Hunt et al. v. TD Securities Inc. c.o.b. as TD Evergreen et al. [Indexed as: Hunt v. TD Securities Inc.]
66 O.R. (3d) 481
[2003] O.J. No. 3245
Docket No. C37797
Court of Appeal for Ontario
Simmons, Gillese and Armstrong JJ.A.
August 26, 2003
*Application for leave to appeal dismissed with costs April 22, 2004 (McLachlin C.J.C., Major and Fish JJ.).
Agency -- Stockbrokers -- Fiduciary relationship -- Investor opening non-discretionary account where transactions had to be authorized -- Relationship contractual and not fiduciary -- Stockbroker making single unauthorized sale of shares -- Sale not ratified expressly or by implication -- Stockbroker liable for breach of contract -- No liability for breach of fiduciary duty.
Contract -- Breach of contract -- Damages -- Mitigation -- Stockbroker breaching contract by unauthorized sale of shares -- Investor obliged to mitigate by repurchasing shares -- Courts to consider variety of factors to determine date for mitigation.
Trusts and trustees -- Fiduciary relationship -- Investor opening non-discretionary account where transactions had to be authorized -- Relationship contractual and not fiduciary -- Stockbroker making single unauthorized sale of shares -- Sale not ratified expressly or by implication -- Stockbroker liable for breach of contract -- No liability for breach of fiduciary duty.
In 1996, Melville Hunt and Marion Hunt transferred their mutual fund holdings to TD Evergreen ("TDE"), where Mark Schram acted as their investment advisor. The funds were held in a non-discretionary cash account, under the terms of which TDE could only make transactions authorized by the Hunts. On March 3, 1997, TDE sold some of Hunt's BCE shares in an unauthorized transaction. The Hunts became aware of the sale within ten days of March 6, 1997, and in the weeks that followed, they instructed Schram to purchase other securities with the proceeds from the sale of the BCE shares. The price of BCE shares rose, and in July 1998, the Hunts sued TDE and Schram for the loss in value of the BCE shares. The Hunts' action was successful. Hambly J. held that there was a fiduciary relationship between TDE and Schram and that Schram had breached his fiduciary duty through the unauthorized sale. He awarded the Hunts $59,319 plus interest, plus costs on a solicitor and client scale. TDE and Schram appealed and also sought leave to appeal the costs order. The Hunts cross- appealed.
Held, the appeals should be allowed and the cross-appeal dismissed.
The relationship between a stockbroker and a client is not in and of itself a fiduciary relationship but one that is fiduciary dependent on the particular facts. In making findings of vulnerability, trust and reliance, the trial judge misapplied the relevant legal principles. The trial judge made a palpable and overriding error in concluding that Schram stood in a fiduciary relationship with the Hunts, which error arose from the mistaken conclusion that Schram had the discretion or power to unilaterally affect the Hunts' interests. While Schram was in a position to conduct an unauthorized sale, that ability did not characterize the relationship between the parties. The finding that the Hunts placed their trust in Schram could not be supported in light of the fact that the Hunts opened a non- discretionary account and operated it as such. By choosing a non-discretionary account, the Hunts expressly retained control over their investments. Had there been a pattern of Schram acting without instructions despite the account being designated non-discretionary, it is possible that a fiduciary relationship could [page482] have been found. However, this was not the case; there was only a single unauthorized sale.
The relationship between the parties was contractual in nature. There was an unauthorized sale of shares, and there was no reason to interfere with the trial judge's finding that the Hunts did not ratify the sale. There was no express ratification. While continued dealings may be evidence of ratification by implication, it is not determinative. In light of a continued express repudiation of the sale, the fact that they did not choose to repurchase BCE shares did not amount to a ratification by implication nor did their continued course of dealing with Schram.
Since the unauthorized sale was a breach of contract, there was no question but that the Hunts had a duty to mitigate. The court must consider a variety of factors in deciding on when the Hunts ought to have purchased replacement shares to mitigate the loss of shares from the unauthorized sale. The period for mitigation must be a reasonable one in light of all the circumstances. The following factors warrant consideration: (1) ease of purchase of replacement shares; (2) the degree of sophistication and experience of the investor; (3) the degree of trust reposed in the broker; (4) whether the broker was obliged to follow the investor's instructions in making transactions; and (5) whether the relationship between the investor and broker has broken down to the point that the client has lost confidence in the broker. In the instant case, a brief mitigation period was reasonable. By April 2, 1997 at the latest, Melville Hunt was in a position to decide whether to purchase BCE shares. To impose a duty to mitigate on the Hunts at a date later than that would be to permit them to speculate at the broker's expense. During the mitigation period, the price of BCE shares declined and therefore the Hunts suffered no loss from the unauthorized sale. As a result, the Hunts were entitled to recover only the costs associated with the unauthorized sale.
The result would have been the same had the Hunts succeeded in establishing that there was a fiduciary relationship. Where a breach of fiduciary duty does not raise policy concerns that militate against imposing a duty to mitigate, and the rationale behind the common law duty to mitigate is applicable, then equity will impose the same obligation to mitigate in order to avoid unnecessary loss.
Turning to the appeal with respect to costs and the trial judge's award of costs on a solicitor and client scale, there was a reversible error. If in awarding solicitor and client costs, the trial judge relied on a principle that the party ought not to be put to any expense, he erred. If solicitor and client are justified, it must be due to misconduct. The facts of this case did not justify a departure from the usual principle that a successful party is entitled to costs on a party and party basis.
APPEAL from a judgment in an action for breach of fiduciary duty.
Cases referred to Asamera Oil Corp. Ltd. v. Sea Oil & General Corp. and Baud Corp., N.V., 1978 16 (SCC), [1979] 1 S.C.R. 633, 89 D.L.R. (3d) 1, 23 N.R. 181, [1978] 6 W.W.R. 301, 5 B.L.R. 225 (sub nom. Baud Corp., N.V. v. Brook); Canson Enterprises Ltd. v. Boughton & Co., 1991 52 (SCC), [1991] 3 S.C.R. 534, 61 B.C.L.R. (2d) 1, 85 D.L.R. (4th) 129, 131 N.R. 321, [1992] 1 W.W.R. 245, 9 C.C.L.T. (2d) 1, 39 C.P.R. (3d) 449, 43 E.T.R. 201; Chan Estate v. Hwang, [1999] B.C.J. No. 875 (QL) (S.C.); Chesebrough v. Willson, 2002 7499 (ON CA), [2002] O.J. No. 4299 (QL), 166 O.A.C. 119 (C.A.), affg [2001] O.J. No. 940 (QL), [2001] O.T.C. 174 (S.C.J.); Church of Jesus Christ of Latter Day Saints (Trustees of) v. King (1998), 1998 7187 (ON CA), 41 O.R. (3d) 389, 165 D.L.R. (4th) 227, 31 C.P.C. (4th) 388 (C.A.) (sub nom. Église de Jésus-Christ des saints des derniers jours v. King); Clark v. Nash, [1990] B.C.J. No. 727 (QL) (C.A.); Dical Investments Ltd. v. Morrison (1990), 1990 6606 (ON CA), 75 O.R. (2d) 417, 43 O.A.C. 90, 75 D.L.R. (4th) 497, 1 M.P.L.R. (2d) 233, 13 R.P.R. (2d) 157 (C.A.) [Leave to appeal to S.C.C. refused (1991), 4 O.R. (3d) xi], revg (1989), 1989 4082 (ON SC), 68 O.R. (2d) 549, 44 M.P.L.R. 102, 5 R.P.R. (2d) 149 (H.C.J.); [page483] Dyck v. Roulston (1997), 1997 4103 (BC CA), 36 B.C.L.R. (3d) 126, 32 B.L.R. (2d) 221, 36 C.C.L.T. (2d) 198 (C.A.); Forrest v. Gairdner & Co. Ltd. (1962), 1962 385 (BC CA), 33 D.L.R. (2d) 575, 39 W.W.R. 160 (B.C.C.A.); Foulis v. Robinson, Gore Mutual Insurance Co. (third party) (1978), 1978 1307 (ON CA), 21 O.R. (2d) 769, 92 D.L.R. (3d) 134, 8 C.P.C. 198 (C.A.), revg (1977), 3 C.P.C. 16 (Ont. S.C.); Frame v. Smith, 1987 74 (SCC), [1987] 2 S.C.R. 99, 23 O.A.C. 84, 42 D.L.R. (4th) 81, 78 N.R. 40, 42 C.C.L.T. 1, 9 R.F.L. (3d) 225; Genah v. Reg Quinn Ltd. (c.o.b. Canadian Tire), [2002] O.J. No. 2832 (QL) (S.C.J.); Gerula v. Flores (1995), 1995 1096 (ON CA), 126 D.L.R. (4th) 506 (Ont. C.A.), revg in part (1993), 16 C.P.C. (3d) 362 (Ont. Gen. Div.); Grenkow v. Merrill Lynch Royal Securities Ltd. MacFadden and Smith (1983), 1983 3683 (MB QB), 23 Man. R. (2d) 54 (Q.B.); Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377, 97 B.C.L.R. (2d) 1, 117 D.L.R. (4th) 161, 171 N.R. 245, [1994] 9 W.W.R. 609, 16 B.L.R. (2d) 1, 22 C.C.L.T. (2d) 1, 57 C.P.R. (3d) 1, 95 DTC 5135, 5 E.T.R. (2d) 1; Hongkong Bank of Canada v. Richardson Greenshields of Canada Ltd. (1990), 1990 857 (BC CA), 48 B.C.L.R. (2d) 139, 72 D.L.R. (4th) 161, [1990] 6 W.W.R. 1 (C.A.); Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 219 Sask. R. 1, 211 D.L.R. (4th) 577, 286 N.R. 1, 272 W.A.C. 1, [2002] 7 W.W.R. 1, 30 M.P.L.R. (3d) 1, 2002 SCC 33, 10 C.C.L.T. (3d) 157; Kent v. May (2002), 317 A.R. 381, [2002] A.J. No. 1327 (QL), 2002 ABCA 252 (C.A.), affg (2001), 2001 61006 (AB KB), 298 A.R. 71, [2001] A.J. No. 552 (QL) (Q.B.); Kopij v. Toronto (Metropolitan), [1999] O.J. No. 239 (QL) (C.A.); Laflamme v. Prudential- Bache Commodities Canada Ltd., 2000 SCC 26, [2000] 1 S.C.R. 638, 185 D.L.R. (4th) 417, 253 N.R. 155; McBride Metal Fabricating Corp. v. H & W Sales Co. Inc. (2002), 2002 41899 (ON CA), 59 O.R. (3d) 97 (C.A.); Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1, 111 D.L.R. (4th) 428, 1 L.W.R. 57, 19 M.P.L.R. (2d) 286 (C.A.) [Leave to appeal to S.C.C. refused (1994), 19 O.R.(3d) xvi, 23 M.P.L.R. (2d) 314, 178 N.R. 146n], revg in part (1992), 9 M.P.L.R. (2d) 185 (Ont. Gen. Div.); Murano v. Bank of Montreal (1998), 1998 5633 (ON CA), 41 O.R. (3d) 222, 163 D.L.R. (4th) 21, 41 B.L.R. (2d) 10, 22 C.P.C. (4th) 235, 5 C.B.R. (4th) 57 (C.A.), affg (1996), 1995 7410 (ON SC), 20 B.L.R. (2d) 61, 31 C.B.R. (3d) 1 (Ont. Gen. Div.), supp. reasons (1995), 41 C.P.C. (3d) 143 (Ont. Gen. Div.); Roberts v. Wilson (1997), 10 C.P.C. (4th) 188 (B.C.S.C.); Secord v. Global Securities Corp., [2003] 3 W.W.R. 612, 2003 BCCA 85, 11 B.C.L.R. (4th) 62, [2003] B.C.J. No. 327 (QL) (C.A.), revg in part (2000), 81 B.C.L.R. (3d) 235, 8 B.L.R. (3d) 238, 2000 BCSC 1544 (S.C.); Tri-S Investments v. Vong, [1991] O.J. No. 2292 (QL) (Gen. Div.); Varcoe v. Sterling (1992), 1992 7730 (ON CA), 10 O.R. (3d) 574n (C.A.), affg (1992), 1992 7478 (ON SC), 7 O.R. (3d) 204 (Gen. Div.); Zivadinovich v. Mehta, 1999 2112 (ON CA), [1999] O.J. No. 338 (QL), 117 O.A.C. 328 (C.A.); Zraik v. Levesque Securities, 2001 21223 (ON CA), [2001] O.J. No. 5083 (QL), 153 O.A.C. 186 (C.A.) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 57.01(1) (g) Authorities referred to Orkin, M.M., The Law of Costs, 2nd ed. (Aurora: Canada Law Book, 1993)
James W.W. Neeb, Q.C., and Julie C. Aldred, for respondents. Stephen Finch, Q.C., for appellants.
