Broker held liable for gross negligence

The court ordered Prudential-Bache Commodities Canada Ltd. to pay Armand Laflamme $924,374 plus 12 years of interest – about $2.3 million – to make up for losses in his portfolio dating back to the late 1980s and early ’90s.

Back in 1998 Laflamme sold a business and entrusted the proceeds to Jules Roy. Later that year Roy moved to Pru-Bache. Laflamme sustained major losses, sued and won almost $1.5 million from the trial judge. Pru-Bache appealed. The Appeal Court cut the award to $70,723 on the basis that it was the client’s responsibility to mitigate damages.

The Supreme Court disagreed. It found that Laflamme learned that Roy was running his account on margin and buying speculative stocks. He asked Roy to stop but that didn’t bring an end to the broker’s or the firm’s liability.

“The degree of discretion that a dealer enjoys in managing a portfolio may vary, and there is nothing to prevent the scope of that discretion being limited or the client being involved in the portfolio’s management from time to time. Intervention of that sort by the client is possible without it amounting to a change in the object of the mandate or to a revocation of the mandate,” states the S.C.C. judgement.

It found the broker responsible for the losses entirely. “It cannot be concluded from the evidence in the record that [Laflamme]’s behaviour, in failing to liquidate or withdraw his
portfolio in the spring of 1989, was not what a reasonably prudent and diligent person would have done in the same circumstances.”

The court allowed damages for the losses incurred by Laflamme and the potential profits but it denied the trial judge’s decision to add the commissions and other interest.