COURT FILE NO.: 06-CV-324065PD3

DATE: 20130417

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

JEAN-MARC RIDEL, NADINE SUZANNE JOSEPHINE RIDEL and MARC H. RIDEL

Plaintiffs

– and –

ARMANDO CASSIN and E3M INVESTMENTS INC.

Defendants

AND BETWEEN:

ARMANDO CASSIN and E3M INVESTMENTS INC.

Plaintiffs by Counterclaim

– and –

JEAN-MARC RIDEL, NADINE SUZANNE JOSEPHINE RIDEL and MARC H. RIDEL

Defendants by Counterclaim

Philip Anisman, for the Plaintiffs

Arnold Zweig and L. Goldberg, for the Defendants

Arnold Zweig and L. Goldberg, for the Plaintiffs by Counterclaim

Philip Anisman, for the Defendants by Counterclaim

PEPALL J.

REASONS FOR DECISION

[1] On December 13, 2006, the Plaintiffs, Jean-Marc Ridel (“Mr. Ridel”), his wife Nadine Suzanne Josephine Ridel (“Mrs. Ridel”), and their son Marc H. Ridel (“Marc”), sued the Defendants, Armando Cassin and e3m Investments Inc. (“e3m”), for damages for breach of contract, breach of fiduciary duties and negligence arising out of conduct that commenced in April 1999 and continued until July 2006. Mr. Cassin is registered as a security salesman under the Securities Act, R.S.O. 1990, c. S. 5 and was employed as a registered representative (“RR”) by the Defendant investment dealer, e3m. The Plaintiffs had various accounts with the Defendants. Their claims arise out of the handling and lack of supervision of those accounts.

Facts

Background of the Plaintiffs

[2] Mr. Ridel was born on November 17, 1944. Mrs. Ridel was born on December 30, 1945. They have one son, Marc, who was born on October 26, 1965. They all immigrated to Canada from France in 1978. In France, both Mr. and Mrs. Ridel had attended University but had not graduated. In Canada, Mr. Ridel was hired as a games keeper at the Griffith Island Club in Georgian Bay. There, he also taught game management. Mrs. Ridel attended to household duties at the Club.

[3] After the Griffith Island Club, Mr. Ridel worked in the gaming and fisheries industry. From 1980 to 1989 he was a partner in a game farm where he raised partridge for clubs and restaurants. The Ridels bought the partner’s interest and in 1984 incorporated the business which was known as La Ferme Black River Game Farm Inc. Mr. and Mrs. Ridel each held 40 shares in the company and Marc held 20 shares.

[4] From 1994 until 2000, Mr. Ridel raised birds and distributed food to restaurants. Mrs. Ridel attended to restaurant phone orders and invoicing. Marc attended to deliveries. In 2000, the Plaintiffs reorganized their business. They planned to expand and bought land in Pefferlaw, Ontario, to build a plant. They established a holding company. The shares were allocated to the Plaintiffs in the same proportion as with the operating company. The value of the business was approximately $1 million in 2000. Mr. Ridel did the bookkeeping for the business with the assistance of a part-time bookkeeper and an accountant, Mr. Silverberg. Mr. Silverberg did the corporate income tax returns as well as the Plaintiffs’ personal income tax returns.

[5] The plant was completed in early 2004. In June 2008, the Plaintiffs sold the business for $1.5 million payable over five years. Both Mr. and Mrs. Ridel are now retired.

Investment Experience of the Plaintiffs

[6] Mr. Ridel’s first investment was in 1979 when he bought some shares in Cisco Mines as a result of a recommendation made by a member of the Griffith Island Club. The purchase was made through a bank and did not involve opening a brokerage account.

[7] Mr. Ridel also acquired some mutual funds at Victoria and Grey Trust Company which he continues to maintain at its successor, Scotiabank. In 1996 or 1997, he invested in an RRSP and in mutual funds at the Bank of Montreal. In 1997, his Bank of Montreal representative, Mary Hope, moved to Investors Group. As a result, Mr. Ridel transferred his investments from the Bank of Montreal to Investors Group. Mr. Ridel testified that Ms. Hope told him that she would do better for him than the bank or words to that effect.

[8] Ms. Hope has been a financial consultant at Investors Group for 14 years. Before that, she worked for 25 years with the Bank of Montreal. She obtained her license to sell mutual funds in 1986. She first met Mr. and Mrs. Ridel while at the Bank of Montreal.

[9] When he transferred his funds to Investors Group, Ms. Hope completed a New Client Account Form (“NCAF”) for Mr. Ridel’s signature based on information provided to her by him. On the form under the heading ‘investment experience’, Mr. Ridel was described as having “some knowledge” rather than being ‘new’ or ‘experienced’. This was Ms. Hope’s assessment. Someone who was ‘new’ would have no experience in investing. Mr. Ridel’s annual income was stated to be $25,000. His net worth was left blank and his investment objectives were incomplete. The purpose of the form was to open the account for a small amount of money. The objectives would be discussed later. Mr. Ridel signed the form dated February 6, 1998 and acknowledged, among other things, that he and the Investors Group’s representative had completed a personal financial review.

[10] Mrs. Ridel also signed a NCAF dated February 6, 1998. Her ‘investment experience’ was described as ‘some knowledge’. Again, this was Ms. Hope’s assessment. Ms. Hope observed that Mrs. Ridel had mutual funds with Victoria and Grey and money market investments at Bank of Montreal. Again, the investment objectives were left incomplete on the form. Mrs. Ridel’s annual income was stated to be $25,000.

[11] Marc also signed a NCAF with Investors Group. Ms. Hope had no recollection why his form was dated January 24, 1998. She met him and obtained the information on the form from him. He had a grade 12 education. He worked for his parents after his graduation from high school in 1984. He helped raise birds and did deliveries. His investment objectives were described as ‘medium growth–long term’. He too was described as having ‘some knowledge’ under the heading ‘investment experience’. He had an RRSP at Bank of Montreal which he moved to Investors Group and had also invested in mutual funds. His income was stated to be $25,000 per year and his net worth $100,000.

[12] While at Investors Group, Ms. Hope prepared a personal retirement plan for Mr. and Mrs. Ridel. On this form, their total net worth was described as being $639,500, $300,000 of which represented the house and $150,000 corporate retained earnings. The remainder consisted of T-Bills and RRSPs. The proposed plan suggested a maximization of savings and RRSP contributions. The plan was never accepted by Mr. and Mrs. Ridel.

[13] Investors Group sent the Ridels quarterly statements. As of March 31, 1999, Mr. Ridel's total investments amounted to $81,652.03, 59% of which was in fixed income and the remainder in equity. The investment mix was chosen by Ms. Hope and accepted by Mr. Ridel. Of the $81,652.03, $73,764.22 was in an RRSP for Mr. Ridel, 6.81% of which was high risk and represented two funds, one of which was chosen by Mr. Ridel. The high risk investment chosen by him was Investors Global Science & Technology Fund.

[14] As of March 31, 1999, Mrs. Ridel’s total investments at Investors Group amounted to $72,181.02, 72% in fixed income and 21% in equities.

[15] As of March 31, 1999, Marc had 99% or $49,014.95 invested in equities and 1% or $685.76 in fixed income. Ms. Hope described one half of his portfolio as being high risk.

Backgrounds of the Defendants

[16] Mr. Cassin had been in the investment business since the late 1970’s. He worked for 16 years as a commodity futures trader. In February, 1994, he became a partner at Merit Investment Corporation and the head of the trading department, where he handled all equities and was also head of compliance. There were between 4 and 8 traders in the department. After Merit, he joined Nesbitt Securities where he was hired on the arbitrage desk. When Nesbitt acquired Burns Fry, he was no longer needed. He joined e3m in 1995.

[17] e3m was established in 1993 by Robert Goldberg who was its President. He wished to work with fixed income products in a low cost environment. e3m was registered as an investment dealer under the Securities Act and was a member of the Investment Dealers Association of Canada ("IDA")[^1]. Prior to Mr. Cassin joining the firm, there were only two people in the firm. In 1999, Mr. Cassin and Mr. Goldberg concentrated on sales and two others were employed in operations.

Introduction to the Defendants

[18] Mr. Ridel first met Mr. Cassin in 1998. Mr. Ridel was 53 years old at the time. Mr. Cassin was introduced to Mr. Ridel by Mark Thuet, a restauranteur, and a mutual friend. Mr. Ridel knew that Mr. Thuet had a brokerage account with Mr. Cassin and held Nortel stock which had fared very well.

[19] The three men met at Mr. Thuet’s farm. Mr. Ridel had a discussion with Mr. Cassin about moving his funds from Investors Group and opening an account at e3m to be managed by him. Mr. Ridel said that he had some money but he could not lose it as it was his retirement fund. He told Mr. Cassin not to take big chances. He was looking to make more than his returns from the banks. Mr. Cassin assured him that he knew what he was doing.

[20] The three men subsequently met again at the Ridels’ farm. Mr. Thuet heard Mr. Ridel tell Mr. Cassin to make sure that he did not put his money into high risk stocks.

[21] They met again in 1999 at Mr. Thuet’s restaurant, Centro, in Toronto. On that occasion, Mr. Ridel told Mr. Cassin that he had U.S. funds at the bank and the funds were doing strictly nothing. They discussed giving his funds to Mr. Cassin to invest. Mr. Ridel understood that Mr. Cassin would invest the funds the way he would invest his own money and would do better than the bank. The two agreed that Canadian and U.S. cash accounts would be opened. Mr. Thuet recalls that Mr. Cassin always said the same thing: don’t take too many chances; just give me more than the bank gives me and I’ll be happy, or words to that effect.

[22] Mr. Cassin had no recollection of meeting Mr. Ridel at Centro but I find that they did. In addition, on his discovery in 2008, Mr. Cassin testified that he did not remember the nature of his discussion with Mr. Ridel at his farm and he could not recall whether Mr. Ridel had said that he wanted to do better than the banks or anything like that. At trial he testified that he had given the matter more thought and this refreshed his memory. At trial, he did recall meeting with Mr. Ridel at his farm. He was invited to the farm for the purposes of opening an account for Mr. Ridel. He was given a tour. Mrs. Ridel was there too. Mr. Cassin told them that his specialty was stocks and that he favoured U.S. companies with large capitalization. He acknowledged that the Ridels were interested in making money and doing a lot better than they had at the banks.

[23] The evidence of Mr. Cassin and Mr. Ridel frequently conflicted. A significant disparity between the parties’ evidence is whether Mr. Cassin discussed and completed Mr. Ridel’s NCAF with him while at the farm and in particular, whether he discussed Mr. Ridel’s account objectives and risk factors with him.

a) Mr. Cassin's Version

[24] Mr. Cassin maintained that he reviewed the NCAF with Mr. Ridel at the Ridels’ farm and that Mrs. Ridel was there too. He obtained Mr. Ridel’s name, date of birth, social insurance number and other personal information. He maintained that Mr. Ridel told him that his business consisted of game meat, fowl and vegetable distribution and that he was the President and owner and his wife the comptroller. Mr. Cassin believed that he asked Mr. Ridel whether he had accounts at another brokerage firm and Mr. Cassin wrote that he did not. He had not heard that Mr. Ridel had invested at Investors Group. Mr. Ridel did not tell Mr. Cassin of his mutual funds, or of his Cisco Mines or Scotiabank holdings. Mr. Ridel told him that his annual income was $100,000 plus and this was recorded on the NCAF. Mr. Cassin told Mr. Ridel what discretion meant–a RR would call the shots and would decide on buys and sells – but, he also told him that his firm did not do that nor did he. Accordingly, the form stated that the account was not discretionary or managed. This was not a margin account so that part of the form was left incomplete.

[25] As for investment knowledge, of four categories on the NCAF consisting of sophisticated, good, limited and poor/nil, Mr. Ridel’s was described as good. Mr. Cassin determined that Mr. Ridel was knowledgeable about investments: he knew about companies. Mr. Cassin told him that money could be made “from investment on a little bit more riskier stocks than non-risky stocks.” He gave Mr. Ridel leeway as to whether he wished to step into riskier securities and restrict the low risk investments. On Mr. Cassin’s suggestion, the account objectives on the NCAF were 20% income, 30% short-term, 30% medium term and 20% long term capital gains. The account risk factors were 20% low, 20% medium and 60% high. Mr. Ridel did not know how much he would invest and Mr. Cassin felt that Mr. Ridel’s assets and net worth were a sensitive subject and that Mr. Ridel did not want to divulge very much. As it was a cash account, this could be addressed subsequently. Mr. Ridel planned to invest US$42,000. The NCAF was dated April 14, 1999 but Mr. Cassin had no recollection of when he actually dated it.

[26] Mr. Cassin did not think he told Mr. Ridel how he would be paid but he felt that Mr. Ridel knew it would be through commissions. Mr. Cassin was satisfied that he got to know Mr. Ridel for NCAF purposes.

[27] In 1999, there was no obligation for a client to sign a NCAF and Mr. Ridel did not do so. Mr. Cassin signed it. It was dated April 14, 1999, a Wednesday.

b) Mr. Ridel's Version

[28] Mr. Ridel testified that Mr. Cassin did not discuss the NCAF with him nor did he discuss account objectives and risk factors. In addition, Mr. Ridel testified that Mr. Cassin agreed to manage Mr. Ridel’s investments for him. He had no recollection whether Mr. Cassin asked him information about himself such as his date of birth and his income. He might have told Mr. Cassin his yearly sales and Mr. Cassin knew that Mr. Ridel was successful and that he owned the farm. Mr. Ridel did not tell him the value of the farm, and, contrary to the contents of the NCAF, he did not tell Mr. Cassin that he sold vegetables. Moreover, vegetables were not part of the business. He testified that he told Mr. Cassin that he knew nothing about the markets. He said that he did not see his April 1999 NCAF until 2006.

c) Findings

[29] As mentioned, Mr. Ridel’s and Mr. Cassin’s evidence frequently differed. While Mr. Ridel was sometimes impeached, for the most part, I attribute this to forgetfulness. In contrast, I found Mr. Cassin to be without credibility. His evidence was frequently impeached on both material and immaterial facts and was often simply implausible. Indeed, his cross-examination was a tableau of impeachment. Even in closing submissions, Defendants’ counsel observed that there were several contradictions between Mr. Cassin's examination for discovery and his evidence at trial. I accept Mr. Ridel’s evidence that he did not review the contents of the NCAF with Mr. Cassin at his farm or at all. Based on Mr. Cassin’s evidence, Mr. Cassin would not have attended at the farm in Pefferlaw on a Wednesday. Had he been there, Mr. Ridel would not have permitted Mr. Cassin to describe the business as including the distribution of vegetables or his risk factors as having a high risk category of 60%.

