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Securities Litigation

Posted by Mr. Joel W. on Mar 30th, 2017 9:34am

                                                      DUTY TO WARN

                                                     by Joel Wiesenfeld

In investor loss actions against dealers and financial advisors, it is not uncommon for claims of a failure of a duty to warn, and corresponding findings of a Judge, whether on a pleadings motion, a class action certification motion, or in a trial or appeal decision, regarding the alleged duty to warn.  Duty to warn is a pithy phrase; yet in different contexts it may have very different meanings, sometimes with far less substance or definition than warranted by its use.  The 34 cases listed below all utilize the phrase, and a comprehensive reading of them leads to my posing the question of whether there exists a duty to warn in the following factual scenarios.


Is there a duty to warn:

by the financial advisor to his/her client; and/or

by the dealer to that client

-       where issues arise such as the suitability (or ongoing suitability) of a particular investment, investment strategy (such as borrowing to invest), level of risk, understanding of investment product or strategy that are or should be evident at the time of the investment or implementation of the strategy or on a suitability review or that arise subsequent to the investment?

-       really, this ‘duty to warn’ is usually just another way of phrasing the more general duty of providing investment advice that meets KYC, suitability and KYP requirements.  Most of the cases in the list below fall into this category.

-       in margin default/account liquidation cases, an alleged duty to notify (or warn) the client is generally determined by the wording of the account/margin agreement entered into between the client and the dealer.

Is there a duty to warn:

by the financial advisor and/or the dealer to a third party

-       on competency issues of the accountholder to family members or others, or in the event of a joint account where one of the accountholders may have such issues, a duty to notify (or warn) the other?

-       where the trading in the account raises concerns of large financial losses that would impact others, such as family members?

-       obviously serious privacy issues are engaged in these questions.

-       in Merit v. Mogil, one of the issues at trial was whether the financial advisor and dealer had a duty to warn the guarantor of the account of an individual of large losses arising from futures trading, over and above the annual positive audit confirmations sent to the guarantor.  In the particular circumstances of the case, there was not a finding of a duty to warn.

Is there a duty to warn:

by the dealer to the client base of its financial advisor

-       where an issue has arisen concerning the conduct of the financial advisor in relation to a particular client or clients (such as discretionary trading, off book investments, borrowing from a client, guaranteeing losses, etc.) that was not disclosed or evident to the dealer at the time of its occurrence, but which the dealer has become aware (usually as a result of a client complaint)?

-       for example, see the Markarian decision.

-       the issue has within it a duty to investigate component (on a red flag theory), whether or not the dealer suspects that the issues  might be widespread  within the financial advisor’s book.

Is there a duty to warn:

by the dealer to the its clients

-       where an issue presents (usually having to do with an error in the dealer’s systems or an investment product or strategy that might affect the entirety or a cross section of its client base), and not limited to a particular financial advisor)?

-       see Robert v. Versus, where the failure to warn clients of a systems error and its correction was held to be a negligent misrepresentation.  See also Hurst v. Armstrong & Quaile.

-       the question sometimes posed is whether the existence of a duty to warn is dependent on the standard of care owed to the client (as held in Carom v. Bre-X and in Transpacific v. Sprott) or exists independent of the standard of care (as found in Collette v. Great Pacific).

Is there a duty to warn:

by the dealer to a subsequent dealer to whom the financial advisor has departed; and/or

by the dealer to its former clients who have transferred their accounts to the new dealer

-       in circumstances where the original employing dealer is aware of financial advisor conduct issues, over and above reporting such issues on [whatever the current mode of regulatory reporting now is that is the successor to the old uniform termination notice] (ie, by a direct communication to the dealer)?

-       read Blackburn for a resounding yes to this question, and TechHi to the opposite effect, noting that in both cases, the same financial advisor and dealers were the defendants.  The trial and appeal decisions in S. Maclise were also to opposite effect, on the facts of that case.

-       what level of certainty is required by the dealer, noting defamation and interference with economic relations liability issues for the dealer if its allegations prove incorrect?


In the present regulatory climate, driven more by investor considerations and less by contractual and common law limitations beneficial to registrants, a dealer’s and financial advisor’s decision making on whether there is a duty to warn in specific circumstances is clarified by asking the question “what is in the clients’ best interests”.  Failure to ask and respond to that question may very well lead to civil and regulatory liability.  As is usual in investor loss civil litigation, the factual context of the relationship of the parties, their respective conduct usually over an extended period of time, the investor profile of the client, and the securities regulatory overlay, tends to be determinative of liability issues.


                                                        LIST OF CASES

                                                          Duty to warn

  1. 820823 Ontario Ltd. et al v. Bruce Kagan (August 25, 2003) Toronto 01-CV-213776CM2 (Ont.S.C.J.).
  2. 875121 Ontario Limited v. Nesbitt Burns Inc. (1999), 50 B.L.R. (2d) 137 (Ont. S.C.J.).
  3. Baker v. Midland Doherty Ltd., [1987] B.C.J. 603 (B.C.C.C.), reversed [1988] B.C.J. 537 (B.C.C.A.).
  4. Blackburn v. Midland Walwyn Capital Inc. et al) (2003), 32 B.L.R. (3d) 11 (Ont. S.C.J.); aff’d (2005), 195 O.A.C. 181 (Ont. C.A.).
  5. Canarim Investment Corp. v. Mercer, [1985] B.C.J. No. 484 (B.C.S.C.).
  6. Carom et al v. Bre-X Minerals Ltd. (April 1988), Toronto, 97-GD-39574 (Ont. Gen. Div.) (Motion to Strike the Statements of Claim as disclosing no reasonable cause of action); (1998), 41 O.R.(3d) 780 (Ont. Gen. Div.) (Motion for leave to amend the Statements of Claim to add the fraud on the market theory); (1999), 46 B.L.R..(2d) 247 (Ont. S.C.J.) (Motion for certification of these proceedings as class actions); unreported endorsement on costs of Winkler J., dated June 24, 1999.
  7. Central B.C. Planners Ltd. v. Hocker (1970), 72 W.W.R. 561, 562, 565 (B.C.C.A.), leave to appeal to S.C.C. refused 16 D.L.R. (3d) 368.
  8. Collette v. Great Pacific Management Co., [2001] B.C.J. No. 253 (B.C.S.C.); [2002] B.C.C.A. 195; [2003] B.C.J. No. 529; [2004] B.C.J. No. 381; [2004] S.C.C.A. No. 174 (S.C.C.).
  9. Doraldick Investments Ltd. v. Canadian Imperial Bank of Commerce (1998), 44 B.L.R. (2d) 192 (Ont.C.J.(Gen.Div.)); affr’d (2000) 5 B.L.R. (3d) 200 (Ont. C.A.).
  10. Fogo v. FCG Securities Corp. (1998) 172 N.S.R. (2d) 266, 524 A.P.R., 266 (N.S.S.C.).
  11. Giesbrecht v. Canada Life Assurance Co., 2011 CarswellMan511 (Man. Q.B.); 2013 MBCA 53 (Man. C.A.).
  12. Hurst v. Armstrong & Quaile Associates Inc. (2007), 39 B.L.R. (4th) 230 (Ont. S.C.J.); additional Reasons  (2007), 39 B.L.R. (4th) 254 (Ont. S.C.J.).
  13. Ivany, et al v. Financiere Telco Inc., et al, 2011 ONSC 2785 (motion decision).
  14. Ivany et al. v. Financiere (certification motion); Ivany v. Canadian Western Trust Company (appeal) et al, 2013 ONSC 6347 (certification motion); Ivany v. Canadian Western Trust Company, 2013 ONSC 6969 (leave to appeal motion).
  15. Kerr v. CIBC World Markets Inc., 2017 ONSC 777 (trial judgment)
  16. Labricciosa v. TD Waterhouse Investor Services (Canada) Inc. (February 13, 2004) Toronto 01-CV-216709 CM; appeal dismissed, Endorsement of Labrosse, Weiler and Blair JJ.A. dated February 25, 2005.
  17. Markarian v. CIBC World Markets Inc. et al (February 13, 2004) Toronto 01-CV-216709 CM; appeal dismissed, Endorsement of Labrosse, Weiler and Blair JJ.A. dated February 25, 2005.
  18. Merit Investment Corp. v. Mogil, [1989] O.J. No. 429 (Ont. S.C.J.) (trial judgment)
  19. Paciorka v. TD Waterhouse (July 24, 2007) Toronto 05-CV-005093 (Ont. S.C.J.).
  20. Parent et al v. Merrill Lynch Canada Inc. et al (March 11, 2008) Toronto 02-CV-226371CM2; Costs Endorsement dated June 11, 2008.
  21. Politsky v. C.I. Mutual Funds Inc., [2007] O.J. No. 330 (Ont. S.C.J.).
  22. R. H. Deacon & Co. Ltd. v. Varga, [1973] O.R. 233 (C.A); [1975] 1 R.C.S. 39 (S.C.C.).
  23. Robert v. Versus Brokerage Services Inc. (c.o.b. E*Trade Canada), 14 B.L.R. (3rd) 72 (Ont. S.C.J.); additional reasons 2001 CarswellON 2128 (Ont. S.C.J.).   
  24. Ryder v. Osler et al (1985), 49 O.R. (2d) 609 (Ont. H.C.J.). 
  25. S. Maclise Enterprises Inc. v. Union Securities Ltd. et al, [2008] A.J. No. 370 (Atla. Q.B.); appealed [2009] A.J. No. 1405 (Alta. C.A.). 
  26. Shetty v. Gill, [2004] B.C.J. No. 268 (B.C.S.C.).
  27. Srivastava v. T.D. Waterhouse, 2003 CanLII 16441 (ON SC).
  28. Stein v. Cartier Partners Financial Services Inc. et al, 2009 CanLII 69787 (ON S.C.).
  29. Straus Estate v. Decaire, [2011] O.J. No. 737 (Ont. S.C.J.); aff’d 2012 ONCA 918.
  30. TechHi Holdings Limited v. Merrill Lynch Securities Inc. et al, [2004] O.J. No. 2265 (Ont. S.C.J.); ruling as to costs [2006] O.J. No. 1278.
  31. Transpacific Sales Ltd. (Trustee for) v. Sprott Securities Ltd., [2001] O.J. No. 597 (Ont.S.C.J.); aff’d  (2003), 67 O.R. (3d) 368 (Ont. C.A.).
  32. Young v. RBC Dominion Securities, 2008 CanLII 70045 (On S.C.).
  33. Valeurs mobilières Desjardins Inc. v. Lepage, 2011 QCCA 1837.
  34. White Tower Burgers Ltd. v. TD Securities Inc., [2004] O.J. No. 2986 (S.C.J.).


