New Brunswick appeal court closes the book on financial advisor’s claims against Equity Associates

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The Court of Appeal of New Brunswick has upheld a lower court’s decision dismissing a financial advisor’s case against his former employer, Equity Associates Inc., a dealer of mutual funds.

The advisor — JS — had initiated legal action against Equity, arguing that the termination of his contract to sell mutual funds for the company was wrongful and resulted in the loss of his book of business and future income.

He also accused Equity of bad faith in handling the termination.

Regulatory context

To sell mutual funds in New Brunswick, individuals must be sponsored by a mutual fund dealer that is a member of the Mutual Fund Dealers Association of Canada (the Association), which regulates the sector.

Additionally, they are required to carry errors and omissions insurance. Equity Associates is such a registered dealer, operating with around 170 financial advisors across Canada.

The termination

The issues began in April 2017 when Equity terminated his contract after learning that his required insurance coverage had lapsed on March 30, 2017, and that he was unable to secure a renewal.

Despite JS informing the company that he had obtained new insurance by April 11, Equity did not reinstate the contract. The company also notified the Association that it was no longer sponsoring him, making him ineligible to sell mutual funds.

The aftermath

JS subsequently focused on selling his client book to another financial planner. Although Equity agreed to continue paying him monthly commissions until June 30, 2017, or until he sold his book of business — whichever came first — the company denied his request to extend the payments until August, when the sale of his book was finalized.

Legal actions and rulings

In November 2017, JS successfully filed a small claims case to recover his commissions for July 2017, winning a judgment exceeding $10,000 in October 2018.

In March 2019, he filed the current action, making broader claims, including the devaluation of his book of business due to the termination and alleging bad faith by Equity.

The action was dismissed by the lower court on the principle of “res judicata,” the idea that the matter had already been adjudicated in small claims court and could not be brought up again.

The appeal

On appeal, JS argued that his current claims were distinct from the matter adjudicated in small claims court.

However, the appellate court found that the current action was rooted in the same conduct previously examined and dismissed the appeal.

“Even if the present cause of action were different, it is so inextricably linked to the factual basis for the first action, one would be compelled to conclude that it ought to have been brought at the same time, which is what the motion judge decided,” it said.

It awarded costs of $2,000 to Equity.

For more information, see James E. Sellars c. Equity Associates Inc., 2023 NBCA 86 (CanLII)

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