CITATION: Questrade Inc. v. Gu, 2011 ONSC 4106
DIVISIONAL COURT FILE NO.: 410/10
DATE: 20110705
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
QUESTRADE INC.
Plaintiff/Respondent
– and –
YING GU
Defendant/Appellant
AND B E T W E E N:
Lawrence J. Horowitz, for the Plaintiff/Respondent
Ying Gu, for the Defendant/Appellant
YING GU
Plaintiff by Defendant’s Claim/Appellant
- and -
QUESTRADE INC.
Defendant to Defendant’s Claim (Respondent)
Ying Gu, for the Plaintiff by Defendant’s Claim/Appellant
Lawrence J. Horowitz, for the Defendant to Defendant’s Claim/Respondent
HEARD: June 15, 2011
LEDERER J.:
INTRODUCTION
[1] This is an unfortunate situation. The appellant, with the assistance of her husband, has attempted to represent herself. As hard as they have worked, as much as they have tried to understand, they have failed to grasp the nature of an appeal and the limits on what the court can do or should be asked to do.
[2] This is the appeal of the judgment rendered by the Small Claims Court on July 12, 2010. In reasons delivered that day, the judge dismissed the claim of the appellant (the defendant in that court) and awarded judgment in favour of the respondent (the plaintiff in that court) in the amount of $10,000, together with pre-judgment interest and costs.
BACKGROUND
[3] The appellant and her husband are two of the three owners of an account with the respondent. The respondent is a discount brokerage. The account was one which allowed trading on margin, which is to say, on money borrowed from the respondent. Beginning at or around June 29, 2007, until July 26, 2007, the appellant and her two colleagues purchased shares in a corporation referred to in the material as Beazer Homes US. Between June 29, 2007 and August 1, 2007, the price of the shares in Beazer Homes declined. On the appeal, it was submitted that on July 31, 2007, an e-mail was delivered by the respondent to the appellant indicating that the account was under-margin and requiring that this difficulty be dealt with by 2 p.m. on August 2, 2007. The e-mail indicated that, after that time, the respondent would exercise its right to clear the under-margin "by covering your open positions".
[4] On August 1, 2007, at 10:50 a.m., the respondent liquidated the account. It did this without waiting until 2 p.m. on August 2, 2007, as it had said it would in its e-mail of July 31, 2007. Even with the liquidation of the account, the appellant and her colleagues continued to be indebted to the respondent in the amount of $10,569.06. At the same time, the liquidation resulted in a loss to the appellant and her colleagues reported in the decision of the trial judge as being in the amount of $53,984. As a result, the respondent sued the appellant for $10,000 and the appellant "filed a defendant's claim" seeking payment of $25,000. These are the claims the trial judge ruled on and it is that decision which the appellant brings to this Court.
THE ISSUES RAISED BY THE APPELLANT
[5] It is at this juncture that the failure of the appellant and her husband to understand the nature of this proceeding manifests itself. In the factum they have prepared and in the submissions they have made, eight separate complaints are outlined that are said to arise from the trial. Several of them do not raise concerns that are likely to assist the court or advance their position. This is demonstrated by Issues 4 to 8, as found in the factum of the appellant.
Issue 4: the timing of the margin call
[6] The appellant and her husband observe that their account was under margin from July 23, 2007 to July 31, 2007. They complain that the margin call was not made earlier than July 31, 2007. They appear to believe that the respondent is under a duty to send a margin call immediately when the account of a client is under-margin. It may be, as the factum of the appellant suggests, that the Industry Investment Regulatory Organization of Canada has rules which govern this situation. It may also be that the respondent has, in circumstances not related to this appeal or these clients, breached these rules. So far as I am aware, this does not change the nature of the relationship. The brokerage has lent money to the client. A margin call is an attempt by the brokerage, as the lender of the money, to either replenish or realize on the security represented by the value of money and investments in the account. It does this to protect its own interests. Ultimately, it is the responsibility of the investor to pay off or account for the debt represented by the investments it has made on margin. Any failure by the respondent to make the margin call earlier than it did cannot form the basis for an appeal of this case.
