2013 QCCA 245, 2013 QCCA 245

Unofficial English Translation Mazzarolo c. BMO Nesbitt Burns ltée 2013 QCCA 245 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No. 500-09-019419-092 (500-17-016504-030) DATE: February 11, 2013 CORAM: THE HONOURABLE LORNE GIROUX, J.A. GUY GAGNON, J.A. JEAN BOUCHARD, J.A. IVONIS MAZZAROLO 177435 CANADA INC. IVMA HOLDINGS COMPANY LA COMPAGNIE DE GESTION IVMA LTÉE APPELLANTS - Plaintiffs v. BMO NESBITT BURNS LTD MICHAEL LAZARUS CLIFFORD ALBERT RESPONDENTS - Defendants JUDGMENT [ 1 ] THE COURT ; - On the appeal from a judgment rendered by the Superior Court (the Honourable Mr. Justice Joël A.

Silcoff), on January 30, 2009, that dismissed the appellants' action for damages of over $4 million; [ 2 ] For the reasons of Gagnon, J.A., with which Giroux and Bouchard, JJ.A. agree; [ 3 ] DISMISSES the appeal with costs. (

s) LORNE GIROUX, J.A. (

s) GUY GAGNON, J.A. (

s) JEAN BOUCHARD, J.A. Mtre Patrick Ouellet Woods For the appellants Mtre Max R. Bernard Heenan, Blaikie For the respondents Date of hearing: June 11, 2012 REASONS OF GAGNON, J.A.

[ 4 ] Ivonis Mazzarolo ("Mazzarolo") is the shareholder and president of the appellant corporations IVMA Holdings Company ("IVMA Holdings"), Compagnie de gestion IVMA ltée ("Gestion IVMA") and 177435 Canada Inc. ("177435"). Together, they are appealing from a judgment rendered by the Superior Court (the Honourable Mr. Justice Joël A.

Silcoff), [1] on January 30, 2009, that dismissed their action for damages of over $4 million. [ 5 ] Mazzarolo contends that, contrary to his instructions, representatives Michael Lazarus and Clifford Albert ("Lazarus and Albert"), along with their brokerage firm, BMO Nesbitt Burns Ltd ("Nesbitt Burns") (collectively, the "respondents"), did not abide by a $500 000 cap on capital gains in redeeming his mutual funds. He further argues that the transactions performed on behalf of 177435 were inconsistent with the growth portfolio presented to him on August 23, 2000.

Background [ 6 ] Mazzarolo was born in Italy in 1936. He emigrated to Canada at the age of twenty. He had little schooling. A hardworking, ingenious man, he made a name for himself in the manufacture of container lids of all types. Having an innate business sense, he founded several flourishing businesses that made him a wealthy man. [2] [ 7 ] He made $28 million on the 1997 sale of the company Heat-Seal. In the early 2000s, he assigned his interest in another of his companies for $4 million.

Despite those transactions, he remained involved in the business world, continuing to operate a prosperous company in Florida called M & N Plastic. His assets include several commercial buildings, which he holds through the company Mazziv Inc. His personal income for 1996 to 2002 varied between $800 000 and about $2 million. Early business relationship between Mazzarolo and Nesbitt Burns [ 8 ] A soliciting dealer put Mazzarolo in contact with Lazarus and Albert. A first meeting between the parties took place on April 26, 2000.

The investor was impressed by the young representatives' performance. [ 9 ] Although Mazzarolo was already in a business relationship with other brokerage firms, [3] he agreed to give the representatives his investment statements, and those of Gestion IVMA, [4] for analysis. [ 10 ] He said he was dissatisfied with the returns on his investments, hence his openness to a more profitable investment strategy. [ 11 ] On May 2, 2000, a second meeting was held where Lazarus and Albert explained to Mazzarolo that his investments overlapped needlessly, reducing their effectiveness accordingly.

Their analysis appealed to him, so that very day he decided to open accounts at Nesbitt Burns in his name and that of Gestion IVMA. [5] [ 12 ] Lazarus and Albert filled out the account opening forms. They indicated therein that Mazzarolo had limited investment knowledge. The client's growth objective was described as "aggressive growth". [ 13 ] To better ascertain the skills of the two representatives, Mazzarolo entrusted them with $250 000, which he called "play money". They were authorized to invest the sum as they saw fit.

If the results were conclusive, he would consider transferring a substantial portion of his portfolio to Nesbitt Burns. [ 14 ] In just three months, the investments proposed to Mazzarolo yielded him a return of over 20%. The initial favourable impression lasted until a meeting held on August 8, 2000, and even afterward. [ 15 ] In the meantime, on July 5, 2000, he decided to transfer to them his personal mutual fund units and those of Gestion IVMA.

However, it was agreed that no transactions would be carried out until the parties had agreed on an investment strategy. [ 16 ] The same day, Mazzarolo opened a third account, for the mutual fund units in his registered retirement savings plan ("RRSP"). [6] Although his knowledge was declared to be limited, the growth objective for the account was established as "growth". [ 17 ] On August 8, 2000, Lazarus and Albert presented an investment plan ("proposal of August 8") to their client. [7] They said that the new mutual funds selected had in the past yielded slightly higher returns than the funds he currently held and that acquiring them would be a more advantageous investment.

