Canada: The Unforgiving Forgivable Loan

Last Updated: September 26 2018
Article by Stephen Thiele

In the investment industry, dealers are always looking to grow the value of investments under their management. They do this in a variety of ways, including hiring advisers with large customer bases away from other dealers under the expectation that the customers will remain loyal to the adviser.

To make a potential workplace change appealing to an adviser, a recruiting dealer will often provide a significant upfront payment to the adviser based on the value of assets under the adviser's management. The upfront payment will generally be structured as a forgivable loan.

Some advisers view the forgivable loan like a bonus, never expecting that any portion will need to be repaid to the dealer. However when the relationship between a dealer and an adviser sours, the reality that the "bonus" is nothing more than a "loan" can be unforgiving.

In the recent case of Raymond James Ltd. v. Noronha1, , the Honourable Justice Perell was required on a summary judgment motion to determine, among other issues, the enforceability of a forgivable loan against an adviser whose relationship with a dealer was terminated a couple of years after it started.

His Honour's decision reconfirms that the forgivable loan provision is a matter of contract and is enforceable. In this case, the dealer was awarded judgment of nearly $300,000.

Relevant Facts

The adviser worked for Dundee Wealth Management when he was approached to transfer his book of business to the plaintiff dealer. The adviser had earned over $1 million in commissions a year and managed approximately $100 million of client assets.

Therefore, he likely appeared to the dealer to be a great prospect.

To make the transition to the dealer easier to accept, the dealer agreed to provide the adviser with an $880,000 forgivable loan that would be paid to him soon after joining.

Under a written Agency Agreement entered into between the dealer and the adviser, the dealer agreed that 1/7th of the principal amount of the loan would be forgivable on each anniversary of the initial advance until the loan was fully forgiven on the seventh anniversary of the advance. The forgivable nature of the loan was subject to the condition that the adviser fulfill all requirements of the Agency Agreement and that he not be in default of the agreement.

The Agency Agreement included a termination provision and expressly stated that if the agreement was terminated, the outstanding and unforgivable balance of the loan would be immediately due and payable to the dealer. The agreement would be terminated if the adviser resigned, with or without notice, the dealer terminated the agreement, with or without cause or the adviser breached the agreement.

The adviser acknowledged that by signing the Agency Agreement, he understood that he would be required to comply with all applicable laws and the dealer's compliance manuals. He also acknowledged that he was governed by and was required to adhere to the rules of the Investment Industry Regulatory Organization of Canada ("IIROC").

Licensing by IIROC is a statutory requirement for investment dealers to trade in securities.

Two years into the relationship, the dealer received information that the adviser was trading in off-book investments and taking secret commissions.

The dealer investigated and found that the adviser was using his personal email address to carry on business. This activity was unauthorized and contravened the dealer's Compliance Manual and policies relating to the use of its computer systems.

When interviewed, the adviser admitted to off-book investments but did not disclose details.

In the circumstances, the dealer felt it had no alternative but to terminate the Agency Agreement.

Subsequently the adviser informed the dealer that he was resigning, and, in turn, the dealer notified IIROC that the adviser had been terminated as a sales agent.

Despite the break down in their relationship, the dealer facilitated the transition of the adviser's clients to a new firm and in the months that followed the termination and resignation substantially all of the adviser's clients followed him to his new firm.

Subsequently while the dealer claimed that the adviser owed it money in connection with the forgivable loan, IIROC conducted its own investigation into the adviser's activities.

After the dealer demanded repayment of over $275,000 from the adviser and the adviser refused to pay, the dealer decided to sue.

At the same time, IIROC issued a Notice of Hearing against the adviser alleging that the adviser had:

  1. (a) engaged in business conduct or practice that was unbecoming or detrimental to the public interest by recommending and facilitating investments to clients that were conducted off the books and records and without the dealer's consent;
  2. (b) accepted, directly or indirectly, remuneration from persons other than the dealer through his spouse for securities related matters.
  3. (c) failed to disclose to the dealer and to his clients a conflict of interest; and
  4. (d) engaged in business conduct or practice unbecoming or detrimental to the public interest by deleting email records.

Ultimately in the adviser's voluntary absence from a discipline hearing, IIROC found that the adviser had contravened its membership rules, and, among other things, ordered that the adviser be permanently barred from registering with IIROC in any capacity.

In defending the dealer's action for recovery of outstanding loan amounts, the adviser alleged that the agreement had been terminated in bad faith. He also counterclaimed for wrongful dismissal. Throughout his defence and counterclaim, the adviser contended that the dealer terminated the Agency Agreement for the sole purpose of appropriating his book of business. This argument was made in defence of the dealer's motion for summary judgment.

Decision of the Court

Justice Perell found that the dealer's action to recover the loan was a straightforward matter of contract.

Under the Agency Agreement, if an act of default occurred before the full forgiveness of the loan had occurred, the then outstanding balance of the loans, costs and all monies owing by the adviser to the dealer and all liabilities of the adviser became immediately due and payable and constituted a debt due and owing to the dealer by the adviser. An act of default had occurred and therefore the dealer was entitled to recover the outstanding debt.

The adviser's allegation of bad faith, which contended that the dealer terminated the agreement only to appropriate his book of business, lacked merit because there was no appropriation of his book of business.

The adviser lost his book of business because he was banned for life by IIROC from being an investment dealer.

Justice Perell also dismissed the adviser's counterclaim for wrongful dismissal.

With and without regard to IIROC's findings, the adviser simply was unable to make out a case for wrongful termination or that the dealer had misappropriated his book of business.

The IIROC proceeding, indeed, confirmed the dealer's grounds for terminating the agreement.

Representation by Gardiner Roberts LLP

The dealer was represented in this action by Gavin Tighe, partner and certified specialist in litigation.

Gavin was assisted in the action throughout by senior litigation associate, Scott Gfeller.

Stephen Thiele, partner and Director of Legal Research for Gardiner Roberts LLP, assisted in the preparation of the written legal argument filed in support of the summary judgment motion.

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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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