CITATION: MacDonald v. Glasford, 2014 ONSC 2448
DIVISIONAL COURT FILE NO.: 367/12
DATE: 20140417
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
MICHELLE MACDONALD
Plaintiff/Respondent
– and –
OLIVER GLASFORD and GLASFORD INVESTMENTS INC.
Defendants/Appellants
Michelle MacDonald, Self-Represented Plaintiff/Respondent
Nadia Chiesa, for the Defendants/Appellants
HEARD: April 16, 2014
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION
[1] After a Small Claims Court trial, Deputy Judge Mungovan decided that the Defendants Oliver Glasford and his corporation, Glasford Investments Inc., were liable for negligence in placing an investment for the Plaintiff Michelle MacDonald.
[2] The Deputy Judge granted judgment in favour of Ms. MacDonald, for $20,000.00, against the Defendants jointly and severally, plus pre-judgment interest at 1% per annum from December 16, 2008 and costs of $795.
[3] Mr. Glasford and his corporation appeal.
[4] For the reasons that follow, I allow the appeal with respect to Glasford Investments Inc. but I dismiss the appeal with respect to Mr. Glasford.
B. FACTUAL BACKGROUND
[5] In 2008, Mr. Glasford and Ms. MacDonald were members of the Private Investor Club operated by Sunil Tulsiani. Mr. Glasford had been a member of the Club for some time. Ms. MacDonald was a new member of the Club.
[6] Ms. MacDonald is a corrections officer in Ontario and she was eager to make money through short-term investments. She is not an experienced investor nor is she a person of financial means.
[7] Mr. Glasford was the owner of a small window covering company. He incorporated Glasford Investments Inc. at the suggestion of Mr. Tulsiani in order to purchase foreclosed properties. Mr. Glasford was not an investment adviser or promoter of investors. Although more experienced than Ms. MacDonald, he, like her, was an amateur investor.
[8] On December 13, 2008, Mr. Tulsiani sent Club Members an email message about an investment opportunity. The message stated:
Dear PIC Member,
Here is a rare opportunity for you to make 20% in 10 days without any risk … the money stays in ·a trust account!
Requirements:
Minimum investment is 50K (may consider 25K).
Maximum investment is 1.5 Million.
Deadline by this Wednesday, December 17, 2008.
As a PIC member, you are getting access to this once in a lifetime commercial development opportunity. As an example, if you invest $100,000.00 you will earn $20,000.00 in 10 days risk free (that's a 730% return per year). Prior to replying, please ensure that you meet the above criteria and are ready to take action. Respond by replying to this email; be sure to include your day and evening phone number(s).
Good luck.
Sunil Tulsiani, President
PS -As a privileged investor, you are being notified prior to thousands of other investors.
.This deal will absolutely not last. Respond now.
PPS - Some restrictions apply. Selected investors will receive more information on this risk free investment. The money stays in trust account!
[9] As later became evident, much of Mr. Tulsiani’s email message was inaccurate and misleading.
[10] After receiving the email, Ms. MacDonald contacted Mr. Tulsiani, who told her participants were required to invest in $25,000 blocks and that the maximum number of investors had been reached. Mr. Tulsiani also told Ms. MacDonald that she did not qualify for the investment because in order to invest in the security one had to be an “accredited investor” as defined by the Ontario Securities Commission.
[11] Rule 45-501 of the Ontario Securities Commission’s Rules defines an "accredited investor" as including: (1) an individual who, alone or together with a spouse, owns financial assets worth more than $1 million before taxes but net of related liabilities or an individual, who alone or together with a spouse, has net assets of at least $5,000,000; (2) an individual whose net income before taxes exceeded $200,000 in both of the last two years and who expects to maintain at least the same level of income; or (3) an individual whose net income before taxes, combined with that of a spouse, exceeded $300,000 in both of the last two years and who expects to maintain at least the same level of income.
[12] Here, it may be noted that accredited investors are outside of the investor protection provisions of the Securities Act. Other investors in capital markets are protected by the disclosure provisions of the Act.
[13] Notwithstanding that she was not eligible; Ms. MacDonald, however, wished to make an investment. She had a conversation with Mr. Glasford who told her that he was entitled to subscribe in the investment being touted by Mr. Tulsiani for Club Members. Although, Mr. Glasford never said that he was an “accredited investor,” that is what Ms. MacDonald understood when he said that he was going to participate in the investment.
