CITATION: Masales v. Cole, 2016 ONSC 763

COURT FILE NO.: CV-11-434673

DATE: 20160129

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

RANDALL MASALES, PAMELA MASALES and DOROTHY BLONG

Plaintiffs

– and –

HENRY COLE, MACQUARIE PRIVATE WEALTH INC. and RBC DOMINION SECURITIES

Defendants

Edward Babin and Julia Z. Webster for the Plaintiffs

Alistair Crawley and Clarke Tedesco for the Defendant Macquarie Private Wealth Inc.

HEARD: January 20, 2016

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION AND OVERVIEW

[1] If this summary judgment motion were a horse race, it would be a photo-finish and the stewards would have to carefully scrutinize the photograph of the horses crossing the finish line in order to declare a winner, which they would be obliged by the rules of the sport to do. I appreciate that I am urged by the Supreme Court of Canada’s judgment in Hryniak v. Mauldin, 2014 SCC 7, to employ a very robust summary judgment procedure but, unlike the rules for horse racing that require a decision, the Supreme Court did not foreclose lower courts from simply dismissing the summary judgment motion and ordering that the action be tried in the normal course. Indeed, where there are genuine issues for trial and the lower court concludes that employing the enhanced forensic tools of the summary judgment procedure would not lead to a fair and just determination of the merits, the court should not decide the matter summarily: Mitusev v. General Motors Corp., 2014 ONSC 2342 at para. 79; Gon (Litigation Guardian of) v. Bianco, 2014 ONSC 65 at paras. 41-47; Lopez v. Dr. M. Douris Dentistry Professional Corporation, 2015 ONSC 3675. See also Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450.

[2] In my opinion, for several reasons including the misapprehension of both parties about how a cause of action under the former Limitations Act, R.S.O. 1990, c. L.15, or about how a claim under the current Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, against an investment advisor is discovered, the case at bar is not appropriate for a summary judgment, and, therefore, I am dismissing the summary judgment motion and leaving it to a trial judge to determine the dispute between the parties.

B. FACTUAL AND PROCEDURAL BACKGROUND

[3] For the purposes of this decision, I shall make no binding findings of fact, and, rather, I shall discuss the factual background only so far as necessary to explain why the case is inappropriate for a summary judgment. The trial judge will be in far better position to make definitive findings of fact.

[4] The factual background is that beginning in 1992, the Plaintiffs, Pamela Masales and her husband Randall, were clients of the Defendant Henry Cole, who is now a disgraced investment advisor, having been convicted of defrauding his clients in a Ponzi scheme. The relationship between the Masales and Mr. Cole lasted through a series of investment firms until late 2010. During this period, the Masales had frequent communications with Mr. Cole, and they monitored their various investment accounts. They say that they trusted and relied on Mr. Cole who, with his title as Vice-President, appeared to have the expertise to manage their investments.

[5] The Masales are well educated. They both have a Bachelor Degree in Physical and Health Education. They both have a Bachelor Degree in Education. Mr. Masales also has a Master’s Degree in Science. Both Mr. and Mrs. Masales taught for 25 years and both are qualified to be school principals.

[6] In August 2000, the Masales retired. They allege that they were urged to do so by Mr. Cole, who advised them that if they commuted their pension entitlements and invested the proceeds with him, those proceeds would generate an adequate retirement income without risk of encroaching on the capital being invested. Mr. Masales deposed:

Cole promised us that if we retired, we would be able to draw the equivalent of our salaries at the time from the Joint Account and he would still be able to increase the value in this account. This seemed reasonable to us at the time because it was only a 6% annual draw on the account and Cole often spoke of being able to achieve a rate of return of 10% to 12%. If it was not for this promise and assurance from Cole, we never would have retired when we did. Pamela and I discussed the matter and, relying on Cole's advice and assurances, we decided to commute our pensions and retire as of August 31, 2000.

[7] After retiring, the Masales invested their commuted pension funds and other funds using a joint investment account and their respective RRSP accounts. There is a genuine issue for trial about whether the investment accounts lost money, made money, or underperformed and did not make the amount of money that ought to have been made if the accounts were properly managed.