Issue 5: the propriety of calling the Chief Compliance Officer
[7] The only witness called at the trial by the respondent was C. Periera, its Chief Compliance Officer. The appellant and her husband complained that the testimony of this witness should not have been used. This apparently flows from the fact that, on the one hand, he was not employed by the respondent at the material time (he started at the respondent in April 2008) and was, on this basis"not eligible to be an ordinary witness" and, on the other hand, was a paid employee of the respondent and, because of this"not eligible to be an expert witness". Neither of these complaints demonstrates a concern on which a responsible appeal could be based.
[8] Interestingly, the transcript of the trial reveals that the husband of the appellant raised an objection to this witness being called. The objection did not relate to either the fact of, or the timing of, the employment of the witness by the respondent. Rather, it concerned the fact the order of a pre-trial judge had required that a list of witnesses be delivered by October 24, 2009. The respondent had not complied with the order. It had advised of its intention to call this witness on February 3, 2010, nineteen days before the trial. When confronted with the choice of proceeding or being granted an adjournment, the appellant and her husband chose to proceed.
Issue 6: allegations of conflicts in the evidence
[9] The appellant and her husband go on to complain that there were conflicts in the evidence of the respondent. The factum relied on by the appellant and her husband lists what are said to be "false statements/testimonies that the Respondent's [sic] provided". The conflicts include the observation that, in one place, an e-mail ends in ".ca", whereas, elsewhere, the same e-mail address is reported as ending with ".com". In any event, there is nothing to suggest an absence of evidence or a palpable and overriding error which are required to support an appeal on this basis. To the contrary, I observe that the trial judge determined that the facts were "largely undisputed".
Issue 7: allegations of new evidence presented at trial
[10] The factum used by the appellant and her husband suggests that the law clerk, that acted for the respondent at the trial and identified himself as its employee"was not honest with the court". It is asserted that he provided new documents to the court without permission and without advising the appellant. The transcript of the trial indicates that, at the outset of the evidence, a document book was produced on behalf of the respondent for the assistance of the court. It was marked as “Exhibit 1”. A copy was included in the record for this appeal. It contains a variety of documents separated by eleven tabs. Various of these documents were referred to during the examination-in-chief of the witness, C. Periera. On several occasions, it appears that the appellant and her husband had trouble locating the document being referred to, but only once was it suggested that there was "new evidence" and there were "Two pages we don't have" (see: Transcript of the Trial: February 22, 2010, at pp. 59-60). It does appear that, in any event, the appellant had access to the document and that, on that basis, it was not new evidence. While it is not entirely clear, it does seem that the issue was resolved to the satisfaction of the judge who located the missing pages. The trial proceeded. In the end, there is nothing that seems to me to reveal anything that surprised the appellant and her husband such that it would support a substantive appeal.
Issue 8: calculations of the loss of the respondent
[11] The complaints of the appellant and her husband include the suggestion that the " 'Loss' the Respondent calculated was very unreasonable". This would seem to be a complaint regarding the exchange rate used and the interest rate charged in coming to the loss as claimed by the respondent. This is not referred to in the decision of the trial judge. The difference based on the calculations of the appellant and her husband would be $2,400.06.
[12] It took a considerable amount of time to deal with these issues. In the end, they did not assist the appellant in this appeal.
ANALYSIS
[13] There were three issues which could be said to form the substantive basis for this appeal.
Issue 1: Was there a legal and binding agreement which allowed the respondent to make the margin call?
[14] Each of the three owners of the account filled out and signed a "New Account Application Form". This form and other documents to which it refers make up the agreement between the brokerage and the client. Each of the three owners of the account filled out the form. All three of the forms were included within the document book marked as “Exhibit 1” at the trial. Of the three owners, only the husband of the appellant (Yi Cui) gave evidence at trial.