[14] Since Mr. Glasford had enrolled for three blocks, Ms. MacDonald asked him if she could join his investment if she contributed $20,000, which was all she had available. Her friend Thelma Clarke, another Club Member, would also contribute $5,000.
[15] Mr. Glasford agreed to this arrangement, provided that Ms. MacDonald agreed to pay him fifty percent of the interest she expected to make on her investment. The purpose of this payment was to indemnify him for any tax liabilities as the named investor.
[16] There was no evidence that Mr. Glasford was acting as an investment adviser or that he was qualified to be one. He was a member of the Club just like Ms. MacDonald. He did not hold himself as a broker or professional securities dealer or as a promoter of the investment.
[17] It is Mr. Glasford’s position that he was no more than a gratuitous agent to place the investment and that he breached no duty of care in making the investment. I pause here to emphasize that Mr. Glasford concedes that he has the responsibilities of a gratuitous agent but his position is that he did not fall below the standard of a gratuitous agent when he placed the investment for himself and for Ms. MacDonald.
[18] On December 18, 2008, Mr. Glasford paid $75,000 to subscribe to the investment, of which $50,000 was his own money and $25,000 was from funds provided by Ms. MacDonald and Ms. Clarke. Ms. MacDonald made her $20,000 cheque payable to Glasford Investments Inc., as Mr. Glasford had requested.
[19] Subsequently, Mr. Glasford signed a Subscription Agreement dated December 15, 2008 with attached Terms and Conditions and an Acknowledgment confirming that the funds would be invested in Bond 401. Attached to the Subscription Agreement was a so-called Offering Memorandum with terms and conditions.
[20] The Subscription Agreement indicated that the investment was to be a bond from Maple Leaf Investment Corp. The money was to be used for the construction of a condominium and casino in Curacao, Dutch Antilles. The bond was to mature “10 days from the utilization of the funds.”
[21] The Subscription Agreement indicated that the investment was available to an “Accredited Investor” as defined by the Ontario Securities Commission, and under the Subscription Agreement, the subscriber represented that he or she was an accredited investor or the agent of an accredited investor.
[22] Neither Mr. Glasford nor Ms. MacDonald qualify as accredited investors, and this investment offering of Maple Leaf Investment Corp. had not been reviewed by the Ontario Securities Commission.
[23] Mr. Glasford also signed an acknowledgement that he was aware of the definition of an "accredited investor" and that he was such an investor. He acknowledged that the $75,000 together with the 20% interest "is anticipated to be returned to me within ten (business) days", but that he agreed that the return of the investment plus interest "may take longer than the said 10 days", but agreed to wait for these monies "as per the directions of Tulsiani Investments Inc.". He agreed that that invested funds will be held in trust by Vijai Sookhai, Barrister and Solicitor, and that this lawyer would release the funds "on the authorization of Tulsiani Investments Inc.".
[24] The Offering Memorandum indicated that the Ontario Securities Commission had not reviewed the Offering and had not in any way passed upon the merits of the securities offered. The Offering Memorandum noted that bond units were speculative and not saleable, because there was no market for them to be sold. Paragraph 30 of the Memorandum stated that investors should invest only if they can afford to sustain a total loss of their investment.
[25] Paragraph 32 of the Offering Memorandum gave notice that the Issuer, Maple Leaf, has, and is expected to have, only nominal assets and there is no operating history upon which an investor may base an investment decision. Paragraph 32 also stated that there was no assurance that the business of Maple Leaf will be operated successfully.
[26] On December 18, 2008, Mr. Glasford sent an email to Ms. MacDonald confirming that he had delivered the investment cheque to the Club.
[27] In January 2009, Maple Leaf Investment’s Bond 401 came due and some investors were paid. Mr. Glasford, however, declined repayment and decided instead to reinvest in Bond 402, which was being offered by Maple Leaf Investment with the astronomical [and I might add criminal] interest rate of 60% payable within 90 days.
[28] It was Mr. Glasford’s evidence that he discussed the reinvestment with Ms. MacDonald, which she denies, but, in any event, on January 22, 2009, Mr. Glasford signed a Subscription Agreement dated January 22, 2009 and a Consent Form dated 22 January 2009 which converted the investment in Bond 401 into a second investment, Bond 402.
[29] The terms of subscription for Bond 402 were similar to those for Bond 401. Mr. Glasford also signed a direction instructing Mr. Sookhai to release the funds held in trust in Maple Leaf to use for the projects in Curacao.
[30] As noted Ms. MacDonald testified that this change was done without her consent. However, she also admitted that had the investment ultimately proved profitable, she would not have been concerned about the change from Bond 401 to Bond 402.