In short, the plan consisted in applying for redemption of Mazzarolo's mutual funds and reinvesting the proceeds in the mutual funds targeted by the proposal. [ 18 ] Wanting to depart from the status quo with a view to obtaining a better return on the financial markets, Mazzarolo accepted the proposal.

Because he claimed to be dissatisfied with the approximately 8% return on his previous investments, he made a point of telling the two representatives that he expected a performance of around 10% from the new investments. [ 19 ] He told the Court, however, that his acceptance was conditional on the generation of capital gains of no more than $250 000 per account—a maximum of $500 000—on the redemption of his mutual fund units. [ 20 ] To inform their client of the probable capital gains, Lazarus and Albert stated that they made certain verifications with the mutual fund companies prior to the meeting of August 8.

They reportedly told Mazzarolo at the time that the proposal was likely to generate a capital gain of up to $750 000. They also claim that the principal party concerned stated that he accepted that estimation because it was consistent with his own projections. From that moment on, they felt authorized to move on the investment plan presented. [ 21 ] Also on August 8, 2000, Mazzarolo opened a fourth account, this time in the name of 177435. [8] According to the form completed by Lazarus and Albert, their client had good investment knowledge. In addition, the form stated that the investor was

interested in investments focused on growth. [ 22 ] Lazarus and Albert justified the change in their evaluation of their client's knowledge by saying that they saw he had investor skills superior to those they had noted in their initial meeting. [ 23 ] On the afternoon of August 8, 90% of the mutual fund units held by Mazzarolo and Gestion IVMA were redeemed.

In accordance with the plan agreed by the parties, the money obtained was reinvested in the new mutual funds mentioned in the proposal. [ 24 ] In the following weeks, Mazzarolo transferred securities to the 177435 account, along with $3 million in cash holdings. [ 25 ] An investment plan for this company was also sent to Mazzarolo on August 23, 2000 (the "proposal of August 23"). [9] The parties met the next day to discuss the proposal. However, the evidence shows that their recollections of the meeting are different. [ 26 ] Mazzarolo contended that he accepted the investment plan that was presented.

Lazarus and Albert, on the other hand, testified that their proposal was rejected because it was not aggressive enough. Mazzarolo felt that the technology sector, which he saw as a promising area for investment, was given short shrift. He even hoped that he would be presented with a program providing for short-term transactions, including day trading. [ 27 ] Given their client's expectations, Lazarus and Albert did not deem it necessary to draw up a second proposal. They would henceforth merely recommend individual transactions. They claimed that this procedure suited Mazzarolo well.

He in turn did not hesitate to propose specific transactions to them. [ 28 ] Contrary to the provisions of the proposal of August 23, 2000, but in accordance with the respondents' contention that Mazzarolo wanted more investments in the new technology sector, investments in that sector of activity became substantial. As at December 31, 2000, they accounted for 61% of the 177435 portfolio, increasing to 66% as at April 30, 2001. Deterioration and end of the relationship between Mazzarolo and Nesbitt Burns [ 29 ] The fiscal year of Gestion IVMA and 177435 ended on August 31.

On September 19, 2000, Mazzarolo's assistant, Virginia Green, asked Lazarus and Albert to provide her with the gains and losses of the two companies for the previous fiscal year, for the purpose of drawing up the financial statements. [ 30 ] After making certain verifications with the mutual fund companies, Lazarus and Albert put Gestion IVMA's capital gains at approximately $600 000. Doubtful as to the accuracy of that evaluation, Virginia Green went over the calculations and set the company's capital gains at $1.1 million.

On being informed of the difference in the figures, the two representatives redid the exercise, arriving at a new figure of $900 000. In their view, the gap between that amount and the initial forecast was due to wrong information communicated by the mutual fund companies. [ 31 ] Gestion IVMA's capital gain was ultimately set at $1 112 219.

Mazzarolo's gains, initially at CAN$306 000 and US$80 000, were approximately CAN$1.25 million and US$252 000 respectively. [ 32 ] As of September 2000, relations between Mazzarolo and the respondents started to deteriorate and the amount of trading in the 177435 account began to decline. [ 33 ] Disappointed with the performance of his portfolios, which had generated a negative (unrealized) return of almost $1 million as at December 31, 2000, Mazzarolo demanded that the representatives send him weekly reports.

That monitoring tool was introduced on January 30, 2001. [ 34 ] On March 22, 2001, Mazzarolo met with Marc-André Lacaille ("Lacaille"), Lazarus and Albert's supervisor, to complain for the first time about the poor returns on his investments and the substantial capital gains on the redemption of his mutual fund units.

