COURT FILE NO.: CV-14-10539-00CL DATE: 20190510 ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

BETWEEN:

MONTROSE HAMMOND & CO. and THE RAILLERY FUND LP Plaintiffs – and – CIBC WORLD MARKETS INC. and BELZBERG TECHNOLOGIES INC. Defendants

Counsel: David Greenwood and Barry Prentice for the Plaintiffs Geoff Hall and Renée Zatzman for the Defendant CIBC World Markets Inc.

HEARD: April 1 to 5 and April 8, 2019

Penny J.

Overview

[1] This is an action for damages for breach of contract or negligence. The action arises out of a 2008 agreement under which CIBC World Markets Inc. agreed to provide direct market access (DMA) services (including CIBC-owned and developed automated trading software) to a startup hedge fund.

[2] The plaintiffs allege that the DMA system malfunctioned on March 18, 2009, resulting in the plaintiffs becoming committed to a very high volume of error trades. The direct loss associated with unwinding these error trades, the parties agree, was $1,019,851.

[3] The plaintiffs also allege that these losses inflicted a fatal wound to the new hedge fund. Within 18 months, the hedge fund was shut down. The plaintiff Montrose, therefore, also claims loss of profits in a range from $500,000 to $164.5 million, depending on the growth and return assumptions used. Each side called expert evidence on loss quantification – the experts came to very different conclusions.

[4] There were two software programs implicated in the March 18, 2009 error trades: one was a program licensed by CIBC from Belzberg Technologies Inc. called QuoteAgent; the other was CIBC’s proprietary automated trading software called Viper.

[5] The plaintiffs sued both CIBC and Belzberg. Belzberg became bankrupt in 2012. The plaintiffs received $95,000 from the bankrupt estate, which the parties agree (and Hainey J. ordered) operates as a credit against any amount for which CIBC may ultimately be found liable.

[6] CIBC maintains that the malfunction was caused either by the plaintiffs themselves or by Belzberg and that CIBC was not involved in and had no knowledge of the actions that led to the system malfunction on the fateful day.

[7] CIBC further argues that it excluded all liability by contract or, in the alternative, at least excluded all liability for lost profits.

[8] Finally, CIBC argues that the damages claimed are excessive and must, in any event, be reduced for various factors including a 50% reduction for contributory negligence on the part of the plaintiffs.

The Issues

[9] The five basic issues for resolution are:

(1) is CIBC prima facie liable for the system malfunction which caused the loss? (2) did CIBC contractually exclude this liability? (3) did CIBC contractually exclude liability for lost profits? (4) what damages, if any, are the plaintiffs entitled to? and (5) was Montrose contributorily negligent?

Background

[10] Mr. Geoffrey and Ms. Ferrarese were successful pro traders [1] who had been working at National Bank Financial. In 2007 they decided to leave National Bank Financial and set up their own hedge fund. They spent time talking to people in the industry and in consultation with regulators, accountants and lawyers.

[11] In January 2008 they set up a fund, called the Raillery Fund, in the form of a limited partnership. Subscribers applied for units in the limited partnership. The general partner was MH Partners Ltd. The general partner engaged Montrose Hammond & Co. as the investment manager to provide investment management advice and administration services to the partnership. MH Partners and Montrose Hammond were run by Mr. Geoffrey and Ms. Ferrarese.

[12] The Fund began with $550,000, most of which was put up by Mr. Geoffrey and Ms. Ferrarese. By March 2009, it had raised an additional $2.65 million (for total capital raised of $3.2 million) from other investors.

[13] As a small startup, neither plaintiff had any market or trading systems of their own. They began by acquiring DMA and custodial and fiduciary services (called “prime brokerage” services in the industry) from third party suppliers, in this case, major banks.

[14] In February 2008, Mr. Geoffrey and Ms. Ferrarese began talking to representatives of CIBC about acquiring DMA services from CIBC. There was a good deal of controversy at the trial about what was said at two meetings in early February 2008 and what, if any, legal or contractual consequence any statements made at those meetings should have. I will return to this issue in the Analysis which follows below.

[15] In any event, on February 15, 2008, Mr. Geoffrey signed, on behalf of Montrose, a Systems Interconnect Agreement (SIA) with CIBC. The recitals to the SIA outline various surrounding circumstances, including that CIBC had electronic access arrangements in place with third-party providers in order to transmit orders to the major North American securities exchanges. The recitals also indicate that CIBC and Montrose desired to facilitate a connection between Montrose and CIBC’s trading system, which included licensed software as well as proprietary software developed by CIBC, to enable Montrose to transmit orders to the various exchanges with which it wanted to do business.

[16] The SIA says that CIBC’s agreement to provide Montrose access to CIBC’s trading system constitutes a valid and binding obligation on CIBC. CIBC represented that it had all required consents and licences from the applicable software vendors, third-party providers and various exchanges in order to allow the systems interconnect between CIBC and Montrose to be effective for trading on these exchanges. Among other things, CIBC agreed to provide assistance to Montrose from time to time in respect of order entry and execution, cancellation of orders, transmission of data and confirmation of trades.

[17] The SIA also contains a number of provisions which CIBC says exclude or limit its liability in connection with any malfunctions of the trading system. I will return to these provisions, which are at the heart of this litigation, in the Analysis below.

[18] The plaintiffs were aware that certain components of CIBC’s trading system were provided to CIBC under licence from Belzberg. Importantly, however, the plaintiffs at no time had any contract with Belzberg and, prior to September 2008, never dealt directly with Belzberg about any aspect of CIBC’s trading system or support for the DMA services being provided to Montrose by CIBC. Mr. Geoffrey and Ms. Ferrarese always called CIBC for assistance and, if the problem related to a Belzberg component of the trading system, it was CIBC who dealt with Belzberg, if necessary, to fix it.

[19] In June 2008, the plaintiffs agreed to move their prime brokerage services to CIBC as well. This resulted in a client services agreement (CSA), and certain other agreements, executed on June 25, 2008 by CIBC and the Fund.

[20] It is not in dispute that between February 2008 and February 2009, the plaintiffs experienced several problems with CIBC’s trading system that resulted in error trades. In all of these 10 to 12 instances but one, CIBC agreed to “take the trade.” This meant that CIBC absorbed or looked after any loss associated with the error trade. In the one case that CIBC did not agree to take the trade, the evidence is that the error resulted from an incorrect quote coming from the TSX, not from CIBC’s DMA trading system. There is a dispute about both the evidentiary and legal consequences of this course of conduct. I will return to this issue in the Analysis below.