[8] In August 2001, Mr. Cole, who had been President, Senior Financial Advisor, and Alternate Compliance Officer at Rampart Securities, joined a predecessor to the Defendant Macquarie Private Wealth Inc. More precisely, in August 2001, Mr. Cole became a Vice-President and Investment Advisor at Yorkton Securities Inc., which, in 2003, was renamed First Associates Investments Inc., and which, in 2005, was renamed Blackmount Capital Inc., which was acquired by Macquarie in 2009.

[9] At the time when Mr. Cole joined Macquarie’s predecessors, the Masales, who received the usual detailed monthly account statements and confirmations of trades, knew that their joint account had already lost $300,000 in capital, but their evidence was that they were assured by Mr. Cole that the decline was a temporary decline due to market turbulence. They testified that they were concerned that they were depleting their retirement funds by making withdrawals, but say that they were assured by Mr. Cole that he could manage the accounts and “beat the market.” Mr. Masales deposed:

We explicitly detailed our situation to Cole: we are retired teachers and we need to live off of the money in the Accounts for the rest of our lives. When we expressed these concerns to Cole he reassured us and told us not to worry. He claimed that the markets were doing badly and everyone was losing money but that we could easily make back the money that he had lost. He also assured us we would never run out of money.

[10] In 2001 and 2002, unknown to the Masales, the Investment Dealers Association of Canada fined Mr. Cole $125,000 for compliance failures while he was at Rampart Securities. The Association prohibited him from working in a compliance or supervisory role at a securities firm. There was no prohibition in Mr. Cole continuing to be an investment advisor.

[11] At Macquarie’s predecessors, Mr. Cole managed the Masales’ accounts for over four years. On his cross-examination for the summary judgment motion, Mr. Masales testified that during this period, he continued to be concerned about the performance of the accounts, which concerns he related to Mr. Cole. Nevertheless, despite continuous concerns, Mr. Masales said he did not doubt Mr. Cole's assurances with respect to the investment return of the accounts.

[12] In October 2005, Mr. Cole moved his investment advisor practice to the Defendant RBC Dominion Securities. The Masales moved their accounts with him.

[13] From what I can gather from the disputed evidence, there is a controversy about whether the Masales had recouped most of their alleged $300,000 loss in capital by the time of the transfer of their funds to RBC Dominion Securities. In any event, one of their allegations in the current action is that the investments orchestrated by Mr. Cole were imprudent and that the investment accounts underperformed what would have been the case had Mr. Cole properly administered them.

[14] After Mr. Cole joined RBC Dominion Securities, Mrs. Masales suggested to her elderly aunt, the Plaintiff Dorothy Blong, now deceased, that she transfer her investment capital to be invested by Mr. Cole. Mrs. Blong made the transfer and retained Mr. Cole as her Investment Advisor. (Mrs. Blong had no relationship with Macquarie and she makes no claim against them and so her Estate is not affected by this summary judgment motion.)

[15] With their accounts now at RBC Dominion Securities, the Masales continued to be concerned about the performance of the accounts, and they frequently expressed their concerns to Mr. Cole. It is alleged, once again, that he repeatedly assured them that everything would be fine and that their investments would recover.

[16] Mr. Masales testified that by 2008 he began to educate himself more about the financial markets because he was alarmed about the lack of progress in their accounts and about their decline. It appears, however, that this education began earlier, because by 2007, he was taking copious notes and watching business television, up to three hours, every day.

[17] On November 30, 2010, the Masales were notified that Mr. Cole had left RBC Dominion Securities.

[18] Approximately two months later, on January 22, 2011, Mr. Masales read a newspaper article, and he learned that RBC Dominion Securities was investigating whether Mr. Cole had defrauded his clients.

[19] Around this time, the police undertook an investigation of the Ponzi scheme and arrested Mr. Cole. Mrs. Blong, but not the Masales, was a victim of that scheme.

[20] On February 10, 2011, Mr. Cole was declared bankrupt.

[21] With Mr. Cole having been exposed as a fraudster, Mr. Masales was prompted to investigate and revisit the history of their business relationship with Mr. Cole and his various employers, including Yorkton Securities and First Associates Investments.

