2011 QCCA 779, 2011 QCCA 779

Quesnel c. Laberge 2011 QCCA 779 COURT OF APPEAL CANADA PROVINCE OF QUEBEC MONTREAL REGISTRY No: 500-09-019981-091 (540-17-002026-069) DATE: April 26, 2011 CORAM: THE HONOURABLE ANDRÉ ROCHON, J.A. FRANÇOIS DOYON, J.A. NICOLE DUVAL HESLER, J.A. VINCENT QUESNEL and NATIONAL BANK FINANCIAL INC. APPELLANTS - Defendants v. PIERRE LABERGE RESPONDENT - Plaintiff JUDGMENT [ 1 ] THE COURT ; On appeal from a judgment of the Superior Court, District of Laval (the Honourable Mr. Justice Steve J.

Reimnitz), rendered on July 29, 2009, which condemned the appellants to pay the respondent $75,000 plus interest and the additional indemnity; [ 2 ] Having examined the file, heard the parties, and on the whole deliberated; [ 3 ] For the reasons of Rochon J.A., with which Doyon and Duval Hesler JJ.A. agree; [ 4 ] ALLOWS the appeal in part, each party to pay its costs, for the sole purpose of substituting $50,000 for $75,000 in paragraph [272]. ANDRÉ ROCHON, J.A. FRANÇOIS DOYON, J.A. NICOLE DUVAL HESLER, J.A.

Mtre Élisabeth Laroche Heenan Blaikie For the appellants Me Roger Vokey Shaffer & Associés For the respondent Hearing date: March 10, 2011 REASONS OF ROCHON, J.A.

[ 5 ] Vincent Quesnel (Quesnel) is a securities dealer in the employ of National Bank Financial Inc. (NBF). Quesnel and NBF were ordered at trial to pay the respondent (Laberge) $75,000. This amount represents the loss incurred by Laberge, who had invested almost his entire pension fund in highly speculative investments. [ 6 ] Quesnel and NBF are appealing. They allege that the Superior Court judge made palpable and overriding errors of fact.

They also claim that he erred in law in excluding the releases and exclusion of liability clauses signed by Laberge. [ 7 ] In Quesnel’s words, Laberge’s investment with NBF was not in keeping with [ translation ] “common practice”. An examination of this investment is in order to better grasp the nature of the case. [ 8 ] In 2000, Laberge was dismissed from his printing equipment repair company. A mechanic by training, Laberge has a high school diploma.

His employer turned over to him his pension fund, representing close to $100,000, which he invested with his financial institution at the time, Scotia Bank, in a locked-in retirement account (LIRA). [ 9 ] Around the same time, Laberge was approached by Claude Valade (Valade). It is not clear where Valade got his information, but he knew that Laberge had lost his job and that he had close to $100,000 in a LIRA.

Valade introduced himself as someone who [translation] “works with National Bank”, but was not a bank employee. [ 10 ] Valade, who examined Scotia Bank’s statements, explained to Laberge that he could offer him [ translation ] “a better return” on his pension fund, but that to do so, the LIRA had to be transferred to “National Bank”. [ 11 ] According to Laberge, Valade made no mention of the HT and CT investment clubs. This question is important. I will get back to it. Laberge accepted Valade’s offer.

He said he felt safe with National Bank, which he did not distinguish from National Bank Financial (NBF). [ 12 ] Some time later, Laberge was presented with a series of documents. He signed them without reading them. He was convinced that they were all documents concerning the transfer of the LIRA to National Bank, as had been represented to him.

In addition, Laberge said he had received assurances from Quesnel that his money was safe and that there was no risk. [ 13 ] In June 2000, Laberge’s asset allocation with NBF was as follows: $50,000 in the HT Investment Club and the other $50,000 in a diversified stock portfolio called “Top 15”. In September 2000, an amount of $25,000 was invested in the CT Investment Club. This sum was taken from the stock portfolio. In 2002, Laberge withdrew $20,000 in order to buy himself a house. [ 14 ] Between 2000 and 2005, except for periodic statements from NBF, Laberge received no information from Quesnel.

In 2005, Laberge realized, for the first time, that [ translation ] “his money wasn’t there any more”. [ 15 ] According to Laberge, at the time of the LIRA transfer, he met with Quesnel two or three times to sign documents. These meetings took place in the NBF or National Bank office in Blainville. It was at one of these meetings that he expressly told Quesnel that he wanted a guaranteed investment. [ 16 ] Quesnel’s version of the facts largely contradicts Laberge’s. He claimed he never met with his client Laberge.