The judgment of the court was delivered by
1GILLESE J.A.: -- TD Securities Inc. c.o.b. as TD Evergreen ("TDE"), TD Financial Services and Mark Schram appeal from [page484] the January 17, 2002, judgment of Hambly J. in which TD Securities Inc. is ordered to pay the respondents, Melville Hunt and Marion Hunt, the sum of $59,319 plus interest and costs. The judgment flowed from a determination, at trial, that a fiduciary relationship existed between Schram (an investment advisor and employee of TDE) and the Hunts, and the finding that Schram breached his fiduciary obligation through the unauthorized sale of BCE shares owned by the Hunts. TD Securities Inc. was held vicariously liable for Schram's conduct. Costs on a solicitor and client scale were awarded against the appellants; they seek leave to appeal the costs award, as well.
2The Hunts cross-appeal, asking that the damage award be increased to reflect loss of opportunity to sell the BCE shares as market prices increased.
3For the reasons that follow, I am of the view that a fiduciary relationship did not exist between the parties. I would allow the appeal on the merits, grant leave to appeal the costs award and allow it, and dismiss the cross-appeal.
Overview
[4]
Overview
The appellants carry on business as investment advisors and counsellors. They buy and sell securities on behalf of their customers.
5In November 1996, the Hunts transferred their mutual fund holdings from TD Asset Management Inc. to TDE. Their funds were held in a non-discretionary cash account with TDE, under the terms of which TDE could make only those transactions that had been authorized by the Hunts. Mark Schram was their investment advisor.
6The Hunts owned BCE shares for a lengthy period of time before November 1996. On March 3, 1997, the appellants sold some of the Hunts' BCE shares. The Hunts claim that they never authorized the sale transaction. Schram contends otherwise. The Hunts became aware of the sale within ten days of March 6, 1997, which was the date the transaction was completed. They did not transfer the shares to the appellants until March 7, 1997. In the weeks that followed the sale of the BCE shares, they instructed Schram to purchase other securities with the proceeds of sale, which he did. They continued to deal with the appellants for a lengthy period after the sale of the BCE shares.
7The price of BCE shares rose and the Hunts commenced an action in July 1998, against the appellants, for the loss in value of the BCE shares. Schram wrote to the Hunts in December of 1998, suggesting that they transfer their account to the investment [page485] counsellor of their choice. They transferred their account from TDE to RBC Dominion Securities in December of 1999.
8At trial, the sale of the BCE shares on March 3, 1997, was found to be unauthorized. The relationship between Schram and the respondents was held to be a fiduciary one and the unauthorized sale of the shares was found to be a breach of the appellants' fiduciary obligations. The Hunts were found to have not ratified the sale of their BCE shares.
9Damages were held to crystallize as at July 8, 1998. They were assessed as the difference between the value of BCE shares at July 8, 1998, and the value of the replacement shares as at that date, with appropriate adjustments. Melville Hunt's damages were assessed at $41,181. Marion Hunt's damages were assessed at $18,138.
The Facts
[10]
The Facts
In November 1996, Melville was 75 years of age. He was married to Marion Hunt, then aged 72. He had been employed by Savage Shoes Limited for his entire working life. He had held various positions with the company, including General Sales Manager for all Canadian divisions and Senior Vice President. He served as a member of the Board of Directors. Melville Hunt had been in charge of all of the family's financial investments throughout the marriage.
11In the fall of 1996, Melville Hunt held mutual funds at TD Asset Management Inc. He decided to purchase Toronto Dominion shares and was referred to Schram at TDE. Melville Hunt met with Schram on November 4 and 8, 1996, to discuss his holdings, strategy, goals and procedures. He was looking for guidance as to how to improve the performance of his overall portfolio as well as the ability to purchase securities. He told Schram that he and his wife held BCE shares, and that a $10,000 note had been redeemed from the sale of mutual funds at TD Greenline and deposited by Melville Hunt into his bank account.
12After the two meetings, Melville Hunt decided to move his entire TD Asset Management Inc. portfolio to TDE.
13On November 13, 1996, the Hunts met with Schram to complete forms to transfer the investment account to TDE. New account application forms were completed. The information about Melville Hunt was completed by Schram based on answers given to questions that he asked, and on the information that had been relayed by Melville Hunt in the previous meetings about his investment experience, income, risk tolerance and investment goals. A new account application form was completed for Marion Hunt as well. [page486]
14The new account form described Melville Hunt as a person of average investment knowledge. Melville Hunt agreed with that assessment. He received and retained a copy of the application form.
15By November 28, 1996, the transfer of the Hunts' assets from TD Asset Management Inc. to TDE was complete. A non- discretionary cash account was set up. Under its terms, Schram could trade in securities on behalf of the Hunts only with their authorization.
16Also by November 28, 1996, Guardian mutual funds had been purchased for Melville Hunt for the sum of $10,000. Melville Hunt met with Schram on November 29, 1996, to review his investment printout. Although he complained at the meeting that he had not authorized the purchase of the Guardian funds, he instructed Schram to sell TD Asset mutual funds and buy other investments, including a further purchase of Guardian mutual funds in the amount of $40,000. The trial judge found that Guardian was a good investment and that if Melville Hunt did not initially approve of the Guardian purchase, he accepted it.
17As of March 3, 1997, Melville Hunt owned 1,472 shares of BCE stock and Marion owned 923 shares of BCE stock. All the shares were either in their safety deposit box at Canada Trust, or registered with Montreal Trust. None had been physically delivered to TDE.
18On March 3, 1997, Schram sold 972 BCE shares of Melville Hunt and 377 BCE shares of Marion Hunt. It was Schram's evidence that Melville Hunt telephoned him on March 3, 1997, and instructed him to sell sufficient BCE shares so that each of the Hunts would be left with 500 shares. He testified that the sale was in accordance with the overall investment strategy that he had previously discussed with Melville Hunt. Melville Hunt denied ever giving authority to sell the shares. He said that the BCE shares were his "nest egg" and to be kept for emergencies and the Hunts' retirement.
19The experts agreed that it was common practice, and the standard in the investment industry, to buy and sell shares on verbal instructions, including over the telephone.
20Schram testified that he had known before March 3, 1997 that the Hunts owned BCE stock and had a rough idea that it comprised approximately 50 per cent of their total investments. There were numerous conversations between Melville Hunt and Schram between November of 1996 and March 3, 1997, about the BCE shares. Schram understood that Melville Hunt wished to sell some of the BCE shares. He believed that such a course of action would be a good idea as he felt that the BCE shares made [page487] up an overly large portion of the Hunts' portfolio. The Hunts' expert agreed that there were too many BCE shares and that he would have recommended that the Hunts sell some of them.
21The trial judge found that, apart from a $600 commission to Schram, the appellants did not profit from the sale of the BCE shares.
22The Hunts were instructed by Schram's assistant to take their BCE shares out of the safety deposit box and deposit them with Schram. They did so believing that this made the BCE shares available for possible sale at a later date.
23The Hunts received the usual transaction slips confirming the sale of the BCE shares within ten days of the completion of the transaction. Upon their receipt, Melville Hunt called Schram and demanded to know "What the hell is going on?" Schram allegedly responded"What is done, is done."
24By March 16, 1997, at the latest, the Hunts knew that the BCE shares had been sold, and the proceeds were available for re-investment. On March 7, 1997, Melville Hunt instructed Schram to purchase Chrysler Securities. The only funds available to purchase these shares were proceeds from the BCE shares. The Hunts did not authorize Schram to sell any other shares in order to raise funds for the purchase of the Chrysler Securities. Less than a month later, Melville Hunt instructed Schram to buy shares in CIBC, again using proceeds from the sale of the BCE shares. This latter transaction was completed on April 2, 1997. The investments made with the proceeds of sale were found to be good investments.
25In January of 1998, TDE sent out a questionnaire survey to its customers. The Hunts completed it and returned it on February 3, 1998, with a letter to Mr. Carney, the president of TDE Investment Services. In the letter, Melville Hunt states that the sale of the BCE shares had caused him and his wife anguish and that until receiving the survey he had not known to whom to turn. Melville Hunt answered question 44 of the survey, listing a series of complaints, including that the BCE shares had been sold without specific instructions. Marion Hunt answered question 44 of the survey by referring to the sale and complaining that it took place before the shares were transferred, and just before a dividend was declared. She also complained that her account had been improperly debited, and asked that the matter be looked into and corrected. Many of the Hunts' survey responses contained positive comments about Schram and TDE. The quality of service was rated as consistently high. Schram's service record was rated as satisfactory.
26The trial judge found that TDE's investigation into the complaint was inadequate. He noted that Schram did not report [page488] the matter of Melville Hunt's complaint to him to the compliance department. He found that the responses sent to the Hunts did not address all of their concerns. He found, also, that the responses were based solely on Schram's version of events as no one interviewed the Hunts.
27The Hunts' account with TDE was dormant after January 9, 1998.
28After receiving a letter from Mr. Strickland, Senior Vice President, dated March 9, 1998, Melville Hunt drafted a handwritten letter in which he spoke of the "blind faith" that he and his wife had in TDE and Schram. This handwritten letter was not sent. The Hunts' son, Roger, was a lawyer. When he learned of his parents' upset over the sale of the BCE shares, he used the draft letter as the basis for his own letter, dated March 16, 1998, to Mr. Strickland, in which he set out the Hunts' complaints and demanded "that which has been done must be undone".
29Schram wrote the Hunts in December of 1998, suggesting that they transfer their account to the investment counsel of their choice. The Hunts transferred their investments from TDE to RBC Dominion Securities in December of 1999.
The Issues and Standard of Review
[30]
The Issues and Standard of Review
Four issues arise on this appeal.
Was there a fiduciary relationship between Schram and the Hunts?
Did the Hunts ratify the sale of the BCE shares?
What damages are the Hunts entitled to? In considering this issue, it must be determined whether the Hunts had a duty to mitigate.
Ought the costs award below be set aside?
31The standard of review of a judge's factual findings and inferences drawn from the facts is palpable and overriding error: Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 2002 SCC 33, 211 D.L.R. (4th) 577. Questions of mixed fact and law involving the application of a legal standard to a set of facts are generally also subject to a standard of palpable and overriding error. If, however, it is clear that the trial judge made some extricable error in principle with respect to the characterization of the standard or its application, the error may amount to an error of law, and a standard of correctness will apply. [page489]
Issue 1: Nature of the relationship
[32]
Issue 1: Nature of the relationship
The trial judge found that Schram stood in a fiduciary capacity to the Hunts because, at para. 98:
Mark Schram had power that he could, if he chose, exercise unilaterally over all the life savings of Mel Hunt and Marion Hunt. Mel Hunt and Marion Hunt placed their trust in Mark Schram. They gave him their loyalty, even after they believed that he had acted contrary to their instructions. Mel Hunt placed complete reliance in the judgment of Mark Schram. In my view on the tests set out in Frame v. Smith (supra) and Varcoe v. Stirling (supra) set out above, Mark Schram was a fiduciary in his relationship with Mel and Marion Hunt.