[15] The New Account Application Form is one of several documents which make up the agreement. Among the others is the "Account Agreements & Disclosure Documents". It includes the following paragraphs:
You also understand and agree that there may/will be circumstances where Questrade will liquidate Securities in the Account without notice to you to ensure that minimum maintenance requirements are satisfied. You also agree that you will pay all expenses incurred by us in this connection. We may at any time in our discretion if we consider advisable for your protection (without the necessity of a Margin call and, without prior demand, without tender and without any notice of time or place of sale, all of which are expressly waived by you):
• sell any or all Securities relating thereto which may be in our possession, or which we may be carrying for you,
• buy and/or borrow any or all Securities relating thereto of which your Account may be short, in order to close out in full or in part any commitment on your behalf, or
• we may place stop orders with respect to such Securities.
Such sale or purchase may be made at our discretion on any exchange or other market where such business is then transacted, or at public sale or private sale, with or without advertising. Neither any demands, calls, tenders or notices which we may make or give in any one or more instances, nor any prior course of conduct or dealings between us shall invalidate these waivers on your part. You will pay Questrade any loss or expense which we may incur by reason of such borrowing or purchase, or our inability to make such borrowing or purchase. Questrade shall act as your agent in completing all such transactions and are authorized by you to expend monies as are required.
[Emphasis added]
[16] What is made clear by this is that, included within the standard agreement made at the time a new account is opened, is the right of the brokerage to liquidate the account in order to maintain the minimum requirements of the margin portion of the account.
[17] The difficulty is that the appellant and her husband take the position that they were not made aware of these terms at the time the account was opened. They point out that the New Account Application Form includes a list of general documents, none of which are shown as being either attached to the form or being obtained, presumably for the clients. Immediately below this list is another box by which the prospective client confirms he or she has "carefully read" the "Operation of Account, Margin and Short Sale Agreement” and the "Disclosure Statements". Each of the three owners of the account signed the form acknowledging that they had read these documents. Nonetheless, the husband of the appellant testified that he had not been given and had not read them. By signing the New Account Application Form, the appellant acknowledged that he had read and was bound by the “Account Agreements & Disclosure Documents”. He suggested that he had been misled by an employee of the respondent as to the importance of this material. It appears any evidence of this was not accepted by the trial judge. The appellant and the third owner of the account did not testify. The only evidence before the court was the forms which they had signed indicating that they had read the documents. There is no evidence to suggest they had not.
[18] In her reasons, the trial judge quoted a different paragraph from the “Account Agreements & Disclosure Documents”, as follows:
You understand that you are responsible for monitoring the available capital in your account(s) and must comply with all margin requirements and calls, regardless of whether or not you are notified by Questrade that a trade you are considering entering into may create a margin call. Because of the use of margin, your losses could exceed the amount invested by you. You may sustain a total loss of the initial margin funds and any additional funds you may be required to deposit to maintain a position which is moving against you. If you do not provide the required additional funds within the time required your position may be liquidated at a loss and you will be liable for any deficit in your account. Questrade has made no representations to you as to expected return on your investment. You understand that Questrade does not monitor account profit and loss.
[Emphasis added]
[19] She relied on this as demonstrative of, or confirming, the evidence of C. Periera explaining that the respondent could liquidate a client’s position immediately. There is no discussion in her reasons as to the possibility that the appellant was not bound by the terms found in the document. I find that they are bound. This does not form a basis on which this appeal can be granted.
Issue 2: Did the respondent have the authority to liquidate the account on August 1, 2007 having indicated to the appellant that she had until August 2, 2007 to respond to the margin call?
[20] The appellant and her husband say that they relied on the e-mail of July 31, 2007. They intended to respond to the margin call within the time-frame it referred to. They were misled and surprised when the account was liquidated before the promised time had passed.