He said he had two telephone conversations with him, first, to obtain some information and, second, to inform him of the high risks associated with investments in the HT and CT investment clubs. [ 17 ] The Superior Court judge believed Laberge’s version rather than Quesnel’s. This is where the appellants see a first palpable and overriding error. [ 18 ] There are, however, many facts entered into evidence that are not contradicted. They shed light on the situation and are helpful in analyzing the case. These facts are as follows. [ 19 ] In early 2000, Quesnel was approached by Raynald Gagnon (Gagnon).

The two men had known each other for several years. Gagnon is an accountant by training. He works in a private firm in the Blainville region where the NBF branch is located. [ 20 ] Gagnon told Quesnel about the HT Investment Club. Gagnon was not a member of this club.

He took an interest in it as part of his business development efforts, hoping to obtain professional contracts from businesses supported by this investment club. [ 21 ] Gagnon mentioned to Quesnel that this type of club was looking for a [ translation ] “transfer agent" to enable interested persons to invest their RRSP, RRIF or LIRA funds in these clubs. Tax laws required that these funds be held by financial institutions and that the investment be made under their control. [ 22 ] Social shares of these investment clubs therefore must be purchased through NBF as assignee of Laberge’s LIRA.

In other words, without a financial institution's participation, pension fund holders could not invest their pension fund in this investment club. [ 23 ] Quesnel asked to visit the information technology company in which the HT Investment Club would invest. Following this visit, he concluded that the business was risky and that he would not recommend to his clients that they invest in it. [ 24 ] Gagnon informed Quesnel that more than a dozen persons, including Laberge, wanted to invest their pension funds in the HT Investment Club. [ 25 ] Quesnel then gave Gagnon the tax and bank forms.

These blank documents were: an application to open a LIRA with NBF (D- 1); a non-liability form in favour of NBF (D-2), a client form (D-3), and the form from the tax authorities. Exhibit D-3 is a detailed questionnaire that enables a dealer to know his or her client (Know Your Client rule) and serve the client accordingly.

[ 26 ] Quesnel did not explain the nature of these documents to Gagnon. He said he was sure that, with his accounting background, Gagnon would understand them. Quesnel asked Gagnon to get Laberge’s signature on these documents. [ 27 ] Gagnon did not meet with Laberge. Instead, he gave the documents to the head of the HT and CT investment clubs.

Except for the explanations given by Laberge, the evidence does not show who had the documents signed, the circumstances of the signing, or the explanations that were given to Laberge at the time. [ 28 ] After receiving the signed documents, Quesnel said he completed part of the client form following a brief telephone conversation with Laberge.

The identity of the person who completed the other part of the documents, some sections of which put the investment risk factor accepted by the client at 100%, was unknown. [ 29 ] The uncontradicted expert evidence also shows that Laberge’s signature was forged on the application form (D-1) and on the non-liability form (D-2). [ 30 ] To complete the picture, it should be mentioned that the officers of the investment clubs were charged and convicted on several counts following proceedings taken by the Autorité des marchés financiers.

Valade was convicted on 10 counts of having acted unlawfully as a securities dealer and having illegally made investments without having a prospectus approved by the QSC. [ 31 ] Apart from Quesnel, no officer or manager of NBF testified to explain the role played by the financial institution and its dealer in this matter, which proved financially disastrous. No officer or manager of the CT and HT investment clubs testified.

THE JUDGMENT A QUO [ 32 ] After a detailed review of the facts, the Superior Court judge rejected the argument put forward by Quesnel, who tried to avoid responsibility by maintaining that he was a mere [ translation ] “transfer agent". According to the trial judge, Quesnel, who profited financially from the situation (part of the transferred funds remained under his management in the Top 15), failed to fulfil his dealer obligations in many regards. [ 33 ] Quesnel did not properly inform his client. He failed to comply with the golden rule that all dealers must know their clients in order to properly advise them.

More specifically, Quesnel committed a fault in giving third parties complex blank forms to be completed which at the very least required that adequate information be given to Laberge. [ 34 ] Quesnel knew the substantial risks incurred by Laberge in this type of investment. He did not properly advise him. He did not take any measures, even elementary ones, in a transaction that called for extra caution on the part of the dealer.

GROUNDS OF APPEAL [ 35 ] The appellants attack three aspects of the trial judgment. [ 36 ] First, they argue that the Superior Court judge erred on the nature of the mandate given to Quesnel and the extent of the resulting obligations.