[22] As a result of his inquiries, Mr. Masales says that he learned for the first time the difference between discretionary accounts and non-discretionary accounts that require authorizations for trades in securities, and he discovered that Mr. Cole was treating the Masales’ non-discretionary investment accounts as discretionary accounts and he was “churning” those accounts to earn over $350,000 in fees and commissions. Mr. Masales discovered that many of Mr. Cole’s trades were risky and outside an acceptable risk level for him and his wife. Mr. Masales discovered the 2002 Investment Dealers Association of Canada proceedings against Mr. Cole. He discovered that Mr. Cole had not accurately completed various account documents and had not completed the “Know Your Client” documentation.

[23] The Masales say that before the exposure of the Ponzi scheme, none of this was understandable to them because of: Mr. Cole’s lies and assurances; the lack of warnings and supervision by Macquarie’s predecessors; and their own unsophistication and ignorance in investment matters. Mr. Masales deposed that he did not discover Mr. Cole’s wrongdoing earlier because he and his wife were teachers with no business knowledge or experience. They say that they were unsophisticated investors who were not aware of the rules and standards of practice that bound Mr. Cole. They say that they had little idea of how investments ought to perform, what investments were appropriate, and what fees were reasonable. They say that they completely relied on the Mr. Cole and his employers for guidance and advice about how to deal with their assets and to plan for retirement. They say that they trusted the confident and optimistic Vice-President Cole and they did not have the requisite knowledge to identify irregularities in his conduct as an investment advisor. They say that although the value in their accounts declined, they believed, based on Mr. Cole's assurances, that any losses were due to market forces beyond his control.

[24] Mr. Masales says that from his investigation and after obtaining expert and legal advice, he discovered that they might have claims against Mr. Cole for breach of fiduciary duty, negligence, and breach of contract, as well as claims against his employers for failing to supervise.

[25] On September 9, 2011, the Masales commenced their action, which includes claims of misconduct for the 2001 to 2005 period when their investment accounts were managed by Macquarie’s predecessors.

[26] In 2012, Mr. Cole pleaded guilty to fraud and was sentenced to two-and-a-half years in prison. He agreed to a permanent ban from the financial industry and to pay a fine of $5 million to the Investment Industry Regulatory Organization of Canada. He is currently an undischarged bankrupt.

[27] In February 2013, Macquarie brought a two-pronged motion for summary judgment, originally returnable on October 10, 2013. One prong, now not being advanced, of Macquarie’s motion was based on the argument that the Masales had suffered no damages while their investment accounts were at Macquarie’s predecessors. The second prong was based on the argument that the Masales’ causes of action were statute-barred because all of the conduct alleged in the Statement of Claim was discoverable by December 2005, or at the latest 2007 to 2008, when the self-taught Mr. Masales ought to have known that something was awry and that he and his family had causes of action against Mr. Cole.

[28] In support of the summary judgment motion, Macquarie relied on an affidavit sworn on February 8, 2013 by Dan Bowering, the Chief Compliance Officer at Macquarie, and on an affidavit sworn February 6, 2013 by Ivor Gottschalk, a Chartered Accountant, Chartered Business Valuator, and a specialist in forensic and investigative accounting with LBC International Investigative Accounting Inc.

[29] In September 2013, the pending summary judgment motion was adjourned because in response to the summary judgment motion, Mr. Masales sought to deliver a draft affidavit that contained a hypothetical analysis prepared by David Hilton, the Plaintiffs’ current Investment Advisor, setting out what should have happened to the Plaintiffs’ accounts if they had been properly managed. This affidavit was subsequently withdrawn.

[30] In November 2013, in response to the by then adjourned summary judgment motion, Mr. Masales delivered his own affidavit affirmed November 18, 2013, and an affidavit from Vimal Kotecha, a Chartered Accountant and Chartered Business Valuator and a partner of Richter Advisory Group Inc.

[31] On January 14, 2014, Natalia Vandervoort, an associate with Macquarie’s lawyer of record, swore an affidavit in reply to Mr. Masales’ affidavit.