33The appellants say that no fiduciary relationship existed between Schram and the Hunts. Their contention rests primarily upon the fact that the Hunts had a non-discretionary account with the appellants. Because the account was non- discretionary, Schram did not have the authority or power to act on his own accord in respect of the Hunts' funds. In addition, the appellants contend that Melville Hunt is not unsophisticated, that he did not place complete trust and reliance in Schram, and that he was not vulnerable.
34The respondents point to the trial judge's findings in respect of vulnerability, reliance, trust and power which underpin his finding of a fiduciary duty and argue that there is no basis for interference with that conclusion.
35For the reasons that follow, I am of the view that the trial judge made a palpable and overriding error in concluding that Schram stood in a fiduciary relationship with the Hunts. This clear error arose when he found that Schram had the discretion or power to unilaterally affect the Hunts' interests. While Schram was in a position to be able to conduct an unauthorized sale of shares, this ability did not characterize the relationship between the parties -- Schram was not authorized to act unilaterally and, with the sole exception of the unauthorized sale of the BCE shares, did not do so. Moreover, in making findings of vulnerability, trust and reliance, the trial judge appears to have misapplied the relevant legal principles.
36As this court affirmed in Chesebrough v. Willson, 2002 7499 (ON CA), [2002] O.J. No. 4299 (QL), 166 O.A.C. 119 (C.A.), at para. 2"the relationship of broker and client is not, in and of itself, a fiduciary relationship but one that is dependant on the particular facts. The relevant factors that must be considered in determining this question are set out by the Supreme Court of Canada in Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377."
37The Supreme Court of Canada dealt exhaustively with the matter of fiduciary relationships in the case of financial advisors in Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377, 117 D.L.R. (4th) 161. In [page490] Hodgkinson, a stockbroker with little experience in tax planning, hired an accountant to advise him regarding his tax planning needs, particularly with respect to real estate investments. The stockbroker relied heavily on the accountant's advice. He bought four income tax sheltered properties, on the accountant's advice, and lost heavily during a decline in the real estate market. It was later revealed that the accountant had an interest in the properties that he had failed to disclose. The stockbroker alleged breach of fiduciary duty and breach of contract against the accountant.
38The court held that, in view of the professional relationship between the parties that was based on trust, confidence and independence, and the plaintiff's reliance on the defendant's advice, there was a fiduciary relationship and the defendant was liable for breach of that duty.
39In Hodgkinson, La Forest J. adopts Wilson J.'s three- step analysis in Frame v. Smith, 1987 74 (SCC), [1987] 2 S.C.R. 99, 42 D.L.R. (4th) 81 as "rough and ready" guidelines, or indicia, that help courts determine whether a fiduciary relationship exists. La Forest J. summarizes Wilson J.'s analysis, at p. 408 S.C.R., para. 30, as:
(1) scope for the exercise of some discretion or power; (2) that power or discretion can be exercised unilaterally so as to effect the beneficiary's legal or practical interests; and, (3) a peculiar vulnerability to the exercise.
40La Forest J. expands considerably on this analysis. His comprehensive judgment in Hodgkinson can be summarized as identifying five interrelated factors to be considered when determining whether financial advisors stand in a fiduciary relationship to their clients:
Vulnerability -- the degree of vulnerability of the client that exists due to such things as age or lack of language skills, investment knowledge, education or experience in the stock market.
Trust -- the degree of trust and confidence that a client reposes in the advisor and the extent to which the advisor accepts that trust.
Reliance -- whether there is a long history of relying on the advisor's judgment and advice and whether the advisor holds him or herself out as having special skills and knowledge upon which the client can rely.
Discretion -- the extent to which the advisor has power or discretion over the client's account. [page491]
Professional Rules or Codes of Conduct -- help to establish the duties of the advisor and the standards to which the advisor will be held.
41It should be noted that the description of these five factors is not intended to be exhaustive and that the evidence relevant to one factor may be relevant also to a consideration of one or more of the other factors.
42In applying these factors, the words of Forsyth J. in a recent Alberta Queen's Bench decision provide a helpful framework:
[O]ne should consider the broker-client relationship to be a spectrum. At one end is a relationship of full trust and advice. The broker effectively makes all the decisions because of the great reliance and trust reposed in him or her by the client . . . . This is exacerbated where the account is discretionary, such that the broker has the authority to make trades without the client's consent or even knowledge . . . Obviously, there is a fiduciary relationship at this end of the spectrum . . .
At the other end is a relationship where the broker is merely an "order-taker" for the client, the client does not rely on any advice from the broker, and the broker had no discretion. This was the case in Varcoe itself. Relationships at this end of the spectrum lack the elements of a fiduciary relationship.
Most cases fall somewhere in the middle. . . .
(Kent v. May (2001), 2001 61006 (AB KB), 298 A.R. 71, [2001] A.J. No. 552 (QL) (Q.B.), at paras. 51-53, affd (2002), 2002 ABCA 252, 317 A.R. 381, [2002] A.J. No. 1327 (QL) (C.A.))
Vulnerability
[43]
Vulnerability
The trial judge noted the Hunts' ages and Melville Hunt's poor health. Implicitly, he found that the Hunts were vulnerable. However, there were other findings which suggest that they were not vulnerable. For example, in the last period of Melville Hunt's career with Savage Shoes, he was Senior Vice-president, General Manager, Sales, for all of Canada and sat on its Board of Directors. In Dyck v. Roulston (1997), 1997 4103 (BC CA), 36 B.C.L.R. (3d) 126, 32 B.L.R. (2d) 221 (C.A.), the British Columbia Court of Appeal found no fiduciary duty to exist where a client was intelligent, operated a successful business and made his choices freely. See also Varcoe v. Sterling (1992), 1992 7478 (ON SC), 7 O.R. (3d) 204 (Gen. Div.), affd (1992), 1992 7730 (ON CA), 10 O.R. (3d) 574n (C.A.).
44Also, the trial judge found that Melville Hunt bought and sold shares over the course of his adult lifetime, regularly monitored his accounts, and made his own decisions about investments. It was Melville Hunt who decided to purchase the Toronto-Dominion Bank stocks. It was also Melville Hunt's idea to purchase the Chrysler shares, a purchase which he testified Schram was opposed to. [page492]
45In Zraik v. Levesque Securities, 2001 21223 (ON CA), [2001] O.J. No. 5083 (QL), 153 O.A.C. 186 (C.A.), at para. 24, an experienced entrepreneur with no prior experience in the futures market was nonetheless a sophisticated commodities trader. The trial judge found that he independently analyzed commodities, including foreign currencies and precious metals, and traded to such an extent that he recorded his gains and losses as business income. This court upheld the trial judge's finding that there was no fiduciary relationship, saying, at para. 26:
The trial judge's findings destroy any basis for applying the criteria above to establish a fiduciary relationship in whole or in part. There was no relationship of dependency or vulnerability. Zraik monitored his own account closely and gave instructions for every trade. He sought advice, but as we have seen he did not always follow it.
46Further, this court in Zraik specifically warned, at para. 27, that "[t]he consequences of contractual negligence cannot change the contractual relationship into an equitable one." In other words, one cannot reason backwards from the fact that an individual is harmed by the unauthorized acts of their broker, to the conclusion that they are vulnerable. Rather, the individuals and the nature of the relationship must be examined.
47While Melville Hunt did not have the same degree of sophistication as the appellant in Zraik, his investments were of a much simpler nature. The evidence establishes that he retained control over his investments, sought Schram's advice but made his own decisions.
48Finally, while the Hunts are elderly, and Melville Hunt was in frail health, the evidence does not support the finding that these factors led to vulnerability in the relevant sense. Upon discovering the unauthorized transactions, Melville Hunt phoned and demanded to know "what the hell's going on". Unsatisfied with Schram's response, he went to see Schram "with guns blazing".
Trust
[49]
Trust
The trial judge found that the Hunts placed their trust in Schram. However, this finding cannot be supported in light of the fact that the Hunts opened a non-discretionary account and, most importantly, operated it as such.
50In Hodgkinson, at pp. 409-10 S.C.R., La Forest J. said:
[O]utside the established categories [of fiduciary relationship], what is required is evidence of a mutual understanding that that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party. This idea was well-stated in the American case of Dolton v. Capitol Federal Sav. & Loan Ass'n, 642 P.2d 21 (Col. App. 1982), at pp. 23-24, in the banker-customer context, to be a state of affairs [page493]
. . . which impels or induces one party "to relax the care and vigilance it would and should have ordinarily exercised in dealing with a stranger." . . . [and] . . . has been found to exist where there is a repose of trust by the customer along with an acceptance or invitation of such trust on the part of the lending institution.
In relation to the advisory context, . . . there must be something more than a simple undertaking by one party to provide information and execute orders for the other for a relationship to be enforced as fiduciary. For example, most everyday transactions between a bank customer and banker are conducted on a creditor-debtor basis . . . Similarly, the relationship of an investor to his or her discount broker will not likely give rise to a fiduciary duty, where the broker is simply a conduit of information and an order taker . . .
(Emphasis added)
51A non-discretionary account reflects the conscious decision of the parties to leave power and discretion in the hands of the investor. By its express terms, Schram could not act without the Hunts' instructions. By choosing a non- discretionary account, the Hunts expressly retained control over their investments.
52Schram had the means to act without instructions. But, apart from the single unauthorized sale of BCE shares, he did not do so.
53In considering all five factors, a substance over form approach is to be adopted. Thus, in respect of the question of trust, the simple fact that the account was non-discretionary account is not dispositive of the matter. Had there been a pattern of Schram acting without instruction despite the account being designated non-discretionary, it is possible that a fiduciary relationship could have been found. That is not the case, however.
54Trust is also a function of the length of the relationship. In Zivadinovich v. Mehta, 1999 2112 (ON CA), [1999] O.J. No. 338 (QL), 117 O.A.C. 328 (C.A.), for example, this court found, at para. 4, that an accountant was in a fiduciary relationship with a close friend, because of the length of time over which he had provided the friend with financial advice. Over a period of years, a relationship of absolute trust had developed, and this consideration overshadowed the fact that there was no formal retainer between the parties.
55In contrast, Melville Hunt met with Schram only twice before opening the account and, while there was a longstanding relationship between the Hunts and TD Bank, the Hunts' relationship with TDE and Schram was just over three months in duration at the time of the unauthorized sale.
56The degree of trust that Schram accepted was limited. The trial judge quotes from a letter sent by Schram to the Hunts after the decision to move the accounts had been made. In the letter, Schram said it was his job to "assist" them in building a portfolio by providing "timely advice and investment recommendations" [page494] and that he hoped their relationship would be based on "open and honest communications". It appears that Schram saw his role as one of advising, but ultimately acting upon the Hunts' instructions. Indeed, this is borne out by the trial judge's finding that, apart from the sale of the BCE shares, Schram made no transactions unless so instructed by the Hunts.
Reliance
[57]
Reliance
The question of reliance clearly overlaps with the reposing of trust. The trial judge made a finding that "Mel Hunt placed complete reliance on the judgment of Schram". A number of other findings make this conclusion unreasonable.
