DATE: 20050225

DOCKET: C41479

COURT OF APPEAL FOR ONTARIO

RE: FRANK LABRICCIOSA (Plaintiff/Appellant) – and – TD WATERHOUSE GROUP INC. (Defendant/Respondent)

BEFORE: LABROSSE, WEILER and BLAIR JJ.A.

COUNSEL: James C. Morton for the appellant

Laura Paglia for the respondent

HEARD: February 23, 2005

On appeal from the judgment of Justice Robert A.F. Sutherland of the Superior Court of Justice dated February 13, 2004.

E N D O R S E M E N T

[1] The appellant seeks to set aside the judgment of Sutherland J. dated February 13, 2004, dismissing his claim against the respondent discount brokerage firm for damages based on misrepresentation and negligence.

[2] In October 1998, the appellant opened a cash account with the respondent’s predecessor, the discount brokerage arm of Canada Trust. He conducted a number of transactions, for an aggregate transaction amount of almost $4 million and an average transaction value of about $85,000. In November 2000, he rolled his account over to TD Waterhouse and applied for, and opened, a margin account. The trial judge found that he signed the section of the Application Form relating to a margin account, including the portion where he agreed to the terms of the Account and Service Agreements and Disclosure Documents. The trial judge also found that the appellant had received copies of the latter documents.

[3] In February 2001 the appellant acquired 10,000 shares of Nortel Networks Corp, at prices between $30.33(U.S.) and $36.50(U.S.) per share, mostly on margin. The shares were not recommended by the respondent, and it is common ground that the respondent does not give investment advice to its customers (that is the nature of a discount brokerage firm, and why its fees are considerably lower than those of a full service brokerage firm).

[4] The value of the Nortel shares fell dramatically. At $20, the respondent made a margin call, informing the appellant that he must immediately pay $114,000 into his margin account. The appellant ultimately paid that amount and decided not to sell his Nortel shares. Instead, he borrowed repeatedly to meet that first margin call and several subsequent ones until the shares in the account were solely owned by him. On February 20, 2003, he finally sold the shares, at a price of $2.26(Cdn.) per share.

[5] He submitted at trial, and repeats now on appeal, that the respondent breached a duty to warn and to advise him of the nature and risks of margin purchases and, as such was negligent and responsible for his losses.

[6] We would not give effect to this argument.

[7] The appellant concedes that there was no faulty investment advice on the part of the respondent and that the decisions to buy, hold and sell the Nortel shares were his own. He did not buy Nortel because he was misled by anyone.

[8] The trial judge found that there was no misrepresentation by the respondent with respect to the margin account, and that there was no negligence. He found that the appellant had not made enquiries about the operation of a margin account at the time he made his application to TD Waterhouse for a margin account, and that he had been provided with documentation and information by the respondent that adequately explained the nature and risks of trading in such an account. These materials included the Account and Service Agreement and Disclosure Document, which contained the Margin Account Agreement, and a subsequent mailing that incorporated a glossary with the Heading “Know These TD Waterhouse Trading Rules stating: “When buying on a margin account, you must have sufficient excess margin capacity to cover the purchase”. The appellant acknowledged that he made assumptions as to how a loan in his margin account would be repaid, and the trial judge found that the respondent was not responsible for the creation of those assumptions. The appellant was therefore bound by the terms of the Margin Account Agreement he had signed.

[9] As Cronk J.A. noted in Transpacific Sales Ltd (Trustee for) v. Sprott Securities Ltd. (2003), 2003 27136 (ON CA), 67 O.R. (3d) 368, at para. 33, “the extent of a broker’s duty to a client, beyond the duty of carrying out 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”. See also Carom v. Bre-X Minerals Ltd. (1999), 1999 14794 (ON SCDC), 44 O.R. (3d) 173, (S.C.), aff’d (1999), 1999 19916 (ON SCDC), 46 O.R. (3d) 315 (Div. Ct.), reversed on other grounds (2000), 2000 16886 (ON CA), 51 O.R. (3d) 236 (C.A.). In our view, the respondent satisfied its duty to warn the appellant concerning the nature and risks of a margin account in the circumstances of this case, as the trial judge found, through the various documents that were provided to the appellant before he purchased the Nortel shares.

[10] The appeal is therefore dismissed.

[11] Costs of the appeal are fixed in favour of the respondent in the amount of $6,109.47. Counsel have agreed on costs of the trial in the amount of $42,500.00 all inclusive, and that they be fixed by us in that amount. So ordered.

“J.M. Labrosse J.A.”

“K.M. Weiler J.A.”

“R.A. Blair J.A.”