Young Estate v. RBC Dominion Securities, an Ontario Superior
Court decision released on December 17, 2008, is a recent addition
to the jurisprudence arising out of the high tech crash, which
illustrates that this event continues to have legal repercussions
for financial institutions today, even years after it ended.
The plaintiffs, Murray Young ("Murray") and the estate
of his late mother, Dorothy Young ("Dorothy"), sued the
defendants, their former broker, David Houghton, and his employer,
RBC Dominion Securities, after Murray and Dorothy suffered
substantial losses from the plummeting value of their Nortel and
other high tech stocks. Mr. Houghton had originally completed his
clients' KYC forms in 1988. The plaintiffs claimed that Mr.
Houghton breached his duty of care to them by failing to know his
clients; update their KYC forms; recommend investments consistent
with their goals; readjust their investments to comply with these
goals; and give them appropriate cautionary advice regarding their
over-concentration in high tech stocks. In addition, the plaintiffs
claimed that RBC had not adequately supervised Mr. Houghton. The
Court found that Mr. Houghton had not breached his duty of care to
his clients and that he was more of an order-taker than a
fiduciary. He had served as their investment advisor and not as a
financial planner; both plaintiffs had non-discretionary investment
accounts; and Murray engaged in a number of unsolicited
transactions. Moreover, by the time that they began to invest in
high tech stocks, both plaintiffs were knowledgeable and
well-informed investors and Mr. Houghton communicated with and
advised them regularly — in particular, about the risks
associated with overconcentration in Nortel and other high tech
stocks. The Court rejected the plaintiffs' submission that
Murray was as an unsophisticated investor dependent on Mr.
Houghton. The Court likewise concluded that Dorothy was a tough and
thoughtful investor, despite her very advanced age. Thus, while the
portfolios of both plaintiffs were over-concentrated in high tech
stocks, the Court found that Mr. Houghton had indeed offered
appropriate cautionary advice to both plaintiffs and they had
simply not heeded his warnings.
Of note is the Court's treatment of entries in brokers'
electronic record-keeping systems. In line with other decisions,
the Court accepted these electronic notes as evidence of the fact
that Mr. Houghton had given the appropriate advice to his clients.
What was new was that the Court also recognized such entries as
"business records". Consistent with the Ontario Evidence
Act requirement for "business records", these electronic
notes were made in the ordinary course of business, regarding a
business transaction, occurrence or event, and were made at the
time of the transaction or shortly thereafter by someone with
knowledge of the transaction or event recorded. Accordingly, the
Court admitted Mr. Houghton's entries "as prima facie
proof" that he or other RBC employees had sent certain
information and documents to the Youngs, had taken certain actions
on their behalf, and had had certain conversations with them.
In future, this legal characterization of such entries should
make it easier for brokers to prove that they have fulfilled their
duties to their clients, and provide them with a strong incentive
to keep detailed electronic records of their interactions with
clients, especially those who have been unwilling to follow the
broker's advice. The Court further confirmed that while KYC
forms are important, and observed that the forms in this case had
not been updated, such non-compliance with industry standards or
regulations does not give rise to damages without proof that it has
caused the losses alleged. In this case, the failure to update KYCs
did not cause the losses. Moreover, Mr. Houghton was able to
establish, through other records, that he was familiar with his
clients, and in particular with their financial circumstances,
investment objectives and risk tolerances, and therefore "knew
his clients". This underlines the importance of a complete
documentary record of the relationship between broker and
In Irwin v. Alberta Veterinary Medical Association, 2015 ABCA 396, the Alberta Court of Appeal found that the "ABVMA" failed to afford procedural fairness to a veterinarian undergoing an incapacity assessment.
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