COURT FILE NO.: CV-11-9119-00CL

DATE: 20121123

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

TIMSWILL ENTERPRISES LTD.

Applicant

• and -

INVESTTECHFX TECHNOLOGIES INC.

Respondent

TABLE OF CONTENTS

Page No.

The Issues . 2

Summary of Conclusions . 3

Preliminary Matters . 3

Agreed Statement of Facts . 3

The Parties . 4

Timeline of Events . 4

The Investigation . 5

Supplementary Agreed Statement of Facts . 5

GIB Interbank . 6

The Records of ITFX and Interbank . 6

The Customer Agreements . 7

Procedural History . 7

Requests to Introduce Further Evidence and other Relief . 8

How Trading on the Account was Carried Out; the Role of GIB Interbank . 9

The Disputed Transactions . 9

The Expert Evidence . 10

For Timswill 10

For ITFX .. 11

General Comment on the Expert Evidence . 12

Preliminary Issue: Whether Timswill is a Proper Party . 13

Analysis . 13

Overview .. 13

Whether Erroneous Recording of the Disputed Trades was Caused by Improper Trading on the Part of Timswill 14

Trading in Association with Mr. Forrai 14

Whether the Trading on the Disputed Trades was Improper 15

Robot Trading . 15

Whether the Timswill Account used Prohibited HFT for the Disputed Trades . 16

Comment 17

Conclusion as to the Erroneous Recording of the Disputed Trades . 18

The Alleged Closings on August 6, 2010 . 18

The Evidence of the Alleged Closings . 18

The Suggested Explanation for the August 6, 2010 Closings . 19

Problems with the Suggested Explanation . 20

Inadequate Margin and the Margin Call 20

Comment 21

The Margin Call (continued) 22

Conclusion about the Suggested Explanation . 23

Whether the Alleged Closings Occurred . 23

How the Entries Showing the Closings Came About: Manipulation of the Records . 24

The Exculpatory Provisions in the Agreement 25

Conclusion as to the Balance in the Account of Timswill 26

Relief to be Granted . 26

Judgment 27

COURT FILE NO.: CV-11-9119-00CL

DATE: 20121116

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

TIMSWILL ENTERPRISES LTD. Applicant - and - INVESTTECHFX TECHNOLOGIES INC. Respondent

David Milosevic and Amelia Lau , for the Applicant
Jerome H. Stanleigh and Paul J. Bates , for the Respondent

HEARD: March 6, 7 and 8; August 30 and 31 and September 20, 2012

SPENCE J.

REASONS FOR DECISION

[ 1 ] In this proceeding, the Applicant, Timswill Enterprises Ltd. (“Timswill”) seeks repayment of the amount which it alleges is the current balance in its foreign exchange trading account with the Respondent, InvesttechFX Technologies Inc. (“ITFX”).

[ 2 ] ITFX disputes the amount claimed as the balance in the account. It asserts that the account has a negative balance, i.e. that Timswill owes money to ITFX. This dispute about the amount of the current balance in the account is the basic issue in this case.

[ 3 ] This proceeding began as an application. In its Notice of Application, dated February 25, 2011, Timswill seeks an order requiring ITFX to pay to it US$348,512.48 and other related relief. Timswill alleges that the amount claimed is the current balance in its account with ITFX. Timswill asserts it is entitled to payment of this amount because Timswill demanded repayment of the full amount in its account in October 2010 and this was the account balance at that time, and ITFX has failed to pay the amount.

[ 4 ] By order of the Court dated October 28, 2011, the case now proceeds by way of a trial of the issues between Timswill and ITFX on the issues set out below.

[ 5 ] In his order of October 28, 2011, Brown J. directed that the affidavits of the fact witnesses filed to that date were to stand as their examination-in-chief at trial, plus viva voce examination-in-chief per affidavit and that their cross-examinations on their affidavits were to stand as part of the cross-examinations at trial. The trial proceeded on the basis of the direction, with examination and cross-examination of those witnesses and the testimony of the expert witnesses on their reports.

