A gavel rests on its sounding block with a several law books and a justice scale out of fucus in the background. A cool blue cast dominates the scene. (A gavel rests on its sounding block with a several law books and a justice scale out of fucus in t

An Ontario court has ruled that discount broker TD Waterhouse Canada Inc. was entitled to “sell out” clients’ margin accounts to meet margin requirements at the height of the financial crisis.

The Superior Court of Justice dismissed an action brought by John Susin, as executor of the estate of his wife, claiming that the firm was negligent and breached its duties in conducting a sell-out of their margin accounts.

According to the decision, in October 2008, when TD Waterhouse conducted the sell-out, the clients’ accounts were collectively under the regulatory margin requirements by almost $75,000. The firm sold over $320,000 worth of stock from the accounts to bring them into compliance with the margin requirements.

Susin sued the firm, claiming that the sell-out was carried out improperly.

Among other things, he claimed that a credit officer with the firm promised to provide extra time to sell securities, or add funds, to comply with the firm’s margin requirements.

While the two sides disputed whether the promise to provide more time was made, the court ruled that it didn’t matter because the firm “was entitled to conduct the sell-out regardless of whether any extension was provided.”

The court found that TD Waterhouse was within its contractual rights to conduct the transactions to bring the accounts into compliance with margin requirements.

“[TD Waterhouse] assessed the risk and took the steps it considered necessary to protect its interest,” the court said. “The margin agreement clearly provided, in an ‘ironclad’ manner, for the consequences for the account holder if the value of the securities purchased with the margin facility declined.”

The court also noted that “requiring [the firm] to wait and see what happens to the market value of a security (let alone in a historically volatile market) would impose an obligation on [the firm] to become a ‘co-speculator’ with its account holder, a position which has consistently been rejected by the courts.”

The court dismissed the case and ordered almost $70,000 in costs against Susin.