Commercial — Banking — Accounts — Withdrawals — Financial institutions — Banks — Liability to customers — Fault — Action by account holders Markarian, Markarian and 125134 Canada inc. against CIBC granted; action in warranty against Migirdic in reimbursement of amounts taken from their brokerage account granted — Migirdic asked Markarian to sign guarantees in favour of other clients unknown to Markarian without telling him that he was signing guarantees — After Migirdic confessed his fraud to CIBC, CIBC executed the guarantees without telling Markarian about Migirdic's confession — CIBC failed to effectively supervise the activities of Migirdic even after having discovered that he had acted improperly.

Contracts and obligations — Conditions of formation — Free and enlightened consent — Defect of consent — Error — Inexcusable error — Regarding essential element — Regarding nature of contract — Regarding object of prestation — Error induced by fraud — Silence or concealment — Undue influence and abuse of authority — Action by account holders Markarian, Markarian and 125134 Canada inc. against CIBC granted; action in warranty against Migirdic in reimbursement of amounts taken from their brokerage account granted — Migirdic asked Markarian to sign guarantees in favour of other clients unknown to Markarian without telling him that he was signing guarantees — After Migirdic confessed his fraud to CIBC, CIBC executed the guarantees without telling Markarian about Migirdic's confession — Markarian was not in error since he never knew that he was concluding the contract invoked.

Damages — Exemplary or punitive damages — Evidence — When available — Action by account holders Markarian, Markarian and 125134 Canada inc. against CIBC granted; action in warranty against Migirdic in reimbursement of amounts taken from their brokerage account granted — Migirdic asked Markarian to sign guarantees in favour of other clients unknown to Markarian without telling him that he was signing guarantees — After Migirdic confessed his fraud to CIBC, CIBC executed the guarantees without telling Markarian about Migirdic's confession — CIBC tried to benefit directly from Migirdic's fraud and Markarian, Markarian and 125 were entitled to punitive damages of $1,500,000.

Action by account holders Markarian, Markarian and 125134 Canada inc. (125) against CIBC World Markets inc. (CIBC) and action in warranty against Migirdic in reimbursement of amounts taken from their brokerage account — Markarian, Markarian and 125 opened non-speculative accounts with CIBC for which Migirdic was responsible — Migirdic asked Markarian to sign guarantees in favour of other clients unknown to Markarian without telling him that he was signing guarantees — CIBC inquired in response to the incongruities of Migirdic's records but did not delve further into Migirdic's false answers — After Migirdic confessed his fraud to CIBC, CIBC executed the guarantees without telling Markarian about Migirdic's confession — HELD: Action granted and action in warranty granted — Markarian was not in error since he never knew that he was concluding the contract invoked — CIBC gave misleading titles for Migirdic that were misrepresentation to Markarian — CIBC failed to effectively supervise the activities of Migirdic even after having discovered that he made improper actions — Markarian could not have ratified the contracts since he did not know of any cause of nullity — Markarian was justified in assuming that Migirdic and CIBC would act honestly toward him — CIBC tried to benefit directly from Migirdic's fraud and to conceal evidentiary elements — Markarian, Markarian and 125 were entitled to punitive damages of $1,500,000 and to 75 per cent of their extrajudicial costs.

Statutes, Regulations and Rules Cited:

Charter of Human Rights and Freedoms, s. 1, s. 4, s. 6

Civil Code of Québec, art. 6, art. 179, art. 1385, art. 1399, art. 1400, art. 1401, art. 1407, art. 1420, art. 1478, art. 1479, art. 1619, art. 1621, art. 2132, art. 2138, art. 2345, art. 2346, art. 2353, art. 2365

Code of Civil Procedure, art. 497, art. 547

Counsel:

Mtre. Serge Létourneau and Mtre. Suzanne Gagné (Létourneau & Gagné), counsels for the plaintiffs.

Mtre. Bernard Amyot and Mtre. Sébastien Caron (Heenan Blaikie), counsel for the defendant.

INTRODUCTION

CONCLUSIONS

¶ 1      The plaintiffs are claiming from CIBC WORLD MARKETS (hereinafter "CIBC", "CIBC Wood Gundy" or the "Bank") $1,451,327.39 as reimbursement of the amounts taken from their brokerage accounts by CIBC in execution of "guarantees" they allegedly granted in favour of the accounts of RitoLuthi and Sebuh Gazarosyan, who were perfect strangers. The claim is $353,026.12 for the plaintiffs HAROUTIOUN and ALICE MARKARIAN personally and $1,098,301.27 for their company (and that of their children), 125134 CANADA INC.

¶ 2      The plaintiffs contended that they never agreed to provide such guarantees, that they were defrauded by Harry Migirdic, their investment advisor at CIBC, and that CIBC was fully aware of the situation and stripped them of their assets.

¶ 3      The Bank did not deny the fraud or the fact that Migirdic was its employee. It argued that the plaintiffs were ultimately the architects of their own misfortune, they failed to fulfil their obligation to verify their statements of account, they ratified Migirdic's fraud and they failed to fulfil their duties toward the Bank.

¶ 4      Having long fought the idea that it could be liable for anything in regard to the plaintiffs, the Bank, at the start of the trial, argued before the Court that liability could possibly be shared, but it refused to indicate in what proportion and to make any remittal without a comprehensive settlement of the matter. It then indicated to the Court that it in fact remained fundamentally opposed to any sharing of liability because of [TRANSLATION] "the interruption by the plaintiffs of the causal link" between what its employee did and the situation in which the plaintiffs found themselves. However, during the trial, CIBC offered to reimburse the plaintiffs in full, without any admission of liability, provided explicitly that they renounced any other claim against it, particularly for punitive damages. The plaintiffs refused the offer.

¶ 5      They did so because they are also claiming from CIBC $200,000 in moral damages and for impairment of their fundamental rights, and $10,000,000 in punitive damages. The Bank indicated that it would never agree to pay a cent in that regard, if only as a matter of principle.

¶ 6      Originally the plaintiffs claimed an additional sum of $226,935.80 for losses sustained further to inappropriate and unauthorized transactions involving highly speculative securities, but the Bank has since reimbursed them, with interest. In addition, another sum of $11,008.86, taken from the Markarians' joint account under the guarantee related to Sebuh Gazarosyan, is no longer in dispute, as it was reimbursed in full, with interest, during the hearing.

1. THE FACTS

(A) PARTIES

¶ 7      The defendant, CIBC WORLD MARKETS INC./MARCHÉS MONDIAUX CIBC is a security brokerage firm in full operation. It is a wholly owned subsidiary of CIBC, one of Canada's six largest banks. Among other business, it operates, for individuals, under the name CIBC WOOD GUNDY, the securities brokerage firm acquired by the Bank in 1988. However, that is simply a division and an integral part of the defendant. Furthermore, the Bank acquired the Merrill Lynch brokerage firm in January 1990 and incorporated it into Wood Gundy. Harry Migirdic, who worked for Merrill Lynch, then became the Bank's employee. That was the way the plaintiffs, who had their accounts with Merrill Lynch and whose financial advisor was Harry Migirdic, became the defendant's clients.

¶ 8      The plaintiff HAROUTIOUN MARKARIAN has been retired since 1993 and is now 72 years old. The plaintiff ALICE MARKARIAN is his spouse and she is 68 years old.

¶ 9      Mrs. Markarian knows nothing about business. Her spouse has always administered all the family's assets and has always handled "finances" alone. As she said and as everyone acknowledged, she signed the documents he asked her to sign and she did not ask any questions. She has always had complete trust in Mr. Markarian.

¶ 10      The company 125134 CANADA INC., which is also a plaintiff, is the personal company of Mr. and Mrs. Markarian and their children. It is a family holding company constituted by Mr. Markarian to, among other things, hold and build on part of the proceeds of the sale of his business, ensure his retirement and that of his spouse, and allow the transfer of the assets to the children after the death of Mr. and Mrs. Markarian, while limiting the tax impact. In actuality, Mr. Markarian is the only director of the company and he makes all the decisions alone. The company 125134 acts only through him and he is its alter ego.

¶ 11      That means the plaintiffs in this case consist essentially of Mr. Markarian.

¶ 12      He is Armenian in origin. He was born in Egypt and lived there until he was 28 years old. After seven or eight years of elementary school and five years of trade school, he became a toolmaker and machinist, and worked for his uncle in a plant where nails were made and machines were repaired. He married in Egypt and his first two children were born there.

¶ 13      Mr. and Mrs. Markarian decided to immigrate to Canada in 1962, considering the political and economic situation in Egypt at the time. Because of the Egyptian laws in force, they had to leave everything they owned there when they left, and they arrived in Canada with their two children and $300 in their pocket.

¶ 14      Like many immigrants, Mr. Markarian worked very hard to start all over again, establish himself and prosper. He first worked for five years as an employee for various firms as a toolmaker and machinist. Then in 1967, with two partners, he founded his own business, Les Industries Acadiennes, a mechanical shop. He subsequently purchased the share of one of his partners and remained the other's partner without interruption until his retirement. The small business was very successful and he made his fortune. As he said: [TRANSLATION] "we took everything that came along, everything the others did not want". The hours were long and often extended late into the night. Mr. Markarian said he succeeded by listening to his customers, doing [TRANSLATION] "good work", treating his employees well [TRANSLATION] "in order to keep them" and [TRANSLATION] "acting honestly". That is easy to believe. Having started with nothing, he had accumulated assets worth $4.5 million by his retirement in January 1993.

¶ 15      The fraud to which he fell victim at CIBC stripped him of a third of all he possessed.

¶ 16      Mr. Markarian is a simple man, sincere and wholly of good faith. To say he is very credible is to put it mildly. He is a gentleman and an honest man. His wife is of the same quality.

(B) OPENING OF THE ACCOUNTS AND SIGNING OF THE GUARANTEES

¶ 17      Mr. Markarian was doing business with Merrill Lynch for his RRSP and that of his spouse [See Note 1 below] when Harry Migirdic was introduced to him around 1986 as a new representative of the brokerage firm. The person with whom he had dealt until then told him Migirdic was an honest man and "knowledgeable". Migirdic, also of Armenian origin, had been working since 1980 as a securities representative. A relationship of trust was gradually established between Migirdic and Mr. Markarian. Little by little Migirdic became the main investment adviser of the plaintiffs. Investments made elsewhere were even transferred to Merrill Lynch.

   Note 1: These accounts are not involved in the proceedings now that the claims concerning the AMCC and Intergold shares have been settled.

¶ 18      An initial new account was opened on October 7, 1986; it was a joint account in Mr. and Mrs. Markarian's names.

¶ 19      Migirdic was appointed "Vice-President" of Merrill Lynch for the first time on October 21, 1986. The title greatly impressed the Markarians, who were certain they were doing business with someone "important" and "reputable". It bolstered their trust in Migirdic.

¶ 20      At first, the Markarians increased their investments with Merrill Lynch by small amounts, and the bulk of their investments remained with the Royal Bank, principally in the form of term deposits and government bonds. Then Migirdic convinced them to transfer most of their financial assets to Merrill, where they could have [TRANSLATION] "a little higher percentage".

¶ 21      In January 1990, Merrill Lynch was absorbed by CIBC Wood Gundy.

¶ 22      The Les Immeubles Almark account was opened in February 1991. Two thirds of the account was the property of Mr. Markarian and the remainder, of his partner in Les Industries Acadiennes. That account is not involved in the present proceedings.

¶ 23      Mr. Markarian sold his share of his company in December 1992 and retired. That gave him more money to invest in securities.

¶ 24      It was beginning in 1993 that things began to go sour for the Markarians, without their realizing it.

¶ 25      Over the years, Migirdic had made disastrous investments for some of his clients. A number of the investments were highly speculative, which the clients were not aware of, or did not realize. The losses were substantial. Some clients were informed of them while others were not. Some of the former ones had been promised by Migirdic that he would "pay" them. With the others, Migirdic tried to maintain the illusion that everything was going well. That was the case with Rita Luthi, the owner (with her husband) of an outfitter operation in Abitibi, who had entrusted Migirdic with $150,000. For all practical purposes, Migirdic's investments for her were discretionary (without the account authorizing them). They proved disastrous. In February 1993, there was only $18,000 remaining in the account. Mrs. Luthi was completely unaware of that; she was still under the impression that the value of her initial investment had not changed.

¶ 26      Mrs. Luthi had agreed with Migirdic that she would be able to make withdrawals from her account from time to time to cover her needs. Convinced that her money was still there and accessible, she wanted to withdraw $60,000 from her account in February 1993. Even if the entire portfolio were liquidated, the withdrawal would have been impossible since the shares in the account were by then worth only 30% of that amount. Migirdic had the idea of obtaining a guarantee from a very solvent third party in favour of Mrs. Luthi's account, so that he could "go in the red" without the Bank's intervening, given the guarantee; that would leave him time to "make up his losses" so that withdrawals could continue, regardless of the status of the account. To their great misfortune, Migirdic thought of the Markarians, who were not suspicious people.

¶ 27      So, on February 16, 1993, he obtained Mr. Markarian's signature on a document entitled "Guarantee Agreement" (P-6). The document indicated that a guarantee was given in favour of the account of Rita Luthi from the Markarians' joint account, their only account available, since the law prohibited RRSP accounts from being used as collateral. The guarantee remained in effect until it was exercised by the Bank, in 2001.

¶ 28      We will return subsequently to the circumstances underwhich the guarantee was signed. Note, however, at this point that the guarantee of February 16, 1993 was signed in favour of a person whom the Markarians did not know, whom they had never heard of and whose very existence they were completely unaware of. Furthermore, the Markarians had no reason to provide such a guarantee and derived no benefit from it. That is also true for their family and acquaintances.

¶ 29      The client profile of the Markarians was not updated to reflect the existence of the guarantee, as the regulations required (the profile is called the "Know Your Client Form" or the "KYC Form"). Migirdic was later sanctioned for that violation of the rules.

¶ 30      In addition, although the guarantee was signed on February 16, 1993, it was only on the monthly statement of account for July 1994, i.e. 17 months later, that a short, vague indication of the guarantee appeared for the first time in a document given to Mr. Markarian. It said the following: "Items for Your Attention - Your Account Guarantees Account 500-01193". Mrs. Luthi's account was then $14,360 in deficit. The same reminder next appeared of the top of each monthly statement sent for the joint account until February 1999. It was then replaced by the following: "Messages - Reminders - Your Account Guarantees Account 500-01193", this time at the very end of the statement, from March 1999 to March 2001.

¶ 31      On September 8, 1993, Mr. Markarian opened the account of the company 125134 Canada Inc., with a sizable portion of the proceeds of the sale of his share of Les industries Acadiennes. Signed the same day was a guarantee in favour of the company account by means of the Markarians' joint account (P-12A). Certain documents mentioned November 15, 1993 as the date the account was opened (for example, P-30 at 2) and the decision of the Investment Dealers Association of Canada (the IDA), which sanctioned Migirdic further to his fraud, indicated that date. But that was an error, since the first deposit in the account took place on September 16, and the guarantee was signed on the 8th. That error illustrates the lack of control and thoroughness in Migirdic's documents.

¶ 32      No message ever appeared on the monthly statements of account sent to Mr. and Mrs. Markarian for their joint account concerning the guarantee given by Mr. Markarian in favour of the company account.

¶ 33      In addition to playing the stock market for his clients, Migirdic did so for himself. In November 1983, he had opened an account at Merrill Lynch in the name of his uncle, Sebuh Gazarosyan, who was living and still lives in Turkey. Migirdic acknowledged that the account was, in fact, his personal account, which he used to buy, sell and speculate abundantly. But no one knew that the account did not really belong to Sebuh Gazarosyan. Unfortunately, Migirdic engaged in disastrous transactions and the account was deep in the red in 1994. That was not allowed by the brokerage firm. An account in deficit could not continue to be active if it was not guaranteed by a third party or by assets. Migirdic did what had to be done to "find" various guarantors for his account; they varied over time. By March 1994, he had no more of them.

¶ 34      It was in these circumstances that, on March 28, 1994, he had Mr. Markarian sign a new document entitled "Guarantee Agreement" (P-7). It said a guarantee was given in favour of the account of Sebuh Gazarosyan out of the account of the company 125134. The account of Sebuh Gazarosyan was by then over $250,000 in deficit. Unfortunately for them, the Markarians were the last ones to guarantee it. The guarantee remained in effect until it was exercised by the Bank, in 2001.

¶ 35      We will return subsequently to the circumstances under which the guarantee was signed. However, note at this point, that the guarantee of March 28, 1994 was also signed in favour of a person whom the Markarians did not know, whom they had never heard of and whose very existence they were completely unaware of. Furthermore, the Markarians had no reason to provide such a guarantee and derived no benefit from it. (On the contrary, they were suddenly $250,000 in debt for a stranger.) That was also true for their family and acquaintances. In addition, like everyone, the Markarians were unaware that Sebuh Gazarosyan's account was in fact the account of Migirdic.

¶ 36      No message ever appeared on the monthly statements of account sent to Mr. Markarian for his company concerning the guarantee given by it in favour of Sebuh Gazarosyan's account.

¶ 37      The client profile of the company was also not updated to reflect the existence of the guarantee, as the regulations required. Migirdic was later sanctioned for that violation of the rules.

¶ 38      Let me add that the Markarians were not the only clients that Migirdic used to provide guarantees for other clients and his own account over the years. In fact, the Court was informed that other proceedings are pending in that regard.

¶ 39      The evidence is clear that the guarantees employed by Migirdic in regard to the accounts of Rita Luthi and Sebuh Gazarosyan were used to provide him with [TRANSLATION] "credit in order to reimburse the losses of some of his clients because of his bad transactions" and to [TRANSLATION] "have all the latitude he needed to make a multitude of transactions" in order to "cover his losses" and change them into surpluses. Migirdic's intention was not, in principle, to "steal" from the Markarians or grab their assets, but to give himself the resources to "play" the stock market in the hope that he could cover his losses and those of his clients. But it is indeed theft that the Markarians sustained, since Migirdic's manoeuvres obviously never enabled him to "cover his losses" as he hoped and therefore "release" the Markarians from their obligations. On the contrary, his manoeuvres merely made the losses worse and stripped his unfortunate victims of their assets.

¶ 40      Moreover, we cannot lose sight of the fact that the new transactions that the "guarantees" obtained from the Markarians permitted Migirdic to make (and there were an enormous number of them) also had another very great merit: they generated huge commissions for him (and equally for the Bank). From 1991 to 2000, Migirdic billed over $11,000,000 in commissions, i.e. an average of $1,132,500 a year (the amount was as much as $1,625,603 in 1997). Part of the commissions were from the very great number of transactions in his own account (in the name of Sebuh Gazarosyan) and in the account of Rita Luthi, as well as in the accounts of other clients he defrauded. The commissions paid for those transactions have never been recovered, either from Migirdic or the Bank.

(C) AUDIT AND CONFIRMATION LETTERS

¶ 41      Between 1995 and 2000, six letters auditing the guarantee given in regard to the Gazarosyan account were sent by the Bank to Mr. Markarian for his company, at the rate of one a year, every October, at the request of the Bank's external auditors. The purpose of the letters was to enable the external auditors to ensure that the guarantee in favour of the Gazarosyan account existed. At the same time, they were to remind the guarantor of the existence of the guarantee. But that was not the effect they actually had.

¶ 42      The letters were exactly the same from one year to the next. They read as follows:

       CIBC WOOD GUNDY INC. [in 1995, "CIBC" did not appear]

       [Date]

¶ 43      Upon receipt of the first of these letters, dated October 2, 1995, Mr. Markarian quickly contacted Migirdic to inform him of receipt of a letter bearing both the name of his company and the name of Sebuh Gazarosyan, and to ask him what it meant. Migirdic's response was as follows: [TRANSLATION] "Don't worry; there is no doubt a mistake; I'll stop by this evening". When he went to the Markarians' house that very evening, Migirdic looked at the letter and said the following to Mr. Markarian, according to the latter:

¶ 44      The address of Mr. Markarian and his company was 12 345, boulevard Toupin, in Montréal. That of Sebuh Gazarosyan (actually that of his brother in Montréal) was 12 250, boulevard Toupin. Migirdic told Mr. Markarian that and Mr. Markarian had no trouble believing the explanation.

¶ 45      Migirdic confirmed that he said the following:

               ...

¶ 46      Mr. Markarian signed where Migirdic asked him to sign and Migirdic left with the document. Mr. Markarian heard no more about it that year. Migirdic mailed the document to the external auditors. He was satisfied that the existence of the guarantee would be confirmed in their eyes for at least another year since, by signing, Mr. Markarian requested no correction regarding the guarantee, contrary to what Migirdic told him, but instead confirmed its existence. The signature in fact appeared under the words: "We guarantee payment against delivery and/or delivery against payment on the above numbered account(s) at October 31, 1995". Gazarosyan's account was then $465,000 in the red.

¶ 47      Mr. Markarian testified that he never read the audit letters he received from one year to the next, but merely glanced at the letterhead, particularly the name of his company and that of Sebuh Gazarosyan (at least until the present proceedings were instituted). It was Migirdic who explained to him the meaning of the letter, without reading the full text to him. It was also Migirdic who told him that the letter was an error and that he had to sign it at the bottom for the error to be corrected.

¶ 48      The second audit letter was dated October 17, 1996. When he received it, Mr. Markarian again contacted Migirdic, who was [TRANSLATION] "angry", in Mr. Markarian's own words, which Migirdic confirmed. Mr. Markarian told Migirdic that he did not understand how the error of the previous year had not yet been corrected. He was angry because he thought Migirdic had been negligent in resolving the problem. Mr. Markarian said he thought that, by speaking loudly to him, Migirdic would make more of an effort to resolve the problem.

¶ 49      Migirdic stopped by the house. He explained the following to Mr. Markarian, according to Migirdic's testimony:

¶ 50      Migirdic added: "We didn't go too much into detail... No specifics, no details".