They claim in this regard that the judge failed to consider essential evidence in his analysis. [ 37 ] Second, they believe that the Superior Court judge could not accept Laberge’s version without making a palpable and overriding error, especially since in his analysis the judge did not exclude Quesnel’s testimony. [ 38 ] Finally, they claim that the trial judge erred in law in refusing to give effect to the releases and exclusion of clauses signed by the respondent.

ANALYSIS [ 39 ] First, we must rule on the second ground concerning the credibility of Laberge and Quesnel, especially since their versions are largely contradictory. If the Superior Court judge erred in this regard, this would determine the outcome of the appeal, as we would have to accept that Laberge was properly informed of the risk associated with the investment and that his decision to go ahead with the investment was fully informed. [ 40 ] At the time of the trial, the facts dated back almost ten years.

Although Laberge’s memory was faulty in many respects, on the essential points his testimony was consistent. He said he met with Quesnel several times and obtained assurances from him as to the safety of his investment. The sum invested represented half of his assets and his entire pension fund.

[ 41 ] Quesnel said the opposite. He claimed he never met with his client. He said he advised him, during one or two telephone conversations, that the investment was very risky, and that he was acting solely as a transfer agent. [ 42 ] The Superior Court judge did not deal specifically with Quesnel’s testimony. However, it is clear that he did not believe Quesnel at all and that he consequently accepted Laberge’s testimony.

In his analysis, he wrote: [ translation ] [205] The Court believes the testimony of the plaintiff when he says he never received any information when he signed all the documents produced. ... [228] We may wonder if the plaintiff would have still accepted the investment had he known the high risk it entailed. [229] The Court suggests that considering the risks associated with the investment and considering that the plaintiff was investing his pension fund, the investment should not have been made.

All the damages suffered by the plaintiff are a consequence of the defendants’ wrongdoing. ... [248] In the present case, Quesnel did not fulfill his mandate since: • He did not make sure the plaintiff understood the documents when he signed them; • He did not find out from the person responsible for getting the documents signed what information had been given to the plaintiff when he signed the documents. [ 43 ] This part of the trial judge's analysis is totally inconsistent with Quesnel’s version and totally consistent with Laberge’s.

Assessing the witnesses’ credibility falls under the sovereign authority of the trier of fact. The appellants failed to discharge their heavy burden of proving, particularly on the question of credibility, that the trial judge made one or more palpable and overriding errors. Apart from drawing attention to certain minor contradictions in Laberge’s testimony, the appellants propose, rather, a rereading of the evidence and a resumption of the trial, which is not the role of an appellate court. [ 44 ] The second ground of appeal concerns the nature of the mandate accepted by Quesnel.

According to him, his role was limited to that of a transfer agent for a high-risk investment about which he had cautioned his client. [ 45 ] Here, it seems to me that the appellants are blowing hot and cold. First, they try to limit their role and, consequently, their obligations, to that of a mere transfer agent, a concept that is difficult to define because it does not exist in law. Then they say they fulfilled their dealer obligations, obligations that are much broader than those of a mere “transfer agent”. [ 46 ] The rules are known.

I will briefly review them. [ 47 ] Whether under the statutory and regulatory provisions governing them, or pursuant to the contract of mandate or of service entered into, securities dealers have an obligation to act prudently, diligently, honestly, faithfully and competently. To fulfill their obligations, dealers must know their clients to ensure that their investments are appropriate.

Throughout their relationship with their clients, dealers must properly inform them and advise them. [1] [ 48 ] Of course, there are exceptions to these rules, which may vary according to a particular client or a specific mandate. [ 49 ] In the case at bar, Quesnel, as a securities dealer, should have been cautious. The particular facts of the case called for caution. Instead, he acted recklessly. Here is how. [ 50 ] Quesnel was approached by the accountant of an investment club. He would never meet with the managers of this club.

Quesnel knew the role that was expected of him and of NBF, which was to enable third parties to invest their pension funds in a high-risk investment. Quesnel knew that without the participation of a financial institution, transfers to an investment club would be impossible. [ 51 ] Quesnel was not unaware of this perilous situation. He visited a business in which the club intended to invest. He noted the level of risk and said he would never encourage his clients to invest in it. [ 52 ] Although this situation clearly called for extra caution on the dealer’s part, what did Quesnel do?

He did not meet with his client. He entrusted the account opening documents, the tax form and, particularly, the client form to the accountant Gagnon. He did not give Gagnon any instructions. According to Quesnel’s testimony, it is not known who completed the documents. Quesnel entrusted to third parties, who were not securities dealers, the task of completing the assessment form that would have enabled him to know his client. He took no steps for his client to receive relevant information or sufficient explanations on the documents to be signed. [ 53 ] This was not without consequence.

