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CASE #026E – McGuire v. Dejong and Coldwell Banker
December 21, 2021

ONTARIO – An employee of a real estate brokerage, who, to the knowledge of the broker was not registered under the Real Estate and Business Brokers Act, (“REBBA”), was not entitled to recover agreed remuneration from the brokerage, either in contract or by quantum meruit, notwithstanding that the brokerage earned over $600,000 in commissions as a result of the employee’s work’ due to the prohibition in s.9 of REBBA.

McGuire v. Dejong and Coldwell Banker
2021 ONSC 6044
Associate Justice A. Kaufman, September 10, 2021

This case was decided by Associate Justice Kaufman (“Kaufman A.J.”) .  It came to Kaufman A.J. by way of a reference under Rule 54.04 of the Rules of Civil Procedure.

McGuire was a university graduate, who was pursuing a career in real estate. The Defendant (“CB”) hired him as a sales associate with full knowledge that he was not yet registered as a salesman under Real Estate and Business Brokers Act, 2002, SO 2002, c 30, Sch C. (“REBBA”).

Dejong was the CB broker for whom McGuire worked. Dejong was responsible to ensure that salespersons working for him complied with the REBBA and its regulations. Pursuant to s. 4 of the REBBA, no person may trade in real estate unless registered. To become a registered salesperson, an application must be submitted to the RECO. The Court accepted as a fact that Dejong and CB knew that McGuire was not registered: paras. 18-20

Section 9 of REBBA provides that “[n]o action shall be brought for remuneration for services in connection with a trade in real estate unless at the time of rendering the services the person bringing the action was registered or exempt from registration under this Act and the court may stay any such action upon motion:” para. 22.

On the instructions of Dejong, McGuire worked on 10 transactions during the 26 months he was employed. McGuire received commissions from CB in respect of some of the transactions. This action was for commissions in respect of two clients: paras. 24-26.

McGuire attracted the clients to CB and played a significant role in bringing them together.  He did so in the expectation that he would be remunerated for this work in accordance with the agreement he made with CB: paras. 37-39 McGuire’s work resulted in commissions of over $600,000 for CB: para. 59.

Under the  REBBA Regulations, “remuneration” is defined as “any form of remuneration, including any commission, fee, gain or reward, whether the remuneration is received, or is to be received, directly or indirectly”. Whenever remuneration depends on the eventual sale of property and is calculated as a percentage of the sale price, compliance with the REBBA is required. The same conclusion applies to remuneration tied to the acquisition or disposition of real property by lease: para. 41.

Kaufman A.J. reviewed the definitions of “trade” and the classes of persons who do not require registration under REBBA but was unable to find that McGuire fit under any of those and also dismissed McGuire’s claims for relief by way of unjust enrichment, quantum meruit or wrongful dismissal.  On the issue of unjust enrichment and quantum meruit, the Court held that s. 9 of REBBA also bars those claims, relying on Windrock Associates Ltd. v. Miniccuci 2016 ONSC 4504 and on a decision of the BCSC in Lindsay v. Ambrosi2019 BCCA 442: para. 46.

As a result, Kaufman A.J. concluded that he had no choice but to dismiss McGuire’s claim and noted that “If it were up to me, I would have allowed the plaintiff’s action. However, as Justice Rosenberg (as he then was) held in M.J.K. Consultants Inc. v. Citibank Canada, [1993] O.J. No. 2175, at para 12, an action cannot be decided based on sympathy for the plaintiff and the Court must apply the law as the legislature intended. The Associate Justice also commented on the unfairness of the result”: paras. 51-53.

The Associate Justice gave McGuire the only relief that he believed was possible: He directed the defendants to pay all the costs of the action, including McGuire’s legal fees on a full indemnity basis: para. 54-59.

Editor’s Note:

We make the following observations with all due respect to Associate Justice Kaufman. We do not know whether these matters were argued before the Court. We understand that the decision is not under appeal.

It is apparent that the Kaufman A.J. considered himself bound by Justice Spies’ decision in Windrock as to whether a claim could be based in unjust enrichment and quantum meruit. In our view, the facts of the Windrock case could have been distinguished .

This is what Sossin J. (as he then was) did in Nijjar v. Feldman et al., 2020 ONSC 552, at paras. 135-136 . Sossin J. decided that the defendant was unjustly enriched and awarded the plaintiff compensation on the basis of quantum meruit and held that s. 9 of REBBA did not apply. Justice Sossin distinguished Windrock on the basis that quantum meruit amount was not a percentage of a commission. However, that is not a limiting factor. Justice Sossin observed as follows:

[92] The test for unjust enrichment described in Kerr v. Baranow (2011), 108 O.R. (3d) 399 is not in dispute. It requires first that the plaintiff establish that a benefit was given to the defendant that was received and retained, and second, that this benefit corresponds to a deprivation on the part of the plaintiff. The third aspect of the test for unjust enrichment is the absence of a juristic reason for the benefit and corresponding deprivation.

