The Ontario Court of Appeal has upheld a Superior Court decision in the case of Farrell v. Riley, confirming that a binding contract existed between two investment advisors despite the absence of a formally signed agreement.
The dispute centered around the sale of P.F.’s participation rights in a book of investment business to R.R. At trial, Justice Grant R. Dow found that the parties had agreed on the essential terms of the sale via email, with R.R. offering to buy P.F.’s rights for $90,000, payable either in 36 monthly installments or a discounted lump sum.
Justice Sossin, writing for the unanimous Court of Appeal, dismissed R.R.’s appeal. R.R. had argued that no binding contract existed due to a lack of formal written agreement and security provisions. The appellate court, however, supported the lower court’s findings, stating that the essential terms of the contract were clear and agreed upon in the Sept. 27 email from R.R. and P.F.’s acceptance on Oct. 4.
Facts of the case
In 2013, P.F. joined Gravitas Securities Inc., bringing a client portfolio exceeding $20 million. Initially, another individual managed these investments as a Portfolio Manager (PM), but in 2016, R.R. took over this role. The book of business generated significant revenue, split between Gravitas and the two advisors.
Tensions arose in May 2017 when R.R. began contacting clients without P.F.’s prior knowledge. P.F. viewed this as an attempt to take over his book of business. After several discussions, R.R. offered to buy his participation rights for $90,000. P.F. accepted the offer but insisted on a promissory note and security agreement, which R.R. refused to sign, eventually declaring the offer null and void.
P.F. sued for breach of contract, claiming that R.R. had benefitted financially from the book of business without honoring the agreement. The trial court ruled in P.F.’s favour, and the Court of Appeal has now affirmed this decision.
Court of Appeal’s analysis
The Court of Appeal examined whether the trial judge erred in finding a binding contract and in the assessment of unjust enrichment and mitigation of losses. The appellate court determined that:
- Intent to Create Legal Relations: The essential terms of the contract were agreed upon in the email exchanges. Justice Sossin noted that, “the essential provisions to be incorporated in a formal document with the intention that their agreement shall thereupon become binding,” were present in the emails, fulfilling the requisites for contract formation.
- Essential Terms: The appellate court found no palpable and overriding error in the trial judge’s conclusion that the quantum of payment, not security, was the deal breaker. The September 27 offer and October 4 acceptance constituted a binding contract.
- Unjust Enrichment: While the trial judge’s reasoning on unjust enrichment was unclear, the primary finding of a binding contract sufficed to uphold the award of damages to P.F.
- Mitigation of Losses: The court dismissed R.R.’s argument that P.F. failed to mitigate his losses, noting that R.R. did not provide evidence of specific opportunities available to Farrell at other brokerages.
The Court of Appeal awarded costs of $10,000 to P.F. in this case, all-inclusive.
Lessons from this case
This ruling underscores several critical lessons for employers and HR professionals:
- Clarity in Agreements: Ensure all essential terms are clear and agreed upon in writing, even if the final formal document is not yet signed.
- Communication: Maintain transparent communication between parties to avoid misunderstandings that could lead to litigation.
- Mitigation Evidence: If alleging failure to mitigate losses, provide concrete evidence of available opportunities that the other party did not pursue.
For more information, see Farrell v. Riley, 2024 ONCA 449 (CanLII).