[30] I do accept that Mr. Ridel told Mr. Cassin that he knew nothing about the market but, in my view, this underestimated Mr. Ridel’s knowledge. Mr. Ridel presented himself as having some investment knowledge albeit limited. I am not prepared to find that his level of knowledge was improperly recorded on the NCAF although it more accurately fell somewhere between the two categories of good and limited. The description on e3m’s NCAF was largely consistent with that noted on the Investors Group NCAF. The fact that Mr. Ridel had some knowledge of the market is reflected in the July 14, 2000 taped telephone conversation between Mr. Ridel and Mr. Cassin discussed more fully later in these reasons.

[31] As for the account objectives and risk factors, however, I find that Mr. Cassin completed these without any meaningful discussion with, input from, or knowledge of Mr. Ridel. The risk factors, and most notably the 60% high risk factor, were wholly unsuitable for Mr. Ridel. I agree with the opinion of the Plaintiffs’ expert, Mr. Kleberg, that Mr. Cassin was obliged to evaluate the suitability of the objectives and risk factors for Mr. Ridel and they were unsuitable for him. While he did have some high risk investments at Investors Group, they comprised a very modest percentage of his total holdings. At trial, Mr. Ridel accepted his examination for discovery testimony in which he acknowledged that he told his new account manager, Stephen Sandler, that he did not take risk anymore. In my view, Mr. Ridel did take risk before, but as a result of Mr. Cassin’s conduct and not because he chose to do so. Mr. Ridel’s statement from his examination for discovery is not probative of his complicity.

[32] I do not accept the Plaintiffs’ contention that Mr. Cassin accepted Mr. Ridel’s accounts in April 1999 on the basis that he would exercise his discretion and manage them. In my view, the relationship was somewhat more nuanced. The relationship was a mixture of instructions and the exercise of discretion. I do note that e3m had no authority to engage in discretionary trading and it seems unlikely to me that Mr. Cassin would engage in such trading for the modest returns generated. I find that Mr. Cassin did advise that he would manage Mr. Ridel’s account but not as a portfolio manager exercising discretion. Rather, Mr. Ridel did provide instructions from time to time but, as is evident from among other things, the telephone records, Mr. Cassin also improperly exercised his discretion in the operation of Mr. Ridel’s account.

[33] For all of these reasons, I find that Mr. Cassin did not know his client, and Mr. Ridel did not discuss nor was he aware of his account objectives and risk factors as set out in his NCAF. Except where otherwise mentioned, where it conflicted, I preferred Mr. Ridel’s evidence to that of Mr. Cassin.

Opening of Account at e3m

[34] Mr. Cassin took the NCAF to Robert Goldberg of e3m but had no recollection of having discussed it with him. Mr. Goldberg signed the NCAF on April 19, 1999. When he signed Mr. Ridel’s NCAF, the estimate of net worth had not been completed. He could not recall whether he had discussed the account objectives or risk factors with Mr. Cassin. He recalled that Mr. Cassin had said that he had asked Mr. Ridel about his net worth but he had refused to answer. He said that he felt Mr. Cassin had a very good understanding of the client. As I will subsequently elaborate, I found Mr. Goldberg’s evidence to be contrived in this regard and I do not accept it.

[35] Mr. Ridel gave Mr. Cassin a cheque for US$42,000 (approximately $62,300 Canadian) in April, 1999. Mr. Ridel opened two cash trading accounts, one in Canadian dollars and the other in U.S. dollars.

[36] After the accounts were opened, Mr. Cassin did not refer to the NCAF. He knew the percentages in the account objectives were even. He did not think of the account objectives while he was trading nor did he review the holdings in the account against the objectives in the NCAF.

Trading Activity in 1999

[37] e3m did not keep records of receipt of orders from clients.

[38] In April 1999, Mr. Cassin bought 500 Northern Telecom Ltd. (“Nortel”) shares for Mr. Ridel. Mr. Thuet had done very well with his Nortel purchases. Mr. Cassin had discussed the purchase with Mr. Ridel. Mr. Cassin considered the risk to be medium. In May 1999 he bought an additional 500 shares at $105 and sold them at $111 later that month. He had discussions with Mr. Ridel about Nortel whose shares he felt would appreciate in price. Mr. Cassin acknowledged that this was a short-term trade.

[39] At the end of May, he bought 650 shares of Citigroup, a large banking corporation in the U.S. which he considered to be low risk. On his discovery, he testified that he did not know whether the purchase was high, medium or low risk. At trial, he testified that he discussed the transaction with Mr. Ridel and secured his agreement but on discovery he did not remember very much as to why that purchase was made. Furthermore, the phone records suggest no call immediately preceding the purchase. On June 7, the stock split 3 to 1 and Mr. Ridel was very pleased.

[40] In July, Mr. Cassin sold 975 shares of Citigroup on behalf of Mr. Ridel and realized a 10% profit. This too was a short-term trade. Seven days later, he recommended the purchase of shares in Compaq, a premier computer company. Mr. Ridel knew the company and was comfortable with the recommendation. According to Mr. Cassin, Mr. Ridel trusted him. He asked no questions about it. In contrast, on his discovery, Mr. Cassin testified that he did not know why the Compaq purchase occurred. I accept Mr. Cassin’s evidence that Mr. Ridel trusted him.

[41] That summer, Mr. Ridel deposited an additional US$35,000 (approximately $51,700 CAN) with e3m and transferred $100,000 to his Canadian e3m account. Mr. Cassin acquired 500 shares of Celestica, a large technology company then owned by IBM, and some shares in Xerox for Mr. Ridel’s U.S. dollar account. He considered the former to be a medium risk purchase and the latter a low risk purchase. In the Canadian dollar account, he purchased shares of Nortel and the TD Bank.

[42] In September, Mr. Cassin sold 1000 shares of Nortel and achieved a 10-11% profit. He recommended and acquired shares in Sierra Wireless, a junior technology company with no competition and supported by positive research reports. He also recommended and acquired shares in Bennett Environmentals Inc., a waste disposal company. In the U.S. account, he bought some Nortel as there had been a price drop and the currency conversion lowered the price further.

[43] In October, he sold Bennett Environmentals Inc. at a profit.

[44] In November, Mr. Cassin sold the TD Bank shares at a small profit. He bought an additional 1000 shares in Nortel in November at $97.85 per share which he sold one day later at $100.75 per share. He also bought 1000 shares of BCE Inc. at $91 per share and sold them one day later at $94.90 per share. He sold the Sierra Wireless which resulted in a 10% profit. He purchased 500 shares in Research In Motion Ltd. (“RIM”) and 1000 shares in MGI Software Corp., a company Mr. Cassin was following. He considered both purchases to be of medium to high risk.

[45] Mr. Cassin testified that he told Mr. Ridel that he wanted to get into some companies in another sector and that Mr. Ridel responded that they could see; he should give him some names and let’s watch or words to that effect. I disbelieve Mr. Cassin’s evidence to this effect.

[46] In December, there was a $49,000 cash balance in Mr. Ridel’s Canadian account. Mr. Cassin acquired 1000 shares of Descartes Systems Group, a technology software company. He acquired them at $17 per share and then acquired an additional 300 shares at $24.70 per share. The purchase was of medium to high risk. He also bought 2000 shares of Micro Tempus Inc. at $5.60 per share but could not recall anything about it. In the U.S. account, he purchased shares in Sun Micro Systems, a technology company he described as low risk.

[47] A listing of calls between Mr. Ridel and e3m from April 13, 1999 to July 14, 2004 was admitted into evidence. Sometimes Mr. Cassin would call Mr. Ridel and sometimes Mr. Ridel would call Mr. Cassin. In 1999, Mr. Ridel spoke with Mr. Cassin frequently, probably once a week. According to Mr. Ridel, they would discuss Mr. Cassin’s trades and engage in small talk. Between April 13, 1999 and December 31, 1999, over 75 calls are listed between Mr. Ridel and Mr. Cassin and between January 2000 and December 13, 2000, 33 calls of in excess of one minute were listed. While Mr. Cassin said that there were other calls, the list contains all calls made from e3m’s phones to Mr. Ridel and calls from Mr. Ridel’s phone to e3m. No other evidence of calls was admitted into evidence.

[48] There are significant gaps between calls on the one hand and purchases and sales on the other. Examples include: Celestica on July 28, 1999 (22 days), Sierra Wireless on September 20, 1999 (4 days), MGI Software Corp. on November 25, 1999 (6 days), Unique Broadband System on January 31, 2000 (5 days), and Look Communications Inc.on March 23, 2000 (17 days). Following a June 13, 2000 call, there was no further call until August 28, 2000 yet there was a transaction on June 14, and numerous other purchases and sales between June 28 and July 31, 2000.

[49] Mr. Ridel did get regular trading slips and he also received monthly statements which he looked at and sometimes marked up.

[50] The monthly statements advised the client that the transactions had to be reported yearly to Revenue Canada and that the client should keep the statements for income tax purposes; no other forms would be provided. The August 31, 1999 statement which was marked up by Mr. Ridel, exemplified this advice. Mr. Cassin knew that Mr. Ridel had incurred capital gains in 1999 but he did not discuss taxes with him. He testified that he did not advise clients on taxes; it was not what he did.

[51] In 1999, Mr. Ridel’s investments were growing which was a pleasant surprise for him.

[52] In January 2000, Mr. Cassin bought 300 Descartes shares at $37 per share and two days later, sold them, together with 800 shares purchased previously, at $40.25 per share. He also sold 1000 MGI Software Co. shares at a profit. He purchased Unique Broadband Systems shares. It was a technology software company that fast tracked mortage applications. He sold the shares seven days later at more than double the purchase price.

[53] The vast majority of sales effected up to January 2000, were short-term in nature. As to the presence of an income component, Mr. Cassin noted that Nortel, BCE, Xerox, Compaq and TD Bank all paid dividends. That said, with the exception of Xerox, these stocks were all sold in the short-term. In response to a question as to whether Mr. Cassin was not concerned that the NCAF investment objectives accurately reflected the account, he responded that Mr. Ridel trusted him and they had discussed everything; Mr. Cassin looked after Mr. Ridel’s best interests.

[54] e3m sent out statements to its clients by mail within 5 days of the month end. The Plaintiffs never advised the Defendants that they had not received a statement every month. Mr. Goldberg said that he was aware of the stocks that Mr. Cassin was purchasing in Mr. Ridel’s account and that by any standard, they were not high risk and he was comfortable with them. For reasons discussed subsequently, I do not accept Mr. Goldberg’s testimony in this regard. He was inattentive to the trading taking place. He said that nothing stood out that suggested short-term trading or churning. He did not recall discussing the amount of trading in Mr. Ridel’s account with Mr. Cassin.

[55] Mr. Ridel received T-5s for dividends received in his Canadian and U.S. accounts in 1999 and 2000 and a statement of securities transactions for 1999 but not for 2000. While the monthly statements made the aforementioned reference to tax, the 1999 statement of securities transactions was silent on the issue of taxes.

[56] From April 1999 to February 29, 2000, over 75% of the shares in Mr. Ridel’s account were sold within two months or less.

New Accounts

[57] As of December 31, 1999, the value of Mr. Ridel’s accounts was about 40% greater than the amount originally invested and as of January 31, 2000, the increase in value was about 130%. Given the success of his U.S. and Canadian dollar accounts, in 2000, Mr. Ridel transferred his Investors Group RRSP to e3m. Mrs. Ridel and Marc did the same thing with their RRSPs and Mrs. Ridel also opened a cash account at e3m.

[58] Mr. Ridel transferred funds from Investors Group to e3m but did not tell Ms. Hope that he was doing so. There were transfer fees arising from the transfer to e3m. As of March 31, 2000, Mr. Ridel’s non-registered investments at Investors Group, which amounted to $11,868,95, were invested in Investors Global Science & Technology Fund, a high risk fund. Mr. Ridel testified that he did not transfer these funds to e3m because a penalty fee would be charged. The penalty fee of about $200 would have to be paid for Mr. Ridel to transfer this investment to e3m. This high risk investment was ultimately left with Investors Group. By March 31, 2000, it amounted to $11,868.95. By December 31, 2000, it had dropped to $8,229.20; by March 31, 2001, $5700; and by June 30, 2002, $3,080.71. Based on his March 31, 2008 Investors Group statement, Mr. Ridel continued to hold his interest in this high risk fund. By that time its value had dropped to $2,990.16. As of October 2011, Mr. Ridel continued to hold the investment and it amounted to about $2400. No fee would have been payable 5 years after the date of deposit. Even though the investment had decreased, he never called Ms. Hope after 2000 to discuss his Investors Group holding or to request that it be sold. She tried to reach him without success. She never spoke to him or Mrs. Ridel after 2000.

[59] Similarly, Mrs. Ridel continued to hold an interest in a high risk fund at Investors Group from early 2000 when it had a value of $7,262.42. As of March 31, 2008, her investment had a value of $1828.73.

(a) Mr. Ridel’s New NCAF

[60] Again, Mr. Ridel's and Mr. Cassin's testimony on the new NCAF differs. Mr. Ridel testified that he first saw the NCAF dated February 28, 2000 and signed by Mr. Cassin, in 2006 while at his lawyer’s office. The form continued to describe Mr. Ridel’s investment knowledge as good. Mr. Ridel denied ever saying that and does not believe that his knowledge was good. He did not discuss account objectives with Mr. Cassin even though the form described them as income 25%, capital gains 25%, medium term 25% and long term 25%. Similarly, he did not discuss account risk factors with Mr. Cassin even though the form described them as low 20%, medium 20% and high 60%. He would not have agreed to a high of 60% if asked. The form continued to describe his business as game, meat, fowl and vegetable distribution but he never told Mr. Cassin that he sold vegetables. The form also stated that the account was neither discretionary nor managed. Mr. Ridel maintained that Mr. Cassin had his full discretion to buy or sell whatever he thought was proper. The account objectives were dissimilar from the first NCAF even though he had not had any discussion with Mr. Cassin about changing objectives. He also had not discussed the account risk factors or his net worth or the value of the company.

