Andrews et al. v. Keybase Financial Group Inc. et al., (2015) 355 N.S.R.(2d) 184 (CA)

• Judge: Fichaud, J.A.
• Court: Court of Appeal of Nova Scotia (Canada)
• Case Date: January 22, 2015
• Jurisdiction: Nova Scotia
• Citations: (2015), 355 N.S.R.(2d) 184 (CA);2015 NSCA 9

Andrews v. Keybase Financial (2015), 355 N.S.R.(2d) 184 (CA);

    1123 A.P.R. 184

MLB headnote and full text

Temp. Cite: [2015] N.S.R.(2d) TBEd. JA.052

Global Maxfin Investments Inc. (appellant) v. Charles Raymond Michael Crowell, Darlene Joyce Crowell, Jeffrey H. Phillips and Denise Kowalski-Phillips, Wilma Lee Shane and Wilma Lee Shane as Administrator of the Estate of Ruth Shane, and Keybase Financial Group Inc. (respondents)

(CA 432561)

Keybase Financial Group Inc. (appellant) v. Martin Douglas Andrews, Estate of Sheila Rebecca Andrews, David Bateman, Sharleen Bateman, Estate of John Cameron, Estate of Linda Cameron, Charles Raymond Michael Crowell, Darlene Joyce Crowell, Jared Raymond Phillips, Becky Lynn Waterfield, Jeffrey H. Phillips, Denise Kowalski-Phillips, James Edward Maxwell Ramsay, Lisa Elayne Matheson, Estate of Ruth Shane, Wilma Lee Shane, Janice C. Verney, Estate of Robert Andrew Verney and Global Maxfin Investments Inc. (respondents)

(CA 432492; 2015 NSCA 9)

Indexed As: Andrews et al. v. Keybase Financial Group Inc. et al.

Nova Scotia Court of Appeal

Fichaud, J.A.

January 26, 2015.

Summary:

The 18 plaintiffs sued their former financial advisor (Allen) and, inter alia, the mutual fund dealerships he worked for (Keybase and Global). Allen implemented an unsuitable leveraged investment strategy, financed by fraudulently obtaining substantial loans which the plaintiffs were unqualified for, leaving them with heavy financial losses following the 2008 market downturn. The plaintiffs retained their investments, after Allen was terminated and before the market downturn, after being advised by other Keybase personnel. Claims against Allen were discontinued, as he was disciplined by the Securities Commission, faced personal bankruptcy, and was imprisoned for associated criminal convictions. The remaining defendants (Keybase and Global) admitted vicarious liability for compensable pecuniary losses caused by Allen's wrongdoing between April 2005 and August 2007 and that they owed an ongoing fiduciary duty to the plaintiffs. All admissions were subject to proof of the pecuniary losses and the issues of mitigation and contributory negligence. The main issue at trial was whether the plaintiffs, who retained their investments after the fraud, but before the market downturn, failed to mitigate their losses by selling their investments and paying down the loans. The defendants argued that by failing to sell their investments within a reasonable mitigation period (sometime before the end of 2007), the plaintiffs accepted the risk in keeping their investments, making any losses since that time their own responsibility. The plaintiffs argued that their losses should be valued as of the date of trial (no failure to mitigate). The plaintiffs also claimed damages for mental distress, aggravated damages and punitive damages. As against one of the two defendants (Keybase), the plaintiffs sought disgorgement of profits.

The Nova Scotia Supreme Court, in a judgment reported (2014), 340 N.S.R.(2d) 239; 1077 A.P.R. 239, allowed the action. Keybase failed to properly inform or assist the plaintiffs in extricating themselves from the fiasco caused by Allen's egregious misconduct. As well as being vicariously liable for Allen's fraud, the defendants breached their fiduciary duty by not acting in the best interests of the plaintiffs. They were also liable directly for negligent supervision of Allen. The plaintiffs did not fail to mitigate their losses by retaining their investments before the end of 2007 (before market downturn). The defendants did not recommend selling or offer financial assistance with the penalties the plaintiffs would incur for early withdrawal from their plans. The defendants actually enticed the plaintiffs to retain their investments. The plaintiffs were not at fault for not selling. Accordingly, damages for the plaintiffs' losses were to be calculated as of the date of trial, not at some point at the end of 2007. Each of the 14 surviving plaintiffs was awarded $7,500 damages for mental distress. Aggravated damages were not awarded, as they would be duplicative. Although punitive damages may have been justified against Allen personally (no longer a defendant), the defendants' misconduct was not sufficiently outrageous to justify punitive damages against them. Finally, disgorgement of profits was ordered. Pecuniary damages were left to be agreed upon based on a methodology agreed to between the parties. Agreement could not be reached.