In addition, he contended that Lazarus and Albert had been given carte blanche to invest (that is, the right to effect discretionary trading) and that, despite that freedom, the performance of his portfolios was disappointing. [ 35 ] After obtaining confirmation from Lazarus and Albert as to the actual nature of the mandate entrusted to them, Lacaille pointed out to Mazzarolo that the two representatives had no discretionary authority relative to the 177435 brokerage account and that the reality in the field showed they had never done any discretionary trading.

He reminded Mazzarolo that he had authorized all of the transactions he was now complaining about. [ 36 ] Regarding the complaint about excessive capital gains, Lacaille merely reiterated Lazarus and Albert's position that the gap between the initial calculation and that which was given in the fall of 2000 was due to erroneous information received from the mutual fund companies. Since it was not part of their mandate to ensure the accuracy of the information obtained from the companies, which information they simply forwarded to their client, they cannot incur liability for that one-time assistance.

In addition, Lacaille told him that capital gains calculation was first and foremost Mazzarolo's responsibility. [ 37 ] On August 17, 2001, Mazzarolo notified Nesbitt Burns that it was to stop all trading in his accounts and requested that all of his investments be transferred to TD Evergreen. That decision marked the end of their business relationship. The judgment appealed from [ 38 ] An unhappy investor, Mazzarolo holds the respondents liable for his financial woes. The trial judge did not agree. [ 39 ] To begin with, it should be pointed out that the judge rejected Mazzarolo's version.

He did not believe Mazzarolo when he

affirmed that he had capped the capital gains on the redemption of his mutual fund units at $500 000. The judge found that condition to be unlikely, given the extended period during which Mazzarolo held his investments and the high return generated over the years. That an astute businessman could be unaware of that reality, which should in fact leap out at any investor, even a novice one, struck the judge as unreasonable. [ 40 ] Moreover, he accepted that it was not Lazarus and Albert's mandate to establish the precise amount of the capital gain on the redemption of the mutual fund units.

He added that, at the time, Mazzarolo had all of the information necessary to make such an analysis —information that he did not share with the representatives. [ 41 ] As regards 177435, the judge acknowledged that the evidence concerning the acceptance or not of the August 23 proposal was contradictory.

However, he preferred Lazarus and Albert's version that Mazzarolo did not agree to the proposal. [ 42 ] He then determined that all of the transactions in Mazzarolo's account had been approved by Mazzarolo himself and that none of them had since been repudiated. [ 43 ] He further found that the transactions were in keeping with the aggressive strategy sought by Mazzarolo.

Similarly, he mentioned that the latter never complained that his investments were inconsistent with the proposal presented to him, even though that was obviously so, based on the monthly investment statements and the confirmation slips sent to him after each transaction. [ 44 ] The judge concluded, on the basis of the expert report by Gilles Ouimet, [10] that the investment objectives stated in the various account opening forms signed by Mazzarolo were met, and that Lazarus and Albert acted with all the prudence and diligence required in the circumstances.

Ultimately, the judge opined that the respondents were not responsible for the financial mess the appellants found themselves in. Issues [ 45 ] The appellants allege, first, that the trial judge incorrectly assessed the evidence relative to the proposal of August 8, 2000 and, second, that he wrongly rejected their contention that a $250 000 cap per account had been imposed on the representatives.

They further say he erroneously refused to acknowledge a causal connection between the fault alleged against the respondents and the damages claimed. [ 46 ] Regarding the assessment of damages, which, in the appellants' view, stem from the fault committed in implementing the proposal of August 8, they submit that the judge should not have taken into account in his analysis the capital losses sustained by Mazzarolo for the years following the end of his business relationship with the respondents.

They also contend that the judge neglected to factor in the weak performance of Mazzarolo's and Gestion IVMA's portfolios further to the implementation of the August 8 investment strategy. [ 47 ] Respecting the proposal of August 23, the appellants make five allegations, which can be summarized as follows: - the judge's erroneous characterization of the mandate accepted by the respondents; - the investor skills wrongly attributed to Mazzarolo by the judge; - the judge's erroneous finding that Mazzarolo had rejected the proposal of August 23; - the judge's erroneous finding that the investment objectives of the 177435 account were met; and - the judge's refusal to factor the average return of the various market indexes into the assessment of damages.

Analysis [ 48 ] The grounds for appeal consist essentially in allegations that the judge incorrectly assessed the evidence submitted to him. The contention that the judge neglected to take into account Lazarus and Albert's duty to warn their client is the sole error in law alleged in the notice of appeal.

Here, too, the weight of that argument is largely based on the trial judge's discretionary power. [ 49 ] Because of the trial judge's privileged position, it is trite law that his or her findings of fact must inspire great restraint in the reviewing court, whose mission is not to reconsider the evidence, unless it can be shown that the latter "reasonably could not result in justifying the conclusion of the trial judge". [11] [ 50 ] This rule of restraint has been reiterated many times in one form or another over the years.

