Court File and Parties

COURT FILE NO.: CV-11-438696 DATE: 2012-12-28 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Alan Beaton, Plaintiff / Responding Party AND: Scotia iTrade and Scotia Capital Inc., Defendants / Moving Parties

BEFORE: Justice E. P. Belobaba

COUNSEL: Marc Kestenberg for the Defendants / Moving Parties Paul Guy and Scott McGrath for the Plaintiff / Responding Party Jeffrey Larry for the Ombudsman for Banking Services / Proposed Intervener

HEARD: December 11, 2012

Endorsement

[1] Scotia Capital botched a simple share transfer in December 2006 that allegedly resulted in a significant trading loss to one of its clients. However, the client, Alan Beaton, waited almost five years to commence this action. Scotia moves for summary judgment dismissing the action on the ground that it is statute-barred under the Limitations Act.[^1]

[2] The action was commenced in November 2011. Scotia says that even if one deducts the nine months that would be “tolled” during the investigation and report of the Ombudsman for Banking Services and Investments (“the OBSI”), the action is still out of time. Mr. Beaton agrees that his trading loss occurred in December 2006, but argues that he did not discover his claim until the spring of 2010 when Scotia provided some additional information. It was only then that Mr. Beaton realized that Scotia had caused or contributed to his loss and that a legal proceeding would be an appropriate remedy. It was the “2010 disclosures” that started the limitations clock and not the 2006 transfer error says Mr. Beaton, and thus the action is not time-barred.

[3] The issue, obviously, is discoverability. Both sides agree that the matter is amenable to summary judgment, as do I. There is a narrow legal focus, a small number of affidavits, no material facts in dispute and no issues of credibility. I therefore have no difficulty concluding that a full appreciation of the evidence and issues required to make dispositive findings can be achieved on this motion for summary judgment.

[4] I also have no difficulty concluding that the motion for summary judgment should be granted. I do not agree with the plaintiff’s characterization of the “2010 disclosures.” In my view, Mr. Beaton had enough information by the spring of 2007, if not sooner, to know that he could sue Scotia for his losses. For the reasons set out below, I agree with Scotia that the action is time-barred.

Background

[5] In November of 2006, Mr. Beaton, an experienced financial planner and securities trader, decided to transfer his stock holdings from RBC to Scotia. The holdings included about 98,000 shares of Northwest Airlines, a stock that was particularly volatile at the time. Mr. Beaton made it clear to Scotia that only 50,000 of the 98,000 NWA shares were to be moved. The remaining 48,000 shares were to stay in his RBC account so he could sell them, if needed, at a moment’s notice (“so I could have my finger on the selling trigger at all times”). Mr. Beaton was concerned that during the two or three days that would be needed to transfer his holdings to Scotia, the NWA share price could spike and he wouldn’t be able to access his new Scotia account and dispose of the shares. Indeed, Mr. Beaton was so concerned about maintaining accessibility to the 48,000 shares that he called Scotia no less than five times to make sure that the “partial transfer” was executed correctly.

[6] Scotia botched the transfer. Contrary to Mr. Beaton’s explicit and repeated instructions, Scotia transferred all of the NWA shares, leaving none at RBC. As it happened, during the transfer process, the NWA share price spiked to an all-time high. On the morning of December 14, Mr. Beaton tried to access his RBC account to sell the 48,000 shares. The RBC account was closed. He checked his new Scotia account but none of the shares had yet arrived. He couldn’t sell. Thinking that the error was RBC’s, he left voicemails and emails with RBC but to no avail. The day went on, the share price plummeted, and Mr. Beaton lost some $76,000 because of his inability to trade the 48,000 shares at their peak.

[7] Within days, Mr. Beaton learned that the error was not RBC’s but Scotia’s. To its credit, Scotia quickly admitted that it had made a mistake by executing a full transfer of the NWA shares rather than the partial transfer that Mr. Beaton had repeatedly requested. At one point in the ensuing discussions, Scotia offered $5,000 in compensation. Scotia refused to pay any more because, in its opinion, it could have traded the 48,000 NWA shares on December 14 had Mr. Beaton simply called and placed the sell order. Since no such trading instructions were received, said Scotia, no compensation was owed.