[31] The investment in Bond 402, however, was a washout. She lost all of her $20,000 and never saw any return from her investment.
[32] On November 10, 2010, Ms. MacDonald commenced a Small Claims Court action against Mr. Glasford and his corporation for, among other things, negligence in making the investment.
[33] The trial was heard on March 12, 2012 and June 5, 2012.
[34] On June 21, 2012, Deputy Judge Mungovan granted judgment in favour of Ms. MacDonald of $20,000 plus pre-judgment interest and costs of $795.00.
C. THE TRIAL JUDGMENT
[35] The Deputy Judge held that Ms. MacDonald was not a lender to Mr. Glasford but was an investor with Mr. Glasford. He held that Mr. Glasford had voluntarily agreed to provide a service for Ms. MacDonald and had done so negligently.
[36] The Deputy Judge stated that the elements of the tort of negligence in the context of negligent performance of a service are: (1) the defendant voluntary undertakes to perform a service; (2) the plaintiff relies on the defendant to perform the service; (3) the defendant fails to perform the undertaking carefully; and (4) the plaintiff suffers damages caused by the defendant’s carelessness.
[37] In the Deputy Judge’s opinion, the elements of the tort had been satisfied. Mr. Glasford had undertaken to facilitate Ms. MacDonald’s participation in the investment and Ms. MacDonald had relied on him to do so. However, Mr. Glasford had been careless in making the investment. He failed to provide documents to Ms. MacDonald that would have informed her that the investment was not as advertised and was not risk free or structured as advertised. Indeed, the Deputy Judge concluded that the documents would have alerted Ms. MacDonald to the reality that the Maple Leaf Investment Bonds were a very risky investment. Indeed, the so-called Offering Memorandum was a warning that this was not an investment for risk adverse investors.
[38] The Deputy Judge concluded that had the documents been provided, Ms. MacDonald would have known that Mr. Tulsiani’s email message was false in several important particulars. It was not the case that the investment money would stay in a trust account and that it would be returned with 20% income within 10 days.
[39] The Deputy Judge concluded that Mr. Glasford was negligent and that Ms. MacDonald had suffered damages from the loss of her investment.
[40] The Deputy Judge held that Glasford Investments Inc. was vicariously liable for the negligence of Mr. Glasford. He noted that Glasford Investments Inc. was Mr. Glasford's company and that Mr. Glasford had instructed Ms. MacDonald to send her $20,000 to Glasford Investments Inc. The Deputy Judge found that there was enough evidence to find that Mr. Glasford was acting in the course of his employment with Glasford Investments Inc., and therefore, the corporation was vicariously liable for his negligent conduct.
D. THE APPELLANTS’ ARGUMENTS
[41] Mr. Glasford submits that the Deputy Judge made a palpable and overriding error in fact in concluding that Mr. Glasford was acting in the course of his employment with Glasford Investments Inc. Further, Mr. Glasford submits that the Deputy Judge made a palpable and overriding error in concluding that Mr. Glasford was providing professional services as opposed to being a gratuitous agent.
[42] Citing Gerald Fridman, Canadian Agency Law (2nd ed.),[^1] Cameron Harvey and Darcy MacPherson, Agency Law Primer (4th ed.)[^2] and Maurice Coombs, Halsbury's Laws of Canada – Commercial Law III (Agency),[^3] Mr. Glasford argues that unlike an agent for reward, a gratuitous agent has no obligation to perform the undertaking and only owes a duty to exercise the due care and skill which reasonably may be expected in all the circumstances.
[43] Mr. Glasford submits that a gratuitous agent does not breach a duty of care by failing to warn the principal of the risks involved in the transaction in which the agent is engaged. He quotes the following from Professor Fridman’s text at p. 101:
The agent may be under no obligation to warn the principal of the risk, if the principal understood the risk involved in the undertaking (…) Nor is he obliged to protect the principal from the principal's own stupidity. (…) In other words, it is no part of an agent's duty of performance to protect the principal from the latter's own incompetence or folly.
[44] Mr. Glasford’s essential argument on the appeal was that the Deputy Judge made palpable and overriding factual errors that led him to the further error of attributing to Mr. Glasford, who was just a Club Member and an amateur investor, the standard of care appropriate to a professional investment adviser.
