Abrams in trust for Transpacific Sales Ltd. v. Sprott Securities Limited et al.

[Indexed as: Transpacific Sales Ltd. v. Sprott Securities Ltd.]

67 O.R. (3d) 368

[2003] O.J. No. 3900

Docket No. C36029

Court of Appeal for Ontario

Carthy, Rosenberg and Cronk JJ.A.

October 8, 2003

Torts -- Negligence -- Brokers -- Client with considerable experience in securities trading deciding to invest in special warrants of one start-up private company and special shares of another on advice of broker -- Broker specifically telling client that both companies would make initial public offerings of common shares in future and not advising him that IPOs might never take place -- Broker not advising client of risks associated with special warrants and special shares -- IPOs not taking place and client losing his entire investment -- Broker breaching her duty to client to make balanced presentation regarding prospective investments and to warn him of risks associated with investments -- Brokerage firm vicariously liable for broker's negligence -- Broker and firm precluded from relying on client's representations in subscription agreements that he was capable of evaluating and of bearing risks of investments -- Client contributorily negligent in making deliberate decision to sign subscription agreements without reading them.

The plaintiff was an 82-year-old semi-retired businessman with considerable experience in securities trading. He made some of his investments through the defendant S, a broker with the defendant S Ltd. He declined to open a managed account with S Ltd., and made his own investment decisions, taking into account advice and information provided to him by S. S informed the plaintiff of the opportunity to invest in special warrants of one start-up private company and special shares of another. S specifically told the plaintiff that the two companies would make initial public offerings ("IPOs") of their common shares several months down the road. She did not tell him that the planned IPOs might never take place and that the companies might never be listed on any exchange.

The plaintiff was not familiar with the concepts of either special warrants or special shares, and S did not explain the risks associated with this type of investment. The plaintiff invested a total of $301,600. Before allowing the plaintiff to participate in the investments, S required that he sign two written subscription agreements in which he represented that he was experienced in business and financial matters and was capable of evaluating the merits and risks of the investments, that he realized that he might lose all of his investment and that he was able to bear the economic risk. The plaintiff chose not to read the details of the agreements before signing them, and in the spaces reserved for a description of his position, he inserted the word "janitor", intending to qualify his signatures. Neither company proceeded with an IPO and the plaintiff lost his entire investment. He sued the defendants for damages for negligence, breach of fiduciary duty and negligent misrepresentation.

Based in part on the facts that the plaintiff was a knowledgeable and experienced investor who was neither vulnerable nor exclusively reliant upon S in making investment decisions, that he made his own decisions regarding the investments at issue and that his account with S Ltd. was not a managed account, the trial judge found that the relationship between the parties was not fiduciary in nature. He found that the fact that the relationship was not fiduciary in character did not mean that the defendants owed no duty of care to the plaintiff. S did not function exclusively as a mere order-taker for the plaintiff's investment decisions, and occasionally provided investment advice and recommendations to the plaintiff, which he sometimes followed. Further, as the plaintiff's registered representative at S Ltd., S was bound in her dealings with him by the professional standards of conduct articulated in the Canadian Securities Institute's Conduct and Practices handbook (the "CP Handbook"). Those standards informed, but did not govern, the standards of care set by the courts for acceptable professional conduct.

The CP Handbook stated that registered representatives were required to know their client, to make a balanced presentation to the client in the interest of complete disclosure and to ensure that the client was made aware of all the positive and negative factors involved in a transaction, prior to executing a trade on the client's behalf. The trial judge found that the plaintiff's relative sophistication did not negate S's duty to explain the risks associated with the investments in question. The trial judge concluded that S breached duties owed to the plaintiff to make a balanced presentation regarding the prospective investments and to warn him of the risks associated with the investments, and that B Ltd. was vicariously liable for S's negligence. By virtue of S's conduct, the trial judge held that both defendants were precluded from relying on the plaintiff's representations in the subscription agreements as the basis for an estoppel against him. Finally, the trial judge found that the plaintiff failed to take reasonable care in signing the subscription agreements and that the defendants' liability for the plaintiff's losses was reduced by 50 per cent due to the plaintiff's contributory negligence. The defendants appealed.

Held, the appeal should be dismissed.

The fact that the plaintiff was an experienced investor did not absolve S of the duty to inform him of particular risks of which he might not be aware. She did not tell the plaintiff that the investments involved a higher risk than investments in the securities of public companies. The plaintiff's ability to understand various investment options clearly did not extend to all investment options, as he had no familiarity with the acquisition of special warrants or special shares of private companies, which have only a limited trading market. Thus, for the plaintiff, his own lack of prior experience with and knowledge of these types of securities represented a risk associated with the investments. The investments also encompassed several other risks, including the fact that the offerors were both start-up companies, without any proven track record in the marketplace. She failed to warn him that the anticipated IPOs might never take place. She conceded at trial that she did not recall discussing any negatives concerning the investments with the plaintiff. The trial judge did not err in finding that S was negligent in failing to advise the plaintiff of the risks associated with the investments.

