An Ontario court has denied an investment firm’s attempt to recover the cost of compensation it paid to aggrieved investors.

The decision from the Ontario Superior Court of Justice involved IPC Investment Corp. trying to recover the $75,000 it paid to a financial advisor’s clients who lost money after mortgaging their house to buy mutual funds. IPC sued the advisor, who countersued the firm. The advisor also sued the insurance company that provided his professional liability insurance, but denied coverage because he didn’t properly notify the insurer of the claim within the policy period.

The court dismissed IPC’s claim. The court found that the principal-agent agreement between IPC and the advisor, that may have indemnified it, didn’t apply to the conduct in question because it occurred before the advisor worked under IPC. That agreement was signed when IPC acquired the advisor’s previous dealer, Avalon Capital Management Corp.

According to the court’s decision, IPC argued that the agreement is intended to protect the firm from claims arising as a result of the advisor’s pre-contractual activities. “I reject this argument,” the judge notes in the decision. The court interprets the agreement as applying to future events, finding, “It makes little sense to interpret this clause as reaching back in time.”

“I suspect that, as IPC acquired Avalon and other companies, contractual arrangements might have been made to insulate IPC from pre-existing claims. However, no evidence was called on this issue,” the decision states.

The court also dismissed the advisor’s counterclaim, and his suit against the insurance company.

IE