58In paras. 16-24 of the January 17, 2002 reasons for judgment, a number of transactions are canvassed in detail. The trial judge found that they were transactions in which Melville Hunt instructed Schram, and Schram carried out the instructions. In fact, the trial judge found "Mr. Hunt agreed that Mark Schram had followed his instructions in everything but the [purchase of Guardian funds]".
59Melville Hunt made his own investment decisions with advice from Schram that he could either accept or reject. As set out above, it was Melville Hunt who decided to purchase Chrysler shares, and directed Schram to do so. Melville Hunt authorized all of the investments purchased with the proceeds from the BCE shares.
Discretion
[60]
Discretion
The Hunts' account was non-discretionary. Nonetheless, the trial judge found, at para. 88, that Schram had the ability to act without authorization in the sense that "Mark Schram did not need the signature of Mel Hunt to invest the Money Market Funds". The fact that Schram could make transactions without the Hunts' signature does not address the question of whether Schram had, in any meaningful way, power or discretion over the Hunts' funds. The answer to that question can only be that he did not.
61The agreement between the Hunts and the appellants was that decisions were to be made only upon the Hunts' instructions and the trial judge found that the account was operated in that fashion. The fact that Schram breached the terms of the contract on one occasion cannot transform the relationship into one characterized as the unilateral exercise of power. The account was not only designated non- discretionary, it was operated in that fashion. As such, the finding that Schram had unilateral authority or power over the Hunts' financial interests is a palpable and overriding error. [page495]
Professional rules or codes of conduct
[62]
Professional rules or codes of conduct
The existence of professional rules or codes of conduct will influence the standards set by the court for acceptable conduct in the profession. As stated by La Forest J. in Hodgkinson, at p. 425 S.C.R.:
In sum, the rules set by the relevant professional body are of guiding importance in determining the nature of duties flowing from a particular professional relationship . . . It would be surprising indeed if the courts held the professional advisor to a lower standard of responsibility than that deemed necessary by the self-regulating body of the profession itself.
63The trial judge did not make reference to professional rules or codes of conduct but indicates that he heard testimony of two experts on the conduct of investment advisors and agents. The trial judge found that Schram and TDE failed to comply with industry standards for dealing with older clients and for reporting and investigating complaints. His findings are justified on the evidence. However, the complaints occurred after the unauthorized sale. The conduct relating to the complaints does not operate to retroactively change the nature of the relationship between the Hunts and the appellants in terms of the unauthorized sale.
64In conclusion, a consideration of the five factors shows that the relationship between the Hunts and the appellants is contractual in nature.
Issue 2: Ratification of the sale of the BCE shares
[65]
Issue 2: Ratification of the sale of the BCE shares
The trial judge dealt with the issues of ratification and mitigation together. He canvassed the relevant facts, noting that Melville Hunt was a person who trusted institutions, the Hunts were generally satisfied with TDE, they made continued complaints about the sale of BCE shares but also continued to process transactions through TDE, they had faith that through the complaint process the matter would be "set right" and, although Melville Hunt testified that he came to accept the sale of the shares, this was belied by their response to the questionnaire and the letter written by their son on their behalf to TDE.
66The trial judge concluded that the Hunts did not ratify the sale of the shares. For the following reasons, I see no reason to interfere with that finding.
67Ratification, in the context of principal and agent, has been defined as: [See Note 1 at end of document]
[T]he adoption and confirmation by one person with knowledge of all material facts, of an act or contract performed or entered into in his behalf by [page496] another who at the time assumed without authority to act as his agent. Essence of "ratification" by the principal of act of agent is manifestation of mental determination by principal to affirm the act, and this may be manifested by written word or by spoken word or by conduct, or may be inferred from known circumstances and principal's acts in relation thereto.
68From this, it can be seen that ratification must be based on knowledge of all of the material facts and may be express or implied.
69The trial judge found that the Hunts had knowledge of the sale of BCE shares within ten days of the completion of the transaction. Clearly, the Hunts never expressly ratified the sale; no one contends otherwise. The question is, therefore, whether the Hunts ratified the sale of the BCE shares by implication.
70The appellants argue that ratification can be implied from the Hunts' conduct in that they continued to process sale transactions through Schram for a lengthy period after becoming aware of the unauthorized sale of the BCE shares. They say that the Hunts were obligated to take positive steps to repudiate the sale within a reasonable period after becoming aware of the unauthorized sale. To permit the Hunts to repudiate the sale later than that, they contend, is to give the Hunts the right to "speculate at the broker's expense".
71In making these arguments, the appellants rely upon Grenkow v. Merrill Lynch Royal Securities Ltd. MacFadden and Smith (1983), 1983 3683 (MB QB), 23 Man. R. (2d) 54 (Q.B.). In Grenkow, at para. 24, the court found that by continuing to deal with the broker while taking no steps to reverse unauthorized transactions, the plaintiff ratified the broker's acts:
In the present case, there is no doubt the plaintiff was well aware of MacFadden's wrongful acts and yet deliberately chose to do nothing about it. In my view, the cumulative result of the plaintiff's conduct, including the fact that the plaintiff, knowing what MacFadden had done, used MacFadden to purchase the 600 shares of Hiram Walker in March, 1980, shows clearly that the plaintiff had elected to adopt and to ratify MacFadden's unauthorized acts. And, in my respectful opinion, it makes eminent good sense that the plaintiff in this case should not be accorded the right "to speculate at the broker's expense".
72In Forrest v. Gairdner & Co. Ltd. (1962), 1962 385 (BC CA), 33 D.L.R. (2d) 575, 39 W.W.R. 160 (B.C.C.A.), the British Columbia Court of Appeal considered the situation where the plaintiff expressly ratified four unauthorized sales, repudiated two others and remained silent in respect of a further two sales for a period of about two and a half months. The court stated that all of the circumstances should be considered when determining whether ratification occurs. The court held, at p. 578 D.L.R., that failure to notify within a reasonable time, in the circumstances, was some evidence of ratification. [page497]
In my opinion this course of dealing established a tacit arrangement by which the respondent was bound to elect within a reasonable time whether he would accept or reject the unauthorized transaction. Respondent's failure to notify the appellant within a reasonable time of his election would be some evidence of ratification. In each of the six cases respondent notified appellant at once of his election and paid for his purchase in cash on ratification. The only delay was in the impugned transactions
(Emphasis added)
73Like the plaintiff in Grenkow, the Hunts continued to process transactions through their broker after becoming aware of the unauthorized sale. However, the facts of the instant appeal differ from those in Grenkow in one very significant respect. Melville Hunt did not sit by and do nothing. He complained about the unauthorized transaction as soon as he received the transaction slips in the mail and he continued to complain about the unauthorized transactions thereafter. The plaintiff in Grenkow, on the other hand, was silent about the unauthorized sale even while he continued to process other transactions through the broker.
74For the same reason, the instant appeal is distinguishable from Forrest. In Forrest, the plaintiff remained silent with respect to the two impugned transactions for a period of over two months. The plaintiff made clear whether he ratified or repudiated six other unauthorized transactions. Silence in that situation was held to amount to ratification. The instant appeal is not a situation of silence. As has been noted, the Hunts notified the appellants right away that they did not accept the sale and they maintained that stance thereafter.
75In my view, the Hunts' complaints amount to express repudiation of the unauthorized sale. While continued dealings may be evidence of ratification, it is not determinative. In my view, ratification cannot be implied in the face of continuing repudiation even when the investor continues to use the broker for other transactions.
76The Hunts were faced with shares that had been sold and a choice of what to do with the proceeds. They chose to use the sale proceeds to make other investments. In light of their continued express repudiation of the sale, the fact that they did not choose to repurchase BCE shares does not amount to ratification by implication nor does their continued course of dealing with Schram.
77As will become apparent in the discussion of mitigation, below, the finding that there was no ratification is not tantamount to permitting the Hunts to speculate at the broker's expense. The duty to mitigate limits the extent to which the broker bears the risk of fluctuation in the market to those risks for which he is reasonably held responsible. [page498]
Issue 3: Mitigation and damages
[78]
Issue 3: Mitigation and damages
The trial judge held that the Hunts were required to mitigate by purchasing replacement BCE shares "on the date of the issue of the statement of claim, namely, July 8, 1998". He held that damages were "the difference between the value of the BCE shares at that date [i.e. July 8, 1998] and the value of replacement shares as at that date with appropriate adjustments". The damage assessment closest to July 8, 1998, was prepared as at July 31, 1998; he used the figures in that assessment to calculate the damage award. He gave no reasons for choosing the date of issuance of the statement of claim as the mitigation period.
79The appellants contend that, while the trial judge was correct in holding that the Hunts had a duty to mitigate, he erred in finding that the duty to mitigate "crystallized" on July 8, 1998. They maintain that damages are to be assessed on the basis of the cost of replacement shares at the time of the wrong. They argue that, in the circumstances, only a brief mitigation period was warranted. On that basis, they ask that damages be calculated on a date in March of 1997.
80The respondents cross-appeal on the issue of mitigation. Their arguments are all founded on the premise that the unauthorized sale was a breach of fiduciary obligation. They contend that the trial judge erred in failing to admit into evidence the damage/compensation assessment they tendered that gave information on the value of the BCE shares as at March 31, 2000 and April 30, 2000. They submit, further, that the trial judge erred in holding that a duty to mitigate arises in situations of breach of fiduciary duty and in the "crystallization" date that he chose. They argue that the correct measure of damages for breach of fiduciary duty is compensation for the loss of opportunity to sell the BCE shares as market prices increased. They ask the court to vary the judgment and award compensation to the Hunts on one of the following dates and in the corresponding amounts:
Date Mel Hunt Marion Hunt
December 31, 1999 $188,332.00 $ 73,027.00 March 31, 2000 $280,503.00 $111,973.00 April 30, 2000 $263,471.00 $105,648.00
81Alternatively, the respondents contend that is a duty to mitigate does exist in situations of breach of fiduciary duty, the duty did not arise in this case because the appellants neglected or failed to reverse the transaction and restore the shares to the Hunts when they had the power to do so, or because the appellants fully [page499] invested the Hunts in other securities thereby depriving the Hunts of the means to mitigate.
Breach of contract
[82]
Breach of contract
Having concluded that the unauthorized sale was a breach of contract, there is no question but that the Hunts had a duty to mitigate. That being the case, the mitigation period must be determined: when, in law, were the Hunts obliged to purchase replacement shares?
83In Asamera Oil Corp. Ltd. v. Sea Oil & General Corp. and Baud Corp. N.V., 1978 16 (SCC), [1979] 1 S.C.R. 633, 89 D.L.R. (3d) 1, the Supreme Court of Canada considered the matter of breach of contract for the unauthorized sale of shares. One party to the action refused to return certain shares that another party had loaned to him. The wrongful conduct resulted in the loss of shares that were publicly traded and readily available on the market.
84At p. 664 S.C.R., the court reiterated the injured party's obligation to mitigate and established the general principle for determining the mitigation period:
Subject always to the precise circumstances of each case, this will impose on the injured party the obligation to purchase like shares in the market on the date of breach (or knowledge thereof in the plaintiff) or more frequently within a period thereafter which is reasonable in all the circumstances.
85Several factors in Asamera resulted in the court postponing the date of mitigation from the date of the breach, including the large number of shares involved, the volatility of the market, a request by the party in breach to postpone acting on the claim, and the time required to arrange the financing and careful re-acquisition of shares.
86More recently, in Laflamme [Laflamme v. Prudential-Bache Commodities Canada Ltd., 2000 SCC 26, [2000] 1 S.C.R. 638, 185 D.L.R. (4th) 417], the Supreme Court of Canada provided further guidance on the kinds of factors that may postpone the duty to mitigate, specifically in the context of a relationship based on trust.