The plaintiff made a deliberate decision, motivated by his desire to avoid the legal consequences of the subscription agreements, not to read them in their entirety. As a general proposition, the deliberate tactic of not reading a commercial agreement before signing it will not relieve the signatory from his or her obligations under the agreement. However, the representations made by S to the plaintiff that she had fully disclosed the level of risk associated with the investments took this case outside the protection of the general proposition. A party cannot rely by way of estoppel on a statement induced by his or her own misrepresentation.

APPEAL by the defendants from a judgment of Stinson J. (2001), 2001 28365 (ON SC), 13 B.L.R. (3d) 78 (S.C.J.) allowing an action for damages for negligence.

Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 1997 4452 (ON CA), 34 O.R. (3d) 1, 148 D.L.R. (4th) 496, 32 B.L.R. (2d) 1, 35 C.C.L.T. (2d) 298 (C.A.), distd

Other cases referred to 978011 Ontario Ltd. v. Cornell Engineering Co. (2001), 2001 8522 (ON CA), 53 O.R. (3d) 783, 198 D.L.R. (4th) 615, 12 B.L.R. (3d) 240, 8 C.C.E.L. (3d) 169 (C.A.), revg (1998), 1998 14745 (ON SC), 41 B.L.R. (2d) 219, 41 C.C.E.L. (2d) 118 (Ont. Gen. Div.); Carom v. Bre-X Minerals Ltd. (2000), 2000 16886 (ON CA), 51 O.R. (3d) 236, 196 D.L.R. (4th) 344, 1 C.P.C. (4th) 62, 11 B.L.R. (3d) 1 (C.A.), revg (1999), 1999 19916 (ON SCDC), 46 O.R. (3d) 315n, 6 B.L.R. (3d) 82, 1 C.P.C. (5th) 82 (Div. Ct.), affg (1999), 1999 14794 (ON SCDC), 44 O.R. (3d) 173, 46 B.L.R. (2d) 247, 35 C.P.C. (4th) 43 (S.C.J.) (sub nom. 3218520 Canada Inc. v. Bre-X Minerals Ltd.); George Whitechurch, Ltd. v. Cavanagh, [1902] A.C. 117, [1900-3] All E.R. Rep. Ext. 1488, 71 L.J.K.B. 400, 85 L.T. 349, 50 W.R. 218, 17 T.L.R. 746, 9 Mans. 351 (H.L.); Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377, 97 B.C.L.R. (2d) 1, 117 D.L.R. (4th) 161, 171 N.R. 245, [1994] 9 W.W.R. 609, 16 B.L.R. (2d) 1, 22 C.C.L.T. (2d) 1, 57 C.P.R. (3d) 1, 95 D.T.C. 5135, 5 E.T.R. (2d) 1; Hunt v. TD Securities (2003), 2003 3649 (ON CA), 66 O.R. (3d) 481, 229 D.L.R. (4th) 609, 36 B.L.R. (3d) 165, [2003] O.J. No. 3245 (QL) (C.A.); Porter v. Moore, [1904] 2 Ch. 367, 91 L.T. 484, 52 W.R. 619, 48 Sol. Jo. 573, 73 L.J. Ch. 729; Refco Futures (Canada) Ltd. v. Fresaid Enterprises Ltd., 1998 13274 (QC CA), [1998] A.Q. No. 403 (QL), J.E. 98-552, [1998] R.R.A. 391 (Que. C.A.), affg [1993] R.J.Q. 2359, J.E. 93-1522, [1993] Q.J. No. 1225 (QL) (S.C.); Wood v. Smart (1914), 1914 461 (MB KB), 16 D.L.R. 97, 26 W.L.R. 817 (Man. K.B.)

Authorities referred to Canadian Securities Institute, Conduct and Practices Handbook

James C. Orr and Kenneth A. Dekker, for appellants. Mark Wainberg, for respondent.

The judgment of the court was delivered by

[1] CRONK J.A.: -- The primary issue in this appeal concerns the duties of a securities broker and brokerage firm to a retail client, in particular, the duties associated with the client's investments in special warrants and special shares of private companies. The secondary issue concerns the entitlement of a broker and brokerage firm to raise the doctrine of estoppel by representation against a retail client based on the client's written representations in subscription agreements entered into by him as a prerequisite of participating in the investments.

[2] The appellants appeal from the judgment of Stinson J. of the Superior Court of Justice dated February 20, 2001, by which they were ordered to pay the respondent the sum of $150,800, that is, 50 per cent of the respondent's losses on his investments, plus interest and costs. The trial judge concluded that the broker, Anne Spork, breached duties owed to the appellants' client, Philip Abrams, to make a balanced presentation regarding the prospective investments and to warn him of the risks associated with the investments. The brokerage firm, Sprott Securities Limited, was held vicariously liable for Spork's negligence. By virtue of Spork's conduct, the trial judge concluded that both appellants were precluded from relying on Abrams' representations in the subscription agreements as the basis of an estoppel against him. The trial judge also determined that the appellants did not owe Abrams a fiduciary duty and that Sprott had not negligently conducted due diligence reviews of the private companies in whose securities Abrams invested; nor had Sprott breached any duty of disclosure to Abrams. Finally, the trial judge held that Abrams failed to take reasonable care in signing the subscription agreements. Consequently, the appellants' liability for Abrams' losses was reduced by 50 per cent due to Abrams' contributory negligence.