[21] At a meeting in September 2008, CIBC instructed the plaintiffs to start contacting Belzberg directly if there was a problem with any part of the DMA platform software provided by Belzberg. This was the first that the plaintiffs became aware of the extent of Belzberg’s involvement in supporting the trading system because, prior to this meeting, the plaintiffs had always gone to CIBC for any necessary support functions. In any event, I agree with the plaintiffs that this change did not affect the contractual nature of the relationship between the plaintiffs and CIBC. Thereafter, the plaintiffs did as instructed by CIBC and, when necessary, communicated directly with Belzberg about Belzberg software issues without the need to obtain permission from CIBC in order to do so.

[22] By March 2009, the Fund was having considerable success so Montrose decided to add a third trader. Montrose consulted with CIBC to ensure that it was buying the appropriate computer that would work with the DMA platform. The new computer obviously then had to be outfitted with the appropriate software and connected to CIBC’s DMA platform. The new computer was going to be used by Mr. Geoffrey and Mr. Geoffrey’s former computer was going to be used by the new trader.

[23] On the morning of March 18, 2009, CIBC IT staff installed CIBC’s automated trading program, Viper, on Mr. Geoffrey’s computer. This was confirmed by an email to Mr. Geoffrey at 9:59 AM. CIBC advised that they had successfully sent a test order as well. Later that morning, Mr. Geoffrey advised CIBC and Belzberg of two other issues: that the new trader (using Mr. Geoffrey’s old computer) was unable to connect to the market and was therefore unable to do any trading at all; and that Mr. Geoffrey was unable to get one aspect of the software, called ACTIVWorkstation, operating on his new computer. Mr. Geoffrey’s evidence was that ACTIVWorkstation was not critical and that this fix could have been done at any time.

[24] After September 2008, Montrose’s main contact with Belzberg was through Ted Good. Around 1:47 PM on March 18, 2009, Mr. Good and Mr. Geoffrey spoke by telephone. Mr. Geoffrey testified that Mr. Good wanted to check some settings for ACTIVWorkstation on Mr. Geoffrey’s computer. Mr. Good said he already had a WebEx session open on the new trader’s computer and asked Mr. Geoffrey to join that WebEx session so that Mr. Good could review the configuration settings on Mr. Geoffrey’s computer as well. Mr. Geoffrey authorized the WebEx on his computer.

[25] Mr. Geoffrey was working on the computer at the time. He testified that he did not authorize, and was not asked to authorize, Mr. Good to perform any work on his computer at that time. Mr. Geoffrey testified that he understood this was to be a “view only session” and that he was told Mr. Good only “needed to see what the settings were.” He told Mr. Good to terminate the WebEx session immediately after checking those settings. There is no contrary evidence.

[26] At approximately 2:15 PM, the US Federal Open Market Committee was making an announcement regarding US monetary policy. This announcement, at the height of the financial crisis, involved the Feds’ introduction of quantitative easing.

[27] Mr. Geoffrey was working on his computer, beginning to initiate a trading strategy based on the Fed announcement. Both QuoteAgent and Viper were running and being used. Within minutes, Mr. Geoffrey noticed a series of disconnection and error messages flashing on his computer screen and it appeared that Viper had traded a number of different stock symbols without his input. Mr. Geoffrey tried, without success, to cancel all orders in Viper and immediately contacted CIBC to report these erroneous trades.

[28] There was a great deal of initial confusion over the cause and number of error trades. CIBC could not obtain accurate information immediately. Montrose tried to cancel as many trades as it could. In addition, the CIBC trader who stepped in to deal with this problem found that, although he tried to “kill the trades,” the system was “still putting it back out there.” Hundreds of thousands of shares were purchased erroneously in about 90 seconds.

[29] It was only subsequently that the parties discovered what caused this malfunction. Unbeknownst to Mr. Geoffrey, between 1:47 and 2:15 PM Mr. Good had another Belzberg employee, Said Elkhazander, log in to Mr. Geoffrey’s computer during the WebEx to perform some work.

[30] Mr. Elkhazander testified at the trial. [2] Mr. Elkhazander said he was asked to work off Mr. Good’s computer, which already had an active WebEx open with Montrose. Mr. Elkhazander did not know whose computer he was logging into and did not speak with Mr. Geoffrey at all. He understood from Mr. Good that Montrose wanted ACTIVWorkstation integrated with the other Belzberg applications on this computer. When he looked at Mr. Geoffrey’s computer screen during the WebEx, he saw that Belzberg’s order management software was operating and that there were open orders. He also saw that QuoteAgent was operating on Mr. Geoffrey’s computer. He was not aware, however, that Viper was operating. Mr. Elkhazander testified that once he was given access, he closed QuoteAgent and made configuration changes to enable ACTIVWorkstation on Mr. Geoffrey’s computer. Almost immediately, he lost mouse control and the WebEx was terminated. Later, Mr. Elkhazander, was given to understand that, as a result of turning off QuoteAgent, Viper traded a lot of stock at stale prices resulting in a trading loss.

[31] CIBC does not dispute this account. The plaintiffs read in as part of their case the following admissions on the discovery of CIBC’s deponent:

A. Okay. CIBC thinks that the QuoteAgent was turned off on Craig’s computer while his Viper sheet was running with a lot of live orders and as a result, as the markets rallied, Craig’s sheet sold a lot of stock at stale prices, resulting in a huge trading loss. Q. And so it would appear that the cause of the trading loss is the fact that QuoteAgent was disconnected, which then caused Viper to have bad information and then it executed trades on the bad information? A. Correct

[32] By the next day, CIBC had made it clear that it was not going to take responsibility for these error trades. Further, CIBC instructed Montrose to “flatten” all of the outstanding trades, [3] failing which CIBC would do so unilaterally. Mr. Geoffrey was not happy about this, believing the better course was to hang on to the positions in the expectation that the market would turn in their favour. However, faced with CIBC’s ultimatum, Montrose flattened all the trades. This is what generated the trading loss of $1,019,851.

[33] Ongoing discussions with CIBC failed to produce any resolution acceptable to the plaintiffs. The plaintiffs issued this claim, which was served on CIBC on June 5, 2009. The following Monday, June 8, 2009, CIBC instructed Belzberg to terminate the plaintiffs’ access to the entire trading system without notice. This was contrary to the provisions of the SIA, which required 60 days’ advance notice of termination. After the plaintiff threatened additional legal action, CIBC restored access to the trading system. CIBC then delivered notice that it was terminating the SIA in 60 days and the CSA, relating to prime brokerage services, in 14 days. These deadlines were temporarily extended but, by the end of the summer, the plaintiffs had severed all connection with CIBC.