¶ 51      Migirdic again asked Mr. Markarian to sign the letter. He said he told him it was a condition for obtaining "the release [of] the guarantee". For his part, Mr. Markarian testified:

¶ 52      Migirdic testified out of court that he and Mr. Markarian read the letter together [See Note 2 below]. Mr. Markarian completely denied that. He said he just looked at the letterhead again and, as for the rest, it was Migirdic who explained the meaning.

   Note 2: Examination P-106C of July 18, 2002, question 67.

¶ 53      The Court is of the opinion that the plaintiff's version must be accepted. On the one hand, Mr. Markarian is much more credible than Migirdic. On the other, he clearly recalled the audit letters because they were always dealt with one by one and he was the one who received them and called Migirdic to talk about them (Migirdic did not, on his own initiative, quickly stop by with the documents to be signed). Furthermore, Migirdic did not always recall details. His testimony thus sometimes varied. That was the case, for example, of the reasons given the Markarians for signing the guarantee in favour of Rita Luthi, Migirdic first said that he did not remember, but in the end he said: "I'm thinking now" (see para. 198 below). The same is true of the question as to whether he brought the Markarians the confirmation letter of April 25, 2000 concerning the Luthi guarantee (see para. 80 below). Migirdic's testimony that he read the second audit letter with Mr. Markarian before Mr. Markarian signed it is not reconcilable with his statement that "we didn't go too much into detail; ... no specifics, no details", mentioned earlier. It is also incompatible with the out-of-court testimony of Migirdic the day before explaining the general context in which the documents were always signed: "any form that he needed to be signed, he didn't read the fine print, he didn't analyze it; what I told him, he took it for granted that that's what had to be done" [See Note 3 below]. Lastly, it is incompatible with the way Migirdic generally went to the Markarians' house to have things signed (see para. 195 below). Mr. Markarian's version is therefore more in keeping with the way that Migirdic generally had the Markarians sign a document, according to Migirdic himself.

   Note 3: Examination P-106-B of July 17 2002 at 75, question 359.

¶ 54      For all these reasons, the Court has no hesitation in believing the testimony of Mr. Markarian and it accepts that Mr. Markarian and Migirdic did not read the audit letter of October 17, 1996 together before it was signed.

¶ 55      What did Migirdic tell Mr. Markarian about the meaning of the letter and its implications?

¶ 56      CIBC contended that Migirdic informed Mr. Markarian that the "error" was that he was guaranteeing the debts of Gazarosyan, whereas that should not have been so. Hence, Mr. Markarian was then allegedly aware of the existence of the guarantee, even if it was "erroneous". CIBC bases this on what Migirdic said in his out-of-court examination:

¶ 57      CIBC thus, concluded that Migirdic clearly indicated to Mr. Markarian that a guarantee binding him was in effect but that he would have it eliminated.

¶ 58      In fact, that is not what the evidence shows.

¶ 59      First, Mr. Markarian denied he was ever told he was guaranteeing any third party whatsoever, even erroneously, and that such a guarantee had to be "revoked". He testified convincingly that Migirdic always told him that the letter was sent because of an error in the address and the name, caused by the fact that he lived on the same street as Sebuh Gazarosyan. Migirdic did not deny that was what he actually did tell Mr. Markarian after receipt of the first audit letter of October 1995. In fact, how could Mr. Markarian have known Gazarosyan's address if Migirdic did not tell him? Migirdic acknowledged that, further to receipt of the second letter the following year, he told Mr. Markarian the same thing he had told him the previous year (see para. 49 above). He acknowledged that he said the error of the previous year had not been corrected. But the error was in the address and name. Mr. Markarian was angry because Migirdic had not done what was required to correct "the error of the previous year". All that has nothing to do with a guarantee that should have been revoked. In fact, that reason was allegedly completely new, compared with what Migirdic had said the previous year. How could he have explained the different version to Mr. Markarian? What is more, Migirdic testified that he did not give any details. It is noteworthy that the "new" version was in fact made up of the words that the Markarians' attorney put in Migirdic's mouth. The words did not originate with Migirdic, who merely repeated what he heard.

¶ 60      But there is more. The words he repeated were incomprehensible and made no sense. How could Migirdic have said in the same sentence: "You confirm your guarantee" and "I'll make sure it goes away"? CIBC's attorney himself had to acknowledge that that made no sense. Such an affirmation and the reasoning underlying it are incomprehensible. It would mean that Migirdic asked Mr. Markarian to sign so as to indicate that he wanted the guarantee revoked. But it made no sense to ask him to sign to confirm the guarantee so that it could be revoked.

¶ 61      A little further on in the examination is the following:

¶ 62      This other passage is also ambiguous. One cannot say in the same breath that one understands a text but does not grasp the consequences and implications. It is the same as saying a person "understands" but "does not understand". That is all the more contradictory here in that, according to the evidence, Mr. Markarian knew exactly what a guarantee was. He had granted a number of them in his life, either in favour of his business or his children, and he understood perfectly the risks and consequences of a guarantee. In fact, he testified that he did. In the circumstances, he could not both understand that he was guaranteeing Gazarosyan and not understand the implications and consequences of the guarantee.

¶ 63      That passage is nonetheless interesting in that it makes it possible to return to what is essential here. Migirdic was very clear that Mr. Markarian never realized the implications or consequences of the October 1996 audit letter. In fact, he repeated that before the Court. That is in keeping with what Migirdic always affirmed, both in Court and to CIBC and the IDA investigators, namely, that Mr. Markarian never realized that he had signed a guarantee in favour of Gazarosyan. All that is irreconcilable with the fact that Mr. Markarian is said to have understood the meaning of the 1996 audit letter and that Migirdic allegedly told him he had signed a guarantee in favour of Sebuh Gazarosyan, even erroneously.

¶ 64      The Court believes Mr. Markarian. In fact, the evidence shows that Migirdic never told him that the "error" was that he was guaranteeing the debts of Sebuh Gazarosyan. He was unaware of the existence of a guarantee granted at his expense and did not realize that he was guaranteeing anything at all. He did not realize "the implications and the consequences" of the October 1996 audit letter and Migirdic in no way told him its meaning and consequences. In that regard, there is no difference between what Migirdic and Mr. Markarian said.

¶ 65      Once the "explanations" were given by Migirdic, Mr. Markarian signed the document as requested by him. Migirdic himself once again sent the letter to the external auditors, without doing anything to keep the promises made to Mr. Markarian. At the time, the Gazarosyan account was $350,000 in the red (an improvement over the previous year).

¶ 66      The third audit letter was dated October 3, 1997. Upon receiving it, Mr. Markarian was even more angry and he contacted Migirdic. He said the discussion was [TRANSLATION] "animated". Migirdic came to his house again and told him the same thing as in the previous years. Migirdic confirmed that.

¶ 67      Migirdic once again had Mr. Markarian sign "in order to get, again, released", he said. He noted that Mr. Markarian "was skeptical, but he still trusted me and he gave me the letter, he signed the letter", Migirdic added that, after the third (or perhaps the fourth) letter, he felt Mr. Markarian's skepticism because, when he went to see him from time to time, Mr. Markarian asked him such questions as "What's going on?" regarding "the error", "Who is this person Sebuh Gazarosyan?", and so on.

¶ 68      Migirdic again sent the letter to the auditors, without doing anything to "correct" the record. The status of the Gazarosyan account had seriously deteriorated by then; it was $831,000 in deficit, more than double the previous year.

¶ 69      The fourth audit letter was dated October 19, 1998. Upon receiving it, Mr. Markarian said he was [TRANSLATION] "enraged", not because he believed it was serious for him that the situation was continuing (he was unaware of that), but because the "error" had still not been corrected.

¶ 70      We know what happened next. Migirdic went to Mr. Markarian's house for his signature, and told Mr. Markarian that he would have the error corrected and his signature was required for that purpose. Then he sent the signed letter to the external auditors without doing anything else. The Gazarosyan account was $780,000 in the red at that point.

¶ 71      The same game was played after the fifth audit letter was sent, on October 20, 1999. The Gazarosyan account was then $770,000 in the red.

¶ 72      The sixth letter was sent on October 4, 2000. That time, Mr. Markarian raised his voice even more. He shouted during the discussion with Migirdic that he was tired of the situation. He added that he did not want any problems. He was also a little discouraged by the whole matter.

¶ 73      Migirdic again asked him to sign and promised it would be the last time. That was true, not because the situation was corrected but because the fraud came to light in early 2001 and no other audit letter was sent. In October 2000, the Gazarosyan account was $968,000 in the red.

¶ 74      As for the guarantee linked to Rita Luthi's account, there were never any audit letters. The Bank's external auditors never contacted the Markarians and never sent them any document.

¶ 75      Rather, it was Tom Noonan, Migirdic's immediate superior and the branch manager, who wrote to the Markarians on April 25, 2000 and sent them a request for confirmation of their guarantee in order to "ensure" that they were aware they were guaranteeing Rita Luthi's account. No other letter was sent from 1993 until the fraud became apparent.

¶ 76      Noonan was pressured to act by CIBC's Compliance Department, which was concerned by the incongruous nature of the guarantee given in favour of the Luthi account and the fact that nothing established that the Markarians were indeed aware of the guarantee. The Compliance Department therefore wrote to Noonan to ask him to "communicate" with the Markarians to ensure that they understood the extent of the guarantee and that that information was duly reflected in the records. That intervention came in the wake of a whole series of unsuccessful requests by the Compliance Department that the monthly statements for Rita Luthi's account be sent to the Markarians and a whole series of questions about the guarantee and the relationship between Mrs. Luthi and the Markarians.

¶ 77      Noonan thus wrote a letter on April 25, 2000 to Mr. and Mrs. Markarian indicating that CIBC wanted to be certain that they realized that significant assets belonging to them were being used to cover Luthi's liabilities. The letter was worded as follows:

¶ 78      This sentence followed, and below it the Markarians were asked to sign:

¶ 79      The letter was given to... Migirdic, who brought it himself to the Markarians for their signature!

¶ 80      That fact was contested by the defendant, but there is no doubt about it whatsoever. The Bank based its contention on the fact that Mr. Markarian had no recollection of it and on Migirdic's out-of-court testimony in which he stated, in his examination of July 17 and July 18, 2002, that he did not recall the manner in which the confirmation letter was completed or whether he was present [See Note 4 below]. But Migirdic acknowledged in the same examination that Noonan indeed asked him to obtain the Markarians' signature on the letter [See Note 5 below]. Hence, he was the one responsible for obtaining the signatures. It is difficult to believe that he would have done it by mail rather than going to the Markarians' home, as he had always done each time he had something they had to sign. Mr. Markarian had no recollection of the confirmation letter, but he recalled the audit letters he received by mail. Moreover, everyone confirmed that Mr. Markarian did not contact Migirdic after receipt of the letter, to find out what it meant. If the letter had arrived by mail, that is what he would have done, as he did for the audit letters. Migirdic also testified concerning the reasons he probably gave the Markarians for obtaining their signatures. How could he have given them reasons if he was not present when the confirmation letter Was signed? It should be added that, before the Court, Migirdic clearly acknowledged that he himself brought Noonan's confirmation letter to the Markarians and he was present when they signed it. He acknowledged that his statements on the subject during the out-of-court examination were not accurate and that he now remembered very clearly the way things occurred.

   Note 4: Examination P-106B of July 17, 2002, question 471, and examination P-106C of July 18, 2002, questions 2 and 3.

   Note 5: Ibid., question 470.

¶ 81      For all these reasons, the Court finds that evidence was clearly adduced that it was indeed Migirdic himself who brought the Markarians the letter from Noonan, who "explained" it to them and who had them sign it. He was also the one who brought it back to Noonan.

¶ 82      The Markarians had no recollection of having signed that letter, although they acknowledged that their signatures do indeed appear on it. They have no recollection of having ever seen it.

¶ 83      Migirdic is also not certain about the way the letter was signed. Furthermore, there are certain differences in that regard between what he said before the Court at the hearing, what he said in his out-of-court examination and what he told IDA investigator Rondeau, according to what was reported in the IDA's decision.

¶ 84      Migirdic testified before the court that, to obtain the Markarians' signature on the letter prepared by Noonan, he probably told them that a guarantee had been provided in error and that the misunderstanding would soon be corrected (perhaps the reason for the confusion over the explanations given about the audit letters). That is consistent with what he told IDA investigator Rondeau, according to the IDA's decision [See Note 6 below]. So he told the Markarians that he needed their signatures in order to correct the error. Migirdic testified that, although he provided certain explanations, they were actually [TRANSLATION] "not really needed since they trusted [him]". He added that, in fact, they believed what he said. At most, Mr. Markarian asked him: [TRANSLATION] "When will all this be over?".

   Note 6: P-96 at 17, para 54.

¶ 85      Hence, Migirdic's out-of-court statement on July 17 and 18, 2002 that he did not recall the way in which the letter was signed must be set aside. Migirdic testified before the Court that, since then, his memory had returned regarding that point as well.

¶ 86      As to whether the Markarians read Noonan's letter before it was signed, the preponderant evidence is that they did not read it and relied on what Migirdic told them about its content. On the one hand, the Markarians had no recollection of having seen the document. On the other, Migirdic had no recollection either, but remembered having given explanations. Migirdic also indicated the general circumstances in which Mr. Markarian always signed the documents:

¶ 87      That comment was made when Migirdic was examined about the signing of the guarantee given in favour of the account of Rita Luthi (which was not read before being signed, as explicitly confirmed by Migirdic), but it applied to "any form". We will come back to this later on. Hence, the documents were not read before being signed. The Markarians relied on what Migirdic told them on the subject. That is clear from the evidence as a whole and from Migirdic's testimony. And it was confirmed by the Markarians. They assumed what Migirdic told them about the documents to be signed was true.

¶ 88      Moreover, Migirdic testified before the Court that he never had the Markarians sign documents [TRANSLATION] "without giving explanations". There is no doubt about that, since it was on the basis of those explanations that the Markarians signed. But Migirdic gave his explanations and the Markarians relied on them. Furthermore, the explanations were sometimes very short. Migirdic acknowledged that, in certain instances, documents might be signed in bulk (see paras. 198 and 201 below). He also acknowledged that the explanations might be simply: "documents needed to be signed for [your] accounts" or "needed for [the] files". He also acknowledged that, most of the time, he did not have to give many explanations because [TRANSLATION] "it was not necessary as [the Markarians] trusted [him]".

¶ 89      Be that as it may, explanations were given here. The preponderant evidence demonstrates that the Markarians did not read Noonan's letter before signing it and they relied on what Migirdic told them in regard to the content.

(D) NATURE OF THE INVESTMENTS THAT WERE TO BE MADE AND WERE MADE

¶ 90      As regards the nature of their investments, the evidence shows that the Markarians wanted safe, no risk and non-speculative ones, both for themselves and for their company. They wanted, first and foremost, to protect their capital. That wish was clearly indicated from the start and did not change afterward. Mr. Markarian testified: [TRANSLATION] "I wanted safe investments; I always told him "I want no risk"". He never changed his mind in that regard. For his part, Migirdic acknowledged that the Markarians always invested in "bonds and secure investings" [sic]. They wanted security. They wanted conservative investments. Migirdic added that [TRANSLATION] "the Markarians' investment objectives did not change over time". Moreover, they were the same for all their accounts.

¶ 91      Mr. Markarian testified that he did not want [TRANSLATION] "securities". However, the word was somewhat ambiguous for him, given that he acknowledged he was not opposed to what was not "risky" or "speculative", and he did not altogether reject the idea of investing in stocks. In fact, even at the time Mrs. Markarian's RRSP was with the Royal Bank, shares of BCE, a blue chip company, were in it (the bulk of the account was nevertheless in Canada Savings Bonds). From 1985 to 2000, Mr. Markarian himself had an RRSP with DPM that was invested mainly in balanced mutual funds and in funds of Canadian shares. But although Mr. Markarian did not reject all investments in stocks, the stocks had to be "conservative" and "safe".

¶ 92      He strayed from that rule only in rare cases and because of particular circumstances. He invested in Armeno and Bre-X, although he was aware of the very speculative nature of the investments and although they [TRANSLATION] "diverged from [his] investment philosophy", as he said, because [TRANSLATION] "everyone did it in [his] community". However, he invested little money (about $3,000). He also invested in Infowave at Migirdic's suggestion, but [TRANSLATION] "for such a small amount" (only $1,000). He acknowledged that he found himself with Nortel shares and lost money by not selling them at the right time. But he "acquired" the shares when BCE split his shares. He never bought them and believed that they did not cost him anything. Mr. Markarian also invested in Galilée, a real estate tax shelter that gave him substantial deductions. He acknowledged that he lost his investment in it, but he added: [TRANSLATION] "It was a tax shelter. I was prepared to lose. I knew that it was a tax shelter".

¶ 93      The Bank implied that the sole fact that Mr. Markarian operated his business was, in and of itself, risky and indicated he was not opposed to risk. Mr. Markarian did not see things that way. He thought his business was, on the contrary, not very risky, given his skills, the amount of work he did and his enthusiasm. It was also his bread and butter. As regards the fact that Mr. Markarian helped his sons get a start in business and lent them $300,000, in addition to guaranteeing a loan of $1 million for them out of the Les Immeubles Almark account and the joint account, Mr. Markarian was correct in stressing that it was not a question of "risk", but of "family". It was not a matter of "playing" the stock market but of helping his family. In his opinion, the business involved little risk in any case and was in fact very successful. Concerning his investment in Varak, which he lost completely, Mr. Markarian indicated that it was a matter of helping out his son-in-law's company. Here again, to his mind, it was not an investment like any other, but a family matter. He considered his investment his contribution for his daughter and her husband.

¶ 94      The Bank pointed out that Mr. and Mrs. Markarian's current investments with National Bank Financial include common shares and units of mutual funds consisting of shares. What is more, they are in their RRSPs. The Bank concluded that they are therefore prepared to play the stock market and take risks. Mr. Markarian responded that it was not a choice on his part. He simply did not want to change anything, [TRANSLATION] "during the proceedings", in the portfolio formerly held with the defendant, which was transferred to NBF, in the event that the Bank would then criticize him for making a change! He acknowledged that the portfolio was actually not appropriate for a person in his situation, which the people at NBF in fact told him, but it was the portfolio that Migirdic left him when he was dismissed... to Mr. Markarian's great displeasure!

¶ 95      The evidence is therefore clear that, although they were not opposed to the idea that some of their investments be in the form of shares, the Markarians clearly indicated, from the start, that they wanted in their accounts - all their accounts - only safe, conservative and risk-free investments. Furthermore, that wish did not change over the years and remained unchanged until the end. Migirdic was always well aware of that strategy, as he said... although he departed from it.

¶ 96      In fact, most of the investments made from the Markarians' accounts over the years were, generally speaking, consistent with those investment objectives. The exceptions involved the unauthorized actions of Migirdic, who, at certain times, took the liberty of making purchases on his own initiative, without even consulting the Markarians - which was prohibited by the Bank and by the Markarians - for the purpose of "placing" shares because he wanted to get rid of them, because he had to find an "account" for them, or while waiting to be able to move them elsewhere. The Bank in fact agreed to reimburse the Markarians for the transactions involving Intergold and AMCC.

¶ 97      The only other "risky" feature of the accounts proved to be... the guarantees.

¶ 98      In fact, the accounts were of such "high quality" that the Bank criticized the Markarians in its defence for that... which enabled them to be used as guarantees (see para. 568 below)! That was an admission that the Markarians did not make risky investments, which was indeed their wish.

¶ 99      But that was not always reflected in their client profiles.

(E) CLIENT PROFILES

¶ 100      The Client profiles that the Markarians filled out when their various accounts were opened reflected their desire to invest conservatively and safely, with one exception:

¶ 101      The only account involving a "Speculative" risk factor that could be significant, as it was not explicitly limited, was the joint account. The profile also indicated [TRANSLATiON] "Good quality", but the proportions of the two are not indicated. The [TRANSLATION] "Speculative" risk factor could therefore also be limited to 5%, as in the case of the Les Immeubles Almark account, just as it could be higher. Also excluded were the [TRANSLATION] "High risk" and [TRANSLATION] "Value" factors. Mr. Markarian testified that he did not know the meaning of all those expressions and the links between them. It must be said that all that is somewhat obscure. How can [TRANSLATION] "Speculative" be included when [TRANSLATION] "High Risk" is excluded? Furthermore, how can [TRANSLATION] "Good quality" be reconciled with [TRANSLATION] "Speculative"? Mr. Markarian testified that he thought [TRANSLATION] "Good quality" meant [TRANSLATION] "safe", which reassured him. That was in fact all he wanted. It was never a question of anything else with Migirdic, who acknowledged that. In the circumstances, the word [TRANSLATION] "Speculative" is not significant in itself.

¶ 102      Let me add that the form mentions a [TRANSLATION] "margin account". Mr. Markarian testified that he did not know the meaning of that expression. In actual fact, his account was never in deficit and he testified that there was never any question of it being so. The account was therefore never used as a margin account.

¶ 103      Bear in mind that that account was as well like the others in nature and risk factors.

¶ 104      The client profiles were subsequently modified. They evolved over time as follows:

¶ 105      Migirdic acknowledged that he himself did all the updates of the Markarians' client profiles, with the exception of the update of Mr. Markarian's RRSP account in 2001. He also acknowledged he made all the changes without the consent of the Markarians and without telling them. The changes were never made to respond to their wishes and did not stem from changes in their investment policy, which did not vary over the years. All the changes were made unilaterally by him and solely at his discretion.

¶ 106      Migirdic's assistant testified that she personally mailed the Markarians a copy of each of the updates done by Migirdic. Mr. Markarian responded that he was not sure he had received all of them, since several were not found, although he kept everything. He added that he did not understand those documents and their terms, and their consequences even less, that he did not realize the forms differed from the previous ones (the forms did not indicate the difference between the previous situation and the new one) and that he filed what he received with the other mail from the broker, without imagining that it was part of a fraud. The Court notes that, whatever the case may be, it is clear that all the updates of the client profiles are fictitious and never originated with the Markarians or were discussed with them before being made.

