



COURT OF APPEAL FOR
BRITISH COLUMBIA




Citation:



Hiscott
v.
Canaccord
Capital Corporation,









2013
BCCA
23




Date: 20130111

Docket:
CA038974

Between:

Mark
Hiscott

Appellant

(Plaintiff)

And

Canaccord
Capital Corporation and
Alan Ferguson Hackett

Respondents

(Defendants)

(Correction:

On the front page the correct date 20130111
was inserted on January 24, 2013.)




Before:



The Honourable Chief Justice Finch





The Honourable Madam Justice Saunders





The Honourable Mr. Justice Groberman




On appeal from: Supreme
Court of British Columbia, March 25, 2011
(
Hiscott
v.
Canaccord
Capital Corporation
, 2011
BCSC
369,
Vancouver No.
M083758
)

Oral Reasons for Judgment




Counsel for the Appellant:



J.P. Gustafson





Counsel for the Respondent:



D. Mitchell





Place and Date of Hearing:



Vancouver, British
  Columbia

January 10, 2013





Place and Date of Judgment:



Vancouver, British
  Columbia

January 11, 2013








[1]

GROBERMAN
J.A.
:
Mr.
Hiscott
appeals from a trial
judgment of the Supreme Court dismissing his claim as against
Canaccord
Capital Corporation. Mr.
Hiscotts
claim concerned the actions of Mr. Hackett, who acted as his investment
advisor. He claimed that Mr. Hackett had acted improperly in managing Mr.
Hiscotts
investments. He contended that
Canaccord
was liable either vicariously, as Mr. Hacketts
employer, or on the basis of negligence in failing to properly supervise Mr.
Hacketts activities.

[2]

The trial judge found
that while Mr. Hackett had breached his duties to Mr.
Hiscott
,
Mr.
Hiscott
had suffered no damage as a result of the
breaches. She found, further, that
Canaccord
would
not have been liable for Mr. Hacketts breaches of fiduciary duty because he
was not acting in his capacity as an employee of
Canaccord
at material times. Finally, she rejected the claim that any failure on the part
of
Canaccord
to supervise Mr. Hackett caused damage
to Mr.
Hiscott
.

[3]

Both
Canaccord
and Mr. Hackett were named as respondents in this appeal. After the appeal was
brought, however, a consent order was made in the court below finding Mr.
Hackett liable to Mr.
Hiscott
for $5,000,000 on a
promissory note. In the result, Mr.
Hiscott
is no
longer pursuing the appeal as against Mr. Hackett, who, we are advised, died
last year.

Factual Background

[4]

The trial judge had
significant reservations in respect of the evidence of Mr.
Hiscott
.
Although she summarized his evidence in order to provide the background of the case,
she declined to make clear findings of fact except where they were essential to
her reasons. I will attempt to summarize the facts that appear to have formed
the basis of her judgment.

[5]

In 1973, when he was
about 18, Mr.
Hiscott
began working in the back shop
at a golf club of which Mr. Hackett was a member. The two developed a
friendship, and Mr. Hackett helped Mr.
Hiscott
obtain
a scholarship to attend the University of British Columbia. Mr.
Hiscott
graduated with a degree in physical education in
1980, and moved to California. In 1988, he returned to British Columbia and
attempted to start an athletic centre in Whistler. When that venture did not
succeed, Mr. Hackett put him in touch with a company called
Sportsight
,
which hired Mr.
Hiscott
to market its technology. Mr.
Hiscott
worked for
Sportsight
in the United States from 1990 to 1992, when his employment was terminated.

[6]

Mr.
Hiscott
alleges that, as part of his termination package, he was given 300,000 shares
in
Sportsight
. He also claims to have received an
additional 30,000 shares to reimburse him for certain business expenses. Some
doubt was cast on Mr.
Hiscotts
assertions that he
had acquired
Sportsight
shares. The judge did not
find it necessary to resolve that issue. Her analysis proceeded on the
assumption that Mr.
Hiscott
did, in fact, acquire
them. It appears that the
Sportsight
shares were
worth approximately $0.50 each at the date when Mr.
Hiscott
purports to have received them.

