An Ontario Court of Appeal has reversed a lower-court decision that found that a financial advisor was in a fiduciary relationship with a client with a non-discretionary acount.

An Ontario Superior court judge found TD Evergreen advisor Mark Schram, and his firm, liable for breach of fiduciary duty to clients Melville and Marion Hunt. TD Securities Inc., TD Financial Services and Mark Schram appealed the judgment, which ordered TDSI to pay $59,319, plus interest and costs.

The judgment flowed from a determination at trial that a fiduciary relationship existed between Schram and the Hunts, and the finding that Schram breached his fiduciary obligation through the unauthorized sale of BCE shares owned by the Hunts. TDSI was held vicariously liable for Schram’s conduct.

In reversing the decision, the appeal court ruled that a fiduciary relationship did not exist between the parties. It found that the relationship was merely contractual.

TD argued that no fiduciary relationship existed between Schram and the Hunts because the Hunts had a non-discretionary account. They contended that Melville Hunt is not unsophisticated and that he did not place complete trust and reliance in Schram, and was not vulnerable.

“I am of the view that the trial judge made a palpable and overriding error in concluding that Schram stood in a fiduciary relationship with the Hunts,” the Appeal Court judge said. “This clear error arose when he found that Schram had the discretion or power to unilaterally affect the Hunts’ interests. While Schram was in a position to be able to conduct an unauthorized sale of shares, this ability did not characterize the relationship between the parties — Schram was not authorized to act unilaterally and, with the sole exception of the unauthorized sale of the BCE shares, did not do so. Moreover, in making findings of vulnerability, trust and reliance, the trial judge appears to have misapplied the relevant legal principles.”

The Appeal Court said that Schram committed a breach of contract in selling the Hunts’ BCE shares without authorization, and that the Hunts are entitled to damages arising from the breach.

“As the price of BCE shares was found to have dropped in the two months following their sale, there was no loss in the value of the shares,” the court ruled. “The Hunts are to be compensated for the other losses that flowed directly from the breach, namely: capital gains tax paid on the sale of the BCE shares, transaction costs and commissions paid on the sale of the shares, transaction costs and commissions paid on the purchase of Chrysler and CIBC shares.”