[21] The respondent pointed out that the security in the account was not static. It would fluctuate as the price of the stocks it contained continued to rise and fall. In such circumstances, the agreement, which allowed the respondent to liquidate the account without notice, continued to prevail. Otherwise, the respondent would be unable to protect itself against any further loss in the value of the stock and the corresponding increase in the breach of any margin requirements.
[22] In making this submission, counsel for the respondent relied on the case of Paciorka v. T.D. Waterhouse 2007 CarswellOnt 4717. In that case, an investor claimed damages from his broker on account of three sell-offs made by the broker on the investor’s margin accounts. The investor asserted that the broker’s failure to communicate the margin calls and to sell stocks in excess of the required margin was a breach of both the legislation and the broker’s duty of care. The court held that the relationship and the circumstance were governed by the agreement entered into between the investor and the broker. The court said:
That case is distinguishable from the situation in the case before me. In Varcoe v. Sterling [(1992), 1992 7478 (ON SC), 7 O.R. (3d) 204 (Ont. Gen. Div.)] there was not an agreement which included an express provision that entitled the broker to sell securities in his discretion without a prior margin call. The obligations apply differently when such an agreement has been created to govern the relationship between the parties. The court has interpreted the provisions included in [the investor’s] contract with [the broker] in other cases and firmly established that the agreement between the parties governs the rights of making a margin call. The Canadian authorities have upheld a brokerage firm’s contractual right to take market action when sufficient margin is not posted. Courts have also established that rights in relation to making a margin call are governed by the agreement.
(Paciorka v. T.D. Waterhouse, supra, at para. 62)
[23] The court, in Paciorka v T.D. Waterhouse, supra, went on to refer to and quote from other cases:
Although the defendant adopted a public relations policy for attempting to notify customers when margin was being called, the contractual provisions of the agreement clearly set out that no such notice is necessary. The nature of the securities being purchased on the market margin, and the volatility of the market for those sorts of securities, makes it obvious that a broker in a position of the defendant must be entitled to act in haste in order to preserve their own financial position. The evidence clearly established that a broker in the position of the defendant does not engage in co-speculating with their customers. Monies are advanced under a margin account solely as a loan for which interest is charged on a per annum basis. In the event of the securities in the account declining in value such that the margin account goes into a deficit position, TD Waterhouse is placed in a circumstance where it is in breach of its own policy governing the allowable levels of extension of margin… In circumstances such as this, any delay on the part of the broker would, in effect, put the broker’s own money at risk as if they were a co-speculator. In circumstances such as that it is not surprising that the broker would act promptly to protect itself from more loss. The various niceties of notice, telephone calls and other considerations clearly apply to a situation where the margin has been exceeded but the loan position is still secure and at worst the broker is in breach of its internal policies, or perhaps, the regulations of the I.D.A. In a situation where the broker’s loan account can no longer be covered by the sale value of the securities, the situation, in my view is significantly different as the broker would then be placed in a clear and obvious situation of financial loss.
(Janic v. TD Waterhouse Investor Services (Canada) Inc., 2001 CarswellOnt 1268 (Ont. S.C.J.), as quoted in Paciorka v. T.D. Waterhouse, supra, at para. 63)
and:
There is ample Canadian authority supporting the broker's contractual right to take market action when sufficient margin is not posted… The real issue is whether a broker has the right to take market action on the same day as the margin call. It is my belief that the law stands firmly on the broker's side. In George v. Dominick Corporation of Canada 1972 138 (SCC), 28 D.L.R. (3d) 508, the Supreme Court of Canada upheld the British Columbia Court of Appeal's decision which held that a broker may close out any margin account without notice to the client when the client's account is under margin.
(R.B.C. Dominion Securities Inc. v. DeBora, [1991] O.J. 1863 (Ont. Gen. Div.), as quoted in Paciorka v. T.D. Waterhouse, supra, at para. 64)
[24] What follows from this is that the brokerage, where there is an agreement, is free to act under that arrangement to protect its own position. In short, in the circumstance of this case, the agreement allowing the broker to liquidate the account without notice prevails over the e-mail. The brokerage is not compelled to sit and wait as its losses climb.
