The Court of Appeal for Ontario has dismissed an appeal from an advisor, Doug Kechnie, and his firm, Kechnie Financial Group Inc., of a lower court judgment that found Toronto-based Sun Life Financial Inc. was justified in cutting off ongoing commission payments after Kechie solicited former clients to switch their business to a new firm
In the case, Kechnie had sued Sun Life claiming that the insurer improperly cut off commission payments that were scheduled to be paid out over 10 years after Sun Life terminated its agreements with Kechnie in 2008. The Superior Court of Justice denied his claim in a decision handed down in November of last year. Kechnie appealed, seeking to set aside that ruling. However, the appeal court has now upheld the lower court decision.
According to the appeal court decision, when the agreements between the insurer and the advisor were terminated in 2008, Kechnie had accumulated a “book of business” that entitled him to approximately $1.85 million in post-termination commissions to be paid out monthly over 10 years under Sun Life’s Commissions on Release (CORe) program.
However, that program allowed the insurer to terminate those payments if the advisor induced clients to cancel or replace their policies during the 10-year payout period. “It is the enforceability of Sun Life’s ability to terminate the Kechnies’ CORe payments pursuant to this clause that is at the heart of the dispute,” the appeal court says.
In this case, the court says that Kechnie induced “a significant number of his Sun Life clients to terminate or replace their Sun Life products and policies and to transfer them to his new business.” As a result, Sun Life terminated the payments.
Kechnie sued the insurer over the cancelled payments and lost. On appeal, he argued that “the trial judge erred in failing to hold that their rights to the payment of CORe commissions were ‘vested’ rights at the time of termination and by holding, instead, that they were ‘contingent’ rights conditional upon the appellants’ compliance with the payment-for-release requirements in the CORe agreements,” the appeal court notes.
However, the appeal court disagreed: “The real issue here is not whether the Kechnies’ right to CORe payments was vested or contingent. The real issue is whether the CORe payment termination provision is properly characterized as a forfeiture clause with penal consequences and, if so, whether the Kechnies are entitled to relief from forfeiture in the circumstances.”
Ultimately, the appeal court agreed with the lower court, ruling that its initial analysis was correct and upheld its decision.
“In the end, the trial judge determined that the CORe payment termination provisions were not punitive in nature or a penalty, nor were they contrary to public policy. Having so found, she correctly concluded that the principles of relief from forfeiture were not engaged,” the appeal court said. “These conclusions were amply supported by the record and completely justify the trial judge’s conclusion that the appellants were not entitled to relief from forfeiture in the circumstances.”
The appeal court also found that the trial judge’s decision is “consistent” with precedents that support the enforceability of forfeiture provisions in similar contracts.
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