[8] The suggestion that Scotia could have traded the NWA shares on December 14 was rejected by Mr. Beaton as “off the wall crazy.” When he accessed his Scotia account on December 14, nothing was showing. He also learned shortly thereafter that the shares were only booked into his Scotia account on December 15. Mr. Beaton’s understanding of the transfer process (an understanding that was shared by the transfer supervisor at Scotia) was that no trading was possible during the two or three-day transfer process. Mr. Beaton has therefore never accepted Scotia’s position that it could have traded his NWA shares on December 14 had he only made the call.

[9] Having failed to resolve the dispute with Scotia, Mr. Beaton complained to the Ombudsman for Banking Services and Investments. The parties agreed to refer the dispute to the OBSI in September 2007 and the OBSI released its Report in May 2008. The OBSI sided with Scotia. Mr. Beaton was not pleased. In his view, the OBSI conducted a “totally biased investigation.” Mr. Beaton next complained to the Investment Dealers Association (now called the Investment Industry Regulatory Organization of Canada or IIROC) and then to the Ontario Securities Commission—all to no avail.

[10] He commenced this action in November 2011.

Analysis

[11] Section 4 of the Limitations Act provides that the basic two-year limitation period begins to run from the day the “claim” is “discovered”. A “claim” is defined as “a claim to remedy an injury, loss or damage that occurred as a result of an act or omission”. Section 5(1) of the Act provides that a claim is “discovered” (and the limitation period begins to run) when the injured plaintiff first knew or should have known that the injury, loss or damage “was caused or contributed to” by an act or omission of the defendant and that a legal proceeding “would be an appropriate means to seek to remedy it.”

[12] The basic principles pertaining to discoverability were summarized by the Court of Appeal in Lawless v. Anderson:

Determining whether a person has discovered a claim is a fact-based analysis. The question to be posed is whether the prospective plaintiff knows enough facts on which to base an allegation of negligence against the defendant. If the plaintiff does, then the claim has been “discovered”, and the limitation begins to run…[W]hat a prospective plaintiff must know are the material facts necessary to make a claim, whatever form they come in.[^2]

[13] The claimant only has to know enough material facts on which to base a legal allegation. Once the plaintiff knows that some damage has occurred and has identified the alleged wrongdoer, “the cause of action has accrued”.[^3] Neither the extent nor the type of damage need be known. The claimant also need not know the details of the wrongdoer’s conduct or how the wrongdoer caused the loss. The question of “how it happened” will be revealed through the legal proceeding. As the Court of Appeal noted in McSween v. Louis when discussing the predecessor to the current Limitations Act:

To say that a plaintiff must know the precise cause of her injury before the limitation period starts to run, in my view places the bar too high…[T]he production and discovery process and obtaining expert reports…are litigation procedures commonly used by a plaintiff to learn the details of how the injury was caused, or even about the existence of other possible causes and other potential defendants. In order to come within [s. 5 of the Act] it is sufficient if the plaintiff knows enough facts to base her allegation of negligence against the defendant.[^4]

[14] What then did Mr. Beaton know and when did he know it?

(1) Mr. Beaton knew that Scotia had caused or contributed to his loss by the end of April 2007, if not sooner.

[15] Mr. Beaton knew he had sustained a trading loss on December 14. He tried to sell the 48,000 shares at $6.29 per share when the market opened, but could not access his accounts. As the day progressed, the share price continued to drop. By the time he was able to sell the stock, he had sustained a loss of $1.60 per share, or $76,800 in total.