The following passage from CHSLD Christ-Roy is a good illustration of begging the question: [TRADUCTION] [55] Where somewhat complex evidence is open to

interpretation and requires that the trial judge examine individually and then as a whole multiple elements that, in some instances, diverge from or contradict one another, it is not enough in appeal to select everything that could have been interpreted otherwise, to the exclusion of the rest of the evidence, to reiterate a premise held to be unfounded by the trial judge . An error in the determination of a disputed fact is palpable only if its obviousness or immediacy is clear on re-examination of the relevant part of the evidence and the disputed fact thus gives rise to a different determination .

An error is overriding only if it deprives the impugned judgment of a necessary factual basis, thereby skewing the conclusions of the decision rendered in first instance and, as a result, commanding appellate intervention with respect to the conclusions. Nowhere is this question, although an important one

in appeal, addressed by the private appellants under agreement, according to which it seems that all errors or allegations of error are created equal.

It was their responsibility to specifically identify and clearly set forth in their factum that which constituted such a weakness in the judgment , which they did not do. [12] [Emphasis added.] [ 51 ] I will now examine the issues with this criterion for intervention in mind. [ 52 ] Before undertaking the analysis per se, I would point out that neither the appellants' factum nor their notice of appeal discusses the judge's finding regarding dealer members' obligations set forth in "Policy No. 2 – Minimum Standards for Retail Account Supervision" of the Investment Dealers Association of Canada. [13] Since this question did not give rise to a ground of appeal, I need not address it except to say that debate regarding Nesbitt Burns' duty of supervision is moot, given my conclusion regarding the liability of the representatives. (

I) The proposal of August 8 and the capital gains issue [ 53 ] The appellants' position concerning this first ground of appeal is straightforward.

They contend that the judge should have accepted Mazzarolo's affirmation that he imposed on the two representatives the obligation to cap capital gains on the redemption of his mutual funds at $250 000 per account. [ 54 ] Mazzarolo also contests the representatives' claim that they informed him that redeeming his mutual fund units would generate a capital gain of roughly $750 000; he also denies concurring with that estimation. [ 55 ] The appellants submit that the judge's error in assessing these issues stemmed from his misunderstanding of the actual sequence of events prior to the redemption of the mutual fund units. [ 56 ] They argue that the implementation of the redemption proposal just hours after the presentation made to Mazzarolo did not leave Lazarus and Albert enough time to seriously quantify the capital gain that would be generated by the planned transactions.

In their view, this is all the more true in that, prior to the meeting of August 8, the two representatives did not know which funds they would be authorized to trade. Let us consider this. [ 57 ] The parties agree that no transactions were to take place before Mazzarolo's approval of the August 8 proposal. It is also admitted that, on the afternoon of the same day, Lazarus and Albert undertook to redeem mutual fund units.

However, the judge noted that the information on capital gains was given to Mazzarolo at a subsequent meeting. [ 58 ] The appellants rightly see an apparent contradiction in the chronological order of the events reported by the judge.

It is impossible to determine that the transactions of August 8, 2000, were part of an investment plan agreed to by Mazzarolo and, in the same breath, maintain that he was given the capital gains estimation at a subsequent meeting. [14] [ 59 ] It is noteworthy, however, that the premise of a capital gains cap was not accepted by the judge, who preferred the version of the two representatives in that regard. [ 60 ] Lazarus and Albert testified that at the prior meeting, on May 2, Mazzarolo expressed his preoccupation with the capital gain likely to result from the planned transactions.

He voiced the same preoccupation during a phone conversation some time between May 2 and July 5, 2000. It was also a topic of discussion at the meeting of July 5, 2000. [ 61 ] Very much aware of their client's concerns on that score, and even though the capital gain calculation was not part of their mandate, the two representatives said that they did some verifying in preparation for the meeting of August 8, 2000.

Armed with the information obtained from the mutual fund companies in which Mazzarolo held units, they were able to inform him that the capital gain would likely be $750 000. [ 62 ] According to them, Mazzarolo was not surprised by that figure, because it was consistent with his own estimates. They added that this concordance was the only reason why the implementation of the proposal was authorized. [ 63 ] The representatives' version, which the judge chose to believe, is confirmed in part by independent evidence.

It is not contested that, as of May 2, 2000, they already had a precise idea of the contents of the Mazzarolo and Gestion IVMA portfolios. Their opinion on these investments clearly indicated that the investments would have to be reorganized to correct the problems observed. [ 64 ] The meeting of July 5, 2000 also enabled Lazarus and Albert to form a good idea of the securities they would likely be able to trade, which gave them ample time—well before the meeting of August 8, 2000—to look into the potential capital gains on the eventual redemption of these securities.

Thus, as of the moment Mazzarolo told them that their estimate coincided with his own, there was nothing else, in theory, that stood in the way of implementing the proposal. [ 65 ] To explain his lack of reaction following the massive redemption of his mutual fund units, Mazzarolo contended that he assumed the capital gain on the transactions had been checked beforehand. That raises a question: How could he so infer when, in appeal, he argues that the representatives did not have enough time to make that verification?