[32] In March 2014, Mr. Masales replaced the affidavit containing Mr. Hilton’s analysis with a draft affidavit with Mr. Masales’ own analysis of the performance of the investment accounts, and on June 19, 2014, Mr. Masales affirmed this supplementary affidavit, which the parties described as the “Suitability Affidavit.” The Suitability Affidavit contained Mr. Masales’ analysis that profits could have been made had Mr. Cole not breached his duty of care in administering the Masales’ accounts.

[33] The Masales also delivered another affidavit from Mr. Kotecha sworn June 19, 2014.

[34] Mr. Masales’ Suitability Affidavit was delivered in response to Macquarie’s argument that there were no damages. Mr. Masales deposed that he believed the hypothetical portfolios represented “what would have happened to our accounts if they were managed by a competent, client focused and honest advisor developing long term equity portfolios.”

[35] On July 2, 2014, Mr. Masales was examined for discovery.

[36] On July 4, 2014, Mrs. Masales was examined for discovery.

[37] On July 28, 2014, Mr. Masales and Mr. Kotecha were cross-examined on their affidavits.

[38] In August 2014, Macquarie brought a motion before Master Short to strike Mr. Masales’ Suitability Affidavit, which Macquarie now points too as a demonstration that Mr. Masales is not ignorant in the machinations of investing in the stock market.

[39] In December 2014, Master Short dismissed the motion to strike the Suitability Affidavit. See Masales v. Cole, 2014 ONSC 4679 (Master).

[40] On June 2, 2015 and July 21, 2015, the Masales delivered supplementary affidavits from Mr. Kotecha.

[41] On July 22, 2015, Mr. Bowering and Mr. Gottschalk were cross-examined on their affidavits.

[42] The summary judgment motion was argued on January 20, 2015. By this time, Macquarie was only advancing the argument that the Masales’ various causes of action were statute-barred.

[43] The Masales’ action is scheduled for trial in October 2016.

C. POSITIONS OF THE PARTIES

1. Macquarie’s Argument

[44] Macquarie submits that the Masales discovered or ought to have discovered their claims against Mr. Cole and Macquarie’s predecessors. Macquarie submits that Mr. Masales’ Suitability Affidavit, the substance of which they disagree with, demonstrates that Mr. Masales was not unsophisticated and knew or ought to have known that he and his wife had various causes of action long before the September 9, 2011 action. They say that there is no genuine issue for trial that the Masales’ claims against Macquarie’s predecessors are statute-barred under the former or current Limitations Act.

2. The Masales’ Argument

[45] The Masales submit that they had no reason to question the handling of their investment accounts at Macquarie’s predecessors until after Mr. Cole’s Ponzi scheme was discovered. They submit that they did not know and could not have known the material facts for a lawsuit against Mr. Cole and Macquarie’s predecessors until the disclosure of that Ponzi scheme.

[46] The Masales rely on Justice Pepall’s decision in Ridel v. Cassin, 2013 ONSC 2279, aff’d 2014 ONCA 763. They say their plight is the same as the plaintiffs in the Ridel case, where the Ridels were unsophisticated investors: who received monthly account statements but who did not understand the statements; who did not know what the advisor was entitled to do; and who did not know whether the defendants had complied with the industry’s regulatory requirements. In Ridel, the investment advisor’s limitation period defence was dismissed after a trial. The Masales, who did not bring a cross-motion for summary judgment, submit that the immediate case is not suitable for a summary judgment and like the Ridel case, the limitation period defence should be decided after a trial.

D. DISCUSSION AND ANALYSIS

1. The Test for Summary Judgment

[47] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the court shall grant summary judgment if: “the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.”

[48] With amendments to Rule 20 introduced in 2010, the powers of the court to grant summary judgment have been enhanced. Rule 20.04(2.1) states:

20.04 (2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

[49] In Hryniak v. Mauldin, 2014 SCC 7 and Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, the Supreme Court of Canada held that on a motion for summary judgment under Rule 20, the court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record, without using the fact-finding powers enacted when Rule 20 was amended in 2010. The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting a summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and a summary judgment would be a timely, affordable and proportionate procedure.

