(March 22 – 08:50 ET) – An Ontario Appeals Court has overturned a lower court ruling awarding $420,000 to a financial advisory firm after it was dumped in favour of CIBC Wood Gundy.

In the fall of 1995, a troubled trust company, Municipal Financial Corp. hired Sharwood & Co. to raise debt or equity financing. In December of that year, Sharwood produced several letters of interest in MFC, including one from the National Bank of Canada. However, no transaction was consumated.

In February 1996, MFC terminated its agreement with Sharwood and paid it $100,000. MFC then retained CIBC Wood Gundy to find a buyer for its assets. In June 1996, MFC sold almost all of its assets to the National Bank for $42 million. CIBC Wood Gundy was paid $950,000 on the sale.

Sharwood sued MFC for breach of their agreement. The trial court dismissed the claim for breach of contract, but awarded Sharwood $420,000 — the maximum success fee available had it consumated a deal for MFC — for “unjust enrichment.”

The appeal court has disagreed with this ruling and overturned it. “In my view,” writes Appeal Court Judge John Laskin, “the evidence does not support a finding that MFC accepted these services or accepted having to pay MFC on a sale of the trust company’s assets. Indeed, the parties’ agreement expressly said otherwise. Had MFC known that it had to pay Sharwood $420,000 on a sale, it may well have declined Sharwood’s services.”

“Sharwood reasonably expected to be compensated for finding a debt or equity investor,” writes Laskin. ” But Sharwood could have no reasonable expectation of compensation on a sale because the agreement permitted MFC to sell without having to pay compensation. There is no unjust enrichment in such circumstances.”
-IE Staff