[ 6 ] As stated above, Timswill seeks to recover US$348,512.48, and other relief as a result of ITFX’s having unlawfully withheld funds of Timswill since October, 2010 from the account which it maintained for foreign exchange trading by Timswill.

[ 7 ] ITFX denies any wrongdoing. It asserts that Timswill engaged in improper trading practices in the account and as a result, lost all of the funds it deposited to the account and, in fact, owes ITFX monies.

The Issues

[ 8 ] It is not disputed that on October 19, 2010, shortly after Mr. Kovacs, the representative of Timswill, made his request for a withdrawal on October 6, 2010, the Account Statements provided by ITFX indicated a balance of US$348,512.48. The ITFX account history dated January 20, 2011 indicated this amount as the balance as at October 19, 2010 and as at January 20, 2011 (Exhibit 17A, Tab 3E).

[ 9 ] The ITFX Account history dated May 11, 2011 showed a balance of only US$210,000, which is equal to the original deposits made by Timswill to the Account (Exhibit 4, Tab A). This reduced amount resulted from the retroactive deduction of a 2010 year-end “Adjustment Bonus” of $138,512.48.

[ 10 ] The ITFX Account History dated March 7, 2012 (Exhibit 3), shows a negative balance of $5,725.48, resulting from two retroactive adjustments, the first being the one made at the 2010 year end, now described as a “GIB Account Adjustment” and the second being for $215,725.48, dated January 3, 2011 and described as “GIB Final Account Adjustment”.

[ 11 ] Timswill alleges that ITFX made these reductions in the account balance by manipulating the record of seven trades in order to show the greatest loss possible during the relevant period.

[ 12 ] ITFX alleges that its accounting system recorded the seven trades incorrectly because of illegal trading practices employed by Timswill trades and it discovered these errors only subsequently and corrected the accounts accordingly.

[ 13 ] The issues that arise from the facts and allegations are:

• Whether Timswill engaged in trading methods that contravened the relevant customer agreements.

• Whether ITFX manipulated the Timswill account improperly to indicate the alleged negative balance of US$5,725.48 instead of the positive balance in the January 20, 2011 statement.

• Whether ITFX breached its agreement with Timswill by failing to provide it with a full 20% credit bonus on the Account.

• In light of the determination of the above issues, the amount owing between the parties in respect of the Account.

Summary of Conclusions

[ 14 ] In summary form, the principal conclusions reached below are as follows:

• the erroneous recording by ITFX of transactions in the Timswill account was not caused by improper trading on the part of Timswill;

• the revision of the ITFX statement from a positive balance of $348,512.48 to a negative balance of $5,725.48 was based solely on its assertion that the seven disputed trades were closed on August 6, 2010; and

• those closings did not occur and the records which show those closings were manipulated by ITFX to do so.

Preliminary Matters

[ 15 ] A number of preliminary matters that need to be set out are dealt with next in these reasons. These conclude with the question whether Timswill is a proper party. Following the preliminary matters, the analysis that leads to the conclusions summarized above is set out.

Agreed Statement of Facts

[ 16 ] The parties have entered into an Agreed Statement of Facts. The facts agreed to are set out below.

The Parties

[ 17 ] Timswill is a company incorporated in the Republic of Seychelles under the International Business Companies Act , as an international business company (company no. 042597). It carries on the business of managing assets owned by the family of Zoltan Kovacs (“Kovacs”).

[ 18 ] ITFX is a corporation incorporated pursuant to the laws of Canada and operates an online foreign exchange trading platform. Rony Spektor (“Spektor”), ITFX’s affiant in this proceeding, is a director of ITFX.

Timeline of Events

[ 19 ] On June 2009, Timswill opened an account (account number 11334) (the “Account”) with ITFX.

[ 20 ] On June 22, 2009, Timswill made two deposits to the Account totaling US$140,000.

[ 21 ] On June 24, 2009, Timswill made another deposit to the Account of US$70,000.