[61] At trial, Mr. Cassin testified that he recalls completing the NCAF at the Plaintiffs’ farm. Mr. Ridel’s account objectives were adjusted to be 25% in each category. The risk factors, including the high risk of 60%, and Mr. Ridel’s investment knowledge, remained unchanged from the prior NCAF. Mr. Ridel told him that it was fine to put his net worth down as amounting to $1 million. Mr. Cassin maintained that they got to know each other well. On his discovery, Mr. Cassin could not recall whether he was with Mr. Ridel when he filled out the NCAF. Indeed, he said that he sent the forms to Mr. Ridel. At trial, he said that when he said 'sent' on his discovery, this meant 'delivered'. He testified that he had been able to reconstruct events.

[62] Mr. Goldberg testified that the NCAF was signed on February 28, 2000, the last day possible to qualify for an RRSP. He said that Mr. Cassin went to the farm to deliver the forms and to ensure that the deadline was not missed. He did not discuss the form with Mr. Cassin. He did not say how he knew that Mr. Cassin had gone to the farm to deliver the forms.

(b) Mrs. Ridel

[63] Mr. Ridel told Mrs. Ridel that he was going to open an account for her in 2000 at e3m and she said okay. Mr. Ridel opened two accounts for his wife and he did the decision making, not Mrs. Ridel. Mr. Ridel opened a cash account and an RRSP account for Mrs. Ridel with Mr. Cassin. Mr. Ridel discussed them with Mr. Cassin, Mrs. Ridel did not. Mr. Ridel testified that he told Mr. Cassin to use his discretion just as he had before.

[64] Before e3m, Mrs. Ridel had never invested through a brokerage firm. She met Mr. Cassin once at Mr. Thuet’s house but she never had a business discussion with him. She did not meet nor talk with Mr. Cassin about opening the accounts. She was 54 years old. Mr. Ridel gave her the application papers to sign which she did. She had never seen her two NCAFs for e3m until she saw a lawyer in 2006. Her investment knowledge was described as good in the cash account NCAF yet as sophisticated in the RRSP NCAF account and her account risk factors as low- 40%, medium-40% and high-60% in the cash account and as low-20% and high-80% in the RRSP account. Both NCAFs were dated February 28, 2000. She had not discussed risk factors of this nature with either Mr. Cassin or her husband. Her net worth was stated to be $1 million and her annual income $100,000. She understood that Mr. Cassin would buy and sell stocks in her interest and she would not be involved. If her husband made a business decision in her name, he would do it and she would sign the papers. She did not discuss her accounts with Mr. Cassin. He did not call her; he would call to speak to her husband. She received e3m’s statements but she did not pay any attention to them.

[65] At trial, Mr. Cassin testified that Mrs. Ridel was present when he completed her NCAF and that she told him to treat her the same way as her husband with respect to account objectives. This was in contrast to his written admission filed as an exhibit at trial in which he admitted that he filled out the NCAFs without discussing them with Mrs. Ridel. I accept his written admission over his trial testimony in this regard. Furthermore, in 2006, he told Mr. Goldberg that the accounts were opened over the phone.

[66] Mr. Cassin described Mrs. Ridel’s investment knowledge as good. He did not notice the faulty mathematics in the description of her risk factors that totaled 140% in the cash account NCAF. The NCAF stated that no other person was to have trading authorization for the account. He did not know why the risk factors on her RRSP account were different nor why she was described on that form as being sophisticated which she was not. He had no recollection whether he witnessed her signature on the self-directed Retirement Savings Plan Application even though it shows him as having done so. I find that he did not.

[67] Mr. Goldberg did not know why he did not sign Mrs. Ridel’s NCAF for the cash account that was signed by Mr. Cassin and dated February 28, 2000. He acknowledged that he should have. He did sign her RRSP NCAF. To use his language, unfortunately nothing caused him concern.

[68] By mistake, Mrs. Ridel’s RRSP funds were put into Mr. Ridel’s account. Mr. Ridel learnt of this on receipt of his monthly statement. He advised Mr. Cassin who responded that he would fix it, but he did not. Mr. Ridel then noted the error again in the following month’s statement. He reminded Mr. Cassin who again responded that he would fix it, but he did not. Mr. Ridel noticed that the error had still not been corrected in the next statement but he did not follow up again. Mr. Cassin testified that he told e3m’s accounting department about the mistake. He could not recall if anything was done about it.

(c) Marc Ridel

[69] Mr. Ridel suggested to Marc that he open an account with Mr. Cassin. His father told him that Mr. Cassin would manage the account. Marc signed an application form for a self-directed RRSP. Some of the handwriting on the form belonged to his father. The NCAF was dated February 28, 2000.

[70] Marc believed that his father gave information about him to Mr. Cassin. He let his father make certain investment decisions on his behalf.

[71] Marc saw his NCAF for the first time when he saw a lawyer in 2006. He had not discussed the investment objectives or account risk factors with anyone. The account risk factor was 80% high risk which he would not have agreed to. His annual income in 2000 was between $35,000 and $40,000 and not $70,000 as stated on the form and his net worth did not add up to $300,000 as stated on the form. Furthermore, his investment knowledge was poor or non-existent, and not good as stated on the form. He did not speak to Mr. Cassin about opening this account. While there was a record of a one minute call to Mr. Cassin’s number from Marc’s cell phone on April 27, 2000, Marc did not recall it. Mr. Cassin never called him. He has no recollection of Mr. Cassin buying or selling securities for him. Marc never met Mr. Cassin.

[72] Mr. Goldberg signed Marc’s NCAF and was fine with it. He did not recall seeing the 80% high risk factor. He knew that Mr. Cassin had not spoken to Mrs. Ridel or Marc when he approved the NCAFs for their accounts. At the time of his approval, Mr. Goldberg knew that Mr. Cassin had witnessed Marc’s signature on the strength of Mr. Ridel’s attestation.

[73] Mr. Cassin acknowledged that he never spoke to Marc about opening an account. He got the information for the NCAF and discussed it with Mr. Ridel. Even though the NCAF signed by Mr. Cassin indicated that he had met face to face with Marc, he was not with Marc when he signed the NCAF. Mr. Cassin said that Marc told him to take directions from his father. Mr. Cassin had one conversation with him but had no recollection of whether it was before or after the first trade in Marc's account. He did recall getting instructions from Mr. Ridel for Marc’s account. Mr. Cassin acknowledged that Marc’s account objectives were not met given that 91% of the account was invested in Descartes Systems Group. He bought 500 shares of Descartes at $82 per share in late March 2000. Two days later, the price dropped to $65.40 per share and continuously decreased in value. There is a record of a call lasting one minute on April 27, 2000 from Marc to Mr. Cassin but Marc had no recollection of it. By June 30, 2006, the shares were trading at $4.15 per share. Mr. Cassin described Descartes as a medium risk company. Mr. Cassin never told Marc to sell Descartes. Mr. Cassin maintained that he would speak with Mr. Ridel who was aware of the state of the market and the accounts.

[74] Marc received monthly statements from e3m but did not follow them. He did not ask his father how the portfolio was doing and he gave no instructions to Mr. Cassin. He never spoke with Mr. Goldberg either.

[75] No one from e3m ever contacted Marc.

[76] Mr. Ridel testified that he first saw the NCAF for his wife’s RRSP account when he saw his lawyer in 2006. He had no discussion with Mr. Cassin about his wife’s net worth, annual income, investment objectives, risk factors or her investment knowledge. Mr. Ridel stated that she was not a sophisticated investor. Her investment knowledge was not good.

[77] Similarly, Mr. Ridel first saw the NCAF for his son’s RRSP in 2006. Mr. Cassin did not discuss an 80% high risk factor for Marc’s RRSP account with him and he would not have agreed to this. He had no discussion of Marc’s net worth and annual income with Mr. Cassin.

[78] Mr. Ridel maintained that he had had no discussions about trading in the account and that Mr. Cassin did not ask him to approve or consider purchases and sales nor did Mr. Cassin make any recommendations.

(d) Findings

[79] I do not accept Mr. Cassin’s evidence on the completion of the NCAFs for the Plaintiffs. I prefer the evidence of the Plaintiffs over that of Mr. Cassin. I find that he did not meet with any of them to complete the NCAFs and did not know any of his clients to the degree he ought to have so as to be in compliance with the “Know Your Client” rule.

[80] The NCAFs were completed by him in a slap dash fashion, no doubt in his eagerness to meet the February 28, 2000 deadline. The NCAFs for Mrs. Ridel were incomplete, inconsistent with one another, and to describe her as sophisticated was outlandish. Her investment objectives and risk factors were unsuitable and did not reflect knowledge of the client. The same was true with Marc although he only had one NCAF. 80% high risk was wholly unsuitable. Furthermore, their signatures on the RRSP applications were admittedly not witnessed but made to appear as though they were. Mr. Ridel’s NCAF continued to suffer from the same inadequacies and errors as his first NCAF and did not reflect material enhanced knowledge by Mr. Cassin of his client.

[81] In my view, Mr. Goldberg strained to fit his testimony and the Defendant's conduct within the parameters of acceptable practice and the law. I believe he was impressed by Mr. Cassin’s initial ability to generate profits and abdicated his supervisory responsibilities as a result and to the detriment of the Plaintiffs.

[82] In my view, and consistent with the evidence of Mr. Kleberg, Mr. Goldberg on behalf of e3m failed to properly supervise Mr. Cassin’s conduct and failed to identify the numerous obvious shortcomings in the NCAFs. Furthermore, while s. 113(3)(6) of R.R.O. 1990, Reg 1015 required e3m to keep an adequate record of each order and instruction for the purchase and sale of securities, records were scant. Mr. Goldberg asserted that Mr. Cassin had an exemption from IDA compliance, however, nothing in writing was produced and adduced into evidence. I do not believe that any such exemption existed.

Trading Activity in 2000

[83] Mr. Ridel transferred $93,541.93 from Investors Group and also gave a deposit of $4625 for his RRSP account at e3m. Mrs. Ridel transferred $82,530.88 from her RRSP at Investors Group to e3m and deposited an additional $100,000 into her trading account at e3m. An additional $3601 was to be deposited into her RRSP account at e3m but, as mentioned, by error of e3m, it was placed in Mr. Ridel’s account. Marc transferred $40,896.76 from his RRSP at Investors Group plus an additional $4500 into an RRSP account at e3m.

[84] In February, Mr. Cassin continued to acquire shares in technology companies including Celestica Inc., UBS, Look Communications and U.S. Video Interactive Corp. He bought Celestica at $56.95 and sold it four days later at $70.75. He maintained that every time he bought or sold securities, there was a telephone call. As indicated, I do not accept his evidence in that regard. U.S. Video was a high risk company that streamlined video conferences on the internet. He described Look Communications as a competitor of Rogers Cable and high risk. By February, 2000, of the four securities in the Canadian account, two were high risk and two were medium risk. In the U.S. account, one was medium risk.

[85] March saw even greater risk in the accounts. Of seven securities in the Canadian account, Mr. Cassin described five as being high risk and two as being medium risk. In the U.S. account, Xerox and Cisco were described by him as being low risk.

[86] In April in the Canadian account, he sold 1000 of the MC2 Learning Systems shares which he had bought the prior month at the same price. He also acquired 1000 shares of Centrinity Inc. In the U.S. account, he purchased shares in Vitria Technology Inc. which he described as low risk.

[87] He noted that the equity in the Canadian account had dropped from $198,000 in March to $161,000 in April. He said that he discussed the dropping stocks with Mr. Ridel who said to just watch it; do not sell and keep Mr. Ridel up with the news, changes and anything drastic. Mr. Cassin suggested holding on; let’s ride it out and see where it goes. He said there was a storm ahead and conditions were not favourable. Let the volatility settle down. He testified that he may have mentioned that they should lighten up and take cash out but I do not accept his evidence in that regard. Rather, I find that he did not advise the Plaintiffs to consider selling their securities to limit their losses. Up until that month, they had not incurred any losses.

[88] In the month of May, there was no activity in either of Mr. Ridel’s accounts. The two men discussed prices. Mr. Ridel suggested that the market would come back; they had seen this before or words to that effect.

[89] June brought a rally in the market and the value of both accounts went up. Following a discussion, Mr. Cassin purchased some Bombardier shares, which he viewed as low risk, in the Canadian account and sold the Vitria shares at a profit in the U.S. account.

[90] The equity grew in the Canadian account in July and August. Indeed Bombardier split. There was no trading in the account in August or September. As of September 30, 2000, the value of the equity was $175,000. Of the eight stocks held, one was low risk, two medium and five high risk. In the U.S. account over July and August, Mr. Cassin had bought and sold Broadvision at a profit and sold Nortel at a profit. He also bought and sold shares in two low risk companies, Texas Instruments and Dupont Chemical Company. As of September 30, 2000, the U.S. account held shares in Xerox, Cisco and Nortel.

[91] In September, Mr. Cassin noticed a devaluation in the market. When they had a discussion, Mr. Ridel expressed a desire not to sell and incur losses.

[92] In October, Mr. Cassin sold Centrinity (formerly MC2 Learning Systems) at a profit and acquired BCE Emergis Inc. which he described as a low risk investment. He also acquired Class B Bombardier shares that paid a dividend. As of October 31, 2000, there were four high risk stocks, two medium and two low risk in the Canadian account. The three in the U.S. account were all considered by him to be low risk. Mr. Cassin did not consider that, taken together, Mr. Ridel’s holdings were highly concentrated in one sector.

[93] In November, the value of the equities in the Canadian account had dropped from $162,947 to $110,715 and in the U.S. account from about $100,000 to about $85,000. Mr. Cassin discussed the prices of the holdings and the conditions of the market with Mr. Ridel. The instructions he received were to stay still, not sell and avoid losses. Mr. Cassin’s belief was that things were slowing down. They discussed strategy and decided to await a recovery; Mr. Cassin was to keep watch and keep Mr. Ridel up to date. Mr. Ridel did want to sell BCE Emergis which they did at a profit and wanted to buy more Nortel which Mr. Cassin also did.