[16] He also knew within days of the loss that it was Scotia and not RBC that had caused or contributed to the loss. Indeed, in a telephone discussion on December 27, Scotia admitted that it was their mistake—that they had botched the share transfer. Thus, within days of the trading loss, Mr. Beaton had little to no doubt that Scotia had caused or contributed to his loss. This is evident from what he said to Scotia representatives during several of his telephone discussions:

• December 27, 2006: “your error cost me a lot of money”

• February 14, 2007: “the error cost me a shit load of money”

• February 14, 2007: “a colossal error was made on my account and I want a letter of explanation…”

• March 26, 2007: “you guys screw up a transfer and you won’t tell me how…”

[17] By the time Mr. Beaton had submitted a written complaint to the OBSI on April 25, 2007 and another to Scotia on April 27, 2007, he was well aware of the fact that Scotia had caused or had contributed to his trading loss. Indeed, he concluded his complaint letter to the OBSI with this: “I will therefore be seeking arbitration thru the OBSI in order to recover the [$76,800 US] losses sustained due to what I believe was [Scotia’s] carelessness and neglect.”

[18] His complaint letter to Scotia also left no doubt about blame or responsibility: “It is clear to me that your company committed a large mistake in transferring my assets from RBC…[this was] clearly an act of carelessness or neglect on the part of someone working at [Scotia]…I therefore hold [Scotia] fully responsible for…$76,800 US which represents the exact loss in value plus interest…as compensation for the error your company made with my RBC account.”

[19] I therefore find that at least by the end of April 2007, if not sooner, Mr. Beaton knew that Scotia had caused or contributed to his trading loss.[^5]

(2) Mr. Beaton knew by February or March 2007 that a legal proceeding was an appropriate means to seek a remedy.

[20] The law is clear that a legal proceeding will be an “appropriate means” to remedy a loss if the claimant, or a reasonable person in his place, believes that a cause of action exists. He need not believe that the action would succeed.[^6] The claimant must simply believe that a “legally viable”[^7] or “meritorious”[^8] claim exists. Under s. 11 of the Limitations Act, the limitation period will not run if the disputing parties agree to have an independent third party resolve the claim or assist them in resolving it. Otherwise, it is irrelevant for the purpose of the limitation period that a claimant may wish to avoid litigation or may believe that there is another more effective means of seeking a remedy.

[21] The evidence is clear that Mr. Beaton knew in February 2007 that litigation was a viable and appropriate remedy. In a telephone discussion with Scotia on February 14, he actually threatened legal action. And, in his 2009 letter to the OSC, Mr. Beaton candidly described the options he had in early 2007:

[W]ith RBC absolving itself of any wrongdoing and [Scotia] refusing to provide any information whatsoever as to [its] role…I was left to sort this matter out through the courts or…OBSI or IIROC arbitration…after speaking to an OSC representative in the spring of 07, I decided to pursue this matter through the OBSI…

[22] When cross-examined on his affidavit, Mr. Beaton admitted that he had considered taking Scotia “to court” as early as “January, February, March 2007.” Mr. Beaton also admitted on cross-examination that when the OSC suggested civil action in its July 2009 letter and cautioned him about possible limitation problems, he understood that “at this point in time, the two-year limitation period to file a lawsuit was over.”

[23] In sum, Mr. Beaton knew by February or March 2007 that legal action would be an appropriate remedy. The fact that he decided to submit the dispute to the OBSI was, of course, his right. And, the nine months taken up by the OBSI dispute resolution process, from the date of the parties’ agreement to the date of the OBSI’s final report, should be “tolled” under s. 11 of the Limitations Act.[^9] However, this still leaves about four years from date of discovery to the commencement of legal action, well over the two-year limitation period.[^10]

[24] Mr. Beaton, however, argues that the limitations clock only began running in the spring of 2010 when Scotia provided him with what he believed was new and highly material information. His counsel referred to this new information as the “2010 disclosures.”

(3) The “2010 disclosures” added nothing of substance.