87In Laflamme, an unsophisticated investor entrusted funds from the sale of his business to a broker for discretionary investment. The purpose of the investment was to provide retirement income. The investor later learned from his auditor that some of the investments being made on his behalf were speculative and that the broker was managing the portfolio on margin. The investor instructed the broker to stop the margin transactions and to make only safe investments. The broker failed to follow these instructions. Stock prices fell. After approximately one year, the investor closed his account and sustained major losses. [page500]
88The Quebec Court of Appeal found that the plaintiff should have acted sooner to mitigate his losses. The Supreme Court of Canada disagreed, saying (at paras. 53-54):
In the case of injury resulting from mismanagement of a securities portfolio, a flexible approach must be taken in determining what constitutes a reasonable period of time for the client to act and mitigate the damages. In particular, regard must be had to the client's level of experience and knowledge of investments, and to the complexity of the situation.
I would add that the sense of trust that is characteristic of a contract of mandate also has a significant impact on the state of mind of a client who is the victim of a fault committed by a manager. In this case, that trust lay in the belief acquired in the professional merit of the manager, as a result of which a client, especially one who is not knowledgeable, may be unable or at least reluctant to believe that the manager is incompetent. Both that trust and the confusion resulting from a loss of trust will make it particularly difficult for the victim to take charge of the situation. Awareness of the extent of the injury dawns more slowly. The situation, which the manager himself has created by representing himself as a professional worthy of trust, must be taken into account before blaming the victim for any want of diligence in mitigating damages, especially since the measures to be taken were not obvious and responsibility for taking or advising those measures rested primarily on the respondents, as knowledgeable dealers and managers. A number of options were available: transfer the portfolio to another manager, sell the securities held, or hold onto them in the hope that they would go up in value. Obviously, it is easy to identify the right course of action in hindsight. At the time however the decision was one that called for an assessment of highly complex risks, and that involved risks of its own. The Laflamme family held onto the securities. Should they be faulted for that? In the circumstances, we must conclude that they are not to blame.
89Two decisions of the British Columbia Court of Appeal provide additional insight into factors to be considered when determining the mitigation period.
90In Hongkong Bank of Canada v. Richardson Greenshields of Canada Ltd. (1990), 1990 857 (BC CA), 72 D.L.R. (4th) 161, 48 B.C.L.R. (2d) 139 (C.A.), a broker failed to sell bonds when so instructed by his customer, the Hongkong Bank of Canada. The instruction was given on April 9, 1998. On April 16, 1998, the settlement date for the sale, the Bank discovered the error but it was too late in the day to sell them to another broker that day. The Bank made inquiries during the remainder of the 16th. The three days that followed were holidays. On April 20, the Bank and the broker discussed the matter and agreed to look into it further. On April 21, the broker confirmed its position that it had never been instructed to sell the bonds. The parties discussed the possibility of arbitration over the two days that followed. On April 23, the Bank sold the bonds. The value of the bonds had fallen consistently throughout the parties' discussions. The trial judge assessed damages as the difference between the price that would have been received if the [page501] instructions had been followed and the price actually received on April 23.
91The Court of Appeal, however, held, at p. 165 D.L.R. that "subject to market conditions and the plaintiff's knowledge and familiarity with the market, greater promptitude in mitigation will be expected in a case involving the purchase or sale of marketable securities". It concluded that there was sufficient time on April 21, after the broker confirmed that he would not purchase the shares, for the Bank to sell them. Thus, a mitigation period of three business days, including the date of discovery of the breach, was found to be reasonable. In reaching this conclusion, the court said, at p. 165 D.L.R.:
There was ample time remaining on April 21st to have arranged for the sale of the bonds. They could have been sold within a few minutes. The bank did not lack knowledge of the market for Government of Canada bonds. It was not unfamiliar with the securities market. In my view the bank should have acted with greater promptitude. It should have sold the bonds on April 21, 1987, and should not have waited until April 23, 1987, by which date the market for the bonds had further declined.
92The British Columbia Court of Appeal considered the matter again in Secord v. Global Securities Corp. (2003), 2003 BCCA 85, 11 B.C.L.R. (4th) 62, [2003] 3 W.W.R. 612 (C.A.). The result in Secord stands in sharp contrast to that in Hongkong Bank. In Secord, a broker gave the plaintiff inadequate advice with respect to options trading, thus exposing her to more risk than she wished. In August of 1996, some six months after she ordered the broker to cease trading in options, the plaintiff transferred her account to another firm. The broker maintained that the plaintiff should have moved more quickly to mitigate her losses. The Court of Appeal upheld the trial judge's finding that the plaintiff acted reasonably in taking six months to mitigate.
93The court reviewed a number of cases, including Asamera, Hongkong Bank and Laflamme, and concluded, at paras. 40-41:
What I deduce from the cases is that in deciding on the extent of the duty to mitigate and the appropriate measure of damages, a court must have regard to the particular factual circumstances of the particular case in order to arrive at a just result. Due regard must be paid to the nature of the portfolio or the transaction in question and as well the experience and sophistication of the client. A not entirely irrelevant factor is a consideration of whether the relationship between the client and broker has entirely broken down to the point where the broker has lost the confidence of the client. A client is not necessarily to be faulted for failing to take advice from a broker in whom he or she has entirely lost confidence as a result of inappropriate or unauthorized conduct on the part of the broker.
In the instant case, the trial judge found, and in my view was entitled on the evidence to find, that the brokers were not acting appropriately in advising [page502] Mrs. Secord to embark on trading in options. Such a course was out of accord with her expressed intentions as to what she wanted to achieve in her portfolio. The course adopted led to significant losses as a result of the option trading. The plaintiff said that she had zero trust in her advisors after she examined what had happened in the Sailview account with regard to the options trading. To suggest in those circumstances that she should follow advice from them as to what to do about her portfolio seems somewhat unrealistic. Although this client had some experience in trading securities, she was wholly unfamiliar with options trading before she came to Global and even in 1996, it seems to me that she was not knowledgeable or well informed about this type of trading. I am of the view that she acted reasonably in taking a period of time to assess the situation herself and in proceeding to find a new advisor in whom she would have confidence.
94The fact that the Hunts' account was non-discretionary also has implications for the mitigation period. In this respect, the comments of Sheppard J. in Chesebrough v. Willson, [2001] O.J. No. 940 (QL), [2001] O.T.C. 174 (S.C.J.), affd at 2002 7499 (ON CA), [2002] O.J. No. 4299 (QL), 166 O.A.C. 119 (C.A.), are helpful. In Chesebrough, the trial judge found that there was no fiduciary duty where a broker operated on the basis of the investor's instructions. Like the instant appeal, there was an allegation that shares were wrongfully disposed of. The plaintiff in Chesebrough pursued many avenues of complaint following the sale but did not instruct the broker to repurchase the shares or take any steps to repurchase them. Counsel for the plaintiff argued that the broker was obliged to repurchase the shares on his own accord. Sheppard J. rejected this argument, at para. 60, noting that the broker was obliged to follow the plaintiff's instructions, and without clear instructions, he could not know how many of the shares to buy back and which shares to sell to raise the funds.
95Turning then to a determination of the mitigation period in the instant appeal, the starting point, according to Asamera, is that the obligation to purchase like shares arises on the date of breach or knowledge thereof in the injured party. This appropriately reflects the principle that underlies the duty to mitigate; namely, that the injured party may not recover losses that could have been avoided by him or her taking reasonable steps after the wrong.
96But the process of determining the mitigation period is not a mechanical one; the period must be a reasonable one, in light of all of the circumstances.
97In determining what is reasonable, the case law suggests that the following factors warrant consideration:
ease of purchase of replacement shares -- which involves considering the number of shares to be purchased, whether they are readily available in the market, and the time and risk involved in their purchase, [page503]
the degree of sophistication and experience of the investor,
the degree of trust reposed in the broker,
whether the broker was obliged to follow the investor's instructions in making transactions, and
whether the relationship between the investor and broker has broken down to the point that the client has lost confidence in the broker.
98In my view, application of these factors leads to the conclusion that, in the instant appeal, a brief mitigation period is reasonable.
99Repurchase of BCE shares would have been relatively easy. The shares were readily available in the requisite quantities on the market. The sale proceeds were available to the Hunts, thus they had the financial means to purchase replacement shares. Unlike the investor in Laflamme, the Hunts were not faced with a complex and difficult decision following the sale of the BCE shares. Had they wished to re-acquire the shares, all that was necessary was for them to so instruct Schram.
100None of the complicating factors evident in Asamera or Secord exist in the instant appeal. Melville Hunt had experience in purchasing BCE shares, having done so over a lengthy period prior to the unauthorized sale. While the Hunts should not be held to the standard of promptitude imposed on sophisticated parties such as the bank in Hongkong Bank, the simplicity of the issues facing the Hunts following the unauthorized sale are much closer to that case. All that was required of the Hunts was the repurchase of a relatively small quantity of a single, readily available share.
101The Hunts' situation also differed from that of the investor in Secord in terms of the degree of trust reposed by the investor in the broker. The Hunts had a non-discretionary account and, with the sole exception of the unauthorized sale of BCE shares, Schram was found to have followed the Hunts' instructions in every case. Like the broker in Chesebrough, Schram was not in a position to unilaterally determine how to use the proceeds of the unauthorized sale. Although his role was to advise the Hunts on how to invest their money, he was obliged by the express terms of the agreement between them to follow their instructions.
102The relationship between Schram and the Hunts had not broken down. As noted, the Hunts instructed Schram on the use of the sale proceeds and continued to use Schram for a number of months thereafter. Their relationship ended only when Schram [page504] sent them a letter in December of 1998, asking that they move their investments to the broker of their choice.
103The unauthorized sale took place on March 3, 1997, and the transaction was completed on March 6. The trial judge found that the Hunts received transaction slips confirming the sale of the BCE shares within a week to ten days of the transaction. On March 7, 1997, Melville Hunt instructed Schram to purchase Chrysler Securities. The only funds available to purchase these shares were proceeds from the BCE shares. The Hunts did not authorize Schram to sell any other shares in order to raise funds for the purchase of the Chrysler securities, which strongly suggests that the Hunts knew of the sale on March 7, 1997. Based on the trial judge's finding, by March 16, 1997, at the latest, the Hunts knew that the BCE shares had been sold, and the proceeds were available for re-investment.
104Less than a month after instructing Schram to purchase the Chrysler shares, Melville Hunt instructed Schram to buy shares in CIBC, again using proceeds from the sale of the BCE shares. This latter transaction was completed on April 2, 1997.
105In my view, by April 2, 1997, at the latest, Melville Hunt was in a position to decide whether to re-acquire BCE shares. He knew that the shares had been sold, the proceeds were available and he was making decisions on how to use those proceeds. To impose a duty to mitigate on the Hunts at a date later than that would be to permit them to speculate at the broker's expense. For these reasons, the trial judge made a palpable and overriding error in finding that the reasonable mitigation period ran from the date of the unauthorized sale (i.e. March 3, 1997) to the issuance of the statement of claim on July 8, 1998.
106The trial judge found that the price of BCE shares dropped in the two-month period following the unauthorized sale. As the mitigation period falls within that two-month period, there was no loss in value of the shares. As a result, the Hunts are entitled to recover only the costs associated with the unauthorized sale, namely, the taxes paid on the capital gains incurred as a result of the sale, and the transaction costs and commissions paid on the sale of the BCE shares. Had the Hunts purchased replacement BCE shares, they would have been entitled to the associated transaction costs and commissions. In fact, the Hunts purchased Chrysler and CIBC shares. The measure of damages extends to cover the transaction costs and commissions paid on both those purchases, costs that the Hunts would not have incurred but for the unauthorized sale of the BCE shares. [page505]
Breach of fiduciary duty
[107]
Breach of fiduciary duty
Having determined that this appeal is properly disposed of on contractual principles, strictly speaking, I need not consider whether the duty to mitigate would have arisen had the unauthorized sale amounted to breach of a fiduciary obligation. That said, for the following reasons, I am of the view that the same result would obtain had the appeal been decided on that basis.