[94] By the end of 2000, the value of all of the Plaintiffs’ accounts was down.

[95] Over the course of two years, Mr. Cassin earned commissions between approximately $7000 and $10,000 from the operation of the Plaintiffs’ accounts.

Trading Activity in 2001

[96] By January 31, 2001, the equity in the Canadian account had risen to $130,000 but Mr. Ridel did not instruct Mr. Cassin to sell. The remainder of the year saw little activity in the accounts. 100 shares of Bombardier were sold in March. By December 31, 2001, the value of the Canadian account was $43,568. In the U.S. account, 115 Cisco shares and 115 Nortel shares were sold in March. Thereafter all was silent. The U.S. account had a value of $28,920 as of December 31, 2001. In 2001, only three calls are listed on the lists of telephone calls.

[97] Even though the NCAFs provided no such authorization and there were no powers of attorney, Mr. Cassin stated that he received his instructions for Marc’s accounts from Mr. Ridel. Marc said he let his father make certain investment decisions on his behalf. He testified, and I accept, that he gave no instructions to Mr. Cassin. At trial, Mr. Cassin testified that he did get the instructions to purchase 500 shares of Descartes Systems Group directly from Mr. Ridel but could not recall if he spoke with him before the one and only trade in the account. He described the shares as a medium risk purchase. They were purchased in March 2000 for $41,287.63. The purchase did not comply with Marc’s investment objectives as recorded in his NCAF. In his meeting of August 22, 2006 with Mr. Goldberg, Mr. Cassin stated that Marc had given him instructions. His only listed call with Marc was for one minute on April 27, 2000. Mr. Cassin could not recall if he recommended to Mr. Ridel that Marc sell Descartes. I find that he did not. When his account was closed, the shares had a value of $2,200.

Meeting in Spring 2001

[98] Mr. Ridel met with Mr. Cassin in the spring of 2001 at Mr. Cassin’s office. Mr. Cassin said that they should be able to bounce back. He said that e3m might get a license to do options and that Mr. Ridel should not worry too much. Mr. Ridel testified that he did not know what Mr. Cassin was talking about; he had no reason not to trust him. According to Mr. Cassin, Mr. Ridel instructed him to stay the course, inform him of other opportunities and stay in touch. Mr. Cassin did not inform him of other opportunities because there were none worth risking or taking a shot at, to use his terminology. Market conditions were not that inviting.

[99] Mr. Ridel denied knowing the meaning of short-term trading or portfolio theory. He did not discuss trading strategies with Mr. Cassin. Mr. Cassin might have told him that he was selling but he never advised Mr. Ridel to sell nor did he discuss tax issues or that Mr. Ridel should sell to take a capital loss.

[100] One month after his meeting with Mr. Cassin at his office, Mr. Ridel went for his second kidney transplant and was out of commission for two to three months. Thereafter, he went back to work.

[101] As the markets declined, Mr. Goldberg had discussions with Mr. Cassin who was confident that the markets would recover. Mr. Goldberg noticed no trading in the Plaintiffs’ accounts after November 2000. He had no recollection of whether he discussed this with Mr. Cassin but his understanding was that the Plaintiffs did not want to take a loss. He did not say how he acquired that understanding. Certainly he did not speak to the Plaintiffs.

July 2002 Contact

[102] The outline of calls between e3m and the Plaintiffs produced by e3m in this action reflects 12 calls initiated by e3m to Mr. Ridel in 2002.

[103] In July, 2002, although not reflected on the outline, Mr. Ridel testified, and I accept, that he contacted Mr. Cassin to inquire about shares he had purchased in 1979. For some reason, he had to sell these shares and he wanted some assistance. He sent the papers about the stock to Mr. Cassin and Mr. Cassin indeed did help him.

[104] Mr. Ridel continued to receive monthly statements. The value of the accounts was lower but at the time, Mr. Ridel did not think that there was anything wrong in the handling of his accounts.

[105] On the outline of calls, after August 13, 2002, the next call was on September 24, 2002 for 30.2 minutes, then on December 2, 2002 for 19.7 minutes and thereafter on May 12, 2003 for 7.5 minutes.

July 2004 Contact

[106] The next and last call on the outline took place on July 14, 2004 for 22.5 minutes. Mr. Ridel had forgotten about this contact but remembered when he heard the tape and saw the transcript of a telephone conversation between him and Mr. Cassin. Mr. Cassin called Mr. Ridel to catch up and to provide an update.

[107] Mr. Ridel understood from the call that Mr. Cassin was contacting him to tell him that the stock market was doing nothing and that in turn, he was doing nothing with Mr. Ridel’s account. Mr. Cassin did not want to sell or buy and he would let Mr. Ridel know when they would start working on the account. He was going to come and see Mr. Ridel. He never did. Mr. Ridel testified that he had no reason to think that Mr. Cassin was not looking after his interests.

[108] The parties agreed on the transcription of the tape with minor exceptions. The telephone call opened with Mr. Cassin (“AC”) stating that the market had been “the pits. I, it’s not that I have been avoiding you. It’s just that nothing’s going on, Jean-Marc.” To which Mr. Ridel (“JMR”) responded that it [presumably the market] was doing nothing. The conversation continued:

AC: But there has been nothing great in this market either. I mean, it’s just been a struggle. No real great products. Yeah, you get a day that things are up, up, up and then down, down, down. You know. People are having a hard time committing. There is nothing you can build on right now. And …

JMR: See, I told you, we just don’t move. We stay where we are.

AC: That’s right and there is nothing I can do.

JMR: If something come up you call me, and …

AC: Yeah, and that’s right. And I’ll tell you something. Nothing. Whatever did look exciting is gone even worse now …

JMR: Hmmm

AC: …in the last few months. So it’s been, like I honestly, Jean, Jean-Marc, I don’t have a desire right now to sell anything.

JMR: Yeah.

AC: Because, you know, I say ok, let’s buy Bell. Good dividend paying, boom, it’s down. Trans Canada. Down. You know. And because the stock moves up $1 one day, does not change the trend. Here Intel had some bad news yesterday. Boom, stocks down $2.29, and then it brings the market down. Retail sales down. Brings everything down. Now it’s come around. It’s a very, very difficult market to say ok, let’s go forward.

JMR: Oh, well I know that. Basically the only shares which are really steady is all the blue chips.

AC: Yeah, but the blue chips come with their headaches too.

JMR: Yeah, but you know, you know your money’s not going to, you know, suddenly to disappear.

[109] They proceeded to discuss Shoppers Drug Mart and Mr. Ridel stated that he had no confidence in it. He then stated that one stock he was looking at with amazement was RIM and that there was money to be made there. He asked whether it was at $80. Mr. Cassin responded:

There’s money to be made on that, but I’m going to wait for a few good dips then buy. I mean the best way to buy this thing is with options. You don’t have to put up $85. You put up $5, $10, $15 and that. And then you take advantage of the run, and you limit your loss. I promised I would come out and see you and talk to you about that, but, and and I will…

[110] Mr. Cassin understood Mr. Ridel’s instructions to be the same as before. Mr. Cassin should hold the securities and wait for a better day. He said that Mr. Ridel had drilled into him that he did not want to sell at a loss. The Plaintiffs never complained to Mr. Cassin about anything. Indeed, he only ever received compliments from Mr. Ridel.

[111] As mentioned, I did not find Mr. Cassin to be a credible witness. Mr. Cassin’s claim that Mr. Ridel drilled into him that he did not want to sell at a loss is exaggerated in my view. While naturally enough, Mr. Ridel preferred not to incur losses, his approach was ill informed and he was not the beneficiary of appropriate advice and care on the part of the Defendants.

[112] Mr. Cassin made no money on the Plaintiffs’ accounts from 2002 until he left the firm in August 2004. During the currency of their relationship, Mr. Ridel never complained to Mr. Cassin or e3m about the conduct of his accounts.

Cassin’s Departure from e3m

[113] In August 2004, Mr. Cassin left e3m. He told Mr. Goldberg that he had to move on because the market was not providing the trading opportunities he had envisioned for retail clients. He moved over to Dundee Securities Corporation (“Dundee”). Again, the evidence of Mr. Cassin and Mr. Ridel differs. Mr. Cassin testified that he told Mr. Ridel that he was leaving and told him to stay at e3m and work with Robert Goldberg, a fantastic guy. He would be in touch with Mr. Goldberg even though he was not physically at e3m. Mr. Ridel and Mr. Cassin never spoke again. Mr. Cassin expressed shock when he was sued.

[114] According to the Plaintiffs, no one called them to let them know of Mr. Cassin’s departure. Mr. Ridel learnt of Mr. Cassin’s move from another investment advisor, Stephen Sandler, also of Dundee, whom he had asked to look at his account because nothing was moving. This was in July 2006. I accept Mr. Ridel’s evidence over that of Mr. Cassin on this issue and note that there was no record of any call to Mr. Ridel.

[115] Mr. Goldberg became the Plaintiffs’ RR in August. He acknowledged that he should have called the Plaintiffs and his failure to do so was a mistake. He could not recall why he had not called them. He waited several months and reviewed the Plaintiffs’ statements. He took no steps to verify the information in the NCAFs with the Plaintiffs. He decided that Mrs. Ridel’s RRSP was not doing that well and earning no income. Accordingly, in November, he bought five bankers acceptances from Canada’s five largest banks and later switched the funds to Treasury Bills. He had no discussion with the Plaintiffs about the accounts in 2005 and 2006 but did send confirmation slips and monthly statements. He did not have authorization to make the investments he did even though he thought they were in the clients’ best interests. He did not think it was necessary. He said that e3m was prepared to give the clients back interest. He did not recall having had a conversation with any of the Plaintiffs between the time he took over their accounts and August of 2006.

Transfer of Accounts to Dundee

[116] Mr. Sandler was a game bird customer of the Ridels. He had been in the investment business since 1969. As mentioned, he worked at Dundee.

[117] In 2006, Mr. Sandler met with the Ridels. He reviewed the e3m account statements and then met with the Ridels again in July 2006. Prior to this second meeting, the Plaintiffs had agreed to transfer their accounts to Dundee.

[118] Mr. Sandler asked to see their NCAFs because he thought that perhaps discretion to invest had been given to Mr. Cassin but on review of the forms, it was clear that it had not. He also thought that the objectives which favoured high risk were inappropriate. Furthermore, even though the objectives provided for some income securities, there were none in the accounts. He also disagreed with the description of investment knowledge attributed to Mrs. Ridel and Marc. His view was that Mrs. Ridel and Marc had no investment knowledge and that Mr. Ridel’s was limited. He advised the Plaintiffs of his conclusions.

[119] Mr. Sandler felt that the accounts had been handled improperly. In more than 40 years, he had never seen such a loss with so much money and no portfolio approach or methodology. Based on the type of securities and the length of time, he formed the view that the Defendants were engaged in speculative securities trading. He told the Ridels that they should not have lost so much money and advised them to see a lawyer because the trades in the accounts at e3m were improper.

[120] In 2006, Mr. Goldberg received a call from Mr. Ridel who advised that he wanted to move the Plaintiffs' accounts and pick up the information in their files. He did not complain or express any unhappiness.

[121] The Plaintiffs became customers of Mr. Sandler. Mr. Ridel told him he wanted to do better than at the bank and that he did not take risks anymore. Mr. Ridel made the decision for himself and his wife to switch from e3m to Dundee. Marc switched too.

[122] Mr. Ridel completed a NCAF which reflected an income objective of 50%, growth of 25% and an aggressive growth objective of 25%. He had a high risk objective of 25%, a medium risk objective of 75% and nothing for low risk. On the NCAF, high risk is described as “ability to endure wide swings in market fluctuation and to withstand losses in asset value.” In cross-examination, Mr. Ridel stated that the percentages were proposed by Mr. Sandler and he accepted them. Of the four categories available, Mr. Ridel’s investment knowledge was described as limited. That said, Mr. Sandler said that he never put down sophisticated and rarely checked off good. He described most investors as having limited or no investment knowledge given the complexity of the business. Mrs. Ridel’s objectives on her NCAF with Dundee were similar to those of Mr. Ridel and her investment knowledge was described as poor or nil. Both forms were dated July 29, 2006 and were signed by Mr. and Mrs. Ridel and Mr. Sandler.

[123] Marc also signed a NCAF with Dundee. He too met with Mr. Sandler. Like his mother, Marc described his investment knowledge as poor or nil. His objectives and risk factors were the same as his parents.

[124] Mr. Sandler sold the securities from the e3m accounts and capped the losses.

[125] He called Mr. Goldberg and the two met on a without prejudice basis on August 2, 2006. Mr. Goldberg advised that he did not know what had happened with the accounts but undertook to investigate. His response is consistent with his lack of supervision of the accounts. He met with Mr. Cassin on August 9, 2006 and made handwritten notes of his meeting. He also interviewed Mr. Cassin on August 22, 2006. On August 23, 2006, Mr. Goldberg wrote to Mr. Sandler reporting his findings, stating:

Mr. Cassin was an extremely conscientious broker, always undertaking every effort to ensure that his client was knowledgeable about the investment being considered, before accepting the client’s trading instruction. Since it was almost always Mrs. Ridel who answered the telephone, Mr Cassin was always able to report directly to her the trading that occurred in her account, before being passed over to Jean-Marc, and after discussing a trade, Jean-Marc, often to the protests of Nadine, would have her come to the phone to allow Mr. Cassin to inform her of the trades that were to be undertaken in her accounts.

As for the one equity trade undertaken in the RRSP of Marc Ridel, Jean-Marc, at Mr. Cassin’s request, contacted Marc “on the road”, to have Marc call Mr. Cassin to listen to the trade that was being proposed. During this call from Marc, Marc’s response to Mr. Cassin was to ask whether the proposed transaction met with his father’s approval, and when told it did, he instructed Mr. Cassin to follow the instructions of his father in the matter.

[126] Mr. Goldberg also wrote that Mr. Ridel was a willing and active participant in one of the wildest equity markets in history and that while the losses in the Plaintiffs’ accounts proved to be at the extreme edge, nevertheless they were within the tolerances that these accounts were documented to undertake.

[127] In his testimony, Mr. Goldberg stated that Bennett was the only high risk stock in the Plaintiffs’ portfolio. He did not accept that there was concentration or short-term trading. He indicated that Mr. Cassin never presented himself as someone who was knowledgeable in fixed income products or mutual funds so anyone employing him would know that they were not doing so for that purpose.