[50] If, however, there appears to be a genuine issue requiring a trial, then the court should determine if the need for a trial can be avoided by using the powers under rules 20.04(2.1) and (2.2). As a matter of discretion, the motions judge may use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if their use will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[51] Hryniak v. Mauldin encourages the use of a summary judgment motion to resolve cases in an expeditious manner provided that the motion can achieve a fair and just adjudication. Speaking for the Supreme Court of Canada, Justice Karakatsanis opened her judgment by stating:

Ensuring access to justice is the greatest challenge to the rule of law in Canada today. Trials have become increasingly expensive and protracted. Most Canadians cannot afford to sue when they are wronged or defend themselves when they are sued, and cannot afford to go to trial. … Increasingly, there is recognition that a culture shift is required in order to create an environment promoting timely and affordable access to the civil justice system. This shift entails simplifying pre-trial procedures and moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the particular case. The balance between procedure and access struck by our justice system must come to reflect modern reality and recognize that new models of adjudication can be fair and just.

[52] At para. 22 of her judgment in the companion case of Bruno Appliance and Furniture, Inc. v. Hryniak, supra, Justice Karakatsanis summarized the approach to determining when a summary judgment may or may not be granted; she stated:

Summary judgment may not be granted under Rule 20 where there is a genuine issue requiring a trial. As outlined in the companion Mauldin appeal, the motion judge should ask whether the matter can be resolved in a fair and just manner on a summary judgment motion. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. If there appears to be a genuine issue requiring a trial, based only on the record before her, the judge should then ask if the need for a trial can be avoided by using the new powers provided under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice.

[53] Justice Corbett provided a useful summary of the Hryniak v. Mauldin approach in Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, where he stated at paras. 33 and 34:

33. As I read Hryniak, the court on a motion for summary judgment should undertake the following analysis:

(1) The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;

(2) On the basis of this record, the court decides whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;

(3) If the court cannot grant judgment on the motion, the court should:

(a) Decide those issues that can be decided in accordance with the principles described in (2), above;

(b) Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues;

(c) In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion.

34. The Supreme Court is clear in rejecting the traditional trial as the measure of when a judge may obtain a "full appreciation" of a case necessary to grant judgment. Obviously greater procedural rigour should bring with it a greater immersion in a case, and consequently a more profound understanding of it. But the test is now whether the court's appreciation of the case is sufficient to rule on the merits fairly and justly without a trial, rather than the formal trial being the yardstick by which the requirements of fairness and justice are measured.

[54] Hryniak v. Mauldin does not alter the principle that the court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial. The court is entitled to assume that the parties have respectively advanced their best case and that the record contains all the evidence that the parties will respectively present at trial: Dawson v. Rexcraft Storage & Warehouse Inc., 1998 CanLII 4831 (ON CA), [1998] O.J. No. 3240 (C.A.); Bluestone v. Enroute Restaurants Inc. (1994), 1994 CanLII 814 (ON CA), 18 O.R (3d) 481 (Ont. C.A.); Canada (Attorney General) v. Lameman, 2008 SCC 14, [2008] 1 S.C.R. 372 at para. 11. The onus is on the moving party to show that there is no genuine issue requiring a trial, but the responding party must present its best case or risk losing: Pizza Pizza Ltd. v. Gillespie (1990), 75 O.R. (2d) 255 (Gen. Div.); Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423 (Gen. Div.), aff’d [1997] O.J. No. 3754 (C.A.).

3. The Discovery of the Claims against Macquarie

[55] In the case at bar, some of the allegations of wrongdoing by Mr. Cole and Macquarie’s predecessors concern events that occurred before January 1, 2004, when the current Limitations Act, 2002 came into force. It is, therefore, necessary to know that under s. 45(1)(g) of the former Limitations Act, the operative limitation period was six years. Section 45(1)(g) of the former Act stated that an action will be commenced within six years after the cause of action arose.

[56] For the purposes of deciding this summary judgment motion, the relevant sections of the Limitations Act, 2002, are sections 1, 4, and 5, and 24 which state:

Definitions

1. In this Act,

"claim" means a claim to remedy an injury, loss or damage that occurred as a result of an act or omission;

Basic limitation period

4. Unless this 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.

Discovery

5. (1) 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).

Presumption

(2) 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.

Transition

Definition

24.(1) In this section,

“former limitation period” means the limitation period that applied in respect of the claim before January 1, 2004.