[7]

Mr.
Hiscott
sought advice from Mr. Hackett, who was an investment advisor. Mr. Hackett had
recently taken up employment with
Canaccord
Capital
Corporation. According to Mr.
Hiscott
, his initial
plan was to retain the
Sportsight
shares until they
reached a value between $2.50 and $3.00 per share.

[8]

Mr.
Hiscott
and Mr. Hackett testified to the effect that Mr. Hackett proposed that they
open a joint investment account, with Mr.
Hiscott
depositing his shares, and Mr. Hackett contributing assets of equal value to
the account. Mr. Hackett and Mr.
Hiscott
would then
jointly manage the account. According to Mr.
Hiscott
,
the idea was that he would assist in finding investment opportunities through
his acquaintances (particularly in baseball) and Mr. Hackett would, in his
discretion, manage the fund on a day-to-day basis using his professional
expertise.

[9]

The two testified that
they agreed to open a joint investment account. Initially, they say, the
agreement was verbal, but in 2006, it was reduced to writing in a document
entitled Agreement and Declaration of Trust. The written agreement indicates
that it is made effective February 1, 1993.

[10]

It appears that Mr.
Hiscott
met frequently with Mr. Hackett, particularly
between 1993 and 1996. He says he attended at Mr. Hacketts office an average
of two to three times per week, and estimates that he attended at that office
at
Canaccord
up to 200 times between 1993 and 2006.

[11]

The two men gave evidence
that during their meetings, they would discuss trades, and Mr.
Hiscott
would provide information about companies that he
was familiar with. Mr. Hackett would go over stock charts with Mr.
Hiscott
. From time to time, Mr. Hackett would give Mr.
Hiscott
lists showing the stocks they purportedly held in
their joint account, a list of assets bought and sold, and an account balance.

[12]

Mr. Hackett purported to
have added significant assets to the fund, the value of which far exceeded the
value of the shares deposited by Mr.
Hiscott
. Despite
the fact that Mr.
Hiscott
had no source of income,
Mr. Hackett is said to have accepted promissory notes from him to account for
the additions to the fund. The total amount represented by the notes exceeded
$600,000. Eventually, Mr. Hackett cancelled each of the notes, apparently on
the basis that the growth in the investment fund covered them, though it does
not appear that any detailed accounting was provided.

[13]

Mr. Hackett represented
to Mr.
Hiscott
that the funds were growing at an incredible
rate. As early as 1993, and continuing until 2006, Mr. Hackett paid Mr.
Hiscott
amounts purporting to represent income from the
fund. The total of the payments was about $1.4 million. Even so, in 2006, when
Mr.
Hiscott
sought to be paid out a large portion of
his purported stake in the fund, Mr. Hackett advised him that his share was
$5,000,000, and he provided Mr.
Hiscott
with a
promissory note in that amount.

[14]

In 2007, on learning that
at least one of Mr. Hacketts former clients was suing him, Mr.
Hiscott
became concerned, and contacted
Canaccord
,
seeking to be paid by the company. The company denied having any record of Mr.
Hiscott
being a
client,
or of any
account in his name.

[15]

Eventually, Mr. Hackett
told Mr.
Hiscott
that he had not invested the joint
fund with
Canaccord
, but instead had invested the
money offshore with mysterious characters named James and John in order to
obtain higher returns.

[16]

The trial judge made the
following findings with respect to the investment fund:

[31]     
In my view, the investment is a chimera, a shared fantasy, or a delusion of Mr.
Hackett and Mr.
Hiscott
. I accept Mr. Hacketts
evidence that as soon as, or very shortly after, he received the shares in
Sportsight
from Mr.
Hiscott
, the
funds, whatever they may have been, were invested offshore with two gentlemen
known as James and John.



[33]     
Mr. Hackett has for several years maintained the belief that the investment
exists and that he will be paid by James and John. Remarkably, he continues to
maintain this belief even after numerous deadlines have passed without payment
from James and John. The only rational conclusion is that James and John have
disposed of whatever was invested.