[ 22 ] On July 22, 2009 ITFX deposited a credit bonus of approximately 10% (US$21,000) to the Account. The ITFX customer agreements entitle VIP Account holders (those with an account of $20,000 or more invested) to a 20% credit bonus. It is not disputed that the Account was entitled to an additional 10% credit bonus of $21,000, which has never been credited to the Account.

[ 23 ] On October 6, 2010, Kovacs sent an e-mail to ITFX on behalf of Timswill requesting a withdrawal of US$31,000 from the Account. There was no response.

[ 24 ] On October 11, 2010 and October 12, 2010 Kovacs sent further e-mails to ITFX requesting that the withdrawal be processed urgently.

[ 25 ] On October 13, 2010 – six days after the initial request –ITFX responded by e-mail and indicated that the withdrawal request was being forwarded to another department so it could be processed.

[ 26 ] On October 13, 2010, Kovacs received an e-mail from ITFX customer service indicating that he would have to contact “Alan” from ITFX’s compliance department to assist with the withdrawal request. “Alan” informed Kovacs that ITFX had initiated an investigation into the Account because instructions on the Account had been provided from different IP addresses. Kovacs was also told that during the investigation, no further information would be provided and the Account would be frozen.

[ 27 ] On October 15, 2010, October 19, 2010 and October 20, 2010 Kovacs followed-up with ITFX by e-mail, but was not provided any information regarding the investigation.

[ 28 ] On October 21, 2010, ITFX’s compliance department sent Kovacs an e-mail indicating that an “investigation” related to different IP addresses being used to access the Account was ongoing.

[ 29 ] On October 26, 2010 Kovacs responded and repeated his withdrawal request. Kovacs sent a further e-mail to the ITFX compliance department on October 27, 2010 demanding repayment of the full balance of the Account (US$348,512.48), less a $50.00 processing fee, as a result of ITFX’s failure to process his first withdrawal request.

[ 30 ] On November 18, 2010 ITFX’s legal counsel responded and stated that ITFX was still in the process of completing an “investigation”. Kovacs repeated his demand for repayment of the balance of the Account on November 25, 2010.

[ 31 ] No withdrawals have been made from the Account since it was opened in June 2009.

The Investigation

[ 32 ] The investigation by ITFX was not commenced until after Timswill sought to withdraw funds from the Account.

Supplementary Agreed Statement of Facts

[ 33 ] The parties have entered into a Supplementary Agreed Statement of Facts. The Supplementary Agreed Statement of Facts is in a form which I prepared. Counsel agreed to the Supplementary Agreed Statement in response to my request that they do so if they approved it. I proceeded in this way because it appeared that the state of the record was not clear. Mr. Spektor’s Affidavit at Exhibit 1, Tab 7, refers to a number of books of documents apparently accompanying the affidavit, but it does not make them exhibits to the affidavit. Mr. Spektor, in his Affidavit, does not identify any exhibit. However, the index of Exhibit 1 presents documents identified as Exhibits A and B to that affidavit. Accordingly, the status and source of the documents so identified required clarification.

[ 34 ] The Supplementary Agreed Statement of Facts is set out in the next paragraph.

[ 35 ] In the Affidavit of Spektor at Exhibit 1, Tab 7, the references in paragraphs 8, 9 and 10 to “2009” should instead be to 2010. The materials referred to at paragraphs 8, 9, 10 and 11 are included in the Exhibits as and to the extent set out below:

• Exhibit 1, Tab 7A is excerpted from Book 2, Part A (Interbank Journal Log) referred to in paragraph 10 at Tab 7;

• Exhibit 1, Tab 7B is excerpted from Book 1, Part C (Interbank accounts) referred to in paragraph 9 at Tab 7. Exhibit 1, Tab 5A is excerpted from the same source;

• Exhibit 2 sets out material from Book 2, Parts B and C referred to in paragraph 10 of Exhibit 1, Tab 7, (Interbank Journals);

• Exhibit 3 sets out the ITFX account material in Book 1, Part B referred to in paragraph 8 at Exhibit 1, Tab 7.

