following material facts:
the book of business had value to the defendant as a Portfolio Manager in the form of the fees and commissions generated and demonstrated by the agreement of and payments to John Poulter that was continued when the book of business was transferred to the defendant;
the defendant recognized the book of business having value by continuing payments to the plaintiff from July, 2016 to July, 2017;
the value of the participation rights was negotiated between the parties in a narrow lump sum range of between $74,500.00 as contained in the July 28, 2017 email and the $76,500.00 set out in the September 27, 2017 email with payment over 36 months in the increased amount of $90,000.00;
the defendant repeating his offer to pay the $2,500 per month for 36 months in his email of October 6, 2017 at 3:57 pm;
the generally agreed evidence for me that the clients had ultimate choice as to where to place his or her portfolio and that any contested change to the individual handling of the portfolio would result in a significant percentage leaving reducing the fees and commissions; and
the defendant’s admission to the December 15, 2021 Request to Admit of having received not less than $180,000.00 in fees and commissions in the 36 months following when the defendant’s offer was accepted (or significantly more than what was agreed on).
[26] These findings and conclusion take into account the surrounding circumstances or factual matrix has referred to in Sattva Capital Corp. v. Creston Malloy Corp., 2014 SCC 15 (at paragraph 58).
[27] At the heart of the defendant’s submission no enforceable contract was reached was the absence of the defendant’s willingness to sign the Promissory Note or General Security Agreement. However, I find that was a term being insisted on by the defendant and something that was not an essential term of the agreement. Rather it was something to facilitate enforcement if the agreed upon payment or payments were not made.
[28] The circumstances in this matter when reviewed in full was not like that in Alkin Corporation v. 3D Imaging Partners Inc., 2020 ONCA 441, (relied on by the defendant) where the share purchase agreement had been reduced to writing, executed by Alkin Corporation and sent to 3D Imaging Partners Inc. who declined to sign it. Within the terms of that agreement, was a clause that the agreement would only be effective when executed by both parties. In the circumstances before me, the defendant made an offer on September 27th without any such requirement which the plaintiff accepted on October 4. Returning to the defendant’s reliance on the plaintiff’s memo of July 31 which referenced the requirement of any agreement be in writing and signed, there was no evidence between that date and October 4 of the defendant’s agreement with or a reliance upon that statement.
[29] The defendant relied on and read into evidence the plaintiff’s examination for discovery evidence. At question 147, the plaintiff’s evidence, read in its entirety, indicates quantum was the “ultimate deal braker”, not security. Security was something the plaintiff sought as he did not trust the defendant and wanted to avoid “going back to Small Claims Court for each subsequent payment”. The payments were not made. I find that was not evidence of security being an essential term.
[30] The second issue raised by the defendant was if the parties had an agreement, it was not enforceable as it was frustrated by the plaintiff’s termination of employment. This raises characterizing the value of the book of business as goodwill which had value to the parties in the form of what the plaintiff could do to assist the defendant in keeping the book of business after the plaintiff’s departure.
[31] I disagree with the defendant’s submission that the plaintiff’s termination by Gravitas on October 2, 2017 frustrated any agreement. As indicated, the choice of where to place one’s investment portfolio, is that of the client. Any effort by the plaintiff to introduce or recommend the defendant continuing with the handling of the investments would be of assistance to the defendant. To the contrary, any effort to question or undermine the defendant’s skill and ability would not be of assistance. The plaintiff was aware of and knew how to contact the clients. In fact, evidence at trial indicated many of the clients had become friends of the plaintiff, with whom, one would expect, he would have some ability to positively influence.
[32] My review of the employment contract originally entered into between the plaintiff and Gravitas’ predecessor does attempt to prohibit such conduct. I find the termination of the plaintiff by Gravitas did not frustrate performance of the agreement reached between the parties.
[33] It should be noted the defendant’s other witness, Ralph Santoli was cross-examined on his affidavit. He was the Branch Manager at Gravitas between March 2017 and January, 2018. That is, he participated in the decision to terminate the plaintiff. I found his evidence and credibility to be lacking.
[34] As Branch Manager, Mr. Santoli testified of having no knowledge of participation rights and the splitting of fees and commissions between the plaintiff as the Investment Advisor and the defendant as Portfolio Manager. Mr. Santoli deposed (at paragraph 8) “Gravitas had already paid to acquire the assets of Stuart Investments Management Limited, and as a part owner of that firm, Mr. Farrell would already have been compensated accordingly”. In cross-examination, it was confirmed he was not involved in that transaction and had no basis to make that statement. Further, his departure in May, 2018 (with the defendant) to Foster & Associates Financial Services Inc. (“Fosters”) was part of the plaintiff’s evidence. Foster’s Chief Executive Officer, Christopher Foster affidavit evidence clearly contradicted parts of the defendant’s evidence regarding the existence of emails between the two of them. Further, it described the defendant’s statement as “untruthful” and produced the emails. The defendant chose not to cross-examine Mr. Foster.
[35] Mr. Foster’s evidence also contradicted statements by Mr. Santoli to him with regard to reasons for his resignation from Fosters in September, 2019. Further, Mr. Foster deposed (at paragraph 14) “it was clear that he was heavily influenced by Mr. Riley and he failed to ensure proper compliance by Mr. Riley, despite several requests for me, as Chief Executive Officer, that he do so”. Overall, I find Mr. Santoli’s evidence to be unreliable.