[34]     
The lists of shareholdings that Mr.
Hiscott
prepared
are simply lists of shares. There is no documentary evidence and no rational
basis to believe that those shares were held in the fund. Accordingly, I have
concluded that the fund is a fiction. Whatever Mr.
Hiscott
gave to Mr. Hackett to invest was lost in 1992 or 1993 when it was sent to
James and John to invest.

[17]

It appears that the judge
may have intended to refer to Mr. Hackett rather than Mr.
Hiscott
 in the first line of paragraph 34. In particular,
it would appear that the judge was referring to a document prepared by Mr.
Hackett in 2007, for the purposes of the litigation, entitled Stocks that A.
Hackett agreed to purchase and was authorized to purchase for M.
Hiscott
.

Did Mr.
Hiscott
Suffer Loss as a Result of Mr. Hacketts Breaches of Duty?

[18]

The judge had no
difficulty in finding that Mr. Hackett had breached his fiduciary obligations
to Mr.
Hiscott
as a financial advisor, and also
breached the provisions of the trust agreement that the two had entered into.
She found, however, that Mr.
Hiscott
had suffered no
damages in the result.

[19]

The judge was sceptical
with respect to the amount invested by Mr.
Hiscott
.
She noted that there was no documentary evidence that he received more than
30,000 shares. For the purposes of her analysis, however, she assumed that the
investment was as much as suggested by Mr.
Hiscott

330,000 shares in
Sportsight
. The total value of that
investment in 1993 would have been $165,000.

[20]

In the judges view, Mr.
Hackett unwisely and improperly invested the money offshore shortly after Mr.
Hiscott
deposited his shares. The money was lost almost
immediately.

[21]

In attempting to quantify
any loss to Mr.
Hiscott
, the trial judge noted that
the increase in the Toronto Stock Exchange index between 1993 and 2007 would
have made the value of a $165,000 investment in 1993 approximately $577,500 in
2007. Instead, Mr. Hackett had paid Mr.
Hiscott
in
excess of $1.4 million over the years.

[22]

The judge also noted that
assuming that Mr.
Hiscott
had kept the
Sportsight
shares, and sold them when they reached
$3.00/share (a value which they reached only briefly), he would have realized
only $990,000.
Canaccord
notes, in its factum, that
Mr.
Hiscotts

Sportsight
shares had, in fact, declined in the first year of the investment, and that at
the end of 1994, 330,000 shares would have been worth only about $100,000. By
that time, Mr. Hackett had paid Mr.
Hiscott
$125,000
from the purported investment fund.

[23]

I find no error in the
judges finding that Mr.
Hiscott
suffered no damages
as a result of Mr. Hacketts breaches of trust and fiduciary duty. Mr.
Hiscott
received an outstanding return on his investment,
as Mr. Hackett paid him over $1.4 million over the course of 12 years on an
investment that did not exceed $165,000.

[24]

Mr.
Hiscott
bases his claim that he suffered damage on the proposition that he is entitled
to be paid one half of the value of the fund that Mr. Hackett claimed existed
in 2006. The trial judge, however, unequivocally found that the fund did not
exist, and was a chimera, a shared fantasy, or a delusion. In my view, the
evidence amply supported the trial judges view. It is inconceivable that Mr.
Hiscotts
investment, even if it had been as high as
$165,000 in 1993, would have grown beyond $1.4 million had it been properly
invested according to the alleged Agreement and Declaration of Trust.

[25]

Accordingly, I would not
interfere with the judges determination that Mr.
Hiscott
suffered no loss as a result of Mr. Hacketts breaches of duty.

Would
Canaccord
be
Vicariously
Liable for Damages?

[26]

I would also uphold the
judges determination that even if Mr.
Hiscott
had
suffered a loss,
Canaccord
would not have been
vicariously liable to Mr.
Hiscott
for Mr. Hacketts
breaches of duty.

[27]

The judge found that Mr.
Hackett, in entering into an agreement to invest jointly with Mr.
Hiscott
, was acting outside the scope of his employment. It
is apparent from the evidence that Mr. Hackett was not allowed, in the course
of his employment, to enter into arrangements such as the one he is alleged to
have entered into with Mr.
Hiscott
.