108In Canson Enterprises Ltd. v. Boughton & Co., 1991 52 (SCC), [1991] 3 S.C.R. 534, 85 D.L.R. (4th) 129, the Supreme Court of Canada discusses the applicability of the concept of mitigation to compensation for breach of fiduciary duty. La Forest J. reviewed the historical interaction of law and equity and the role that common law concepts, such as mitigation, play in equitable claims including breach of fiduciary duty. At p. 581 S.C.R., La Forest J. concludes that:
barring different policy considerations underlying one action or the other, I see no reason why the same basic claim, whether framed in terms of a common law action or an equitable remedy, should give rise to different levels of redress.
109In a concurring judgment in Canson, McLachlin J. (as she then was) emphasized the distinction between compensatory damages in cases of tort or contract, and equity. McLachlin J. reasons, at p. 545 S.C.R., that "the better approach . . . is to look to the policy behind compensation for breach of fiduciary duty and determine what remedies will best further that policy." She distinguishes the policies behind tort and contract from those behind breach of fiduciary duty stating, at p. 554 S.C.R.:
In negligence and contract the law limits the actions of the parties who are expected to pursue their own best interest. Each is expected to continue to look after their own interests after a breach or tort, and so a duty of mitigation is imposed. In contrast, the hallmark of fiduciary relationship is that the fiduciary, at least within a certain scope, is expected to pursue the best interest of the client. It may not be fair to allow the fiduciary to complain when the client fails forthwith to shoulder the fiduciary's burden. This approach to mitigation accords with the basic rule of equitable compensation that the injured party will be reimbursed for all losses flowing directly from the breach. When the plaintiff, after due notice and opportunity, fails to take the most obvious steps to alleviate his or her losses, then we may rightly say that the plaintiff has been "the author of his own misfortune." At this point the plaintiff's failure to mitigate may become so egregious that it is no longer sensible to say that the losses which followed were caused by the fiduciary's breach. But until that point, mitigation will not be required.
110McLachlin J. concludes, at p. 556 S.C.R., that:
The plaintiff will not be required to mitigate, as the term is used in law, but losses resulting from clearly unreasonable behaviour on the part of the plaintiff will be adjudged to flow from that behaviour, and not the breach. [page506]
111In Hodgkinson, supra, La Forest J. reiterated his view that courts should treat similar wrongs similarly, regardless of the particular cause of action pleaded, except where the cause of action entails different policy considerations. After citing his judgment in Canson, he states, at p. 444 S.C.R."[i]n other words, the courts should look to the harm suffered from the breach of the given duty, and apply the appropriate remedy."
112The appellant in Hodgkinson invested in a real estate development on the advice of his accountant, a specialist in real estate tax shelter investments. The development fell through. The accountant did not disclose to the appellant that he was acting for the developers at the time that he advised the appellant to invest in the project. Had the appellant known that he was not hiring an independent advisor, he would not have invested. La Forest J. relates the appellant's entitlement to equitable compensation in these circumstances, to the common law doctrine of mitigation, at p. 452 S.C.R.:
From a policy perspective it is simply unjust to place the risk of market fluctuations on a plaintiff who would not have entered into a given transaction but for the defendant's wrongful conduct. I observe that in Waddell, supra, Bramwell L.J. conceded, at p. 680, that if restitutio in integrum had been possible, the plaintiff could probably have recovered in full. Indeed counsel for the appellant argued that the proper approach to damages in this case was the monetary equivalent of a rescisionary remedy. I agree. In my view the appellant should not suffer from the fact that he did not discover the breach until such time as the market had already taken its toll on his investments. This principle, which I take to be a basic principle of fairness, is in fact reflected in the common law of mitigation, itself rooted in causation; see S.M. Waddams, The Law of Contracts (3rd ed. 1993), at p. 515. In Asamera Oil Corp. v. Sea Oil & General Corp., 1978 16 (SCC), [1979] 1 S.C.R. 633, this Court held that in an action for breach of the duty to return shares under a contract of bailment, the obligation imposed on the plaintiff to mitigate by purchasing like shares on the open market did not commence until such time as the plaintiff learned of the breach or within a reasonable time thereafter.
(Emphasis added)
113In this passage, La Forest J. reiterates that a wrongdoer is liable for the harm that results from the wrongful conduct. However, the extent of that liability is subject to the circumstances of the innocent party and the extent to which the injured party is reasonably expected to react to and mitigate that harm.
114The majority judgment in Hodgkinson, together with the judgment in Canson, indicate that where a breach of fiduciary duty does not raise policy concerns that militate against imposing a duty to mitigate, and the rationale behind the common law duty to mitigate is applicable, then equity will impose the same obligation to mitigate in order to avoid unnecessary loss. [page507]
115On this rationale, the Hunts had a duty to mitigate shortly after becoming aware of the unauthorized sale. (For the reasons given above, the mitigation period expired April 2, 1997.) While the application of the doctrine of mitigation to cases of breach of fiduciary duty is subject to the policy concerns underlying the law of fiduciaries, no policy concerns present themselves such that the same claim should be resolved differently. Whether the wrongful sale of shares is a breach of contract or of fiduciary duty, the Hunts were required to mitigate shortly after discovering the breach.
116In light of these determinations on the duty to mitigate, the matters raised by way of cross-appeal can be dealt with in summary fashion. The appellants cannot be held liable for the Hunts' loss of opportunity to sell the BCE shares given that the Hunts knew of the sale and could have directed the purchase of replacement shares. Instead, they directed their broker to purchase alternate investments. To hold otherwise would be to allow the Hunts to speculate at the broker's expense.
117The Hunts cannot rely on lack of funds as a reason for failing to mitigate. The lack of funds arose from their instructions to use the sale proceeds to purchase alternate investments.
118I cannot accept that Schram should have reversed the sale or purchased replacement shares on his own initiative because to do so would have been a breach of the express terms of the agreement with the Hunts.
119In light of these determinations, it cannot be said that the trial judge erred in refusing to admit into evidence damage assessments based on the value of BCE shares at March 30, 2000, and April 30, 2000.
Issue 4: The costs award below
[120]
Issue 4: The costs award below
The appellants argue that the costs award below suffers from two types of errors. First, they contend that it was an error to award the Hunts costs of the trial on a solicitor and client basis. Second, they maintain that the trial judge erred in determining the quantum.
(1) Solicitor and client costs award
[121]
(1) Solicitor and client costs award
In his August 12, 2002 ruling on costs, the trial judge said this in awarding the respondents costs of the action on a solicitor and client scale (at paras. 13-18):
Mark Schram acted on his own. He breached his fiduciary duty to the Hunts. Toronto Dominion Evergreen attempted to cover up his failure to act on instructions. The conduct of the defendants became worse as the case progressed. Mark Schram obviously lied in his evidence that he received telephone [page508] instructions from Mr. Hunt. TD Evergreen never produced anyone at the trial to explain the way that they handled the complaints. The defendants betrayed the trust that the plaintiffs placed in them. To get the remedy to which they were entitled they had to pursue the lawsuit to its final conclusion.
Melville Hunt was 75 and Marion Hunt was 73 when they retained Mark Schram. At the trial Mr. Hunt was 80 and Mrs. Hunt was 77. Mr. Hunt was in such poor physical health at the trial that his evidence had to be taken at his home rather than in the courtroom. They live on a modest pension. They have modest savings if they need them.
The only reasonable inference from the defendants' conduct is that they made a calculated decision that the plaintiffs lacked the physical strength and endurance and the financial resources to pursue the remedy to which they were entitled to its conclusion. The defendants adopted the role of the bully.
In the frequently quoted case of Apotex Inc. v. Egis Pharmaceuticals and Novopharm Ltd. 1991 2729 (ON SC), [1991] O.J. No. 1232 (Gen. Div.), Justice Henry stated the following:
Furthermore, while the award of costs between parties on the solicitor and client scale has traditionally been reserved for cases where the court wishes to show its disapproval of conduct that is oppressive or contumelious, there is also a factor that frequently underlies the award, that is not necessarily expressed, that the successful party ought not to be put to any expense for costs in the circumstances. That is a factor in my decision in this case.
Both principles apply to this case.
The defendant shall pay to the plaintiffs their costs throughout these proceedings on a solicitor and client scale.
122With respect, in my view, the above passage reveals reversible error. I will deal first with the trial judge's reference to the principle that "the successful party ought not to be put to any expense for costs in the circumstances" and then consider his conclusion that the appellants' conduct was "oppressive or contumelious" so as to justify solicitor and client costs.
Should the successful party be put to expense?
[123]
Should the successful party be put to expense?
The test for awarding costs on a solicitor and client scale is well established. It was articulated by this court in Mortimer v. Cameron (1994), 1994 10998 (ON CA), 17 O.R. (3d) 1, 111 D.L.R. (4th) 428 (C.A.), and more recently in McBride Metal Fabricating Corp. v. H & W Sales Co. Inc. (2002), 2002 41899 (ON CA), 59 O.R. (3d) 97 (C.A.). Both cases refer to the following passage from Orkin, The Law of Costs, 2nd ed. (Aurora: Canada Law Book, 1993), at pp. 2-91 to 2-92:
Costs on the solicitor-and-client scale should not be awarded unless special grounds exist to justify a departure from the usual scale.
Such orders are not to be made by way of damages, or on the view that the award of damages should reach the plaintiff intact, and are inappropriate where there has been no wrongdoing. [page509]
An award of costs on the solicitor-and-client scale, it has been said, is ordered only in rare and exceptional cases to mark the court's disapproval of the conduct of the party in the litigation. The principle guiding the decision to award solicitor-and-client cost has been enunciated thus:
[S]olicitor-and-client costs should not be awarded unless there is some form of reprehensible conduct, either in the circumstances giving rise to the cause of action, or in the proceedings, which makes such costs desirable as a form of chastisement.
(Emphasis added)
124As this extract makes clear, solicitor and client costs are not to be used as a means of shoring up a damages award, nor are they a means to ensure that a plaintiff is not put to any expense.
125Apotex should not be read as standing for the proposition that ensuring that the successful party is not put to any expense is a self-standing justification for awarding costs on a solicitor and client basis. Rather, the emphasis is to be placed on the circumstances in Apotex, which involved the misuse of applications for interlocutory injunctions. As this court stated in Church of Jesus Christ of Latter Day Saints (Trustees of) v. King (1998), 1998 7187 (ON CA), 41 O.R. (3d) 389, 165 D.L.R. (4th) 227 (C.A.), at p. 398 O.R.:
[Apotex] established the proposition that the moving party for an interlocutory injunction ought to pay the costs of the respondent on a solicitor and client basis when the motion lacks merit and includes allegations of fraud, deceit, and conspiracy.
126In the present case, there were no allegations of fraud, deceit or conspiracy nor was there any suggestion that the action was improperly defended. In the words of the trial judge "both counsel delivered a high quality of advocacy throughout the proceeding. As has been said by others, a trial is not a tea party. The case was vigorously and skilfully defended by Mr. Finch."
127If the trial judge relied on the principle that the party ought not to be put to any expense as a free standing ground upon which to award solicitor and client costs, he erred. Thus, if the solicitor and client costs is justified, it must be due to the appellants' misconduct and not the desire to indemnify the Hunts.