¶ 107      That means the changes indicate nothing about the Markarians' investment intentions or any wish on their part to guarantee third parties. Furthermore, the changes are important in showing how the Markarians were swindled and in understanding the intervention by the Compliance Department in regard to the Markarians' accounts.

¶ 108      All the changes to the Markarians' client profiles that Migirdic made were, in fact, in response to the requirements of the Bank's Compliance Department in order to maintain the guarantees in effect in regard to highly speculative accounts in deficit, whereas the Markarians' accounts were not in deficit, or in order to make certain speculative investments that were otherwise prohibited.

(F) INTERVENTION BY THE COMPLIANCE DEPARTMENT OVER THE YEARS

¶ 109      An institution like CIBC Wood Gundy must, according to the regulations, have a compliance department that supervises the transactions carried out for its clients, the actions of representatives and the status of records.

¶ 110      On several occasions, the Compliance Department noted many things were not quite right in Migirdic's records, the Markarians' investments and guarantees, and the guaranteed accounts. It intervened a number of times over the years to ask Migirdic for explanations or corrections. That led Migirdic to make changes in the Markarians' records, sometimes at the suggestion of the Compliance Department. The Compliance Department's concerns also highlighted incongruities or impossibilities in the Markarians' accounts (and the guaranteed accounts). Moreover, they illustrated that its main concern was, in some cases, to protect the Bank, rather than the Markarians. Lastly, they demonstrated how follow-up could occasionally be slow, inadequate and sometimes non-existent, and the extent to which Migirdic's superior dragged his feet and did not do his job.

¶ 111      On August 21, 1995, the Compliance Department wrote to Tom Noonan, the manager of Migirdic's branch, to bring to his attention the difference between the indication for the Markarians' company account, which was 100% "Low Risk", and for the Gazarosyan account, which was 100% "High Risk". The former account guaranteed the latter, so the indication "Low Risk 100%" was negated. Noonan was asked if the Markarians' had been contacted:

¶ 112      In the same letter, the Compliance Department wondered what was going on in the Gazarosyan account; it stressed the enormous losses and questioned the strategy for the account.

¶ 113      In response, Noonan forwarded the e-mail from the Compliance Department to Migirdic for his comments. Migirdic responded by saying the deficit in the Gazarosyan account would be reduced and he would revise the risk factors for the Markarians' company account. In fact, a September 18, 1995 update of the company profile modified the account from "Low Risk 100%" to "Low Risk 50% Medium Risk 50%". Noonan did not follow up on the questions about contact with the clients and the odd situation in the Gazarosyan account.

¶ 114      The Compliance Department questioned Noonan again the following October 31 about what was happening in the Gazarosyan account and asked whether all that made sense. The client was not making any money, despite a great many transactions, and the Compliance Department questioned the "objectives". Noonan was asked if he had met with the client. He was also asked whether he had sent the client letters. Compliance of the account was questioned, given that the holder of the account was a 65-year-old man:

¶ 115      The unsigned response was dated November 4:

¶ 116      The client was actually Migirdic... but no one knew that. Neither Noonan nor anyone else at CIBC had ever spoken with Sebuh Gazarosyan or contacted him. No one, except Migirdic, could say whether he had assets. When the Bank looked for Gazarosyan in 2001, it did not find him. The response given on November 4 could therefore only have come from Migirdic.

¶ 117      That means Noonan failed to respond to the Compliance Department's queries. He relied on Migirdic (which he did numerous times). The Compliance Department did not delve any further into the matter.

¶ 118      In the following two years, there was no new intervention by the Compliance Department in regard to the Markarians' or the Gazarosyan accounts.

¶ 119      It started asking questions again on September 26, 1997, this time of Migirdic, and drew his attention to the difference in risk factors that subsisted between the Markarians' company account and the Gazarosyan account. It noted that the Gazarosyan transactions were not suitable for a Triple A account like that of the Markarians' company account, which guaranteed the Gazarosyan account. The Compliance Department believed that could create legal problems later on and Migirdic was asked to resolve the problem. It was suggested that he write to the Markarians in order to inform them of the situation:

   Note 7: The account of the company 125134.

¶ 120      Migirdic responded that the client profile would be updated. He added that the client had already twice signed the audit letters sent to him by the external auditors, confirming his knowledge of the guarantee! He did not mention the quality of the transactions themselves or the suitability of the accounts. The Compliance Department was not worried about that.

¶ 121      The Compliance Department wrote him two days later that the signature on the audit letters "is just routine audit confirmation that the client recognizes the guarantee as valid and in force".

¶ 122      Migirdic responded that the client's profile would be updated shortly. He added that the Markarians would increase the risk factor in their accounts to "100% Speculative" and that Gazarosyan would reduce his.

¶ 123      Migirdic probably did not keep his promise, with the result that the Compliance Department wrote him again on November 14, stressing that the update to increase the risk factor in the company account had still not been sent and asking why:

¶ 124      Migirdic updated the company account the second time on September 29, 1997; "Low Risk 50%" was replaced by "High Risk 50%" (the medium risk remained unchanged). That seemed to resolve any problem, even if there was no response to the question about the suitability of the transactions in a Triple A account.

¶ 125      On May 8, 1998, the Compliance Department again wrote to Noonan about the difference in risk factors in the account of the Markarians' company and the Gazarosyan account it guaranteed. It noted that the high risk factor was only 50% in the account of 125134, whereas it was 100% in the Gazarosyan account. The Compliance Department asked Noonan if he had spoken with the client and requested an acknowledgment by the client that the account was "High Risk 100%". It also asked for a profit and loss report for the account of 125134 and the Gazarosyan account for the past two years:

¶ 126      Migirdic then updated the profile of 125134 and indicated "High Risk 100%". Noonan did not follow up on the requests of the Compliance Department, particularly with regard to contact and risk acknowledgment. The Compliance Department let the matter drop.

¶ 127      There were no new messages from the Compliance Department for a year.

¶ 128      Then it intervened again, contacting Migirdic on June 18, 1999, this time about the account of Rita Luthi. It was noted that the account was very active, that the investments were very speculative and that the losses were very substantial. The Compliance Department noted that, given Mrs. Luthi's assets, the transactions were not suitable for her. It wondered about the indication [TRANSLATION] "good investment knowledge" appearing in the record, considering Mrs. Luthi's occupation, income and assets. Lastly, the Compliance Department wondered whether the information appearing in the record that Mrs. Luthi purchased stock on her own initiative and the purchases were not proposed by Migirdic was accurate:

¶ 129      Migirdic responded that Mrs. Luthi's assets were much more substantial than indicated in the record, she had investments in Europe, she owned the outfitting operation but did not work in it, she liked to trade options and mining stocks since she lived near Val-d'Or, and she had been trading for a long time. All that was completely false. He added that she recently spoke with Noonan about her investments and that her client profile would be updated soon.

¶ 130      The Compliance Department wrote again to Migirdic on July 13, 1999 concerning Rita Luthi. It wondered about the relationship between her and the Markarians. It also questioned the Markarians knowledge of Mrs. Luthi's statement of account and the fact that, if the guarantee were exercised, they would lose everything they had in their own account. The Compliance Department noted that the Markarians did not receive a copy of Mrs. Luthi's statements of account and it questioned that. Migirdic was asked what he intended to do in response to those concerns:

¶ 131      Migirdic responded that Luthi and the Markarians were business partners in a few projects, which was false. He indicated that the Markarians were aware of Mrs. Luthi's losses, which was also false. He said the Markarians' client profile had to be updated to reflect the fact that their assets totalled $2 million, not $1 million. He promised that, on the update, it would be indicated that they guaranteed the Luthi account and that the update would be signed by them that time. That was not done.

¶ 132      The Compliance Department responded the same day, insisting that Mrs. Luthi be asked whether she objected to the Markarians' receiving a copy of her monthly statements so that they knew exactly the extent of their guarantee. The e-mail also noted that the Markarians were "quite generous" business partners! That comment says a lot about what the Compliance Department thought of Migirdic's response:

¶ 133      Migirdic did nothing for four months, besides preparing another update of the Markarians' profile that was identical to the one from two years before, except for the assets. There was no mention of the guarantee of the Luthi account, and the Markarians did not sign, despite the promises made.

¶ 134      The Compliance Department wrote Migirdic again on November 25, 1999. It was noted that an update of the Markarians' profile mentioning the guarantee in favour of the account of Rita Luthi, duly signed by the Markarians, had to be prepared. That was not done. Furthermore, there was no follow-up regarding the suggestion that the monthly statements for Mrs. Luthi's account be sent to the Markarians:

¶ 135      Migirdic responded that he would submit a new, duly signed, update. He wondered, however, whether such an update was really needed, given that the Markarians received a reminder of their guarantee on each of their monthly statements. He added that the Markarians were on a trip and he would see to that upon their return. It was never done. He also indicated that Mrs. Luthi was not comfortable having her monthly statements sent to the Markarians but would eliminate her need for the guarantee in the coming weeks. All that was untrue.

¶ 136      The Compliance Department again wrote to Migirdic on November 26. He was told that an update signed by Mrs. Luthi was recommended inasmuch as the preceding updates had not been signed. Although a signature was not absolutely required, it was noted that it is "added comfort" that clients acknowledge the level of risk, especially owing to the fact that it had been increased to high. The Compliance Department said that the Markarians' the monthly statements did not mention the guarantee. It added that, if the guarantee was to be terminated, the Markarians' instructions would be required:

¶ 137      Migirdic answered that, if Rita Luthi eliminated the need for a guarantee by depositing money in her account, he did not see why new documents would have to be prepared.

¶ 138      The Compliance Department responded in turn that, if that were indeed the case, everything would be fine, at least temporarily. But the guarantee would remain available to Mrs. Luthi in the future and the concern was really whether the Markarians had to be kept continually informed of their obligations in terms of Mrs. Luthi's account. It added that that was the reason the Markarians should receive a copy of her monthly statements, unless the guarantee was completely revoked in writing:

¶ 139      Migirdic wrote that Mrs. Luthi would deposit, in the coming weeks, the funds required to cover all losses in her account and that, therefore, the Markarians would revoke their guarantee. That was untrue.

¶ 140      Seeing that the guarantee was still in effect, the Compliance Department sent Migirdic another e-mail two months later, on January 17, 2000, to inquire about what had happened with the promise that funds would be deposited in the Luthi account and that the Markarians' guarantee would be revoked.

¶ 141      Migirdic responded four days later that he had just received $150,000 from Luthi which was true, and that he was awaiting a final payment before revoking the guarantee, which was false. There would be no other payments.

¶ 142      On April 3, 2000, the Compliance Department sent Migirdic another e-mail inquiring about his promise the previous January, which he had still I not kept:

¶ 143      Migirdic repeated that the Markarians were aware of the extent of the guarantee, Rita Luthi was waiting for additional funds to be deposited in the account and he would meet with Mrs. Luthi and Mr. Markarian to tell them that copies of Mrs. Luthi's monthly statements should be sent to the Markarians. He added that, if Mrs. Luthi's debt were not reimbursed in May, the statements would begin to be sent. That was never done.

¶ 144      The Compliance Department answered Migirdic immediately that, when he met with the clients, it was important to give them the reasons the copies of Rita Luthi's monthly statements had to be sent to the Markarians. He also had to have Rita Luthi sign the authorization form for that purpose. None of that was obviously ever done.

¶ 145      A week later, Migirdic told the Compliance Department that he had met with the Markarians, they understood the extent of Mrs. Luthi's debt, he had shown them the reminders in their statements of account confirming the existence of the guarantee, they were not interested in receiving copies of Mrs. Luthi's statements of account, they had in their account a Treasury bond that completely guaranteed their obligations toward Mrs. Luthi and they intended to deposit additional money in their own account soon. All that was entirely false.

¶ 146      Immediately after that message, the Compliance Department wrote again, this time to Noonan for more assurances. He was asked to ensure independently that the Markarians were well aware of the extent of their guarantee and to see that that was reflected in the records. That request to Noonan meant that the Compliance Department did not deem Migirdic's responses sufficient and believed that additional assurances were required regarding the Markarians knowledge of Rita Luthi's situation... and that perhaps Migirdic should not be trusted.

¶ 147      Noonan did not follow up on the Compliance Department's request, with the result that it wrote to him again on April 19.

¶ 148      This time, Noonan responded that he had spoken to Migirdic, the Markarians were outside the country for Easter and he would speak with them when they got back. That never happened. Rather, Noonan wrote to them.

¶ 149      Even then, he did not, however, take the required precautions to personally ensure that the Markarians were aware of their obligations toward Rita Luthi, or that there would be an "independent" audit. Rather, he gave the duty to... Migirdic! That provided Migirdic with an opportunity to perpetuate the fraud and to continue to deceive the Markarians and CIBC.

¶ 150      On May 4, Noonan confirmed for the Compliance Department that he had obtained written confirmation from the Markarians that they were fully informed of their guarantee in favour of Rita Luthi. That confirmation was obtained by Migirdic through fraud.

¶ 151      In September 2000, the Compliance Department got back to Migirdic regarding the Luthi account and the Gazarosyan account. He was asked for explanations concerning the relationship between the Markarians and Rita Luthi. The same question was asked about the relationship between the Markarians' company and Gazarosyan. In regard to the Gazarosyan account, the Compliance Department noted for the first time that there were many guarantees in the account and almost as many revocations within short periods of time: one guarantee was given then revoked two days later, while another was revoked a month after being given. The Compliance Department noted that it was even difficult to know who the current guarantor of the account was. The Compliance Department asked Migirdic, somewhat naively (or cynically, but perhaps obliviously), whether there was reason for concern about the extensive "guarantee activity" in the Gazarosyan account! Lastly, Migirdic was asked why so many guarantees were given and revoked in the account:

¶ 152      Migirdic responded that the situation was, in fact, simple: the personal account of the Markarians guaranteed Rita Luthi's account, and the company account guaranteed the Gazarosyan account. He repeated, as he had done previously, that Gazarosyan was a shareholder in the Markarians' company, which was false. He added that the two other people who previously guaranteed the Gazarosyan account were investors in a project that never materialized (which is false) and that he did not think that the account would be active again in the future in terms of guarantees, so there was no reason for concern!

¶ 153      The Compliance Department responded again, on September 22, to note that the corporate account was guaranteed by the Markarians, which was not a problem since the company belonged to them, but also by Gazarosyan. The Compliance Department asked what the relationship was between Luthi, Gazarosyan and the Markarians that each one guaranteed the other in that way:

¶ 154      Migirdic answered as he had in the past: Gazarosyan was a shareholder of the Markarians' company, and Rita Luthi and the Markarians were business partners. All that was false.

¶ 155      In October 2000, the Compliance Department got back to Migirdic concerning the sad state of Rita Luthi's account and the concerns that raised. Migirdic responded that Rita Luthi was about to sell property and the sale would free up considerable liquid assets that would be used to reduce the losses in her account. That was false.

¶ 156      There was no other intervention by the Compliance Department before Migirdic's fraud suddenly came to light, in February 2001.

¶ 157      Let me say that, over the years, the Compliance Department intervened many more times, in addition to those reported above, in regard to other accounts and other clients, or in regard to Migirdic's questionable actions.

¶ 158      Bear in mind as well that the Markarians were never informed of the correspondence between the Compliance Department, Migirdic and Noonan.

(G) MIGIRDIC'S CONFESSION AND EXECUTION OF THE GUARANTEES

¶ 159      Now we arrive at the events of 2001.

¶ 160      Uncomfortable with what he had done and unable to bear the pressure any longer, Migirdic was absent from work for a week in February and decided to admit his fraud. He contacted the president of CIBC Wood Gundy, Tom Monahan, on February 26, 2001 to inform him that there were certain "problems" with the accounts of certain clients. Monahan asked him to put that down in writing and to send it to Noonan. An e-mail followed immediately in which Migirdic indicated the accounts and the problems. Migirdic mentioned in the e-mail that the Markarians were completely unaware that they had guaranteed the accounts of Luthi and Gazarosyan. The e-mail reads as follows:

   Note 8: The Markarians' company.

   Note 9: The items in parentheses were added by Tom Noonan; the XXXXXX replace the items stricken by the Bank in order to protect the confidentiality of clients.

¶ 161      Another, quasi-identical e-mail was sent 30 minutes later with a few additions and certain changes. It contained the following mention concerning the Markarians' joint account and their company account:

   Note 10: The Markarians' company account.

   Note 11: The Markarians' account.

¶ 162      Two meetings followed on March 1 and 8, 2001 between the Bank's authorities and Migirdic, during which Migirdic explained the details of his fraud and reiterated that the Markarians never knew that they were guaranteeing the accounts of Luthi and Gazarosyan. CIBC asked Migirdic not to mention the matter to anyone.

¶ 163      Upon returning from vacation on March 14, 2001, the Markarians read the letter from the Bank telling them that Migirdic was absent because of [TRANSLATION] "health reasons". Mr. Markarian contacted the branch where Migirdic worked and was informed that the branch manager wanted to meet with him.

¶ 164      The meeting took place on March 16, 2001 in the offices of CIBC Wood Gundy. It lasted an hour and a half. On their arrival, Mr. and Mrs. Markarian were surprised to see that manager Noonan was accompanied by an attorney. They were informed that they had signed guarantees in favour of Rita Luthi and Sebuh Gazarosyan, and they were shown the documents and asked to identity their signatures. Mr. Markarian confirmed that it was indeed his signature and that of his spouse but indicated that they had never seen the documents they were shown. Mr. and Mrs. Markarian said they had never signed any guarantee for anyone except the company 125134 and their sons. They added that they did not know either Rita Luthi or Sebuh Gazarosyan, and that they were completely unaware whether they had accounts with CIBC and what the status of the accounts was.

¶ 165      The Markarians were also shown the audit and confirmation letters for the guarantees. They said they had never seen the documents before but recognized their signatures. Tom Noonan testified that the Markarians answered all the questions they were asked and did not refuse to answer any of them.

¶ 166      The representatives of the Bank informed the Markarians that their guarantees totalled $1,350,000 and that they had to pay that amount to the Bank. They were told that their accounts were frozen and that they could no longer carry out any transaction in them.

¶ 167      The Markarians were not informed of Migirdic's confession at that time, or of the fraud he had committed.

¶ 168      Mr. Markarian was distraught and devastated. He was extremely agitated and [TRANSLATION] "as white as a sheet". All the witnesses confirmed that he was in a state of shock, including Tom Noonan, who testified that Mr. Markarian "was very shocked". At the end of the meeting, Mr. Markarian was unable to stand up. The attorney had to help him leave. In the corridor, Mr. Markarian leaned against the wall and could not speak for 15 minutes. Mrs. Markarian tried to help him. The two finally managed to get to the car and Mr. Markarian said to his spouse: [TRANSLATION] "Is it a dream, Alice? Is it true?" Once they got home, they called their sons to come and help their father who was feeling very poorly, and a physician was called to his bedside because of the concerns raised by his condition.

¶ 169      In the circumstances, the defendant's statements in these proceedings that the Markarians showed no surprise or astonishment during the meeting of March 16 are quite astonishing (and offensive), particularly since even Tom Noonan, who was still the defendant's employee, confirmed how very stunned Mr. Markarian was when informed of his commitments and their consequences (the attorney present did not testify).

¶ 170      Mr. Markarian then met with various attorneys who reiterated to the Bank his total lack of awareness of the guarantees and their non-validity. He discovered little by little the extent of Migirdic's fraud and learned that 10 or 12 other people were victims.

¶ 171      On April 5, 2001, Migirdic was officially dismissed. That very day, the Bank nevertheless confirmed for the plaintiffs that it considered their guarantees valid and it intended to exercise them.

¶ 172      On April 20, the plaintiffs' attorneys reiterated that the plaintiffs denied having consented to any guarantee agreement whatsoever. The Bank maintained that it intended to avail itself of the guarantee.

¶ 173      On June 19, the Bank sent the plaintiffs and Rita Luthi a formal notice demanding payment, failing which it would exercise the guarantees. The plaintiffs' attorneys responded in a letter on June 25 that Migirdic [TRANSLATION] "clearly abused the trust of Mr. and Mrs. Markarian by obtaining from them, by trickery and other fraudulent procedures, their signature on certain guarantee documents in favour of the accounts of people who were total strangers". The following was added in the letter:

¶ 174      CIBC refused the offer to meet with the plaintiffs and it advised them that it still intended to avail itself of the "guarantees" it held. It took possession on June 28 of more than $336,000 in the Markarians' accounts further to the liquidation of part of their securities. The Markarians were informed of that on July 5. An additional $16,500 was seized on July 9.

¶ 175      In the summer of 2001, the plaintiffs tried to transfer the remaining funds to another brokerage firm, but the defendant refused in regard to the joint account and the company account.

¶ 176      On October 3, CIBC confirmed for the plaintiffs its intention to exercise the "guarantee" covering the debts of Gazarosyan. On October 4, the plaintiffs renewed their opposition to that:

¶ 177      On October 24, the Bank took possession of the sum of $1,100,000 in the account of the company 125134 and the sum of $11,000 in the Markarians' joint account, in order to cover the deficit in the account of Sebuh Gazarosyan. The Markarians no longer had a dime in their joint account or in their company account with CIBC.

¶ 178      The plaintiffs instituted the present proceedings on December 21, 2001.

¶ 179      Two and half years later, i.e. on April 16, 2004, the Investment Dealers Association of Canada (the IDA) found Migirdic guilty of 24 counts, including 11 related to the present case, and excluded him for life from working as a securities representative in Canada, in addition to ordering him to pay $305,000 in fines (which he never paid). However, no criminal charges were ever laid against him. Moreover, there was never any complaint or sanction against CIBC.

2. NULLITY OF "GUARANTEES" P-6 AND P-7

¶ 180      Throughout the trial and until the end, the Bank denied that the Markarians were unaware they were guaranteeing Luthi or Gazarosyan. It argued that it was in possession of duly signed, good and valid guarantees, and that it was justified in using them to cover the debts of Luthi and Gazarosyan. Given the "contradiction" between the signed "papers" and the "versions" of the Markarians and Migirdic, it decided to rely on the "papers", it said. In its opinion, it was legitimate to use them to take possession of the Markarians' assets entrusted to its custody and to pay itself.

