Page 11
available to the knowledgeable few at the top of the
climb, while the rest are left aboard for what may be -
as with Cumo - the inevitable plunge to oblivion.”'
39.4 "I find that the Defendants Charpentier and Continental
Carlisle acted beyond their only authority from the
plaintiffs in permitting Mr. Price to "margin" the
plaintiff's accounts and to remove stock from their
custody which they were authorized to deliver only to the
plaintiff's bank account, and that Mr. Charpentier acted
without authority in dealing with the plaintiff's Swiss
assets."
“I find also that Mr. Charpentier knew Mr. Price to be
a person of questionable reliability, to say the least,
and that he had no grounds for believing that the
plaintiffs were other than unsophisticated people who had
mistakenly put complete trust in Mr. Price. Mr.
Charpentier made enquiries of the plaintiffs only for the
purpose of ensuring that they really existed - to be
certain that Mr. Price was not using fictitious names for
the purpose of opening accounts - and neither then nor
at any other time did he give any thought to their interests."
===============================================================
Page 12
"Mr. Charpentier had no basis for believing that the
plaintiffs had funds which Mr. Price had not committed
to the Cumo promotion and it was obvious to him that
commitment of their portfolios to that promotion was
highly unwise. Because of his intimate knowledge of, and
involvement in, the Cumo affair and his well-justified
distrust of Mr. Price - a man he rightly thought capable
of using fictitious names for the operation of brokerage
accounts - Mr. Charpentier had a duty arising out of the
fiduciary relationship between himself and his firm and
the plaintiffs to advise the plaintiffs of the risks to
which Mr. Price had exposed them, and to urge on them
that they at least obtain independent guidance."
39.5 “Mr. Charpentier was aware of the stock manipulation.
Indeed, as underwriter of the stock, and having regard
to his relationship with Leslie Price, it is probable
that Mr. Charpentier was more than merely aware of the
stock manipulation. His office was right across the
street from Leslie Price's office."
30.6 "In June 1981, Cumo stock was trading at $39,75 per
share. The total value of Mrs. Huff"s and Mr. Donnelly's
portfolios was over $2,500,000. Mrs. Huff's personal
account showed a total value of over $1 million. She
decided to follow the wishes of the late Mr. Huff and
===============================================================
Page 13
bought a Rolls Royce. She requested Mr. Price to pay for
the Rolls Royce out of her account. Mr. Price did not
want to sell her Cumo stock on the market. So he
arranged through Mr. Charpentler for Continental Carlisle
Douglas Ltd. to margin Mrs. Huff's account. The account
was a cash account. There was no authority to margin it.
But Continental Carlisle Douglas Ltd. did so, on the
approval of Mr. Charpentier and one of the managing
partners, Mr. Fay. The same type of margining soon took
place in Mrs. Donnelly's personal account."
39.7 "Stock certificates in Cumo Resources Ltd. were delivered
out from Mrs. Huff's Handelskredit Bank account and Mrs.
Donnelly's Handelskredit Bank account between August 1981
and the end of April, 1982. In the same period,
equivalent stocks appeared, sometimes on directly
corresponding days and sometimes on less clearly
corresponding days, in Mrs. Arlene Price's Wolverton
account. The shares that were delivered out of the
accounts cannot have been delivered to anyone other than
Mr. Price. There are forged initials on some of the
delivery out documents comparable to the initials of Mrs.
Huff and Mrs. Donnelly. Almost all the shares were
removed from those two accounts in that way and neither
Mrs. Huff nor Mrs. Donnelly received any benefit at all
===============================================================
Page 14
from the removal. In short, their shares kept in those
accounts were stolen.”
39-8 “The unauthorized margining of Mrs. Huff's and Mrs.
Donnelly ‘s personal accounts continued. The price of the
stock of Cumo Resources Ltd. dropped. Mr. Charpentier
knew by this time that there were no assets supporting
the stock of Cumo Resources Ltd. Eventually, Continental
Carlisle Douglas Ltd. sold off all the Cumo stock in the
personal accounts of Mrs. Huff and Mrs. Donnelly. After
those sales, there still remained a deficit in Mrs.
Huff's personal. account of approximately $18,000
(corrected), and in Mrs. Donnelly's personal account of
$10,017. Those deficits, of course, were created by the
unauthorized margining of the accounts."