[128] Mr. Sandler understood from the letter that Mr. Goldberg was advising him that e3m was not responsible for any losses suffered by the Plaintiffs. Two years later, Mr. Goldberg sued Mr. Sandler for interference with his business.

[129] Mrs. Ridel testified that she lost $80,000 with e3m but could not explain the loss. Each year she paid $75 in fees and the interest earned on her accounts was negligible. The fees exceeded any interest earned. On a net basis, she lost $66, $54 and $73 respectively in each of the years 2002, 2003 and 2004.

[130] Until Marc spoke with Mr. Sandler, he had not thought that his account was mishandled; he thought that its performance reflected the stock market.

[131] Marc was unsure of his total claim against the Defendants. He guessed it was approximately $40,000. As with Mrs. Ridel, the fees to e3m exceeded any income generated in Marc’s account.

Income Tax Treatment

[132] While remaining at e3m, the Plaintiffs did not withdraw any funds from their accounts. Mr. Ridel testified that he had no understanding of capital gains earned in his account as a result of buying and selling shares. He received T5 dividend forms and statements of security transactions in his accounts for 1999 but they did not refer to tax. As mentioned, he did not receive statements of security transactions in his accounts for 2000. He learned that the 1999 and 2000 profits earned in his accounts were taxable when he attended his examination for discovery in 2009. He then made voluntary disclosure for the taxation years 1999 and 2000, requested a waiver of penalties and an interest reduction. He paid $9,822.08 for taxes in 1999 and $82,221.42 for taxes in 2000. He claims these taxes as losses together with interest of $10,916.94 for 1999 and $74,779.66 for 2000. He has requested a waiver of the interest from the Canada Revenue Agency.

[133] While the e3m monthly statements stated that trades had to be reported on income tax returns and that the client should keep the statements for income tax purposes and no other form would be provided, Mr. Ridel did not read that part of the statements. Mr. Goldberg stated that this commentary was something that the IDA would like on every statement. It had been drilled into Mr. Goldberg that an RR should not give tax advice. That said, in cross-examination, he said that it was common practice for an RR to advise a client of the benefits of tax loss selling and that a broker should advise a client about cutting losses. Tax-related trades were normally brought to the attention of clients who had experienced capital gains in the year to help them in their tax planning and tax procedures.

Supervision at e3m

[134] Mr. Goldberg was responsible for supervision at e3m. He understood that Policy No. 2 of the IDA set out the minimum standard for supervision and included minimum requirements for a NCAF. In his examination for discovery read-in, he acknowledged that someone who had been active in mutual funds would not necessarily be knowledgeable about what they were doing or words to that effect. He said that later on, the IDA said that the whole NCAF had to be completed.

[135] From Mrs. Ridel’s description as ‘sophisticated’ which was not something he would have expected of her, he concluded that there would be reliance by Mr. Cassin on Mr. Ridel. In reading her NCAF, he concluded that her accounts were to be more conservative than Mr. Ridel’s. As for Marc’s account, the risk factors were high because the recommendations ‘were coming through the opinions of his father’. His father tended to trade and they were relatively short-term trades. This put Marc’s tolerances in the high risk range. Mr. Goldberg knew at the time that Mr. Cassin had witnessed Marc’s signature on the strength of his father’s attestation.

[136] Mr. Goldberg testified that he reviewed the accounts’ daily trading and also reviewed the monthly statements. The account objectives entry on the NCAFs played little or no role in his supervision of suitability. He looked to the relationship between the broker and the client. He accepted that in the shorthand of the industry, short-term trading equals high risk. In his supervision, Mr. Goldberg did not feel that he had to go back and weigh the specific objectives in the NCAFs; he relied on the up-to-date knowledge of what was going on.

[137] The firm had a sales compliance manual that contained policies and procedures written by Mr. Goldberg. Mr. Cassin received a copy of the manual. It described the requirements for an investment advisor such as Mr. Cassin. In addition, it expressly stated that no discretionary accounts or trading were permitted at e3m. Mr. Goldberg could not locate any manual that had been signed by Mr. Cassin.

[138] The manual described the steps required to open an account. Each new account was to be approved by “the President or VP Operations in writing or by electronic permission prior to the initial trade or promptly thereafter (next day).” When there was a change of RR, the new RR had to verify the information on an NCAF to ensure it was current.

[139] Each investment advisor was expected to periodically review each client account to ensure that all the investments complied with the client’s stated objectives. The President was to conduct daily reviews of commission reports to detect “unusual trading activity”, and was to undertake monthly reviews of all accounts to detect excessive or inappropriate trading and/or holdings.

[140] The manual stated that: “The client or his/her recognized agent is the sole source of trading instructions for their own accounts. Only those who are licensed to do so by the OSC may accept trading instructions.”

[141] Mr. Goldberg was familiar with Regulation 1300 that provided, among other things, that each member was to ensure that recommendations made for any account were appropriate for the client and in keeping with his or her investment objectives.

[142] Mr. Goldberg’s supervision of Mr. Cassin consisted of sometimes answering the phone and chatting with clients until Mr. Cassin was available but Mr. Goldberg took no notes of what he heard. He sat 8 feet away from Mr. Cassin. Mr. Cassin and he would discuss investments more than once a week. In his evidence that was read into the record, Mr. Goldberg agreed that Mr. Ridel’s initial account was dominantly short-term trading.

[143] In 1999 and 2000, there was a technology bubble and the market was highly volatile. Mr. Cassin was of the view that market recovery would arrive sooner than did Mr. Goldberg. In cross-examination, Mr. Goldberg acknowledged that the trading in Mr. Ridel’s accounts did not match his objectives. Mr. Goldberg seemed to think that the objectives described in Regulation 1300 referred to client objectives, not the client objectives described in the NCAFs. He also stated that short-term equals high risk.

[144] Turning to Mrs. Ridel’s accounts, she did not provide a power of attorney to e3m and the NCAF did not record that trading authority was vested in Mr. Ridel. With spouses and as a convenience, Mr. Goldberg decided to bend, to use his words, and accepted that Mr. Cassin had heard what he needed to hear to trade in her accounts.

[145] As for Marc’s account, Mr. Goldberg concluded that Marc gave instructions to put 90% of his account in one stock and to purchase Descartes Systems Group at $82 per share, a price that proved to be at the peak. Mr. Goldberg said that Mr. Cassin had advised him of the purchase and that it was based on Mr. Ridel’s recommendation.

Expert Called by Plaintiffs

[146] The Plaintiffs called Guenther Kleberg as an expert to give testimony on securities regulatory requirements, standards of conduct and industry practice, and damage calculations.

[147] Mr. Kleberg had been employed in the securities industry since 1967. From 1998 to 2003, he was a Vice-President and the Head of Compliance, Wealth Management at CIBC. Before that, he had been involved with compliance in various capacities first with Merrill Lynch Canada Inc. and then with CIBC World Markets Inc. Since 2001, he had been a member of the IDA’s District Hearing Committee.

[148] Mr. Kleberg’s evidence was somewhat prolix. He addressed five principal issues.

[149] Firstly, he discussed the NCAFs, the standards to be observed in respect of them and, particularly, the need for suitability of the investment objectives, risk factors, and trades. When opening a new account, IDA Regulation 1300 imposed the Know Your Client Rule (“KYC”). An RR should determine all essential facts about the client and, when making recommendations, they must be appropriate and in line with the client’s investment objectives. The IDA Form 2, the NCAF, lists the information the IDA expects will be collected from the client. The client’s date of birth has an impact on suitability. Similarly, it is important to know a client’s liquid assets and how much is required to support the client’s lifestyle.

[150] The RR reviews the NCAF with the client. He or she must ensure that the client understands the investment objectives and risk factors. This discussion may take place over the telephone but the form should be complete. The accurate completion of the form, based on information received from the client, is the responsibility of the RR. The account is then to be operated within those parameters. The percentage allocated to investment objectives and risk factors are general investment guidelines. By learning facts about the client, the RR obtains an appreciation of his or her personal and financial circumstances which in turn leads to suitable investment objectives and risk factors. The RR must assess the suitability of the stated objectives and risk factors. Risk factors that require a client to look to a third party for advice do not reflect industry standards.

[151] A supervisor had to be designated. At a minimum, he would approve or reject all new accounts and this acceptance would acknowledge that the proposed investment objectives and risk factors were seen as suitable for the client. The NCAF then would become the basis for the suitability assessment.

[152] Mr. Kleberg considered the high risk activity (short-term trading) and 60% high risk holdings recorded on Mr. Ridel’s NCAF to be unsuitable for a client in Mr. Ridel’s personal and financial circumstances. He was of the opinion that suitable account objectives and risk factors for Mr. Ridel in 1999 and 2000 should have been: 25% income and 75% long term gain for account objectives; and 40% low risk, 50% minimum risk and 10% high risk for account risk factors. In cross-examination, he acknowledged that he had not reviewed the NCAFs for Dundee and had little information on the Plaintiffs’ NCAFs at Investors Group.

[153] Mr. Kleberg was of the opinion that the risk factors shown in Mr. Ridel’s NCAF for his cash account were unsuitable for someone who said he had minimum or no understanding of the market and who wanted modest profit but not much risk. His age, lack of investment experience, and low investment knowledge were out of line with a 60% high risk factor. He was of the same view with respect to Mr. Ridel’s RRSP account opened in 2000.

[154] Similarly, the contents of the NCAFs for Mrs. Ridel’s cash and RRSP accounts were unsuitable. Marc also had unsuitable investment objectives and risk factors given his inexperience in the market and the very high account risk factor of 80% high risk.

[155] Secondly, Mr. Kleberg addressed whether the trading conducted in the Plaintiffs’ accounts was suitable and in accord with the investment objectives and risk factors in the NCAFs.

[156] He concluded that the trading activity and holdings in Mr. Ridel’s cash account did not correspond with the account’s recorded objectives and risk factors. The NCAF called for there to be 20% income securities and there were none. The NCAF also called for 30% short-term trading. Short-term trading may reflect the taking of a reasonable profit in an investment or a change in the condition of an issuer. Churning is excessive trading by a broker relative to the client’s objectives so as to earn commissions for the broker. Based on Mr. Ridel’s monthly statements for November 1999 and January, February and March 2000, the short-term trading exceeded the 30% rate contained in the account objectives as follows: November-200%; January-65%; February-20%; and March-49%.

[157] Concentration involves holding a large part of a portfolio in one security or industry and thereby assuming a greater risk if something goes wrong. The holding becomes high risk because it is concentrated. It is different than churning. He found concentration in Mr. Ridel's RRSP account, which contained high risk and no income securities.

[158] Mr. Kleberg noted that the first transaction in Mr. Ridel’s account involved the conversion of money in his U.S. cash account to purchase Nortel shares in the Canadian account. Instead, Mr. Cassin should have simply purchased the shares on the New York Stock Exchange.

[159] Similarly, he observed concentration, high risk and inappropriate investments in Mrs. Ridel’s and Marc’s accounts.

[160] The trading strategy in the accounts reflected mostly short-term profit taking. The longest hold in Mr. Ridel’s case was 270 days. A short-term approach was inconsistent with the account objectives.

[161] In cross-examination, Mr. Kleberg accepted that there was a prolonged bull market from November, 1999, to June, 2000. Mr. Ridel made a lot of money as stocks went up but the bubble burst and the values dropped. Mr. Kleberg was not saying that Mr. Cassin should have known how far they would fall. He did not know why Mr. Cassin did not sell any of the securities at a loss.There were no penny stocks in the portfolio nor were there any new issues which are generally considered to be high risk. He agreed that a large proportion of Mr. Ridel’s holdings were in equities of established companies.

[162] Thirdly Mr. Kleberg opined that an RR must update an NCAF if there is any significant change in the client information. The e3m manual provided that each RR was expected to periodically review each client account to ensure that all the investments complied with the client’s objectives. After 2000, Mr. Cassin should have known there were significant unrealized losses, which affected liquid assets and required some discussion. A RR who has made a recommendation cannot abandon a client. After November 2000, the portfolios reflected losses. Mr. Kleberg did not interpret this as meaning that the client wanted to continue to hold the investments.

[163] An RR also has certain responsibilities relating to records including documentation on the date of receipt. According to Mr. Kleberg, all orders received from clients had to be documented at the time of receipt. A supervisor was contravening industry requirements if he was aware that the receipt of orders was not recorded. As mentioned, here they were not.

[164] Fourthly, Mr. Kleberg opined on a supervisor’s responsibilities for compliance purposes. Regulation 1300 addressed supervision. A member firm must designate someone to supervise the opening of accounts and account activity. A supervisor must ensure that a system is in place for compliance.

[165] Mr. Kleberg noted that the Plaintiffs’ NCAFs contained omissions and the supervisor should therefore not have approved them. In addition, the objectives in a cash account should not be similar to those in a trading account. Also, a distinction should be made between individual and family assets. Mrs. Ridel’s cash account was not signed by a supervisor. Trading may be initiated without an NCAF supervisory approval if it is obtained within 24 hours. This requirement was found in IDA Policy No. 2 and is also reflected in e3m’s manual.

[166] A supervisor should also be aware of the trading in an account. Watching an RR and listening to phone calls is inadequate. Here, the supervisor should have noticed the lack of correspondence between the trading in the accounts and the Plaintiffs’ NCAFs. The supervisor should have addressed the short-term trading and concentration.

[167] These accounts were not discretionary in nature. Indeed, e3m’s manual provided that no discretionary accounts or trading was permitted at e3m. The IDA regulations note that although a client may ask an RR to exercise his or her own judgment and place orders on the client’s behalf, an RR may not exercise discretionary power unless written authorization has been provided by the client. While there is no definition of a discretionary order, in general, any situation in which the RR is asked to determine the volume, security, price or timing of an order may result in a discretionary order. The Canadian Securities Institute Conduct & Practices Handbook was to like effect.

[168] Both the IDA rules and e3m’s compliance manual provided that where there is a change in the RR, the new RR must verify the information on the NCAF to ensure it is current.

[169] Lastly, Mr. Kleberg commented on the losses suffered by the Plaintiffs. In his various positions in compliance, Mr. Kleberg had had extensive experience in loss assessment.