¶ 181      In the opinion of the Court, that is a gross error. To commit it, the Bank had to ignore reality, the facts brought to its attention and common sense.

¶ 182      The Markarians denied having ever signed a guarantee in favour of Rita Luthi or Sebuh Gazarosyan. The Bank gave no reason for not believing them. In actual fact, their credibility is excellent and the Court does not doubt what they say. Their testimony is also corroborated by Migirdic.

¶ 183      Migirdic clearly stated that the Markarians never knew they were guaranteeing Rita Luthi and Sebuh Gazarosyan, and he confirmed what the Markarians always said in that regard. He acknowledged that the Markarians were "unaware of the guarantees" in favour of either person. He even wrote that for the Bank authorities in his "confession" of February 26, 2001, which brought all his fraud into the light of day. He reiterated it to the Bank authorities during the meetings of March 1 and 8, 2001.

¶ 184      The Bank argued that Migirdic is a liar and a cheat and cannot be believed.

¶ 185      But Migirdic confirmed the Markarians' version, which we have no reason to doubt. Moreover, Migirdic explained how he committed his fraud and gave precise details that were corroborated by the facts. He decided to confess everything and no longer had any interest in hiding or twisting the truth.

¶ 186      Even common sense shows that the pseudo-guarantees could not be real. No one would agree to give as a guarantee everything he held with a broker (we are talking here about $1.5 million) in favour of a person he did not know, had never seen and whose very existence he was unaware of, whereas on the very day when the guarantee was signed, he would find himself liable for debts of over $300,000. That is not logical.

¶ 187      Let us recall the facts. Mr. and Mrs. Markarian did not know Rita Luthi or Sebuh Gazarosyan. They had no reason to guarantee the account of either one. There was no advantage they could derive and no consideration for signing anything whatsoever in favour of Luthi or Gazarosyan. On February 16, 1993, when the alleged guarantee in favour of Rita Luthi was said to have been signed, Mrs. Luthi's account was on the verge of being in deficit. Only $18,000 remained in it and Mrs. Luthi was about to withdraw $60,000 from it. Furthermore, on March 28, 1994, the date the alleged guarantee in favour of Sebuh Gazarosyan was signed, the situation was even worse in his account. The deficit exceeded $250,000.

¶ 188      In the circumstances, one would have had to be crazy to sign a guarantee in favour of either person, both of whom were perfect strangers, and, what is more, to do so without any consideration or any advantage. The Markarians are not crazy. One can only believe Migirdic.

¶ 189      But the Bank refused to do so. Thus, we find ourselves in the curious situation in which all the time its employee was lying, the Bank believed him. Now that he was telling the truth, it refused to believe him, even if what he said checked out. Was it because of the substantial sums involved? The Bank provided no explanation.

¶ 190      It simply argued that Mr. and Mrs. Markarian's true signatures appear on documents P-6 and P-7. In fact, Mr. Markarian recognized his signature on the two documents and Mrs. Markarian recognized hers on guarantee P-6 in favour of Rita Luthi.

¶ 191      Are the documents therefore valid? We must see how the signatures ending up being there.

¶ 192      The supposed "witnesses" who signed as such on the documents are of no help. In fact, they do not exist, since the only people present when documents P-6 and P-7 were signed were Mr. Markarian, Mrs. Markarian in Luthi's case (and perhaps Gazarosyan's case) and Migirdic. It is false to mention anyone else.

¶ 193      Mr. and Mrs. Markarian had no recollection of the circumstances in which documents P-6 and P-7 were signed. As for Migirdic, he gave indications but they were, in some cases, vague and even contradictory in certain respects. The Bank concluded that [TRANSLATION] "the evidence adduced does not make it possible to establish the circumstances in which the plaintiffs' consent" was given and [TRANSLATION] "allegedly vitiated".

¶ 194      In the Court's opinion, that is not accurate. We actually know a lot more about the circumstances of the signing of documents P-6 and P-7 than the Bank wants to admit.

¶ 195      Although Mr. and Mrs. Markarian have no recollection of having signed document P-6 or P-7, Mr. Markarian testified that Migirdic came to his house from time to time to have him quickly sign documents. That happened several times, perhaps five to ten times over the years. Mr. Markarian testified that Migirdic stopped by rapidly, generally at dinnertime, before going home. Most of the time, he left the motor of his car running. He said he did not have time to stay, did not take the time to sit down and, in fact, did not stay for very long. Migirdic explained the purpose of his visit, which was often preceded by a telephone call. He indicated that documents had to be signed [TRANSLATION] "for their accounts" and he gave a brief explanation why. Mr. Markarian indicated that he did not read the documents he was asked to sign. He trusted Migirdic and [TRANSLATION] "did not want to insult him". He presumed that it was during those visits that he signed documents P-6 and P-7. He said: [TRANSLATION] "I must have signed like the other times, without asking why".

¶ 196      Mr. Markarian also testified that his spouse generally was not present during discussions between him and Migirdic, although she heard them from afar. When her signature was required, Mr. Markarian asked her to come and sign where he indicated. She never participated to a greater extent in the discussions between her spouse and Migirdic. Mrs. Markarian confirmed what her spouse said.

¶ 197      That procedure was almost completely confirmed by Migirdic in his testimony in Court and out of Court.

¶ 198      Here is how Migirdic explained, in his out-of-court examination, the way the "guarantee" given in favour of Rita Luthi was signed:

¶ 199      In addition, Migirdic said the following in regard to the "guarantee" given in favour of Sebuh Gazarosyan:

¶ 200      In his testimony before the Court, Migirdic clearly indicated that, in the meetings on March 1 and 8, 2001 with his bosses, further to his "confession" of February 26, 2001, he told them he used the same ruse to have the Markarians sign the documents, by telling them they were [TRANSLATION] "documents required to complete their accounts".

¶ 201      A number of basic elements are apparent from all these statements by Migirdic:

¶ 202      That is the fundamental information on the basis of which the circumstances in which the signatures of the plaintiffs were obtained for each of the guarantees and the value of the documents signed can be established with quite sufficient certainty and largely beyond a balance of probabilities (this convincing evidence was not contradicted), particularly since what Migirdic said coincided perfectly with the Markarians' version.

¶ 203      In fact, the only thing that remains uncertain is whether Mr. Markarian, and in one case his spouse, signed the documents knowing that they were signing a "guarantee". That is not clear. What is clear though is that, if they signed with full knowledge of the facts, i.e. knowing the nature of the document signed; they did so only in favour of one of their own accounts, including that of the company. If, conversely, they signed without knowing what they were signing, they still did so figuring it was a "document" required for their accounts or one of them. That is essential and sufficient.

¶ 204      The evidence is clear that Mr. Markarian knew perfectly well what a guarantee was. He had granted several of them in his life, in favour of his firm, his children and so on. He understood perfectly the risks and consequences of a guarantee. He testified to that. Furthermore, documents P-6 and P-7 are clear. Their title is clear and appears in capital letters: "GUARANTEE AGREEMENT". Seeing the title, it was impossible not to understand what was involved. In addition, the mention "Signature of the guarantor" appears clearly under the signature. So if Mr. Markarian took cognizance of the document, he could not be mistaken about its meaning and scope. In the circumstances, is it possible that the Markarians signed documents P-6 and P-7 knowing they were guarantees in favour of Mrs. Luthi or Mr. Gazarosyan? Why would they have signed a guarantee jeopardizing all their assets with CIBC Wood Gundy (we are talking about $1.5 million, a third of all their assets) in favour of people whom they did not know, whom they had never heard of and whose very existence they were unaware of, whereas there was no advantage or reason for them or a member of their family to sign such a document? That is impossible, as Migirdic himself noted in his out-of-court testimony.

¶ 205      Whether the Markarians signed realizing they were signing a guarantee or not, what is clear is that they signed a document solely in their own favour, for their records. Migirdic said so, they said so and all the evidence demonstrates it: they never signed anything other than documents in their favour or in favour of their accounts (including that of the company).

¶ 206      Even if P-6 and P-7 were "blank" documents when they signed them, meaning they were not yet filled out, it was never a question of just anything at all being entered on them. Everything to appear on them was in favour of the Markarians, [TRANSLATiON] "for their records" [TRANSLATION] "for their accounts", not for any other reason. By telling them that the documents were required [TRANSLATION] "for their accounts", Migirdic undertook to enter at the top of the documents one of the Markarians' accounts. He could not enter anything else.

¶ 207      As Migirdic said and as the Markarians themselves affirmed, it was never a question of P-6 and P-7 being signed in favour of anyone other than themselves. It was never a question of such a thing happening. The Markarians never authorized that. They never signed documents in favour of Rita Luthi or Sebuh Gazarosyan. They never authorized anyone to prepare any document whatsoever in favour of Rita Luthi or Sebuh Gazarosyan. They did not even know they existed.

¶ 208      Migirdic told them he would enter the Markarians' names or one of their accounts at the top of the documents. He could not enter anything else.

¶ 209      That means that, when Migirdic entered the name of Luthi or Gazarosyan at the top of P-6 or P-7, he did so without any consent whatsoever by the Markarians and fraudulently. What Migirdic did is nothing but forgery in the circumstances. He ensured that he actually "captured" the Markarians' signatures and then used them for his own ends, without the Markarians' consenting to or even realizing it.

¶ 210      In doing so, Migirdic made a forgery. The document is worthless. It is absolutely null.

¶ 211      A simple example will suffice. Migirdic obtains a star's autograph on a card. He then adds the following above the autograph: [TRANSLATION] "I acknowledge that I owe Harry Migirdic the sum of $10,000". That is a forgery. The document is not worth anything. The present case is of the same nature.

¶ 212      If the Markarians' names had first been written at the top of the document and Migirdic had erased them and entered another name, that document would be found to be a forgery and would be worthless. There is no difference between erasing a name on a document in order to enter another name and writing a name other than the one you said would be written and should alone be written. In both cases, the document is a forgery.

¶ 213      The Court shares the opinion in the IDA's decision: letting a gullible client believe that a signature on a blank document is a mere formality related to his or her record, then using it in another file for completely different purposes constitutes forgery of a signature (at para. 30 of the decision) and fraud (at para. 10), which is a crime (at para. 40).

¶ 214      In the Court's opinion, this is not an "error" of consent induced by fraud.

¶ 215      Fraud, according to Baudouin, [TRANSLATION] "is the fact of voluntarily causing an error in another's mind in order to prompt that person to conclude a contract or to conclude it on different terms" [See Note 12 below].

   Note 12: Jean-Louis Baudouin and Pierre-Gabriel Jobin, Les obligations, 5th ed. (Cowansville, Qc.: Yvon Blais, 1998) at para. 218.

¶ 216      Here, no error was induced in Mr. Markarian's [TRANSLATION] "mind", since the idea of a guarantee in favour of Rita Luthi or Sebuh Gazarosyan never entered his mind. Furthermore, Mr. Markarian was never [TRANSLATION] "prompted to conclude the contract or to conclude it on different terms". He very simply never knew that he was concluding the contract invoked, which was a forgery created on the basis of a signature obtained fraudulently.

¶ 217      A definition of fraud was recently cited by the Court of Appeal [See Note 13 below]: [TRANSLATION] "a means intended to deceive a person with a view to prompting the person to make a commitment by means of a juridical act or to make a commitment under conditions that differ from those the person would normally have accepted" [See Note 14 below]. Mr. Markarian never made a commitment in the contract invoked. He never knew that he was signing a guarantee for Rita Luthi or Sebuh Gazarosyan.

   Note 13: Lépine v. Khalid, [2004] R.J.Q. 2415 (C.A.) at para. 52.

   Note 14: Centre de recherches en droit privé et comparé du Québec, Dictionnaire de droit privé et lexiques bilingues - Les obligations (Cowansville, Qc.: Yvon Blais, 2004) at 114; the excerpt cited in the definition is from Professor Brigitte Lefebvre, "La bonne foi: notion protéiforme", (1996) 26 R.D.U.S. 321 at 330.

¶ 218      If he had been given false information in order to prompt him to consent to guaranteeing either party, then there would have been fraud. But it was never a question of such a thing. Migirdic very simply prepared a document on the basis of the Markarians' signatures by changing the context and the records, without saying anything to them.

¶ 219      Professor Vincent Karim defines fraud as a [TRANSLATION] "conspiracy to mislead a contracting party and prompt the party, as a result of being misled, to conclude a contract" [See Note 15 below].

   Note 15: Vincent Karim, Les obligations, Vol. 1, 2nd ed. (Montréal: Wilson & Lafleur, 2002) at 193.

¶ 220      Strictly speaking, Mr. Markarian was not misled. He was not mistaken about what he was doing inasmuch as he never knew that he was doing what he was made to do. He was never prompted to contract in favour of Luthi or Gazarosyan, or to conclude a contract in their favour. He never gave any consent in their favour, either in the document used to commit him, without his knowledge, or even in error. Mr. Markarian never knew anything about a guarantee in favour of Luthi or Gazarosyan. He never even knew that such a document existed.

¶ 221      Hence, documents P-6 and P-7 are forgeries. They were completely fabricated by Migirdic. They are worthless and are absolutely null. The Bank could not rely on them as a basis for exercising any recourse whatsoever. It could not use them as a basis for seizing the plaintiffs' assets deposited with it, of which it was the custodian.

¶ 222      Let me add that P-6 and P-7 are devoid of any basis or consideration, which in and of itself constitutes another cause of nullity.

3. FRAUD

¶ 223      If it were otherwise concluded that P-6 and P-7 existed and involved a real commitment on the part of the Markarians, it would have to be concluded that they must be annulled because of a lack of consent induced by fraud.

¶ 224      Contracts depend on consent (a. 1385 C.C.Q.). Consent must be free and enlightened. It can be vitiated by error (a. 1399 C.C.Q.). An error vitiates consent when it bears on the nature of the contract, the object of the prestation or anything that was essential in determining the consent (a. 1400 C.C.Q.). The error of one party induced by fraud committed by the other party vitiates consent whenever, but for that error, the party would not have contracted, or would have contracted on different terms (a. 1401 C.C.Q.).

¶ 225      I had an opportunity earlier to give the definition of fraud.

¶ 226      There is no doubt about Migirdic's fraudulent manoeuvres, nor is there any about the absence of consent on the part of the Markarians for the purposes pursued by means of P-6 and P-7 according to the terms they contain. The Markarians were, to say the least, misled by Migirdic in regard to the essential elements of the contract, and that error was more than determinative. There is no doubt that the Markarians would not have signed P-6 or P-7 if they had known what the documents were going to be used for, for whom they would be used and what obligations they entailed for the Markarians.

¶ 227      Migirdic obtained the Markarians' signatures on both P-6 and P-7 by means of lies, deceit and false representations, and on false pretexts. He blatantly lied about the purpose and use of the documents he had them sign and about what would be entered on them. He had the documents signed when they were blank so that he could enter on them what he wanted, which he did. To carry out his fraud, he targeted people who were particularly inexperienced in stock market matters, who were simple, honest and trusting. He set up a veritable system (to which others besides the Markarians actually fell victim). He took numerous steps to prevent his fraud and actions from being discovered over the years. He thus engaged in many acts and lied many times in order to prevent the Markarians from discovering his fraud and deceit. He lied to the Compliance Department and invented stories to elude questions and controls. He changed the client profiles without authorization in order to increase the risk factors and assets. He constantly and on his own initiative "pushed" the risk factors in the accounts upward. He misleadingly indicated clients' investment knowledge in their profiles. He took many steps and lied to prevent the audit and control measures from being successful. He carried out transactions without mentioning them to the clients. He kept the Markarians and Mrs. Luthi in the dark about the obligations and "relationship" between them. When all is said and done, he devised a veritable conspiracy that went on for years.

¶ 228      For their part, the Markarians were unaware of the fraud, were never a part of it and had no idea it was in progress until March 16, 2001, when they met with Tom Noonan and his attorney, and learned that their signatures appeared on documents that created enormous obligations for them. The Markarians said so. Migirdic said so. Mr. Markarian's dreadful shock on March 16, 2001 corroborates that. The circumstances under which the documents were signed and the way things happened confirm it.

¶ 229      Although certain allegations by the defendant appeared at one point to challenge the wholly good faith of the Markarians in this case and question the relationship between them and Migirdic (see paras. 568 to 571 below), it should be underscored that the defendant never alleged or argued that. In fact, the Court wishes to be clear and stress that, in actuality, no modicum of proof exists that could support such a claim. Mr. Markarian is an honest, sincere, credible man of good faith. He was completely unaware of the fraud committed by Migirdic at his expense, before being informed of it by Tom Noonan on March 16, 2001. In fact, his reactions at the time and his extreme surprise confirm that, if it required confirmation.

¶ 230      Although the Markarians' signatures appear on P-6 and P-7, there is no doubt that they do because of the fraud, deceit and other fraudulent acts perpetrated by Migirdic, of which they were the victims.

¶ 231      But how could Mr. Markarian be fooled to that extent? In the Court's opinion, he was because:

¶ 232      It was a veritable system that Migirdic set up over the years: the hasty signing of documents, the brief explanations, the signing of blank documents to be completed subsequently (because they had to be typed, as he told Mr. Markarian's brother), the occasional insertion of documents in with others, and the plausible explanations given (for example, it was normal for one account of a person to guarantee the person's other accounts).

¶ 233      Migirdic always overestimated the knowledge of his victims in their client profiles in order not to arouse suspicion.

¶ 234      Furthermore, Migirdic targeted his victims: simple, honest people who were not knowledgeable about the stock market and were trusting. The Markarians were such people, as was Mrs. Luthi, who never realized what was going on in her account, the funds of which were completely wiped out, as the account was also used for countless transactions one more speculative than the next. Mrs. Luthi was unaware until the end that her account was in deficit and that someone was guaranteeing it. That was also true of Kiganouchi Papazian, who found herself, in regard to Aida and Bedros Papazian (who are not relatives), in the same situation as Mr. Markarian in regard to Mrs. Luthi and Mr. Gazarosyan. Kiganouchi Papazian was also an older woman who was simple, honest, trusting and not knowledgeable about stock market matters. Migirdic would also stop by to see her for a few minutes, often where she worked, at the store located in the basement of the building housing Migirdic's office. Migirdic also took advantage of the fact that she had little schooling and poor English skills.

¶ 235      The effectiveness of Migirdic's representations is demonstrated by the case of other clients who were also defrauded by him.

¶ 236      The Markarians were the victims of a veritable system of organized fraud from which it was very difficult to protect oneself because of the skill and knowledge of Migirdic, who was the Bank's only representative dealing with his clients and who could tell them anything about practices, documents required and the meaning of documents, without being contradicted by anyone.

¶ 237      Migirdic had a definite skill in confusing people and inventing stories, and even CIBC, with all its resources, knowledge, staff, and supervision and control mechanisms, was also fooled.

¶ 238      The victims were repeatedly fooled? So was the defendant.

¶ 239      Mr. Markarian is one of those trusting people who has little knowledge of, or experience with, stock market matters. He is a good, generous man who believes that everyone is like him and who is trusting. That is why Migirdic bamboozled and defrauded him.

¶ 240      It may seem surprising to say that a man with business experience like Mr. Markarian had little knowledge of stock market matters or investments. But that is in no way surprising. It is an error to conclude that those who are skilled businesspeople therefore have an excellent knowledge of stock market investments and brokerage, which are very special fields. Not all business involves the stock market, and it is possible to succeed in a type of business one knows well and be taken in in a very different field in which one is a novice. One need only recall the Laflamme case, heard by the Supreme Court, which involved a businessman who had been wonderfully successful but was deceived by his broker.

¶ 241      It is true that Mr. Markarian was a businessman who created his firm out of nothing and was successful. He saw the advisability of separating Les Industries Acadiennes from Le Immeubles Almark so as to minimize risk. He signed a great many contracts throughout his life. He knew what a guarantee was and he granted them over the years.

¶ 242      That said, Mr. Markarian did not do everything in his firm. He met with customers, prepared drawings, submitted bids and discussed prices. He was responsible for sales. He did not handle the accounting and [TRANSLATION] "understood nothing about accounting figures", to use his own words. He also did not handle [TRANSLATION] "government papers". He had people to do that. His most important role was to estimate the cost of work. Moreover, his financial transactions were limited during the life of the firm (the purchase of an inexpensive building, the sale of the building and the purchase of another one, limited loans, repayment over very short periods of time, and so on). He was the type of person who had no debts. In addition, he was not a person who had long years of schooling and his academic training was limited.

¶ 243      Whatever the case may be, he knew only very little about stock market matters, stock market investments and brokerage practices. He never subscribed to a business newspaper or any magazine of the same type. He had always had only extremely traditional and conservative investments and that continued when he did business with Migirdic. As he said, his investment knowledge was [TRANSLATION] "zero". He preferred by far term deposits and government bonds to stock market investments. He invested at the suggestion of the representative; hence, his investments were [TRANSLATION] "solicited". He relied on the recommendations of his advisor and signed the forms he was asked to sign. Thus, he said very accurately: [TRANSLATION] "I knew nothing about investment. That was why I sought advice from a specialist"; A novice in the field, he was the exact opposite of a seasoned investor.

¶ 244      It is revealing that, when he transferred his RRSP accounts from CIBC to National Bank Financial after discovering Migirdic's fraud, Mr. Markarian asked that [TRANSLATION] "nothing be changed because, if some day, that goes to Court with CIBC and it is sold, afterward, it might create complications later with CIBC", even if the funds were poorly invested. Such a way of thinking shows Mr. Markarian's limited knowledge of financial matters and a degree of naiveté.

¶ 245      Hence, there is no doubt that Mr. Markarian was a man who knew little about the stock market when he did business with Migirdic, who took advantage of that, because Mr. Markarian had complete trust in him.

