The Court of Appeal of Quebec has rendered a decision on the liability of securities dealers and investment advisors. In Mazzarolo v. BMO Nesbitt Burns ltée, 2013 QCCA 245, the Court reaffirmed the respective duties of investors, investment advisors and dealers, while reiterating the importance of differentiating the mandate of an investment advisor from that of a portfolio manager.
The plaintiff-appellant, Mr. Mazzarolo, had built a very successful business, despite having only a basic formal education. While he claimed to have limited knowledge of finance and investment matters in general, he nonetheless had over the years opened a number of investment accounts at several brokerage firms with significant amounts invested with each of them.
In the year 2000, Mazzarolo met the individual co-defendants Lazarus and Albert, who were relatively junior investment advisors at BMO Nesbitt Burns. After testing their performance with a limited investment, he entrusted them with more substantial amounts.
A few months later, Mazzarolo decided that the investments had failed to meet his expectations and he therefore filed a claim for the losses incurred against the individual advisors and BMO Nesbitt Burns. He also claimed that he had not understood nor accepted that his mutual fund portfolio be re-aligned, resulting in significant taxes on the realization of the capital gains already accrued. Finally, he claimed that certain trades had been done without his authorization. The total claims exceeded $4 million.
At trial before the Quebec Superior Court, the claims were all denied. The Court of Appeal re-examined the evidence and affirmed the trial judge's findings, while re-stating applicable principles of law.
A first point was Mazzarolo's claim that, he had set a $250,000 ceiling for capital gains to be realized in re-aligning each of his two mutual fund accounts. While the investment advisors attempted to determine the amount of taxable capital gains that would be generated, Mazzarolo possessed exact figures needed for such a calculation, but he failed to use them to generate an accurate picture of his tax liability. This claim was therefore rejected.
The defendants had been retained as investment advisors and not as discretionary traders. Yet, Mazzarolo claimed that some of the numerous transactions executed during the relatively brief period the parties were in contact had been done without his authorization. Both the trial judge and the Court of Appeal held that these transactions had been discussed between the parties and that Mazzarolo was aware that they were contemplated. Furthermore, even if the defendants had exceeded the limits of their mandate, the transactions were ratified by Mazzarolo since he had received all the confirmation slips and monthly statements and had never complained of unauthorized trades.
On the KYC Forms completed for and signed by Mazzarolo personally, he listed his investment knowledge as “limited” and his investment objectives as “aggressive growth”. Yet, as the trial judge found, Mazzarolo “was and still is a sophisticated and astute business person having substantial experience in investment matters”. He also had access to the services of competent advisors, such as his accountant. As a result, he could not claim to have been unaware of the risks inherent in an “aggressive growth” portfolio.
BMO Nesbitt Burns and the investment advisors were represented by Max Bernard and Karen Rogers from Heenan Blaikie LLP.
The plaintiffs were represented by Woods LLP, with a team comprising James Woods, Patrick Ouellet and Pierre Alexandre Viau.
The plaintiff-appellant, Mr. Mazzarolo, had built a very successful business, despite having only a basic formal education. While he claimed to have limited knowledge of finance and investment matters in general, he nonetheless had over the years opened a number of investment accounts at several brokerage firms with significant amounts invested with each of them.
In the year 2000, Mazzarolo met the individual co-defendants Lazarus and Albert, who were relatively junior investment advisors at BMO Nesbitt Burns. After testing their performance with a limited investment, he entrusted them with more substantial amounts.
A few months later, Mazzarolo decided that the investments had failed to meet his expectations and he therefore filed a claim for the losses incurred against the individual advisors and BMO Nesbitt Burns. He also claimed that he had not understood nor accepted that his mutual fund portfolio be re-aligned, resulting in significant taxes on the realization of the capital gains already accrued. Finally, he claimed that certain trades had been done without his authorization. The total claims exceeded $4 million.
At trial before the Quebec Superior Court, the claims were all denied. The Court of Appeal re-examined the evidence and affirmed the trial judge's findings, while re-stating applicable principles of law.
A first point was Mazzarolo's claim that, he had set a $250,000 ceiling for capital gains to be realized in re-aligning each of his two mutual fund accounts. While the investment advisors attempted to determine the amount of taxable capital gains that would be generated, Mazzarolo possessed exact figures needed for such a calculation, but he failed to use them to generate an accurate picture of his tax liability. This claim was therefore rejected.
The defendants had been retained as investment advisors and not as discretionary traders. Yet, Mazzarolo claimed that some of the numerous transactions executed during the relatively brief period the parties were in contact had been done without his authorization. Both the trial judge and the Court of Appeal held that these transactions had been discussed between the parties and that Mazzarolo was aware that they were contemplated. Furthermore, even if the defendants had exceeded the limits of their mandate, the transactions were ratified by Mazzarolo since he had received all the confirmation slips and monthly statements and had never complained of unauthorized trades.
On the KYC Forms completed for and signed by Mazzarolo personally, he listed his investment knowledge as “limited” and his investment objectives as “aggressive growth”. Yet, as the trial judge found, Mazzarolo “was and still is a sophisticated and astute business person having substantial experience in investment matters”. He also had access to the services of competent advisors, such as his accountant. As a result, he could not claim to have been unaware of the risks inherent in an “aggressive growth” portfolio.
BMO Nesbitt Burns and the investment advisors were represented by Max Bernard and Karen Rogers from Heenan Blaikie LLP.
The plaintiffs were represented by Woods LLP, with a team comprising James Woods, Patrick Ouellet and Pierre Alexandre Viau.