Clearly, these are two assertions that are hard to reconcile. [ 66 ] However, the appellants tried to get around the effects of the evidence admitted, by attacking the respondents' credibility. They submit that Lazarus and Albert's affirmation that the capital gains calculation was done prior to the meeting of August 8, 2000, is contradicted by an allegation in the respondents' defence [15] suggesting that the checking was not done until after that meeting. [ 67 ] That apparent inconsistency is of no consequence. Far from changing their version ex post facto , Lazarus and Albert, both in

their examination on discovery and during the trial, contended that they discussed the capital gains issue with Mazzarolo before the August 8, 2000, meeting; they never contradicted themselves in that regard. What the appellants see as a flagrant contradiction is merely a simple error in the formulation of a defence allegation; the clarifications made at the trial with respect to the allegation do not lead to the conclusion that a fundamental difference exists.

That was in fact the judge's finding. [ 68 ] Consequently, I do not detect any error in the following findings of the trial judge: [150] The Court, having heard the parties and examined the evidence, believes that Mazzarolo did initially ask Lazarus and Albert whether they could verify the adjusted cost base of each of the mutual funds with the companies concerned.

However, the Court similarly believes that Lazarus and Albert advised him that prior to the transfer into BMO/NB of each of the funds, not being brokers of record, they had no standing to make such enquiries and that even after the transfer, the most reliable source would be his, Mazzarolo’s, own records. The Court accepts that they would have suggested he consult the records available in his own offices and that they offered to assist them in the exercise.

It is consistent with the credible evidence that Mazzarolo declined the offer of help saying he would have his employees attend to same. [ sic ] [ 69 ] There are other considerations. [ 70 ] Mazzarolo acknowledges that he alone had reliable sources enabling him to accurately quantify the capital gains associated with the disposition of his mutual funds.

His claim for damages based on his own transaction receipts is the best evidence of the accuracy of that information. [ 71 ] The above observation also supports the idea that Lazarus and Albert's efforts were intended solely to obtain for Mazzarolo information in addition to the first-hand information he already had.

In the circumstances, having decided to keep for his own exclusive use the only conclusive information available, he cannot blame the representatives for providing him with information he had to know was an approximation given the source. [ 72 ] Moreover, the redemption of a substantial portion of the mutual fund units, as provided for in the proposal of August 8, 2000, could not reasonably have occurred within the narrow parameters supposedly set by Mazzarolo.

That was obvious, given the age of the investments and the returns they generated over the years, even for an inexperienced investor. [ 73 ] The evidence also established that Mazzarolo already had substantial experience with capital gains.

In 1999, fearing the impact of the Y2K millennium bug on his finances, Mazzarolo, despite the opinion of his experts at the time, decided to redeem a significant quantity of his mutual fund units, thereby accepting to incur a capital gain of just over $1 million. [16] One year later, given that experience, he could not underestimate the tax consequences associated with such major transactions. [ 74 ] In fact, the absence of any mention of capital gains in the proposal of August 8 speaks volumes.

If Mazzarolo believed that the calculation of the gains was primarily the responsibility of the two representatives, it is surprising that he did not request in the proposal that the gains be quantified. [ 75 ] Lastly, it was not until October of 2001 that Mazzarolo first claimed that he had imposed compliance with a capital gains cap on the representatives.

That was one year after he learned that the cap had been exceeded. [ 76 ] As an alternative argument, the appellants invite the Court to rule in favour of shared liability, on the ground that Lazarus and Albert's estimation was so much lower than the actual result that they see it as a contributing fault. [ 77 ] That contention must be rejected.

I have trouble seeing how the respondents could be held liable for providing Mazzarolo with information that, according to the evidence adduced, matched his own figures. [ 78 ] In short, regarding this first issue, I find that it has not been established that the trial judge made an error that was so overriding it adversely affected the syllogism having led to the impugned conclusion.

Given this conclusion, there is no need to rule on the issue of the assessment of damages relative to the proposal of August 8, 2000. (II) The proposal of August 23, 2000, and the transactions in the 177435 account [ 79 ] Mazzarolo complained that the proposal of August 23, 2000, was not complied with and contends that Lazarus and Albert de facto acted as if they had a discretionary mandate.

He submits that, in any case, according to the account opening form, the transactions at issue were inconsistent with his investor profile. [ 80 ] There is no doubt that, for the most part, the proposal of August 23, 2000, was not acted on.

I say "for the most part" because the evidence nonetheless established that some 15 securities identified in the proposal were acquired on behalf of 177435. [ 81 ] I will now take a closer look at the appellants' argument that the proposal of August 23 was accepted. – Lazarus and Albert's mandate [ 82 ] In my opinion, Mazzarolo contradicted himself by affirming that he agreed to the proposal of August 23, while asserting that the representatives had the necessary freedom to trade in his best interests.

