TD Waterhouse Canada Inc. has won a dispute with one of its discount broker customers over responsibility for a misunderstanding on a stock purchase.

The win, in the British Columbia Supreme Court, means TD is not liable for negligent misrepresentation for a trade the client says he didn’t intend: in the end, the client lost close to $50,000.

The decision underlines the crucial importance of understanding what investors are buying when they use a discount broker; it also highlights the importance of moving with speed when it appears an error has occurred.

The case arose out of the phoenix-like rebirth of General Motors Corp. following its 2009 insolvency. While many investors knew that General Motors was insolvent, and that government support was crucial to its reinvention, it was less obvious how its restructuring would be formally carried out. In fact, a new public company was created to deal with GM’s liabilities, called Motors Liquidation Co., with the stock symbol MTLQQ. It was separate from the new operating company which would subsequently become what is now the profitable General Motors Company. Due to the old GM’s inability to satisfy all of its liabilities, the shares in Motors Liquidation Co. eventually lost all of their value.

The plaintiff investor, Ardian Bunjaku, was following news reports about government intervention to bailout GM in the summer of 2009. He decided to purchase stock in what he believed was the “new GM,” as he referred to it when speaking with TD staff. While he had difficulty locating the stock symbol, as his internet searches were unproductive, he decided to move forward. (He had an existing account with TD Discount Brokerage, including a Tax Free Savings Account and had picked up shares in a number of companies with depressed stock prices in the spring of 2009. The decision notes that his stock portfolio had a market value of more than $112,234 at the end of April, 2009.)

In August, 2009, Bunjaku got on the phone with a staff member at the discount brokerage to place his order. The price of the shares in Motors Liquidation Co. was then about 90 cents. The decision (Bunjaku v. TD Waterhouse Inc.) reproduces the phone conversation in full; it is a cautionary tale for both discount brokers and their clients when it comes to illustrating how such mistakes can be made.

For instance, while most of the conversation is taken up with how many shares will be purchased, at what price, how the confirmation will be dealt with and what the commission will be, the investor’s confusion over the company itself gets little attention.

What was fatal to the investor’s case, however, is that he was given the correct company name (Motors Liquidation Co.) corresponding to the stock symbol of the shares he was buying (MTLQQ). His case also foundered on the fact that he had received a trading summary shortly after the trade and that he became aware that the company was not the company he had thought it was, although what his understanding was remains somewhat unclear.

Indeed, he retained the stock, despite a steady decline in value, and his awareness that it was not the company he had thought it was. But he seemingly did not become seriously concerned until news reports of an IPO for a revitalized GM surfaced in the fall of 2010, when the new operating company began the process of moving off of government life support. The price of the IPO shares was set at US$33.

At that point, he asked TD for a review of the 2009 trade. TD did the review but declined to reverse the trade, noting the account agreement which states that TD Waterhouse Brokerage “does not give personal or client specific or tailored investment advice or recommendations to you and does not accept any responsibility to advise you on the suitability of your investment decisions or transactions.” The agreement also limits action against the bank to one year after the trade or confirmation of the trade.

In dismissing the claim for negligent misrepresentation, launched in the spring of 2011, the court found that there was no duty of care owed by TD to the investor and that the investor knew he was paying a reduced fee in recognition that no investing advice was being given. “I am not persuaded that TD owed [the investor] a duty to make inquiries about his understanding of the relationship between Motors Liquidation Co. and the ‘old’ General Motors; or to attempt to understand his motivation for making the purchase,” the decision of Justice W. Baker says.

“The evidence does not establish that [the investor] informed [TD staff] that he believed that a new operating company had been created that was being supported by the U.S. or Canadian governments. They could not read his mind,” the decision says.

The judgment also concludes that the investor had ample opportunity to inform himself of the situation, and that his shares had only declined by a few thousand dollars by the end of August, 2009; if he had sold then, it notes, his losses would have been minimal.

However, the court denied TD’s request for special costs, which are generally only given when the conduct of the losing side is high-handed, reprehensible, scandalous or otherwise deserving of the rebuke that special costs carry.