[25] Mr. Beaton received additional information from Scotia in March 2010 and again in May 2010, consisting mainly of transcripts of certain telephone discussions and a chronology prepared by a senior Scotia representative. The telephone transcripts confirmed what Mr. Beaton already knew—that Scotia had bungled the share transfer instructions, albeit even more than he first thought. And the ‘chronology email’ advised that the shares were booked into his Scotia account on December 15—something that Mr. Beaton acknowledges he already knew “in early to mid-January, 2007”. In short, there was nothing in the “2010 disclosures” that was new and material or that could, under any reasonable construct, delay the commencement of the limitation period until the spring of 2010.

[26] Mr. Beaton may well have taken the December 15 booking date information as an indication that Scotia had changed its position and was now admitting that it could not have traded his shares on December 14. But, in fact, there was no such admission in the chronology that Mr. Beaton received in 2010. Indeed, on cross-examination, Mr. Beaton agreed that Scotia had never suggested either orally or in writing that it could not have traded the shares on December 14 or that it could only have done so after the shares were formally booked into his account on December 15. In other words, the “2010 disclosures” about when the shares were formally booked into the account really added nothing new or material to what Mr. Beaton already knew.

[27] Further, even if one viewed the 2010 ‘chronology email’ as evidence of a change of position by Scotia (about when they could have traded the shares), this also would not have been new or material information. Recall that Mr. Beaton’s firm belief from the outset was that Scotia could not have traded the shares on December 14 because the share transfer was still in progress. He described Scotia’s suggestion to the contrary as “off the wall crazy.”[^11]

[28] In short, there was nothing new in the additional information provided by Scotia in the spring of 2010, and certainly nothing that could reasonably be viewed as being so material that the limitations clock only started running when this additional information was received. The “2010 disclosures” provided at best some additional information that supported Mr. Beaton’s original allegation that Scotia ‘botched’ the transfer (probably worse than he originally thought, in that it was now apparent that Scotia had an opportunity to prevent the error and failed to do so). The additional information also confirmed the December 15 booking date.

[29] Even if these were new facts, the result would be the same. As the Court of Appeal noted in Investment Administration Solution Inc. v. Silver Gold Glatt & Grosman, “[t]he discovery of a new fact that might help the plaintiff’s case does not restart the limitation period.”[^12] The “2010 disclosures” were not materially significant. Mr. Beaton had already discovered his claim by April 2007, at the latest, as discussed above.

[30] Why then did almost five years go by before this action was commenced? In my view, the root problem was Mr. Beaton’s genuine but misguided preoccupation about how the transfer error was made—whether somebody at Scotia, to use his words, had “ticked the wrong box” or “pushed the wrong button.” Initially this line of inquiry made sense. Mr. Beaton had to know whether the mistake was RBC’s or Scotia’s. However, after Scotia admitted the error, and it did so on December 27, 2006, Mr. Beaton continued with the “how” questions. This was, unfortunately, a time-consuming distraction. As the Court of Appeal made clear in McSween v. Louis, discussed above, the “how” questions are best left for the litigation process—for discovery and expert reports.[^13] The limitations analysis is concerned primarily with questions of what, when and who. Mr. Beaton eventually filed this lawsuit after his overtures to the OBSI, the IDA and the OSC had played out. Unfortunately, the two-year limitation period had long expired. Mr. Beaton simply waited too long, in part because he was preoccupied with the wrong question.

[31] In sum, I find that Mr. Beaton had enough factual information by the end of April 2007 to know that he had sustained a trading loss, that Scotia had caused or contributed to this loss, and that a legal proceeding was an appropriate means to remedy the matter. Even with the nine months that should be tolled for the OBSI investigation and report, the November 2011 action is still almost two years out of time.

[32] Mr. Beaton also tried to argue fraudulent concealment and spoliation. There is simply no basis in the evidence for the fraudulent concealment claim. And neither the pleadings nor the evidence support the claim of spoliation.

Disposition

[33] Scotia’s motion for summary judgment is granted. The action is dismissed.

[34] Given this outcome, the OBSI’s motion for intervener status and related orders is dismissed as moot.