[ 36 ] In paragraph 8 at Tab 7, contrary to the Supplementary Agreement, the date June, 22, 2009 as the start date is correct.

GIB Interbank

[ 37 ] This entity (also “GIB” or “Interbank”) is identified in paragraph 62 below and it and its role are described at various places in these reasons.

The Records of ITFX and Interbank

[ 38 ] The following facts about the records of ITFX and Interbank are relevant to the determinations made below.

[ 39 ] According to the Supplementary Agreed Statement of Facts, the document excerpts at Exhibit 1, Tab 5A, Tab 7A and Tab 7B are from Interbank documents.

[ 40 ] According to the Affidavit of Mr. Kovacs at Exhibit 1, Tab 5, paragraph 7, the document excerpts at Exhibit 1, Tab 5B are from Interbank accounts.

[ 41 ] Exhibit 1, Tab 3E sets out the ITFX account history for Timswill dated January 20, 2011.

[ 42 ] Exhibit 1, Tab 4A sets out the 2011 ITFX adjusted account history dated May 11, 2011.

[ 43 ] As set out below, ITFX made further adjustments to its record of the Timswill account which it says were to make its account match what it learned was the Timswill account on the records of Interbank. How the record shows the revisions ITFX made to its account history to reflect those adjustments requires comment.

[ 44 ] The excerpts from ITFX’s Journal Logs set out in Exhibit 2 do not assist. They start only at June 29, 2010, after the last of the disputed trades and conclude with a trade on August 6, 2010 at 07:09:21, which was prior to the time (16.54) on August 6, 2010 when the alleged closings of the seven disputed trades occurred.

[ 45 ] For a statement of the ITFX account history for Timswill after giving effect to the Interbank adjustments it is necessary to refer to Exhibit 3.

[ 46 ] In paragraph 6 of his Supplementary Reply Affidavit of September 8, 2011 (Exhibit 1, Tab 5), Mr. Kovacs refers to a July 5, 2011 version of “the account statement” attached to the Affidavit of Spektor of August 12, 2011, in which there is a combined entry with the ticket number “14920251” which is described as a “GIB Account Adjustment” and removes $138,512.48 from the account. From this description, it appears that Mr. Kovacs is referring to an ITFX account statement. A July 5, 2011 version of the statement is not an exhibit to Mr. Kovacs’ Affidavit or to the Spektor Affidavit at Exhibit 1, Tab 7. However, Exhibit 3 is a statement of the ITFX account history that ends with a trade on October 19, 2010. The statement shows the ticketed adjustment Mr. Kovacs refers to in his paragraph 6. The net account balance shown in Exhibit 3 is “-$5,725.48”, which ITFX asserts is the correct balance. for the above reasons it is to be inferred that the ITFX statement in Exhibit 3 is the same as the ITFX statement of July 5, 2011 to which Mr. Kovacs referred.

[ 47 ] The statement at Exhibit 3 is dated March 7, 2012 which was the second day of trial. Why it is so dated, rather than July 5, 2011 is not apparent, but it does not appear to be material.

The Customer Agreements

[ 48 ] The customer agreements (collectively, the “Customer Agreements”) in place at the relevant time were:

• The ITFX Customer Agreement;

• Risk Disclosure;

• Electronic Trading and Disclaimer Agreement; and

• ITFX Disclaimer.

[ 49 ] ITFX has confirmed that the Customer Agreements change over time.

[ 50 ] The Customer Agreements include a provision that requires any amendment to the Customer Agreements to be in writing and signed by both ITFX and the customer (Customer Agreement section 20).

Procedural History

[ 51 ] The first affidavit of Zoltan Kovacs on behalf of Timswill was sworn March 3, 2011 (Exhibit 1, Tab 3). The affidavit attached a copy of the ITFX statement of Timswill’s account with ITFX, dated January 20, 2011, showing the outstanding balance to be $348,512.48.

