DATE: 20040607
DOCKET: C39008
COURT OF APPEAL FOR ONTARIO
BORINS, SHARPE and JURIANSZ JJ.A.
B E T W E E N :
JEANNE HAYWARD
Messod Boussidan and James Diamond for the appellant
Respondent
- and -
HAMPTON SECURITIES LIMITED and PETER DEEB
Diana M. Edmonds for the respondent
Appellants
Heard: May 12, 2004
On appeal from judgment of Justice Sarah E. Pepall of the Superior Court of Justice dated October 1, 2002.
BORINS J.A.:
[1] Hampton Securities Ltd. (“HS”) and its employee, Peter Deeb, appeal from the judgment of Peppall J. awarding damages against them of $288,846.00 inclusive of pre‑judgment interest in favour of Jeanne Hayward. In doing so, the trial judge found that Deeb was in breach of a fiduciary duty to Ms. Hayward. The appellant appeals liability on the ground that the trial judge erred in finding that there was a fiduciary relationship. They also submit that Ms. Hayward’s claim should have been dismissed on the ground that she ratified any breach of fiduciary duty. In addition, the appellants appeal from the trial judge’s assessment of damages.
[2] Ms. Hayward was a client of HS for a period of twenty months after transferring her accounts to that brokerage firm in October 1997 from another brokerage firm. She did so at the urging of her investment advisor, Peter Deeb, who had been employed by the previous firm and who, with his father, established HS in the autumn of 1997.
[3] Ms. Hayward’s claim is confined to the twenty month period that she was a client of HS. Throughout this period Ms. Hayward operated a non‑discretionary account with HS under terms that would permit HS, and more specifically her investment advisor, Deeb, to trade securities in her account only with her prior authorization. Because Deeb, who was Ms. Hayward’s exclusive investment advisor, was required to obtain her prior authorization to carry out trades for her account, this arrangement, in and of itself, did not create a fiduciary relationship between Ms. Hayward and Deeb: Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377.
[4] The appellants submit that the trial judge erred in finding that there was a fiduciary relationship between Ms. Hayward and Deeb. Therefore, the issue with respect to liability is whether, on the facts found by the trial judge, a relationship that began as a contractual relationship between a broker and his client that required the broker to obtain his client’s prior authorization to execute trades in her account, as a result of the broker’s conduct changed its character to a fiduciary relationship.
[5] The trial judge found that when Ms. Hayward moved her account to HS in October 1997, she was eighty-five years old and had become dependent on Deeb as a result of his role as her investment advisor for the previous seven years. Throughout the period of twenty months that Ms. Hayward maintained an account with HS, Deeb operated the account as if it were a discretionary account. He made sixty-eight trades in this period. Each trade was made without Ms. Hayward’s prior authorization. In addition, the trades that he made were not in conformity with Ms. Hayward’s investment objectives. In doing so, Deeb acted contrary to the terms of Ms. Hayward’s written contract with HS designating her account as non‑discretionary and stipulating her investment objectives, and in breach of the rules of the Toronto Stock Exchange and the internal rules of HS. Most of the trades were improvident and resulted in losses and significant increases in Ms. Hayward’s margin position. Moreover, in respect to one of the securities that Deeb purchased for Ms. Hayward’s account, Med‑Emerge, he failed to disclose a conflict of interest.
[6] Although Ms. Hayward recognized that the trading was not in accord with the non‑discretionary nature of her account, at first she said nothing. However, as her losses mounted and the margin grew, she began to complain to Deeb that he was trading in her account without her prior authorization. When she complained, Deeb assured her that there was nothing to worry about as he was taking care of her. Consequently, Ms. Hayward permitted the trades to continue. Although there was a notice on her monthly statement from HS indicating that if she had a complaint concerning her account she should contact HS’s compliance officer, she declined to do so. She was concerned that if she complained, Deeb, who in effect was the company’s compliance officer, would cover his tracks. However, she did write letters of complaint to the Ontario Securities Commission and the Investment Dealers Association of Canada that produced no results.
[7] As pointed in Hodgkinson by LaForest J., there are five interrelated factors to be considered when determining whether a financial advisor stands in a fiduciary relationship to his client: vulnerability, trust, reliance, discretion and professional rules or codes of conduct. As noted by this court in Hunt v. TD Securities Inc. (2003), 2003 3649 (ON CA), 229 D.L.R. (4th) 609 at para. 41, these factors are not intended to be exhaustive and evidence relevant to one factor may be relevant as well to a consideration of one or more of the other factors.
[8] In concluding that there was a fiduciary relationship between Deeb and Ms. Hayward, the trial judge found that although Ms. Hayward had designated her account to be non‑discretionary, from the outset Deeb disregarded her instructions by assuming total control and dominance of her account. When she protested that he was executing trades in her account without her consent, he assured Ms. Hayward by convincing her that if she continued to place her trust in him that all would be well. Thus, the trial judge concluded that in disregarding the non‑discretionary nature of Ms. Hayward’s account and operating the account as if it were a discretionary account, Deeb created a fiduciary relationship. By assuming control of her account, Deeb made Ms. Hayward dependent in the sense that she was at his mercy to suitably invest her money. As the trial judge found: “Deeb had assumed power over her investments and she was at his mercy.”