Analysis

1. Is CIBC Prima Facie Liable for Breach of the SIA?

[34] Reviewing the SIA as a whole, I find CIBC contracted, for a fee, to provide Montrose with an operating DMA platform. CIBC also contracted with Montrose to support that DMA platform. The suite of services CIBC contracted to provide as part of the DMA platform included software licensed from third parties, such as Belzberg, and proprietary software developed by CIBC itself. This suite of applications included QuoteAgent (a Belzberg product) and Viper (a CIBC product) which interacted with one another to enable Montrose to effect automated trading through the DMA platform being provided under contract by CIBC.

[35] Montrose had no contract with Belzberg. Belzberg had no direct contractual obligations to Montrose to provide services or support and Montrose had no direct contractual right vis-à-vis Belzberg to demand such services or support. Montrose was entitled to look to CIBC, and CIBC alone, for the performance of CIBC’s obligations under the SIA.

[36] Theoretically, therefore, failure to fulfil CIBC’s obligations to provide and support the DMA platform would constitute a breach of contract by CIBC giving rise to a claim for damages. The question of whether liability was excluded or limited will be addressed under the next issue.

[37] The evidence discloses that CIBC was not itself performing any support services for Montrose during the incident in the afternoon of March 18, 2009. Nor was CIBC aware Belzberg was working on Mr. Geoffrey’s and the new trader’s computers that afternoon. However, the evidence also discloses that, up to September 2008, CIBC had always fielded all requests for assistance and support from Montrose and, while Belzberg was often involved in providing the required support or assistance, this was not readily apparent to Montrose.

[38] Beginning in September 2008, however, CIBC told Montrose it was no longer necessary to contact CIBC with all requests for support and assistance. Rather, Montrose was instructed to call CIBC for support in relation to CIBC products and software and to deal directly with Belzberg in relation to any assistance or support needed with respect to Belzberg products and software.

[39] Montrose, therefore, was instructed that it was no longer necessary to call or notify CIBC if Montrose required assistance or support in respect of Belzberg products or services licensed to CIBC which CIBC was, in turn, sublicensing to Montrose under the SIA. Montrose was instructed to call Belzberg directly.

[40] It is clear on the evidence that the error trades on March 18, 2009 arose from actions taken by Mr. Good and Mr. Elkhazander during the WebEx session on Mr. Geoffrey’s computer. On the available evidence I find that the cause of the error trades that took place on March 18, 2009 was the unauthorized act of turning off QuoteAgent while Viper was running, which caused Viper to execute automated trades on the basis of stale, and apparently static, market data.

[41] The issue of CIBC’s liability, therefore, turns on whether:

(1) Mr. Good and Mr. Elkhazander were acting in the capacity of CIBC’s agents; and (2) working on Mr. Geoffrey’s computer in this way, while Mr. Geoffrey was actively trading using QuoteAgent and Viper, was a breach of contract or negligent.

[42] By contract between Belzberg and CIBC, Belzberg was not CIBC’s actual agent. Montrose, however, had no knowledge of CIBC’s contractual relationship with Belzberg beyond the bare fact that CIBC was providing Montrose with Belzberg products under licence as part of CIBC’s obligations to provide a DMA platform under the SIA.

[43] Thus, the first question turns on whether Mr. Good and Mr. Elkhazander were acting as CIBC’s apparent or ostensible agents. In my view, they were.

[44] Ostensible or apparent authority arises where the principal permits the agent to act in relation to the principal’s business with the effect that it appears to the outside world that this agent is authorized to act for the principal, Fridman, Canadian Agency Law (3rd ed.), LexisNexis 2017 at p. 215. To similar effect, as stated by the Court of Appeal for Ontario, apparent or ostensible authority arises in favour of an agent where the principal has impliedly represented that another person has the authority to act on the principal’s behalf. The implied representation, however, must be that of the principal, not the agent, Hav-A-Kar Leasing Ltd. v. Vekselschtein, 2012 CarswellOnt 15041 at para. 42.

[45] Here, the plaintiffs’ only contract was with CIBC. It was CIBC’s responsibility, not Belzberg’s, to support the DMA platform licensed to Montrose. It was CIBC that told Montrose in September 2008 it was no longer necessary to call or notify CIBC of problems with Belzberg software and that Montrose should deal directly with Belzberg on such issues. It is clear Belzberg had no direct obligations to Montrose under the SIA. CIBC, therefore, represented to Montrose that Belzberg had ostensible or apparent authority to fulfil CIBC’s support obligations under the SIA.

[46] On March 18, 2009, Montrose called Belzberg about some problems with a Belzberg product licensed to Montrose by CIBC as part of the DMA platform; the product was ACTIVWorkstation. Mr. Good was Montrose’ designated and authorized contact at Belzberg. Mr. Good and Mr. Elkhazander were not off on a frolic of their own. They were doing (as Montrose had done by calling them) exactly as they had been instructed to do by CIBC; that is, support the Belzberg components of the DMA platform CIBC was providing Montrose and respond to requests from Montrose for that support.

[47] In the circumstances, I can reasonably come to no other conclusion but that this made Mr. Good and Mr. Elkhazander CIBC’s apparent or ostensible agents.

[48] CIBC also relies, however, on article 5.1 of the SIA in which Montrose acknowledged that connectivity to and availability of the DMA platform was “the responsibility of the applicable software vendor” who granted the licence. Article 5.1 states:

The Client (including, for purposes of this Article 5, all Eligible Traders) acknowledges and agrees that connectivity to the Trading System and the availability of the Trading System to effect the Systems Interconnect are the responsibility of the applicable software vendor who has granted the license to CIBC WM to use its software and to access its services for electronic order processing. In the event of a failure, malfunction or disruption of the Trading System or the Systems Interconnect, CIBC WM shall endeavour to assist the Client with order transmission and execution, cancellation of an order, transmission of data, and confirmation of trades. The Client may contact trading personnel of CIBC WM by calling one of the designated telephone numbers (provided to Client from time to time) and placing an order. CIBC WM shall use reasonable commercial efforts to transmit Eligible Orders on behalf of the Client by telephone, facsimile or such other methods as CIBC WM considers reasonable and appropriate until the trading System and Systems Interconnect have been restored.