The appellants' conduct
[128]
The appellants' conduct
The second reason given by the trial judge for awarding solicitor and client costs relates to his finding that the appellants' conduct warranted sanction.
129In reviewing this matter, it is useful to consider the alleged misconduct in the pre-litigation conduct separately from conduct during the course of litigation.
130The pre-litigation conduct referred to by the trial judge was Schram's unauthorized sale of shares and TDE's attempt to [page510] cover up Schram's actions. This conduct was at the very heart of the proceedings and, as such, is compensable in damages. To award costs on a solicitor and client basis is to compensate the injured parties twice for the same wrongdoing. Costs are not to be used in this fashion. See McBride, supra.
131I do not mean to suggest that conduct that constitutes a breach of fiduciary duty can never found an award of solicitor and client costs, but there must be some aspect of the conduct that is not addressed through damages.
132For example, in Gerula v. Flores (1995), 1995 1096 (ON CA), 126 D.L.R. (4th) 506 (Ont. C.A.), this court held that solicitor and client costs were justified where the defendant surgeon altered medical records to conceal the fact that he had operated on the wrong disc during back surgery. The defendant relied on this deception in his pleadings and throughout the pre-trial proceedings, admitting the truth only at trial. The court found that the conduct was an attempt to frustrate the proceedings through deception, and that it complicated the proceedings and lengthened the conduct of the action prior to trial. The court found that the trial itself was not lengthened due to the deception. Solicitor and client costs were awarded only up to trial, after which they were awarded on a party-and-party scale.
133In Gerula, at pp. 528-29 D.L.R., the court relied on the judgment of Dubin J.A. in Foulis v. Robinson, Gore Mutual Insurance Co. (third party) (1978), 1978 1307 (ON CA), 21 O.R. (2d) 769, 92 D.L.R. (3d) 134 (C.A.) which set out the following principles:
(1) Solicitor-and-client costs as opposed to party-and- party costs will only be awarded in rare and exceptional cases.
(2) A defendant is entitled to defend an action and to put a plaintiff to the proof of his case.
(3) Where a defendant's acts are a deliberate attempt to frustrate the proceedings by fraud or deception, where the conduct of the defendant is calculated to harm the plaintiff, or where the unreasonable conduct of the defendant compounds the complexity of the proceedings, there are proper grounds to order solicitor-and-client costs.
(4) The fact that the issue of liability was not contested at trial and that the defendant did not give evidence at trial are not factors which, by themselves, should result in an award of solicitor-and-client costs.
134In sharp contrast to Gerula, in the instant appeal Schram made no attempt to deceive the Hunts. The Hunts were made aware of the fact that he sold the BCE shares right after the sale transaction.
135What, then, of the trial judge's finding that TDE attempted to cover up Schram's failure to act on instructions? On [page511] its face, this finding appears to be akin to the circumstances in Gerula. Had the appellants deliberately attempted to conceal Schram's wrongdoing, so as to prevent or frustrate the Hunts in pursuing their action, such conduct might well support an award of solicitor and client costs. In my view, however, the finding of a deliberate attempt to cover up Schram's wrongdoing cannot be supported on the record.
136In his reasons, the trial judge addresses the inadequacy of TDE's investigation into the Hunts' complaint. He finds that Melville Hunt complained about the sale of shares soon after he discovered the transaction, that Schram was not receptive to his concerns, and that Schram improperly failed to pass along those concerns to the compliance department.
137The Hunts' written complaint was reviewed by Sasha Latka, in TDE's compliance department, and forwarded to the branch manager in Waterloo on February 15, 1998. On February 27, 1998, Melville Hunt sent a note to Jeff Carney at TDE, stating that he had not received acknowledgment of his letter and requesting a reply as to what action was being taken. On that same day, Schram provided his response to Mr. Latka. Schram's response was consistent with the position he took at trial, namely that the Hunts had authorized the sale.
138The trial judge found that Schram's response did not address all of the Hunts' concerns and, specifically, did not address Marion Hunt's allegations that Schram had insisted that she remove her BCE shares from her safety deposit box and deposit them with TDE, that Schram neglected to inform her that a dividend was about to be paid on the shares, and that her account had been improperly debited. Further, although Schram testified that he had provided Mr. Latka with additional information that was not in his written response, the appellants did not call Mr. Latka as a witness.
139The trial judge found that TDE based its response to the Hunts' complaints on information provided by Schram only. He noted that both of TDE's letters of response to the Hunts' complaints misstated the amount of funds transferred by the Hunts to open their account by including the value of the BCE shares. The trial judge found that this information could only have come from Schram and concluded that the compliance department had not fulfilled its function because it investigated only one side.
140The trial judge concluded, at para. 120:
The failure of compliance to interview the Hunts falls far below the standard of conduct required of them in the industry. Their investigation of the complaints of Melville Hunt and Marion Hunt that Mark Schram sold their BCE stock without authority was a sham. The letters of Robert Strickland [page512] and Jacqueline Hatherly are patronizing, demeaning and insulting. In a word, the conduct of compliance is disgusting. In dealing with the complaints, Toronto Dominion Evergreen did not comply with their fiduciary duty to the Hunts.
141Nothing in the record before this court supports the conclusion that TDE deliberately attempted to cover up Schram's wrongdoing. Rather, the trial judge's findings support the conclusion that TDE accepted Schram's version of events and did not properly investigate the Hunts' complaints. While such a finding may be relevant to the question of breach of fiduciary duty, it does not support an award of solicitor and client costs. See McBride and Gerula, supra.
142The trial judge referred to three matters relating to the appellants' conduct during the litigation: the failure of TDE to call a witness to explain the handling of the complaint; his finding that Schram lied when giving testimony; and, that TDE forced the Hunts to pursue their claim in the courts.
143With respect to the appellants' decision not to call Sasha Latka as a witness, I note that there was no obligation on TDE to lead evidence with respect to the conduct of the investigation. More importantly, as this court made clear in Gerula, the decision by a defendant not to call evidence does not in itself justify solicitor and client costs.
144I turn next to the trial judge's finding that Schram lied when he testified that he received instructions to sell the BCE shares in a telephone call with Melville Hunt. The trial judge found Melville Hunt credible and believed his testimony that he did not authorize the sale.
145In addition to his general assessment of the parties' credibility, the trial judge considered the fact that counsel for the appellants did not cross-examine Melville Hunt on the alleged telephone conversation. He concluded from this that Schram had raised the prospect of a telephone call for the first time in his evidence. He rejected Schram's explanation that he had never had reason to bring it up before.
146In my view, there is nothing exceptional about these findings of credibility. They are precisely the kinds of assessments that trial judges are required to make on a daily basis. Such findings cannot be said to constitute a "rare and exceptional circumstance".
147The appellants cite Roberts v. Wilson (1997), 10 C.P.C. (4th) 188 (B.C.S.C.) for the proposition that, in general, adverse findings of credibility do not justify the exercise of discretion to award costs on a solicitor and client scale. Several other decisions from British Columbia support this conclusion including Chan Estate v. Hwang, [1999] B.C.J. No. 875 (QL) (S.C.). I am of the same view. [page513]
148In Chan, the court did award solicitor and client costs. The court disbelieved the defendants but also found that they had presented forged documents to support their defence and were in contempt of an order to produce certain other documents. That conduct justified an award of special costs.
149Similarly, in Dical Investments Ltd. v. Morrison (1989), 1989 4082 (ON SC), 68 O.R. (2d) 549, 5 R.P.R. (2d) 149 (H.C.J.), [See Note 2 at end of document] Montgomery J. awarded solicitor and client costs against a party who made numerous improper allegations against the defendants with the result that the defendants had to retain separate counsel; the party then dropped the claims. That same party also pursued an unreasonable claim for damages, which it dropped only after cross-examining the plaintiff's witness; it also repeatedly and intentionally misled the court, and swore a false affidavit.
150Chan and Dical are examples of rare and exceptional cases; they go far beyond adverse findings of credibility. There are no analogous factors in the instant case. The proper consequence of disbelieving Schram's testimony was the finding that the sale of shares was not authorized.
151The trial judge placed great emphasis on the fact that the Hunts were forced to pursue litigation in order to achieve the remedy to which they were entitled. He finds that, given the Hunts' ages and the poor physical health of Melville Hunt"the only reasonable inference from the defendants' conduct is that they made a calculated decision that the plaintiffs lacked the physical strength and endurance and the financial resources to pursue the remedy to which they were entitled to its conclusion."
152This reasoning is erroneous.
153As stated in cases such as Mortimer, McBride, Gerula and Foulis, a defendant is entitled to require the plaintiff to prove its claim. As the court in Foulis stated, at p. 776 O.R.:
An award of costs on a party-and-party scale does not result in the defendant and third party litigating "with total immunity". Under our system defendants are entitled to put the plaintiff to the proof, and there is no obligation to settle an action. Where the costs follow the event, the length of the trial will be reflected in the bill of costs taxed. The fact that the issue of liability was not seriously contested at trial, that the defendant did not give evidence, that he pleaded guilty to criminal negligence, and that no evidence was called by the defendant and third party on the issues of liability and damages are not factors which, by themselves, merit punitive action in the award of costs.
. . . . . [page514]
There is great danger, in my respectful opinion, in a trial Judge second-guessing, after the event, how a trial should be conducted, even where the trial is presided over, as was the case here, by a trial Judge who has had great trial experience at the bar.
By reason of the differences between the defendant and third party, it was the view of their respective counsel that an admission of liability could not be made. They were not compelled to admit liability, nor settle the damages. There was no suggestion that the defendant and third party were using the judicial process to harass the plaintiffs, nor could it be said that the conduct of the defendant and third party constituted an abuse of process.
154With respect, there is no basis in the instant appeal on which to conclude that the appellants were attempting to use the justice system to harass the plaintiffs or that they committed an abuse of process. The fact that the Hunts are elderly and that Melville Hunt is in poor physical health are factors to which a defendant might properly be sensitive in the conduct of its defence. However, they are not factors that, of themselves, can operate to deprive a defendant of its right to defend the action or that compel settlement. The trial judge's conclusion that the appellants "adopted the role of the bully" and attempted to take advantage of the Hunts' vulnerability is premised on the improper assumption that they had a positive duty to capitulate to the Hunts' demands in the first place.
155Parties are encouraged to settle actions where possible; the Rules of Court impose cost sanctions on parties who fail to accept offers to settle that are ultimately found to have been reasonable or who fail to make reasonable concessions. However, there can be no suggestion, particularly in light of the results on appeal, that the appellants did not have an arguable defence.
156In summary, even if I were to accept the trial judge's finding that the appellants were in breach of their fiduciary duty to the Hunts, the facts of this case do not justify a departure from the usual principle that a successful party is entitled to its costs on a party-and-party basis.
(2) Quantum of costs
[157]
(2) Quantum of costs
In addition to arguing that the trial judge erred in awarding costs on a solicitor and client scale, the appellants argue that the quantum of costs awarded by the trial judge is excessive for the following reasons:
(a) He awarded costs for legal work performed by the Hunts' son, Roger Hunt, whom they were not obliged to compensate;
(b) He applied the wrong hourly rate for Roger Hunt; [page515]
(c) There was excessive duplication of work by the three different solicitors who had carriage of the case;
(d) Mr. Neeb was granted the maximum counsel fees available under the new costs grid notwithstanding that the trial judge had earlier ruled that the new costs grid did not apply;
(e) He allowed recovery for work performed by Mr. Wellhauser at $350/hour, when the only evidence showed his rate to be $150/hour;
(f) The amount claimed for disbursements was excessive; and,
(g) The costs award exceeded the amount recovered so as to be punitive.