¶ 246      On the one hand, Mr. Markarian had a tendency to gauge the honesty of others on the basis of his own, and he is very honest. He assumed that everyone was honest and he never mistrusted Migirdic, especially a man of his quality. Furthermore, Migirdic was presented to him from the start as someone "honest" and "knowledgeable", and, what is more, as a vice-president of CIBC Wood Gundy. That greatly impressed Mr. Markarian and reinforced his idea that his advisor was eminently worthy of his trust, particularly since that same Migirdic a few years later became a [TRANSLATION] "vice-president and director" of the firm, a "promotion" that could but confirm his merits. Later, we will see that those titles were actually only marketing tools and recognition for a large sales volume. But Mr. Markarian was never told that and did not know it. He therefore thought that he was doing business with someone "important", whom he could certainly trust, especially since Migirdic's business cards indicated he was a [TRANSLATION] "retirement specialist". That also reassured Mr. Markarian and created a climate of trust.

¶ 247      In fact, Mr. Markarian admired Migirdic for his success and the recognition he was given. He did not speak with anyone other than Migirdic about his investments. He actually had an exclusive relationship with Migirdic at CIBC Wood Gundy. No one else in the firm was in contact with him. As Mr. Markarian said: [TRANSLATION] "I would never have called anyone else at CIBC. He was Mr. CIBC"!

¶ 248      As indicated earlier, the transactions in the accounts were always proposed and initiated by Migirdic. Mr. Markarian knew nothing about them. The two spoke generally once a month [TRANSLATION] "to take stock". The Markarians' accounts were not "discretionary", that is, left in the sole hands of the representative, which was, in any case, prohibited at CIBC. The Markarians' authorization was always required for any transaction. But it was Migirdic who proposed the transactions. It could not have been otherwise, since Mr. Markarian was not knowledgeable in the field.

¶ 249      When Migirdic requested a signature on a form, Mr. Markarian did not object, as he had confidence that, if Migirdic requested it, then it was necessary. It even happened five or six times over the years that Mr. Markarian asked Migirdic to come and organize his filing cabinets, given all the papers he had received from time to time!

¶ 250      Furthermore, the Markarians' accounts were Triple A, that is, of the highest quality. That also inspired confidence.

¶ 251      The Markarians were actually justified in trusting Migirdic and CIBC, because of the very context of confidence that prevails and must prevail in an investor-broker relationship and because of the broker's obligations toward clients (see paras. 481 to 506 below). The Court is of the opinion that the climate of trust is even greater in regard to a bank (see paras. 498 and 499 below). The plaintiffs were right to argue that, in entrusting their savings to the defendant and its representative, they were justified in assuming that, in exercising their profession, the defendant and its representative would act fairly and honestly, and in compliance with the laws, regulations and other standards governing their activities.

¶ 252      So it is not surprising that the Markarians had absolute trust in Migirdic, encouraged as they were by the firm with which they were dealing, Migirdic's status, the defendant's advertising and the qualities attributed to Migirdic by the defendant itself.

¶ 253      Furthermore, the Bank failed to properly fulfil its obligations toward the Markarians, which contributed to their being fooled (that matter is examined beginning at para. 262 below).

¶ 254      Hence, it was in that climate of trust, in which the defendant and its representative had real duties and obligations and in which the plaintiffs knew them and could rely on them, that the fraud was committed and vitiated the plaintiffs' consent.

¶ 255      In the Court's opinion, given the way the events unfolded, the plaintiffs had no chance of surviving unscathed, given Migirdic's acts, the representations made to them, the procedures employed... and the Bank's failures in terms of control and supervision of its employee (see below).

¶ 256      There is no doubt in this case that, should agreements P-6 and P-7 not be considered null and of absolute nullity, they should be annulled for vitiated consent induced by fraud, and the plaintiffs' recourse in that regard should be allowed.

4. LIABILITY OF THE DEFENDANT

(A) LIABILITY FOR ITS EMPLOYEE

¶ 257      Fraud as the cause of an error that vitiates consent is admissible only if it is committed by a co-contracting party (a. 1401 C.C.Q.). The condition laid down by law is fulfilled when fraud is committed by the representative of the co-contracting party, even without the latter's knowledge [See Note 16 below].

   Note 16: J.-L. Baudouin and P.-G. Jobin, op. cit. note 12 at 220, para. 227.

¶ 258      That is indeed the case here. Migirdic committed his fraud and took action that misled the plaintiffs when he was the defendant's employee and was acting "in the performance of his duties".

¶ 259      It was well and truly as representative of the defendant that Migirdic went to the plaintiffs' house for their signatures on P-6 and P-7, saying they were necessary [TRANSLATION] "for their records". Migirdic always went to see the Markarians as a mandatary of CIBC and acting in that capacity when he had them sign. The fact that he also pursued his own interests does not place him outside the performance of his duties [See Note 17 below]. In fact, P-6 and P-7 were of direct benefit to the defendant. Let me add that those documents, because of the guarantee they provided, allowed Migirdic to carry out a great many transactions that would not have been possible otherwise. The defendant derived its share of the benefits of each transaction.

   Note 17: Jean-Louis Baudouin and Patrice Deslauriers, La responsabilité civile, 6th ed. (Cowansville, Qc.: Yvon Blais, 2003) at 577, para. 815.

¶ 260      The principle applicable here is clearly explained by authors Lemoyne and Thibaudeau in "La responsabilité du courtier en valeurs mobilières au Québec" [See Note 18 below]:

   Note 18: (1991) 51 R. du B. 503 at 524.

¶ 261      In fact, in this case, Migirdic's faults were not only committed "in the course of the performance of his duties" but in the very performance of his duties.

(B) DEFENDANT'S FAULTS

¶ 262      But there is more here. This is a case where the defendant can be held liable because of its own faults. It itself committed faults in the performance of its duties and the fulfilment of its responsibilities, including false representations about the quality of its representative and, above all, the lack of protection for clients, as well as a serious failure to provide supervision and control.

(C) MISLEADING TITLES

¶ 263      The defendant attributed to Migirdic fake titles, i.e. "vice-president" and "vice-president and director", in addition to letting him use the title "specialist in retirement investments". Those titles were false representations that misled the plaintiffs, hid reality from them, disinformed them, comforted them in their confidence in Migirdic, reduced their distrust, and contributed to Migirdic's fraud. The defendant committed a fault in terms of its obligation to inform and advise, in addition to misleading the plaintiffs.

¶ 264      In principle, a vice-president is a person in a management position in a firm. The vice-president is immediately below the president and reports to the president. The vice-president acts in the absence of the president. It is a prestigious title in a firm, a title held by few individuals. The English word "director", the incorrect origin of the word used here in French, designates either the member of a board of directors of a firm or the head of a department or office. That is also a prestigious title, at least when it is attributed in a prestigious firm.

¶ 265      In the defendant's operations, these titles also have that meaning, but not that meaning alone! They are given as well to any representative (also called an "investment advisor" or previously a "financial consultant") who reaches a certain level of commissions in a given year, in short, who "sells" a lot and brings in a lot of commissions. A person is awarded the title essentially in "recognition" of work and as a marketing tool, as the president of CIBC Wood Gundy, Tom Monahan, acknowledged. However, to have the title of "vice-president" or "vice-president and director" adds no new responsibility or any management role. What is more, it testifies to neither greater competence nor more reliability.

¶ 266      In the defendant's operations, the titles are, in fact attributed to many people. In 1995, there were 206 vice-presidents and 44 vice-presidents and directors out of 556 representatives. In 1997, there were 217 vice-presidents and 109 vice-presidents and directors out of 612 representatives. In 1999, there were 197 vice-presidents and 101 vice-presidents and directors out of 725 representatives, the proportions were about the same in 2000. That year, about 300 of the 700 representatives had a title!

¶ 267      The problem is that clients do not know that these titles are simply marketing tools, i.e. a means to convince them that they have an excellent representative, and recognition for the volume of commissions. Clients therefore believe they have a "very special" and "eminently acknowledged" representative when the representative has the title of "vice-president" or "vice-president and director". That was what Mr. Markarian in fact believed, as he testified. Richard Papazian, another witness (and also a victim) thought the same thing. So the titles create a false feeling of trust, comfort and prestige, the role of which is not trivial in the commission of fraud.

¶ 268      The plaintiffs were the victims of these false representations by the defendant in their regard.

¶ 269      Migirdic received the title of vice-president in 1986, then vice-president and director in the early 1990s. He retained the titles until he left, because of the enormous volume of commissions he generated. In fact, the titles increased Mr. Markarian's trust in Migirdic and prompted him to guard against him and his actions even less. The defendant committed a fault in acting to ensure that.

¶ 270      The Court wholly subscribes to the comments of Mr. Justice Donald Gordon in Blackburn v. Midland Walwyn Capital inc. [See Note 19 below], a decision of the Ontario Superior Court of Justice:

   Note 19: [2003] O.J. 621 (O.S.C.J.).

¶ 271      That decision was upheld by the Court of Appeal for Ontario [See Note 20 below], and the Supreme Court refused leave to appeal.

   Note 20: [2005] O.J. 768 (O.C.A.).

¶ 272      In the Court's opinion, the titles "vice-president" and "vice-president and director" have no place in the brokerage field when they apply to simple representatives. They then constitute a mere "marketing gimmick", to use Gordon J.'s words, just a misrepresentation contrary to the duty of a brokerage firm to seek to protect its clients and to inform them well. By continuing to use those titles, brokerage firms expose themselves to criticism, as in this case.

¶ 273      As for the title "specialist in retirement investments" or "retirement specialist", it was not a title given Migirdic by the defendant, but the defendant authorized him to use it (among others on his business cards). Once again, it was a way to instill trust in retirees and prompt them to rely on their representative in all confidence. In actuality, the title meant nothing more than that Migirdic had many retired clients, which did not make him more competent in that area and also did not make him a better representative for those people (much to the contrary, Migirdic exploited their greater vulnerability).

(D) LACK OF PROTECTION FOR CLIENTS AND ABSENCE OF ADEQUATE SUPERVISION AND CONTROL

¶ 274      However, the duties that CIBC most cruelly failed to fulfil, with the most detrimental consequences for the plaintiffs, were its duty to protect its clients and, as a corollary, its duty to provide adequate control and supervision of its representative. In this regard, it must be said that the defendant dramatically failed to fulfil its obligation to closely and effectively supervise the activities of Migirdic and to have at all times an effective operational system of supervision and control for that purpose.

¶ 275      It is acknowledged that a [TRANSLATION] "brokerage firm must adequately supervise the actions of its broker or see its liability incurred because of a personal fault committed by the broker" [See Note 21 below]. That obligation is derived not only from its duty to supervise and control its employee, which is provided for in the Civil Code, but from its duty to act with prudence and diligence as a mandatary (a. 2138 C.C.Q.).

   Note 21: Pelletier v. Valeurs mobilières Desjardins, REJB 2003-41448 (S.C.).

¶ 276      However, those are not the only sources of the defendant's liability in that regard. The regulations and standards of the profession are other sources.

(1) Applicable regulations

¶ 277      Regulation 1300 of the IDA states the following:

       SUPERVISION OF ACCOUNTS

       ...

       Business Conduct

¶ 278      Section II of Policy No. 2 of the IDA regulations states the following:

       III. Branch Office Account Supervision

       Introduction

       IV. Head Office Account Supervision

       Introduction

¶ 279      Rule 7 of the Montréal Exchange, in force when the plaintiffs did business with the defendant, provided for the following:

       7452. Diligence as to Accounts

¶ 280      Section 224.2 of the Securities Regulation [See Note 22 below] stipulates the following:

   Note 22: R.R.Q. 1981, c. V-1.1, r.1.

¶ 281      As we can see, the regulatory obligations of the defendant in terms of supervision and control of its employees are extensive, detailed, specific and demanding. A number of them were violated numerous times.

(2) Migirdic's numerous faults over the years

¶ 282      To gauge the extent to which the defendant fulfilled its obligations to supervise and control Migirdic, his faults should be pointed out.

¶ 283      First, there are those appearing in his confession of February 2001:

   Note 23: Migirdic mentioned 1995 in his confession, but it was indeed in 1993.

¶ 284      These faults are not peccadilloes and concern millions of dollars. Moreover, a number of them were repeated. It is incredible that, despite their size, none of the faults were discovered by the Compliance Department or anyone else at CIBC. That is even true of the 1400 discretionary transactions in Peter Arslanian's account.

¶ 285      Migirdic's confession showed that the Markarians were not the only victims of fraudulent guarantees. There was also Kiganouchi Papazian. Her guarantee was given in favour of Aida and Bedros Papazian (not relatives) on June 3, 1993 and remained in effect until it was executed, in 2001. Mrs. Papazian's losses totalled $300,000. Her case is very similar to that of the Markarians. But it is even sadder as the person involved was more disadvantaged.

¶ 286      Kiganouchi Papazian also belonged to the Armenian community of Montréal. She held a minor job in a store, in the basement of the building that housed the branch where Migirdic worked. Her salary was about $25,000 a year. She spoke neither French nor English. Her assets were meager. They consisted of her home and her life savings, which she entrusted to Migirdic. He had her sign a guarantee in June 1993 in favour of perfect strangers, without her knowing and without her ever being informed. She was 64 years of age at the time. She was also treated to Migirdic's "medicine": unawareness of the guarantee, changes in the client profiles many times without her knowing and without her authorization, increase in the risk related to her account up to "High Risk 100%", a change in the value of the assets indicated in the client profile, unauthorized transactions and so on. In her case, Migirdic even allowed himself to engage in very speculative transactions using her account, transactions that were obviously not authorized and were extremely risky (especially for a person her age). The Compliance Department also intervened in regard to her account several times as it was concerned about such transactions for a woman her age, the incongruity of the guarantee and her awareness of it. The intervention yielded no results. In 2001, she ended up losing everything she had with the defendant. She was then 76 years of age and never got over it. She died a few years later, completely broken-hearted, her son told us.

¶ 287      The defendant never discovered the fraud involving Kiganouchi Papazian.

¶ 288      On the basis of the IDA decision on April 16, 2004, at least another fraudulent guarantee was obtained by Migirdic in 1996. It involved a client identified as L.N. and was reportedly obtained in favour of... Sebuh Gazarosyan. However, that guarantee was revoked by the client less than a month later.

¶ 289      Migirdic's confession said nothing about his discretionary transactions in the case of Rita Luthi or about the losses of $300,000 he accumulated in her account without her knowing. Mrs. Luthi thus lost all the savings she had deposited in her account (part of which has since been reimbursed by the defendant). Mrs. Luthi had so little idea of the status of her account that she continued to regularly withdraw amounts from it from time to time after everything was lost... which the Markarians' guarantees allowed.

¶ 290      The defendant did not discover anything in that regard before Migirdic's confession, despite the many doubts raised at the Compliance Department by the numerous incongruities of the account and the situation of Mrs. Luthi (see paras. 128 to 155 above).

¶ 291      Migirdic's confession said nothing about the fact that Sebuh Gazarosyan never traded with the defendant and was never its client. For all practical purposes, he did not exist. It was, in fact, Migirdic who traded in the account for himself.

¶ 292      Again here, no one at CIBC discovered anything, despite the incongruities and improbabilities in the account and in the situation.

¶ 293      Other faults were committed by Migirdic, and many prohibited and derogatory actions were taken by him during the 1990s:

¶ 294      An infinitesimal part of the less serious acts was discovered by CIBC.

¶ 295      But that is not all. In September 1997, Migirdic knowingly accepted a power of attorney bearing a false signature and presented it to his employer. His secretary noticed it and advised Noonan. CIBC demanded a new, duly signed power of attorney. Migirdic was ordered by his employer to pay a fine of $30,000 for that fault.

¶ 296      On June 26, 1998, Migirdic even asked Kiganouchi Papazian's son to sign for his mother a guarantee acknowledgment; Migirdic said the signature would enable him to have the guarantee revoked and correct the error. Richard Papazian first refused. But Migirdic was convincing. Given his insistence and explanations about the need for the signature, Richard Papazian ultimately put his mother's and his own name on the document to prevent it coming to his mother's attention and alarming her. CIBC did not discover the false signature on its own; it was discovered in an external audit by the IDA. CIBC was informed but took no action against Migirdic! To "regularize" the record, Migirdic had Mrs. Papazian sign another guarantee confirmation on March 31, 1999, without explaining to her what she was signing and without her knowing that she was signing such a confirmation. Noonan did not feel it was necessary to handle the matter himself. No one else at CIBC handled it.

¶ 297      Let me add that, in 1999 and 2000, Migirdic carried out prohibited and fraudulent transactions involving Intergold and AMCC securities at the expense of a number of clients, including the Markarians. These extremely revealing matters are examined below. They are part of the litany of faults committed by Migirdic.

¶ 298      All that, without counting the many lies and falsehoods that Migirdic told the Compliance Department over the years without anything ever being checked or anything being discovered: the relationship between the Markarians and Luthi, the relationship between the Markarians and Gazarosyan, the Markarians' knowledge of the guarantees, meetings with the Markarians, Luthi or Gazarosyan, the financial situation of Rita Luthi, the financial situation of Gazarosyan, and so on (see, among other things, paras. 129, 131, 135, 139, 141, 145, 152 and 154 above).

¶ 299      Hence, Migirdic's improper actions multiplied over the years. In fact, he began to pose a problem almost from the time he was hired (we will come back to this later on). He was sanctioned several times. At other times, he was not, because his actions were not discovered or because they were not deemed important.

(3) An inadequate system of control

¶ 300      It is certainly not a fault per se for a brokerage firm not to discover all the faults of its representatives.

¶ 301      But when so many derogatory or obviously fraudulent actions by one and the same representative go unnoticed for the most part, questions arise, especially given their gravity in this case.

¶ 302      That leads to the conclusion that the system of control was inadequate, if not worse. But perhaps the defendant was not as concerned with protecting its clients as it says it was.

¶ 303      The following events clearly show that was the case.

(4) Intergold and AMCC shares

¶ 304      The Markarians found themselves at one point with Intergold and AMCC shares they never bought. The way that happened and especially the way the defendant reacted to the situation are highly revealing as to the control and supervision mechanisms it had in place and its concern for protecting clients.

¶ 305      The case of the Intergold shares is quite astonishing. The securities were highly speculative. Migirdic had many clients buy them. On November 9, 1999, the Compliance Department prohibited Migirdic from trading the shares, which were not liquid. Furthermore, Migirdic had his clients buy 900,000 of them, i.e. 19% of all the outstanding shares. The Compliance Department deemed that was way too much, and if it became necessary to sell them, their liquidation would be impossible, besides having to choose between clients in deciding which shares would be sold first, a situation that would be unbearable. In addition, the Compliance Department noted that Migirdic himself held many Intergold shares, placing him in a serious conflict of interest. Hence, the transaction prohibition. But on May 30, 2000, Migirdic bought a block of 4,500 shares of Intergold at the price of $15,160 on behalf of Mrs. Markarian. On January 4, 2001, another purchase of 8,300 shares was made at the price of $22,000, also for Mrs. Markarian's RRSP. On February 16, 2001, two additional purchases of 11,300 shares at the price of $22,587 were made, one for Mrs. Markarian's RRSP and the other for Mr. Markarian's RRSP. None of these transactions was flagged as prohibited and the four purchases went through without any problem, even though they violated CIBC's instructions. The purchases were also made without any authorization by the Markarians; they were, in fact, on a trip in 2001 and, before leaving, asked that there be no transaction in their accounts before their return. The transactions were also made in violation of the risk factor indicated for each of the accounts, namely, "Low Risk 100%". The purchase was in no way suitable for the Markarians' accounts.

¶ 306      None of that was flagged in regard to the first two transactions. Concerning the last two, Noonan's assistant wrote a memo to Migirdic, not to tell him that the purchases were prohibited or that the shares were not suitable for the Markarians (in fact, she asked no questions about the purchases themselves), but to suggest that it would be a good idea for him to change the Markarians' client profile. To her mind, that was the only problem!

¶ 307      For years, the defendant refused to reimburse the Markarians for the first two transactions, alleging that they received confirmation of the purchase and did not react. CIBC closed its eyes to the fact that Migirdic was in a conflict of interest, which the Markarians were not informed of either (whereas CIBC was), and that there were good reasons for the purchases not to take place, which the Markarians were not informed of either (whereas CIBC was). But it is clear that, when information of that nature is hidden from the client, the cancellation of the transactions can be requested once the game is up, even if the conventional 30-day period has expired. That period was applicable only in showing that the transaction was not authorized by the client, not when its fraudulent or inappropriate nature is raised. The Markarians' principal was ultimately fully reimbursed with interest during the hearing.

¶ 308      The case of AMCC (Applied Microcircuit Corp.) shares is even more extraordinary and more troubling. The securities were extremely speculative. On October 24, 2000, Migirdic acquired 1,000 of them for CAN$300,000 on behalf at Rita Luthi, at US$205 a share. The purchase was made without Mrs. Luthi's authorization and without her being informed, although Migirdic indicated that the idea of buying them was the client's! It was a "very substantial" purchase, as Migirdic admitted. Furthermore, it was surprising in an account like Mrs. Luthi's, if only because of the size of the purchase (Mrs. Luthi never had that amount in her account). What is more, the account was then in deficit. But no one at CIBC reacted. In the late afternoon that day, Migirdic noticed that the Luthi account was insufficient to allow the transaction, even with the Markarians' guarantee. He therefore decided to "transfer" the transaction to another account. He sent it to that of Aida and Bedros Papazian. But that was not allowed without the authorization of the branch manager or his assistant. It is not known who gave the authorization, but it was provided without any problem and without any questions being asked. Migirdic noticed a few days later that the account of Aida and Bedros Papazian was also insufficient for such a transaction: He therefore decided to make a second transfer and "place" 400 of the 1,000 shares, half in the account of Levon Afeyan and half in the account of Anna Papazian. The shares were transferred on October 30, but October 27 was indicated as the date the shares arrived in the account. A second authorization was required by the authorities of the branch. It was also obtained without any difficulty and even without a single question. No one asked why the shares were transferred to a second account, which cannot be explained in any way. The transfer was done, moreover, for the original price of US$205 a share. No one asked questions about the fact that the value of the share had since dropped US$70. The fortunate recipients of the shares were not informed of the transactions. Nor were they informed that they had just lost $16,000 the very day the shares were placed in their accounts. In addition, the transfer was authorized without anyone at the branch feeling the need to communicate with them.