[49] It is not clear to me how this helps CIBC in connection with this issue. This clause is neither an exclusion nor a limitation of liability. Whether Belzberg was “responsible” [4] for the QuoteAgent software does not change the fact that Montrose had no privity of contract with Belzberg or that CIBC authorized Belzberg and held Belzberg out as competent to assist in fulfilling what were otherwise CIBC’s contractual obligations to support the DMA platform it had licensed to Montrose.

[50] It seems to me undeniable as well that CIBC was, in the ordinary course of affairs, obliged to performance its support obligations reasonably and competently. This standard of performance applied equally to CIBC’s agents.

[51] CIBC called as a witness, Tim Hopkins of Deloitte Canada, an expert in software development, integration, process change and organizational restructuring. Mr. Hopkins testified about proper precautions to take when maintaining software. He expressed the opinion that:

• if QuoteAgent is down, Viper should also be taken down so Viper does not execute automated trades based on stale data
• Viper should be turned off when the trader shares access to his computer, given the trader could “lose control” over his own device
• Viper should be closely monitored during trading activities
• Viper should never be forced to shut down, otherwise it could leave open orders unattended in the market.

[52] I accept Mr. Geoffrey’s evidence that he authorized “view access only” to Mr. Good and was led to believe that the WebEx on his computer was solely for the purpose of looking at his ACTIVWorkstation settings. There is no evidence, however, that Mr. Good explained any of this to Mr. Elkhazander.

[53] Mr. Elkhazander admitted he was aware Mr. Geoffrey had trading programs open (although he did not see Viper). Mr. Elkhazander further admitted that he shut down QuoteAgent without telling or asking Mr. Good or Mr. Geoffrey in advance.

[54] Mr. Good and Mr. Elkhazander did not follow Mr. Hopkins’ recommendations. Contrary to Mr. Geoffrey’s express understanding that the WebEx was a “view only” session, Mr. Elkhazander shut down QuoteAgent without asking Mr. Geoffrey for permission or warning him, without knowing what trading programs were open on Mr. Geoffrey’s computer and without confirming what Mr. Geoffrey was actually doing on his computer at the time or what other programs (including Viper) were running.

[55] Thus, Mr. Good and Mr. Elkhazander did not take any steps to inform themselves what Mr. Geoffrey was doing or to understand what they were dealing with and executed remedial measures on Mr. Geoffrey’s computer without telling Mr. Geoffrey.

[56] There is a dispute in the evidence about what Mr. Geoffrey and representatives of CIBC said about the risks of automated trading during their meetings in February 2008. That issue will be addressed in the next section of these Reasons. What is undeniably the case, however, is that Belzberg, CIBC and Montrose were all aware that automated trading posed certain risks. They were also aware that Belzberg’s and CIBC’s trading software products (QuoteAgent and Viper specifically) were intended to operate together and to interact in the execution of automated trades. According to Mr. Hopkins, whose evidence on this issue I accept, Belzberg was also aware, or ought reasonably to have been aware, that if QuoteAgent were taken down, Viper should also be taken down so Viper could not execute automated trades based on stale data.

[57] In my view, it was neither reasonable nor competent of Mr. Elkhazander to have turned off QuoteAgent on Mr. Geoffrey’s computer in the circumstances. He did so as CIBC’s apparent or ostensible agent in breach of CIBC’s obligation to support the DMA platform which CIBC was providing to Montrose.

2. Did CIBC Exclude This Liability?

[58] Mr. Geoffrey and Ms. Ferrarese testified that during the meetings with CIBC in February 2008 they raised concerns about the risks of automated trading. They say they asked Mr. Dickson and his boss, Mr. Piszel, ‘who would be responsible if a trading error occurred due to a problem with the DMA platform?’ They say that both CIBC representatives responded by telling them that CIBC would “take the trades” if errors resulted from a problem with CIBC’s DMA platform. Mr. Dickson, they conceded, said CIBC would not “take” an error trade if the error resulted from something that was outside CIBC’s control or not CIBC’s fault.

[59] The plaintiffs wish to rely on this evidence to support their claim that CIBC is liable for losses resulting from malfunctions in the DMA platform which caused error trades.

[60] CIBC argues that this evidence is inadmissible or, if admissible, should not be believed or relied upon because it is:

(a) parol evidence tending to subjective evidence of intention rather than objective evidence of surrounding circumstances; (b) evidence of pre-contractual negotiations; (c) precluded by the SIA because: (i) the SIA confirms that CIBC gave no warranty; and (ii) the SIA contains an entire agreement clause, precluding reliance on pre-contractual representations of any kind; and (d) unsupported by any contemporaneous documentary evidence. Mr. Geoffrey and Ms. Ferrarese have an obvious interest in the outcome of these proceedings. They were well educated, sophisticated parties who signed commercial agreements with CIBC knowing they were intended to be binding. Their recollection of events years after the fact must yield to the documentary record.

[61] I agree with CIBC on this issue. My reasons for this conclusion are set out below. I will first, however, consider the relevant principles to be applied when interpreting commercial contracts and assessing the reliability or credibility of oral testimony in relation to commercial contracts.

[62] A commercial contract is to be interpreted:

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective; (b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the cardinal presumption that they have intended what they said; (c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and, to the extent there is any ambiguity in the contract, (d) in a fashion that accords with sound commercial principles and good business sense and that avoids a commercial absurdity.

Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, [2007] O.J. No. 1083 (C.A.) at para. 24.

[63] The Supreme Court of Canada considered the principles of contract interpretation in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53. The overriding concern is to determine the intent of the parties. To do so the decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own. No contract is made in a vacuum (para. 47).

[64] While the surrounding circumstances will be considered in interpreting the terms of the contract, they must never be allowed to overwhelm the words of the agreement. The goal of examining such evidence is to deepen the decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. Interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (para. 57).

[65] While the nature of the evidence to be considered as surrounding circumstances varies from case to case, it should consist only of objective evidence of the background facts at the time of the execution of the contract. This involves knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting (para. 58).

[66] The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing. The rule precludes, among other things, evidence of the subjective intentions of the parties. The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract (para. 59).