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Posted by Mr. Joel W. on Feb 28th, 2017 10:05am


                        in INVESTOR LOSS ACTIONS:  A MARRIAGE MADE IN …

                                               by Joel Wiesenfeld


Historically, motions for summary judgment in investor loss litigation in Ontario brought by defendant dealers and financial advisors against plaintiff investors seeking the dismissal of the action as statute barred due to the expiry of the limitation period have been a rarity. 

This has likely been because of three factors:

 (1) the six year limitation period in the Limitations Act, R.S.O.1990, c. L. 15, and the Act’s limited application (including not being applied in respect of allegations of breach of fiduciary duty, a frequent claim in investor loss actions);

(2) the restricted ambit of the summary judgment Rule in the Ontario Rules of Civil Procedure, and its limited judicial application (including not being utilized to determine credibility issues, also a frequent issue in investment loss claims where who said what to whom permeates the allegations); and,

(3) the precedent case of Buell v. CIBC Wood Gundy Securities Inc., a 1998 Decision of the Ontario Court of Justice General Division, affirmed by the Ontario Divisional Court.  In Buell, the dealer’s motion for summary judgment on the basis of the expiry of the limitation period under the then Ontario Limitations Act and the equitable doctrine of laches and acquiescence was dismissed.  The dealer/client relationship terminated in 1997, with the clients at the time being aware of having suffered a loss, and seeking legal advice some eight years later.

 During the period subsequent to Buell, from 1998 to 2011, I could locate only two decisions on summary judgment motions brought in investor loss cases in which a limitation period issue was raised.  In Berry v. IPC Securities Corp., a portion of the action was dismissed, and in Hodaie v. RBC Dominion Securities, the action was entirely dismissed, although on other grounds.

However, times seem to have certainly changed, likely due to the changes in the applicable limitation period statute (now the Limitations Act, S.O. 2002, c.24, and its two year limitation period) and the Summary Judgment Rule 20 of the Rules of Civil Procedure, and their judicial applications to the facts of investor loss actions.  Between 2012 and 2016, there have been eight summary judgment motion decisions dealing with a limitations period defence in investor loss cases, with the result that six actions have been dismissed, and, in the other two, the motions being dismissed (with the issue of the alleged expiry of the limitation period to be decided by the trial Judge).

 As with all issues in investor loss cases, the facts of each particular dealer/client relationship, the client’s investor profile, the conduct of the financial advisor and client during the frequently substantial period of their relationship, the trading in the investment account and its ramifications (whether a realized loss, or a loss of value), and the relevant securities regulatory duties and obligations all act to prevent a cookie cutter analysis of the group of decisions.  Nonetheless, it is clear that Motion Judges are placing increased emphasis on when the loss (that is the subject matter of the claim) occurred and was recognized as a loss by the client, as opposed to when the client understood the factual and legal intricacies of a claim against the financial advisor and dealer.  For example, in Unegbu v. WFG Securities of Canada Inc., et al, 2015 ONSC 6408 (Motion); 2016 ONSC 761 (Costs); 2016 ONCA 501, the Court of Appeal dismissed the plaintiff client’s appeal of the motion Judge’s decision, which had granted the motion for summary judgment, rejecting her submission that it was only when she received letters in mid 2011 from the MFDA responding to her complaint against the defendant dealer and financial advisor that she became aware of her right to sue them.  The Court stated that:  “It is well-established that a lack of appreciation of the legal significance of the facts grounding a claim does not stop the limitation [period] from running.”

Whether summary judgment motions based on the expiry of the limitation period in investor loss cases is a trend that will continue remains to be seen; but the issue of the time period between when a loss (howsoever defined in the circumstances) was sustained and the commencement of the action is now an important factor to be considered when analyzing the merits of a case.


                                                            LIST of CASES


Buell v. CIBC Wood Gundy Securities Inc., [1998] O.J. No. 2861 (Ont. Gen. Div.), aff’d [1998] O. J. No. 4313 (Ont. Div. Ct.),

Berry v. IPC Securities Corp., [2009] O.J. No. 1598 (Ont.S.C.J.),

Hodaie v. RBC Dominion Securities (2011), 108 O.R. (3d) 140 (Ont. S.C.J.), aff’d 2012 ONCA 796 (C.A.)

Beaton v. ScotiaiTrade and Scotia Capital, 2012 ONSV 7063 (Ontario Superior Court of Justice); aff’d 2013 ONCA 564 (Court of Appeal for Ontario)

Johnson v. Studley, 2014 ONSC 1732 (Ontario Superior Court of Justice)

Galineas v. RBC Dominion Securities Inc.,  2014 ONSC 20 (Superior Court of Justice – Ontario; 2014 ONSC 1129

Unegbu v. WFG Securities of Canada Inc.  – 2015 and 2016

Masales v. Cole, 2016 ONSC 763 (summary judgment motion), 2016 ONSC 1814 (costs)

Aalto v. RBC Dominion, 2016 ONSC 7552 (Ontario Superior Court of Justice)

Webb v. TD, 2016 ONSC 7153 (Ontario Superior Court of Justice)

1654776 Ontario Limited v. Dundee Wealth Inc., June 29, 2016, Court File No. CV-10-00405817-0000  (Ontario Superior Court of Justice)


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Posted by Mr. Joel W. on Dec 6th, 2016 11:01am


                                                                  by Joel Wiesenfeld

                          A Survey of Investment Loss Cases during the Period 1904 to 2015


To buy securities on margin is to fund the purchase (or short sale, as the case may be) and continued holding of the security or derivative with borrowed money, using the security positions and monies in the margin account (or a linked account) at the dealer as security for the provision of credit by the dealer to the client.  Financial institutions other than the client’s dealer, such as trust companies, credit unions or banks, may also lend money to the client, for the express purpose of the investor client utilizing the resulting leverage to purchase securities, typically mutual funds in his or her account at the dealer.  In such cases, security for the loan can be the client’s residential or other real estate, the securities purchased with the borrowed funds, or other assets of the client.

In recent times, Courts in Canada adjudicating securities actions involving issues of margin and leverage (whether dealer initiated claims against their clients for monies owing in their accounts, or clients’ claims against dealers for investment and trading losses suffered in their accounts) have greatly expanded the ambit of judicial analysis.  Historically, cases focused entirely on the contractual debtor/creditor issues raised by clients’ borrowing of money from dealers to fund their trading and security positions, and the consequences of the account becoming undermargin.  More recently, the analysis has centered on the dealer’s Know Your Client and suitability obligations to its clients, with the starting point being the client’s investor profile, including his or her investment objectives, risk tolerance and financial and personal situation.  As well, breaches of securities regulatory requirements have become an important factor in the analysis of dealer liability to clients.

Instead of margin lending being an issue that solely impacted a dealer’s own capital and ultimately its solvency, margin borrowing and the use of leverage has also become a part of the analysis of the propriety of the dealer’s (including its sales representatives’) conduct of its clients’ investment accounts.  The increased risk of loss that is inherent in investing on margin or in a security in which leverage is a component part, such as a derivative or some principal protected notes, is thus a suitability issue that informs the duty of care owed at law by dealer to client.

This shift is not unique to margin, but has also occurred in respect of other traditional dealer capital issues, such as guarantees and concentration.  The emphasis is now on a dealer’s duties to its clients, as opposed to contractual terms of the relationship set out in account documents, or the client’s own conduct.  These duties are based on common law obligations focused on the nature of the dealer/client relationship, on securities regulatory requirements, industry practices and the dealer’s own policies and procedures.  In the case of margin, it is not uncommon for a dealer’s own margin policies to be more stringent than required by securities regulations.

Court decisions of investment loss cases involving margin/leverage are a window into issues arising from the dealings between dealers and their clients, and the resulting investment losses often at the heart of the ensuing litigation.  Like any window, the view is one perspective, in this case on the intersection between financial institutions and individuals at the retail investing level as it has evolved over the last century.  At times, the fact situations seem almost fictional in nature, underscoring the range of human conduct, from the pedestrian to the bizarre, in the quest for profit from the utilization of capital for the purposes of investment and speculation.


"In exercising his ordinary functions in marginal transactions, therefore, the broker acquires, so to speak, a dual personality.  When he executes the order he is the customer’s agent, buying from or selling to a third party.  When he provides funds to complete the order and to carry the securities purchased, he deals with his customer as a principal, advancing his own money and retaining the customer’s property as security, with all the rights and obligations which attach to an ordinary loan of money on the security of personal property."

The Law of Stockbrokers and Stock Exchanges by Charles H. Meyer, 1931 (Baker, Voorhis & Co.), pages 254-255

Historically, agency, contract and debtor/creditor law governed the terms of the debtor/creditor relationship (between client and dealer) and the legal analysis of the conduct of the parties relating to the transactions and account at issue.  Litigation between client and dealer involving margin issues generally focused on the terms of the borrowing agreement between the parties and the resulting respective obligations.

More Recently

The 1990’s mark the start of 2 plus decades of pronounced litigation between investor clients and dealers, amid a changing regulatory landscape and the judicial application of an expanded universe of dealer duties to their retail clients.  In these decisions there tends to be a marked emphasis on the nature of the relationship between client and financial advisor, as well as the circumstances of the trading giving rise to the matters at issue (usualy investment losses).  Over time, there appears to be a diminishing emphasis and importance on the account documentation, including margin and other account agreements containing terms and conditions governing the opening and operation of accounts, risk and other disclosures, and confirmations of transactions and statements of account. The plaintiff, heretofore usually the dealer claiming in contract against the client for the unsecured debit balance in the client’s account, now more frequently is the client, claiming against the dealer and its representatives for damages for breach of contract, negligence and breach of fiduciary duty.

The margin issues arising in these more recent cases became not only a credit issue but also a suitability issue as to whether the trading in securities and/or the holdings in the account were appropriate for the investor client.


A statistical analysis of dealer and client-initiated claims (and counterclaims) is complicated by common knowledge that in recent times the overwhelming number of claims has settled prior to a trial judgment.  Whether it is the average case that survives to trial and judgment, or only those with specific qualities (such as a plaintiff investor who views the litigation as another speculative investment, or an unreasonable dealer) is unknown, but clearly the cases that are adjudicated are a small subset of the overall multitude of client claims against dealers for investment losses. 

In some instances, the trial or appellate conclusions resulted in partial success for one of the parties, with deductions for fault related findings reducing the award of damages.  What is apparent from this review of cases is that in the period:

(a)   1904 to 1989, dealer initiated claims were almost always successful, whereas client initiated claims were almost always unsuccessful;

(b)   1990 to 1999, dealers were almost always successful, whereas client results were mixed; and,

(c)    2000 to 2015, there were only two dealer initiated claims, and client claims results were mixed, with a far greater number of claims by clients than in the prior period.