[9] In concluding that what had started as a broker‑client relationship became a fiduciary relationship was a result of Deeb’s conduct, the trial judge made findings of credibility favourable to Ms. Hayward and adverse to Deeb. She carefully analyzed the evidence and applied the five factors refered to in Hodgkinson to the facts as she found them. In brief, the trial judge was satisfied that Deeb, by acting contrary to both Ms. Hayward’s instructions and the applicable professional rules and codes, took advantage of his vulnerable elderly client and operated her account virtually as if it were his own.
[10] The trial judge considered and rejected the appellant’s contention that Ms. Hayward had ratified, or acquiesced, in the unauthorized trades and that Ms. Hayward was contributarily negligent and responsible for a portion of the loss she sustained by virtue of withdrawing excessive sums for her account, thereby increasing the margin position.
[11] I am satisfied that in the circumstances of this case the trial judge did not err in concluding that Ms. Hayward did not ratify the unauthorized trades because she maintained her relationship with Deeb and did nothing to terminate his unauthorized trading. The trial judge found that Ms. Hayward did not interfere with Deeb’s operation of the account as a result of his repeated reassurance that he was taking care of her and that all would be well, resulting in a dependency and powerlessness on the part of Ms. Hayward. The trial judge reasoned that as there was a breach of fiduciary duty, and that as Deeb’s conduct was directed to exploiting her trust and confidence in him it would be unreasonable to interpret Ms. Hayward’s conduct as amounting to ratification of Deeb’s unauthorized trading. Further, she concluded that as Deeb abused the trust placed in him by Ms. Hayward, he was unable to shelter under the fact that despite her frequent complaints, she was unable to stop his unauthorized trading. I find no reason to interfere with the trial judge’s conclusion that Ms. Hayward did not ratify the unauthorized trades.
[12] Nor would I interfere with the trial judge’s finding that Ms. Hayward did not contribute to her losses by withdrawing money from her account thereby creating a substantial increase in her margin position. Assuming, without deciding, that contributory negligence applies where there was been a breach of a fiduciary relationship, Ms. Hayward withdrew money that had been earned in one way or another by her investments. This was her money. She was entitled to withdraw it and to use it as she saw fit. This was one of the factors that Deeb should have considered in making the investments that he made on her behalf.
[13] The appellants were critical of the fact the trial judge restricted her review of the evidence to the twenty month period while Ms. Hayward was a client of HS. They say that the trial judge should also have considered the prior seven years when Deeb’s operation of her accounts produced a profitable result. The trial judge properly considered the previous relationship between Ms. Hayward and Deeb which she found helpful in finding that there was a fiduciary relationship. Moreover, there was nothing improper in the plaintiff confining her claim to her twenty month tenure as a client of HS during which time Deeb’s unauthorized trades were unprofitable. She was entitled to frame her claim as she did. As such, her statement of claim determined the proper parameter of the trial judge’s application of the evidence. See Zraik v. Levesque Securities Inc., 2001 21223 (ON CA), [2001] O.J. No. 5083.
[14] Given the trial judge’s careful review of the evidence, her findings of credibility and her application of appropriate legal principles, I am satisfied that there is no basis on which to interfere with her finding that there was a fiduciary relationship between Deeb and Ms. Hayward for which HS is vicariously liable. I would, therefore, dismiss the appeal on liability.
[15] As for damages, having found that Deeb was in breach of his fiduciary duty to Ms. Hayward, the trial judge awarded damages in the nature of restitution compensating Ms. Hayward for the entire loss of market value in her HS accounts from the time they were opened in October 1997, until they were closed in July 1999, and for the loss of opportunity reflecting the profit that would have resulted had her accounts been properly traded. In calculating damages on fiduciary and restitutionary principles, the trial judge applied principles endorsed by the Supreme Court of Canada in Hodgkinson v. Simms.
[16] I would not interfere with the trial judge’s assessment of damages. The damages awarded effectively restored to Ms. Hayward the equity that she had at the outset of her relationship with HS that had been diminished by Deeb’s improper trading, together with a sum representing a reasonable return on her monies had they been invested properly. This approach to damages was in accordance with Hodgkinson v. Simms. I would, therefore, dismiss the appeal on damages.
[17] In the result, I would dismiss the appeal with costs on a partial indemnity basis fixed in the amount of $15,000.00 inclusive of disbursements and GST.
RELEASED: June 7, 2004 (“SB”)
“S. Borins J.A.
“I agree Robert J. Sharpe J.A.”
“I agree R. G. Juriansz J.A.”