(a) Costs for Roger Hunt
[158]
(a) Costs for Roger Hunt
The trial judge awarded the Hunts costs for legal work performed by their son, Roger Hunt. Roger Hunt was the first of three lawyers to be involved on behalf of the Hunts and he remained involved throughout the proceedings. The appellants argue that the trial judge erred in awarding costs for Roger Hunt's legal work because the Hunts had no obligation to pay their son for his work. I agree.
159As the trial judge set out in his ruling, entitlement to costs depends on there being an obligation on the part of the client to pay the solicitor. The trial judge cited Clark v. Nash, [1990] B.C.J. No. 727 (QL) (C.A.), which held that "[t]he award of costs is an indemnification in relation to that obligation. The costs cannot exceed the amount of the obligation."
160The trial judge found that the Hunts had an obligation to compensate their son for the work he performed. He based this conclusion chiefly on a letter from Roger Hunt to James Neeb, dated July 4, 2002. The letter was sent after the release of the trial judgment in answer to Neeb's inquiries regarding Roger Hunt's bill of costs. There was no retainer agreement between the Hunts and their son. The letter purports to explain Roger Hunt's fee agreement and his reason for not docketing his time. The key portion of the letter reads as follows:
The time that was expended by me was not recorded because it was agreed between Mr. Buck and myself that we would be paid for our legal services on the successful completion of the action and in the event that the action did not succeed, we would not seek recovery from Mel and Marion Hunt.
I agreed however that if costs were not recovered on the conclusion of this matter from the Defendants, I personally would have to compensate Mr. Buck for the loss of income that the firm suffered. [page516]
Mr. Buck and I further agreed that if we recorded the time expended in the Hunt file on our computer system, the monthly reports of work in progress that we file with the bank would be misleading to the bank and in the event that the action did not succeed and the account was not billed to the Hunts, we would be left with the position of reporting a substantial write off to our bankers.
Accordingly, I kept few, if any, detailed dockets.
Mr. Buck and I did however meet regularly to discuss the status of the matter and it has always been our agreement that the substantial costs to this firm of prosecuting this action would be recovered on the conclusion of the action from the Defendants or from me.
161The trial judge found that this letter reflected an agreement between Roger Hunt and his parents, that he would be compensated for his work if the matter were successfully resolved.
162In my view, in the circumstances of this case, this letter is incapable of establishing that Roger Hunt has any claim to compensation for his work and cannot form the basis for awarding costs for the work performed by him on the file. I base this conclusion on a number of factors.
163First, there is no indication in the letter of the nature of the fee agreement between Roger Hunt and his parents. Rather, it describes an agreement between Roger Hunt and Mr. Buck.
164Second, the nature of the alleged agreement between Roger Hunt and Mr. Buck is inconsistent with Roger Hunt's failure to keep track of the time spent on this matter.
165This inconsistency is not addressed by the suggestion that Roger Hunt's time was not recorded because the firm would only seek compensation if the Hunts succeeded at trial. If time spent is to be compensated in some fashion, it is no less important to keep track of that time just because the solicitor defers billing until after the result is determined.
166The failure to keep dockets is not always fatal to a claim for costs. In this case, the absence of dockets is evidence that there was no obligation on the Hunts to compensate their son for time spent on their matter.
167For these reasons, the trial judge erred in awarding costs for the work performed by Roger Hunt.
(b) Roger Hunt's hourly rate
[168]
(b) Roger Hunt's hourly rate
In light of the finding above, it is not necessary to settle the appropriate hourly rate for Roger Hunt.
(c) Excessive duplication of work
[169]
(c) Excessive duplication of work
Having found that costs do not properly include time spent by Roger Hunt, any concern regarding duplication of work [page517] occasioned by the transfer of the file from Roger Hunt to Mr. Wellhauser must disappear.
170As the trial judge noted, the Hunts were entitled to change counsel and retain Mr. Neeb after completion of discoveries and before trial. The trial judge reviewed the work performed and found that there was no evidence of time wasted and that the work was well done and helpful to both the court and the plaintiffs. There is no reason to interfere with these findings.
(d) Counsel fees for Mr. Neeb
[171]
(d) Counsel fees for Mr. Neeb
The trial judge awarded Mr. Neeb the counsel fee he claimed, which was $4,000 per day and $2,500 per half-day. The trial judge noted that this was the maximum allowed under the new costs grid and that there was no evidence before him of the amounts being allowed for senior counsel for counsel fee prior to the amendments to the rules.
172The appellants point out that this rate over- indemnified Mr. Neeb, given his hourly rate of $350, and the fact that counsel fees were in addition to fees claimed for preparation for trial. They further note that Mr. Neeb's standard retainer form, which was used as the basis for establishing his hourly rate, did not specify a "per day" or "half day" trial fee.
173I agree with the appellants that given the trial judge's ruling that the new costs grid did not apply, which is in no way contested on this appeal, there was no basis for awarding costs for work performed by Mr. Neeb beyond his usual hourly rate.
(e) Mr. Wellhauser's hourly rate
[174]
(e) Mr. Wellhauser's hourly rate
The trial judge awarded costs for the work performed by Mr. Wellhauser at an hourly rate of $350. The appellants argue that this rate is excessive, given that the only evidence before the court showed that Mr. Wellhauser had billed the Hunts on an interim basis at the rate of $150/hour.
175In a letter from Mr. Wellhauser to Roger Hunt dated June 7, 1999, he indicated that his final bill would be based on the total time involved and an "appropriate hourly rate reflecting the result achieved". The trial judge found that this statement was not meant to indicate a contingency fee arrangement. Rather, he said, it reflected the laudable practice of assisting clients in bringing forward meritorious claims, by agreeing to charge a modest fee if the matter did not succeed.
176While it may be that Mr. Wellhauser was entitled to charge a higher rate for the work performed, there was a paucity of evidence before the trial judge as to the nature of the fee agreement between [page518] Wellhauser and the Hunts. In my view, the trial judge was not entitled to assign a rate of $350/hour on the sole basis that that rate was requested by counsel for the Hunts. There must be some evidence or objective basis on which to determine Mr. Wellhauser's fees.
(f) Excessive disbursements
[177]
(f) Excessive disbursements
The appellants argue that the amount claimed for disbursements is excessive. They specifically take issue with $6,200 for Mr. Davidson, and $4,180 for Mr. Evans, who provided expert evidence at trial.
178The trial judge found that the amount claimed for Messrs. Davidson and Evans was substantial but that their evidence was of substantial assistance to him and necessary to pursuit of the Hunts' claim. The trial judge was in the best position to assess the value of this evidence and the reasonableness of the expense. There is no basis upon which to interfere with the trial judge's assessment in this regard.
(g) Excessive costs
[179]
(g) Excessive costs
The respondents were awarded $156,935.47 in costs, an amount more than double the damages award. The appellants argue that, in light of the disparity between the two sums, the costs award is punitive and should be reduced.
180The disparity will be substantially reduced once the results of the appeal are factored in. Costs will no longer be on a solicitor and client basis. There will be no recovery for Roger Hunt's work and compensation for Mssrs. Neeb and Wellhauser will be reduced. These adjustments may render this ground of appeal moot. I will, however, consider the submissions of the parties on the matter.
181The respondents argue that while the proportion between costs and recovery is one factor the courts may consider in exercising their discretion to award costs, the courts have placed little weight on this factor where the defendants have put the plaintiffs to strict proof of their case and the plaintiffs have succeeded. The respondents cite Genah v. Reg Quinn Ltd. (c.o.b. Canadian Tire), [2002] O.J. No. 2832 (QL) (S.C.J.) in support of this argument.
182In Genah, Stinson J. considered whether costs of $33,012 were excessive when compared to a recovery of $50,000. Stinson J. concluded that the extent of costs was explained by the fact that the defendants' failure to admit liability forced the plaintiff to deal with multiple sets of defence counsel. He found that, under rule 57.01(1)(g) [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194], the defendants' refusal to make admissions was a very significant factor. At para. 24, he concluded that: [page519]
the principal reason for the costs being as high as they are is the intransigence of the defendant in not admitting liability and making a settlement offer at an early stage of the proceeding. The plaintiffs should not have to pay the costs of the defendant's intransigence.
183As set out above and is obvious from the disposition of this appeal, the appellants were not intransigent.
184That said, I see no basis for interfering with the costs award on the grounds that it was excessive.
185The issues at trial were complex and the plaintiffs were required to prove their claims on each issue. The trial judge reviewed the work performed by counsel and found that it was of high quality, necessary, and of assistance to him.
186The trial judge properly applied the principles approved by this court in Murano v. Bank of Montreal (1998), 1998 5633 (ON CA), 41 O.R. (3d) 222, 163 D.L.R. (4th) 21 (C.A.), of the approach to be taken by a judge in fixing costs, laid down by Feldman J. (as she then was) in Tri-S Investments v. Vong, [1991] O.J. No. 2292 (QL) (Gen. Div.). I would not have interfered with determination of quantum solely on the basis that it was excessive.
(3) The costs award remedy
[187]
(3) The costs award remedy
For the reasons given, the trial judge erred in a number of ways in the costs award. That determination, however, does not resolve the question of how costs at trial should be awarded.
188In general, where a party is successful on appeal, the costs award at trial is set aside and the appellant is awarded costs at trial and on appeal; the court has the discretion to depart from this principle in appropriate cases. See Kopij v. Toronto (Metropolitan), [1999] O.J. No. 239 (QL) (C.A.).
189The appellants have been largely successful on appeal. Having succeeded on the major issues of breach of fiduciary duty and the mitigation period, judgment against them is reduced to the nominal transaction costs in selling the shares. They were largely successful in the costs appeal, as well. However, the trial judge's finding of breach of contract remains and, in that regard, the Hunts succeeded at trial.
190Unfortunately, I am unable to decide the matter of the costs below at this time.
191In their costs submissions, the parties failed to address the situation that came to pass, namely, that the appellants were found to be in breach of contract but were not in a fiduciary relationship with the respondents and that damages are limited to transaction costs. Further, while the trial judge refers to offers to settle, this court has not been provided with those offers and has [page520] not received submissions on the relevance of those offers in light of the result on appeal.
192If the parties are not able to agree on the issue of costs at trial, they shall make brief written submissions on the same no later than 20 days from the date of release of these reasons.
Disposition
[193]
Disposition
In summary, I have concluded that:
The relationship between the appellants and the Hunts was contractual in nature. It was not a fiduciary relationship.
Schram committed a breach of contract in selling the Hunts' BCE shares on March 3, 1997, without authorization.
The Hunts did not ratify the sale.
The Hunts had a duty to mitigate by purchasing like shares by April 2, 1997.
The Hunts are entitled to damages arising from the breach. As the price of BCE shares was found to have dropped in the two months following their sale, there was no loss in the value of the shares. The Hunts are to be compensated for the other losses that flowed directly from the breach, namely:
-- capital gains tax paid on the sale of the BCE shares,
-- transaction costs and commissions paid on the sale of the shares,
-- transaction costs and commissions paid on the purchase of Chrysler and CIBC shares.
- The costs award below is set aside. Failing agreement between the parties on the matter, they are to make brief written submissions on the same within 20 days of the date of release of these reasons.
194Accordingly, the appeal is allowed on issue #1 (fiduciary duty) and, in part, on issue #3 (the mitigation period). The costs appeal is allowed in part. The cross appeal is dismissed. Costs to the appellant fixed in the sum of $7,500, inclusive of GST and disbursements.
Order accordingly. [page521]
Notes
Note 1: Black's Law Dictionary, 6th ed., S.V. "ratification".
Note 2: reversed on the merits (1990), 1990 6606 (ON CA), 75 O.R. (2d) 417, 75 D.L.R. (2d) 497 (C.A.), leave to appeal to S.C.C. refused (1991), 4 O.R. (3d) xi.