39.9 "The damages must be measured by an assessment of the
losses flowing from the breach of fiduciary duty, as of
the time of the breach. The fiduciary duty was broken
when the accounts were margined in June 1981 at a time
when the investment portfolios were already limited to
the stock of Cumo Resources Ltd. Mr. Price may have been
in breach of his fiduciary duties earlier than June 1981
in investing in, or concentrating the investment accounts
in, a speculative stock, though the precise date of that
===============================================================
Page 15
breach is uncertain. In any case, it is subsumed for
purposes of damages in the breach of June, 1981."
39.10 “We consider that Mr. Price had perpetrated both a fraud
and a breach of fiduciary duty by the time 97% to 99% of
both accounts of Mrs. Huff and both accounts of Mrs.
Donnelly consisted of Cumo stocks, namely by the end of
May, 1981.”
39.11 "We do not think that the leqal structure of the
relationship between Mr. Charpentier and Continental
Carlisle Douglas Ltd. as broker, Mr. Price as
intermediary financial advisor and attorney, and Mrs.
Huff and Mrs. Donnelly as investing clients, itself was
such as, by its very structure, to create a fiduciary
relationship on the part of the broker and the brokerage
firm to the clients. The trial judge did not think so,
either. The fiduciary relationship, instead, grew out of
particular elements of the way the structure was managed
and manipulated. We regard these as the principal
elements: Mrs. Huff and Mrs. Donnelly were known to Mr.
Charpentier to be financially unsophisticated; Mrs. Huff
and Mrs. Donnelly relied on Mr. Price, to the knowledge
of Mr. Charpentier, who knew Mr. Price to be a stock
promoter and who had arranged for Mr. Price to promote
the stock of Cumo Resources Ltd.; Mr. Charpentier was
===============================================================
Page 16
party to an arrangement, which he made together vith Mr.
Price, to obtain control of the Swiss assets of the
plaintiffs and to have them managed by Mr. Price through
the Handelskredit Bank accounts with Continental Carlisle
Douglas Ltd.; Mr. Charpentier signed his own name as
Principal and as attorney in documents which had
previously been signed in blank by Mrs. Huff and Mrs.
Donnelly, when he knew, or should have known, that they
did not wish him to sign those documents or to act as
their attorney; Mr. Charpentier knew that 97% to 99% of
the portfolios of Mrs. Huff and Mrs. Price at Continental
Carlisle Douglas Ltd. were invested in Cumo Resources
Ltd. stock by June, 1981; and Mr. Charpentier knew that
transactions were taking place in Cumo Resources Ltd.
stock in the four accounts maintained by the plaintiffs
at Continental Carlisle Douqlas Ltd. and that at least
some of those transactions were of no benefit to the
plaintiffs."
"In the face of these elements we do not consider that
it is open to Mr. Charpentier to say that the fiduciary
relationship which frequently arises between a
stockbroker and his or her client could not arise in this
case because Mr. Price, the financial adviser and the
intermediary, insulated Mr. Charpantier from any
responsibility to Mrs. Huff and Mrs. Donnelly. In our
===============================================================
Page 17
opinion, Mr.. Charpentier, through his trip to Switzerland
with Mr. Price, and his daily involvement in the
promotion of the stock of Cumo Resources Ltd., was so
closely involved with Mr. Price that Mrs. Huff and Mrs.
Donnelly's vulnerability to Mr. Price became their
vulnerability also to Mr. Charpentier, a vulnerability
that he exploited by failing to warn then of their
dangerous financial position and by participation in the
manipulation of their accounts to the advantage of
Continental Carlisle Douglas Ltd. and himself and to the
disadvantage of Mrs. Huff and Mrs. Donnelly."
39.12 “In our opinion, Mr. Charpentier and Continental Carlisle
Douglas Ltd. owed a fiduciary duty to Mrs. Huff and Mrs.
Donnelly by June 1981 to take all reasonable steps to
warn them and, to the extent that it was within their
powers, to protect them, in relation to the manipulation
of their accounts as part of the promotion of the stock
of Cumo Resources Ltd."