If, as he claims, the proposal had been agreed to, it would have effectively set the parameters of the mandate entrusted to the representatives, as in the case of the August 8 proposal. However, the very idea of an agreement on predetermined securities precludes the premise that the representatives had decision-making autonomy. [ 83 ] At any rate, neither of these two premises (agreement to the proposal of August 23, and a discretionary mandate) is borne out by

the evidence admitted. For the following reasons, I believe that the judge rightly ruled that the August 23 proposal was rejected and that the trading after that date was authorized or ratified by the principal party involved. [ 84 ] Mazzarolo contends that Lazarus and Albert traded without consulting him.

He cited as evidence 84 transactions made while he was out of the country and, according to him, could not be reached by the representatives. [ 85 ] The representatives responded that, during his trips, Mazzarolo regularly took the initiative of calling them and that they themselves could reach him through his assistant, Virginia Green, or directly on his cell phone.

That was the version of the facts accepted by the judge; there is no reason to revisit those findings. [ 86 ] Moreover, on that aspect of the evidence, Mazzarolo's credibility was undermined when he affirmed before the Court that he did not have a cell phone.

His assistant testified to the contrary, and went so far as to say that she gave her boss's mobile number to Lazarus and Albert. [ 87 ] Now what is to be made of the argument regarding the existence of a discretionary management mandate? [ 88 ] The judge rightly pointed out that there was no written evidence of Mazzarolo's consent to discretionary management of the 177435 account. Instead, the evidence shows that Lazarus and Albert were given a mandate to act as investment advisors, not as portfolio managers or, even less so, as tax advisors.

In fact, the rules in effect at the time prohibited them from trading autonomously, under penalty of losing their right to practise. [ 89 ] However, Mazzarolo alleges that, according to the investment statements, most of the trades were solicited, wrongly implying that the two representatives acted independently. That

interpretation is based on an erroneous understanding of the role of a representative having a mandate to act as a financial advisor. [ 90 ] The very nature of such a mandate means that the representative has a duty to inform and propose trades consistent with the client's investor profile. Accordingly, the representative does not in any case take the initiative with respect to the trade and merely abides by the investor's choice.

Those are not the characteristics specific to "discretionary management". [ 91 ] Professor Raymonde Crête defined a discretionary management mandate, which overlaps the notion of "authorized management", "independent management" and "managed account": [TRANSLATION] A portfolio management contract under which the intermediary has broad powers to choose and trade without having to obtain prior consent from the client . [17] [Emphasis added.] [ 92 ] Contrary to the rules governing an independent management mandate, the evidence shows that Mazzarolo gave prior consent to the stock exchange transactions for which the two representatives are reproached.

Lazarus and Albert explained to the trial judge that, in their view, an unsolicited transaction became a solicited one as soon as the client asked for their opinion before going through with a stock exchange transaction. So it was that, when Mazzarolo indicated the areas in which he wished to invest or targeted a particular security, research was done and a recommendation was made.

Once the client agreed to the transaction, it became a solicited trade. [ 93 ] Although the words "solicited" and "unsolicited" have been replaced with "recommended" and "not recommended" in the new technical language of securities trading, the principle remains the same: a recommended transaction includes the obligation to verify that the transaction is consistent with the client's interests.

A transaction may be considered to be not recommended only in the absence of any recommendation and in accordance with the specific conditions provided for in the Rules. [18] In the present case, the explanations given to the judge were in keeping with the regulatory obligations governing the activities of the two representatives. – Ratification of the transactions at issue [ 94 ] Even accepting that Lazarus and Albert made unauthorized transactions, which, I repeat, was a proposition rejected by the judge, the argument does nothing to advance the appellants' case.

Allow me to explain. [ 95 ] During his business relationship with the respondents, Mazzarolo never challenged the transactions said to have been made without his consent. The respondents contend that this attitude indicates his approval of them. I agree. [ 96 ] In securities matters, the rule regarding the ratification of transactions not authorized by a client is stated as follows by authors Baudouin and Deslauriers: [TRANSLATION] 2-205 – . . . The courts in fact closely examine the possibility of ratification of the transaction by the client, before holding the dealer liable. Furthermore, the requirement in

section 162 of the Securities Act to send confirmation slips and monthly statements to clients facilitates evidence in cases where the client did not repudiate the transactions at issue in a timely manner. . . . 2-205 – Evidence – If there is a field in which the adage " time is of the essence " applies, securities transactions is clearly it. Since information circulates instantaneously, decisions must be taken very quickly. Accordingly, purchase or sale orders are customarily given verbally and confirmed in writing in the days following the transaction.

Obviously, the process generates potential conflicts, as it can be tempting for clients to repudiate after the fact a transaction that did not perform as anticipated. . . . Henceforth, the act considered to be

mixed between the client and dealer is subject to the general rules of evidence in the Civil Code . The courts in fact closely examine the possibility that the transaction was ratified by the client , before holding the dealer liable. Furthermore, the requirement in

section 162 of the Securities Act to send confirmation slips and monthly statements to clients facilitates evidence in cases where the client did not repudiate the transactions in issue in a timely manner. Conversely, if the slips are not clear or were not understood, or if the client rapidly complains that the transaction was not authorized, the client is not deemed to have ratified it. In this regard, ambiguous actions by the client are not considered to constitute ratification . [19] [Emphasis added.] [ 97 ] On the same theme, Professor Crête wrote: [ TRANSLATION] 81. . . .