[ 52 ] The affidavit of Rony Spektor on behalf of ITFX was sworn on May 9, 2011 (Exhibit 1, Tab 6.)

[ 53 ] The reply Affidavit of Mr. Kovacs was sworn May 11, 2011 (Exhibit 1, Tab 4). The Affidavit attached what was described as a more current version of the ITFX statement of account, dated May 11, 2011, showing the balance as only $210,000.00.

[ 54 ] The second affidavit of Rony Spektor for ITFX was sworn on August 12, 2011 (Exhibit 1, Tab 7). The affidavit referred to materials delivered with it which were stated to include a copy of a statement from another entity “GIB Interbank”, whose role is described further below. The statement from GIB Interbank records in its Timswill account the transactions of sales on August 6, 2010. These transactions are considered below. Timswill raises a dispute about the record of these transactions. This dispute is centrally important to the determination of the basic issue in this case.

[ 55 ] The supplementary reply affidavit of Mr. Kovacs was sworn September 8, 2011 (Exhibit 1, Tab 5). The affidavit refers to a third version of the ITFX statement of account, dated July 5, 2011, which shows the balance in the account to be a negative amount as a result of adjustments recorded for the end of December 2010 and stated to be related to GIB Interbank.

[ 56 ] The affidavit of Alan Zer for ITFX was sworn October 26, 2011.

[ 57 ] The order of Brown J., directing that this matter proceed as a trial of the issues was made on October 28, 2011.

Requests to Introduce Further Evidence and other Relief

[ 58 ] On March 6, 2012, at the outset of the trial, counsel for ITFX sought an adjournment in order to call an officer of Interbank as a witness and to introduce new evidence. Counsel for Timswill opposed the request on the basis that it was contrary to the order of Brown J. referred to above and that it came on the eve of trial and would be prejudicial because the expert witness for Timswill had already prepared his report based on the record of evidence as ordered by Brown J. Counsel for ITFX said that gib Interbank had only recently produced certain log books critical for the defence, particularly with respect to Timswill’s use of Internet Protocol (“IP”) addresses. He said he had requested those records two months earlier. That would have been three months after Brown J. made his order. Counsel for Timswill disputed the need for the additional records and raised the cost of bringing back the Timswill witnesses from Hungary a second time. Counsel for ITFX said the logs were critical to showing that the Timswill trades were done by a trader, Mr. Forrai, who traded for a group of traders and Timswill via one address and thereby hacked the system and caused it to crash. Counsel for Timswill said there had been significant delay already and the parties had known since the previous October what the trial requirements were and the issue of the trading group had been raised in 2009 and to allow the additional evidence now would necessarily reopen the whole case. Counsel for ITFX reiterated the need for the documents. For the reasons advanced by counsel for Timswill, I refused the request.

[ 59 ] On March 7, counsel for ITFX moved for a mistrial or a stay or an adjournment of the trial on different grounds, relating to a reference that was made in Mr. Kovacs’ Affidavit to his communications with an RCMP representative. For the reasons which I gave after hearing the motion, I dismissed the motion.

[ 60 ] Early in the day on August 30 (on the resumption of the trial after the adjournment on March 8), counsel for ITFX sought to introduce additional evidence in the form of e-mails between Mr. Forrai and Mr. Kovacs and ITFX. Counsel subsequently agreed to the introduction of Exhibit 6. Counsel for ITFX sought to introduce other documents, some or all of which were marked as Exhibits B, C and D for identification. These materials apparently relate to the issue of the occurrence of High Frequency Trading described below. Counsel for Timswill invoked the order of Brown J. and the prejudice that he had invoked in the March 6 submissions. For those reasons, I refused the request.

How Trading on the Account was Carried Out; the Role of GIB Interbank

[ 61 ] The trading which the parties engaged in was on-line foreign exchange trading. Kovacs said that Timswill used the assistance of a program called “Robot” to place its orders. In order to make a purchase or a sale, Timswill, as the customer, would transmit its order to ITFX for execution.