¶ 309      Migirdic received an e-mail from the credit department on November 3, 2000 informing him that there was not enough money in the account of Aida and Bedros Papazian for the 600 shares remaining in their account (cash had just been withdrawn). The account was thus overdrawn. Migirdic noted that the shares had to be "parked" (his term) in another account. So he decided to send the 600 shares to the Markarians' RRSPs, half in Mrs. Markarian's account and half in her spouse's. All that took place on November 3, but a false date of transfer was indicated, i.e. October 27. So ten days elapsed from the time of the original purchase. Furthermore, the transfer took place at the price on the 24th, even though the 27th was indicated as the date of purchase. The value of the shares had by then dropped more than 37%, so that at the very time when the shares were placed in their accounts, the Markarians had lost more than 105,000. Obviously, they were not informed of that fact or even of the fact that the shares had been transferred to them. To top it off, Migirdic needed the authorization of a branch director. He again went to see Noonan's assistant, who authorized the transfer without any problem and without even asking questions, simply after seeing the indication "wrong account number". Not only was the purchase not authorized by the Markarians, but it was not consistent with the risk factors for their RRSP accounts.

¶ 310      In all, every transfer authorization was granted without ever checking or asking the least question, even though seven clients were involved, even though three successive transfers constituted a situation that was wholly unusual and derogatory if not impossible in the normal course of business, and even though all these facts should normally have raised [TRANSLATION] "suspicions" as Noonan said. In addition, no one noticed that all the purchases were indicated as having been made at the request of the clients rather than proposed by the representative, which is odd in itself, but became impossible, given that the transactions were carried out in order to "park" the shares and there were multiple transfers. Moreover, the highly speculative nature of the securities raised no questions on anyone's part, nor did the size of the purchase in monetary terms. No question was raised either at the time or subsequently about compliance of the purchase with the risk factors for the "buyers" accounts. In fact, the only thing that posed a problem and that was raised in all those transactions was one of solvency; the credit department reacted, not the Compliance Department or the branch's management. The mechanisms in place at CIBC were able to protect the Bank from losses, but not able to protect the clients. However, if it could detect credit problems, CIBC could just as well have detected problems with compliance, fraud and abuse.

¶ 311      The transfer authorizations granted show the negligence that reigned at CIBC and the total absence of control over Migirdic. That is a perfect illustration of the serious supervision and control problems at CIBC in protecting clients, or the absence of a will to protect them. That also raises serious questions about CIBC's "morality".

¶ 312      The transactions involving the AMCC shares are troubling from another standpoint. This time, others at CIBC besides Migirdic were in a position to see Migirdic's underhanded dealings. The transfers to the Markarians actually took place after the intervention of the credit department notifying Migirdic that the shares could not stay in the account of Aida and Bedros Papazian. That means that, when the shares were transferred to the Markarians, someone other than Migirdic at CIBC knew that the Markarians had not initiated the purchase and that the transaction had not taken place on October 27, or even on October 24. Someone also knew that the shares were not worth US$205 each when they were transferred, but US$140. Someone was also in a position to know that the transfer of shares to the Markarians' accounts was not the result of a "wrong account number". But no one intervened. In any case, that was to the Bank's advantage.

¶ 313      Be that as it may, CIBC was thus complicit in the fraud and actually benefited from it. Protecting clients was less important than protecting itself.

¶ 314      Bear in mind that the defendant refused to reimburse the Markarians for the AMCC shares prior to the fourth week of the hearing. Everything has been paid back since then.

(5) Failures of the Compliance Department

¶ 315      But there is more. The evidence shows that, when the Compliance Department intervened, it did so in an insufficient manner, belatedly and without adequate follow-up.

¶ 316      An attentive examination of the serious suitability problems in the accounts of the Markarians, Rita Luthi and Sebuh Gazarosyan, as well as the intervention of the Compliance Department, demonstrate the long time it took for the Department to react to the problems.

¶ 317      The problems with the Luthi and Gazarosyan accounts were blatant from the early 1990s. The accounts were worrisome in themselves. In the case of Gazarosyan, it was apparent that someone was trading in large volumes and was not making money. The transactions did not appear to suit Gazarosyan's age or situation. But no one at CIBC (except Migirdic) had contact with him (which would also have made it possible to see that Gazarosyan was just a front for Migirdic). In the case of Rita Luthi, the questions were even more obvious: it is hard to understand that such transactions were carried out for someone like her.

¶ 318      But it was not until February 1993 in Luthi's case and, worse still, August 1995, in the case of Gazarosyan, before the Compliance Department asked questions for the first time. Questions should have been asked much earlier, considering that the questions raised in 1993 and 1995 could all have been raised prior to that.

¶ 319      Moreover, it should have been noticed when each of the "guarantees" were signed that the accounts of Luthi and Gazarosyan could not logically be guaranteed by the accounts of the Markarians because they were extremely different in nature. The risk factors were wholly incompatible, as was the type of investments in each account. Exhibit P-135 shows the extent of the questions that posed from the start in regard to the guarantees, on the one hand, and the actions of Migirdic, on the other. See paras. 110 to 155 above.

¶ 320      Whereas the "guarantee" in Luthi's case was signed on February 16, 1993 and, from the start, questions should have arisen about the compatibility of Mrs. Luthi's account with that of the Markarians and the reasons the Markarians were guaranteeing the account, it was only on July 13, 1999, six and a half years after the "guarantee" was signed, that the Compliance Department asked questions on the subject for the first time. No checks were made concerning the guarantee in Rita Luthi's account all that time, despite the enormous questions raised by the account and the guarantee, as indicated by the Compliance Department's e-mail when it made up its mind to ask questions.

¶ 321      Furthermore, no one worried that Rita Luthi made withdrawals from her own account when it was empty and even in deficit... which was possible only because any deficit was "guaranteed" by the Markarians. Incidentally, the same kind of incongruous situation was found in the account of Aida and Bedros Papazian, who made withdrawals of US$5,000 a month for months on end from an empty account that was even in deficit... on the credit of Kiganouchi Papazian. No one seemed to find that abnormal and asked questions.

¶ 322      Concerning the Gazarosyan account, while it was several hundred thousand dollars in deficit, no one at CIBC tried to speak to Mr. Gazarosyan, see who he was, question him about his strategy and objectives, check whether he agreed to have so many losses and so on. The myriad guarantees in the Gazarosyan account were themselves questioned for the first time only in September 2000, whereas the situation dated back to 1994.

¶ 323      The same type of situation is found in the case of Kiganouchi Papazian: the risk factors were not abided by, the transactions were not suitable for her age or situation, her "guarantee" of the account of Aida and Bedros Papazian was "incomprehensible", the violations of transactions rules were numerous and so on, but a lot of time had to go by before the Compliance Department began to ask questions.

¶ 324      In addition, there were often serious failures in regard to the follow-up of records at the Compliance Department. Follow-up often proved slow and insufficient, if there was any at all. Long periods of time elapsed before any follow-up, and intervention was often followed by long stretches of silence. This is clear from paragraphs 110 to 155 above.

¶ 325      The most striking case from that standpoint involves Mrs. Luthi's account. An email from the Compliance Department dated July 20, 1995 questioned the fact that the risk factors for the account did not correspond to the investments made (which were entirely speculative) and the fact that the account was $35,000 in the red. There was just a single e-mail from the Compliance Department until June 18, 1999, i.e. four years later. The questions in the last e-mail are in fact, extremely serious and could have been raised much earlier. So what were they doing all this time?

¶ 326      Although the questions raised by the Compliance Department were often very pertinent, the responses were much less so. The evidence shows that, on several occasions, Migirdic and Noonan did not respond to the questions the Compliance Department asked. They also did not always follow up on what they were asked to do or on their commitments: see, for example, paragraphs 113, 117, 126 and 147 above in Noonan's case, and paragraph 120 in Migirdic's case. The evidence shows that the Compliance Department had to repeat the same questions or requests on several occasions, often in vain.

¶ 327      There is another example of this in the case of Kiganouchi Papazian in March 1999. After the IDA questioned the suitability of the transactions in the account of Aida and Bedros Papazian, the Compliance Department wrote to Noonan and Migirdic to ask whether either of them had met with Kiganouchi Papazian to find out whether she actually realized that her account guaranteed very heavy losses in the account of Aida and Bedros Papazian. It was noted that Mrs. Papazian's signature on the confirmation letter was not the same as her signature on other documents in the record. A request was made to confirm whether someone had met personally with Kiganouchi Papazian and who had signed the confirmation letter. Noonan did not respond to the e-mail and Migirdic did not respond to the question as to who signed the letter. Despite that, the Compliance Department concluded its correspondence by simply asking Migirdic to obtain another confirmation letter!

¶ 328      It is surprising, in the circumstances, that Tom Monahan, the president of Wood Gundy, testified in Court that the questions raised by the Compliance Department always received a reply. That is not true at all, which perhaps explains the shortcomings in the past.

¶ 329      On several occasions, the responses given were, on the contrary, incomplete and unsatisfactory, if not simply false. Other times, the questions were not answered. Sometimes, the Compliance Department asked the question again (especially toward the end). Sometimes, it did so belatedly. In other instances, it did not follow up.

¶ 330      The Compliance Department let Noonan be when he did not follow up on its requests for meetings with the clients. It did not compel Noonan to speak with the clients himself in the case of accounts that were in deficit, irregular or problematic. And that happened more than once, when the need to speak with the clients was glaring. Migirdic himself acknowledged in his testimony that, of his 500 accounts, 20 or so might have warranted that Noonan contact the clients themselves because the accounts posed problems. Noonan did not do so.

¶ 331      Noonan testified that the Compliance Department could not give him orders, as it was not his superior... which the manager of the Compliance Department, Gunther Kleber, also mentioned in his testimony. That is of very little use to the plaintiffs. Those responses in no way lessen the defendant's liability, but add to it. In reality, the Compliance Department could refer matters to management so that someone else could compel action to be taken, as Kleber testified. It was a mistake not to have done so.

¶ 332      In addition, the ease with which Migirdic succeeded in eluding CIBC's supervision by saying anything at all and "satisfying" the Compliance Department, at least temporarily, is astonishing. Just as astonishing is the absence of a reaction when he changed his story (see, for example, the e-mail of October 20, 2000 to which Migirdic responded with a brand-new story).

¶ 333      In fact, the situation was such that it sometimes seemed the Compliance Department was not taken seriously by Noonan or Migirdic. The former often did not respond and even took the liberty of joking when the manager of the Compliance Department wrote to him to tell he was shocked by Kiganouchi Papazian's file, and the latter responded by saying anything at all and not changing his conduct one iota. Migirdic took things so lightly that, in an e-mail dated October 16, 1996, Noonan had to tell him not to throw away the memos from the Compliance Department!!!

¶ 334      The Compliance Department was satisfied with Migirdic's answers, regardless of the seriousness of the questions, Migirdic's prior record, the serious questions raised by his actions and, in some cases, the absence of a response, not to mention the promises not kept.

¶ 335      The Compliance Department was very lax in regard to Migirdic.

¶ 336      Its intervention also demonstrated that its primary concern was protecting CIBC rather than its clients.

¶ 337      This can especially be seen when examining the modification of the client profiles. When transactions in accounts did not coincide with the risk factors authorized by the client and the client's investment objectives, that did not prompt the Compliance Department to question the investments made but to suggest that the risk factors and objectives of the account be modified so as to correspond to the investments. For CIBC, that was simply an indication that the risk factors and objectives of the account must be modified, never the investments themselves. It was a simple exercise in manipulation. The Bank thought, first and foremost, to protect itself from prosecution for non-compliance of the investments with the risk factors and objectives of the account. Better to change them. Updating became for the Bank a tool for protecting itself from client complaints and prosecution, rather than a true expression of changes in the clients' wishes and intentions. In those circumstances, trusting CIBC became perfectly suicidal for a client.

¶ 338      But there is more. The risk levels and objectives of the accounts were changed without any CIBC control. Migirdic could act in that regard as he pleased and he knew that nothing would ever be checked. The signatures of the clients were not even required. And even when the Compliance Department suggested that, although it was not a necessity, it would be preferable for the update to be signed so that CIBC would be "reassured", with complete impunity Migirdic failed to follow up on that. Yet the client profiles were of great importance. They were the only true sources of client protection: they expressed the clients' investment wishes and intentions and were the basis on which to subsequently evaluate and assess them, which was particularly important in a context where the representative was usually the one who proposed the investments and made recommendations.

¶ 339      In this case, Migirdic was able to unilaterally change the profiles of a large number of clients without consulting them and without CIBC exercising the least control over the changes... or even worrying about them.

¶ 340      The defendant responded that it sent a copy of each update of the client profiles to the Markarians and it was up to them to read them and complain if they were not satisfied with the changes appearing in them.

¶ 341      That response is somewhat facile. Simply sending the profiles did not dispense CIBC of its supervisory obligations or its obligation to ensure that the client was truly aware of the changes to the parameters of the mandate, clearly understood them and duly consented to them, particularly since the forms are not necessarily easy to understand. Certain terms require explanations (for example, what do the terms [TRANSLATION] "value", [TRANSLATION] "income" and [TRANSLATION] "growth" mean in comparison with one another?). Furthermore, the update did not indicate where the changes had been made, i.e. what the prior situation was and what the new situation was. The defendant had an obligation to explain and to ensure the clients understood.

¶ 342      Be that as it may, the defendant's obligations are much broader than it seems to think. It has an on-going obligation to advise. That obligation can go so far as to compel it to try to dissuade a client from a trade that is unsuitable for the client's situation. It also has an obligation to ensure that its client's investments are "suitable" or that the client fully realizes that they are not. The only way to achieve that is to meet with, speak with and discuss the matter with the client, and express the necessary caveats. None of that was done in this case, and the defendant did not take the necessary steps to ensure that it was.

¶ 343      In fact, the defendant seems to have exercised no control at all over the client profiles or the information in them for all the years that the Markarians did business with it (besides seeing that they were updated so as to correspond to the investments). For example, it never noticed that the client profiles of the Markarians, Rita Luthi and Sebuh Gazarosyan did not mention the guarantees in force between them (which is required by all the regulations, both in the guarantor's account and the account guaranteed). Migirdic was sanctioned by the IDA for violations of those requirements, but not the Bank.

¶ 344      Furthermore, when a great many accounts managed by the same representative all little by little become "High Risk 100%", there is reason to ask questions and investigate. That was not done in this case. The situation is all the more disturbing and alarming when the risk factors increase as the people age and have a greater need for security, as here.

¶ 345      In addition, there is reason for concern and intervention when systematic changes are made in the investment objectives and risk factors of the clients of a single representative.

¶ 346      In this case, the Markarians invested only in bonds and safe stocks. None of their accounts needed a high risk factor of 100%... except to be consistent with the risk factors of the guaranteed accounts. That indication should have prompted the Compliance Department to delve much more deeply in its audits and require that there be in-depth discussions with the clients.

¶ 347      The evidence shows that the plaintiffs' client profiles and those of a great many other clients were changed in an ill-advised, abusive and uncontrolled manner... and the change was, in some cases, requested by the Compliance Department, regardless of the clients' interests. But the measures to be taken in terms of supervision and control were all the greater given that the defendant did not require that updates be signed by the clients. In that regard, CIBC's actions were not consistent with its regulatory obligations and its obligations under the Civil Code.

¶ 348      In reality, even though the Compliance Department placed great importance on the updating of client profiles, the real problem lay elsewhere. This can be seen in the memo sent by Debbie Newman to Tom Noonan on September 1, 1999, a memo of astonishing clear-headedness, to which Noonan, as usual, did not give great importance. Ms. Newman drew his attention to the fact that, although the accounts were by then all correctly coded "High Risk 100%", it was no doubt because Migirdic had been pressured to code them that way. However, she noted that the true problem lay elsewhere. She was concerned by the investment patterns of Migirdic's clients given their age, financial position and the many guarantees in a number of cases.

¶ 349      The memo highlighted the possibility that some things were not right in Migirdic's accounts from the very start. It was simply necessary that someone take an interest in the matter and push the investigation further, and that had been true for a long time. The defendant apparently refused or failed to see what was in full view.

¶ 350      Nothing was done, mainly because of the laxness of the Compliance Department but, above all, of Tom Noonan, the manager of the branch where Migirdic worked and Migirdic's immediate superior.

(6) Failures of the branch manager

¶ 351      The worst failures in control and supervision were Noonan's.

¶ 352      The supervisory role of a branch manager is particularly important, as the regulations show, especially according to paragraph 278 above. It is up to the branch manager to ensure that the regulatory requirements, and procedures and policies are abided by and to uncover undesirable account operations. Each day, the branch manager must examine the trades of the previous day and, once a month, the clients' monthly statements in order to detect trades that are unsuitable for a client, excessive trading activity, trading in restricted securities, conflicts of interest, inappropriate or high risk trading strategies, quality downgrading of client holdings, trade transfers, account number changes, violations, etc. According to the IDA's regulations, the branch manager's role is even more important than that of the Compliance Department, which operates at the head office (see "Head Office Account Supervision" at para. 278).

¶ 353      Branch managers are the immediate superiors of the representatives they oversee. They must supervise their actions and ensure they are consistent with the rules. They must also examine and supervise the daily transactions of the representatives with a view to uncovering irregular or problematic account operations. They must authorize any cancellation of a transaction and any transfer of a share from one account to another. Their daily reviews are aimed at detecting and questioning, among other things, any cancellation of an operation, any transfer of a share from one account to another and any other adjustment to a transaction requested by a representative. Branch managers also receive a copy of all the memos sent by the Compliance Department to their representatives, which enables them to see where problems lie and what steps they can themselves take, and to discuss the situation with the representative. Moreover, the Compliance Department contacts branch managers from time to time with certain specific requests. Lastly, branch managers receive complaints from clients and try to resolve problems. Their role is vital, particularly in terms of supervision and control.

¶ 354      According to the evidence adduced, Noonan did none of that. He performed his duties in supervising and controlling Migirdic very poorly, if at all. He exercised no supervision over him, showed little concern for the problems brought to his attention, provided virtually no follow-up and practically never contacted clients to discuss problems with them, ensure they understood certain problematic situations (guarantees, losses, etc.) and verify their real investment objectives and risk tolerance levels.

¶ 355      The Court shares the opinion of Mr. Justice Gordon in Blackburn, cited above, that direct contact with clients is an essential part of the supervision and review of activities required of the branch manager. For obvious reasons, the review of activities must involve the client. How otherwise can it be determined whether the operations were indeed authorized and whether they were in keeping with the client's choices and situation? Speaking to a client makes it possible to know the client's investment knowledge, understanding of his or her situation, investment objectives, risk tolerance threshold, knowledge and understanding of his or her commitments, etc. In those circumstances, written documents confirm what was discussed. The Court subscribes to what Mr. Justice Gordon wrote:

¶ 356      What did Noonan do in the case of Migirdic's clients? For ten years, he did not speak in person with the clients, whereas the Compliance Department asked him to do so, and gave him reasons. He merely sent letters, which brought in much less information than a good conversation and which was much more conducive to fraud, as events demonstrated in Migirdic's case. Noonan did that even though the Compliance Department explicitly requested verbal and personal contact with certain clients. Noonan adopted the bureaucratic attitude (of a "paper-pusher") and a disinterested one.

¶ 357      Migirdic testified that Noonan called only two or three of his clients in ten years, and each one once (Rita Luthi, Bedros Papazian and a man called Zawahary). In the case of one of them, it was actually the client (Rita Luthi) who called Noonan. Migirdic added that, of his 500 clients, he had 20 or so active accounts that might require calls (including those of Gazarosyan, Luthi and the Markarians). But Noonan did not speak to the clients!

¶ 358      Yet the Compliance Department made numerous - very numerous - requests to that end. On several occasions, it asked Noonan if he had met with or spoken with a client, or it asked him to do so. See, for example, paragraphs 114, 125, 146 and 148 above. Debbie Newman, of the Compliance Department, wrote to Tom Noonan on September 1, 1999 and told him she was very concerned by the trading patterns of Migirdic's clients and the unsuitability of the transactions for them given their situations. She asked Noonan the following question:

¶ 359      The manager of the Compliance Department, Gunther Kleber, testified that he always wanted Noonan to meet personally with clients, or at least speak with them directly. However, Noonan saw things otherwise, and the Compliance Department did not have the "power" to force him to do it without applying to management. No one felt the need to go higher up to have someone else compel him to contact clients directly.

¶ 360      In fact, Noonan never spoke with the Markarians, not even by phone, and never met with them during all the time they did business with Migirdic, even though their guarantees raised numerous questions, were not suitable for their situation, were difficult to explain and exceeded $1 million. What is more, the Compliance Department went back to him several times about these matters in order to try to elucidate them.

¶ 361      Noonan saw the Markarians for the first time after Migirdic's confession. It was to tell them that they were liable for losses of $1.5 million and had to pay. That time, the situation apparently merited a meeting.

¶ 362      Noonan actually testified that he never even wondered why the Markarians were guaranteeing Gazarosyan or how to reconcile the differences in objectives and risk factors between the accounts of the Markarians and the Gazarosyan account. Nor did he ever wonder about the reason for the Markarians' guarantee in favour of Gazarosyan. And he never questioned the suitability of the transactions for the Markarians or for Gazarosyan. "I did not ask myself that, no", he responded. But Noonan testified that he saw what was happening in the Gazarosyan account, the differences between the Markarians' accounts and the Gazarosyan account, the guarantees, etc. Bear in mind that, according to the regulations, the branch manager's supervision is even more important than that of the Compliance Department.