[67] These purposes are exemplified by the reasons of Ground J. in Misfud v. Owens Corning Canada Inc., 2003 ONSC 8654 when he said, at para. 15:

The rationale of the exclusion of such evidence is, as stated in the Respondent’s factum, that no system of commerce could function if, every time there was some ambiguity in the wording of a contract, there had to be a parade of witnesses who had been involved in the negotiation of the contract giving conflicting evidence, with the benefit of hindsight, as to what positions the parties took at various stages during the negotiations and as to what the parties subjectively intended to agree to or subjectively understood the contract to mean.

[68] This problem of shifting incentives with the benefit of hindsight, knowing a problem has arisen and in the face of contested litigation, also raises problems with the assessment of witness testimony for reliability and credibility.

[69] Where oral testimony conflicts with reliable documentary evidence, the documentary evidence may appropriately be preferred. In Bradshaw v. Stenner, 2010 BCSC 152, [2010] B.C.J. No. 1953, at para. 188, the B.C. Supreme Court said:

Most helpful in this case has been the documents created at the time of events, particularly the statements of adjustments. These provide the most accurate reflection of what occurred, rather than memories that have aged with the passage of time, hardened through this litigation, or been reconstructed.

[70] Thus, one must subject a witness’ testimony to an examination of its consistency with probabilities that surround other evidence. Does it match with other proven or undisputed facts of the case? Documents created at the time of the events are very helpful as they can provide the most accurate reflection of what occurred, rather than memories that have aged with the passage of time, harden through litigation or been reconstructed.

[71] To the extent, therefore, that the evidence of Mr. Geoffrey and Ms. Ferrarese consists of subjective evidence of intentions or pre-contractual negotiations, the evidence is inadmissible, both by virtue of the common law and the entire agreement clause in the SIA.

[72] To the extent that their evidence attempts to elevate CIBC’s statements during these meeting to the status of contractual promises, the evidence is also excluded as parol evidence. This is because this evidence seeks to vary the written contract. It is also excluded by virtue of the entire agreement clause.

[73] Finally, even if the evidence were to be admitted, I would afford it limited if any weight. This is because, 11 years after the fact, when positions have hardened in prolonged litigation, I must regard these witnesses’ evidence with some scepticism, particularly when it purports to contradict or vary express contractual provisions they agreed to at the time.

[74] Mr. Dickson also gave evidence about his recollections of the February 2008 meetings. His evidence is subject to the same legal and evidentiary frailties. I therefore regard his evidence on this issue with an equivalent level of scepticism.

[75] This does not end the matter, however, because the issue of whether CIBC has excluded the liability identified in my discussion of the first issue still turns on the interpretation of article 6.1 of the SIA.

[76] Article 6.1 of the SIA provides that Montrose “understands and acknowledges” that electronic securities trading has risks and uncertainties, beyond CIBC’s control that may lead to trading losses. Montrose goes on to acknowledge that these risks include temporary or permanent breakdown of telecommunications connections, delayed, inaccurate or incomplete market data, sabotage, hacker attacks, and malfunction of hardware and equipment not located on CIBC’s premises and operating system and application software not owned by CIBC. “Accordingly,” this provision goes on to say, CIBC shall not be liable in respect of any matter, directly or indirectly, arising out of or based upon the agreement or in relation to the systems interconnect and the trading system.

[77] The full text of article 6.1 is set out below:

Liability — The Client understands and acknowledges that electronic securities trading is inherently subject to risks and uncertainties beyond CIBC WM’s control that may lead to trading losses on the part of the Client and/or its customers. These risks include, without limitation, temporary or permanent breakdown or loss of telecommunication connections; delayed, inaccurate or incomplete market data; sabotage; hacker attacks; and malfunction of hardware and equipment not located on CIBC WM’s premises, operating system and application software not owned by CIBC WM. Accordingly, neither CIBC WM nor any of its affiliates or its or their respective shareholders, subsidiaries, directors, officers, employees, partners or agents shall be liable to the Client or any other person asserting any claim on behalf of or in right of the Client for or in respect of any matter, directly or indirectly, arising out of or based upon this Agreement including in relation to the Systems Interconnect and the Trading System.

[78] The parties agree that the leading case on the interpretation of limitation of liability clauses is Tercon Contractors Ltd. v. British Columbia (Minister of Transportation and Highways), 2010 SCC 4. In particular, the focus is on the reasons of Binnie J. who, although dissenting from the result, wrote what is now the definitive statement of the law on the interpretation of exclusion clauses. There is a three part test: 1) whether, as a matter of interpretation, the exclusion clause applies to the circumstances in issue; 2) whether the exclusion clause is unconscionable; and 3) whether the court should override the exclusion clause on the basis of public policy. Commencing at para. 121, Justice Binnie wrote:

121. The present state of the law, in summary, requires a series of inquiries to be addressed when a plaintiff seeks to escape the effect of an exclusion clause or other contractual terms to which it had previously agreed.
122. The first issue, of course, is whether as a matter of interpretation the exclusion clause even applies to the circumstances established in evidence. This will depend on the Court’s assessment of the intention of the parties as expressed in the contract. If the exclusion clause does not apply, there is obviously no need to proceed further with this analysis. If the exclusion clause applies, the second issue is whether the exclusion clause was unconscionable at the time the contract was made, “as might arise from situations of unequal bargaining power between the parties” (Hunter, at p. 462). This issue has to do with contract formation, not breach.
123. If the exclusion clause is held to be valid and applicable, the Court may undertake a third inquiry, namely whether the court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy, proof of which lies on the party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts.

[79] CIBC argues that the exclusion clause cannot be set aside on the basis of any of these factors. The focus, however, is on factor one. CIBC advances three arguments based on article 6.1 of the SIA:

(1) 6.1 generally excludes liability for “any matter, directly or indirectly, arising out of or based upon” the agreement; (2) 6.1 excludes liability for “risks and circumstances beyond CIBC’s control”; and (3) 6.1 excludes liability for trading losses caused by “delayed, inaccurate or incomplete market data” or a “malfunction of…[the] operating system and application software not owned by” CIBC.

I will address each of these arguments below.

1. “Any matter, directly or indirectly, arising out of or based upon”

[80] CIBC’s first and broadest application of the exclusion clause is that article 6.1 excludes liability for any matter whatsoever arising in any way out of the agreement. During oral argument, I asked counsel for CIBC whether this would extend to liability for any breach by CIBC of the SIA, however blatant or egregious. Counsel answered my question in the affirmative.