As part of a portfolio management service, be it discretionary or supervised in nature, the professional may expect the client to take cognizance of the statements or management reports it receives periodically. This monitoring can help the client find errors or irregularities and, where necessary, demand that the professional change course. 82. . . . Similarly, if the client does not ask questions or complain after taking cognizance of the monthly statements sent by the financial intermediary, the latter can contend that the client, through its omission, implicitly ratified or agreed to the contested act.

Where a service requester alleges that a service provider made inappropriate investments resulting in substantial losses, the intermediary may also contend that the client, having been notified of the problem, should have taken the measures necessary to minimize the prejudice.

According to the general principles of liability, the victim of the consequences of a fault must take the measures necessary to ensure the prejudice is not aggravated. [20] [ 98 ] If, as stated by the above author, implicit ratification exists in portfolio management matters, it applies equally to the narrower mandate of financial advisors. [ 99 ] I note that the motion to institute proceedings does not contain a conclusion seeking the repudiation of the transactions alleged against the respondents; nor is there more information in the appellants' factum on the transactions to be declared null on the ground that Mazzarolo did not consent to them. [ 100 ] That said, the evidence shows that Mazzarolo received a confirmation slip after each stock exchange transaction.

He was also sent monthly statements and, as of January 2001, weekly reports. In addition to that information, Virginia Green drew up a monthly report for her boss carefully detailing all of the stock exchange transactions for the month. [ 101 ] Mazzarolo cannot argue that he was not interested in all this information, as an excuse for his passiveness, whereas he chose not to repudiate the transactions concerned. [ 102 ] In the present case, the judge could, on the basis of a simple presumption of fact, conclude that the transactions had been ratified.

That is a finding which, in principle, is outside the power of review of an appellate court: [TRANSLATION] [51] The notion of ratification raised by the appellant is of the same nature as the confirmation in

article 1423 C.C.Q . Rochon J.'s remarks on the evidence of tacit confirmation and the power of intervention of an appellate court on this issue in Fiducie canadienne italienne v. Folini also apply to ratification : [TRANSLATION] [28] A priori , a litigant may use any direct or indirect means of proof to prove the confirmation. In tacit confirmation matters, the proof will generally be indirect or by presumption of fact. Essentially, it is an induction mechanism by which the Court establishes a consequence that is known from an unknown fact (s. 2846 C.C.Q .).

Presumptions of fact are left to the sovereign discretion of the trial judge (s. 2849 C.C.Q.). Accordingly, absent a palpable and overriding error, intervention by an appellate court is not called for . [21] [Citations omitted.

Emphasis added.] [ 103 ] In short, even if some transactions were not authorized, Mazzarolo never expressed any reservations about them and conducted himself as if there was no grievance. [ 104 ] To conclude on this issue, I would add that, despite what Mazzarolo said was his profile, it was obvious just from reading his investment statements and confirmation slips that the bulk of the investments were inconsistent with the proposal of August 23, 2000, which he said he had agreed to and knew well because the contents had been explained to him.

Despite that knowledge, he never asked the representatives for explanations of what should have struck him as, at the least, an apparent anomaly. [ 105 ] A certain duty of diligence is required of investors, even neophytes, which leads me to reiterate the following: [TRANSLATION] [76] Investors, even ones who are new to the game, must also be expected to demonstrate ordinary prudence. They must make a point of taking cognizance of the information received from the representative of the unrestricted practice dealer, in order to make more informed choices.

They must also consider the statements and reports on the representative's and the dealer's management, in order to be able to react in a reasonable time, where necessary. In short, a reasonable investor must put "a minimum of effort into understanding" and cooperating. [22]

[References omitted.] – Mazzarolo's investor profile [ 106 ] Moreover, I acknowledge that the ratification of a transaction that does not fit the client's investor profile raises a different problem. On this point, Mazzarolo contends that he could not tell from the investment statements and confirmation slips that the investments at issue did not fit his investor profile. [ 107 ] In L aflamme v.

Prudential-Bache Commodities Ltd. , [23] the Supreme Court states that a contextual analysis is a good way to gauge the weight of the obligations of an unrestricted practice dealer (and the dealer's representative) with respect to the client. [ 108 ] In the judge's view, Mazzarolo "was and still is a sophisticated and astute business person having substantial experience in investment matters". [24] According to the judge, there was no real divide between Mazzarolo's investor profile and the risk relative to the investments in the 177435 account. [ 109 ] The contextual analysis, including Mazzarolo's investment experience, enabled the judge to make key findings on his investor skills and on his ability to form an opinion on whether or not to trade. [ 110 ] Mazzarolo's first investments dated back more than 30 years.

When he retained the services of Lazarus and Albert, he already had an ongoing business relationship with several dealers at once.