¶ 363      Questioned about the memo the Compliance Department sent him on May 8, 1998, asking him if he had spoken with the Markarians or Gazarosyan, and about not following up on that, Noonan responded before the Court: "I prefer to deal in writing". He added that he ignored Kleber's "invitation" because Kleber [TRANSLATION] "is not [h]is superior". That helps in understanding his conception of his role and his idea of dedication to his work.

¶ 364      Even when the Compliance Department asked Noonan to verify independently the Markarians' awareness of their guarantee in regard to Luthi and its scope, and after Noonan promised to speak with them, in the end he merely prepared a letter for the Markarians confirming that they were aware of their guarantee. He then gave it to Migirdic so that he could take care of the matter! It was like asking a wolf to watch over sheep, at a time when the Compliance Department was expressing all its concerns and raising all its questions. What is even worse, it was the first time in seven years that the Markarians were asked to confirm their commitment in Luthi's case. That commitment would ultimately cost them $300,000.

¶ 365      Noonan also never spoke with Sebuh Gazarosyan, despite the catastrophic losses in the account ($1 million), anymore than he spoke with the Markarians, despite the fact that their guarantee made no sense and the losses were substantial. He testified that he never tried to communicate with Gazarosyan because he knew he lived in Turkey and Migirdic had told him Gazarosyan spoke neither French nor English. Noonan said he nonetheless felt it was pertinent to write to him, in English. Noonan acknowledged that the losses in the Gazarosyan account totalled [TRANSLATION] "a large amount" and that the account did not seem to earn money despite all the transactions (the number was very substantial) that took place in it, that never prompted him to contact the client and, in fact, he said he never asked himself any questions about the Gazarosyan account.

¶ 366      Noonan declared that he did not notice that many of the transactions in the Gazarosyan account were indicated as "unsollicited" [sic], i.e. carried out on the client's initiative. That indication was in itself odd for a person living in Turkey, who would have difficulty ordering transactions on a daily basis.

¶ 367      Concerning the Luthi account, Noonan testified that he was aware of its enormous losses. However, he never questioned them, he said, or the suitability of the transactions considering Mrs. Luthi's situation. Nor did he wonder about the fact that the transactions in the Luthi account were all entered as "unsollicited" [sic], i.e. carried out on the client's initiative. He stated he never wondered about the guarantee given by the Markarians in favour of Rita Luthi or the relationship between them.

¶ 368      Noonan testified that he also did not contact Kiganouchi Papazian, despite her commitment in regard to the account of Aida and Bedros Papazian and despite her catastrophic losses, even though the Compliance Department asked him several times to do so. He said Migirdic had told him that Kiganouchi Papazian did not speak French or English. She had a son, however, who was responsible for the account and spoke the two languages very well. Noonan simply said that he did not see the usefulness of contacting him, or of finding an interpreter to speak with Ms. Papazian. He said he preferred to "rely on" the letters he sent her... in English! But the memo of June 25, 1998 (P-135-160) clearly shows how important the Compliance Department believed it was for Noonan to speak with the client and ensure she was aware of her commitment, given that it was totally incongruous and made no sense for a 73-year-old in her situation.

¶ 369      Even when Kleber again contacted Noonan on September 13, 1999 regarding Kiganouchi Papazian and mentioned that he was "worried" about Noonan's attitude, that there were substantial losses in the account and that he wanted to know whether Noonan had had contact with the client, Noonan merely responded with a joke in poor taste alluding to a possible [TRANSLATION] "commission discount". The only context in which Noonan spoke with Kleber about the guarantee was to reassure him that CIBC was "protected". The client and her situation were of no interest to him. The Bank did not force Noonan to act.

¶ 370      When Noonan learned that the first confirmation letter to be signed by Kiganouchi Papazian was not actually signed by her but by her son, he also did not feel the need to contact the client. He very simply prepared another confirmation letter and gave it to... Migirdic, telling him that, this time, he wanted the client's real signature.

¶ 371      What is most surprising is that, the only time he communicated verbally with a client in this case, i.e. with Rita Luthi, Noonan still did not fulfil his obligations and assume his responsibilities. He still did not "speak" with the client. He was not even the one who called her. Noonan "communicated" with Rita Luthi on June 9, 1998 at the request of the Compliance Department and, according to his usual procedure, he sent her a letter. He warned her about the number of short-term transactions in her account and the risks and costs that could result from them. He concluded his letter as follows: "Please call me at your convenience if you feel it would be helpful". Following that letter, Mrs. Luthi called him. Both Noonan and Rita Luthi confirmed that the conversation was short. Noonan noted that Mrs. Luthi told him she wanted a review of her investment strategy. Noonan responded that she should mention it to Migirdic! He did not, in fact, speak to her about what was mentioned in his letter, about her losses, the large number of transactions in her account, the high level of risk of the transactions or the Markarians' guarantee. None of those things!!! Although the purpose of his letter was to be sure she was well aware of the whole situation, he asked her nothing about it when she called. He himself acknowledged that the only question he asked Rita Luthi was as follows: [TRANSLATION] "Are you happy with Mr. Migirdic?" Mrs. Luthi said she was and that was the end of the conversation! On that date, the deficit in Rita Luthi's account was $218,000 (which she did not realize); the transactions were as speculative as they could get, very numerous and unsuitable for a person in her situation. An "unexplained" guarantee accompanied the account and the relationship between Rita Luthi and the Markarians was not known. Noonan nevertheless did not mention any of that.

¶ 372      That clearly illustrates Noonan's complete disregard for his role and duties, as well as his total lack of interest in the clients and their protection.

¶ 373      Bear in mind that Noonan received all the e-mails sent to Migirdic by the Compliance Department. He never concerned himself with them. The serious questions they contained never raised queries or even interest in his mind, and he never felt the need to check anything with the clients.

¶ 374      Examined about a number of memos sent by the Compliance Department, he said he saw in them only credit problems, not compliance or suitability problems. But most of them dealt much more with compliance than credit problems. It was Noonan again who stated before the Court that he saw no problem tolerating Richard Papazian's use of his mother's account as his own (as Noonan saw it), although the Compliance Department specifically reproached Migirdic for that.

¶ 375      At all times, his only concern was to "satisfy" the Compliance Department (that is, to respond as little as possible) and, above all, to see that Wood Gundy was "covered" and protected. There was no concern whatsoever for the clients.

¶ 376      On several occasions, Noonan also did not even follow up on requests the Compliance Department made to him. He added that he did not follow up on messages sent to Migirdic: "I cannot follow up diligently". The daily review of Migirdic's transactions imposed by the IDA also could not be followed up, in violation of the IDA's rules.

¶ 377      Noonan never worried about the Intergold trading. He added that, even if Migirdic did not have the right to make those purchases: "It is internal matter, not public matter" [sic]. Noonan seemed not to realize that Migirdic's conflict of interest was a "concern for clients", a "public matter", just as the very troubling purchases were.

¶ 378      Nor did he see the problems related to the AMCC shares, or those concerning the authorizations given for the transfers of shares.

¶ 379      Perhaps all that is explained by the sentence Noonan wrote to Migirdic on February 20, 2001 when Migirdic announced he was taking leave (before resigning): "I am on your side here", To which Migirdic responded: "I know that you were on my side all along". Migirdic was one of the five most "successful" representatives in Noonan's branch.

¶ 380      Noonan concluded his testimony as follows: [TRANSLATION] "We have changed our procedures since then". He was asked whether they could have done better at the time. [TRANSLATION] "Certainly", he responded. That was an important confession.

¶ 381      Noonan failed to fulfil all his supervision and control duties and obligations in regard to Migirdic for all the years Migirdic worked with the Markarians. In that regard, he was heedless and cavalier, and showed a lack of judgment. He was not interested and assumed none of his responsibilities. The employer's supervision and control of Migirdic should have been handled, first and foremost, by Noonan. In fact, according to the memos from the Compliance Department, that department was to rely on Noonan, once he was alerted, to see to the questions raised and follow up on the suggestions made.

¶ 382      Noonan committed a very serious fault when he failed to contact the clients in order to speak with them and ensure that they were aware of the guarantees, the dramatic status of their commitments and accounts, the suitability of their investments given their situation, and so on. He tragically failed to fulfil his duty to supervise and control, and all his regulatory and civil obligations in that regard. He acted in a heedless and accommodating manner with Migirdic and in a grossly heedless and contemptuous manner with the clients, without any concern for them, thereby largely contributing to the plaintiffs' loss.

¶ 383      Noonan also seriously failed to fulfil his obligations by relying on several occasions on Migirdic to see to what he should have seen to himself, for example, the signing of certain key documents such as the confirmation letters. By always relying on Migirdic and asking him to act in his stead, Noonan committed a fault and seriously failed to fulfil his duty to supervise. He thereby directly allowed the fault to be perpetuated.

¶ 384      Liability for all these faults must rest with the defendant.

¶ 385      The faults also show that the defendant did not take the required steps to set up a truly effective system of supervision for its operations.

(7) Duty to provide greater supervision of a "delinquent" employee

¶ 386      The defendant's failure to supervise and control Migirdic is even more serious in this case considering that, when the Markarians signed the false guarantees, and subsequently, the defendant's duty to supervise Migirdic was in fact even greater than in regard to its other employees because Migirdic had had questionable conduct in the past.

¶ 387      This is recognized in both the regulations and the jurisprudence. Article 7 of Policy No. 2 of the IDA's regulations reads as follows:

¶ 388      In addition, Policy C-2 of the Montréal Exchange reads as follows:

¶ 389      Mr. Justice Gordon wrote in Blackburn cited above:

¶ 390      When the fraud was committed in 1993 and 1994, Migirdic was actually fined, reprimanded and even threatened with dismissal. In fact, the same year he was hired, he was prohibited from trading options for a time. The following year, he was placed on probation and threatened with dismissal for violating internal rules and not complying with client profiles. That is what is called a "peculiar" start to a career.

¶ 391      It was not the only time Migirdic was threatened with dismissal. But the defendant never acted on its threats.

¶ 392      From 1987 to 1992, Migirdic received five fines for a series of violations of Wood Gundy's internal rules and industry regulations: a fine of $1,000 in August 1987 and a [TRANSLATION] "last verbal warning", a fine of $1,000 in September 1989, a fine of $1,000 in March 1991, a fine of $1,000 in March 1992 and a fine of $3,000 in October of the same year. The last fine was accompanied by a threat of dismissal for violation of Wood Gundy's internal rules and industry regulations. That was four months before the signing of the first of the "guarantees", the one in favour of Rita Luthi's account. Additional fines were imposed subsequently, including one for $30,000, but nothing changed. In 1996, Migirdic had to reread the Representative Manual, in addition to paying a fine of $4,000 for inappropriate transactions. At one point, Migirdic was "ordered" by his employer to reimburse it for $250,000 because of losses incurred in debiting an account without being entitled to do so [See Note 24 below].

   Note 24: Migirdic would pay for four or five years, then CIBC waived the balance still owing.

¶ 393      This means that, at the time the Markarians fell into Migirdic's trap, he should have been under special supervision by his employer because of his delinquent conduct in the past... which unfortunately continued. It is obvious that he was not.

¶ 394      The defendant seriously failed to fulfil its additional obligations in that regard.

¶ 395      That fault is all the more serious as CIBC chose not to advise Migirdic's clients that his compliance with the regulations and his honesty were questionable. It is true that that would not have had a very good effect on the clientele. But remember that [TRANSLATION] "a mandatary is obligated to give a mandator... all information likely to prompt the mandator to modify the terms of the mandate" [See Note 25 below], as is the case with everything likely to affect the execution of the mandate [See Note 26 below]. Not only did the defendant fail to advise the clients of Migirdic's problematic conduct in the past, but it actually gave him honorific titles that reassured the clients.

   Note 25: P. Cimon, "Le mandat" in Barreau du Québec, Contrats, sûretés et publicité des droits, Collection de droit 2004-2005, Vol. 6 (Cowansville, Qc.: Yvon Blais) at 62.

   Note 26: Article 2132 C.C.Q., Vinet v. Guilbeault, REJB 2003-37993 (S.C.).

¶ 396      The Court shares the opinion of Mr. Justice Gordon in Blackburn v. Midland Walwyn Capital inc., cited above, that a broker that exposes its client to risk without informing the client commits a fault for which the broker can be blamed, including if the risk is related to its employee and the employee's conduct in the past:

¶ 397      CIBC indeed had the right to decide not to advise the clients of Migirdic's improper conduct in the past and his delinquent tendencies, for commercial reasons including not to frighten the clients away and to avoid losing them. But in doing so, it increased its liability... and its supervision obligations. It added to the faults for which it could be blamed if something happened. It reduced its chances to invoke that its clients should have been vigilant and wary of its representative.

¶ 398      In fact, everything points to the defendant's doing all in its power to avoid having to part with Migirdic's services, perhaps because, as the plaintiffs claim, he generated amazing commissions. But in deciding to retain a "problematic" employee who had engaged in improper conduct, the defendant was perhaps complacent if not voluntarily blind. In any case, it certainly preferred its interests over those of its clients.

¶ 399      Be that as it may, the Court must conclude that, by retaining without sufficient supervision such a problem employee who had been sanctioned, the defendant, not the clients, accepted the risks in the event of unfortunate consequences. CIBC could well have thought that the incredible level of commissions generated by Migirdic was worth such a risk, but it then assumed the consequences of its decision, including those in the event of a catastrophe, particularly since it derived great benefit from the risk assumed.

(E) DEFENDANT'S LIABILITY FOR ITS OWN FAULTS

¶ 400      The Court concludes that CIBC committed faults, in performing its duties and assuming its responsibilities, that largely contributed to the fraud to which the plaintiffs fell victim and their loss. It deceived the plaintiffs by giving meaningless, but prestigious titles to Migirdic. It has only itself to blame if the plaintiffs were therefore less suspicious of him and gave him their full trust. In addition, it seriously failed to fulfil its duties to supervise and control Migirdic. It did not put in place the mechanisms required to protect its clients, particularly at the branch level. All the supervision levels proved inadequate and failed to do their work properly. The situation was particularly deficient as regards the branch manager. The signs were in fact obvious that something was not right with Migirdic and the accounts he handled, particularly those of the Markarians, Luthi and Gazarosyan, but that did not cause the proper reactions or lead to the required in-depth investigations. Follow-up was clearly insufficient. The people in charge of supervision at CIBC showed more concern, in the performance of their mandate, for protecting the firm than their clients. By retaining Migirdic despite his on-going delinquent conduct, CIBC also took the risk of assuming the consequences of a blunder, particularly since the benefits it thereby derived were not alien to its decision.

¶ 401      In the opinion of the Court, the conclusions of the Court in Marseille v. Bourque and Valeurs mobilières Desjardins [See Note 27 below] apply here:

   Note 27: J.E. 2003-1048 (S.C.) at 11 and 12.

¶ 402      The defendant seriously failed to fulfil its obligations as a mandatary to watch over for the interests of its clients and protect them. CIBC's supervision proved ineffective and, at certain times, non-existent. But there were many signs that should have prompted energetic intervention and controls. The defendant's failures led the plaintiffs into the trap laid for them.

¶ 403      CIBC must be found liable for the fraud to which the plaintiffs fell victim. It is liable for it not only indirectly, but directly.

5. ABSENCE OF RATIFICATION

¶ 404      Article 1420 of the Civil Code stipulates that: "A contract that is relatively null may be confirmed". Furthermore, "the confirmation or ratification of a contract that is relatively null can be tacit or explicit" [See Note 28 below].

   Note 28: J.-L. Baudouin and P.-G. Jobin, op. cit. note 12 at 330 and 331, No. 400.

¶ 405      CIBC argued that the plaintiffs acknowledged their obligations stemming from the "guarantees" when they signed the audit and confirmation letters and refrained from raising an alarm about P-6 and P-7. It also said that, for nearly seven years, it reminded them in each of the monthly statements it sent for the joint account that there was a guarantee in favour of Rita Luthi. Although they were obligated to take cognizance of that information, the plaintiffs never reacted and never withdrew from the guarantee indicated.

(A) AUDIT LETTERS

¶ 406      As I indicated in paragraphs 41 to 73 above, between 1995 and 2000, six audit letters concerning the guarantee given in favour of the Gazarosyan account were sent by the Bank to Mr. Markarian for his company, at the rate of one a year, each October, at the request of the Bank's external auditors. As stated, the purpose of the letters was to enable the auditors to ensure that the guarantee in favour of the Gazarosyan account existed and, at the same time, to remind the Markarians of its existence. However, that was not the effect the letters had, because of the fraudulent actions of Migirdic, who had the Markarians sign without being informed of the nature and consequences of their signatures.

¶ 407      Let it be emphasized that the audit letters signed by Mr. Markarian concerned only the guarantee given in regard to the Gazarosyan account.

¶ 408      To understand the scope of the accounting letters, they must first be put in perspective. They were not, per se, letters confirming a guarantee but letters sent for auditing purposes. The Compliance Department itself acknowledged that in a letter it wrote to Migirdic in September 1997; the signing of the audit letters "is just routine audit confirmation that the client recognizes the guarantee as valid and in force" (see para. 121 above).

¶ 409      The text of the letters is relatively obscure, if not incomprehensible. It mentions that the auditors are verifying a guarantee [TRANSLATION] "of all present and future debts and all liabilities", without formally saying in regard to whom. The text does not mention a guarantee in favour of Sebuh Gazarosyan. His name actually appears only on the subject line, at the top of the letter, with no indication why his name is given. It could be indicated as the owner of the numbered company appearing above or as the person responsible for it. In no way do the letters say; [TRANSLATION] "You are guaranteeing a debt of Mr. Gazarosyan".

¶ 410      Furthermore, the final paragraph, under which the client is to sign, is real gibberish. What does "We guarantee payment against delivery and/or delivery against payment" mean? It is probable that for the average client - and certainly for me - the expression means absolutely nothing. In no way does the letter say; [TRANSLATION] "You are guaranteeing a debt of Mr. Gazarosyan", and even less [TRANSLATION] "you are guaranteeing a debt of Mr. Gazarosyan in the amount of $465,000 [See Note 29 below]. [TRANSLATION] "You are liable for it. Is that true or not? Check "yes" or "no", and sign".

   Note 29: The amount owed in 1995, which continued to increase after that.

¶ 411      In the circumstances, it is understandable that the person receiving the letter sent by the auditors may not understand much. In fact, the only thing that attracts attention in the letter is that the name of Mr. Markarian's numbered company (but not Mr. Markarian's name) and the name of Sebuh Gazarosyan are found in the same document. That is, in fact, what attracted the attention of Mr. Markarian and led to his reaction.

¶ 412      What happened then? At first, Migirdic told Mr. Markarian that it was a mistake and that the document had been sent to him accidentally (accounts mixed up, same street, administrative error). Subsequently, he justified the absence of correction by saying that CIBC is a "big company", where it is not easy to have things corrected. Migirdic added that Mr. Markarian had to sign in order for the error to be corrected. It was in those circumstances that Mr. Markarian signed.

¶ 413      Mr. Markarian clearly relied on what Migirdic said and, in the opinion of the Court, he did so justifiably.

¶ 414      On the one hand, what Migirdic told Mr. Markarian was credible and made sense. Every time an audit letter was sent, Migirdic gave a credible, logical story to explain receipt of the document. Furthermore, Mr. Markarian had to write on the letter (a signature alone, or text and a signature) that he agreed with it or wanted to express his disagreement with it, according to the very words of the letter.

¶ 415      On the other hand, it was Migirdic who knew the securities field. He was the one who knew how things were done at CIBC and he was the one who knew how to proceed when CIBC made an "error". The Markarians trusted him. In fact, Migirdic was Mr. CIBC for them, as Mr. Markarian testified with simplicity. He was one of the vice-presidents of CIBC Wood Gundy. The Markarians never had verbal contact with anyone other than Migirdic at CIBC for all the years they did business there. The branch manager never spoke with them, nor did anyone else at CIBC. It was therefore normal for the Markarians to rely on Migirdic in the event of a problem, particularly since the letter did not say they should refrain from communicating with the representative if something was wrong. Of course, it asked that they return the document to the auditors, but it did not prohibit them from speaking with the representative, especially in the case of an administrative error to be corrected, which Migirdic said was the case.

¶ 416      Furthermore, the Markarians had no reason to be suspicious of Migirdic. It is also not unusual for elderly people - in fact, most people - to do what the employee of a financial institution asks them to do and to sign where they are told to sign.

¶ 417      Let me add that Mr. Markarian did not understand the meaning or purpose of the audit Letters.

¶ 418      What is certain is that, when he signed the audit letters, Mr. Markarian did not do so to confirm any guarantee whatsoever but indeed to point out an error and ask that it be corrected. He did what Migirdic told him he had to do to that end and he acted only for that purpose. If the letters were used for other purposes, it was because of the acts of Migirdic and his alone. It was solely because of his false manoeuvring and false representations. It was because Migirdic sent the letters to the auditors, whereas they were not given to him for that purpose.

¶ 419      In the circumstances, it is difficult to see how CIBC can contend that, by signing the letters, Mr. Markarian ratified or confirmed anything whatsoever. That affirmation distorts the signatures and the action taken.

¶ 420      CIBC argued that the audit letters were signed [TRANSLATION] "without reserve, condition or annotation". That is false. The evidence is clear that Mr. Markarian consistently signed in order to protest and ask that the error be corrected. He trusted Migirdic to follow up on his requests.

¶ 421      CIBC argued that a signature under the paragraph concluding the letter could only mean confirmation of the guarantee. That is not correct. On the one hand, the text "We guarantee payment against delivery and/or delivery against payment" is anything but clear. Mr. Markarian, in fact, testified that he did not understand the text of the confirmation letter. On the other hand, the letter said that he had to sign if he agreed but he also had to write (at the bottom or on the back) if he did not agree.

