Court of Appeal for Ontario

Date: 20200317 Docket: C67039

Rouleau, Hourigan and Roberts JJ.A.

Between

Montrose Hammond & Co. and The Raillery Fund LP Plaintiffs (Respondents)

And

CIBC World Markets Inc. and Belzberg Technologies Inc. Defendants (Appellant)

Counsel: Geoff R. Hall and Anu Koshal, for the appellant David E. Greenwood and Christopher McClelland, for the respondents

Heard: March 9, 2020

On appeal from the judgment of Justice Michael A. Penny of the Superior Court of Justice, dated May 10, 2019, with reasons reported at 2019 ONSC 2870.

Reasons for Decision

[1] The appellant CIBC appeals from the judgment granted by the trial judge to the respondents. We dismissed the appeal with reasons to follow. These are those reasons.

(a) Factual and Procedural Background

[2] CIBC and the respondent, Montrose Hammond & Co., entered into a contract under which CIBC agreed to provide the respondents’ start up hedge fund with access to CIBC’s electronic trading system, as well as assistance from time to time in executing orders through this system. The contract between the parties contains clauses purporting to limit CIBC’s liability. CIBC relies on the provisions of articles 5.1 and 6.1 of the contract to exclude its liability in this case.

[3] The services offered under the contract included the use of proprietary automated trading software from various suppliers. Some components of CIBC’s trading system, including a software called Viper, was CIBC’s proprietary software. Other software components were licensed to CIBC by third party suppliers, such as QuoteAgent by Belzberg Technologies Inc. The respondents had no contractual relationship with Belzberg or the other third party suppliers. Until September 2008, the respondents dealt exclusively with CIBC for assistance with Belzberg software. After September 2008, CIBC instructed the respondents to deal directly with Belzberg concerning any issues with the Belzberg software.

[4] On March 18, 2009, the respondents alerted CIBC and Belzberg about certain software issues they were experiencing in setting up a new computer. The respondents authorized Belzberg with “view access only” of their computer system; however, without the respondents’ permission or knowledge, one of Belzberg’s employees shut down the QuoteAgent component while the respondents were trading. This caused the Viper program to make several erroneous trades resulting in a trading loss to the respondents of over a million dollars.

[5] The trial judge interpreted articles 5.1 and 6.1 of the contract between CIBC and the respondents and determined that properly interpreted, these articles did not exclude CIBC’s liability for the respondents’ trading loss claim. He also concluded that the two employees of Belzberg who dealt with the system and caused the error were acting as CIBC’s apparent or ostensible agents.

(b) Issues

[6] In addition to the issue of the applicable standard of review, CIBC submits two other arguments on appeal: the trial judge erred in his interpretation of the exclusion clauses in the contract between the parties; and the trial judge erred in concluding that Belzberg was the apparent or ostensible agent of CIBC.

[7] We do not accept these submissions.

(c) Analysis

(i) Standard of Review

[8] Starting with the standard of review, there is no evidence that the contract between the parties was a standard form contract, that the interpretation at issue was of precedential value, or that there was no meaningful factual matrix: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 24. Rather, the evidence indicates that the contract in issue here was the subject of negotiations, although the contract wording proffered by CIBC was not changed. As a result, the palpable and overriding standard of review applies to the trial judge’s interpretation of the contract. Absent overriding and palpable error or extricable error of law, which we do not see here, deference is owed to the trial judge’s reasonable interpretation of the contract: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50, 53 and 55; Ledcor, at para. 21.

(ii) The trial judge’s interpretation is without error

[9] The trial judge’s interpretation of articles 5.1 and 6.1 was reasonably open to him and reveals no palpable and overriding error or extricable error of law. He referenced and followed the three-part analytical approach articulated by Binnie J. for the Supreme Court in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 122, 123: whether the exclusion clause even applies to the circumstances; if it applies, whether the exclusion clause was unconscionable at the time the contract was made; and if valid, whether the exclusion clause should nevertheless not be enforced because of an overriding public policy.

