Executive Summary: Key Legal and Evidentiary Issues

• A contractual dispute arose from a failed buyout of a 50% interest in a Book of Business following a broker's resignation.

• The defendant improperly used confidential client data held in escrow during a failed transaction.

• The new brokerage induced breach of contract by requiring post-agreement conditions not contemplated in the original deal.

• The court upheld a non-solicitation clause as valid in a commercial context, rejecting claims of it being overly restrictive.

• Damages were awarded based on breach of contract and misuse of confidential information, with civil conspiracy claims dismissed.

• The plaintiff was awarded $350,000 in damages, accounting for partial retention of clients and a minor set-off.

Facts of the case

In Sound Insurance Services Inc. v. Hossein, the Ontario Superior Court of Justice examined a dispute stemming from the departure of a producer, Chris Hossein, from Sound Insurance in 2021. In 2007, Sound Insurance acquired Mr. Hossein’s Book of Business and entered into an agreement granting him a 50% undivided interest, with a contractual mechanism for him to purchase the remaining 50% if he ever left the firm. The agreed procedure included determining the fair value of the Book by a joint valuator and closing the buyout on that basis.

Upon resigning, Mr. Hossein intended to bring his Book of Business to his new brokerage, Greensides & Breen Insurance Brokers. A valuation of the Book pegged Sound’s share at $432,000. However, Greensides introduced a new term demanding a price adjustment if any clients failed to renew their policies within 12 months. Sound rejected this condition, maintaining that the deal must follow the original contract terms and that Mr. Hossein was its counterparty—not Greensides.

Negotiations collapsed. Nevertheless, Greensides and Mr. Hossein proceeded to act on the client data, which had been shared in escrow for closing purposes. Mr. Hossein’s lawyer improperly forwarded the escrow materials to him, which he then passed to Greensides. With the support and indemnification of Greensides, Mr. Hossein began soliciting clients from the Book, even though the purchase had not been completed.

Court’s analysis and outcome

The court found that Mr. Hossein breached section 8.3 of the 2007 agreement by failing to complete the purchase of Sound’s 50% share. It rejected his arguments that the delay in transferring client policies or Sound’s unwillingness to accommodate Greensides’ new terms relieved him of his obligations. The judge emphasized that Sound remained ready, willing, and able to complete the transaction, and that the transition plan it proposed was commercially reasonable and consistent with industry practice.

The court held Greensides liable for inducement of contractual breach, highlighting that its refusal to proceed without the additional adjustment clause effectively undermined the original agreement. It also found that Greensides benefited from confidential information shared in escrow, and that its direction to staff to use the policy data amounted to a breach of confidence. However, the court did not find sufficient evidence to support the tort of civil conspiracy, noting that each defendant’s conduct gave rise to distinct liability, which rendered the conspiracy claim redundant.

On damages, the court assessed losses by accounting for Sound’s continued income from a portion of the Book it retained. While Sound still earned commissions from some clients, this partial retention did not offset the harm caused by the defendants' actions. The court applied a reasonable reduction to reflect the retained value but maintained the contractual valuation as the base for its award.

In conclusion, the court awarded Sound Insurance $350,000 in damages, plus prejudgment interest and costs. Both defendants were found jointly and severally liable. The case underscores the enforceability of commercial agreements involving restrictive covenants and the risks of misusing confidential business information during transactional breakdowns.