[3] For the reasons that follow, I conclude that the trial judge committed no error in his finding of negligence against the appellants or in his determination that Spork's negligence precluded them from relying on Abrams' representations to raise an estoppel against him. Accordingly, I would dismiss the appeal.

I. Background

[4] At the time of trial, Abrams was an 82-year-old semi- retired businessman. During his active business career, he amassed a personal net worth of about $2 million through an importing and exporting business operated by a private company, Transpacific Sales Ltd. ("Transpacific"), which was owned by Abrams and his family.

[5] From the early 1980s to 1996, Abrams made numerous investments in various securities, including mortgages, fixed income and trust units, and mutual funds. By the mid 1990s, he began to actively invest in initial public offerings ("IPOs") of shares that had not previously traded on the stock market. Prior to his involvement with Sprott, he used the services of nine separate brokerage firms to facilitate his trading.

[6] In 1996, after Abrams approached Sprott concerning its services, Sprott became the tenth brokerage firm used by Abrams and Spork became Abrams' broker at that firm. Sprott offers services to institutional clients and high net worth individuals. It specializes in small and mid-range capitalized equities. Spork is a director, registered securities representative and vice-president of Sprott.

[7] Prior to the two transactions at issue in this appeal, Abrams made several successful investments through Sprott, including investments in private placements and IPOs by public companies. None of those investments involved the securities of private companies.

[8] In the fall of 1996, Spork informed Abrams of the opportunity to invest in special warrants of Credit Card Communications Canada Inc. ("CCCC Inc.") and special shares of Vanity Software Publishing Corporation ("Vanity") (collectively, the "Investments"). Both CCCC Inc. and Vanity were private companies in the start-up phase of their respective businesses. CCCC Inc., a high technology company, proposed using credit card swipe technology in combination with cellular telephones. Vanity's proposed business involved the development and marketing of computer software. Although it was intended that both companies would proceed in the future with IPOs of their common shares, at the time of the Investments neither companies' shares were available for trading on any securities exchange and neither company had ever undertaken an IPO.

[9] Abrams invested a total of $301,600 in the Investments. Before allowing Abrams to participate in the Investments, Sprott required that he sign two written subscription agreements. Abrams testified at trial that he did not read either agreement in detail.

[10] Subsequently, when CCCC Inc.'s business failed and neither CCCC Inc. or Vanity proceeded with an IPO, Abrams lost the entirety of his invested funds. He sued the appellants for damages, claiming that his losses were caused by their breach of fiduciary duty, negligence and negligent misrepresentation in connection with the Investments.

II. Additional Facts

(1) Abrams' investment experience

[11] Abrams was not a novice investor. On the contrary, his securities trading was frequent and considerable. During an average month in 1996, he carried out approximately two dozen or more securities transactions. In November 1996, he engaged in more than 60 such transactions. Abrams not only initiated most of his trades, he also traded on margin, sometimes borrowing up to $800,000 to invest in securities.

[12] By May 1996, Abrams' investments with his principal broker, Scotia McLeod, had a market value of more than $2.4 million. In the same year, he purchased equities having a total value of $4.9 million and disposed of equities valued in total at $2.7 million. He also acquired mutual funds with a total worth of almost $6.7 million and disposed of mutual funds having a total worth of about $5.6 million.

[13] The trial judge found that Abrams followed his investments closely. He had daily contact with one or two of his brokers. He regularly charted the progress of his mutual funds investments, selling them if their value fell for one or two days in succession. He was similarly attentive to and enthusiastic about prospective IPOs. Every month he vetted a list of IPO opportunities provided by Scotia McLeod, obtained information concerning IPO opportunities from his other brokers, and selected one or two IPOs in which to invest.

[14] In a new client application form completed by Spork for Abrams, Spork described Abrams' investment knowledge as "good" in contrast to "sophisticated""limited" or "poor/new". Although the accuracy of that description was not confirmed by Abrams and he did not sign the Sprott application form, Abrams was aware that his investment knowledge had been characterized as "sophisticated" in application forms signed by him with some of the other brokerage firms with whom he dealt. Some of those forms were provided to Sprott.

[15] The trial judge concluded that Abrams was an intelligent and astute businessman. He said that by the Fall of 1996: "[Abrams] could not be described as an unsophisticated or inexperienced investor" and "[Abrams] had sufficient knowledge, experience and ability to understand a variety of investment options (although not all) and the risks associated with them. He sought a variety of investment opportunities, sought inform- ation relating to them, and made up his own mind."

(2) Abrams' dealings with Spork

[16] Abrams declined to open a managed account with Sprott, contrary to Spork's recommendation that he do so. Instead, he told Spork that he was interested in Sprott's ideas but wanted to invest on his own. Abrams communicated with Spork approximately twice per week. He made several investments through Sprott based on investment ideas and advice provided by Spork. In addition, he sometimes used Sprott to purchase portions of IPOs promoted by other brokers. Most of Abrams' transactions with Sprott involved the delivery of purchased securities to Scotia McLeod, with payment for the securities effected through the latter firm. Consequently, Spork was often unable to determine Abrams' exact holdings.