Laberge’s signature was forged on two of the four documents (D-1 and D-2). The tax form was not introduced into evidence. The client form does not have to be signed by the client. [ 54 ] In this case, the client form called for great caution. Quesnel does not know who completed the document concerning the risk factors. It is not he who did this assessment. Quesnel, according to his version, simply called Laberge to make sure the nominative information on the client form was accurate and to ask Laberge two questions to assess his investment knowledge.

[ 55 ] The client form shows that Laberge was prepared to invest almost half of his assets and his entire pension fund in a high-risk investment.

In the context of this case, this required that a prudent and diligent dealer at least meet with his client to explain to him the ins and outs of the investment and to make sure the client understood the documents he was signing. [ 56 ] Not only did Quesnel not do this, but by entrusting the financial institution's documents to unknown third parties, he allowed his client to be unduly reassured by these third parties, who seemed to be acting for the financial institution. They (the third parties) had in their possession the financial institution’s documents, including the client form.

Should we be surprised that Laberge said he was reassured by NBF’s involvement and reputation and by the words spoken by these persons, who said they worked with NBF? [ 57 ] But there is more. Some time after the investment was made, Quesnel, according to his version of the facts, had reasons to be concerned about the turn of events. He questioned Gagnon to no avail. What did he do? Nothing. For almost five years, he did not contact Laberge. [2] However, Laberge did periodically receive the NBF

summary of his portfolio which gave him the "market value" or “book value” of his investments in the CT and HT clubs, until they fell to zero at the end of 2005. [ 58 ] I see no error in the judgment holding the appellants responsible. The transaction made by Quesnel and NBF in this case, while not illegal, was [ translation ] “uncommon”, as Quesnel put it. However, it called for extra caution on the part of those responsible for protecting investors.

In this regard, the appellants were remiss. [ 59 ] In their third ground, the appellants submit that the Superior Court judge erred in excluding the exclusion of liability clauses signed by Laberge for their benefit. [ 60 ] The uncontradicted evidence shows that Laberge did not read the documents before signing them.

Had he read them, he would have understood them. [ 61 ] The prevailing case law considers failure to read a document before signing it an inexcusable error. [3] This is of course a general rule whose application may vary according to the particular facts of a case. [ 62 ] We must analyze this ground in two steps. On two separate occasions, Laberge signed documents that contained exclusion of liability clauses. The first series of documents was signed in the spring of 2000. The two documents invoked by the appellants are D-2 and D-4. On the first document, Laberge’s signature is forged.

Under no circumstance is this document enforceable against him. In the second case (D-4), the exclusion of liability clause is not explicit. It is a directive to the trustee (NBF). The text mentions that [translation] “this directive gives you full and valid authority to proceed with the transaction and releases you from any liability…”. Without deciding this question, it does not appear obvious to me that this text would relieve the appellants of liability.

Be that as it may, other reasons prompt me to reject this ground in respect of the documents of spring 2000 for the investment of $50,000. [ 63 ] Laberge signed this first series of documents, which according to the representations made to him, were for the sole purpose of transferring his pension fund from Scotia Bank to “National Bank”.

This uncontradicted version put forward by Laberge was accepted by the Superior Court judge. [ 64 ] Thus, the false representations made to Laberge by those charged with completing Quesnel’s documents mitigate, if not extinguish, Laberge’s responsibility to inform himself. [4] Consequently, considering all the circumstances of the case, we cannot conclude that an inexcusable error was made here. [ 65 ] The situation is different for the documents signed in autumn 2000 for the second investment of $25,000.

At that time, Laberge had received periodic statements from NBF showing that his pension fund was held by NBF. Consequently, the reason given (the transfer of the pension fund) for the signing of the first documents no longer held. In addition, as he himself acknowledged at the hearing, the non-liability text was clear and understandable to him. He wrote: [ translation ] 4. I recognize that National Bank Financial Inc. has no business relationship with said company and does not guarantee the value or the quality of this investment; 5.

I acknowledge that I have not been solicited, directly or indirectly, by National Bank Financial Inc. concerning this investment, and I consequently release National Bank Financial Inc. from all responsibility, of any nature whatsoever, with regard to said investment. [ 66 ] With respect, the Superior Court judge should have distinguished between the different documents and concluded that an inexcusable error was made in respect of the second set of documents. [ 67 ] I would allow the appeal in part, each party to pay its costs, given the mitigated outcome of the appeal, and substitute $50,000 for $75,000 in paragraph [272] of the trial judgment.

ANDRÉ ROCHON J.A.