39.13 "The trial judge found that the failure to warn Mrs. Huff
and Mrs. Donnelly of the dangers arising from the
concentration of their assets in the stock of Cumo
Resources Ltd. was a breach of fiduciary duty on the part
of Mr. charpentier and on the part of Continental
Carlisle Douglas Ltd. We agree.”
===============================================================
Page 18
"The trial judge found that the margining of the accounts
of Mrs. Huff and Mrs. Donnelly in June, 1981, without the
knowledge and contrary to their specific instructions was
done without authority. But it was more than a margining
without authority. Since there was, by that time if not
before, a fiduciary relationship between Mr. Charpentier
and his firm, on the one hand, and Mrs. Huff and Mrs.
Donnelly on the other hand, we consider that the duty
created by the relationship extended to a fiduciary duty,
and not merely a contractual duty, not to margin Mrs.
Huff's account or Mrs. Donnelly's account contrary to
their instructions, and by doing so to increase their
vulnerability. We conclude that the margining of the
accounts was a breach of the fiduciary duty of Mr.
Charpentier and of Continental Carlisle Douglas Ltd.”
(Emphasis added)
“We also conclude that allowing all the assets, namely
shares of Cumo Resources Ltd., to be removed from the
Handelskredit Bank accounts of both Mrs. Huff and Mrs.
Donnelly by delivering those share certificates to Mr.
Price, having regard to Mr. Charpentier's knowledge that
Mr. Price and his stock manipulation, created a risk of
loss to Mrs. Huff and Mrs. Donnelly In relation to which
they were vulnerable to Mr. Charpentier and Continental
===============================================================
Page 19
Carlisle Douglas Ltd. and that it contituted a breach
of a fiduciary duty owed by Mr. Charpentier and
Continental Carlisle Douglas Ltd. to them."
“In our opinion, the breach of fiduciary duty in relation
to the release of Cumo shares in the Handelskredit Bank
accounts was a contributing cause of the loss of those
shares.”
40. The Defendants, C.C.D. and Continental are the successors
to C.C.D. Ltd., one of the Defendants in the First Action. C.C.D.
Ltd. operated until January 28, 1980, when it was reorganized into
a corporate partnership (C.C.D.) which continued the business of
C. C. D. Ltd. . The Plaintiff's accounts were transferred from C.C.D.
Ltd. to C.C.D. on or about January 28, 1980, although monthly
statements were issued under the name of C.C.D. Ltd. until August
1981, when the monthly statements began to be issued in the name
of the corporate partnership, C.C.D.. C.C.D. changed its name to
Continental Securities on or about September, 1987.
41. Because of this reorganization, the Plaintiffs say C.C.D.
as the successor to C.C.D. Ltd., and because C.C.D. is vicariously
responsible for the unlawful acts of Mr. Charpentier, is also
liable to pay the damages awarded to the Plaintitfs in the first
action. Continental Securities is liable to pay the aforesaid
davages as the successor to C.C.D. and the Defendants referred to
===============================================================
Page 20
in paragraph 5 herein are liable to pay the aforesaid damages
because they are part and parcel of the corporate structure of
C.C.D. and Continental.
42. The Nine corporate Partners and the Eight Individual.
Partners were all involved in, participatad in and were privy to
the unlawful stock manipulation of Cumo, the unlawful concentration
of Cumo stock in the Plaintiff's. accounts, the unlawful withdrawal
of stock from the Plaintiff's offshore accounts, the unlawful
margining of the Plaintiffs' accounts, the breach of duty in
failing to warn the Plaintiffs and the other breaches of fiduciary
duty particularized in the judgments of the Supreme Court and the
Court of Appeal and are jointly liable to pay the damages awarded
to the Plaintiffs in the first action.
43. In particular, the Nine Corporate Partners and the Eight
Individual Partners knew, (or should have known of), and approved
of the withdrawal of the Plaintiffs' Cumo shares by Mr. Charpentier
from the Plaintiffs' offshore accounts because at least 55,000 of
those shares were withdrawn without the knowledge or consent of the
Plaintiffs in order to maintain and “shore-up" the credit lines of
their brokerage firm C.C.D. with their bankers, the Royal Bank, and
to balance their position with the common lending pool at the
Vancouver Stock Exchange. The withdrawn shares, contrary to
testimony of Mr. Charpentier in the first action, were not given
to Mr. Price until September/ October 1982. when the promotion of |