The results of the older cases, being mostly in favour of dealers in debt collection cases, is not surprising, given the strict debtor/creditor contractual focus of the judicial analysis of margin/leverage issues.  The decrease of dealer initiated claims for monies owing resulting from account liquidations, particularly since 2000, is fairly stunning, but may be explained by better dealer supervision of their lending practices.  While the number of successful client initiated claims has increased, the overall results for client success are still mixed.  The absolute number of client-initiated claims has grown substantially.  While it is difficult to extrapolate anything meaningful from the numbers per se, it is apparent from the more recent decisions that there has been a change in the analysis conducted by Courts.  Account agreements and documents do not automatically dominate the findings.  Dealer duties at common law, imposed by securities regulation informed by industry practices, and the dealer’ own policies and procedures, play the most important part of recent decisions, with the client’s own conduct still a factor, though tending to be less important to the overall result. 

Whether class action liability can be imposed on dealers for advice to an alleged class of clients to borrow to invest has not been sufficiently tested to be able to ascertain if class proceedings are a possible and effective dispute resolution mechanism.  While certification was granted in one such case, the case settled prior to the appeal, and the Judge who approved the settlement cast doubt on its correctness.  In two other cases, certification as a class proceeding was ultimately denied.

Finally, it is interesting to note that investors who have suffered investment losses in their accounts at dealers have not been successful in expanding the ambit of liability to third party financial institutions that lent them the funds to invest, even when the dealer and lender have a relationship that linked the borrowed funds to the client’s account at the dealer.  Whether the judicial reliance on a traditional debtor/creditor analysis will continue in the present context, where borrowing to invest is itself viewed as involving investment advice and the resulting duties to investor borrowers, is yet to be determined.

                                                               List of Cases

Kerr v. Murton (1904), 7 O.L.R. 75

Gray v. Buchan, 1912 CarswellOnt 547, 23 O.W.R. 210, 4 O.W.N. 220, 6 D.L.R. 875 (Ontario Divisional Court),

Nelson v. Baird, [1915] 22 D.L.R. 132 (Manitoba King’s Bench)

Maloof v. Bickell, [1918] O.W.N. 289 (First Divisional Court of the Appellate Division of Ontario), [1919] 59 S.C.R. 429 (S.C.C.)

Russell v. Canada West Grain Company, Limited, [1925] 3 W.W.R. 508 (Sask. C.A.)

Patterson v. Branson, Brown & Co. Ltd., [1930] 4 D.L.R. 222 (B.C.S.C.)

Glennie v. McDougall & Cowans Holdings Ltd., [1935] 2 D.L.R. 561 (S.C.C.)

Zacks v. Gentles & Co., [1939] 1 D.L.R. 545 (S.C.C.)

Garrett v. James Richardson and Sons Ltd, [1942] O.R. 59 (Ont. C.A.)

George et al. v. Dominick Corp of Canada (1969), 8 D.L.R. (3rd) 631 (B.C.S.C.); rev’d (1970) 15 D.L.R. (3d) 596 (B.C.C.A.);  [1973] S.C.R. 97 (S.C.C.)

Bache Halsey Stuart Inc. v. Cresco Investments Incorporated, [1978] O.J. No. 1334 (Ont. H.C.J.)

Pitfield Mackay Ross Limited v. Regina Hanley, unreported trial Judgment of Justice R.E. Holland of the Supreme Court of Ontario dated December 1, 1981

International Futures Ltd. v. Ford, [1983] 31 B.C.L.R. 209 (B.C.S.C.)

Merrill Lynch Royal Securities Limited v. Joseph Blum et al, unreported trial Judgment of Justice R.E. Holland of the Supreme Court of Ontario dated 1983

Grenkow v. Merrill Lynch Royal Securities Limited et al (1983), 23 Man. R. 2(d) 54 (Man. Q.B.)

Walwyn, Stodgell, Cochran, Murray Limited v. Mark George, unreported trial decision of Glube, C.J.T.D., of the Supreme Court of Nova Scotia, Trial Division dated December 9, 1983

Deep v. Wood, [1980] 6 A.C.W.S. (2d) 95 (Ont.H.Ct.), aff’d [1983] 143 D.L.R. (3d) 246 (Ont. C.A.)

Deep v. Dominion Securities Pitfield Limited, [1984] O.J. No. 943 (Ont. H.Ct.)

Union Securities Ltd. v. Terbogt, (1984) 28 B.L.R. 81, (B.C. County Court)

Midland Doherty Ltd. v. Rohrer et al,  (1984) 25 B.L.R. 81, (Nova Scotia Supreme Court (Trial Division)),  (1985) 20 D.L.R. (4th) 188 (Nova Scotia Supreme Court, Appeal Division)

Ryder v. Osler et al, (1985) O.R. (2d) 609 (Ont. H.Ct.)

Merit Investment Corp. v. Mogil et al, [1989] O.J. No. 429 (Ont. S.Ct.)

First Marathon Securities Ltd. v. Boris Sterlin, unreported trial decision of Keenan, J. of the Supreme Court of Ontario dated January 26, 1990

Sternberg v. Boothe, [1990] O.J. No. 2649 (Ont. H. Ct.)

First Marathon Securities Limited v. Kertes, unreported trial decision of Lang, J. of the Supreme Court of Ontario dated December 19, 1990

R.B.C. Dominion Securities Inc. v. DeBora, [1991] 5 B.L.R. (2d) 32 (Ontario Court of Justice (General Division))

Varcoe v. Sterling Dean Witter Reynolds (Canada) Inc. (1992), 7 O.R. (3d) 204 (Gen. Div.); aff’d 10 O.R. (3d) 574 (C.A.)

Nesbitt Thomson Deacon Inc. v. Haupt, [1992] O.J. No. 552 (Ontario Court of Justice – General Division)

McNeil, Mantha, Inc. v. Hort, [1992] O.J. NO. 741 (Ontario Court of Justice – General Division)

Harland v. Williams et al, (1993) unreported trial decision of Finch J. of the Supreme Court of British Columbia dated May 11, 1993

Midland Doherty Limited v. Robert H. Fasken et al (1993), unreported trial decision of the Ontario Court (General Division); (1997), rev’d unreported decision of the Court of Appeal for Ontario

Refco Futures (Canada) Ltd.  v. Zippan, (1994), endorsement on summary judgment motion of Ontario Court of Justice – General division, MacPherson J.; appeal endorsement of Ontario Court of Appeal, Austin J.A. dated May 24, 1996

Dean Winter Reynolds (Canada) Inc. v. Benchimol (July 14, 1994) Montreal 500-05-000282-887 (Que. S.C.)

Levesque Beaubien Geoffrion Inc. v. Berman, [1994] O.J. No. 1040 (Ontario Court of Justice – General Division]

Parks v. Midland Walwyn Capital Inc., [1995] O.J. No. 2073 (Gen. Div.); aff’d [1998] O.J. No. 1038 (C.A.)

Penner v. Yorkton Continental Securities Inc. (1996) 10 C.C.L.S. 248 (Q.B.)

Quantum Financial Services (Canada) Ltd. v. Yip (1998), 168 D.L.R. (4th) 155 (B.C.S.C.) and 173 D.L.R. (4th) 366

Zraik v. Levesque Securities, [1999] O.J. No. 2263; rev’d (2001), 153 O.A.C. 186 (C.A.)

Laflamme v. Prudential-Bache Commodities Canada Ltd., [2000] 1 S.C.R. 683 (SCC)

Hayward v. Hampton Securities Limited and Peter Deeb (2002), 46 B.L.R. (3d) 43 (Ont. S.C.J.); aff’d [2004] O.J. No. 2346 (Ont. C.A.)

Blackburn v. Midland Walwyn Capital Inc. et al (2003), 32 B.L.R. (3d) 11 (Ont. S.C.J.); aff’d (2005), 195 O.A.C. 181 (Ont. C.A.)

Labricciosa v. TD Waterhouse Investor Services (Canada) Inc. (February 13, 2004) trial decision of Sutherland J., Toronto 01-CV-216709 CM; aff’d by decision of the Ontario Court of Appeal (Labrosse, Weiler and Blair JJ.A.), released February 25, 2005

White Tower Burgers Ltd. v. TD Securities Inc., [2004] O.J. No. 2986 (S.C.J.)

Anderson v. Fortune Financial Corp., [2004] O.J. No. 2849 (Ontario Superior Court of Justice)

Baldwin et al v. Daubney et al (2005), 78 O.R. (3d) 693; aff’d [2006] O.J. No. 3824 (C.A.); leave to appeal to Supreme Court of Canada aff’d [2006] S.C.C.A. No. 475

Davidson et al v. Noram Capital Management Inc. et al; (October 6, 2005) Toronto 99-CV-176550 (Ont. S.C.J.); Foster v. Noram Capital Management Inc. et al; (2005), 13 B.L.R. (4th) 35 (Ont. S.C.J.)

Refco Futures (Canada) Ltd v. SYB Holdings Corporation et al (2001), 16 B.L.R. (3d) 243 (B.C.S.C), rev’d in part [2004] B.C.C.A. 1 (B.C.C.A.)

Shoaga v. TD Waterhouse, [2006] O.J. No. 330 (Ont. S.C.J.)

Davis v. Orion Securities Inc., [2006] O.J. No. 3198 (Ont. S.C.J.)

Loevinsohn v. Les Services Investors Limitée, [2007] Q.J. No. 1463 (Que. S.C.)

Paciorka v. TD Waterhouse (July 24, 2007) Toronto 05-CV-005093, trial decision of Nolan J. (Ont. S.C.J.)

Ron Parent et al v. Merrill Lynch Canada Inc. et al (March 11, 2008) Toronto 02-CV-226371CM2, trial decision of Lederer J. (Ont. S.C.J.)

Longstaff v. Robinson, [2008] BCSC 1488 (BCSC)

Young v. RBC Dominion Securities, 2008 CanLII 70045, trial decision of Polowin J. (Ont. S.C.)

Edwards v. BMO Nesbitt Burns Inc., [2010] B.C.J. No. 1568, trial decision of J.D. Truscott J., (B.C.S.C.)

IPC Investment Corporation v. Sawaged, [2010] O.J. No. 5510, trial decision of Trotter, J. (Ont. S.C.J.)

Shane v. Allen, [2010] N.S.J. No. 717, trial decision of J.D. Murphy J., (N.S.S.C.)

Penwell v. Harwood, [2011] N.S.J. No. 585, motion decision of P.P. Rosinski J.,  (N.S.S.C.)