[ 62 ] As part of the trading arrangement, Timswill understood that a margin facility had been obtained by ITFX from an entity named “GIB Interbank” (also “GIB” or “Interbank”), frequently referred to as the “liquidity provider”. According to ITFX, it was Interbank that executed the trades. Interbank is not a party to this proceeding. No witness gave evidence on behalf of Interbank.

[ 63 ] It does not appear that Timswill had any direct dealings with Interbank. The account statements that Timswill received came from ITFX and reflected entries on the account of ITFX for Timswill. Subsequently, when the dispute arose, records identified as Journal Logs and Account Statements of Interbank in respect of the trades of Timswill were produced.

The Disputed Transactions

[ 64 ] The dispute before the Court concerns, in particular, seven trades (sometimes referred to as “positions”) reflected in the Journal Logs and the Account Statements.

[ 65 ] These seven trades were shown as completed or “closed” on the respective completion dates in June 2010 recorded on the ITFX Account Statements. However, on the Journal Logs of Interbank, each of the seven cases was shown as rejected.

[ 66 ] ITFX claims that the account report sent to Timswill by ITFX in respect of the seven positions was in error for this reason and that this error was caused by improper trading on the part of Timswill. ITFX also claims that over a month later, on August 6, 2010, as a result of trades that day by Interbank to close those seven positions, the account was left, not with the credit balance of US$348,512.48 as reported to Timswill in its Account Statement dated January 20, 2011, but with a negative balance owing to ITFX of US$5,725.48.

[ 67 ] Timswill disputes the assertion that improper trading on its part caused erroneous reporting in the January 20, 2011 statement. It also disputes that the seven positions were closed by Interbank on August 6, 2010.

[ 68 ] The total amount of the losses recorded by Interbank in respect of the August 6, 2010 closings is US$356,024.90 (Exhibit 1, Tab 5A; Exhibit 1, Tab 11, paragraph 8a on page 7 of 10). This amount exceeds by $1,786.04 the amount of $354,237.96, which is the difference between the positive balance in the January 20, 2011 statement and the subsequent negative balance. The $1,786.04 difference was not commented on in the trial.

The Expert Evidence

For Timswill

[ 69 ] Peter Szoldan provided his report along with an “Acknowledgement of Expert’s Duty”.

[ 70 ] In his report, Mr. Szoldan itemized the documents provided to him which he reviewed and he gave particulars of the research he performed himself to acquire the information which he specified. He set out the assumptions on which he relied.

[ 71 ] In summary, Mr. Szoldan’s conclusion as to what gave rise to the dispute is as follows:

The key to this dispute lies in the breakdown of communications between InvestTechFX’s and GIB Interbank’s computers. All seven disputed positions became problematic for the exact same type of reporting error, which happened when the closing transactions on these positions were rejected by GIB Interbank’s computer, but then mistakenly reported completed by InvestTechFX’s computer. In other words, seven times out of the 3,014 positions the Client took during the lifetime of his account, when he entered a close order and the order was rejected, this error caused the rejection to be misreported by InvestTechFX as a successful close. The erroneously reported transactions were then stored in InvestTechFX’s computer and the error was not discovered for months.

[ 72 ] Mr. Szoldan stated that the question to be answered was whether this error happened because:

i) Mr. Kovacs used the system outside of its specification, in other words, as Rony Spektor states, the error happens because Mr. Kovacs uses multiple-IP high frequency trading not authorized by the Customer Agreement and Disclaimer, overloading the system;

ii) Or Mr. Kovacs used the system within the boundaries of specification and the problem is unrelated to Mr. Kovacs’ trading.

[ 73 ] Mr. Szoldan concluded as follows. Firstly:

Mr. Kovacs did not use multiple simultaneous IP addresses for trading, the problem is unrelated to Mr. Kovacs’ IP address utilization.

Secondly:

Mr. Kovacs’ activities were not consistent with the characteristics of high frequency trading. His trading can be most adequately described as scalping, and on the slower end of the scalping scale. The problem is unrelated to Mr. Kovacs’ high frequency trading because he was not doing high frequency trading.

