The Court of Appeal for Ontario has dismissed a client’s appeal of a decision that found in favour of Research Capital Corp.

On Aug. 24, 1996, Steven Nowack opened an account at Research Capital. In late August he shorted 3,000 shares of Dell Computer Corp. On Sept. 13, 1996, Ed Brounsuzian agreed to provide a guarantee of this account to secure any ultimate balance due to Research Capital. However, the price of Dell shares rose steadily, and by May 1997 when sufficient shares were finally purchased to cover the short position and the account was closed out, the loss position in the account was in excess of US$350,000.

At trial, the judge awarded Research Capital the full amount of the loss against Nowack as primary debtor and against Brounsuzian as guarantor, and he gave Research Capital its party and party costs of the action. Both defendants appealed that decision.

The appellants argued first that the trial judge erred in finding that Research Capital did not owe Brounsuzian a fiduciary duty in obtaining his guarantee. Secondly, they argue that, in any event, Research Capital breached the duty of full disclosure imposed on it by the law of guarantee.

The appeal court said that, “absent a manifest error”, the finding of a fiduciary relationship is for the trial judge. “Here the trial judge carefully reviewed those circumstances and found none of the indicia of vulnerability that characterized a fiduciary relationship. In our view, he made no error in doing so and we would not interfere with his conclusion.”

The appeal court also found that the trial judge did not err in declining to find that there was material nondisclosure by Research in obtaining of the guarantee. “We would dismiss the appeal with costs fixed on a partial indemnity basis at $10,000 to be paid jointly and severally by the two appellants,” the court ruled.