French and Karas et al v. Smith and Stephenson et al, (certification of class action decision of Shaughnessy J.) 2012 ONSC 1150 (Ontario Superior Court of Justice); (settlement approval decision of M.L. Edwards J.) 2013 ONSC

Andriuk v. Merrill Lynch Canada Inc., 2013 ABQB 422, certification decision of S. Martin, J. (Court of Queen’s Bench of Alberta); 2014 ABCA 177, appeal decision of Court of Appeal of Alberta

Brandt v. Moldovan, 2013 BCSC 1218, trial decision of Adair, J. (BCSC); Marlin Investments Inc. v. Moldovan, 2014 BCCA 364 (Court of Appeal for British Columbia),

Junko v. Canaccord Capital and Toles, 2012 ONSC 6966, trial decision of R.F. Goldstein, J. (Ontario Superior Court of Justice); and 2013 ONSC 5167 (costs endorsement)

Saturley v. CIBC World Markets Inc., 2013 NSSC 300,trial decision of Michael J. Wood, J. (Supreme Court of Nova Scotia)

Crooks v. CIBC World Markets Inc., 2011 NSSC 181, certification decision of Gerald R.P. Moir, J.  (Supreme Court of Nova Scotia); 2016 NSSC 145, decertification decision of Patrick J. Duncan, J. (Supreme Court of Nova Scotia)

Matheson v. CIBC Wood Gundy, 2014 NSSC 18, trial decision of Arthur W.D. Pickup, J. (Supreme Court of Nova Scotia), 2015 NSCA 22 (Nova Scotia Court of Appeal),

Andrews v. Keybase Financial Group Inc., 2014 NSSC 31, 238 A.C.W.S. (3d) 96, trial decision of Robert W. Wright, J. (Nova Scotia Supreme Court); and 2014 NSSC 287 supplementary decision on damages and costs

Desjardins Securities Inc. v. Schellenberg, 2014 MBQB 115, trial decision of Edmond, J. (Court of Queen’s Bench of Manitoba)

Questrade Inc. v. Chow, 2015 ONSC 1450, a summary judgment motion decision of F. L. Myers, J. (Ontario Superior Court of Justice)

Connor Financial Services International Inc. v. Laughlin, 2015 BCSC 587, trial decision of Macintosh, J. (Supreme Court of British Columbia)


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Posted by Mr. Joel W. on Nov 15th, 2016 9:26pm



                                                       the last nail on best interests  



While the securities industry, the investing public and securities regulators have engaged in an interminable series of conferences, roundtables, debates, submissions and consultations regarding the introduction of what is commonly referred to as a ‘best interests standard’ into what is required of dealers and investment advisers in their dealing with their clients, the end of days seems close at hand. 


Depending on your position, the question is either ‘why’ or ‘what took so long’.  I stand in the latter group, somewhat mystified at the consternation as to why the four words ‘in the best interests’ has caused such turmoil and controversy.


Rule 31-5056 of the Ontario Securities Act, which deals with Registration Requirements of dealers and advisers, and particularly with the General Duties mandated of dealers and advisers, requires them to ‘deal fairly, honestly and in good faith with their clients’.  It is inconceivable how these duties do not encompass the duty to act in the best interests of clients.  As that concept appears to be not universally or even generally accepted, clarification of the definition of these general duties is required by the inclusion of these words within Rule 31-505.


An historical example of a similar situation in securities regulation is when the ‘know your product’ rule was made explicit, even though the existing suitability rule obviously encompassed an obligation to know the investment product.  How could an adviser’s investment advice to a client as to the suitability of a recommended investment be suitable for that client if the adviser didn’t know the attributes and understand the risks of the investment product?  How could dealer supervision and compliance be effective in reviewing a client’s trading and account for suitability issues if, again, the ‘product’ was not known.  However, in the early 2000’s it became clear that clarity was required; that the meaning of the suitability obligation and how it manifested in the context of the then prevailing securities markets dictated the explicit enunciation of a ‘know your product’ obligation on the part of dealers and advisers.


A best interests duty might affect the structure of the industry, its practices and civil and regulatory liability exposures.  Do we have to know all of the possible ramifications before the addition to the existing duties is made explicit, and then deal with them in regulatory policies and regulations?  The duties of acting ‘fairly, honestly and in good faith’ were not similarly rope-fenced, and there is no good reason to do so now.  In any event, bit by bit, Judges (and even dealers and advisers) have begun the interpretation of a best interests duty in specific Court cases (see my Comment piece of August 2014).  The securities industry is only harming its own reputation and needlessly alienating clients, the investing public and securities regulators in fighting the obvious future. 



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Posted by Mr. Joel W. on Oct 20th, 2015 2:47pm



                                           Mass Claims by Retail Investors against Dealers 


                                                                  Joel Wiesenfeld


We are increasingly in an era where a large number of individual (as opposed to institutional) investors assert claims against their investment or mutual fund dealer or fund company (or insurance company, in respect of seg funds) for losses arising from a common source.  That source may be an investment product (such as asset backed commercial paper), an investment strategy (for example, a particular options strategy or borrowing to invest), a fraud perpetrated by a financial advisor or dealer (a Ponzi scheme, Portus), or a trade execution or ‘back office’ function (margin calculation error, currency conversion rate).  At issue is what is the optimal dispute resolution mechanism for a large number of individual investors with such  ‘mass’ claims in order to obtain compensation for losses; optimal in the sense of providing for timely, effective and cost efficient access to justice.


The historical process for investors to pursue investment loss claims has been by the commencement of individual legal actions in provincial Superior Courts.  In the mass claim situations, legal actions have occasionally been brought by a large number of individuals who have retained the same legal counsel, essentially combining a multitude of individual actions into one, with many plaintiffs.  Thus only one Statement of Claim is issued, listing each individual claimant as one of a large number of plaintiffs.  A variation is when a number of individuals each commence their own separate legal action, and these claims are either tried together, or one after the other, at the instance of one or other of the parties, and on Order of the Court. 


In a multiple plaintiff legal action, it is relatively easy to get bogged down in the cumbersome and lengthy pre-trial processes, as each individual plaintiff must produce his or her relevant documents and be subject to examination for discovery.  In the ensuing trial each individual’s claim must be tried, in the sense that each person’s personal facts and circumstances must be presented to the Court as part of the evidence, and subject to challenge.  All of which makes for a very expensive and time consuming exercise from commencement of the legal action until the conclusion of trial and the trial judgment.


The opposite end of the spectrum is the concept of a class action, where a small number of plaintiffs (typically two) notionally ‘represent’ the entire class of potential claimants.  The ‘class’ is defined in the Statement of Claim by the relationship of the parties over a specified period of time during which the events at issue occurred.  The certification of a proposed class action (following a Motion for Certification) leads to a trial of common issues (as determined by the Certification Motion Judge), which is intended to deal with issues of liability and/or damages that form the heart of the matters at issue. 


The usual securities class action in Canada is brought by shareholders (members of the investing public and/or institutional investors) against public companies and others for losses arising from drops in the price of their securities allegedly due to securities and common law breaches, typically involving disclosure issues.  Class actions involving claims by (retail) investor clients of dealers in securities (for ease of reference, hereinafter referred to as ‘dealer class actions’), whether asserted against their investment dealers, mutual fund dealers, financial advisors, research analysts, fund companies or insurance companies (in respect of their seg funds) are a subset of securities class actions


Dealer class actions typically assert causes of action alleging breach of contract, negligence and negligent misrepresentation, and, less commonly, breach of trust, unjust enrichment, fraud and breach of fiduciary duty.  The nature of the claims for damages range from losses arising from investments in securities recommended by the dealer (through its financial advisors or analysts), to misconduct related to the conduct of client investment accounts at the dealer (including dealer supervision of the account and its financial advisors), to losses caused by fraudulent misappropriation of funds by a financial advisor.


To what extent, if at all, are dealer class actions a viable and effective method to process investor loss claims to a timely, just conclusion?  The short answer is that it is too early in Canada to tell, based on our very limited experience to date with this type of class action.  That answer itself informs the discussion that follows.


In the 17 years commencing in 1998, when the first dealer class action, arising from the disintegration in the value of the shares of Bre-X Minerals, became the subject of a certification motion before the (then) Superior Court of Justice, there have been judicial decisions on 12 certification motions, but no trial judgments.  Of the 12 to date, 9 of the proposed class actions have been certified, and 3 have not, with the caveat that one of the certified class actions might not have survived an appeal of the certification order (French and Karas et al v. Smith and Stephenson et al, 2012 ONSC 1150 (certification); 2013 ONSC 6220 (settlement approval).*



*    per M.L. Edwards, J., in the Settlement Approval Decision dated August 16, 2013: “While the action itself was certified by Shaughnessy J., it could not be said with any degree of certainty that the defendants would not have been successful in obtaining leave to appeal.  If the leave to appeal had been granted, then of course, the defendants would have had the opportunity to reargue their position before the Divisional Court with the distinct possibility that the order of Shaughnessy J. may, in fact ultimately have been set aside.  It is not for this court to make that decision but rather to note that the leave to appeal and possible appeal itself created not insignificant risk from the perspective that the action might ultimately have been decertified.”



While the study size is not large, some strands can be elicited from the existing record.  First, these claims are in the category of investor loss claims.  While there are no overall statistics in Canada for the number of investor loss Court actions brought over the 17 year period in question, anecdotally the number is likely in the hundreds annually, peaking in the thousands following extreme market turmoil (such as the market crashes in 2000/2001 and 2008/2009).  Claims for compensation up to a maximum of $350,000 by retail investors against IIROC and MFDA dealers to the OBSI, according to the annual reports published by the Ombudsman, consistently number in the hundreds annually.  As such, even factoring in an unknown number of proposed class actions that have settled prior to the disposition of a certification motion, there has not occurred a rush to seek compensation through class actions for this type of claim, raising the issue as to whether a class action is preferable or even appropriate for investor loss claims against dealers.


Second, the fact that there have not yet been any trial decisions is fairly stunning, given that 17 years have now elapsed since the first dealer class action.  Of the 9 cases that have been certified, the oldest, Scott v. TD Waterhouse Investor Services, as well as Collette v. Great Pacific Management Co. Ltd., eventually settled.  However, Ivany et al v. Financiere Telco Inc. (action commenced in 2001, with a class period ending in 2001) and Fischer v. IG Investment Management Ltd. (action commenced in 2006, with a class period ending in 2003) are still ongoing, many years after the events in issue that gave rise to the litigation.  In investor loss cases, access to justice in the civil courts should mean timely access to compensation for one’s losses.  Concepts such as behavior modification and sanctions for misconduct should be dealt with in securities regulatory compliance measures and enforcement proceedings.  The lengthy time period between the loss and an eventual trial degrades the effectiveness of a class action as a viable route to the goal of receiving compensation. 