[17] The trial judge described Abrams' relationship with Spork in these terms:

Mr. Abrams was by no means dependent nor exclusively reliant upon Ms. Spork when choosing his investments. Rather, I find as a fact that Mr. Abrams made his own investment decisions, taking into account the advice and information provided to him by Ms. Spork, the input of other registered representatives, his own assessment and analysis of that information and the risk/benefit that a particular investment presented.

(3) The investments

[18] In September 1996, Sprott agreed with CCCC Inc. to act as its agent in attempting to raise US$11 million through the sale of special warrants and an additional US$3 million through an IPO of CCCC Inc.'s common shares. Because the special warrants offering was a private placement pursuant to prospectus exemptions under applicable securities legislation, a minimum investment of $150,000 by each investor was required. After CCCC Inc. obtained a receipt for a preliminary and final prospectus for its planned IPO, the special warrants would be convertible to common shares of CCCC Inc.

[19] At about the same time, Sprott also agreed to act as Vanity's agent in attempting to raise CDN$2 million through the sale of special shares, with the expectation that Vanity would thereafter complete an IPO of its common shares. As in the case of CCCC Inc.'s special warrants, the Vanity special shares were offered as a private placement exempt from prospectus requirements, thereby necessitating a minimum investment of $150,000 by each investor. Upon clearance by securities regulators of a prospectus for Vanity's planned IPO, each special share would entitle the holder thereof to acquire one common share of Vanity at no additional cost.

[20] Sprott's corporate finance department carried out due diligence reviews concerning CCCC Inc. and Vanity, accumulating in the process various business, financial and legal records and information regarding each company. The department then held a presentation meeting regarding each of the Investments with the registered representatives of Sprott's retail department in order that the representatives could market the Investments to interested Sprott clients. Spork attended both meetings.

[21] At the CCCC Inc. presentation meeting, Spork received a brochure describing the company's operations, a business plan and a term sheet regarding the special warrants offering, all of which she subsequently provided to Abrams. Although Abrams asserted that Spork recommended the special warrants offering and made positive representations to him concerning CCCC Inc.'s profitability, the trial judge rejected those claims, finding instead that Spork merely informed Abrams of an "interesting investment opportunity" and that Abrams made his own decision about whether to invest in the warrants.

[22] After the Vanity presentation meeting, Spork provided Abrams with an executive summary describing Vanity's business and product, together with a business plan, copies of which she received at the meeting. She told Abrams that the Vanity special shares were an interesting prospect and that Vanity seemed to have good management. The trial judge rejected Abrams' claim that she also told him that Vanity was very profitable.

[23] Abrams invested $151,580 in CCCC Inc.'s special warrants and $150,020 in Vanity's special shares. As I have mentioned, he ultimately lost the entirety of his invested capital.

(4) The subscription agreements

[24] In accordance with Sprott's standard procedures for private placements, Sprott's syndication department forwarded subscription agreements to all subscribers for the Investments. Subscribers were required to sign the agreements prior to participating in the Investments.

[25] Abrams acknowledged at trial that he assumed that he would not be allowed to purchase the CCCC Inc. special warrants unless he signed the CCCC Inc. subscription agreement. The trial judge concluded that Abrams knew that Sprott relied on his signed subscription agreements when deciding whether to sell the special warrants and special shares to him.

[26] Abrams signed the CCCC Inc. and Vanity subscription agreements in his personal capacity on October 21, 1996 and November 13, 1996, respectively. Under his signatures in several places in both agreements, in the spaces reserved for a description of his position, he inserted the word "janitor". At trial, he said that there were things in the agreements that he regarded as "biased" and that his use of the word "janitor" was intended to qualify his signatures. He did not inform the appellants of that intention or of his failure to read the details of the agreements before signing them.

[27] Although Abrams signed the agreements in his personal capacity, the profits and losses associated with his involvement in the Investments in fact belonged to Transpacific. Abrams never disclosed Transpacific's interest in the Investments to the appel-lants prior to this litigation.

[28] Each agreement contained provisions describing the constraints on the resale or marketability of the applicable securities and a series of acknowledgements, representations and warranties by the subscriber, which were expressed to survive closing. In both agreements, Abrams made representations or provided acknowledgements concerning his financial and business experience and knowledge and confirmed that he was able to bear the "economic risk" of the Investments. In the Vanity agreement, for example, he expressly acknowledged that he was "knowledgeable, sophisticated and experienced" in business and financial matters. As well, in each agreement, he represented or acknowledged that he was "capable of evaluating the merits and risks" of the applicable investment and agreed that he intended that his representations and acknowledgements be relied upon by Sprott and the offering company. In the CCCC Inc. agreement, he acknowledged that CCCC Inc. was not a "reporting issuer" and that holders of securities in CCCC Inc. "may not be able to sell such securities for an indefinite period of time". That acknowledgement appeared in the CCCC Inc. subscription agreement in bold print.