[36] Finally, as part of submissions regarding plaintiff’s failure to mitigate, the plaintiff’s failure to introduce and endorse the defendant to the client’s control of the book of business was submitted to be part of the non-performance. I accept the plaintiff’s evidence that, by not doing things to undermine the defendant and his continuing service of the book of business, sufficient steps were taken. That is, although admittedly rare, this is a situation where given the non-payment to the plaintiff, the plaintiff could not reasonably or honestly endorse the defendant. He could have made efforts to undermine the defendant which would have significantly reduced the profitability of the book of business. That did not occur to the extent the defendant admitted receiving over $180,000.00 as fees and commissions in the 36 months following the events of September 27-October 4, 2017.
[37] The third issue raised, in the event there was no contract, was whether the law of unjust enrichment applies. The requirements are as set out in Moore v. Sweet, 2018 SCC 52 (at paragraph 35) and requires that:
the defendant was enriched;
the plaintiff suffered a corresponding deprivation; and
the defendant’s enrichment and the plaintiff’s correspondence deprivation occurred in the absence of a juristic reason.
[38] The first two steps are to be assessed in a “straight forward economic approach” (at paragraph 41). It is clear this can be narrowed down to the $90,000.00 the defendant offered to pay during the discussions representing fair value for the defendant obtaining the financial beneficial benefit of the book of business he was assigned to manage at Gravitas following John Poulter’s retirement. It is also admitted in the 36 months following the impasse reached in September-October, 2017 that the defendant received a financial benefit in excess of $180,000.00. For the plaintiff, the financial deprivation corresponds with the loss of the ongoing share of (or participation rights) he had been receiving since bringing the book of business to Gravitas which had continued to July, 2016 and was terminated by Gravitas at the request of the defendant beginning in July 2017.
[39] In submissions, the defendant correctly noted the book of business consisted of accounts registered to Gravitas and that business maintained the accounts and collected the fees and commissions. The only tangible property held by the plaintiff was his personal relationship with the clients or, as it is known, goodwill. In its submissions, the defendant acknowledged the existence of goodwill held by the plaintiff and that it had value. I have concluded that goodwill resulted in a financial benefit to the defendant as a result of the defendant’s conduct. It also resulted in a financial deprivation to the plaintiff.
[40] It is the third element of the unjust enrichment occurring in the absence of a juristic reason which the Supreme Court of Canada directed included moral and policy considerations. The defendant relied on the principle and agent agreement between the plaintiff and the predecessor to Gravitas. Specifically, Clause 8(e) noted that, on termination, the plaintiff was obliged to return all records and property related to clients. Further, the plaintiff could not provide financial advice to clients after termination until registered with another firm. While I agree with those statements, I disagree the goodwill held by the plaintiff was part of providing financial advice or service to the clients. The defendant acknowledged introduction to the clients by the plaintiff and endorsement by the plaintiff of the defendant’s skill and ability had value. In fact, it submitted the plaintiff’s failure to do so somehow undermined or reduced the plaintiff’s right to recovery. As noted above, I have accepted the plaintiff’s lack of efforts in this regard does not reduce the value of his claim. The defendant’s position raised the plaintiff’s claim for wrongful dismissal against Gravitas which was settled as somehow making the plaintiff whole. However, there was no evidence of any component of the settlement included the value of the contract alleged in this action (and found by me to be binding). Alternatively, as also found by me, there was no evidence tendered that any component of the settlement included the unjust enrichment by the defendant to the plaintiff’s determent, without any juristic reason.
[41] Had the plaintiff either joined another firm and tried to lure clients away or reached out to clients to recommend or endorse another portfolio manager, a different conclusion would have been likely.
Conclusion
[42] Either on the basis of the formation of a contract as a result of the plaintiff’s acceptance on October 4 of the defendant’s September 27, 2017 offer or as a result of the defendant’s unjust enrichment, I find in favour of the plaintiff. I find the figure of $90,000.00 is appropriate given it was the figure discussed between the parties. Further, as no payment was made (or, for example, placed in trust) and the time for the 36 payments of $2,500.00 has passed, I find it is the proper amount to be awarded.
[43] Regarding pre-judgment interest, the plaintiff is entitled to same at the Courts of Justice Act, R.S.O. 1990, c. C.43 at the rate of 1.5% per year under Section 129. Again, in the absence of any payment made, I exercise the discretion afforded under Section 130(1)(c) to award interest from November 15, 2017 to the date of Judgment (August 22, 2023-2,106 days or $3.6986 per day) to be $7,789.32.
Costs
[44] As part of the final submissions, I required the parties to provide their claim for costs ignoring any Offers to Settle. I was advised Offers to Settle had been made. In this regard, the plaintiff sought $54,144.59 on a substantial indemnity basis inclusive of fees, HST and disbursements. On a partial indemnity basis, this became $37,194.59.
[45] The defendant’s claim, if successful on a substantial indemnity basis was $86,713.78 inclusive of fees, HST and disbursements. On a partial indemnity basis, this was reduced to $57,624.77.
[46] I urge the parties to agree on costs. If they are unable to do so, the plaintiff shall submit to me not more than five typed written double spaced pages in a readable font the basis for the amount they are seeking in costs on or before September 19, 2023. Any supporting documentation such as an Offer to Settle may be separately attached.
[47] The defendant shall have until October 19, 2023 to respond, identically limited.
_____________________________ Mr. Justice G. Dow
Released: August 22, 2023
COURT FILE NO. CV-18-00607674-0000
DATE: 20230822
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
PATRICK FARRELL
Plaintiff
– and –
RONALD RILEY
Defendant
REASONS FOR DECISION
Mr. Justice G. Dow
Released: August 22, 2023