Of the 9 cases certified, 4 certified a compensatory damages common issue, meaning that the other 5 would require some form of different process (in addition and subsequent to the common issues trial) to determine damages, likely on an individual assessment basis, in the event of findings on the certified common issues trial that determined liability in the plaintiffs’ favour.  Aside from the delay consequent on the usual appeal of the trial decision, one must factor in the time and cost necessary to conduct the individual damages assessments, and any appeals therefrom, with the result that from beginning to end a period of at least a decade would have elapsed.


The Court of Appeal and Supreme Court of Canada in Fischer v. IG Investment Management Ltd. decisively determined that a regulatory resolution of the factual and securities law issues at the heart of a matter (that subsequently became the subject of a securities class action) that included compensation to investors, could not forestall a class action. It is not unusual for a matter under investigation by securities regulators to also give rise to potential class action liability.  As, in Canada, virtually all securities regulatory settlements contain admissions of fact and regulatory liability, which in all likelihood would be admissible evidence in the class action proceedings, the potential civil liability is a complicating factor.  Absent a simultaneous resolution of both regulatory and class action issues, noting that both settlements would require approval (by a regulatory hearing panel and Court, respectively, with each settlement conditional on the other being approved), each proceeding is likely to be unduly prolonged by the existence of the other. 


The ‘elephant in the room’ issue grappled with by both class action investor plaintiffs and dealer defendants is the idiosyncratic relationship between dealer/financial advisor on the one hand and each individual investor client on the other.  This issue permeates the Reasons for Decision in the certification cases when dealing with 4 of the 5 components of the test for class actions (cause of action, representative plaintiff, common issues, preferable procedure – the identifiable class component is rarely at issue, as the affected investor clients can be readily identified by dealer records).  The result is either the denial of certification, or, as in the majority of cases, the limitation of certification to certain causes of action and common issues, with, in the latter case, other issues to be decided in procedures to be determined following the common issues trial (such as individual mini trials).


The nature of the case will dictate, to a greater extent than in some other types of litigation, whether a particular dispute resolution process will facilitate an efficient and timely outcome for investors.  Simply put, the more generalized the liability issues and the more formulaic the individual damages calculation, the greater the opportunity for a class action to be the dispute resolution of choice.  On the other hand, the greater the extent of idiosyncratic individual issues involved in assessing liability and damages, the less likely a proposed class action will be certified on key determinative issues, such as reliance, causation and measure of damages.  Trade execution and back office function errors or omissions are examples of the former; suitability issues, the latter.


Up to this point, the analysis has focused on dispute resolution processes through the lens of the roadblocks to a final adjudication of mass claims leading to compensation being awarded to investors.  However, while our civil judicial system is structured for a trial determination of claims, a vast majority of cases, no matter what the type, settle before or during the trial of the matter.  Investor loss claims against dealers are no different in this respect, as the overwhelming number settle as opposed to concluding by adjudication following a trial of the issues.  Parties settle their disputes, likely for very different reasons, when they have concluded that a compromise of the claims and defenses is the optimal outcome based on an assessment of the risks and rewards of a trial.  Viewed from the perspective of the strong likelihood of settlement, a class action provides both the class of mass investor claimants and the dealer and related defendants a particularly efficient mechanism for achieving their disparate goals in a timely way.


For the dealer, settlement of a mass investor class action (with a bar order preventing further claims arising from the same source) concludes in one fell swoop all potential civil liability, capping that liability as well as defense costs.  It avoids the worry as to how one individual action, whether settled or adjudicated, will affect others (whether potential or already commenced).  The dealer in a class action settlement does not have to deal with the process of splitting the settlement proceeds amongst the affected class of claimants, as the primary interactions with the class are by plaintiffs’ class counsel and the settlement administrator.  Whatever the source of the claims in the class action, there are usually attendant regulatory and reputational risk exposure for the dealer and its individual registrants.  Settlement of the civil claims helps to limit these related exposures.  Investor compensation is an important factor in the regulatory consideration of dealer and individual registrant compliance and enforcement issues, and relieves investor pressure on the regulator.  In the glare of possible civil, regulatory and reputational risk resulting from a matter or event, all of which are inter-related, a dealer can far more easily coordinate resolution of civil and regulatory liability, and therefore limit reputational damage caused by prolonged media exposure, when dealing with a class action rather than a slew of individual claims.


There is, of course, a price to pay on the dealer side of the equation for the settlement of an investor loss class action.  In many cases the dealer does not have sufficient knowledge of the financial and personal circumstances of each investor who forms part of the class, as well as the extent and substance of each investor’s relationship and dealings with the financial advisor, in order to gain a fair appreciation of the merits of each individual’s claim and therefore the extent of the aggregate civil liability risk.  The dealer loses the ability to compensate only those client which it views as deserving, and, as importantly, not to compensate those which it views as having unmeritorious claims or who have contributed substantially to their losses.


From the investor perspective, settlement of an investor loss class action avoids the intense personal involvement in a lawsuit, with the inevitable intrusive defense exploration of financial and personal circumstances that are part of a suitability analysis.  As plaintiffs’ class action counsel work on a contingency fee arrangement, usually with an indemnity in favour of the representative plaintiffs in the event of an adverse cost finding at trial, there is no cost or costs exposure to the litigation.  This levels the playing field when dealing with deep pocket financial institutions and their insurers (in the event there is insurance coverage).  The flip side to a contingency fee of 25 to 30% of the settlement amount is that it represents a significant diminution of the compensation realized per investor class member.  However, by aggregating the total potential losses, and therefore the potential liability and possible size of a settlement, such a case will likely attract senior litigation counsel, providing expertise and experience.  However, one negative is that unless the investor class member is a representative plaintiff, one gives up control over the claim to others. 


The conclusion is that there does not exist, either in fact or in concept, a dispute resolution process that will satisfy the objective of providing all parties, whether investors or financial advisors or dealers, with the ability to assert or defend claims of multiple investors for compensation arising from a common source in a timely, effective and cost efficient manner.  However, the class action model, if used as a settlement vehicle, shows significant promise, with real benefits for all participants.


                                                   CERTIFICATION MOTION DECISIONS


Carom et al v. Bre-X Minerals Ltd. (April 1998), Toronto, 97-GD-39574 (Ont. Gen. Div.) motion to strike the Statements of Claim as disclosing no reasonable cause of action; decision of Winkler J., released April 8, 1998; Carom et al v. Bre-X Minerals Ltd. (1998), 41 O.R. (3d) 780 (Ont. Gen. Div.); motion for leave to amend the Statements of Claim to add the fraud on the market theory; decision of Winkler J., released November 4, 1998; Carom et al v. Bre-X Minerals Ltd. (1999), 46 B.L.R..(2d) 247 (Ont. S.C.J.); motion for certification of these proceedings as class actions; decision of Winkler J., released May 13, 1999; Carom et al v. Bre-X Minerals Ltd., unreported endorsement on costs; costs endorsement; endorsement of Winkler J., dated June 24, 1999.

Scott et al v. TD Waterhouse Investor Services, 2001 BCSC 1299 (Supreme Court of British Columbia)

Collette v. Great Pacific Management Co. Ltd., [2001] B.C.J. No. 253 (B.C.S.C.); [2002] B.C.C.A. 195; [2003] B.C.J. No. 529; [2004] B.C.J. No. 381; [2004] S.C.C.A. No. 174 (S.C.C.)

Moyes v. Fortune Financial et al (2002) 61 O.R. (3d) 770 (Ont. S.C.J.); aff’d (2003), 67 O.R. (3d) 796 (Ont. Div. Ct.)

Fischer v. IG Investment Management Ltd., [2010] O.J. No. 112; ruling on costs [2010] O.J. No. 2036; rev’d on appeal, 2011 ONSC 292 (Ont.Div.Ct.); aff’d on appeal, 2012 ONCA 47 (Ont. C.A.); aff’d on appeal 2013 SCC 69 (Supreme Court of Canada); decision of Perell J., dated January 12, 2010; costs decision, dated May 14, 2010; decision of Divisional Court of Molloy, Swinton and Herman JJ., released January 31, 2011; decision of the Court of Appeal for Ontario, Winkler C.J.O., Epstein J.A. and Pardu J., released January 27, 2012;decision of the Supreme Court of Canada, Cromwell J. (McLauchlin C.J. and LeBel, Rothstein, Moldover, Karatsanis and Wagner JJ. Concurring), dated December 12, 3013.

Crooks v. CIBC World Markets Inc., 2011 NSSC 181 (Supreme Court of Nova Scotia)

MacDonald v. BMO Trust Company, 2012 ONSC 759 (Ontario Superior Court of Justice)

French and Karas v. Smith and Stephenson, 2012 ONSC 1150 (certification); 2013 ONSC 6220 (settlement approval)

Andriuk v. Merrill Lynch Canada Inc., 2013 ABQB 422 (Court of Queen’s Bench of Alberta); 2014 ABCA 177 (Court of Appeal of Alberta)

Fantl v. Transamerica Life Canada, 2013 ONSC 2298 (Ontario Superior Court of Justice); 2013 ONCA 580 (Court of Appeal for Ontario); 2015 ONSC 1367 (Ontario Superior Court of Justice, Divisional Court)

Ivany et al v. Financiere Telco Inc., et al, 2013 ONSC 6347 (Ontario Superior Court of Justice); Ivany v. Canadian Western Trust Company, 2013 ONSC 6969 (Ontario Superior Court of Justice)

Jer v. Royal Bank of Canada, 2014 BCCA 116 (Court of Appeal for British Columbia)



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Posted by Mr. Joel W. on May 19th, 2015 1:06pm

                                                                  Comment on


             Graham v. Wells and CIBC World Markets Inc., 2015 BCSC 734 (BCSC)


                                                                Joel Wiesenfeld


The troubled relationship between investor expectations and objectives is highlighted in the May 5, 2015 Judgment in Graham v. Wells and CIBC World Markets Inc., a decision of the British Columbia Supreme Court.  While each investor loss case presents on facts particular to the individual investor client of the financial advisor and dealer, the basic situation in this case was not unique.  Essentially the claim was that by July 2008 (when the equity markets were high in the context of months of market volatility), the client raised sufficient concerns about her desire for capital preservation and her aversion of risk, specifically to a variation of value greater than 15% of her investments, that the financial advisor should have taken appropriate steps to rebalance her portfolio.


The market crash of the fall of 2008, extending to March of 2009, together with other factors, caused the client to lose faith in the financial advisor, such that in early March of 2009 (at the low point of the markets), she liquidated substantially all of her account holdings (which consisted of managed funds) and transferred the resulting proceeds to another dealer.  Her damages claim was for losses calculated as the difference between the values of her portfolio as at the end of the months of July 2008 and February 2009, totaling $841,939.