[81] There are two reasons why I declined to interpret the reach of article 6.1 as extending that far. First, as Binnie J. noted in Tercon, there is a strong public interest in the enforcement of contracts. That policy applies to all contracts, not just exclusion clauses. The SIA, as noted earlier, provides in article 3.2(b), that the agreement represents a valid and binding obligation, enforceable against CIBC in accordance with its terms. If, “in accordance with its terms” means article 6.1 excludes all liability for absolutely anything, articles 3.2(b) and 6.1 are self-defeating; 6.1 takes away whatever 3.2(b) promised. There is, as a result, no enforceable obligation at all and, in the absence of any enforceable obligation, no contract. CIBC’s interpretation of article 6.1 under the first argument, in my view, stands the principles of contractual interpretation on their head. The interpretation advanced by CIBC results in CIBC’s obligations under the SIA having no meaning and renders the entire agreement ineffective. This is not in accordance with sound commercial principles and good business sense. It results in a logical absurdity: a contract which is no contract at all.

[82] The second reason I reject the broad scope for article 6.1 urged upon me by CIBC is based upon the structure and language of article 6.1 itself. Article 6.1 begins with the stipulation that electronic securities trading is inherently subject to risks and uncertainties “beyond CIBC’s control.” The article then goes on to list five such risks:

(i) temporary or permanent breakdown or loss of telecommunications connection; (ii) delayed, inaccurate or incomplete market data; (iii) sabotage; (iv) hacker attacks; and (v) malfunction of hardware and equipment not located on CIBC’s premises and operating system and application software not owned by CIBC.

[83] Article 6.1 then begins a new sentence with the word “Accordingly…” and goes on to set out the exclusionary language. “Accordingly” means consequently, correspondingly or in a way that is appropriate to the particular circumstances. In article 6.1, the word “accordingly,” therefore, connects those things which are beyond CIBC’s control with CIBC’s exclusion of liability. If liability were truly being excluded for any matter, directly or indirectly, arising out of or based upon the agreement, the word “accordingly”, and all the words before it, would be completely unnecessary. Read harmoniously as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective, article 6.1 can only be read so as to exclude liability for matters which are beyond CIBC’s control and which are in the nature of those five things listed, without limitation, as examples of such matters.

2. Was the risk beyond CIBC’s control

[84] This argument has already been addressed in substance under Issue #1. For the reasons set out, the cause of the March 18 error trades was not beyond CIBC’s control. CIBC did control what happened. CIBC agreed with Montrose to provide and support the DMA. It directed Montrose, as of September 2008, to deal directly with Belzberg regarding any issues Montrose had with Belzberg software. CIBC further told Montrose it need not ask permission or notify CIBC when it did so.

[85] In doing this, CIBC held out Belzberg as its agent for the purposes of supporting the DMA. The March 18 error trades were caused by the actions of CIBC’s apparent or ostensible agent. This was not outside CIBC’s control.

3. Was the loss caused by delayed data or a component of the system not owned by CIBC

[86] CIBC also seeks to bring itself within the enumerated heads of article 6.1.

[87] There was no interruption of telecommunications services, sabotage or hacking. CIBC, however, relies on the “delayed, inaccurate or incomplete market data” category of exclusion on the basis that, when QuoteAgent was turned off, Viper initiated automated trading based on inaccurate or incomplete market data.

[88] The enumerated heads of exclusion in article 6.1 all follow the general proviso that what is excluded is loss arising from risks and uncertainties beyond CIBC’s control. In that context, the delayed market data clause must be interpreted to be a reference to delay, inaccuracy or incompleteness in market data that arose from the actions of third party suppliers of this data, not from the actions (or imputed actions) of CIBC itself.

[89] So, if data provided by the TSX, for example, were inaccurate, that would be beyond CIBC’s control and fall within the proper scope of the exclusion. But, in this case, the “inaccuracy” of the market data had nothing to do with the market or the providers of that data itself. That data continued to be available and there is no suggestion it was inaccurate. The “inaccuracy” of the data, to the extent it arose at all, was the result of CIBC’s apparent or ostensible agent turning off the QuoteAgent program that gave Viper access to the market data.

[90] For these reasons, I find that article 6.1 does not exclude CIBC’s liability on the basis of “delayed, inaccurate or incomplete” market data.

[91] CIBC also argues that the problem arose from an operating system or application software not owned by CIBC. I cannot agree. Even accepting, arguendo, that CIBC did not “own” the QuoteAgent software application [5], the problem did not arise from the QuoteAgent program. The problem arose from the action of CIBC’s agent turning off QuoteAgent, which left Viper (a software application that was owned by CIBC) to run “in the dark” on stale data.

[92] I therefore conclude that the operating system and application software exclusion also does not apply in the circumstances of this case and is not available to CIBC as the basis for an exclusion of liability.

[93] Further support for my conclusions on article 6.1 can be drawn from the fact that, in the period following the formation of the contract, CIBC agreed to “take” a number of error trades provided it was satisfied that the error resulted from malfunctioning of the DMA platform and not from circumstances that were beyond its control (there is no evidence CIBC distinguished between the malfunctioning of CIBC proprietary software and any other software licensed under the DMA platform).

[94] Even if I had not concluded, on a proper interpretation of article 6.1, that it was clear the exclusion clause did not extend to the circumstances of the March 18 error trades, I would, at the very least, have concluded that the problems with article 6.1 raised in my analysis set out above created ambiguity about the proper interpretation of this provision. The Ontario Court of Appeal has held that evidence of subsequent conduct may be admitted in the interpretation exercise where it may assist in resolving an ambiguity in the text of the agreement, Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912 at para 46. The fact that CIBC agreed to “take” error trades in a number of cases that were not beyond its “control,” while not dispositive, is helpful evidence tending to undermine the absolutist interpretation of the exclusion clause advanced by CIBC following the more significant malfunction which occurred on March 18, 2009.

[95] CIBC relies as well on an exclusion clause set out in an Institutional New Account Form signed in June 2008 by The Raillery Fund. The relevant provision states that “the Dealer” shall not be liable for any losses incurred by the Fund “unless such losses are the result of wilful misconduct, fraud or gross negligence on the part of the Dealer.” The full provision states:

The Dealer shall not be liable for:

(i) any damages, expenses, costs, lost data, and trading losses (the "Losses") incurred by the Client unless such Losses are the result of willful misconduct, fraud or gross negligence on the part of the Dealer; (ii) any indirect or consequential Losses incurred by the Client, including lost profits; (iii) any Losses incurred by the Client as a result of any third party failing to perform its obligations to the Client. In such case the Dealer shall be free of its obligations towards the Client to the extent that the transaction is rendered impossible as a result of the third party’s default.