[93] In this case, I find that the first two parts of the test are met by the services which Nijjar provided, and Feldman accepted, to his benefit.

[94] With respect to the third part of the test, I already have found that there was no contract between Nijjar and Feldman during this period. Since there was no contract (and consequently, no potential breach of contract), there was no basis for Feldman to argue that he was entitled to receive Nijjar’s services without compensation. In other words, there was no juristic reason for Feldman’s benefit and Nijjar’s deprivation.

In the circumstances of the case before Kaufman A.J., it was open to the Court to rely on Nijjar v. Feldman even though there was no enforceable contract between McGuire and CB, there was, as Justice Sossin stated, no basis for CB to receive McGuire’s services without compensation. That would have enabled the Court to fashion a remedy based on unjust enrichment. The amount need not have been driven by a commission but rather by a reasonable measure of the value of McGuire’s services.

Associate Justice Kaufman noted, in para. 52:

Mr. McGuire will surely feel, and I agree, that this action’s outcome is unfair. He worked for the defendants for over two years, and he brought large clients to the defendants’ business. He spent five years pursuing this litigation, no doubt at great expense.

. . .

The cases applying section 9 of the REBBA usually concern one disputed transaction. Here, the plaintiff devoted two years of his working life to the defendants and his work generated sizeable commissions. Moreover, the risk of harm to the public was low because Mr. McGuire worked with other registered brokers on all the transactions that are at issue in this action. [Emphasis added.]

Having recognized the consumer protection purpose of REBBA, namely, “to protect the public by regulating those who engage in the business of real estate” and that “Real estate brokers have been said to possess superior knowledge, and stand in a position of trust and confidence in relation to the inexperienced public” (para. 51), the Court might have analyzed this issue further.

Clearly, DeJong and CB did not need protection from McGuire. Indeed, Dejong and CB caused the problem by hiring McGuire before he was registered and agreeing to pay him for his services. The applicability of s. 9 of REBBA in the consumer protection context is discussed for example, by E.M. Morgan J. in Swiss Tech Incorporated v. 2316543 Ontario Limited, 2018 ONSC 856 at para 30, where the Court found its way around s. 9 of REBBA.

Kaufman A.J. also referred to Strathy J.’s (as he then was) decision in Neiman v. Duffmits Holdings Inc., 2010 ONSC 4643 for the proposition that dismissing a claim under s. 9 of REBBA may appear to result in unfairness in particular cases because the plaintiff may have invested substantial time and effort on the defendant’s behalf yet the defendant receives a windfall: para. 52.

However, in the Neiman v. Duffmits Holdings Inc. case, Justice Strathy’s (as he then was) also conducted an analysis of cases in para. 27 et seq. to which s. 9 of REBBA does not apply. At para. 38, Strathy J. noted that “[the case] makes it clear that the Court must scrutinize the nature of the plaintiff’s interest in the transaction and the nature of the “services” provided to determine whether it falls within REBBA and, if so, whether the exceptions in s. 5(1)(h) apply.”Further, Strathy J. did not grant a stay under s.9 of REBBA in that case.

We also respectfully suggest that the Court could have considered damages for CB’s apparent breach of the organizing principle of good faith performance of contracts enunciated by the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71 and C.M. Callow Inc. v. Zollinger, 2020 SCC 45. CB hired McGuire, knowing he was not registered, promised to pay him, and put him to work. He generated clients and fees for CB. In these circumstances, we wonder how CB’s refusal to pay McGuire for his services could be anything less than an act of bad faith.

In the Swiss Tech Incorporated case referred to above, Justice Morgan stated at para. 33: (cases omitted)

“As the Supreme Court of Canada has put it recently, “Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings” This is especially true here in light of 231’s express contractual obligation to safeguard the Applicant’s right to its fee.”

Justice Morgan then, using the equitable tools of unjust enrichment and the organizing principle of good faith performance, fashioned a remedy for the plaintiff.

In our view, McGuire might also have had a claim for damages for misrepresentation and for promissory estoppel. If McGuire could prove that CB intended to rely on s. 9 of REBBA to avoid payment of agreed remuneration,

McGuire might also have had a claim based on fraudulent misrepresentation. CB’s failure to do pay what it promised to pay McGuire appears to us as “a marked departure from ordinary standards of decent behaviour” which might also have warranted an award of punitive damages, as noted by Simmons JA in Keeton v. The Bank of Nova Scotia2009 ONCA 662 at para 102.

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Arbitration & Business Cases is a blog created by Igor Ellyn and Robin Dodokin in September 2021. Our intention is to provide timely, concise summaries and commentary of Ontario and Canadian case law on arbitration and business matters.

Igor Ellyn,
QC, CS, FCIArb.

iellyn@ellynlaw.com
www.ellynadr.com
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Robin Dodokin,
FCIArb., Q.Arb., LL.M, Q.Med.

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