[170] He reviewed the monthly statements, added the losses and then deducted dividend and interest income. He concluded that Mr. Ridel suffered losses of $64,446, $57,424, and $165,025 in his Canadian, U.S. and RRSP accounts respectively. Mrs. Ridel suffered losses of $85,361 and $125 in her cash and RRSP accounts respectively. Marc suffered a loss of $39,111 in his RRSP account. These total $411,492.

[171] In addition, Mr. Kleberg calculated opportunity losses of $206,417. For this purpose, he used objectives he considered reasonable, namely 25% income and 75% equity and applied industry benchmarks consisting of the CI Canadian Bond Fund, the TSX Total Return Index, the Fidelity U.S. Bond Fund and the Dow Jones Cumulative Return Index to compare performance between the actual portfolios and the reconstituted portfolios.

Expert Called by Defendants

[172] The Defendants called Lawrence Boyce as an expert in the standards and practices of the investment industry and specifically on the handling of client accounts including opening accounts, the KYC requirements and the supervision of accounts. He is a senior vice-president at Sutton Boyce Gilkes Regulatory Consulting Group Inc. having previously worked in the Investigative Services Division and in the Compliance Department of the Toronto Stock Exchange. He also was the director and a vice-president of Sales Compliance and Registration at the IDA and vice-president Business Conduct Compliance at IIROC. In 2009, he commenced his current employment.

[173] He offered his opinion on the standard of care expected of the Defendants and also responded to Mr. Kleberg’s opinions. He also commented on Mr. Kleberg’s loss assessment.

[174] Firstly, he stated that the objectives and risk factors on the Plaintiffs’ NCAFs were not inappropriate for them. Significantly, however, in reaching this conclusion, he stated that he assumed that the information contained in the NCAFs accurately reflected the information given to Mr. Cassin by the Plaintiffs and that the Plaintiffs agreed to each trade. Neither assumption was accurate. The RR was required to learn the essential facts about the client and there was an obligation to remain aware of those essential facts.

[175] He disagreed with Mr. Kleberg’s assessment that the investment objectives and risk tolerances were unsuitable because, in his view, the role of the RR is to ascertain this information from the customer, not to impose his own ideas on the customer. He or she should learn the essential facts, not impose them. Similarly with Marc, objectives and risk tolerance are not logically linked to investment knowledge. While he agreed that there was non-compliance with a number of procedural requirements and standards in the handling of the Plaintiffs’ accounts, none of the failures was material to the issue of suitability of the recommendations made and trading done in the accounts. Given the Plaintiffs’ capital and earning capacity, pursuing a mix of short and long-term capital gains with a high degree of risk would not be inappropriate. Furthermore, the risk tolerances of medium-75% and high-25% at Dundee in 2006 are closer to those at e3m than those suggested by Mr. Kleberg in his loss assessment. He did not propose an alternative however.

[176] Secondly, the trading in the accounts was consistent with the investment objectives on the NCAFs and was not inappropriate or unsuitable. It was therefore consistent with the standard of care expected of a RR and investment firm. Again however, he assumed incorrectly that the objectives, risk factors and all investment decisions were agreed to by the Plaintiffs. He did expect that the account statements and confirmations of trades were delivered to the Plaintiffs. Short-term trading in an account does not mean that a short-term strategy has been adopted. Rather, it may reflect an opportunity for profit at a substantial price increase.

[177] Mr. Boyce agreed that concentration does create increased risk in a portfolio but that while Mr. Ridel’s U.S. funds and RRSP accounts were concentrated in the technology and telecom sectors, he disagreed that the sector was highly risky. It was not foreseeable that the high tech bubble would burst when it did. In Mr. Boyce’s opinion, the Plaintiffs’ accounts had a variety of stocks many of which were household names and income producing.

[178] On the issue of churning, churning may occur if the client is dependent on the RR for making decisions. Mr. Boyce stated that in this case, a profit was realized on each sale. In addition, the commission charges were low based on industry standards which were between one and one half a percent and two percent. Mr. Cassin’s averaged somewhere around one percent or under. If churning, one would expect a higher commission rate. Replacing a security that has been sold at a profit with another in the same sector–looking for undervalued securities–is not indicative of churning or contrary to common portfolio management practice. In cross-examination, Mr. Boyce accepted that the 90% turnover within six months from the opening of Mr. Ridel’s accounts to the end of February 2000 would indicate that short-term trading was going on. As mentioned, he also agreed that concentration in one sector increases risk and that there was substantial concentration in at least one of Mr. Ridel’s accounts. He opined that one would have to ascertain whether this is what the client wished to do.

[179] As for Mrs. Ridel’s accounts, clearly there was an error in the recording of the risk factors in her cash account and this complicated the assessment. It would be reasonable to assume that they were meant to be consistent with the RRSP account and the recorded factors in Mr. Ridel’s account of 20% low, 20% medium and 60% high. That said, she did have income producing securities in that both Nortel and Bombardier Inc. paid dividends at the time of purchase. He agreed that Mr. Cassin should have followed up and corrected the error relating to the improper deposit of RRSP funds intended for Mrs. Ridel’s account into Mr. Ridel’s account. In his opinion, the purchases for Mrs. Ridel’s account were consistent with the investment objectives and risk tolerances shown on her NCAFs.

[180] Mr. Boyce agreed that the income objective found in Marc’s NCAF was not met in the purchase of Descartes, the cost of which accounted for 90% of the funds deposited, but 10% of the investment was left in cash to collect interest and starting in late 2005, the cash balance was put into money market instruments to improve the yield. The variation between the 80% high risk specified in his NCAF and 90% was too small to call the transaction unsuitable. He agreed that the Descartes trade could not satisfy all the investment objectives being long term, medium term and short term all at once.

[181] Thirdly, according to Mr. Boyce, the duties of the Defendants varied over the various phases of account activity because they were based on the Plaintiffs’ requests. There is no duty to revisit account contents even though many RRs do. Mr. Boyce acknowledged in cross-examination that recommendations are to be appropriate and comply with investment objectives and that if there were inappropriate investment objectives, there would be inappropriate trading activity. Mr. Cassin did not have an obligation to recommend selling existing positions but was obligated if he recommended holding them to ensure that doing so was appropriate and in keeping with investment objectives.

[182] As for tax loss selling, the practice is to discuss this issue but a RR is not obliged to do so. RRs advise on investments, not taxes. If Mr. Ridel had a standing instruction not to sell at a loss and Mr. Cassin made no recommendation to sell thereafter, Mr. Cassin was following instructions and not breaching any obligations to the Plaintiffs.

[183] Fourthly, on the issue of supervision, Mr. Boyce agreed with Mr. Kleberg that Mr. Goldberg’s approach to supervision was inconsistent with industry standards but none of these failures was material to the issue of suitability of the recommendations made and trading done. Furthermore, there was no detectable pattern of short-term trading and in any event any such trading was within the objective of 30% short-term trading on the NCAF. Therefore, any improper supervision of the accounts was irrelevant because there was nothing material for Mr. Goldberg to find. He acknowledged in cross-examination that when approving a new account, a supervisor was obliged to look at the appropriateness of the investment objectives on the NCAF.

[184] Mr. Goldberg was required to contact the Plaintiffs when he took over their accounts and to seek their approval to purchase short-term money market instruments. He needed to verify the information in the NCAFs.

[185] Lastly, the Plaintiffs suffered no damages because the trading in the accounts was not unsuitable. Even if they did, the calculations are based on Mr. Kleberg’s assessment of appropriate objectives rather than the Plaintiffs’ actual objectives as reflected in their NCAFs at e3m and at Dundee. They also fail to take into account the Plaintiffs’ ample opportunities to mitigate their damages over a period of about six years had they been prepared to sell at a loss.

[186] Overall, except where subsequently noted, I preferred Mr. Kleberg’s evidence to that of Mr. Boyce. Most notably, Mr. Boyce’s opinion was premised on faulty assumptions and as such, is unreliable.

Issues

[187] The issues to be considered in this action are:

(1) Did the Defendants owe fiduciary duties to the Plaintiffs and if so, were they breached?

(2) Did the Defendants breach their contracts and duties of care owed to the Plaintiffs?

(3) Did the Plaintiffs ratify the Defendants’ conduct?

(4) Did the Plaintiffs fail to mitigate any damages suffered?

(5) Did the Plaintiffs suffer any damages and if so, what is the quantum?

(6) Should the Defendants’ claim for contributory negligence and their counterclaim against Mr. Ridel for contribution and indemnity succeed?

(7) Are the Plaintiffs’ claims barred by the expiry of a limitation period?

[188] In discussing each of these issues, I will provide a very brief outline of the parties’ arguments followed by my analysis.

Fiduciary Duty

a) Positions of the Parties

[189] The Plaintiffs plead that Mr. Cassin adopted high risk strategies involving short-term trading that generated commissions disproportionate to the profits earned and substantial capital gains. In doing so, they say he breached fiduciary duties. Furthermore, in failing to contact the Plaintiffs or deal with their accounts in any manner after March 2001, and in failing to address the funds destined for Mrs. Ridel’s RRSP account but put into Mr. Ridel’s account, Mr. Cassin breached his fiduciary duties. They plead that e3m breached fiduciary duties in failing to supervise the handling of the accounts and to ensure that the trading was suitable and in compliance with the investment objectives in the NCAFs.

[190] The Plaintiffs submit that they were vulnerable due to their limited experience and knowledge of investments. They placed their trust in Mr. Cassin to manage their accounts and in turn, he exercised discretion and traded in their accounts.

[191] The Defendants state that the parties’ relationship was not fiduciary but contractual in nature. Even if it were to be characterized as fiduciary, the Plaintiffs have failed to prove that the Defendants failed in their roles as fiduciaries.

b) Discussion

[192] As the Court of Appeal for Ontario affirmed in Hunt v. TD Securities Inc. (c.o.b. TD Evergreen) (2003), 66 O.R. (3d) 481 at para. 36, the relationship between a broker and client is not, in and of itself, a fiduciary relationship but one that is dependent on the particular facts. In Hodgkinson v. Simms, [1994] 3 S.C.R. 377, a case dealing with a financial advisor, the Supreme Court of Canada stated at page 40: “relationships in which a fiduciary obligation has been imposed are marked by the following three characteristics: (1) scope for the exercise of some discretion or power; (2) that power or discretion can be exercised unilaterally so as to affect the beneficiary’s legal or practical interests; and (3) a peculiar vulnerability to the exercise of that discretion or power.” As noted in Hunt at p. 490, five interrelated but non-exhaustive factors may be considered when determining whether financial advisors stand in a fiduciary relationship to their clients: vulnerability, trust, reliance, discretion and professional rules or codes of conduct.

[193] Frequently, a discretionary managed account will be found to give rise to a fiduciary relationship, as in Davidson v. Noram Capital Management Inc. (2005), 13 B.L.R. (4th) 35 or in Vipond v. AGF Private Investment Management, 2012 ONSC 7068. By contrast, in Zraik v. Levesque Securities Inc. (2001), 153 O.A.C. 186 (Ont. C.A), the Ontario Court of Appeal upheld the holding of a trial judge who concluded that there was insufficient vulnerability to give rise to a fiduciary relationship, in part because the investor made his own evaluation of the commodities he was interested in, gave instructions for every trade, received advice but did not always follow it.

[194] Applying these principles to the facts of this case, Mr. Ridel clearly had some investment knowledge. At the same time, he was not sophisticated in investments or indeed personally. Was Mr. Ridel vulnerable in the sense contemplated by the jurisprudence? His investment knowledge was not extensive but he certainly had some. The analysis is complicated by the fact that in my view, he was interested in the markets and wanted to impress Mr. Cassin with his degree of knowledge. This is evident from the taped conversation of Mr. Ridel’s telephone conversation with Mr. Cassin on July 14, 2004.

[195] Mr. Ridel’s behavior in the past was also consistent with his behavior with the Defendants. As Ms. Hope testified, Mr. Ridel’s participation in the high risk Science & Technology Fund was not her choice but Mr. Ridel’s.

[196] As Mr. Cassin admitted, Mr. Ridel certainly trusted him. He also clearly relied on Mr. Cassin and e3m. While sometimes he provided instructions, Mr. Cassin also exercised his discretion unilaterally. On the other hand, over 75 telephone calls between the two men were made between April 13, 1999 and December 31, 1999.

[197] I also note that over the course of two years, Mr. Cassin’s fees from the accounts amounted to between $7,000 and $10,000. While generally I preferred Mr. Kleberg’s opinions to those of Mr. Boyce, I accept Mr. Boyce’s evidence that the commission charges were low based on industry standards. From 2002 until he left in July 2004, Mr. Cassin made no money on the accounts. There was trust, reliance and some exercise of discretion. In addition, I find that the defendants certainly did not meet industry standards as described by the experts.

[198] That said, the presence of some instructions, even if ill-informed, reflects a lack of total vulnerability. In my view, all of the indicia of a fiduciary relationship were not present. The burden of proving the existence of a fiduciary relationship is on the Plaintiffs. I am not persuaded that Mr. Ridel has met that burden. As such, I decline to conclude that the parties’ relationship was fiduciary in nature.

[199] As for Mrs. Ridel and Marc, they were both unsophisticated and unknowledgeable. Given their lack of sophistication and investment knowledge, they placed their trust and reliance in both Mr. Ridel and Mr. Cassin and e3m, and I find that they were vulnerable. The Defendants had no authority to trade in their accounts based on instructions from Mr. Ridel and furthermore, I am not persuaded that he gave instructions for their trades in any event. In my view, Mrs. Ridel and Marc were in a fiduciary relationship with the Defendants and fiduciary duties were breached.

Breach of Contract and Duties of Care

a) Positions of Parties

[200] The Plaintiffs plead that an implied term of their contracts with e3m was that Mr. Cassin and e3m would exercise the standard of care required in connection with their accounts and comply with applicable regulatory and self-regulatory requirements. They plead that the trading was not suitable and did not comply with the investment objectives in their NCAFs. Mr. Cassin adopted high risk strategies involving short-term trading. He also did not deal with the Plaintiffs accounts in any manner after March 2001. In addition, e3m failed to contact them to update their NCAFs and to obtain authorization to purchase bankers acceptances and failed in its supervisory responsibilities. e3m was vicariously liable for Mr. Cassin and Mr. Goldberg.