[96] The INAF was entered into by the Fund as part of the agreement by which the Fund acquired prime brokerage services from CIBC. The context of this agreement, when read as a whole, is in respect of the “trading” relationship between the Fund and CIBC, in its capacity as an investment dealer, not as a purveyor of DMA platform technology services. The agreement is concerned, for example, with the sophistication of the client and its ability to appreciate investment risk and the basis upon which CIBC may accept or reject instructions to buy or sell securities on the client’s behalf.

[97] Based on a review of the entire document, I find the exclusion clause in the INAF simply has no application to the circumstances of this case, which is exclusively focused on CIBC’s obligation to provide and support the DMA platform, which in turn enabled the plaintiffs to conduct their own trading.

[98] For all of these reasons, I conclude that the SIA, properly interpreted, did not exclude liability for all possible loss, however arising. Specifically, the liability for the events of March 18, 2008 discussed in connection with Issue #1 was not excluded by article 6.1.

3. Did CIBC Contractually Exclude Liability For Loss of Profits?

[99] Article 6.2 of the SIA provides a further, or perhaps alternative, exclusion of liability “for any indirect, incidental, special or consequential losses or damages.” Article 6.2 states:

No Consequential Damages — In no event will CIBC WM or any affiliate or its or their respective shareholders, employees, officers, directors, or agents be liable to the Client for any indirect, incidental, special or consequential losses or damages (including, but not limited to, loss of profits or revenue or failure to realize expected profits or savings, or the avoidance of any losses) arising out of or related to this Agreement, the Systems Interconnect or use of the Trading System, including the provision of or failure to provide access to the Trading System, regardless of whether such damages could have been foreseen or prevented.

[100] Unlike with article 6.1, I find, on a proper interpretation of article 6.2, that CIBC has excluded liability for lost profits. A provision excluding liability for lost profits does not negate the very obligations undertaken under the contract. Further, this exclusion is not tied to matters beyond CIBC’s control or specified causal factors. The opening phrase of article 6.2, “In any event,” emphasizes this point.

[101] The second part of Montrose’s monetary claim is unambiguously a claim for lost profits. Thus, on a plain reading of article 6.2, that claim is excluded.

[102] There is no basis upon which I can find that the exclusion of liability for lost profits was, at the time of contract formation, unconscionable.

[103] Nor is there any basis upon which I could find there is some public policy against the enforcement of exclusions of liability for lost profits which outweighs the clear public interest in the enforcement of bargains.

[104] The plaintiffs rely on Atos v. Sapient, 2016 ONSC 6852 for the proposition that expectation damages are directed damages and include loss of profits. In Atos, a provision of the contract limited damages to direct damages only. The court concluded that direct damages were expectation damages which include loss of profits. Based on the particular wording in that contract, the court found that loss of profits was not caught by the exclusion of “indirect, special, consequential or punitive damages or lost profits.” The court held that “consequential lost profits” was not intended to include profits under the contract but indirect losses which are only recoverable when they are foreseeable or communicated to the other party. In the present case, however, the lost profit claim is “indirect” or “consequential.”

[105] Atos also turned on the particular wording of the contract in that case. Here, the contract does not subsume the excluded lost profits within the concept of consequential loss. Rather, the excluded loss is specifically defined to include “loss of profits, or failure to realize expected profits.” Due to these essential differencs in the underlying facts, I decline to apply the result in Atos to the circumstances in this case.

[106] For these reasons, I find the SIA excludes CIBC’s liability for lost profits.

[107] For the sake of completeness, I will add that had I come to a different conclusion on the exclusion of damages for lost profits, I would have preferred the evidence of the defendant’s expert, Mr. Andrade, to the plaintiffs’ expert, Mr. Ebel. Accordingly, I would have assessed damages for lost profits at $1,090,000. My reasons for this conclusion, stated briefly, are as follows.

[108] Mr. Ebel used a series of assumptions for annual return on investment of 10 to 50% and annual year-over-year growth from new investment of 20 to 80%. This is what produced 20 possible scenarios and the extraordinary range of $520,000 to $164.5 million. Mr. Ebel expressed no professional opinion on which of these assumptions (or amounts) was the most reasonable or reliable in the circumstances.

[109] I find the basis for Mr. Ebel’s higher assumptions in particular is highly speculative and not established on the evidence. The very idea, for example, of a consistent 50% annual return and annual, consistent year-over-year growth from new capital of 80%, extending out for a lengthy period of time, is utterly beyond the pale. This kind of growth is unheard of and would rapidly have elevated this small start-up into one of the largest hedge funds in Canada.

[110] Mr. Andrade calculated four scenarios, only three of which generated any profit loss. The three scenarios involved 7% annual return and 5% new capital growth (for $340,000), 12% annual return and 15% new capital growth (for $1,090,000) and 17% annual return and 25% new capital growth (for $2.710 million). Mr. Andrade expressed the opinion that the middle set of assumptions of 12% annual return and 15% new capital growth, producing lost profits of $1,090,000, was the most reasonable and appropriate scenario in the circumstances.

[111] I found Mr. Andrade’s assumptions to be thoroughly grounded in objective evidence and well thought out. His assumptions reflected actual market-based data about the hedge fund industry.

[112] Thus, had I allowed a claim for damages for loss of profits, I would have assessed that loss at $1,090,000.

What are the Plaintiff’s Damages?

Trading Loss

[113] The parties agree that the trading loss associated with the March 18 error trades is $1,019,851. From this must be deducted the earlier recovery from the Belzberg estate of $95,000. This produces a net amount of $924,851.

Mitigation

[114] CIBC argues, in addition, that Montrose failed to mitigate its damages on March 18 by immediately “flattening” certain trades once it knew they had been made in error. The following day, when CIBC insisted that Montrose flattened the trades, the market had moved further against the Fund, creating an additional loss of $137,760. CIBC therefore argues that this amount should also be deducted from the trading loss in calculating any damage award to the plaintiffs.

[115] The evidence is that Mr. Geoffrey called CIBC immediately to report the error trades on March 18.

[116] During this call, Mr. Geoffrey asked CIBC to provide a list of the Fund’s outstanding positions. It was acknowledged by CIBC’s only fact witness, Mr. Dickson, that there was a problem with CIBC’s database that resulted in a delay in obtaining the Fund’s positions.