Following what appears to have been a 20 day trial in 2014, the trial Judge dismissed the client’s action.  The 45 page Judgment sets out a detailed consideration of the facts and circumstances, including the testimony of the participants to the conduct of the account, the record of communications between them during the period at issue, the account documents (such as they were), and expert evidence concerning aspects of the investment industry and the calculation of losses.


Some general observations about the case, as derived from the Reasons for Judgment:


  1. The KYC forms, acknowledged by the financial advisor and dealer to be improperly inadequate, inaccurate, “replete with errors”, and not updated as required in the circumstances, nevertheless did not form a basis for a finding of a breach of duty on the part of the advisor or dealer.  In essence, the forms were superceded in importance by the evidence (records of communications and the testimony of the parties) of the client’s expectations, and the client’s and advisor’s actions during the July 2008 to March 2009 time period.
  2. The degree to which the client’s portfolio should have been allocated to equities was a function of the client’s investor profile during this period.  In the view of the trial Judge, the client was “reasonably knowledgeable about investing” and continued to have expectations of fairly substantial returns from her account.  The Judge contrasted these expectations with the client’s “increasing anxiety, sometimes panic about the decline in the value of her portfolio” and her increasingly conservative risk averse objectives.  While accepting the experts’ opinion that the duty to determine that a specific asset allocation was no longer suitable for the client was the financial advisor’s and not the client’s, the Judge was satisfied that the advisor had met his suitability duty in the context of the investor profile of the client and her circumstances. 
  3. The trial Judge noted that the client invested the proceeds of disposition from her account at the defendant dealer with her new financial advisor/dealer in mainly precious metals investments, with the attendant value volatility, commenting that:  “However, she testified that owning gold and silver – and especially bullion, or the metals themselves – brings her peace, because of the relationship of those metals to mother earth, as well as their long-standing role in proving [sic – providing] security and safety to threatened or persecuted peoples through the history of time.  In that sense, she considers her current investment approach to be a conservative and low-risk one.”  The plaintiff’s post cause of action investments and strategy did not seem to factor into the decision one way or the other.
  4. While there is a limited amount of financial information in the Reasons, it appears that the actual amount at issue was only $241,939!  The Judge states that the original $4 million in capital deposited in the account in 2003 was not depleted as of July 2008.  (During the 2003 – July 2008 time period, the client withdrew approximately $1 million from the account, and, in addition, fees and commissions were deducted from the account balance.  In other words, the account had performed well to that point in time.)  The account was substantially liquidated in early March 2009, and the experts calculated damages as the decline in value between the end of July 2008 and the end of February 2009 (likely using the month end values in the account statements), in the amount of $841,939.  That amount, divided by $4 million, constitutes a 21% ‘loss’.  The client’s position was that the account should have been exposed to a variation of no more than 15%, meaning (at least to the writer) that any ‘loss’ up to 15% (or $600,000) would not have been actionable and form part of the claim.  The difference is $241,939, for which the parties went through a lengthy trial. 


Each of these 4 disparate points are informative of issues that frequently arise in investor loss cases and are indicative of the risk and expense of litigating to an adjudicated result.


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Posted by Mr. Joel W. on Oct 24th, 2014 9:38am

                   Financial Advisors: Sales Representatives or Professionals?

                                   -  a new paradigm for the securities industry –


                                                       Joel Wiesenfeld



Should the securities registration of financial advisors be uncoupled from investment and mutual fund dealers?  Before automatically rejecting this concept, consider the historical context and the ramifications of such a change.


Once upon a time, as far back as the 1980’s, a stockbroker was an individual employed by a brokerage firm to give investment advice and provide trade execution services to the investing public.  At times the stockbroker also became involved in corporate finance activities, and then participated in the distribution of the resulting securities to his investor clients, an activity that rarely occurs today.  The standard issue stockbroker was termed by securities regulators a ‘registered representative’ or, simply, an ‘rr’.  The individual was registered, or licenced, by the regulator through his, or rarely, her, firm.  The firm’s stockbrokers acted as the distribution arm for the dealer’s corporate finance products, and so, were commonly referred to as sales representatives. 


Rrs were (and still are) clearly differentiated, by securities regulations and in their legal duties and responsibilities, from investment counsel or portfolio managers (‘ICPMs’).  Individuals in this latter category of registration had significantly greater qualifications and perceived abilities, allowing them to actually make investment decisions on behalf of their clients.  Along with the higher level designation and powers came a higher level of duty owed to investor clients, an automatic categorization of the advisor/client relationship as fiduciary in nature.  ICPMs could form their own type of dealer, providing portfolio management services, while contracting with stockbrokerage firms for trade execution custodial lending and transaction reporting services.  Legal and regulatory liability for the ICPM’s investment advice rested with the ICPM and not with the contracting dealer.  All of this is still the case.


In contrast, rrs were (and still are) required to obtain instructions from their clients for each transaction conducted in their accounts.  Back in the 1980’s, initial licensing and ongoing regulatory requirements for rrs were far less robust than today; the then Manual for Registered Representatives was a thin small sized binder, easily digested.  Now, the Conduct and Practices Handbook, together with dealer policy and procedure manuals and regulatory mandated continuing education requirements, constitute a significant upgrade in the qualifications of what are now commonly referred to as financial or investment advisors.


The historical stockbrokerage firm has given way to investment dealers and mutual fund dealers, the latter limited to dealing in mutual funds (and restricted from transacting in equities and bonds) with its retail investor clients.  The norm is that financial advisors are employees of investment dealers, and contract as independent contractors with mutual fund dealers.  In any event, financial advisors are agents of both types of dealers.  Generally mutual fund financial advisors are insured, carrying errors and omissions (ie, for negligence) insurance, while investment dealer financial advisors are not.  Both investment and mutual fund dealers are required by securities regulators to have insurance for fraud, although the policies typically only cover misappropriation of securities or monies, or other forms of fraudulent activity, within the client’s accounts at the dealer, and not so-called off book fraudulent conduct. 


In the 1990’s, changes to securities regulations created the opportunity for financial advisors to become independent of investment dealers through the mechanism of being licensed as introducing brokers.  As an introducing broker (‘IB’), the financial advisor contracts with a financial services company acting as a carrying broker (‘CB’)to provide all of the traditional services of a stockbrokerage firm (trade execution, custodial, lending and account activity reporting), save for the provision of investment advice.  As an introducing broker, the financial advisor has the direct client relationship with the retail investor, gives financial advice, receives the client’s trade instructions, and, in turn, bears the regulatory know your client, know your product, suitability and compliance obligations.


The concept put forward at the start of this piece is therefore in the continuum of the ICPM and IB/CB models already in use for many years.  By constituting each financial advisor as his or her own introducing broker, the concept recognizes the primacy of the advisor/client relationship over that of the dealer/client relationship. 


Should the legal and regulatory liability for a financial advisor’s investment advice to retail investor clients rest solely with the advisor?  Focusing regulatory and civil liability for negligent investment advice, misconduct relating to a client’s accounts or portfolio, and/or fraudulent conduct by a financial advisor (whether in the accounts or off-book), clarifies for everyone where legal and regulatory responsibility lies.  A financial advisor would no longer be able to rely on the assumed deep pockets of the dealer to cover the risk of incompetent or inappropriate investment advice or fraudulent conduct.  A financial advisor would be required by regulation to carry both errors and omissions and fraud insurance (with the latter policy to include both on and off book conduct) – just as every other professional is obligated to be insured for professional risk, so as to protect investors from financial harm. 


Decoupling the financial advisor’s license from a dealer is an important element of ensuring professional over sales conduct.  Investor loss disputes and ensuing litigation would no longer be weighed down with issues such as a dealer’s vicarious liability for the acts of its financial advisor, dealer liability for failure to supervise the advisor, whether the conduct in question was reasonably a part of the advisor’s employment, and whether the solvency of the dealer is sufficient to meet the monetary obligations of a judgment.  The issue that has plagued the investment dealer world as to whether financial advisors should be allowed to incorporate would also become moot.  Another area of frequent dispute and litigation, arising from financial advisor recruitment by one dealer from another, would also become redundant.


Best of all, financial advisors would clearly be recognized as professionals and not as sales persons, removing the taint from a constituency which provides important advice relied upon by so many investors.




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Posted by Mr. Usman S. on Oct 17th, 2014 11:02am

Usman M. Sheikh sits down with Dr. Maila to discuss Lessons Learned from the Global Financial Crisis, How to Manage Systemic Risk, the Role of Securities Regulators in Risk Management, the Need for a National Securities Regulator and More...

US:  "... if I can put to you a hypothetical: if Lehman Brothers were still in existence and had collapsed today, how is the global financial system any better prepared?"

MM:  "Well, it's a very good question and a tough one to answer at the global level..."

Read the full interview here.

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Posted by Mr. Joel W. on Aug 26th, 2014 10:16am

                                             Comment on a ‘Best Interests Standard

                                                             by Joel Wiesenfeld


     The acrimonious and seemingly never ending debate over whether a ‘best interests’ standard should be included in the current regulatory duties of securities registrants to act fairly, honestly and in good faith with their investor clients has been long on generalities and short on specific applications.  At common law, an agent is duty bound to act in good faith and without conflict of interest towards his or her principal.  In the investment context, the investor client is the principal, with the dealer and its financial advisors acting as the investor’s agent in their provision of investment advice and trade related services on the client’s behalf.

     Evolving regulatory duties of a securities registrant have led to the promulgation of rules such as requiring a registrant not to trade ahead of the client in respect of the same security.  Another example is the regulatory requirement to disclose in analysts reports, trade confirmations, offering memoranda and prospectuses relationships and dealings that might or appear to be conflicts of interest.

     Recent Court cases in Canada are noteworthy for the extent to which Judges in their Decisions are now focusing on the issue of the interests of investor clients over that of dealers and financial advisors, even without an explicit regulatory requirement to inform the duty.

     One area of securities related disputes that did not historically take into account the best interests of clients is the always competitive and adversarial recruitment of financial advisors, revolving around what is commonly referred to as the advisor’s ‘book’ of business – the aggregate of the investor clients and the securities held in their investment accounts at the dealer or through a mutual fund company.  At one time Courts viewed the ‘property interest’ in the book to be owned by the dealer.  While investor clients were, of course, always free to transfer their accounts (meaning the securities and monies held in the account) to another dealer, disputes between dealer and financial advisor, or between financial advisors, regarding the book, were traditionally adjudicated without reference to the interests of the clients themselves.  The following two decisions demonstrate how the interests of clients are now a factor to be considered in these types of cases.

     In BMO Nesbitt Burns Inc. v. Ord*, a 2007 decision of the Ontario Superior Court of Justice, Justice Patillo denied a dealer’s request for an interlocutory injunction against two departing financial advisors and the recruiting dealer, seeking to restrain solicitation activities and the use of confidential information.  In addition to the usual issues canvassed on such a motion, such as the enforceability of non solicitation provisions in a written agreement and the nature and scope of the duties owed in the circumstances by a departing financial advisor to his original employing dealer, the Judge stressed that the paramount interests were those of the clients, who were entitled to have access to the financial advisor of their choice.  In essence, the clients were transmogrified from being parts of the’ book’ (ie, an asset) to persons who had independent interests that were to be taken into account and protected.

     In Sprott Private Wealth LP v. BMO Nesbitt Burns Inc.**, a 2014 recruitment case, Justice F.L. Myers of the Superior Court of Justice - Ontario granted initially an Interim Order and subsequently an Interlocutory Injunction in favour of the plaintiff dealer against its 3 former financial advisors and the recruiting dealer in respect of non-solicitation and confidentiality issues.  The individuals had breached negative covenants contained in their employment contracts in a deliberate fashion.  In addition, the Judge found that there would be irreparable harm should the injunction not be granted, given the threat to the viability of the plaintiff dealer.  Regarding the best interests of the clients, the Judge faulted the defendants as a group (both former financial advisors and the recruiting dealer) for their conduct, commenting that had they put the clients interests first, they might not have acted as they did.  As such he rejected the defendants submission that it was in the best interests of the clients not to grant the injunction.

     Another area concerns dealer responses to situations where it discovers financial advisor misconduct that was previously unknown to it, such as discretionary trading in clients’ accounts, forgery of account documents, misrepresentations to clients, off-book investment dealings with client or non-clients, or borrowing funds from clients. 

     Andriuk v. Merrill Lynch Canada Inc.*** was a proposed class action between clients and their dealer for investment losses.   The key factual allegations were that the dealer realized that clients in one of its branches collectively held a concentrated or control position in the stock of a thinly traded, highly speculative technology company listed on the Venture Exchange, and, contrary to regulatory standards and the best interests of its clients, acted in such a way to reduce the concentrated position on its book, which in turn  resulted in the artificial depression of the share price, thereby causing its clients damages.  While certification was denied on the basis of a number of deficiencies, particularly in the pleadings, that led the Judge to find that various aspects of the test for certification had not been met, she noted that:  “There is some merit to the Plaintiffs’ assertions that it should be permitted to pursue Merrill in a class proceeding for any actions taken in pursuit of its own interests ahead of those of its client”. 

     In Andrews v. Keybase Financial Group Inc.****, a 2014 Trial Decision of the Nova Scotia Supreme Court, a financial advisor initially employed by one dealer and subsequently by another (Keybase) had put his clients into a leveraged mutual fund investment strategy that the dealers admitted was not suitable for the plaintiff investor clients.  The sales rep admitted that he had forged loan and know your client documents to enable the loans to be obtained and the investment accounts to be opened.  Dealer liability for his misconduct was admitted.  Following the discovery of his misconduct, Keybase notified the clients and appointed replacement financial advisors for their accounts. 

     The leveraged mutual fund investments mostly remained in place, notwithstanding being unsuitable for each of the plaintiff clients (particularly regarding their borrowing to invest in securities), and the subsequent market downturn in 2008 resulted in disastrous consequences for the clients.  At issue was the conduct of Keybase and its financial advisors in this post discovery period, whether the clients had failed to mitigate, and therefore at what point in time their losses should be calculated.  The trial Judge faulted the dealer’s response, placing most of the blame on its head office, and therefore specified the trial date as the applicable date for the calculation of the clients’ losses.  He also awarded damages for mental distress to each of the remaining plaintiffs.

     Justice Wright found that the dealer “was more concerned with protecting its own best interest by trying to preserve the various investment portfolios, thereby keeping its book of business and the associated commissions, with no payouts to make while hoping for a market turnaround,” as opposed to its obligation to act in the best interests of the clients.  While the dealer had admitted a fiduciary duty owing to the clients, it is difficult to conceive that the finding against the dealer would have been any different on a principal/agent or duty of care analysis.

     In conclusion, continued securities industry opposition to the addition of the phrase ‘in the best interests’ to the existing regulatory duty owed to clients to act fairly, honestly and in good faith, seems to be pointless in light of the evolving common law duties and standards to which Courts are holding securities dealers and financial advisors in deciding cases where the interests of clients are in issue.



* BMO Nesbitt Burns Inc. v. Ord,  2007 CanLII 24673 (ON SC) (Ontario Superior Court of Justice)

** Sprott Private Wealth LP v. BMO Nesbitt Burns Inc., 2014 ONSC 4421 (Superior Court of Justice – Ontario) (interim terms and scheduling of interlocutory injunction motion); unreported handwritten endorsement dated June 27, 2014 (interlocutory injunction motion); and, 2014 ONSC 3076 (costs endorsement)

*** Andriuk v. Merrill Lynch Canada Inc., 2013 ABQB 422 (Court of Queen’s Bench of Alberta); 2014 ABCA 177 (Court of Appeal of Alberta)

**** Andrews v. Keybase Financial Group Inc., 2014 NSSC 31, 238 A.C.W.S. (3d) 96; and 2014 NSSC 287 (Nova Scotia Supreme Court)


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Posted by Mr. Jonathan W. on Jul 11th, 2014 9:48am

The British Columbia Securities Commission (“BCSC”) recently departed from past practice by permitting Augusta Resource Corporation’s (“Augusta”) shareholder rights plan or poison pill (the “SRP”) to remain in effect for up to 156 days, in the face of a hostile take-over bid made by HudBay Minerals Inc. (“HudBay”). A defining feature of this case was that an absolute majority of shareholders of Augusta voted to maintain the SRP during the currency of HudBay’s bid, with full knowledge that the bid may be impeded. The BCSC’s decision places significant weight on informed shareholder support for a rights plan implemented in the face of a specific bid, while professing that this factor is not, in and of itself, determinative.


As with all such cases, the specific facts are highly relevant to the determination of when the time has come for a rights plan to go. In this case, Augusta and HudBay had been in discussions concerning a possible business combination or other transaction since 2010. Coinciding with such discussions, HudBay began acquiring a significant stake in Augusta. By April 2013, HudBay had acquired 15% of the outstanding common shares of Augusta. In response, the Augusta board of directors implemented the SRP, which would be triggered by any further share acquisitions by HudBay. The SRP was ratified and approved by Augusta shareholders on October 17, 2013.

After continued discussions between Augusta and HudBay failed to result in a transaction, Hudbay announced its hostile bid on February 9, 2014. HudBay subsequently varied and extended its bid until May 5, 2014. HudBay had amended its bid to make it an “any or all” bid; that is, HudBay would acquire any shares tendered to the bid even if they did not constitute a majority of the outstanding shares.

On April 14, 2014, HudBay commenced an application before the BCSC to have the SRP cease-traded.

In what may turn out to be a distinguishing feature of this case going forward, Augusta held a shareholder meeting on May 2, 2014, prior to the expiry of HudBay’s bid, at which Augusta’s shareholders reaffirmed the SRP by an “absolute majority” of the “public float.” Augusta represented that it was on the threshold of a value-enhancing event (the completion of the approval and permitting process for its only material mining project) and the SRP was necessary to prevent HudBay from securing a minority blocking position through an opportunistic and inadequate bid.

On May 2, 2014, the BCSC issued an Order providing that the SRP would be cease-traded on July 15, 2014, provided HudBay extended its bid until no earlier than July 16, 2014, and would provide a further 10-day extension if it took up any shares under the bid. At the time of the Order, the SRP had been outstanding for over 80 days.

On June 23, 2014, Augusta and HudBay announced that HudBay would improve its offer in exchange for the support of the Augusta board of directors and the termination of the SRP.

BCSC Order and Decision

In its reasons, released on June 24, 2014, the BCSC relied on the principles set out in its earlier decision in Re Icahn Partners LP, 2010 LNBCSC 398 (Icahn) in considering if it was in the public interest to cease-trade the SRP. The Commission confirmed that, in its view, the decisions of the Alberta and Ontario securities commissions in Re Pulse Data Inc., [2007] ABASC 895 and Re Neo Material Technologies Inc., 2009 LNOSC 638, respectively, are not inconsistent with the Icahn principles and do not define a set of circumstances where a board can “just say no.” These decisions were of relevance given that the rights plans at issue in those cases received shareholder approval during the currency of a bid.

Accordingly, the BCSC turned to the factors set out in its leading decision in Re Royal Host Real Estate Investment Trust, 1999 LNBCSC 88 (Royal Host) to determine whether the time had come for the SRP to go, the most important of which included: 

  • The length of time that the Augusta board had already had to run a process aimed at identifying a superior transaction to HudBay’s bid
    The BCSC concluded that this factor weighed in favour of a finding that the SRP should be cease traded on the basis that Augusta had over 85 days since the announcement of its bid to pursue alternative transactions.

    It was recognized that Augusta was intent on completing the permitting and approvals process for its Rosemont copper project (the “Rosemont Project”), its only material property, and that this could not be completed during the currency of the bid. However, due to the timing and uncertainty of this process, the BCSC stated that it would not have considered this to be a basis for denying HudBay’s application, in and of itself.
  • The likelihood of the Augusta board being able to find a superior transaction
    The BCSC concluded that there was no “real and substantial possibility” that the Augusta Board would identify a superior transaction, and that the company was focused on completing the permitting and approvals process for the Rosemont Project. Accordingly, this factor weighed in favour of the relief sought by HudBay.
  • HudBay’s waiver of the minimum tender condition and whether the bid was coercive to Augusta’s shareholders
    Despite Augusta’s arguments to the contrary and the fact that HudBay waived its minimum tender condition, the BCSC found that HudBay’s bid was not coercive to shareholders. The BCSC placed reliance on HudBay’s commitment to extend its bid for 10 days if it took up any shares under the bid as a condition of any cease-trade order.
  • The vote to approve continuation of the SRP by Augusta shareholders during the currency of and prior to the expiry of the bid
    The BCSC confirmed that shareholder approval of a rights plan, even during the currency of a bid, is not determinative. The weight to be accorded to such approval is fact-specific and there is no bright-line test. The BCSC outlined five factors relevant to determining how much weight to attribute to shareholder approval:

    i.    Is the approval obtained in the face of a specific bid versus prior approval unrelated to a specific bid?

    ii.   Is the approval an informed one (i.e., was all relevant information available to shareholders)?

    iii.  The context of the vote in relation to the bid;

    iv.  What level of shareholder turnout is reflected in the approval; and

    v.  What level of approval has been obtained (taking into consideration and excluding “interested” voters (i.e., insiders, bidders, related parties, etc.)).

    Applying these factors, the BCSC determined that “very significant weight” should be accorded to the approval of the SRP by Augusta’s shareholders, which supported the idea that the SRP should not be cease-traded with immediate effect. In particular,  emphasis was placed on the conclusion that an absolute majority of Augusta’s shares were voted in favour of continuing the SRP with knowledge that the SRP would continue to act as an impairment to the bid.
  • The likelihood that if the SRP were ceased traded at the hearing or a future certain date, HudBay would extend its bid
    Based on witness testimony, the BCSC concluded that there was a “reasonable possibility” that HudBay would extend its bid if the commission decided to issue an order cease-trading the SRP effective at a future date. This factor weighed heavily against cease-trading the SRP with immediate effect. This, notwithstanding that HudBay stated that it would not extend its bid if the SRP were not cease traded.

Ultimately and in making the Order outlined above, the BCSC concluded that the shareholder approval of the SRP in combination with the likelihood that HudBay would extend its bid outweighed those factors that suggested that the SRP should be cease-traded immediately.

Conclusion and Implications

The atypical timelines, including lengthy negotiations between the parties and the significant period of time that HudBay remained willing to keep its bid open and the determination by the BCSC that HudBay would likely extend its bid, contributed to the unique factual circumstances of this case. Coupled with the shareholder vote during the currency of the bid, it remains to be seen whether future poison pill applications can draw guidance from this decision.  Nevertheless, the decision represents a departure from the BCSC’s prior strong stance against rights plans and a willingness on the part of the regulator to adopt a flexible approach in the take-over bid context. While not explicitly referenced in the reasons, it remains an open question as to whether the BCSC was influenced by Augusta’s assertions that the bid was opportunistic given the status of the approval and permitting process for the Rosemont Project.

Finally, it is noteworthy that despite specifically denying reliance on the proposed National Instrument 62-105 – Security Holder Rights Plans, the BCSC nevertheless fashioned an outcome that was consistent with the proposed new regime by placing significant weight on shareholder approval.

For further information regarding this matter, please contact Wendy Berman, Jonathan Wansbrough or any other member of our Securities Litigation Group.

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Posted by Mr. Alec M. on Jun 25th, 2014 2:40pm

The Ontario Securities Commission (the “OSC”) has dismissed Conrad Black’s request for a stay of the proceeding against him in which the OSC is seeking a reciprocal order based on the findings and convictions from criminal and regulatory proceedings in the US (the “US Proceedings”), rather than a full hearing process.

The OSC has affirmed the importance of its power to issue reciprocal orders as an effective tool to facilitate cross-jurisdictional enforcement of breaches of securities law and to enable the efficient administration of justice by eliminating duplicative proceedings based on similar evidence. Given the globalization of capital market activities, market participants should anticipate continued increased use of reciprocal proceedings and orders by Canadian securities regulators and consider the importance of a collaborative and coordinated cross-border defence strategy.

The OSC’s Decision

The OSC initially commenced proceedings against Black and others in March 2005 relating to their conduct as directors and officers of Hollinger Inc. This initial proceeding was adjourned pending the resolution of the US Proceedings.

The US Proceedings were comprised of a criminal proceeding in which Black was indicted on eight counts of criminal fraud, and a civil proceeding brought by the Securities Exchange Commission in which Black was alleged to have failed to accurately disclose in securities filings circumstances surrounding various transactions to which Hollinger was a party.

The US Proceedings concluded by December 2012 with findings of criminal and civil liability against Black. Black was convicted of fraud and obstruction of justice and sentenced to 42 months of incarceration, and was also found liable in the civil proceeding for securities fraud and other violations of US securities law and was permanently barred from serving as a director or officer of a reporting issuer in the US.

In February 2013, following the conclusion of the US Proceedings, OSC Staff issued amended proceedings against Black seeking a reciprocal order based on the findings and convictions arising from the US Proceedings (the “OSC Proceeding”).

In response, Black brought an application seeking an order staying the OSC Proceeding on the condition that a 2006 undertaking given by him to the OSC in which he agreed not to serve as a director or officer of a public company in Ontario (the “Undertaking”) would remain in effect.   Black asserted that the continuation of the OSC Proceeding in this context was completely disproportionate and entirely unnecessary so as to be unfair and vexatious, and to constitute an abuse of process.

The OSC firmly rejected Black’s argument on both legal and policy grounds. The OSC held that the use of the reciprocal order power is “an entirely proper discharge” of the OSC’s statutory mandate to protect investors and ensure fair and efficient capital markets and is not an abuse of process. The OSC found that Black’s submissions “quite clearly” fail to satisfy the legal test for identifying an abuse of process, which demands, in part, that the proceeding “violate[s] the fundamental principles of justice underlying the community’s sense of fair play and decency.”

The OSC further held that granting the stay would defeat the public expectation that the OSC finally address and make a determination in respect of the allegations against Black in Ontario, and accordingly “bring its regulatory role into disrepute.”

In the same application, as an alternative submission, Black sought direction on the scope of evidence to be presented at any hearing of the OSC Proceeding.

In considering this issue, the OSC reviewed the US Proceedings to determine whether Black was subjected to a denial of natural justice in that jurisdiction such that a reciprocal order would be inappropriate.

The OSC held that “by any measure” the US Proceedings met Canada’s standards of fairness and concept of natural justice, and that the convictions and orders arising from those proceedings are a reliable basis for an enforcement proceeding against Black.

Lastly, the OSC defined the scope of evidence to be presented at the OSC Proceeding. In addition to the findings from the US Proceedings, the OSC found certain other evidence admissible as potentially relevant to the determination of an appropriate and proportionate reciprocal order, including evidence relating to the corporate governance procedures of Hollinger Inc. and Black’s conduct relating to the removal of documents from Hollinger’s Toronto offices.


The OSC’s ruling is, in part, an expression of its commitment to cross-jurisdictional collaboration in the enforcement of securities laws. The proceeding against Black provides the OSC with a high-profile case in which to demonstrate its commitment to this enforcement mechanism.

For further information regarding securities law enforcement matters, please contact Wendy Berman, Alec Milne or any other member of our Securities Litigation Group.

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Posted by Mr. Usman S. on Jun 12th, 2014 3:57pm

Usman M. Sheikh sits down with Ms. Wolburgh Jenah to discuss a No Contest Settlement Policy for IIROC, Regulating High Frequency Traders and Dark Pools, Advancing the Role of Women, A Possible IIROC / MFDA Merger, Learning from Market Crises and More.  

Ms. Wolburgh Jenah serves as President and CEO of the Investment Industry Regulatory Organization of Canada (IIROC).  In April 2014, she announced her intention to retire, effective October 31, 2014.

US  "... Where do you fall in the debate on no-contest settlements and is that, in your view, something that IIROC should adopt as a policy?

SWJ  "… We don’t see signs that other regulators in Canada are per se going down that road, although it might be too soon to say whether other jurisdictions or other securities regulators will consider this approach."

Read the full interview here.

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Posted by Mr. Usman S. on Jun 5th, 2014 11:51am

Judge Rakoff Overturned: SEC-Citigroup Settlement Sent Back for Reconsideration
Authors: Alan P. Gardner and Usman M. Sheikh

In a long-awaited decision, the United States Court of Appeals for the Second Circuit today overturned Judge Rakoff's highly controversial decision which refused to approve a $285-million settlement between the United States Securities and Exchange Commission (SEC) and Citigroup Global Markets Inc. The settlement contained no admission of liability by Citigroup to wrongdoing.

Click here to read more:

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Posted by Mr. Usman S. on Apr 21st, 2014 1:09pm

Usman M. Sheikh sits down with Ms. Schapiro to discuss High Frequency Trading and Michael Lewis' Flash Boys, Madoff's Ponzi Scheme, the SEC's No-Admit No-Deny Policy, a Canadian National Securities Regulator and More.  Ms. Schapiro served as the 29th Chairman of the U.S. Securities and Exchange Commission (2009-2012).

"Q.  Mr. Lewis specifically claims that your markets are rigged.  As the former head of the SEC, CFTC and FINRA, how do you respond to that claim?

A.  I don't think the markets are rigged..."

Read the full interview here.


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Posted by Mr. Mark A. B. D. on Nov 20th, 2013 11:16am

In a March 2009 episode of the television series South Park, Stan Marsh, one of the show’s 10-year-old protagonists grudgingly agrees to place $100 of birthday money into a long-term savings account at his father’s request so that it can “grow over the years”. The bank’s financial advisor applauds the young boy’s decision and begins furiously typing on his computer, announcing that he has placed the birthday cash in a ‘Money Market Mutual Fund’ and then reinvested the earnings into foreign currency accounts with compound interest. After a momentary pause, the advisor declares that the money is “gone”. When the young client remonstrates that he had one hundred dollars, his advisor responds: “Not anymore you don’t…..poof!”

When South Park sees fit to attack the financial services industry, you can be sure that its excesses have reached critical mass in the cultural zeitgeist. As personal investment has assumed a central role in Canadians’ long-term financial planning, investor advocates have become increasingly vocal over what they view as the law’s under-regulation of the relationship between retail investors and the investment professionals that advise them.

These campaigners call the present system unfair, arguing that while advisors might promote themselves as unwavering champions of the client’s best interests, the reality is much less altruistic: one in which unsophisticated clients are often cajoled or misinformed into adopting inappropriate investment strategies - with sometimes disastrous results. Against this bitter backdrop, Canadian securities regulators are currently exploring whether a blanket statutory fiduciary/best interest standard for all investment advisors is the answer.

Opponents of such a measure have responded with equal force. According to many in the financial services industry and the securities defence bar, the debate is stuck in a quagmire of misconceptions including: modern investors’ unrealistic perception of market risk; investor advocates’ tendency to view the dispute in zero-sum terms; and a fundamental misunderstanding of the dire consequences that accompany a legal construct as powerful and imprecise as a statutory fiduciary/best interest standard.

Following significant research and interviews with several experts in the securities industry, the author proposes a compromise. In light of the impasse over imposition of a fiduciary/best interest standard, perhaps the most prudent course is to abandon the debate altogether. Instead of engaging in a fruitless battle over the scope and meaning of the term “fiduciary”, stakeholders could look to one or more of the tangible structural reforms currently operating in other legal jurisdictions. By ditching the notion of a “blanket” fiduciary status between investors and their advisors, the Canadian securities industry could facilitate powerful, positive change while avoiding the legal millstone of fiduciary law – an area so often celebrated for its “horrible indeterminacy”.

*To read the full paper, check out The Advocates' Society's Securities Litigation Group Library, or click here.


Mark Donald is a June 2013 call to the Bar of Ontario who seeks to develop a litigation-focused practice. 


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