Client too late in trying to sue brokerage, court rules

According to the court decision released on Dec. 28, 2012, while the mistake occurred back in 2006, the client didn’t bring his court action until November 2011, which is well beyond the statutory two-year limitation period.

The decision states Beaton argued that he didn’t really discover that he had a claim until the spring of 2010 when Scotia provided some additional information about the mistake, and so, the court action should be allowed to proceed.

However, the court sided with the firm, ruling that this new information revealed in 2010 really added nothing of substance. “The ‘2010 disclosures’ provided at best some additional information that supported Mr. Beaton’s original allegation that Scotia ‘botched’ the transfer (probably worse than he originally thought, in that it was now apparent that Scotia had an opportunity to prevent the error and failed to do so),” the decision states; but that additional information wasn’t required to make litigation a viable option, it found.

“In sum, I find that Mr. Beaton had enough factual information by the end of April 2007 to know that he had sustained a trading loss, that Scotia had caused or contributed to this loss, and that a legal proceeding was an appropriate means to remedy the matter,” the judge ruled; and so, the court granted Scotia’s motion to dismiss the case.

The decision indicates that the problem occurred when Beaton decided to transfer his stock holdings from RBC to Scotia. It states his holdings included about 98,000 shares of Northwest Airlines, but that he instructed that only 50,000 of the shares were to be moved, the rest were to stay in his RBC account so that he could sell them if necessary, as the stock was very volatile at the time. And, the decision notes that Beaton called the firm five times to ensure that only a partial transfer would take place; and yet, the firm still mistakenly transferred all the shares.

“As it happened, during the transfer process, the NWA share price spiked to an all-time high,” the decision states, but when Beaton tried to sell, there were no shares in his RBC account, and they hadn’t arrived at his Scotia account yet. “Thinking that the error was RBC’s, he left voicemails and emails with RBC but to no avail. The day went on, the share price plummeted, and Mr. Beaton lost some $76,000 because of his inability to trade the 48,000 shares at their peak,” the decision states.

The decision states that Beaton soon learned the mistake was by Scotia, not RBC. He complained, and Scotia offered $5,000 in compensation, even though it maintained no compensation was owed, as Beaton could have ordered Scotia to sell his shares.

Beaton then took his complaint to the Ombudsman for Banking Services and Investments (OBSI), which sided with the firm. He then complained to the Investment Dealers Association (now called the Investment Industry Regulatory Organization of Canada (IIROC)) and to the Ontario Securities Commission (OSC) to no avail, before finally turning to the courts.

At that point, it was too late, the court stated. “In my view, the root problem was Mr. Beaton’s genuine but misguided preoccupation about how the transfer error was made… Initially this line of inquiry made sense. Mr. Beaton had to know whether the mistake was RBC’s or Scotia’s. However, after Scotia admitted the error, and it did so on December 27, 2006, Mr. Beaton continued with the ‘how’ questions. This was, unfortunately, a time-consuming distraction,” the judge stated in the court’s decision. “Mr. Beaton eventually filed this lawsuit after his overtures to the OBSI, the IDA and the OSC had played out. Unfortunately, the two-year limitation period had long expired. Mr. Beaton simply waited too long, in part because he was preoccupied with the wrong question.”

The decision notes that the clock stops on limitation periods while an OBSI investigation is being carried out, but not while complaints to the IDA/IIROC, or the OSC, are being pursued.