Application

(2) This section applies to claims based on acts or omissions that took place before January 1, 2004 and in respect of which no proceeding has been commenced before that date.

Former limitation period expired

(3) If the former limitation period expired before January 1, 2004, no proceeding shall be commenced in respect of the claim.

Former limitation period unexpired

(4) If the former limitation period did not expire before January 1, 2004 and if no limitation period under this Act would apply were the claim based on an act or omission that took place on or after that date, there is no limitation period.

Same

(5) If the former limitation period did not expire before January 1, 2004 and if a limitation period under this Act would apply were the claim based on an act or omission that took place on or after that date, the following rules apply:

1. If the claim was not discovered before January 1, 2004, this Act applies as if the act or omission had taken place on that date.

2. If the claim was discovered before January 1, 2004, the former limitation period applies.

[57] The case at bar concerns acts of omissions that took place both before and after January 1, 2004. With respect to the acts that occurred before January 1, 2004, pursuant to s. 24(5) of the Limitations Act, 2002, if the claim was not discovered before January 1, 2004 (which is what the Masales submit but that Macquarie denies), the Limitations Act, 2002 applies as if the acts had taken place on January 1, 2004 for the purposes of the running of the limitation period.

[58] Section 1 of the Limitations Act, 2002 defines "claim" to mean: "a claim to remedy an injury, loss or damage that occurred as a result of an act or omission." A less circular and more useful definition for claim would be that a claim is a cause of action, which is the fact or facts which give a person a right to judicial redress or relief against another. See Lawless v. Anderson, 2011 ONCA 102 at para. 22; Aguonie v. Galion Solid Waste Material Inc. (1998), 1998 CanLII 954 (ON CA), 38 O.R. (3d) 161 (C.A.) at p. 170. In Lawless v. Anderson, the Ontario Court of Appeal stated at paras. 22-23:

22. The principle of discoverability provides that "a cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered, or ought to have been discovered, by the plaintiff by the exercise of reasonable diligence. This principle conforms with the generally accepted definition of the term 'cause of action' -- the fact or facts which give a person a right to judicial redress or relief against another"....

23. Determining whether a person has discovered a claim is a fact-based analysis. The question to be posed is whether the prospective plaintiff knows enough facts on which to base an allegation of negligence against the defendant. If the plaintiff does, then the claim has been "discovered", and the limitation period begins to run: see Soper v. Southcott (1998), 1998 CanLII 5359 (ON CA), 39 O.R. (3d) 737 (C.A.) and McSween v. Louis (2000), 2000 CanLII 5744 (ON CA), 132 O.A.C. 304 (C.A.).

[59] With respect to the basic limitation period of two years under the Limitations Act, 2002, a claim is “discovered” on the earlier of the date the claimant knew — a subjective criterion — or ought to have known — an objective criterion — about the claim: Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851 at paras. 33 and 70.

[60] When a limitation period defence is raised, the onus is on the plaintiff to show that its claim is not statute-barred and that it behaved as a reasonable person in the same or similar circumstances using reasonable diligence in discovering the facts relating to the limitation issue: Durham (Regional Municipality) v. Oshawa (City), 2012 ONSC 5803 at paras. 35-41; Bolton Oak Inc. v. McColl-Frontenac Inc., 2011 ONSC 6657 at paras. 12-14; Bhaduria v. Persaud (1985), 1998 CanLII 14846 (ON SC), 40 O.R. (3d) 140 (Gen. Div.). That the onus is on the plaintiff accords with the presumption in s. 5(2) of the Act that a person with a claim shall be presumed to have discovered the claim on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[61] The discoverability of a claim for relief involves the identification of the wrongdoer and also the discovery of his or her acts or omissions that constitute liability: Aguonie v. Galion Solid Waste Material Inc. (1998), 1998 CanLII 954 (ON CA), 38 O.R. (3d) 161 (C.A.); Ladd v. Brantford General Hospital (2007), 2007 CanLII 45921 (ON SC), 88 O.R. (3d) 124 (S.C.J.). It is not enough that the plaintiff has suffered a loss and has knowledge that someone might be responsible; the identity and culpable acts of the wrongdoer must be known or knowable with reasonable diligence: Mark v. Guelph (City) (2011), 2010 ONSC 6034, 104 O.R. (3d) 471 (S.C.J.); Zurba v. Lakeridge Health Corp. (2010), 2010 ONSC 318, 99 O.R. (3d) 596 (S.C.J.); Greenway v. Ontario (Minister of Transportation) (1999), 1999 CanLII 14797 (ON SC), 44 O.R. (3d) 296 (Gen. Div.).