The Nova Scotia Supreme Court, in a judgment reported (2014), 349 N.S.R.(2d) 1; 1101 A.P.R. 1, awarded the plaintiffs a total of $1,239,298 pecuniary damages, accepting each loss established in the plaintiffs' experts reports. Since costs under the Tariff would not be sufficient to provide the successful plaintiffs with substantial contribution, the court awarded lump sum costs of $310,000 to the plaintiffs in one bill of costs. The court awarded the plaintiffs $120,000 in disbursements. Keybase and Global appealed, challenging the assessment of damages and the treatment of mitigation and contributory negligence. The plaintiffs cross-appealed the quantum of general damages. A number of other investors, who personally or by representative action either sued or intended to sue Keybase and Global, applied under rule 90.19 to intervene in the appeal.

The Nova Scotia Court of Appeal, per Fichaud, J.A., dismissed the applications.

Practice - Topic 685

Parties - Adding or substituting parties - Intervenors - On appeal - Two mutual fund dealers (Keybase and Global) were found liable to 18 plaintiff investors for the fraudulent dealings of an investment advisor who worked for them - The issue at trial was damages, including the issue of the plaintiffs' duty to mitigate - Keybase and Global appealed, challenging the assessment of damages and the treatment of mitigation and contributory negligence - The plaintiffs cross-appealed the quantum of general damages - A number of other investors, who personally or by representative action either sued or intended to sue Keybase and Global, applied under rule 90.19 to intervene in the appeal - The Nova Scotia Court of Appeal, per Fichaud, J.A., dismissed the applications - The other investors had to bring something additional to the appeal that the parties might not be able to supply - The appeals did not seek to change the law - The law in relation to fiduciary duties, mitigation and contributory negligence was well settled - The issues on appeal were particular to the parties, mostly notably whether each of them mitigated their losses.

Cases Noticed:

Southcott Estates Inc. v. Toronto Catholic District School Board, [2012] 2 S.C.R. 675; 435 N.R. 41, refd to [para. 11].

Placements Armand Laflamme Inc. v. Roy et al., [2000] 1 S.C.R. 638; 253 N.R. 155, refd to. [para. 11].

Laflamme v. Prudential-Bache Commodities Canada Ltd. - see Placements Armand Laflamme Inc. v. Roy et al

Hunt v. TD Securities Inc. et al. (2003), 175 O.A.C. 19 (C.A.), refd to. [para. 11].

Logan v. Workers' Compensation Appeals Tribunal (N.S.) et al., [2006] N.S.R.(2d) Uned. 5; 2006 NSCA 11, refd to. [para. 24].

A.B. v. Bragg Communications Inc. et al. (2010), 294 N.S.R.(2d) 203; 933 A.P.R. 203; 2010 NSCA 70, refd to. [para. 24].

Techhi Holdings Ltd. v. Merrill Lynch Canada Inc. et al., [2005] O.A.C. Uned. 98 (C.A.), refd to. [para. 27].

Statutes Noticed:

Civil Procedure Rules (N.S.), rule 90.19 [para. 23].

Rules of Civil Procedure (N.S.) - see Civil Procedure Rules (N.S.).

Rules of Court (N.S.) - see Civil Procedure Rules (N.S.).

Authors and Works Noticed:

Sopinka, John, and Gelowitz, Mark A., The Conduct of an Appeal (2nd Ed. 2000), pp. 255, 256 [para. 25].

Counsel:

Robert H. Pineo, Jeremy P. Smith and Michael P. Scott, for the intended intervenors (applicants);

Michael S. Ryan, Q.C., for Global Maxfin Investments Inc.;

Brian K. Awad, for Keybase Financial Group Inc.;

The other respondents not appearing.

These applications were heard on January 22, 2015, at Halifax, N.S., before Fichaud, J.A., of the Nova Scotia Court of Appeal, who delivered the following judgment on January 26, 2015.