[117] CIBC did provide a list. However, it was immediately clear that the list was incorrect as it had overstated the actual positions. Mr. Geoffrey contacted CIBC to point this out. A while later, CIBC provided a new list of positions. The new list showed significantly lower trading volumes than had been indicated earlier. Montrose was still unsure whether the new list was accurate.

[118] Had Montrose acted to flatten trades based, for example, on the first list provided, the damages would have been even greater because Montrose would have been buying more shares than were unnecessary to offset the reported (but wrong) short positions which resulted from the malfunction.

[119] By the end of the trading day, CIBC had made no decision on how it was going to deal with the losses flowing from the error trades. Mr. Piszel, the managing director of the relevant business unit at CIBC, emailed Mr. Geoffrey and Ms. Ferrarese that evening saying “we will try our best to broker a solution in this issue.”

[120] In these circumstances, and given the past practice in which CIBC had stepped up to cover any losses arising from DMA system malfunctions, it cannot be said there was any failure to mitigate. The following day, when CIBC insisted Montrose flattened the trades, it did so, even though it was contrary to Mr. Geoffrey’s better judgment at the time. CIBC’s request for a further reduction, on account of failure to mitigate, of $137,760, it is therefore dismissed.

Limited Partners’ Loss

[121] CIBC argues that the Fund, a limited partnership, is not a legal entity. Any losses, therefore, must be losses of the limited partners. CIBC argues that the Fund must pay the proceeds of any damage award to the limited partners as they were on March 18, 2009.

[122] Rule 8.01 of the Rules of Civil Procedure allows partners to bring a claim in the name of the partnership, including a limited partnership. In such a claim it is not necessary to show the separate damages of each partner. The amount of the damage to the partnership may affect the ultimate value of each limited partner’s interest but the plaintiff does not, in the circumstances, need to establish each individual partner’s loss. This is because the limited partners have no interest in specie in the claim nor any right to direct to the business of the partnership. Whatever obligations there may be to account to current and former limited partners, this does not affect the obligations of a third party, such as a defendant like CIBC, to the partnership, Marigold Holdings Ltd. v. Norem Construction Ltd., Calgary No. 8401-18314 (Alta. Q.B.), July 20, 1988. It is not necessary, in the context of this action, to go behind the general partner and assess which limited partners are and which are not entitled to share in the distribution of any award of damages in connection with the events of March 18, 2009.

Punitive Damages

[123] Finally, the plaintiffs seek an award of punitive damages. Punitive damages are very much the exception rather than the rule. They are imposed where there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behavior, Whiten v. Pilot Insurance Co., 2002 SCC 18 at para. 94.

[124] The principal focus of the plaintiffs’ argument on this issue relates to post-incident conduct and, in particular, CIBC’s purported termination of its DMA platform and prime brokerage services contracts without notice to Montrose or the Fund in June 2009. The termination was prompted, clearly, by service of the plaintiffs’ statement of claim. While this is hardly laudatory conduct, the fact remains that CIBC immediately resiled from its position and gave proper (indeed, ultimately more than the minimum necessary) notice of termination under the contracts. There is no evidence that Montrose or the Fund suffered any harm as a result of this particular incident and it was remedied almost immediately.

[125] None of the conduct alleged by the plaintiffs meets the level of “high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour.” There is no basis for an award of punitive damages in this case.

Was Mr. Geoffrey Contributorily Negligent?

[126] CIBC also argues that Mr. Geoffrey was at least partially at fault for the March 18, 2009 error trades. Accordingly, CIBC submits that if there is any award of damages against CIBC, the award ought to be reduced to account for Mr. Geoffrey’s contributory negligence. CIBC argues that an appropriate reduction would be 50%.

[127] In support of this argument, CIBC submits that the March 18 incident would never have happened if Mr. Geoffrey had turned off Viper before the reconfiguration of ACTIVWorkstation on his computer. It was, says CIBC, “the height of irresponsibility” to allow work to be done on Mr. Geoffrey’s computer, while Viper was running, within minutes of a scheduled Fed announcement, particularly where the ACTIVWorkstation work was, by Mr. Geoffrey’s own admission, not critical and could have been done any time.

[128] Further, CIBC relies on the expert, Mr. Hopkins, as establishing the best practices outlined earlier in these reasons. CIBC argues that Mr. Geoffrey did not comply with these best practices.

[129] The answer to the charge of contributory negligence is quite simple. I have accepted Mr. Geoffrey’s evidence regarding his interactions with Mr. Good on March 18, 2009. This evidence was that Mr. Geoffrey: a) did not authorize, and was not asked to authorize, Mr. Good to perform any work on his computer; b) understood the WebEx was a “view only session;” and c) understood that Mr. Good only “needed to see what the settings were.” The evidence also includes my finding that Mr. Elkhazander turned off QuoteAgent without notifying or asking Mr. Geoffrey and without informing himself what else was running on Mr. Geoffrey’s computer.

[130] I can find in this evidence no basis for a conclusion that Mr. Geoffrey was contributorily negligent in connection with the events giving rise to the March 18, 2009 error trades.

Conclusion

[131] For all of the above reasons, I have disposed of the five issues as follows:

(1) CIBC is prima facie liable for the system malfunction which caused the March 18, 2009 loss, on the basis that Belzberg was acting as CIBC’s apparent or ostensible agent; (2) CIBC did not contractually exclude the liability identified in Issue #1; (3) CIBC did contractually exclude liability for lost profits; (4) Montrose and the Fund are entitled to damages in the amount of $924,851; and (5) Mr. Geoffrey was not contributorily negligent.

Costs

[132] I encourage the parties to seek a negotiated resolution to the question of costs. In the absence of agreement, however, the plaintiffs may seek costs by filing a brief written submission not to exceed four typed double-spaced pages, together with a cost summary, within seven days. The defendant may respond to this request by filing a written submission, subject to the same page limit, together with the cost summary the defendant would have filed had it been seeking its costs of the action, within a further seven days.

Penny J.

Released: May 10, 2019

Footnotes

[1] A pro trader is a securities trader who trades for his or her employer’s own account. [2] Mr. Good died in an accident some years ago. [3] “Flattening” means taking an offsetting position, thereby crystallizing any gain or loss on the trade and eliminating any further exposure to fluctuation in the market price. [4] It is not clear what "responsible" means in this context. [5] CIBC licensed this application, however, and had the right to use it and to sublicense it to Montrose.