[62] The question is whether the prospective plaintiff knows enough facts to base a cause of action against the defendant, and, if so, then the claim has been discovered and the limitation period begins to run: Lawless v. Anderson, supra at para. 23; Soper v. Southcott (1998), 1998 CanLII 5359 (ON CA), 39 O.R. (3d) 737 (C.A.); McSween v. Louis, 2000 CanLII 5744 (ON CA), [2000] O.J. No. 2076 (C.A.); Gaudet v. Levy (1984), 1984 CanLII 2047 (ON SC), 47 O.R. (2d) 577 (H.C.J.) at p. 582.

[63] It is not necessary for the full extent of the damages suffered to be known before the cause of action is discovered and the limitation period begins to run. In Hamilton (City) v. Metcalfe & Mansfield Capital Corp., 2012 ONCA 156, the Court of Appeal stated at para. 54:

54. The City's position that damage occurred when the Devonshire notes matured also fails to appreciate the distinction between damage and damages. Damage is the loss needed to make out the cause of action. Insofar as it relates to a transaction induced by wrongful conduct, as I have explained, damage is the condition of being worse off than before entering into the transaction. Damages, on the other hand, is the monetary measure of the extent of that loss. All that the City had to discover to start the limitation period was damage.

[64] In Beaton v. Scotia iTrade, 2012 ONSC 7063, affd. 2013 ONCA 4095, Justice Belobaba stated at para. 13:

13. The claimant only has to know enough material facts on which to base a legal allegation. Once the plaintiff knows that some damage has occurred and has identified the alleged wrongdoer, "the cause of action has accrued". Neither the extent nor the type of damage need be known. The claimant also need not know the details of the wrongdoer's conduct or how the wrongdoer caused the loss. The question of "how it happened" will be revealed through the legal proceeding.

[65] Applying the above law to the case at bar, the Masales commenced an action in 2011 with respect to wrongdoing that occurred between 2001 and 2005, and there is no genuine issue for trial that their action is presumptively statute-barred pursuant to s. 5(2) of the Limitations Act. However, relying principally on Ridel v. Cassin, supra, the Masales submit that they did not discover their claim until Mr. Masales learned about the Ponzi scheme and undertook an investigation of the management of their investment accounts at Macquarie’s predecessors. In other words, the Masales submit that they will be able to establish at trial that they did not subjectively or objectively discover their causes of action until 2011 making their 2011 action timely.

[66] In my opinion, there is a genuine issue requiring a trial about whether the Masales have rebutted the presumption that their claim is statute-barred.

[67] Macquarie argues, however, that this genuine issue can be decided by summary judgment using the resources of the summary judgment rule because the evidence on the motion demonstrates that Mr. Masales ought to have known that they had a claim against Mr. Cole and Macquarie throughout 2001-2005.

[68] The thrust of Macquarie’s argument was to discredit Mr. Masales’ depiction of himself and his wife as vulnerable, naïve, gullible, reliant, and unsophisticated investors under the spell of a Svengali-investment advisor and to assert rather that Mr. Masales was savvy enough that he ought to have known to sue Mr. Cole and Macquarie’s successors long ago. Thus, in the run up to the motion and on the argument of the motion, a great deal of attention was placed on whether or not Mr. Masales was genuinely unsophisticated and ignorant of the management of investment accounts. Macquarie submits that a trial is not necessary to demonstrate that Mr. Masales knew or ought to have known to commence an action against Mr. Cole and Macquarie’s successors.