[29] Abrams also signed various schedules to the CCCC Inc. subscription agreement. One such schedule, which he was not required to complete, contained the following additional subscriber acknowledgements: "I acknowledge that: . . . (c) I may lose all of my investment, AND . . . (e) I will not receive a prospectus . . . because the Issuer has advised me that it is relying on a prospectus exemption . . .".

III. Issues

[30] The appellants advance two arguments in support of their appeal. First, they argue that the trial judge erred in finding that they were negligent in failing to advise Abrams of the risks associated with the Investments. Second, they maintain that the trial judge erred in holding that they were precluded, by Spork's conduct, from asserting an estoppel against Abrams based on his representations in the subscription agreements. If they are unsuccessful in those submissions, the appellants do not challenge the trial judge's assignment of 50 per cent liability to them. Abrams does not cross-appeal against any aspect of the trial judgment although he argues, in response to the appellants' submissions, that the trial judge erred in failing to find that Sprott owed, and breached, a duty of full disclosure to him.

IV. Analysis

(1) The negligence finding

[31] On this appeal, the appellants do not challenge the trial judge's holding that Spork owed a duty to warn Abrams of the risks of the Investments. Rather, they assert that the scope of the applicable duty to warn is constrained by the trial judge's findings of fact concerning Abrams' knowledge and experience as an investor and the nature of his relationship with the appellants. I agree.

[32] The appellants further submit that the trial judge did not identify the risks which Spork failed to warn against and that the trial judge's reasons, properly understood, must be taken to refer to the risk attendant upon investing in private companies, whose shares are not available to be publicly traded on any securities exchange, in contrast to the risk of investing in a public company, whose shares are traded on one or more exchanges. Since Abrams admitted at trial that Spork told him that CCCC Inc. and Vanity were private companies and that there would be a delay before they were listed on any stock exchange, the appellants claim that they discharged their duty to warn him of the risk of the Investments. I am unable to accept that argument, for the following reasons.

[33] The appellants properly submit that the extent of a broker's duty to a client, beyond the duty of executing instructions and acting honestly, is a question of fact in each case. As well, the content and scope of a broker's duty to warn is defined with reference both to the knowledge and skill of the client and to the nature of the relationship between the client and broker. As Winkler J. stated, at pp. 233-34 O.R. in Carom v. Bre-X Minerals Ltd. (1999), 1999 14794 (ON SCDC), 44 O.R. (3d) 173, 35 C.P.C. (4th) 43 (S.C.J.), affd (1999), 1999 19916 (ON SCDC), 46 O.R. (3d) 315n, 6 B.L.R. (3d) 82 (Div. Ct.), revd on other grounds (2000), 2000 16886 (ON CA), 51 O.R. (3d) 236, 196 D.L.R. (4th) 344 (C.A.), leave to appeal to the Supreme Court of Canada denied [2000] S.C.C.A. No. 660:

[A] duty to warn does not arise merely because of the broker- client relationship. In Reed v. McDermid St. Lawrence Ltd. (1990), 1990 5406 (BC CA), 52 B.C.L.R. (2d) 265 at p. 271, [1991] 2 W.W.R. 617 (C.A.), the court stated:

The extent of the duty of broker to client beyond the bare duty of executing instructions and being honest is thus a question of fact in each case of what passes between broker and client. A duty to warn does not arise from the mere relationship of broker to client, but from the facts.

In essence, the existence of a duty to warn is dependent on the standard of care owed to a particular client. Accordingly, the specifics of the relationship between the broker and the client must be analyzed to determine whether a broker has a duty to warn a client . . . For example, it cannot be said that the same standard of care exists between [a discount brokerage firm, which does not provide advice, and its client] . . . as would exist between a broker and a client who relied on the broker to manage a discretionary trading account. Nor can it be said that the standard of care for a client who is interested only in speculating is the same as that for a client who relies upon the broker for advice on a long-term investment.

The standard of care owed by an investment advisor to a particular client is concordant with the services that the advisor undertook to provide to the client, that is, whether the client was to be provided advice as opposed to mere information or whether the advisor was given discretion to trade on behalf of the client.

[34] The standard of care which applies to an inexperienced investor is considerably higher than the standard that exists between a broker and a seasoned investor. In Refco Futures (Canada) Ltd. v. Fresaid Enterprises Ltd., [1993] R.J.Q. 2359, J.E. 93-1522 (Que. S.C.), affd 1998 13274 (QC CA), [1998] A.Q. No. 403 (QL), J.E. 98-552 (Que. C.A.), Hesler J. addressed this proposition, at p. 2370 R.J.Q., para. 146: "Certainly the obligations of the broker have to be inversely proportional to the experience and skills of the client and the degree of independence the latter asserts in decisions regarding investments."

[35] The trial judge found that Abrams was a knowledgeable and experienced investor, who was neither vulnerable nor exclusively reliant upon Spork in making investment decisions. Further, Abrams made his own decisions regarding the Investments at issue in this appeal. In addition, Abrams' account with Spork was not a managed account and Abrams does not contend that the appellants had the discretion to effect trades on his behalf without his prior authorization[^1]. Based in part on those facts, the trial judge held that the relationship between the parties was not fiduciary in nature.