[201] The Defendants deny any breach of a standard of care. They state that the NCAFs were sufficiently complete to enable Mr. Cassin to ‘know his client’ and that he did know them. Both Mrs. Ridel and Marc gave Mr. Ridel authority to deal with their accounts at e3m and advised Mr. Cassin of such authority. Mr. Ridel was interested in accumulating wealth and accepting the risk associated with that intention. The stocks selected were neither inappropriate, nor did they conflict with the stated investment objectives of the Ridels. The Plaintiffs have not proven that the strategy was one of short-term trading or that there was churning. In their view, Ms. Hope’s evidence supports the Defendants’ theory of the case. Lastly, while there may have been breaches from a regulatory point of view, there was no causal connection to any of the losses suffered by the Plaintiffs.

b) Discussion

[202] Statutory regulations and regulatory requirements inform the duty of care for the purposes of negligence: Davidson v. Noram Capital Management Inc. e3m was registered under the Securities Act as an investment dealer and was a member of the IDA and subject to its rules. Mr. Cassin was registered as an RR and was also subject to the IDA rules.

[203] OSC Rule 31-505, made pursuant to the statutory authority of s. 143 of the Securities Act, required investment dealers and RRs to fulfill the KYC rule and suitability obligations. The KYC rule is important as it requires that the RR effect trades that are suitable for the client. Compliance with the IDA rules enabled these obligations to be met. IDA Regulation 1300.1 imposed an obligation on the Defendants to use due diligence to learn the essential facts relating to a customer and to every order and account accepted and to ensure that recommendations were appropriate and in keeping with the client’s NCAF stated objectives.

[204] An NCAF had to be completed for each new account, and maintained and updated if there were a material change in client information. New accounts were to be approved by a supervisor. IDA Policy No. 2 stated: “Accurate completion of the documentation when opening a new account allows both the registered salesperson and the supervisory staff to conduct the necessary reviews to ensure that recommendations made for any account are appropriate for the client and in keeping with investment objectives.” e3m’s manual reflected these requirements.

[205] I conclude that the Defendants owed duties of care to the Plaintiffs which they did not discharge and also breached their contracts with them. Although not exhaustive, the negligence included a failure to know their clients, negligent completion and updating of the NCAFs, unsuitable and inappropriate trading, short-term trading, unauthorized discretionary trading and a failure to supervise.

(i) Mr. Ridel’s Accounts

[206] Dealing firstly with Mr. Ridel, he admits to having met Mr. Cassin on three occasions prior to opening his account. Similar to Ms. Hope’s experience, I accept that Mr. Ridel was reluctant to provide Mr. Cassin with certain information such as his net worth. Having said that, Mr. Cassin’s familiarity with Mr. Ridel was superficial. Mr. Ridel’s objectives and risk factors as found on his NCAFs did not reflect, nor were they an accurate or appropriate assessment of, Mr. Ridel. I accept Mr. Kleberg’s opinion on the suitability of Mr. Ridel’s investment objectives and risk factors. In reaching this conclusion, I am mindful that Mr. Kleberg did not review the NCAF for Mr. Ridel at Dundee and had little information on his NCAF at Investors Group. That said, the former reflected aggressive growth objectives of 25% and risk objectives of 25% high and 75% medium with nothing for low risk. Mr. Ridel had modestly invested in high risk investments at Investors Group relative to his original total holdings there. His objectives and risk factors at e3m are not comparable to those at Investors Group and Dundee. Mr. Cassin in essence manufactured the NCAFs and it was for this reason that there were inaccuracies. There were also omissions on the NCAFs. I am satisfied that Mr. Cassin did not know his client, Mr. Ridel.

[207] As for suitability of trading, Mr. Kleberg opined that there was improper churning, short-term trading, concentration, and a lack of correspondence between Mr. Ridel’s recorded objectives and risk factors. As such, there was a breach of the standard of care expected of Mr. Cassin and e3m. Mr. Boyce differed with this assessment but his opinion was based on faulty assumptions. With the exception of the issue of churning, I accept Mr. Kleberg’s opinions and evidence over Mr. Boyce’s.

[208] Firstly, Mr. Kleberg defined churning as excessive trading by a broker in order to earn commissions for the broker rather than acting in the best interests of the client. The commission charges were low based on industry standards, and again, as noted by Mr. Boyce, if there had been churning, one would expect a higher commission rate. As mentioned, Mr. Cassin earned between $7,000 and $10,000 from the Ridels’ accounts during the entire period of his involvement with them. I do not accept that Mr. Cassin was primarily engaged in excessive trading so as to earn commissions for himself and e3m. In my view, there was no churning in the Plaintiffs’ accounts.

[209] Having said that, the Plaintiffs did not allege churning. Rather, they assert that the short-term trading resulted in an excessive amount of trading that did not reflect suitable objectives. I agree with this assertion.

[210] This brings me to the second issue which relates to suitability. Mr. Kleberg testified that short-term trading involves the purchase and sale of a security in less than a year. The IDA panel in the Mills decision suggested six months. Mr. Boyce suggested a week or two. He maintained that intention of the purchaser at the time of purchase was the determining factor. Mr. Cassin agreed that the periods between purchase and sale were short-term and Mr. Goldberg described the purchases and sales as being initially dominantly short-term and that “short-term trading equals high risk.”

[211] All of the shares in all of the Plaintiffs accounts were sold within six months except two. Of 29 purchases in Mr. Ridel’s accounts between April 1999 and February 29, 2000, 22 were sold in 2 months.

[212] I accept Mr. Boyce’s observation that short-term trading in an account does not necessarily mean that a short-term trading strategy has been adopted. That said, a review of the purchases and sales in the Plaintiffs’ accounts can lead to no other reasonable conclusion.

[213] Thirdly, Mr. Kleberg maintained that no income securities were held in any of the Plaintiffs’ accounts whereas Mr. Boyce argued that Nortel and Bombardier were income securities because they paid dividends. I prefer Mr. Kleberg’s evidence. He stated that Nortel and Bombardier paid very small dividends and would not constitute income securities. Mr. Goldberg also admitted that Mr. Ridel’s accounts would not satisfy the income objective.

[214] Fourthly, on the issue of concentration, Mr. Ridel’s U.S. and RRSP accounts were concentrated in the technology and telecom sectors and this increased the risk in his portfolio. I accept Mr. Boyce’s evidence to the effect that there had been a prolonged bull market. While some of the interest in the sector was later found to be fuelled by improper research and sales practices in the U.S., there were widely reported theories that it would and could continue. The technology bubble burst in March, 2000. Mr. Boyce disagreed that the sector was seen as highly risky at the time. He did agree, however, that concentration increases risk. In Mr. Boyce’s opinion, the overall portfolio was a reasonable fit to the profile of 20% low risk, 20% medium risk and 60% high risk. These however were unsuitable risk factors for Mr. Ridel.

[215] Furthermore, from December 1999 until June 2000 when Bombardier was purchased, Mr. Ridel’s Canadian account was concentrated. His U.S. account held shares in Xerox Corp., Cisco Systems and Nortel, two of which paid dividends. Mr. Goldberg acknowledged that as of August 2000, Mr. Ridel’s accounts reflected concentration. While not as pronounced as some of the other breaches, in my view, the Defendants breached the standard of care relating to excessive concentration.

[216] Next, Mr. Boyce agreed that Mr. Cassin’s method of taking and dealing with orders for Mr. Ridel was not in compliance with industry standards. His use of unauthorized discretion was also established.

[217] Lastly, he failed to canvass any strategy to limit losses and did not ensure that holding existing positions was appropriate or in keeping with Mr. Ridel’s investment objectives. This too was in breach of the applicable standard of care.

(ii) Mrs. Ridel’s and Marc’s Accounts

[218] Turning to the accounts of Mrs. Ridel and Marc, both stated that Mr. Ridel took care of their investments. They had no contact with the Defendants. The Defendants paid no attention to them. The Defendants had no powers of attorney from them. The Defendants traded on their behalf even though their NCAFs expressly stated that no one had trading authorization. I do not believe Mr. Cassin when he testified that Mrs. Ridel had authorized him to accept orders from Mr. Ridel. Mrs. Ridel’s cash account NCAF contained risk factors that added up to 140% and described her investment knowledge as good. Mr. Cassin dated it February 28, 2000. That same day, he signed Mrs. Ridel’s RRSP NCAF which described her as sophisticated. Amounts for her net liquid and fixed assets were also omitted from the form.

[219] In February 2000, Marc was 34 and apart from his RRSP at the Investors Group that had previously been at BMO, he had no other investment experience. Out of four choices on the NCAF for investment knowledge, his was stated to be good, one lower than sophisticated. Like Mrs. Ridel, no amount was inserted for his net liquid and fixed assets. His estimated net worth was stated to be $300,000 yet his account risk factor was recorded as being high - 80%. Mr. Cassin completed the form stating that he had met Marc face to face but he never did. Marc was married but the NCAF said he was not.

[220] These two Plaintiffs have clearly established that the Defendants failed to meet the requisite standard of care and breached their contracts with these Plaintiffs.

[221] In my view, Mr. Cassin failed to fulfill the cardinal rule of knowing these two clients. Furthermore, his trading in these accounts can only be described as reckless. Having erred in recording the risk factors in Mrs. Ridel’s cash account, the investments were unsuitable and it would be impossible to meet the standard of care. Furthermore, Mrs. Ridel's and Marc's degrees of knowledge were wholly inaccurate as were their account objectives and risk factors. I conclude that Mr. Cassin breached his duty of care in trading without their authority and in trading recklessly on their behalf. He also failed to communicate with either of them in any way short of sending them statements that on a balance of probabilities meant little or nothing to them given their lack of investment knowledge and limited education. The one security bought for Marc, 500 shares of Descartes, sat in Marc’s account from March 2000 until the account was closed in 2006. 80% high risk was unsuitable but the purchase did not match his stated objectives in any event. The NCAF called for 20% income and there were no fixed income securities in Marc’s account. Mr. Cassin could not recall whether he discussed a strategy to limit the loss but I am confident he did not.

[222] The next issue to consider is e3m’s conduct independent of that of Mr. Cassin. It had an independent obligation to supervise the opening of the Plaintiffs’ accounts, Mr. Cassin’s trading, and Mr. Goldberg’s conduct in relation to the Plaintiffs.

[223] Rule 31-505 obligated e3m to supervise its RRs to ensure compliance with Ontario securities law. This rule permits compliance with its requirements through observation of IDA rules. IDA Regulation 1300.2 required e3m to designate a director or officer to be responsible for the opening of new accounts and supervision of account activity. Mr. Goldberg was to approve the opening of all new accounts and review daily and monthly activity to determine the suitability of transactions. e3m’s manual reflected these obligations.

[224] e3m’s supervision of the Ridels’ accounts was largely non-existent. Mr. Goldberg approved NCAFs that were incomplete, recalled no discussion of Mr. Ridel’s investment objectives and risk factors and in any event, the trades were not reflective of those investment objectives. In the case of Mrs. Ridel, her risk factors did not add up and her NCAFs contained inconsistent descriptions of her investment knowledge. Mr. Goldberg did not sign Mrs. Ridel’s cash NCAF but permitted trading in that account nonetheless. He approved Marc’s 80% high risk factor noting that it was a very high risk tolerance but was satisfied nonetheless because Mr. Ridel would be providing instructions or advising Marc. He knew when he signed Marc’s NCAF that Mr. Cassin had not talked to Marc and that he had improperly witnessed Marc’s signature on the RRSP application. Furthermore, Marc’s NCAF stated that no one else had trading authorization.

[225] To the extent Mr. Goldberg conducted any compliance review, he was not testing against NCAFs but rather relying on his knowledge of Mr. Cassin, listening to him speak on the phone and speaking with the client while biding time until Mr. Cassin got off of the phone. He took no notes of these communications.

[226] This could only be described as haphazard supervision and both experts agreed that Mr. Goldberg’s approach to supervision was contrary to regulatory standards. The NCAFs should not have been approved. Mr. Goldberg also should have been aware that the trading in the Plaintiffs’ accounts did not correspond to the investment objectives and risk factors in their NCAFs. As Mr. Boyce acknowledged in cross-examination, Mr. Goldberg should have been aware that Mr. Cassin exercised discretion and put a stop to it. Instead, he improperly exercised discretion himself. Furthermore, he should have taken action between 2000 and 2004 when the accounts were dormant. He ignored e3m’s duty to protect its clients.

[227] Contrary to Policy No. 2, Mr. Goldberg also failed to contact the Plaintiffs to verify the contents of their NCAFs when he assumed responsibility for their accounts in August, 2004 and purchased bankers acceptances and T-bills without instructions. He was not authorized to manage these accounts or to exercise discretion.

[228] In addition to its independent wrongful conduct, e3m is also vicariously liable for the conduct of Mr. Cassin.

[229] I conclude that the Defendants breached the standard of care owed to the Plaintiffs and breached their contracts with them. The failure to know their clients, the short-term trading, the lack of a strategy to limit losses, the concentration in the accounts, the lack of suitable investment objectives and risk factors, the high risk in the accounts, the lack of a meaningful income component in the accounts, the exercise of discretion, the absence of periodic account reviews and the failure to supervise each constituted a breach of duties and negligence by the Defendants and also constituted breaches of contract. Taken together, the Defendants’ improper conduct was overwhelming.

Ratification

a) Positions of the Parties

[230] The Defendants plead that at no time did the Plaintiffs complain or take issue with the trading or investments made on their behalf and that the Plaintiffs ratified the trades.[^2] They received all the trading slips, looked at and saved the monthly statements, and followed the accounts from month to month. Similarly, when Mr. Goldberg took over the accounts, they never complained or even contacted him.

[231] The Plaintiffs take the position that it was only in July 2006 that they learned that the manner in which Mr. Cassin operated their accounts was improper. Until then, they did not know that Mr. Cassin had written inaccurate investment objectives on the NCAFS for their accounts, engaged in high risk trading and had managed the accounts contrary to IDA requirements, industry practices and standards and in breach of duties of care and the contracts themselves. Nor, they submit, could they have been aware of Mr. Goldberg’s failure to supervise.

b) Discussion

[232] In Ryder v. Osler, Wills Bickle Ltd. (1985), 49 O.R. (2d) 609 (Ont. H.C.), R.E. Holland J. held that while the acts of a broker may be ratified by the failure of a client to repudiate the trades, ratification cannot occur unless the client had knowledge of the wrongful acts.