E. DISCUSSION AND ANALYSIS
1. The Standard of Appellate Review
[45] An appellate court is obliged to show deference to the factual findings of a trial judgment. It should not interfere with a trial judge's findings of fact, unless there is a palpable and overriding error. An appellate court is not entitled to interfere merely because it takes a different view of the evidence. A palpable error is one which is so overriding as to discredit the result.[^4]
[46] However, on questions of law, the standard of review is correctness.[^5]
[47] On questions of mixed fact and law, the standard is palpable and overriding error if the issue is the interpretation of the evidence as a whole, and correctness if the issue is interpretation of a legal standard or its application.[^6] A finding of liability in negligence is a question of mixed fact and law that is entitled to deference upon appellate review.[^7]
2. The Deputy Judge’s Finding that Glasford Investments Inc. was Vicariously Liable
[48] I shall begin my own analysis of the Deputy Judge’s decision by saying that he did make a palpable and overriding factual error in concluding that Glasford Investments Inc. was vicariously liable for Mr. Glasford’s negligence.
[49] There was no evidence that Mr. Glasford was acting in the course of employment with his company when he gratuitously offered to allow Ms. MacDonald to participate in his purchase of three Maple Leaf Investment Bonds. Such little evidence as there was revealed that the business of Glasford Investments Inc. was to invest in foreclosures not to act as an agent for other investors.
3. The Deputy Judge’s Finding that Mr. Glasford was Negligent
[50] The situation is different with respect to the Deputy Judge’s finding that Mr. Glasford – in his personal capacity – was negligent. Here, there was no palpable or overriding factual error that provides a basis for overturning the Deputy Judge’s legal analysis and his ultimate conclusion.
[51] The fundamental weakness in Mr. Glasford’s argument is that he conceded that he was a gratuitous agent who offered to do a service for Ms. MacDonald and he conceded that gratuitous agents have a duty of care. Once these concessions were made, the issue became what was the standard of care, and, alas, for Mr. Glasford however high or low that standard was set, the evidence established that Mr. Glasford was careless.
[52] That concession that he had a duty of care and the evidence of Mr. Glasford’s carelessness established that Mr. Glasford breached even the lowest of standards of care. Put somewhat differently, if the standard of care for liability was the highest standard of gross negligence, then Mr. Glasford was grossly negligent.
[53] He was grossly negligent not only for Ms. MacDonald but also for himself. There was no justification and only the explanation of having been enticed by the allure of quick riches for him subscribing for an investment that was only for an “accredited investor.”
[54] Once he read the so-called Offering Memorandum, he knew or ought to have known that it would be foolish to make this investment. He went ahead not once but twice when he reinvested the funds from Bond 401 into Bond 402.
[55] I do not wish Mr. Glasford to think that he lost this case because of the concessions he made. Those concessions were correct and true. Absent the concessions, the evidence would have still established that Mr. Glasford was a gratuitous agent with some duty of care.
[56] Mr. Glasford had the choice of not assisting Ms. MacDonald, and in hindsight, it may have been a mistake for him to take on any responsibility to protect Ms. MacDonald. But he did take on some duty of care and then he breached that duty.
[57] Mr. Glasford may have been just doing Ms. MacDonald a favour, but he undertook to do that favour and he has acknowledged that he had some duty of care in the circumstances. The Deputy Judge’s analysis of negligence was sound and there is no basis for setting aside the judgment against Mr. Glasford.
F. CONCLUSION
[58] For the above reasons, the appeal is dismissed.
[59] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Ms. MacDonald’s submissions within twenty days from the release of these Reasons for Decision followed by Mr. Glasford’s submissions within a further twenty days.
Perell, J.
Released: April 17, 2014
CITATION: MacDonald v. Glasford, 2014 ONSC 2448
DIVISIONAL COURT FILE NO.: 367/12
DATE: 20140417
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
MICHELLE MACDONALD
Plaintiff/Respondent
– and –
OLIVER GLASFORD and GLASFORD INVESTMENTS INC.
Defendants/Appellants
REASONS FOR DECISION
PERELL J.
Released: April 17, 2014
[^1]: Markham, ON: LexisNexis Canada Inc., 2012 at pp. 102-107. [^2]: Toronto, ON: Thomson Reuters Canada, 2009 at p. 165. [^3]: At paragraph HAY-70 (QL). [^4]: Housen v. Nikolaisen, 2002 SCC 33 at para. 56. [^5]: Housen v. Nikolaisen, 2002 SCC 33. [^6]: Housen v. Nikolaisen, 2002 SCC 33. [^7]: Housen v. Nikolaisen, 2002 SCC 33 at para. 29.