Case information

Contracts — Commercial contracts — Breach — Remedy — Remedy clause in agreements found to be forfeiture clause not unenforceable penalty clause — Applicants ordered to pay $747,094.34 to respondent — Test for determining whether contractual provision requiring sum of money to be paid upon breach of contract is penalty clause contrary to penalty doctrine — If clause is found to be penalty clause, is it invalid for that reason or can court nonetheless require payment of sum required by penalty clause under equitable doctrine of forfeiture — More generally, what is relationship between common law penalty rule and equitable doctrine of relief from forfeiture?

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

The applicants, John and Javier Sanchez founded the company International Capital Management Inc. (“ICM”) in 1996. The respondent, Optimize Inc. (“Optimize”) is a wealth manager, investment fund manager, and portfolio manager.

The applicants decided to sell ICM to Optimize. ICM and Optimize entered into two agreements (the “Agreements”), whereby ICM sold its portfolio of clients to Optimize. The first was a referral agreement, and the second was a non-competition agreement.

Pursuant to the Agreements, Optimize was obligated to pay monthly non-competition fees to ICM. Optimize also paid two referral fee installments as required under the contract. However, Optimize would be entitled to a refund of these fees in the event that more than 15% of the value of the assets transferred to Optimize under the Agreements was subsequently transferred away from Optimize to entities related or associated with ICM or the Sanchez brothers.

Optimize claimed that as of August 2018, the Sanchez brothers began persuading their former clients who had transferred their portfolios to Optimize to move their business to TIP Wealth Manager Inc. (“TIP”), another wealth management firm associated with the Sanchez brothers.

Optimize claimed that over 15% of the value of the initial portfolios belonging to referred parties was transferred to TIP. Optimize subsequently sent a notice that it was terminating the agreements, and demanded repayment of the fees paid to ICM, totalling $747,094.34.

ICM then initiated an action for:

(1) a declaration that the Agreements were valid and binding on Optimize;
(2) damages in the sum of $3 million for breach of the non-competition agreement; and
(3) damages in the sum of $600,000 for breach of the referral agreement.

Optimize counterclaimed for the $747,094.34 of fees paid under the Agreements.

On a motion for summary judgment brought by Optimize, the motion judge granted its counterclaim and dismissed the applicants’ action. The Court of Appeal dismissed the appeal.