[28]

As Mr.
Hiscott
points out, however, the mere fact that Mr. Hackett
was not authorized to act as he did does not exclude the possibility of
vicarious liability. Mr.
Hiscott
relies particularly
on the case of
Bazley
v. Curry
, [1999]
2
S.C.R.
534. In that case, the Supreme Court of
Canada was dealing with a claim brought by a person who, as a child, had been
sexually abused at a residential care facility by an employee of the facility.
The Court found that the foundation that operated the facility could be
vicariously liable for the tort of its employee in the circumstances. The
plaintiff relies, particularly, on paragraph 41 of the judgment of
McLachlin
J. (as she then was) speaking for a unanimous
Court:

[41]
Reviewing the jurisprudence,
and considering the policy issues involved, I conclude that in determining
whether an employer is vicariously liable for an employees unauthorized,
intentional wrong in cases where precedent is inconclusive, courts should be
guided by the following principles:

(1)
They should openly confront the question of whether liability should lie
against the employer, rather than obscuring the decision beneath semantic
discussions of scope of employment and mode of conduct.

(2)
The fundamental question is whether the wrongful act is
sufficiently related
to conduct authorized by the employer to justify the imposition of vicarious
liability. Vicarious liability is generally appropriate where there is a
significant connection between the
creation or enhancement of a risk
and
the wrong that accrues
therefrom
, even if unrelated
to the employers desires. Where this is so, vicarious liability will
serve the policy considerations of provision of an adequate and just remedy and
deterrence. Incidental connections to the employment enterprise, like time
and place (without more), will not suffice. Once engaged in a particular
business, it is fair that an employer be made to pay the generally foreseeable
costs of that business. In contrast, to impose liability for costs
unrelated to the risk would effectively make the employer an involuntary
insurer.

(3)
In determining the sufficiency of the connection between
the employers
creation or enhancement of the risk
and the wrong complained of, subsidiary
factors may be considered. These may vary with the nature of the
case.  When related to intentional torts, the relevant factors may
include, but are not limited to, the following:

(a)
the
opportunity that the enterprise afforded the
employee to abuse his or her power;

(b)
the
extent to which the wrongful act may have
furthered the employers aims (and hence be more likely to have been committed
by the employee);

(c)
the
extent to which the wrongful act was related to
friction, confrontation or intimacy inherent in the employers enterprise;

(d)
the
extent of power conferred on the employee in
relation to the victim;

(e)
the
vulnerability of potential victims to wrongful
exercise of the employees power.

[29]

Mr.
Hiscott
claims that he believed at all material times that Mr. Hackett was acting in
his capacity as an employee of
Canaccord
, and that he
was investing with
Canaccord
. The trial judge,
however, did not accept Mr.
Hiscotts
assertions:

[41]     
Mr.
Hiscott
says that he was a naive investor. He
says that he genuinely believed that his investment was with
Canaccord
, and that his account was opened and operated in
a perfectly normal fashion. I do not accept this evidence. Mr.
Hiscott
has a university degree and business experience. He
was the general manager of two fitness facilities in California, and the
general manager and part owner of a large fitness and recreation facility in
Whistler. He was a part owner with his brother of Planet Ice in Coquitlam. He
started a business called All Star Baseball Academy. He promoted
Sportsight
.

[42]     
Yet, despite all of this, Mr.
Hiscott
says that he
was not concerned that he received no account opening documents and no
statements for the account which he thought that he had with
Canaccord
. He signed promissory notes in favour of
Mr. Hackett, and Mr. Hackett signed promissory notes in favour of
Mr.
Hiscott
, apparently to record their
investment. Moreover, although Mr.
Hiscott
received funds from time to time from Mr. Hackett, he did not file a tax return
since at least 1993. The payments that he received came directly from Mr.
Hackett rather than from
Canaccord
. Mr.
Hiscott
maintains that he saw nothing unusual in all of
this. In light of this evidence, I do not accept that Mr.
Hiscott
thought that this was a normal investment.

