An Ontario investment holding company has won a judgment of more than $900,000 against Jones Heward Investment Counsel Inc., for reduced profits resulting from investing too heavily in cash.

The Ontario Superior Court of Justice on August 23 awarded $919,439 to a numbered company that was a personal holding company, for Jean Dupéré, a lawyer, and former president and CEO of LAB Chrysotile Inc. He died in 2002, before the case could be resolved.

Dupéré sought to recover damages from portfolio management firm Jones Heward and its chairman, Marshall Nicholishen. The action against Nicholishen was dismissed.

In 1993, Dupéré opened an account with Jones Heward.
From 1993 to 1998, he earned a profit on his invested funds of more than $8.2 million, the equivalent of an annual rate of return of approximately 10.7%.

The account was closed in 1998, and Dupéré withdrew approximately $28 million from the account. However, he was unhappy with the service he received, and in July 1999 filed suit against Jones Heward claiming $7 million in damages.

Dupéré alleged that Jones Heward had breached its duty toward him as a client resulting in his net profit being much less than it would otherwise have been. He alleged that Jones Heward purchased stocks for the account that it should not have made, and retained large sums of cash in the account for “extensive periods of time which ought to have been applied toward the purchase of corporate shares which would have generated a higher profit.”

These allegations were denied by the firm, which maintained it acted on the express oral instructions of Dupéré.

The court agreed with Jones Heward, concluding that it didn’t breach any of the legal duties alleged including its duties to act honestly and in good faith and without negligence.

However, the court also found that Jones Heward let too much cash accumulate, for too long. It found that the firm allowed accumulations of cash to remain in the plaintiff’s account in amounts far exceeding 8% of the total market value of the account, “the maximum that should reasonably be maintained in the absence of special circumstances which are not present in this case”.

Jones Heward said that Dupéré had instructed it to accumulate cash in the account because he anticipated the need for a large amount of cash being available to complete a transaction, which he expected to take place a short time later. However, the court stated it was “unlikely that Dupéré ever gave such instructions,” and said firm’s evidence on this point was “likely untrue”.

Instead, the court determined that the accumulation of cash in the account was likely the result of an oversight “which, in the circumstances, amounted to negligence and a breach of the agreement which required the defendant ‘to exercise due care’ as a condition of avoiding liability.”

The court set the damages of $919,439 based on a maximum acceptable retention of cash of 8% of the market value of Dupéré’s account and allowing for a reasonable time period of nine months to invest available cash.

Jones Heward won a counterclaim against Dupéré for unpaid management fees of $102,830, for services rendered during 1998.

In addition, a further award was made to Dupéré for his loss as a result of Jones Heward purchasing shares in Kazakhstan Minerals Corp. for his account. It was admitted that this was a mistake.