[10] In Tercon, at para. 122, Binnie J. further stated, “If the exclusion clause does not apply, there is obviously no need to proceed further with this analysis.” That was the case here.

[11] The trial judge determined that article 6.1 did not apply to exclude or limit the respondents’ trading loss claim caused by Belzberg’s negligence. Following the recommended approach in Tercon, the trial judge indicated at para. 83 of his reasons that he read article 6.1 “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” and determined that “article 6.1 can only be read so as to exclude liability for matters which are beyond CIBC’s control.”

[12] Contrary to CIBC’s submission, we do not read the trial judge’s reasons as suggesting a general principle that it is impossible for parties to exclude all damages claims by using unambiguous language. Rather, the trial judge focused on the wording of article 6.1 and the objective intentions of these parties, as he was required to do. This is demonstrated by the trial judge’s agreement with CIBC’s position that article 6.2 excluded the respondents’ claim for lost profits. Nor are we persuaded by the submission that the trial judge read article 6.1 too narrowly and misconstrued the parties’ intention to allocate the risks of electronic securities trading to the respondents.

[13] The trial judge simply determined that Belzberg’s act of shutting down the QuoteAgent software was a matter within CIBC’s control and not within the ambit of article 6.1. He recognized and properly distinguished the circumstances in issue here from those that would fall within the proper scope of the exclusion under article 6.1. As he noted, by way of example:

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 the 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.

[14] We see no basis for appellate intervention.

[15] With respect to article 5.1 of the contract, we agree with the trial judge’s conclusion that the factual circumstances of the error did not amount to “connectivity to the Trading System and the availability of the Trading System” that article 5.1 states “are the responsibility of the applicable software vendor”. Moreover, we agree with his determination that article 5.1 is neither an exclusion nor a limitation of liability. As he found, correctly in our view, “CIBC was, in the ordinary course of affairs, obliged to [perform] its support obligations reasonably and competently” and “[t]his standard of performance applied equally to CIBC’s agents”, namely Belzberg, whom CIBC authorized as competent to assist in fulfilling what otherwise were CIBC’s contractual obligations to support the trading platform.

[16] CIBC has not persuaded us that the trial judge’s interpretation of the contract reflects reversible error. We do not agree with CIBC’s submission that its interpretation of the contract was the only reasonable interpretation possible.

(iii) Belzberg was CIBC’s apparent or ostensible agent

[17] This brings us to CIBC’s final submission that the trial judge erred in finding that Belzberg was designated as CIBC’s apparent or ostensible agent for the purposes of supporting its electronic trading system. Specifically, CIBC argues that the trial judge misapplied the test for ostensible or apparent authority. CIBC relies on the articulation of ostensible or apparent authority as a type of estoppel by Professor Gerald Fridman in Canadian Agency Law, 3rd ed. (Markham, Ont.: LexisNexis, 2017), at p. 61, as follows: “The requirements for agency by estoppel are: (a) a representation; (b) a reliance on a representation; and (c) an alteration of a party’s position resulting from such reliance.”

[18] CIBC maintains that the trial judge erred because he failed to expressly deal with the question of detrimental reliance.

[19] We do not accept this submission. It is implicit from the trial judge’s reasons and the record that the respondents relied on CIBC’s representation in September 2008 that they were to deal directly with Belzberg instead of CIBC to satisfy their requests for service under the contract because they communicated with Belzberg to respond to their request for assistance on March 18, 2009. The respondents clearly relied on CIBC’s representation to their detriment because of the enormous trading losses they suffered as a result of Belzberg’s negligence.

Disposition

[20] Accordingly, the appeal is dismissed.

[21] As agreed, the respondents are entitled to their partial indemnity costs from the appellant in the amount of $25,000, inclusive of disbursements and applicable taxes.

“Paul Rouleau J.A.”

“C.W. Hourigan J.A.”

“L.B. Roberts J.A.”