His investment experience included the use of various complex financial instruments, such as "T-bills, Money Market Mutual Funds, Bonds, GICs, Strip Bonds, Bond Mutual Funds, Common Stocks, Equity Mutual Funds, Instalment Receipts, Real Estate and Royalty Investment Trusts" and "New Issues/Initial Public Offerings". [ 111 ] The evidence also disclosed that Mazzarolo had at all times the services of an accountant (Paul Trudel), on whom he could count to advise him in his investment decisions. [ 112 ] In addition, he had years of business experience, marked by one success after another.

In short, the judge could easily find that Mazzarolo was not the vulnerable investor he claimed to be, and that he was not mystified by the securities market. [ 113 ] Moreover, nine account opening forms signed by Mazzarolo with various dealers, eight of which were dated between 1998 and 2000, were adduced in evidence before the judge. On three of the forms, Mazzarolo agreed to be characterized as a sophisticated investor. On two other forms, he declared that he had good investment knowledge. Three forms indicated that he had limited knowledge of the field. Only one considered him a novice.

In short, for the majority of the accounts opened with the various dealers he was doing business with at the time, he acknowledged that he had good to sophisticated investment knowledge. [ 114 ] In fact, Lazarus and Albert formed the same opinion during the period prior to the meeting of August 8, 2000, when they were able to learn more about their client as an investor.

In attributing good investor knowledge to Mazzarolo, not only did the investor profile reflect their own evaluation, but it also reflected Mazzarolo's evaluation of himself at the time he signed most of the account opening forms with his other dealers. [ 115 ] Another indication, this time of Mazzarolo's level of risk tolerance, is provided by the very nature of the 177435 account—a brokerage account for an investor seeking to engage in short-term speculation.

The rate of trading recorded in the account underscores that reality. [25] [ 116 ] Expert evidence was also adduced with respect to the appellant's investor skills, evaluated in terms of 177435's investment objectives. The judge accepted the expert opinion of Gilles Ouimet as the most probative. [26] Mr. Ouimet said that the transactions made by the representatives were consistent with Mazzarolo's investor profile. He wrote: [TRANSLATION] In conclusion, it is our opinion that Mr.

Mazzarolo is (and was in 2000) an astute client able to analyze the risks and benefits of an investment recommendation or an investment strategy, and that he had the financial means to assume significant financial risks relative to his assets with NB. He was, moreover, an aggressive investor who unfortunately lost a significant percentage of his capital at NB due to circumstances beyond the control of his securities advisors and of NB, and due to his investment strategy. We are also of the opinion that the securities advisors acted professionally in this case, and complied with securities regulations.

Furthermore, in our opinion, NB adequately supervised the securities advisors. [ 117 ] The evidence contained all of the elements necessary for the judge to be able to conclude that Mazzarolo had [TRANSLATION] "good" investment knowledge and that the investments made in the 177435 account were consistent with his objectives. [ 118 ] The appellants further contend that Lazarus and Albert committed an ethical fault by not updating the account opening forms signed by Mazzarolo on May 2, 2000, with a view to bringing them into line with their analysis of August 8, 2000. [ 119 ] Supposing that such a fault can be inferred from the evidence, the appellants have not shown a causal connection between that failure and the damages allegedly sustained.

Indicating on the forms of May 2 a lower level of knowledge than that which was ascribed to Mazzarolo on August 8 did not influence the transactions made in the 177435 account: [TRANSLATION] [74] A breach of a statutory or regulatory provision does not inevitably incur the dealer's liability. These various rules generally stipulate standards of prudence and diligence to guide dealers' conduct. However, to find a dealer liable, a causal connection must be established between the statutory or regulatory breach and the damages suffered. [27]

[References omitted.] CONCLUSION [ 120 ] The appellants want the Court to review all of the trial judge's findings, and to reject the facts not in their favour and accept only those that they believe best support their premise. This proposed selection of evidentiary elements is an exercise that does not lend itself well to an appeal. [ 121 ] In the present case, there was enough evidence for the judge to find that Mazzarolo had not capped the capital gains stemming from the implementation of the proposal of August 8.

The evidence also showed that the August 23 proposal had been rejected by Mazzarolo, who had instead chosen to trade more aggressively by authorizing each individual stock exchange transaction. [ 122 ] Contrary to his contention, Mazzarolo was not captive of Lazarus and Albert's advice, since his investor skills enabled him to accurately gauge the risk relative to the investments he approved in the 177435 account.

Lastly, it could be concluded, on the basis of the evidence, that the two representatives duly discharged their duty to advise their client. [ 123 ] Given the foregoing, there is no need for me to rule on the issue of the damages suffered in connection with the underperformance of the investments made on behalf of the appellants, in particular with respect to the legal principles that should guide the choice of analysis method. [ 124 ] For these reasons, I would dismiss the appeal with costs. (

s) GUY GAGNON, J.A. [3] As of 2009, under Regulation 31-103 respecting regulation requirements and exemptions , 25 September 2009 (Vol. 141, No. 38A) G.O.Q.2009.II.3309A,

Part 7, an unrestricted practice dealer is referred to as an “investment dealer”.