Canada: Actions Speak Louder – Court Of Appeal For Ontario Confirms Debtor Creditor Relationship Between Parties To A "Broker Agreement"

In proceedings pursuant to the Companies' Creditors Arrangement Act concerning The Cash Store Financial Services et al., the Court of Appeal for Ontario dismissed an appeal from a decision of the Superior Court of Justice (Commercial List)1 finding that the parties to a broker agreement in fact stood in a debtor-creditor relationship.

This case is significant as it demonstrates the Court's willingness to adopt a holistic approach to contract construction and interpretation.

Background facts

The appeal concerned the nature of the relationship between The Cash Store, a payday lender, and certain third parties that had provided funds to The Cash Store pursuant to "broker agreements." The broker agreements set out an arrangement whereby the third party lenders would provide funds to The Cash Store, and The Cash Store would use these funds to broker loans between payday lending customers and the third party lenders. In theory, both the interest and the risk of these loans would flow through to the third party lenders.

In practice, however, the arrangement between The Cash Store and the third party lenders differed from that set out in the broker agreements. Instead of making payments to the third party lenders based on the accrued interest value of the loans brokered on their behalf to customers, The Cash Store made consistent monthly payments of 17.5% interest on the total amount advanced by the third party lenders. Further, the third party lenders had elected not to avail themselves of certain protections provided for in the broker agreements, including fund segregation.

Dispute over ownership

After The Cash Store obtained an initial order pursuant to the CCAA, a dispute arose concerning the ownership of the funds provided to The Cash Store by the third party lenders (the TPL Funds). The third party lenders brought a motion seeking a declaration that the TPL Funds were owned by the third party lenders, and should thus be removed from the estate of The Cash Store and not made available to other creditors.

The key issue on the motion in the court below was whether the total commercial relationship between The Cash Store and the TPLs was in fact reflective of a "broker agreement" as stated in the written contracts. Justice Morawetz of the Ontario Superior Court conducted an examination of "the relationship as originally set out in the broker agreements and [traced] the relationship between [The Cash Store] and the [third party lenders] subsequent to the execution of the broker agreements."2

While Justice Morawetz noted that the broker agreements expressly recognized that ownership of the TPL Funds was to remain with the third party lenders, this was not the end of the matter. Justice Morawetz found the fact that the third party lenders were paid consistent rates of interest of 17.5% per month by The Cash Store undermined their position that The Cash Store acted merely as a broker pursuant to the broker agreements. Indeed, the third party lenders were aware of and even expected these consistent 17.5% returns, notwithstanding the significant risk in the payday lending business.

Based on a holistic review of the evidence, Justice Morawetz found that, in practice, the parties had never fully implemented the terms of the Broker Agreements, and instead had built a relationship in which The Cash Store accepted and used the TPL Funds as a debtor to the third party lenders. In other words, the third party lenders did not own the TPL Funds.

On appeal

The third party lenders appealed the motion decision, arguing (among other things) that Justice Morawetz rewrote the contract between the parties, and that the written agreement should govern the relationship.

In dismissing the appeal, the Court of Appeal for Ontario recognized that the analysis carried out on the motion was a characterization exercise – Justice Morawetz considered the evidence before him and used it to determine the legal nature of the arrangement between the parties. Accordingly, the third party lenders were asking the Court of Appeal to revisit the factual determinations of Justice Morawetz. The court below had been asked to determine the true legal characterization of the relationship between the parties in the CCAA context, and found that the text of the broker agreements "did not accord with reality." The Court of Appeal found ample support for Justice Morawetz's findings and characterization of the relationship as being between debtor and creditor.

Holistic characterization of contracts

It is not uncommon for parties to a written contract to deviate in practice from a strict application of the terms of a written agreement. The Cash Store case is significant insofar as it demonstrates the court's willingness to adopt a holistic approach to interpreting a contract and identify the relationship the parties actually implemented. Understanding the legal character of a commercial relationship requires a review of all of the facts, including how commercial dealings occur in practice in addition to how they are set out on paper.

This holistic approach to contract interpretation will be particularly important in future situations in which individuals dispute the legal nature of contracts formed between other parties. These circumstances may arise in contested CCAA proceedings in which one party attempts to rely on a particular construction of a contract for its own benefit to the detriment of other creditors. The Court of Appeal's description of this exercise as being one of fact-driven characterization should give judges some guidance in how to approach similar circumstances in the future.

Norton Rose Fulbright Canada LLP acted for the DIP Lenders in successfully opposing the third party lenders' motion and appeal


1. Cash Store Financial Services Inc. (Re) 2014 ONCA 834, November 25, 2014.

2. Endorsement of Morawetz, J., 2014 ONSC 4326 at para 116.

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ('the Norton Rose Fulbright members') of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions