Guenther Kleberg

The plaintiffs sued their investment advisor and his firm for breach of contract, negligence, and breach of fiduciary duty arising from the handling of their investment accounts.

The court found that the advisor failed to comply with the 'know your client' rule, engaged in unsuitable short-term trading, and exercised unauthorized discretion, while the firm failed to properly supervise the accounts.

Although no fiduciary duty was owed to the more knowledgeable husband, fiduciary duties were owed to and breached regarding the wife and son.

The court rejected defenses of ratification and limitation periods (except for a late-added tax claim) due to the plaintiffs' lack of knowledge of the misconduct.

Damages were awarded for capital and opportunity losses, reduced by 30% for the plaintiffs' contributory negligence.

The appellants appealed a Divisional Court decision upholding an Ontario Securities Commission order that imposed significant administrative monetary penalties (AMPs) for failing to report insider trades and failing to adequately supervise trading.

The appellants argued that the AMP provision of the Securities Act, which allows fines up to $1 million per infraction, violates s. 11(d) of the Charter because its magnitude constitutes a true penal consequence.

The Court of Appeal dismissed the appeal, holding that the constitutionality of an administrative penalty is assessed based on the actual penalty imposed, not the theoretical maximum.

The court found the fines were proportionate to the regulatory goal of deterring non-compliance in capital markets and did not amount to a penal sanction.

The court also upheld the Commission's findings regarding the appellants' failure to supervise and its consideration of the public interest in determining the sanctions.