[36] As indicated by the trial judge, however, the fact that the relationship between the parties was not fiduciary in character does not mean that the appellants owed no duty of care to Abrams. The trial judge stated [at para. 84]:

As was more recently observed by Colin Campbell J. in 875121 Ontario Ltd. [v. Nesbitt Burns Inc. (1999), 1999 14951 (ON SC), 50 B.L.R. (2d) 137 (Ont. S.C.)] at 156: "[T]he fact that [the broker] did not have a fiduciary duty to [the client] in respect of investment advice does not relieve [the broker] of a duty to take care in respect of the advice given, a duty which sounds in negligence".

[37] Spork occasionally provided investment advice and recommendations to Abrams, which he sometimes followed. Thus, she did not function exclusively as a mere order-taker for Abrams' investment decisions. Further, as Abrams' registered representative at Sprott, Spork was bound in her dealings with him by the professional standards of conduct articulated in the Canadian Securities Institute's Conduct and Practices Handbook (the "CP Handbook"). Those standards inform, but do not govern, the standards of care set by the courts for acceptable professional conduct: Hunt v. TD Securities Inc., supra, at para. 62, per Gillese J.A. and Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377, 117 D.L.R. (4th) 161, at p. 425 S.C.R., per La Forest J.

[38] The reasons of the trial judge reflect his understanding that two standards set out in the CP Handbook are especially relevant in this case:

A. The Registered Representative must display absolute trustworthiness since the client's interests must be the foremost consideration in all business dealings.

I. Know your client. A diligent and business-like effort must be made to learn the essential and current financial and personal circumstances and investment objectives of each client. Relevant documentation should reflect material information about and any material changes to the client's status.

The [registered representative] has a responsibility to ensure that:

(ii) the client is made aware of all salient material, such as positive and negative factors involved in a transaction, prior to executing a trade on the client's behalf. A balanced presentation must be offered to the client in the interest of complete disclosure and relative objectivity . . .

(Emphasis added)

[39] The evidence at trial established that: (a) Spork brought the Investments to Abrams' attention; (b) although both Investments were in the high risk category, Spork failed to so advise Abrams; (c) Spork assumed that, as a knowledgeable investor, Abrams knew the risk profile of the Investments; and (d) although Spork told Abrams that the Investments involved the securities of private companies that were not listed on any securities exchange, she did not tell him that the planned IPOs of CCCC Inc. and Vanity might never take place and that the companies might never be listed on any exchange.

[40] The trial judge held [at para. 86]:

In my view, Ms. Spork's failure to discuss the risks associated with these investments was a breach of her duty to Mr. Abrams. The higher risk associated with the securities was plainly a negative factor; her failure to discuss that aspect leads me to the conclusion that she failed to make a balanced presentation to him. The testimony of both the plaintiff's and the defendants' experts supports this conclusion.

I do not consider that Mr. Abrams' relative sophistication (and Ms. Spork's assumption in this regard) negated her duty to explain the risks associated with this type of investment. I find as a fact that Mr. Abrams was not familiar with the concept of either special warrants or special shares as offered to him by Ms. Spork in the CCCC Inc. and Vanity financings, respectively . . . I conclude that had the risks been properly explained, Mr. Abrams may well have refrained from making these two investments.

(Emphasis added)

[41] Later in his reasons, when reviewing the appellants' claim of estoppel in relation to the subscription agreements, the trial judge stated [at para. 103]:

Ms. Spork had a duty to make a balanced presentation to Mr. Abrams. Part of that obligation included disclosure of the level of risk associated with the investments. Accordingly, implicit in the information that Ms. Spork provided to Mr. Abrams, was a representation that she had fully disclosed the level of risk associated with the investments. Thus, the representation made by Mr. Abrams that he understood the transactions and that they were suitable for him, which was relied upon by the defendants as giving rise to the estoppel, was founded on the previous representation made by Ms. Spork to him. Ms. Spork's representation, however, was not true, since she did not disclose the level of risk associated with the investments.

(Emphasis added)

[42] What, then, are the "risks" and the "level of risk" associated with the Investments which lay at the heart of the trial judge's negligence finding?

[43] Spork testified that there is "slightly more risk in a private company [in contrast to a public company] because your market is limited". The trial judge referred to that testimony in his reasons. On that basis, the appellants argue that the "higher risk" noted by the trial judge was the additional risk which accompanies an investment in special warrants or special shares of a private company as opposed to an investment in an IPO or a private placement of a public company. In my view, that argument does not assist the appellants, for two reasons.

[44] First, there is no evidence that Spork told Abrams that the Investments involved a "higher risk" than investments in the securities of public companies. Spork admitted in her testimony that she did not tell Abrams that the Investments were in the high risk category. Further, she did not claim that she engaged in any discussion with Abrams concerning the comparative risks of the Investments.

[45] Second, and importantly, the trial judge did not limit his references to the "risks" and the "level of risk" only to the fact that the Investments were securities offered as private placements of private, as opposed to public, companies; nor did he confine his discussion of risk to a single "risk". In my view, the appellants' characterization of the "risks" referenced by the trial judge significantly understates the multiple material risks associated with the Investments.