[25] For her part, the trial judge concluded that:
In accordance with Paciorka, supra, and the line of authority cited therein, I find that Questrade acted reasonably in the circumstances, and acted within the provisions of the Exhibits found at Tab 1 and Tab 2 of Exhibit 1 ie. The New Account Application Form and The Account Agreement & Disclosure Documents. Questrade was not required to provide notice to Gu before liquidating her position in Beazer. Gu is obliged to repay Questrade the deficit amount outstanding to Questrade, after the liquidation of the Beazer shares.
(Questrade Inc. v. Ying Gu: Decision of the Trial Judge, at p. 4)
[26] The appeal cannot be granted on this basis.
Issue 3: Was the respondent able to accept orders by the appellant and her colleagues to trade in options?
[27] In their submissions on this appeal, the appellant and her husband argued that the respondent had accepted orders from them calling for the purchase of certain options. It was their position that these orders should not have been accepted and, to the extent that they contributed to the liability in the account, the appellant should not be penalized. In taking this position, the appellant and her husband relied on the New Account Application Form. They pointed to a box labelled "For Office Use" which included a space for "Option Account Restrictions". Since no restrictions were listed, the appellant and her husband take the position that the respondent should have recognized that there was to be no option trading on this account. When the order was made, which the husband of the appellant said was in error (he pushed the wrong button on his computer), the respondent should have recognized the error and not processed the order.
[28] This omits the fact that, in another box on the same form, one apparently filled out by the applicant for the account and titled "Type of Account (Order Execution Only)", the type of account requested was "Margin Account with Options".
[29] This reflects the nature of the account and makes clear that it included the possibility of trading in options.
[30] There is no reference to this in the decision of the trial judge but, in any event, it cannot form the basis for a successful appeal.
CONCLUSION
[31] Based on the reasons reviewed herein, the appeal is dismissed.
COSTS
[32] At the conclusion of the trial, the parties were unable to deal with the issue of costs. Counsel for the respondent presented a Costs Outline, but the appellants required time to review it.
[33] In the circumstances, if the parties are unable to agree, I will consider written submissions as to costs on the following terms:
(a) on behalf of the respondent, no later than fifteen days following the release of these reasons. Such submissions are to be no longer than three pages, double- spaced, exclusive of any Costs Outline and case law to be provided;
(b) on behalf of the appellant, no later than ten days following the receipt by them of the submissions of the respondent. Such submissions are to be no longer than three pages, double-spaced, exclusive of any Costs Outline and case law to be provided; and,
(c) if required, in reply, on behalf of the respondent, no later than seven days following receipt by them of the submissions of the appellant. Such submission is to be no longer than one page, double-spaced.
[34] In the circumstances, and without yet having reviewed any submissions made by the parties, I would remind the appellant that typically, but not always, it is the successful party, in this case the respondent, that is awarded costs. Generally, the issue is whether the value of the costs sought is, in the circumstances, reasonable. Reliance is often placed on rule 57.01(0.b) which indicates that the court may consider the amount of costs an unsuccessful party could reasonably expect to pay in the circumstances.
[35] I would ask counsel for the respondent to provide case law to support the proposition that counsel employed directly by the party who comes to court as part of his employment may seek costs and to consider the principle of proportionality in whatever claim for costs may be made.
LEDERER J.
Released: 20110705
CITATION: Questrade Inc. v. Gu, 2011 ONSC 4106
DIVISIONAL COURT FILE NO.: 410/10
DATE: 20110705
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
QUESTRADE INC.
Plaintiff/Respondent
- and -
YING GU
Defendant/Appellant
AND B E T W E E N:
YING GU
Plaintiff by Defendant’s Claim/Appellant
- and -
QUESTRADE INC.
Defendant to Defendant’s Claim/Respondent
JUDGMENT
LEDERER J.
Released: 20110705