Andrews et al. v. Keybase Financial Group Inc. et al., (2014) 340 N.S.R.(2d) 239 (SC)

• Judge: Wright, J.
• Court: Supreme Court of Nova Scotia (Canada)
• Case Date: December 02, 2013
• Jurisdiction: Nova Scotia
• Citations: (2014), 340 N.S.R.(2d) 239 (SC);2014 NSSC 31

Andrews v. Keybase Financial (2014), 340 N.S.R.(2d) 239 (SC);

    1077 A.P.R. 239

MLB headnote and full text

Temp. Cite: [2014] N.S.R.(2d) TBEd. FE.019

Martin Douglas Andrews and the Estate of Sheila Rebecca Andrews (2010 Hfx No 339660), David Bateman and Sharleen Bateman (2011 Hfx No 343599), John Cameron and John Cameron as Executor of the Estate of Linda Cameron (Hfx No 300385), Charles Raymond Michael Crowell and Darlene Joyce Crowell (2011 Hfx No 343611), Jeffrey H. Phillips and Denise Kowalski-Phillips (2009 Hfx No 306313), Jared Raymond Phillips and Becky Lynn Waterfield (2010 Hfx No 327381), James Edward Maxwell Ramsay and Lisa Elayne Matheson (2010 Hfx No 343604), Wilma Lee Shane and Wilma Lee Shane as Administrator of the Estate of Ruth Shane (2009 Hfx No 316695) and Robert Andrew Verney and Janice C. Verney (2010 Hfx No 327213) (plaintiffs) v. Keybase Financial Group Inc. and Global Maxfin Investments Inc. (defendants)

(Hfx. No. 339660; 2014 NSSC 31)

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

Nova Scotia Supreme Court

Wright, J.

February 4, 2014.

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 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.

Contracts - Topic 4062

Remedies for breach - Accounting of profits (disgorgement) - When available or appropriate - [See Damages - Topic 1004 ].

Damages - Topic 905

Aggravation - General - Aggravated damages - Claim for - [See Damages - Topic 1004 ].

Damages - Topic 1004

Mitigation - General principles - What constitute reasonable remedial measures - The 18 plaintiffs sued their former financial advisor (Allen) and 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 - The defendants (Keybase and Global) admitted vicarious liability for compensable pecuniary losses caused by Allen's wrongdoing and that they owed an ongoing fiduciary duty to the plaintiffs - All admissions were subject to proof of the pecuniary losses and the issue of mitigation - The main issue at trial was whether the plaintiffs, who retained their investments, 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 allowed the action - Keybase failed to properly inform or assist the plaintiffs in extricating themselves from the fiasco caused by Allen's egregious misconduct - The defendants were vicariously liable for Allen's fraud, and directly liable for breach of fiduciary duty by not acting in the best interests of the plaintiffs and 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 - 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, as they all suffered emotional and psychological injury - 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 as against Keybase.

Damages - Topic 1316

Exemplary or punitive damages - Fraud - [See Damages - Topic 1004 ].

Damages - Topic 5706

Contracts - Breach of contract - Injured feelings or emotional upset - [See Damages - Topic 1004 ].

Equity - Topic 3719

Fiduciary or confidential relationships - Commercial relationships - Professional advisory relationships - [See Damages - Topic 1004 ].

Equity - Topic 3741

Fiduciary or confidential relationships - The investment counsellor-client relationship - General - [See Damages - Topic 1004 ].

Master and Servant - Topic 3701

Liability of master for acts of servant - Torts - Wilful acts - Fraud - [See Damages - Topic 1004 ].

Torts - Topic 2530

Vicarious liability - Master and servant - Employer - Liability for acts of employees - [See Damages - Topic 1004 ].

Torts - Topic 4117

Suppliers of services - Duties of suppliers - Duty of supervision - [See Damages - Topic 1004 ].

Cases Noticed:

Canson Enterprises Ltd. v. Boughton & Co. (1991), 131 N.R. 321; 6 B.C.A.C. 1; 13 W.A.C. 1 (S.C.C.), refd to. [para. 168].

Southcott Estates Inc. v. Toronto Catholic District School Board (2012), 435 N.R. 41; 2012 SCC 51, refd to. [para. 175].

Paniccia Estate et al. v. Toal (2012), 539 A.R. 349; 561 W.A.C. 349 (C.A.), refd to. [para. 176].

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

Placements Armand Laflamme Inc. v. Roy et al. (2000), 253 N.R. 155; 2000 SCC 26, refd to. [para. 177].

Hunt v. TD Securities Inc. et al. (2003), 175 O.A.C. 19 (C.A.), dist. [para. 177].

Fidler v. Sun Life Assurance Co. of Canada (2006), 350 N.R. 40; 227 B.C.A.C. 39; 374 W.A.C. 39; 2006 SCC 30, refd to. [para. 200].

Hadley v. Baxendale (1854), 9 Exch. 341; 156 E.R. 145, refd to. [para. 200].

Keays v. Honda Canada Inc. (2008), 376 N.R. 196; 239 O.A.C. 299; 2008 SCC 39, refd to. [para. 211].

Markarian et al. v. CIBC World Markets Inc., [2006] QCCS 3314, refd to. [para. 212].

Authors and Works Noticed:

Burns and Blom, Economic Interests in Canadian Tort Law (2009), p. 413 [para. 190].

Counsel:

Jamie MacGillivray, for the plaintiffs;

Brian Awad and David Moorhouse, for the defendants.

This action was heard on November 12-14, 18-21 and 25-28, and December 2, 2013, at Halifax, N.S., before Wright, J., of the Nova Scotia Supreme Court, who delivered the following judgment on February 4, 2014.