[46] The trial judge concluded that: "Abrams was not familiar with the concept of either special warrants or special shares as offered to him by Ms Spork in the CCCC Inc. and Vanity financings, respectively." The trial judge had earlier indicated in his reasons, as I have previously mentioned, that Abrams' ability to understand various investment options did not extend to all investment options. Those findings, which are not contested by the appellants before this court, confirmed that Abrams, notwithstanding his prior investment experience, had no familiarity with the acquisition of warrants or special shares of private companies, which have only a limited trading market. Thus, for Abrams, his own lack of prior experience with and knowledge of these types of securities represented a "risk associated with these Investments".

[47] The Investments, however, also encompassed several other risks, including: (a) the fact that the offerors were both start-up companies, without any proven track record in the marketplace. Investments in start-up companies, whether private or public, are speculative and intrinsically riskier than investments in mature businesses; (b) the risks inherent to the business fundamentals of both CCCC Inc. and Vanity as, for example, whether the business plans of both companies were well-conceived and whether there was customer demand for their proposed products; and (c) the risk of limited liquidity for the capital invested in the Investments.

[48] Liquidity concerns an investor's ability to have recourse to his or her invested capital. These Investments carried with them the risk that a subscriber's access to his or her invested capital could be significantly limited if, as ultimately occurred, CCCC Inc.'s and Vanity's planned IPOs did not proceed. A liquidity risk may, but need not, signify a risk of loss of invested capital. The failure of CCCC Inc. or Vanity to proceed with their planned IPOs would not inevitably result in the loss of the capital which Abrams invested in their securities. Markets, although restricted, exist for the securities of private companies. The material risk, then, was that if the IPOs did not proceed, Abrams' ability to access his invested capital would be highly constrained for an indeterminate time because the purchased securities would have no public trading market. The likelihood of the actual occurrence of the IPOs was thus a critical factor and the liquidity of Abrams' invested funds was a component of the "level of risk" of the Investments.

[49] There is no suggestion that Spork warned Abrams of the risk that the planned IPOs of CCCC Inc. and Vanity might never proceed. On the contrary, Spork testified at trial that she told Abrams that CCCC Inc. and Vanity "would do their [IPOs] 6 to 10 months down the road". That statement not only failed to contain a warning that the IPOs might never take place, it led Abrams away from considering that possibility and its liquidity implications. Similarly, the appellants do not claim that Spork alerted Abrams to the possibility that the business of CCCC Inc. or Vanity might fail. In the case of CCCC Inc., that is precisely what transpired.

[50] Spork conceded at trial that she did not recall discussing any negatives concerning the Investments with Abrams. She was thus unable to confirm that she had met her professional obligations under the CP Handbook to ensure that Abrams was made aware of both the positive and negative factors involved in the Investments.

[51] Accordingly, I am of the opinion that the trial judge did not err in concluding that Spork failed in her duty to warn Abrams of the risks associated with the Investments. Indeed, in my view, that conclusion is unassailable.

(2) Reliance on Abrams' representations in the subscription agreements

[52] Abrams made a deliberate decision, motivated by his admitted desire to avoid the legal consequences of the subscription agreements, not to read them in their entirety. By signing them, however, he represented or acknowledged to Sprott and the applicable offering company that he was capable of evaluating the merits and risks of the Investments, that he was financially able to bear the economic risk of the Investments and, in the case of CCCC Inc., that he was aware that he might not be able to sell the securities for "an indefinite period of time". By the terms of the agreements, Abrams' statements were expressed to be made with the intention that they be relied upon by Sprott and the offering companies, and that they would survive the closing of the transactions concerning the Investments.

[53] Abrams also sought to qualify his obligations under the agreements by inserting the word "janitor" below his signatures in several places in the agreements, a description of his position which he knew to be false, with the subsequently asserted intention of signalling to the appellants that he did not intend to be bound by the agreements notwithstanding his representations to the contrary in both documents.

[54] Abrams' approach to the signing of the subscription agreements is most troubling. His conduct is contrary to the normal practices and requirements of ordinary commerce, upon which reasonable people are entitled to rely. I also agree with the appellants' submission that Abrams' conduct, if condoned, could be viewed as calling into question the utility and efficacy of written agreements in consumer securities transactions. Abrams' conduct cannot be condoned. That, however, is not the end of the matter. The consequences of his conduct must be considered in light of whether Spork's own conduct, for which Sprott is also liable, precipitated the representations by Abrams.

[55] This court has recognized the general proposition that the deliberate tactic of not reading a commercial agreement before signing it will not relieve the signatory from his or her obligations under the agreement. As stated by Robins J.A. in Fraser Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 1997 4452 (ON CA), 34 O.R. (3d) 1, 148 D.L.R. (4th) 496 (C.A.), at p. 10 O.R.:

As a general proposition, in the absence of fraud or misrepresentation, a person is bound by an agreement to which he has put his signature whether he has read its contents or has chosen to leave them unread: Cheshire, Fifoot & Furmston's Law of Contract, 13th ed. (1996) at p. 168. Failure to read a contract before signing it is not a legally acceptable basis for refusing to abide by it. A businessman executing an agreement on behalf of a company must be presumed to be aware of its terms and to have intended that the company would be bound by them. The fact that [the signatory] chose not to read the contract can place him in no better position than a person who has. Nor is the fact that the clause is in a standard pre-printed form and was not a subject of negotiations sufficient in itself to vitiate the clause.