[233] Bowstead and Reynolds on Agency, 15^th ed. (London, Sweet and Maxwell), 2001 at p.64. describes ratification as follows:

In order that a person may be held to have ratified an act done without his authority, it is necessary that, at the time of ratification, he should have full knowledge of all the material circumstances in which the act was done, unless he intended to ratify the act and take the risk whatever the circumstances may have been. But knowledge of the legal effect may be imputed to him, and it is not necessary that he should have notice of collateral circumstances affecting the nature of the act.

[234] In Hunt., the Court of Appeal relied on the definition of ratification found in Black’s Law Dictionary, 6^th ed.:

[The] adoption and confirmation by one person with knowledge of all material facts, of an act or contract performed or entered into in his behalf by another who at the time assumed without authority to act as his agent. Essence of “ratification” by the principal of act of agent is manifestation of mental determination by principal to affirm the act, and this may be manifested by written word or by spoken word or by conduct, or may be inferred from known circumstances and principal’s acts in relation thereto.

[235] As stated by Blair J.A. in Blackburn v. Midland Walwyn Capital Inc. (2003), 32 B.L.R. (3d) 11 (Ont. S.C.), aff’d (2005), 195 O.A.C. 181 (Ont. C.A), in order for ratification to occur, the client must know all the circumstances.

[236] In my view, there was no ratification by any of the Plaintiffs. As in Hayward v. Hampton Securities Ltd. (2004), 187 O.A.C. 183, the Plaintiffs were not in a position to make an informed decision. They were required to know the material circumstances surrounding Mr. Cassin’s and e3m’s conduct and they did not.

[237] They never complained to the Defendants because they were unaware of any misconduct by the Defendants and did not consider that the losses had been incurred as a result of the Defendants’ conduct. Had they known the extent of the Defendants’ misconduct, they would have terminated the relationship earlier than they did.

Mitigation

[238] The Plaintiffs could not have been expected to take action until they were aware of the Defendants’ wrongful conduct. Thereafter, they acted immediately. Similar to my conclusion relating to ratification, and consistent with the dicta in Laflamme v. Prudential-Bache Commodities Canada Ltd., 2000 SCC 26, [2000] 1 S.C.R. 638 and Blackburn v. Midland Walwyn Capital Inc., the Defendants have failed to establish that the Plaintiffs ought to have mitigated their damages.

[239] It is not surprising that Mr. Ridel wished to avoid losses. He trusted Mr. Cassin to make recommendations. Mr. Boyce opined that Mr. Cassin was obligated, if he recommended holding existing positions, to ensure that doing so was appropriate and in keeping with investment objectives. The Defendants both failed to discharge the obligation described by Mr. Boyce. No strategy was discussed or adopted to minimize losses in the Plaintiffs’ accounts and I do not accept that Mr. Cassin or anyone at e3m ever recommended selling or adequately explained any hold recommendation.

[240] Although the facts were somewhat different, Gonthier J.’s comments at para. 56 of Laflamme are apt:

The trial judge noted the state of mind and the knowledge of the Laflamme family, who held onto securities in reliance on assurances given by the respondent Roy, whom they trusted. The losses caused by the bad advice and grossly negligent management by Roy cannot be laid at their doorstep. It is reasonable to assume that an average investor faced with similar circumstances would have been indecisive and hesitant when faced with the various options: selling the securities and taking the loss, holding onto them and hoping that they would go back up in value, or transferring the account to another manager. Nor was any evidence tendered to suggest that, on the information available to them at the time, any of these options would have been beneficial. For all of these reasons, the Laflamme family cannot be faulted for failing to take further measures in the hope of minimizing the losses. Those losses were sustained as a result of mismanagement by the respondents, which, as the trial judge found, continued until the account was closed.

Similarly in this case, the losses sustained by the Plaintiffs arose as a result of the mismanagement and wrongful conduct of the Defendants.

Damages

[241] The damages assessment should reflect a reasonable rate of return for a suitable portfolio over the relevant time period: Hayward v. Hampton Securities Ltd. and Davidson v. Noram Capital Management Inc.

[242] The Defendants take the position that before determining the issue of damages, the Plaintiffs ought to provide their income tax returns and Dundee statements for the years following their departure from e3m so as to ascertain whether there were any capital gains to offset against their capital losses. It was incumbent upon the Defendants to obtain whatever information they needed for the trial of the action before the trial, not after. I do not accede to their request.

[243] Mr. Ridel claims losses of $64,446 in his Canadian account; $57,424 in his U.S. account; and $165,025 in his RRSP account. Mrs. Ridel claims losses of $85,361 in her cash account and $125 in her RRSP account. Marc claims losses of $39,111 in his RRSP account. These amounts deduct interest and dividend income. In my view, these are appropriate awards.

[244] Additionally, opportunity losses of $152,989 ($76,936 + $22,896 + $53,157) are claimed by Mr. Ridel; $39,766 ($38,384 + $1,382) by Mrs. Ridel; and $13,662 by Marc.

[245] I accept that the Plaintiffs are entitled to damages on account of loss of opportunity. Having said that, while not speculative, they are not easily calculated. This does not mean however, that nothing should be awarded. See for example Blackburn v. Midland Walwyn Capital Inc. and Martin v. Goldfarb (1998), 41 O.R. (3d) 161.

[246] Mr. Kleberg used the CI Canadian Bond Fund, the TSX Total Return Index, the Fidelity U.S. Bond Fund and the Dow Jones Cumulative Return Index as comparators using investment objectives of 25% income and 75% equity. The objectives used by the Plaintiffs at Dundee were not used and these are more accurate reflections of their losses. No calculation based on the Dundee objectives which included 25% high risk was presented. In the circumstances, I propose to reduce the quantum claimed for loss of opportunity by 25% to more accurately reflect the Plaintiffs’ losses. This results in damages on account of loss of opportunity of $114,741.75 for Mr. Ridel, $29,824.50 for Mrs. Ridel and $10,246.50 for Marc.

[247] Mr. Ridel also claims capital gains tax and interest paid on capital gains taxes that were not paid. He claims taxes of $92,043.50. Additionally, for 1999, he paid interest of $10,916.94 and for 2000, he paid interest of $74,779.66. He made voluntary disclosure and requested a waiver of interest payable from the Canada Revenue Agency. At trial, a decision on this request had not been received and although the court was expecting information on the outcome, this has not been forthcoming. Accordingly, I am making the assumption that it was not waived.

[248] That said, Mr. Ridel’s claims for capital gains tax and interest are barred by the applicable limitations period discussed subsequently. In any event, I would not award anything on account of any interest payable. Mr. Ridel’s monthly statements stated that trades had to be reported on income tax returns, the client should keep the statement for income tax purposes, and that no other form would be provided.

Contributory Negligence and Counterclaim

[249] The Defendants' counterclaim against Mr. Ridel for contribution and indemnity for any amounts for which they may be found liable as a result of the claim brought against them by Mrs. Ridel and Marc, and also rely on the provisions of the Negligence Act to claim that Mr. Ridel should bear some of his own losses. They assert that Mr. Ridel provided the instructions for their accounts and had full authority to do so from those Plaintiffs. They also claim contributory negligence against all the Plaintiffs.

[250] I reject the contention that Mr. Ridel should bear responsibility for the losses suffered by Mrs. Ridel and Marc. That said, while I recognize that I have found that the Defendants breached fiduciary duties owed to Mrs. Ridel and Marc in addition to negligence and breach of contract, I am of the view that each of the Plaintiffs contributed to their losses through their inattention and failure to take reasonable care for their own safely. I assess their degree or apportionment of liability at 30% and the Defendants at 70%.

[251] This results in a total award to be paid by the Defendants as follows:

• Mr. Ridel: $286,895 ($64,446 + $57,424 + $165,025) plus $114,741.75 for a total of $401,636.75 less 30% or $120,491.02 for a total of $281,145.73.

• Mrs. Ridel: $85,486 ($85,361 plus $125) plus $29,824.50 for a total of $115,310.50 less 30% or $34,593.15 for a total of $80,717.35.

• Marc: $39,111 plus $10,246.50 for a total of $49,357.50 less 30% or $14,807.25 for a total of $34,550.25.

Limitation Period Defence

a) Positions of the Parties

[252] The Defendants plead that the Plaintiffs’ claims are barred by reason of the Limitations Act R.S.O. 1990, c. L. 15 as the events occurred some six years prior to the issuance of the Statement of Claim on December 12, 2006, and by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B because the claims are based on acts or omissions that took place after January 1, 2004. Furthermore, the issue of the capital gains tax claim was first raised in the Further Amended Amended Statement of Claim, amended August 18, 2009 and therefore is also clearly barred.

[253] The Defendants argue that all of the trading resulting in the Plaintiffs’ losses was done prior to December 2000. The NCAFs were all completed prior to December 2000. The capital gains claim arose before then as well. As such, all of the alleged negligence took place prior to December 2000. The claims cannot be rescued on the grounds of discoverability.

[254] The Plaintiffs submit that all of the limitation issues raised are governed by the Limitations Act, 2002. The Plaintiffs did not discover the existence of their claims until July 2006 when Mr. Sandler advised them of the improper handling of their accounts. As such, the action which was started on December 13, 2006, was well within the applicable limitation period prescribed in s. 4 of the Limitations Act, 2002.

b) Discussion

[255] Section 24 of the Limitations Act, 2002 (the “Act”), addresses transitional issues relating to pre-January 1, 2004 conduct. It provides that a claim based on events that occurred prior to January 1, 2004 is subject to that Act if the claim was not discovered before January 1, 2004. Section 4 states that unless the Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. As such, if the Plaintiffs are correct and the claim was only discovered in July 2006, the action commenced on December 12, 2006 was within the two-year limitation period.

[256] I must therefore determine when the Plaintiffs’ claim was discovered.

[257] Section 5(1) of the Act states that a claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

Section (2) states:

A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[258] The Plaintiffs rely on the decision of Boniferro Mill Works ULC v. Ontario, 2009 ONCA 75 at para. 54 for the proposition that in view of the very technical nature of the subject matter, a reasonable person would not be aware that a proceeding would be an appropriate means to remedy the perceived wrong or that he or she had a claim until expert advice had been received. That case involved the issue of whether certain payments constituted an unlawful tax or formed part of the cost of timber, a highly technical dispute. In that case, MacFarland J.A. held that the respondent was not aware it may have had a claim for the repayment of unlawful taxes until they received expert advice. The Plaintiffs in this case argue along similar lines that they learned of their claims when Mr. Sandler advised them that their accounts had been improperly handled and that a proceeding might be an appropriate means to seek a remedy.

[259] The Plaintiffs were required to start their action within two years of the day on which their claims against the Defendants were discovered. As stated by Epstein J.A. in dissent in Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851 at para. 33, subsection 5(1)(a) of the Act contains a subjective test.

[260] That being said, and as stated by Molloy J. in Kenderry-Esprit (Receiver of) v. Burgess, MacDonald, Martin and Younger (2001), 53 O.R. (3d) 208 at para. 19, “[t]he date upon which the plaintiff can be said to be in receipt of sufficient information to cause the limitation period to commence will depend on the circumstances of each particular case.”

[261] In my view, the Plaintiffs’ action is not barred by any limitation period.

[262] I have found that the Plaintiffs were not familiar with the significant components of their NCAFs when their accounts were opened. Furthermore, they were far from sophisticated. While it is the case that the Plaintiffs received trading slips and monthly account statements from e3m, they had no idea that Mr. Cassin was not entitled to do much of what he did including trading without instructions, completing the NCAFs without meaningful input from the Plaintiffs, investing in unsuitable securities for them, adopting ridiculous risk factors relative to their individual profiles and engaging in other negligent conduct. The Plaintiffs did not know, nor could they have known, that the Defendants had failed to comply with securities regulations and standards. The Plaintiffs thought their losses had arisen solely because of a fallen market, not because they had a wayward RR and an investment dealer that had abdicated its responsibilities. Mr. Ridel knew that losses had occurred but did not know that the Defendants had caused or contributed to them. This is consistent with the absence of any complaints from the Plaintiffs.

[263] The Plaintiffs did not have the requisite knowledge contemplated by section 5(1)(a) until Mr. Sandler informed them of the improper handling of their accounts.

[264] Furthermore, in my view, a reasonable person with the abilities and in the circumstances of the Plaintiffs ought not to have known of the matters described in s. 5(1)(a) of the Limitations Act, 2002, in the years 1999 and 2000 and following. Their claims are not barred by any limitation period.

[265] The one exception relates to the claim for income tax that was paid. This claim was not asserted until the Statement of Claim was amended on August 18, 2009, well after the Plaintiffs had obtained professional advice on the handling of their accounts and their financial losses. The claim for taxes is barred by the two year limitation period.

Conclusion

[266] In conclusion, damages are awarded to Mr. Ridel, Mrs. Ridel and Marc in the amounts of $281,145.73, $80,717.35 and $34,550.25 respectively.

[267] Pre-judgment interest is to be paid by the Defendants on these amounts calculated pursuant to the provisions of the Courts of Justice Act but averaged and compounded. If the parties are unable to agree on costs, they are to make written submissions not to exceed ten pages in length.

Pepall J.

Released: , 2013

COURT FILE NO.: 06-CV-324065PD3

DATE: 20130417

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

JEAN-MARC RIDEL, NADINE SUZANNE JOSEPHINE RIDEL and MARC H. RIDEL

Plaintiffs

– and –

ARMANDO CASSIN and E3M INVESTMENTS INC.

Defendants

REASONS FOR JUDGMENT

Pepall J.

Released: April 17, 2013

[^1]: The IDA became the Investment Industry Regulatory Organization of Canada (“IIROC”) effective June 2008. Where rules and regulations are referred to in these reasons, they are those that were applicable at the relevant time and do not reflect a statement of presently existing securities rules and instruments.

[^2]: At trial, the Defendants asked that their Statement of Defence be amended to state that they rely on the Negligence Act such that I could make a finding of contributory negligence and that the Plaintiffs ratified the trades. The Plaintiffs were unopposed and the request was granted.