[ 74 ] With respect to the position of ITFX that the trading positions in issue were closed only on August 6, 2010 at 16:54, Mr. Szoldan’s conclusion was:

There is no log entry to support any activity on the account that would substantiate the claim that the positions in Mr. Kovacs’ account were in fact closed at the proposed time and price.

Therefore these closing transactions must have been retrospective allocations against another account.

For ITFX

[ 75 ] Jody Samuels provided her report. She did not provide an Acknowledgement of Expert’s Duty. In her report, she did not state what information and documents she had reviewed other than a document she described as a “Customer Agreement” with specific reference to Sections 2, 9, 12 and 13 of that agreement. In her testimony, she said she had reviewed Exhibit 1 and other documents, which she did not specify. She did not state the assumptions on which she relied.

[ 76 ] In summary, her conclusions are as follows:

Zoltan Kovacs opened up a trading account with InvestTech in June 2009 and deposited a total of $210,000USD. Mr. Lajos Forrai introduced Kovacs to InvestTech. As a VIP account, $21,000 was deposited into the Kovac’s account on July 22nd for trading purposes only. Active trading in the account from June 2009 to October 2010 revealed that unauthorized trades were executed through InvestTech’s platform. These particular trades used high frequency trading strategies executed through multiple IP addresses. Since these trades were not executed by the GIB Interbank liquidity pool, there was a discrepancy between what was reported on the platform and what was registered with the liquidity provider taking the other side of the trades. This discrepancy was passed on as a loss to InvestTech., which was then passed on to the client, because InvestTech does not participate in the gains or losses from client trades. When the system is invaded by these highly sophisticated algorithmic rapid fire trades from multiple IP addresses, these trades get lost in the system. Not only does InvestTech state in the customer agreement that these trades are not allowed, but the liquidity provider Interbank does not allow these trades either. When a trade isn’t recognized by Interbank, it does not reconcile with InvestTech, and the client cannot receive credit for the trade.

[ 77 ] Ms. Samuels stated that “Mr. Lajos Forrai was trading the account” and had access to it”.

[ 78 ] She also stated as follows:

… It is obvious that Mr. Forrai used algorithmic EAs to make quick scalping profits in the Forex market from multiple IP addresses and as such, were not processed through GIB Interbank. Since it is GIB Interbank that takes the other side of the trade, and not InvestTech, who is the software provider, the trading confirmations come from GIB Interbank.

[ 79 ] With specific reference to high frequency trading, Ms. Samuels said as follows:

… High Frequency trading is done through sophisticated computer programs (EAs/Robots) that use a special class of algorithmic trading capable of generating vast profits within a short timeframe. The EA or Robot used by this client was not your typical robot. It was a rapid fire high frequency robot that is not allowed by InvestTech. Another breach of the contract, in my estimation.

General Comment on the Expert Evidence

[ 80 ] Specific parts of the evidence of the experts are considered in detail below.

[ 81 ] The report of Mr. Szoldan provided a detailed analysis of the documentary evidence with respect to the issues in the trial, including the issues relating to the alleged August 6, 2010 closings. The evidence of Mr. Szoldan withstood cross-examination. His evidence is very helpful.

[ 82 ] The report of Ms. Samuels did not provide a detailed analysis. It did not address the issues relating to the alleged August 6, 2010 closings. The report was conclusory throughout, without providing reasons for its conclusions. It was not helpful.

Preliminary Issue: Whether Timswill is a Proper Party

[ 83 ] On August 30, 2012 after the trial resumed, in his cross-examination, Mr. Zer said the relationship of ITFX was only with Mr. Kovacs and not with Timswill. He said he heard of Timswill only through the Court proceedings. He said he did not know whether this matter had been raised before. He said he did not know if a deposit of $70,000 had been received from Timswill; as far as he knew it came from Mr. Kovacs. He acknowledged that Mr. Kovacs had sworn he had a power of attorney for Timswill, but he said he had not seen the power of attorney. He said ITFX could not open an account for an off-shore company without making further enquiries because it could contravene anti-laundering laws. He said ITFX’s account was with Mr. Kovacs, not Timswill.