(Citations omitted; emphasis added)

See also 978011 Ontario Ltd. v. Cornell Engineering Co. (2001), 2001 8522 (ON CA), 53 O.R. (3d) 783, 198 D.L.R. (4th) 615 (C.A.), at pp. 793-94 O.R.

[56] That general proposition, however, is not determinative of whether the appellants are entitled in this case to rely on Abrams' written representations, thereby escaping all liability to him. In my opinion, the trial judge correctly found that the appellants are precluded from doing so. I reach that conclusion for three reasons.

[57] First, application of the general proposition recognized in Fraser Jewellers, as affirmed in Cornell Engineering, depends on the absence of misrepresentation by the party seeking to rely on the written agreement. As well, in Fraser Jewellers it was held that the party seeking to rely on the agreement had no legal obligation to draw the relevant clause in the agreement to the attention of the signing party because no special relationship existed between the parties that imposed such an obligation. Neither of these factors applies here.

[58] Unlike the facts in Fraser Jewellers, the relationship between the appellants and Abrams gave rise to a duty of care owed to Abrams. As I have already indicated, Spork breached that duty of care by failing to warn Abrams of negative factors concerning the Investments, that is, the risks associated with them as earlier described in these reasons.

[59] In addition, the trial judge held that: "[I]mplicit in the information that Ms. Spork provided to Mr. Abrams, was a representation that she had fully disclosed the level of risk associated with the investments . . . Ms. Spork's representation, however, was not true." The trial judge further stated [at para. 106]:

In my view, it does not matter whether Ms. Spork's non- disclosure is characterized as fraudulent or innocent. The fact remains that Ms. Spork failed in her duty to inform Mr. Abrams about the risks. Disclosure of those risks would, in my view, have made Mr. Abrams hesitate or seek further information before signing the subscription agreements.

[60] The trial judge thus held that Spork made a false representation to Abrams regarding the discharge by her of her duty to warn. He further found that full disclosure by Spork of the risks of the Investments would have made a difference to Abrams. Moreover, as I have mentioned, Spork represented to Abrams that CCCC Inc. and Vanity "would do their [IPOs] 6 to 10 months down the road". While that statement may have reflected Spork's honest belief at the time it was made, in fact there was no certainty when, or if, either IPO would be made. Consequently, the representations made by Spork to Abrams take this case outside the protection of the general proposition articulated in Fraser Jewellers, that is, that a signatory to an unread agreement will be prevented from later attempting to resile from the agreement.

[61] Second, as recognized by this court in Cornell Engineering, at p. 795 O.R., contracting parties are obliged to respect the interests of the other where: "First, one party relies on the other for information necessary to make an informed choice and, second, the party in possession of the information has an opportunity, by withholding (or concealing) information, to bring about the choice made by the other party." Although the trial judge found that Abrams did not repose trust and confidence in Spork sufficient to create a fiduciary relationship between them, he expressly held that Abrams was entitled to and did rely on Spork to provide information to him concerning the Investments. He further held that, without that information, Abrams was not in a position to make an informed decision about whether to invest in the special warrants and special shares. It is significant in that regard that Spork was bound under the professional standards of conduct set out in the CP Handbook to "display absolute trustworthiness since the client's interests must be the foremost consideration in all business dealings". (Emphasis added)

[62] Finally, a person cannot rely by way of estoppel on a statement induced by his or her own misrepresentation. As observed by the trial judge, support for that principle may be found in George Whitechurch, Ltd. v. Cavanagh, [1902] A.C. 117, [1900-3] All E.R. Rep. Ext. 1488 (H.L.). See also Wood v. Smart (1914), 1914 461 (MB KB), 16 D.L.R. 97, 26 W.L.R. 817 (Man. K.B.) and, as referenced therein, Porter v. Moore, [1904] 2 Ch. 367, 73 L.J. Ch. 729.

V. Other Issues

[63] On my view of this appeal, it is unnecessary to address Abrams' argument that Sprott had an obligation to disclose to him the full information acquired by it during its due diligence reviews of CCCC Inc. and Vanity.

V. Disposition

[64] For the reasons given, I would dismiss the appeal. Abrams is entitled to his costs of the appeal on a partial indemnity basis, fixed in the amount of $9,500, inclusive of disbursements and Goods and Services Tax.

Appeal dismissed.

Notes

[^1]: In the recent decision of this court in Hunt v. TD Securities Inc. (c.o.b. TD Evergreen)(2003), 2003 3649 (ON CA), 66 O.R. (3d) 481, [2003] O.J. No. 3245 (QL)(C.A.), at para. 51, a non-discretionary investment account with a broker was described as"reflect[ing] the conscious decision of the parties to leave power and discretion in the hands of the investor." Abrams' rejection of a managed account with Sprott thus reflected his decision to retain control over his investments.