The Supreme Court of Canada (SCC) has denied leave to appeal to a group of investors who sought recourse against financial firms that granted loans allowing them to buy mutual funds on margin.

The SCC dismissed the application for leave to appeal from the judgment of the Court of Appeal for Ontario with costs. The appellate decision upheld a lower court ruling dismissing the investors’ case in a summary judgment back in 2005.

The investors sought compensation from their financial advisors, investment dealers alleged to have been involved in the transactions, and financial institutions.

“The appellants allege they have suffered damage because the investments failed to perform as promised and, when that occurred, they faced margin calls that resulted in losses or debts they say they would not have incurred had they not borrowed the funds and invested them in mutual funds,” the appeal court ruling explained. ”While the appellants acknowledge that they obtained their loans and purchased the mutual fund investments relying solely on the advice and recommendations of their financial advisors, they contend that the respondent financial institutions owed them a duty to ensure that they had been advised of, and understood, the margin mechanism and the risks associated with their loans.”

The financial firms sought, and won, a summary judgment on the basis that there was no cause of action against them. And, the appeal court found, “We agree with the motion judge’s determinations in this matter and for the reasons that he gave, reasons which are a model of excellence.”

The courts found that: the loan documentation contained provisions in which the borrowers acknowledge responsibility for the borrowing and investment decisions; that there was no evidence of a special relationship or exceptional circumstance creating a duty of care to advise by the financial institutions to the investors; that the promotion of the investments by the financial institutions did not create a special circumstance as those promotional efforts were directed to the financial advisors, not to the appellants; and that the financial institutions did not owe the investors a fiduciary duty to advise them adequately about the loans.