[ 84 ] The testimony of Mr. Spektor was much to the same effect as Mr. Zer’s testimony.

[ 85 ] Mr. Kovacs said, in his Affidavit, that as of March 3, 2011 Timswill made deposits of $210,000 in total. This evidence stands uncontroverted.

[ 86 ] The parties made their Agreed Statement of Facts as set out earlier in these reasons. The first paragraph of the Statement identify Timswill. Subsequent paragraphs of the Statement state that in June 2009 Timswill opened account #11334 with ITFX and that Timswill deposited $210,000 to the account.

[ 87 ] These statements are in the nature of admissions. It is reasonable to consider that Timswill has relied upon these admissions, because there was no attempt to withdraw them until August 30, 2012, after all of the evidence-in-chief had been tendered.

[ 88 ] It was contended that the court is not bound to act on an obviously mistaken Agreed Statement. There is no obvious mistake. On the evidence, it can be concluded that Timswill opened the account, but the name in which ITFX opened it was that of Mr. Kovacs. Mr. Kovacs’ evidence that Timswill paid the deposits is not controverted, so ITFX was on notice that it was Timswill that opened the account with the deposits.

[ 89 ] It is not credible that ITFX would have agreed to the Agreed Statement of Facts with its statements about Timswill referred to above if, as Mr. Zer and Mr. Spektor said, they never had any knowledge of Timswill.

[ 90 ] Accordingly, Timswill is a proper party.

[ 91 ] This concludes the preliminary matters.

Analysis

Overview

[ 92 ] ITFX asserts that there are errors in its January 20, 2011 Account Statement and that these were caused by improper trading on the part of Timswill.

[ 93 ] The only errors that can be identified (leaving to one side the issue whether the alleged August 6, 2010 closings occurred) are the entries in respect of the seven trades in June 2010. These trades are specifically identified in paragraph 8 of the Report of Mr. Szoldan (Exhibit 1, Tab 11). The error in each case is that an order to close that had been recorded as rejected by Interbank, was recorded by ITFX as completed at that specific time.

[ 94 ] Mr Szoldan stated that the fact that the trades were shown as rejected meant that they were not completed, even though Interbank also recorded them as completed at virtually the same time. Mr. Szoldan does not say why he makes the inference that they were rejected rather than the contrary one. Neither party contended that he was wrong to treat the orders as not completed.

[ 95 ] It is helpful to identify the consequence in terms of profit or loss of the erroneous recording of the seven trades as recorded as completed in June, 2010. The records are set out on pages 29 to 31 of the January 20, 2011 Account Statement (Exhibit 1, Tab 3E). The entries show the profit or loss on each trade. On the seven disputed trades, the net result was a loss of just under $1,000 in total. If the closings of these trades had not been reported as completed, the net amount in the account as at July 20, 2011 on the basis of the Account Statement of that date would therefore have been about $1,000 higher than the total amount shown. This fact prompts the observation that, if Timswill was engaged in an effort through the trading of Mr. Forrai to obtain trading benefits by disabling the system, the effort was counterproductive.

[ 96 ] Moreover, the same fact shows that whether the seven disputed trades were erroneously recorded and whether the errors were caused by improper trading on the part of Timswill, erroneous recording of the seven disputed trades did not give rise to a basis for ITFX’s contention that the January 20, 2011 Statement was in error by approximately $350,000. As set out below, the only basis for that contention is the alleged August 6, 2010 closings.

(Decision continues with remaining paragraphs exactly as above through paragraph [194].)

Spence J.

Released: November 23, 2012

COURT FILE NO.: CV-11-9119-00CL

DATE: 20121123

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N:

TIMSWILL ENTERPRISES LTD. Applicant - and - INVESTTECHFX TECHNOLOGIES INC. Respondent

REASONS FOR DECISION Spence J.

Released: November 23, 2012