[43]     
Mr. Hackett quite candidly said that he did not disclose his activities to
Canaccord
and that he did not open an account at
Canaccord
because there was no way that
Canaccord
would permit him to have a joint account or to
invest with a client. Mr. Hackett acknowledged that, had Mr.
Hiscott
thought that the account was at
Canaccord
,
he may not have disabused Mr.
Hiscott
of that
mistaken belief. He thought that he might have told Mr.
Hiscott
as early as 1999 that the account was offshore.

[44]     
In my view, Mr.
Hiscott
was not at all concerned
about whether he had an account at
Canaccord
until
2006 or 2007, which is when he realized that Mr. Hackett was in
difficulty. At that point, he turned to
Canaccord
with the hope that it would accept some responsibility. Mr. Hackett and
Mr.
Hiscott
apparently documented their agreement in
a document entitled Agreement and Declaration of Trust, which was signed in
June 2006. In 2007, they signed a document entitled Acknowledgement,
which was incorrectly dated January 23, 2006.  Neither of these documents
suggests that the investment was made through
Canaccord
.

[45]     
In light of all of the evidence, it is my view that Mr.
Hiscott
was not a client of
Canaccord
. Accordingly, it does
not owe him the duties that it owes to a client.

[30]

On this appeal, Mr.
Hiscott
attempts to persuade the court that he was more
naïve than the trial judge found. In my view, the trial judges assessment of
his level of sophistication as a businessman and investor was one that was open
to her on the evidence.

[31]

Mr.
Hiscott
also emphasizes that certain pieces of evidence from which he might reasonably have
drawn the inference that Mr. Hackett was acting in the course of his employment
in accepting his investment. He emphasizes that his meetings with Mr. Hackett
were at his office, and that employees of
Canaccord
witnessed certain documents. The trial judge did not ignore that evidence, but
assessed it in light of the totality of the circumstances.

[32]

The judge evidently
considered that Mr.
Hiscott
was, at material times,
unconcerned with the question of whether Mr. Hackett was acting as an employee
of
Canaccord
at the time of the investments. Further,
she found that had Mr.
Hiscott
been at all concerned
with the question, there was ample evidence from which he could have discerned
that the investments that he was making were not being made in the normal
course of Mr. Hacketts business, and that he was not acting in the course of
his employment with
Canaccord
. These findings were in
accordance with the evidence, and were open to the trial judge.

[33]

Given the trial judges
findings of fact, it cannot be said that Mr. Hacketts employment with
Canaccord
created or enhanced the risk that he would engage
in irregular practices in relation to Mr.
Hiscotts
investments. Mr.
Hiscott
knew, or should have known,
that Mr. Hackett was not acting as an employee of
Canaccord
when he entered into a joint investment scheme with him. Nothing that
Canaccord
did compelled or encouraged Mr.
Hiscott
to engage in investment relations with Mr. Hackett.

[34]

At its highest, Mr.
Hiscotts
argument is that his estimation of Mr. Hacketts
business acumen was enhanced by the knowledge that he was employed with
Canaccord
. Standing alone, that is an insufficient basis on
which to found vicarious liability.

Was there a Failure to Supervise Mr.
Hackett

[35]

Mr.
Hiscott
finally argues that
Canaccord
is liable to him for
its failure to supervise Mr. Hackett. I need not address this contention at any
length. The judge analyzed the various alleged failures by
Canaccord
to supervise Mr. Hackett. She found each of the alleged failures to have been
unproven, non-negligent, or unconnected to the investment scheme entered into
by Mr.
Hiscott
and Mr. Hackett. Mr.
Hiscott
has not succeeded in persuading me that the trial
judge made any reversible error in respect of her analyses.

Disposition

[36]

As acknowledged by
the appellant, the appeal as against Mr. Hackett should be dismissed as
abandoned. I would also dismiss the appeal as against
Canaccord
.

[37]

FINCH
C.J.B.C.
: I agree.

[38]

SAUNDERS
J.A.
: I agree.

[39]

FINCH
C.J.B.C.
: The appeal is
dismissed.

The
Honourable Mr. Justice Groberman