[35] If the parties are unable to resolve the question of costs, I would be pleased to receive a brief written submission from Scotia within 14 days and a responding submission from Mr. Beaton within 10 days thereafter.

[36] I am grateful to counsel for their assistance.

Belobaba J.

Date: December 28, 2012

[^1]: S.O. 2002, c. 24, Sched. B. Scotia iTrade is a division of Scotia Capital and is not a legal entity. Therefore, whatever the outcome on this motion, I would have at the very least dismissed the action as against Scotia iTrade.

[^2]: Lawless v. Anderson, 2011 ONCA 102 at paras. 23 and 28 (emphasis in original).

[^3]: Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549 at para. 18.

[^4]: McSween v. Louis, 2000 CanLII 5744 (ON CA), [2000] O.J. No. 2076 (C.A.) at para. 51. This paragraph was also quoted with approval in Lawless, supra, note 2.

[^5]: Mr. Beaton continued to blame Scotia in his June 13, 2007 letter to the IDA: “[Scotia] committed a blatant and devastating error in executing a partial transfer of my assets from RBC…it had clearly made an error…”

[^6]: Boyce v. Toronto (City) Police Services Board, 2011 ONSC 53, [2011] O.J. No. 7, at paras. 33-34.

[^7]: Tim Bates & Brett Harrison, “The Impact of the Limitations Act, 2002 on the Common Law of Discoverability”, in Ziegel et al., eds., The New Ontario Limitations Regime: Exposition and Analysis (2005) at p. 82: “a limitation period does not begin to run until the plaintiff knows or ought to know that she has a legally viable claim.”

[^8]: Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONSC 151, [2012] O.J. No. 135 at para. 9, rev’d on other grounds 2012 ONCA 851.

[^9]: Supra, note 1. The parties executed the OBSI agreement in September 2007. The OBSI delivered its final report in May 2008—about nine months later. These nine months, as already noted, can be tolled. However, the time consumed by Mr. Beaton’s complaints to the IDA or the OSC cannot be tolled. The tolling provision, found in section 11(1) of the Act, contemplates the submission of a dispute to an independent third party but only with the agreement of both parties. Here, Scotia did not agree to submit the dispute to either the IDA or the OSC and, in any event, unlike the OBSI, neither the IDA nor the OSC provided a third-party dispute resolution service. Hence, only the nine OBSI months (from agreement to final report) can be tolled.

[^10]: Assuming that the limitation period was triggered by the end of April 2007 when Mr. Beaton forwarded the complaint letters to the OBSI and Scotia, and allowing for the nine OBSI months that are tolled, this still leaves about 46 months, or just under four years, between discovery and legal action.

[^11]: Mr. Beaton’s position throughout has been that no trading was possible during the share transfer process. In his complaint letter to the OBSI, he referred to Scotia’s position about being able to trade on December 14 as a “rather remarkable claim” and in his letter to the OSC he said he would “challenge [Scotia] on this point.” In any event, whether Scotia could or could not have traded the 48,000 NWA shares had Mr. Beaton called them when the market opened on December 14 is a question best explored under the rubric of mitigation. That is, on the morning of December 14, when Mr. Beaton was unable to access his RBC account and found that his Scotia account was still empty, and thinking that the error was RBC’s, should he have, acting reasonably, called Scotia to see if a trade could nonetheless be done? Or was it more reasonable, given his initial belief that the error was RBC’s and given his understanding that no trading could be done while a share transfer was in progress, an understanding shared by the transfer supervisor at Scotia, that no phone calls to Scotia and no further duty to “mitigate” was required? I am inclined to prefer the latter. In any event, the December 14 trading question relates more to issues of mitigation and overall damages assessment than to the discoverability of a cause of action under a limitation period.

[^12]: Investment Administration Solution Inc. v. Silver Gold Glatt & Grosman, 2011 ONCA 658 at para. 15; leave to appeal ref’d 2011 SCCA No. 543.

[^13]: Supra, note 5 at para. 51.