[69] I observe that because Macquarie conflates the subjective and the objective aspects of the discovery of a cause of action, Macquarie has an alternative argument that was not much advanced at the hearing or in its factum. The argument is that if Mr. Masales was as unsophisticated and as gullible as he suggests, nevertheless, he would still be obliged to exercise due diligence to discover whether he and his wife had a claim. In other words, Macquarie has the alternative argument that Mr. Masales’ professed ignorance of his causes of action does not relieve him from the obligation of exercising due diligence to discover whether he had a claim, especially in circumstances where he was actively monitoring the investment accounts and admittedly concerned about their performance.

[70] In arguing about the significance of Mr. Masales’ acumen as an investor or the lack thereof, both parties focussed their attention on Ridel v. Cassin, supra, where Justice Pepall held that the Ridels' claim against their investment advisor for their investment losses was not statute-barred because the unsophisticated and reliant Ridels did not have the requisite knowledge to sue their investment advisor until their new account manager told them that their former investment advisor had been trading without instructions, investing in unsuitable securities, adopting ridiculous risk factors relative to their individual profiles, failing to comply with securities regulations and standards, and engaging in other negligent conduct. The Ridels thought their losses had arisen solely because of a fallen market and only later discovered that the losses were causally related to the investment advisor’s wrongdoing. The Masales submit that their circumstances were similar and, thus, like the Ridels, their claims are not statute-barred. Macquarie says that the circumstances of Ridel v. Cassin are not the same as in the case at bar.

[71] In relying on or in distinguishing Justice Pepall’s judgment, both parties draw attention to paras. 259-264 of Justice Pepall’s judgment, where she stated:

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), 2001 CanLII 28042 (ON SC), 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.

[72] In considering this passage from Justice Pepall’s judgment, it should be noted that paras. 262 and 263 focus on the plaintiff’s subjective knowledge and para. 264 discretely focusses on the issue of what a reasonable person would have known. Thus, Justice Pepall does not conflate the subjective and objective aspects of discovering a claim.

[73] In considering the significance of Ridel v. Cassin to the immediate case, it is necessary to recall that determining whether a person has discovered a claim is a fact-based analysis. Ridel v. Cassin is just an application of the law about the running of the limitation periods to the particular facts of that case. For example, in contrast and comparison to Ridel v. Cassin is Tucker v. Fortune Financial Corp., [2003] O.J. No. 934 (S.C.J.), where Justice Patterson dismissed an action against an investment advisor as statute-barred. See also Chriss v. TD Bank Financial Group, 2013 ONSC 7508.

[74] Where this last thought takes me is to the question of whether in the immediate case, I should decide a hotly contested limitation period defence by summary judgment or whether the determination one way or the other should be made at a trial.

[75] In Johnson v. Studley, 2014 ONSC 1732, which is in the genre of claims against an investment advisor, on a summary judgment motion, I dismissed the action based on a limitation period defence. However, I do not think that the case at bar should be dealt with in the same fashion.

[76] As I indicated at the outset, the evidentiary record provides a case that is too close to call summarily. And the fact-finding exercise in the case at bar has been compromised because both parties have conflated the subjective aspects of discoverability, which focus on what the plaintiff actually knew about the facts of his or her case, with the objective aspects of discoverability, which focus on what the plaintiff ought to have known about the facts of his or her case through the exercise of reasonable diligence.

[77] In short, I do not think that it would be just or fair to decide this matter by way of a summary judgment motion and, therefore, the genuine issues requiring a trial should be tried in the normal course.

[78] I, therefore, dismiss the summary judgment motion. With a trial already scheduled for later this year, there is no reason for me to remain seized of the matter.

E. CONCLUSION

[79] For the above reasons, I dismiss the summary judgment motion.

[80] If the parties cannot agree about the matter of costs, which I am inclined to order in the cause, they may make submissions in writing beginning with the Masales’ submissions within 20 days of the release of these Reasons for Decision followed by Macquarie’s submissions within a further 20 days.

Perell, J.

Released: January 29, 2016

CITATION: Masales v. Cole, 2016 ONSC 763

COURT FILE NO.: CV-11-434673

DATE: 20160129

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

RANDALL MASALES, PAMELA MASALES and DOROTHY BLONG

Plaintiffs

– and –

HENRY COLE, MACQUARIE PRIVATE WEALTH INC. and RBC DOMINION SECURITIES

Defendants

REASONS FOR DECISION

PERELL J.

Released: January 29, 2016