¶ 422      CIBC was surprised that Mr. Markarian signed so many letters for so many years without ultimately reacting another way. But the explanations given by Migirdic were credible. Mr. Markarian thought at first that Migirdic was negligent and he complained. Then he noted that it seemed very difficult to have the errors corrected at CIBC. It is true that it is sometimes difficult to have computer or administrative errors corrected in a "big company". Efforts to do so sometimes seem Kafkaesque. Furthermore, Mr. Markarian's reactions grew in intensity and changed over time. They ranged from a simple initial question to anger and discouragement. Migirdic admitted that, as of the third or fourth year, Mr. Markarian systematically returned to the subject in his contacts with him. It must also be understood that Mr. Markarian was unaware of the seriousness of the "error" and its consequences, and therefore failed to act more vigorously or go to his attorney! In addition, Migirdic himself played down the consequences of the situation.

¶ 423      CIBC complained that the audit letters were not returned to the auditors but were given to Migirdic. Let it suffice to say that, in that regard, nothing in the letters prohibited them from being given to the representative, even if it was requested that they be returned to the auditors. We know that one of the purposes of the letter was to obtain confirmation from the client, rather than to rely on the representative or the Bank. But that was not indicated. Nothing in the letter clearly said: [TRANSLATION] "you must not return this letter to your representative or local office; you also must not complain to them but to us. You are prohibited from mailing this letter to anyone other than us". What Mr. Markarian knew was that, by complaining to Migirdic, he was complaining to a CIBC employee so that his message would be sent to CIBC. The letter, which is clearly on CIBC Wood Gundy's letterhead, certainly did not imply that the auditors were acting independently of CIBC Wood Gundy and there was no reason to involve the firm or its representatives in the undertaking. Furthermore, Mr. Markarian gave Migirdic the letters precisely so that he would see that the required corrections were made. He basically acted like Noonan, who relied on Migirdic to have the Markarians sign the relevant documents. But the Markarians did not have Noonan's obligations in regard to the audit letters.

¶ 424      CIBC complained that Mr. Markarian did not communicate directly with the branch manager or another authority in the firm. Conversely, no one other than Migirdic at CIBC ever communicated with the Markarians. By dealing with Migirdic, they were always justified in considering that they were dealing with CIBC. In the same way, CIBC can certainly not complain that Mr. Markarian did not communicate orally with a CIBC authority rather than in writing, when no one from CIBC (except Migirdic) ever contacted him that way. Moreover, not everyone knows that there are different levels to which a client can readily have access in the event of a problem. In fact, Noonan himself always went through Migirdic to communicate with the Markarians, and they did the same to communicate with CIBC.

¶ 425      CIBC showed bad faith in reproaching Mr. Markarian for signing each of the audit letters, as it knew that their content was false and that the letters would mislead him. On the one hand, it was never Mr. Markarian who sent the audit letters to CIBC, but in fact Migirdic, as part of his fraudulent manoeuvres. Mr. Markarian never returned the letters to the auditors himself and also never gave Migirdic the letters so that he could send them to the auditors. Each letter was given to Migirdic so that it could be used to correct the situation. On the other hand, Mr. Markarian was unaware of Migirdic's fraudulent manoeuvres and of the very existence of a guarantee in favour of Gazarosyan. All the more reason for him to be unaware the Bank was misled. In fact, it was not the Bank that was misled but the auditors, given that Migirdic sent the letter to them.

¶ 426      Lastly, CIBC reproached Mr. Markarian for not having read each of the audit letters in full. It should first be noted that, even if he had read the letters through, it is not established that Mr. Markarian would have had a better understanding and that that would have changed the situation. The evidence shows the opposite. But there is more. In the Court's opinion, given that CIBC's representative told Mr. Markarian: "Here is what this letter says", Mr. Markarian, as a client, could rely on that and was not obligated to doubt what he was told. Many elderly people - and other people - deal with a prestigious and reliable institution like a bank precisely to avoid being hoodwinked and because they know they are not always able to understand all the documents that have to be filled out. It is legitimate for them to want to deal with an institution where they can rely on the personnel.

¶ 427      Reading the letters would not have changed anything in this case.

¶ 428      In this case, the audit letters do not and never constituted ratification of "guarantee" P-7 "given" in favour of Sebuh Gazarosyan. They are documents obtained under a false pretext and through fraudulent manoeuvres. They are null because of the error in their signature, stemming from the fraud committed by the defendant's representative. The plaintiffs never, in any way, ratified P-7 through those letters.

(B) CONFIRMATION LETTERS

¶ 429      In April 2000, Migirdic had the Markarians sign a letter "confirming" their guarantee in regard to Rita Luthi's account. That was less than a year before Migirdic's fraudulent manoeuvres were discovered, at a time when the losses in the Luthi account had already occurred. I discussed this in paragraphs 75 to 89.

¶ 430      Migirdic took the letter to the Markarians, the Markarians did not read it and Migirdic "explained" it to them in his own way. He reportedly told the Markarians that he needed their signature so that a "guarantee" error in their record could be corrected, if what Migirdic declared can be believed. The Markarians have no recollection of the document.

¶ 431      CIBC argued that the letter is clear and constitutes ratification by the Markarians of the "guarantee".

¶ 432      It may be clear, but it was not read and the Markarians were never informed of its true content. It was signed under false pretences and because of false representations, and its signature was the result of pure and simple fraud. It is null because of the error in their signatures, which was caused by the fraud of the defendant's representative. The letter is worth nothing.

¶ 433      Furthermore, Migirdic's representations to the Markarians were credible and made sense, and the Markarians certainly cannot be reproached for believing them. They had reason to rely on their representative; that was far from a bad idea considering that Migirdic's own boss was of the opinion that that was a proper way to proceed. Noonan himself indicated in his letter of April 2000 that the Markarians could rely on Migirdic for any questions they might have (at para. 77 above). He in fact relied on Migirdic to obtain the Markarians' confirmation.

¶ 434      Nor can the Markarians be reproached for not reading the document they signed, since it was, in fact, at Migirdic's request that they did not read it.

¶ 435      As for all the other documents, the Markarians' signatures on the confirmation letter of April 2000 was obtained under false pretences and false representations, and is null because of a fatal defect. It does not and never did constitute ratification of "guarantee" P-6 "given" in favour of Rita Luthi. The Markarians never, in any way, ratified P-6 through that letter.

(C) MONTHLY STATEMENTS

¶ 436      CIBC argued that, from July 1994 to February 2004, it sent the Markarians 80 monthly statements in which it reminded them that their joint account "guaranteed" Rita Luthi's account (see para. 30 above). Hence, the Markarians were informed of the "guarantee". CIBC also pointed out that, according to the terms of the contract binding clients to it, they must verify every month the transactions appearing on their monthly statements and notify CIBC promptly in the event of an error or omission, failing which they are deemed to have accepted the content of the statement.

¶ 437      It should be stressed that the alleged indications in no way concerned the "guarantee" of the Gazarosyan account, the biggest source of the Markarians' losses. No indication of it ever appeared on any statement. Only indicated was the "guarantee" in favour of Rita Luthi. The Markarians received four or five statements a month, i.e. one for each of their accounts. It was only on the statement for the joint account that an indication appeared.

¶ 438      Although the "guarantee" in favour of Rita Luthi was signed in February 1993, it was only beginning in July 1994 that a short, vague indication of it appeared for the first time on a monthly statement. It posed an initial difficulty for anyone who wanted to closely follow his or her business, as the Bank asked its clients to do in its statements. What was worse, it came after another guarantee was signed, one that was valid and given through the Markarians' joint account (the one involved here) in favour of their company account.

¶ 439      The indication appearing on the statements reads as follows: "Items for Your Attention - Your Account Guarantees Account 500-01193". The same reminder appeared at the top of the statement each month until February 1999. It was then replaced with the following: "Messages - Reminders - Your Account Guarantees Account 500-01193", this time at the very end of the statement, from March 1999 to March 2001.

¶ 440      Mr. Markarian testified that these indications never attracted his attention. They were, in fact, short and not explained to any extent. They contained nothing that would attract particular attention. In reality, they blend in with many other things. Bear in mind that the Markarians received four or five statements of account a month.

¶ 441      Mr. Markarian was also right to point out that the monthly reminders of the guarantee mentioned only an account number, not a name. The indication could therefore just as well have referred to the account number of his company, for which the joint account had in fact granted a valid guarantee in September 1993, that is, more recently than the Luthi "guarantee", especially since the valid guarantee in favour of the company account... did not appear on the monthly statement for the joint account! In actuality, the indication of a guarantee on the monthly statements for the joint account began to appear only after the signing of the guarantee given in favour of the company account, not after the signing of the "guarantee" given in favour of Rita Luthi's account in February 1993. Mr. Markarian testified that he never checked whether the account numbers appearing on his statement were the correct ones.

¶ 442      It is certain that a client who does not suspect he has guaranteed a stranger and believes that the only guarantee he has ever granted was in favour of another of his accounts does not look the same way at his monthly account statements and the indications that may appear on them, especially if only one guarantee appears on them rather than several.

¶ 443      In the circumstances, it certainly cannot be concluded that, because they did not complain after receiving their monthly statements indicating a guarantee against the joint account, the Markarians thus "ratified" or "confirmed" the validity of that guarantee.

¶ 444      As for CIBC's argument that a person who fails to read the monthly statements carefully, who does not find all the errors and who does not expose them is deemed to accept what appears in the statements, once the time period for complaining has elapsed, it does not hold water here. Firstly, that rule does not apply to everything mentioned in the monthly statement, but only to "transactions", i.e. the purchase and sale of securities, but, above all, it applies only if errors in good faith are committed in regard to the account. It is not a defence against fraud or actions taken in bad faith.

¶ 445      Financial institutions cannot, by a contract of adhesion, decide that monthly statements will protect them from everything. Despite the statements, they are not relieved of honouring their obligations. In the expression "monthly statement", the word "statement" does not mean that, once it is sent, the financial institution is stating it is "relieved" of all its obligations toward its clients.

¶ 446      In reality, CIBC itself deemed that the indications on the statements were insufficient to inform the Markarians, as can be seen from the many e-mails in that regard sent by the Compliance Department to Noonan and Migirdic over the years. That is why the Compliance Department asked a number of times that Rita Luthi's account statements be sent to the Markarians, rather than being satisfied with a simple indication on their monthly statements.

¶ 447      Let me add that, if the Markarians had noted the erroneous indication appearing on their statements regarding the "guarantee" granted in favour of Rita Luthi and had mentioned it to Migirdic, it is not certain that he would not have invented something to "explain" everything. But that is another story.

¶ 448      In this case, the absence of protest against the monthly statements for the Markarians' joint account does not constitute and never constituted ratification of "guarantee" P-6 "given" in favour of Rita Luthi's account.

(D) APPLICABLE LEGAL RULES

¶ 449      The ratification argument that CIBC raised in this case is actually not in keeping with any of the applicable rules of law.

¶ 450      It will be recalled, firstly, that the Court concluded that documents P-6 and P-7 are absolutely null. A document declared absolutely null cannot be ratified or confirmed (a. 1420 C.C.Q.). That is sufficient to dispose of the matter.

¶ 451      But even in a case of relative nullity, the result would have been the same.

¶ 452      Bear in mind, firstly, that, even if confirmation can be explicit or tacit, in both cases, it must be clear. In both cases, the intention of the party that could have complained must be [TRANSLATION] "clear and obvious that it wishes to waive the request for nullity by covering the defect" [See Note 30 below]. That is certainly not what we find here.

   Note 30: J.-L. Baudouin and P-G. Jobin, op. cit. note 12 at 330-331, para. 400.

¶ 453      Moreover, [TRANSLATION] "in both cases, confirmation requires the party's knowledge of the existence of the cause of nullity" [See Note 31 below]. To provide ratification, the "victim" must be aware of all the circumstances. That also was never the case here.

   Note 31: Ibid.

¶ 454      The Markarians were never aware of P-6 et P-7 before they were revealed to them in March 2001. They therefore could not have any knowledge of the cause of nullity of the documents and could not in any way formulate the intention to "cover" the defect. Knowledge is the essential element on which confirmation must be based and it was wholly absent here.

¶ 455      Furthermore, far from seeking to confirm anything, the Markarians always clearly expressed, every time they could, their opposition to the audit letters submitted to them for their signature, and their wish that the errors be corrected. The same was true when the confirmation letter was signed in regard to the Luthi account.

¶ 456      There was never a modicum of evidence on the basis of which to conclude that confirmation or ratification took place in this case. It is surprising in the circumstances that CIBC wrote the following in its proceedings:

6. INEXCUSABLE ERROR AND PLAINTIFFS' ALLEGED FAULTS

¶ 457      CIBC argued in defence that, by their actions, the plaintiffs interrupted the causal link between what its employee did and the situation in which the plaintiffs found themselves. It contended that the causal link between Migirdic's fault and the final damage was interrupted. CIBC wrote the following:

¶ 458      CIBC pointed out that a new event, a novus actus interveniens, can be the source of the ultimate damage. In that case, the new fact "erases" the consequences of the first fault and breaks the causal link between that fault and the damage sustained. It indicated that [TRANSLATION] "the burden of proof of the existence of the causal link and its uninterrupted nature rests on the plaintiff's shoulders". CIBC argued that, in this case:

¶ 459      Subsidiarily, CIBC argued the plaintiffs' contributive fault and their failure to minimize their damage. Hence, the bank's liability should be shared with the plaintiffs. CIBC invoked in that regard articles 1478 and 1479 C.C.Q. It cited the writings of Jean-Louis Baudouin and Patrice Deslauriers concerning extracontractual liability. CIBC particularly invoked the audit and confirmation letters signed by the plaintiffs, and the circumstances in which they were signed, the plaintiffs' negligence in that regard and their failure to read the documents sent to them.

¶ 460      CIBC also pleaded a whole series of faults committed by the Markarians and reproaches leveled at them.

¶ 461      The Court first points out a fundamental idea that must not be lost sight of: this is a contractual matter. When CIBC invokes articles 1478 and 179 C.C.Q., it tips toward extracontractual liability, which is not the same field. The Court also points out that it is not seized of an action for damages instituted by CIBC against the Markarians! Such an action does not exist, nor does a cross demand to that end.

¶ 462      The defendant is on surer ground when it invokes the Markarians' negligence and their inexcusable error. They are said to ultimately be the architects of their own misfortune.

¶ 463      The second paragraph of article 1400 of the Civil Code of Québec reads as follows:

¶ 464      Is that applicable when there is fraud?

¶ 465      For the author Jacques Ghestin, [TRANSLATION] "an error is always excusable when it was caused by the other party's fraud" [See Note 32 below]. In short, bad faith makes the other party's error excusable, even if it would otherwise not have been. Referring more particularly to the pre-contractual obligation to inform, Ghestin says he is of the opinion that [TRANSLATION] "legitimate trust based on the information provided by the other party, if the information is sufficient in itself, eliminates in the other party's mind the need to seek other information" [See Note 33 below]:

   Note 32: Jacques Ghestin, Traité de droit civil, Les obligations, Le contrat (Paris: L.G.D.J., 1980) at 341, No. 429.

   Note 33: Ibid. at 412, No. 506.

   Note 34: Ibid. at 412, No. 507 and 508.

¶ 466      The Court shares this viewpoint, which was also accepted by Madam Justice Thérèse Rousseau-Houle in Les Placements Jean-Claude Gagnon inc. v. Claude Bégin [See Note 35 below], and by Mr. Justice Pierre Journet in Bardier v. Gestion Hervieux-Seddiki Cie [See Note 36 below].

   Note 35: [1990] R.J.Q. 484 (S.C.), principal and incidental appeals dismissed.

   Note 36: S.C. Terrebonne, 700-05-003159-963, December 16, 1997 at 12.

¶ 467      That is consistent with the requirements of good faith that are now the rule in contractual matters (a. 6 C.C.Q.). Since good faith is presumed, the contracting party is right to assume what the co-contracting party tells it.

¶ 468      The Supreme Court indicated in National Bank of Canada v. Saucisse [See Note 37 below] that, when a creditor takes the initiative to inform the surety, the surety cannot be reproached for failing to obtain the information itself. A creditor who provides information must give complete information, since partial information is misleading, as Madam Justice Danièle Richer pointed out in Tremblay V. Deault [See Note 38 below].

   Note 37: [1981] 2 S.C.R 339.

   Note 38: B.E. 99BE-147 (S.C.).

¶ 469      The Minister of Justice himself indicated in Commentaires sur le Code civil du Québec of 1994 that the purpose of the second paragraph of article 1400 C.C.Q. is to avoid unjust situations [TRANSLATION] "that may otherwise be experienced by a contracting party of good faith" [See Note 39 below]. That clearly indicates that the provision should not apply in the event of fraud. The Minister also pointed out in his Commentaires that article 1400 as a whole [TRANSLATION] "deals with a simple error as a defect of consent" [See Note 40 below]. For its part, article 1401, which deals with fraud, makes no distinction between the excusable or inexcusable nature of the resulting error, but makes the determinative nature of fraudulent manoeuvres the key element.

   Note 39: Commentaires du ministre de la Justice - Code civil du Québec, Vol. 1 (Québec: Les Publications du Québec, 1993) a. 1400 at 849 and 850. (Emphasis added.)

   Note 40: Ibid.

¶ 470      That said, the jurisprudence as a whole has not automatically excluded the application of the second paragraph of article 1400 C.C.Q. in cases of fraud. As Mr. Justice Jean Bouchard found in Services Télévision Arvida inc. v. Allaire [See Note 41 below], [TRANSLATION] "the jurisprudence as a whole seems to have adopted an empirical approach. That means the determinative nature of the fraud must be evaluated in concrete". The same applies to whether an error is excusable or not.

   Note 41: J.E. 2002-394 (S.C.), REJB 2002-29755 (S.C.) at para. 73.

¶ 471      That being so, the jurisprudence states, however, that an inexcusable error is much more difficult to plead when there is fraud. The doctrine and the jurisprudence have, in fact, accepted that consideration must be given to the conduct of the co-contracting party in judging whether the error is inexcusable or not. Here is what Jean-Louis Baudouin and Pierre-Gabriel Jobin wrote in that regard in their treatise on obligations:

   Note 42: J.-L. Baudouin and P.-G. Jobin, op. cit. note 12 at 206, No. 210.

¶ 472      Vincent Karim supported the same thesis:

   Note 43: Vincent Karim, "La règle de la bonne foi prévue dans l'article 1375 du Code civil du Québec: sa portée et les sanctions qui en découlent", [2000] 41 Les Cahiers de Droit 435 at 454 and 455.

¶ 473      The Court of Appeal recognized that in Lépine c. Khalid [See Note 44 below]. It cited with approval professors Luelles and Moore:

   Note 44: Supra note 13 at para. 48.

¶ 474      When all is said and done, what is solely important is the determinative nature of the error of the party that was the victim of fraud. To gauge this, [TRANSLATION] "fraud induced by false representations must be evaluated not only objectively, but also considering subjectively the particular context in which the false statements were made" [See Note 45 below].

   Note 45: Supra note 41 at para 73, citing Bissonnette v. Banque Nationale du Canada, [1993] R.L. 234 (C.A.).

¶ 475      Baudouin and Jobin wrote the following:

   Note 46: J.-L. Baudouin and P.-G. Jobin, op. cit. note 12 at para. 210.

¶ 476      Mr Justice Jean Bouchard wrote the following:

   Note 47: Supra note 41 at para. 74.

¶ 477      Among the key elements to be considered is the climate of trust between the parties. In that regard, the Court subscribes entirely to the comments of Mr. Justice Bouchard in Services Télévision Arvida inc. v. Allaire:

   Note 48: Ibid. at paras. 75 and 76.

¶ 478      The defendant cited three decisions in which errors were deemed inexcusable despite proven false representations: El. Khoury v. Meltezos [See Note 49 below], Lafrance v. Robert [See Note 50 below] and Airvap (1983) inc. v. 9019-4142 Québec inc. [See Note 51 below]. It is notable that, in the three cases, [TRANSLATION] "informed" or [TRANSLATION] "experienced" buyers were involved in a purely commercial, rather than a "professional", relationship. A relationship between a mandator and a mandatory was also not involved.

   Note 49: S.C. Montréal, 500-05-044065-983, February 1, 2001, Yves Tardif J.

   Note 50: J.E. 2001-2022 (S.C.).

   Note 51: [2000] R.L. 122 (S.C.).

¶ 479      A relationship between a broker and a client is a professional relationship. The broker acts as an advisor and professional with the client. It is not a simple commercial relationship or a relationship between a buyer and a seller. Furthermore, the relationship is between a mandator and a mandatary.

¶ 480      Remember that Mr. Markarian had full trust in the defendant, one of the largest banks in Canada, and in its employees. He was not doing business with it on a basis of distrust. Furthermore, he had full trust in Migirdic, who was portrayed to him as an honest and "knowledgeable" man, who was also a vice-president of CIBC Wood Gundy.

¶ 481      The Markarians had reason to trust Migirdic and CIBC precisely because of the context of trust that prevails and must prevail in relations between an investor and a broker and because of the broker's obligations toward the client. The Markarians were justified in assuming that the brokerage firm with which they were doing business and which was one of the largest in Canada, as well as its representative, would act honestly and faithfully toward them.

¶ 482      The duties and obligations of a brokerage firm and its representative are those of a mandatary and an advisor. [TRANSLATION] "A securities broker is the mandatary of the client" [See Note 52 below].

   Note 52: Kelly-Masson v. Merrill Lynch Canada Inc., J.E. 96-1240 (S.C.); Poirier v. Tassé et Associés ltée, J.E. 2001-666 (S.C.).

¶ 483      Article 2138 of the Civil Code reads as follows:

¶ 484      Hence, at the heart of the relationship with the client are duties to act faithfully, honestly and with integrity. A brokerage firm and its representative have a general obligation to act faithfully toward the client.

¶ 485      A mandatary must serve the exclusive interest of the mandator and avoid conflicts between his or her own interests and those of the mandator. A broker must thus subordinate his or her own interests to those of the clients [See Note 53 below].

   Note 53: R.D. Lemoyne and G.-R. Thibaudeau, "La responsabilité du courtier en valeurs mobilières au Québec", (1991) 51 R. du B. 503 at 508.

¶ 486      The obligation to act faithfully goes hand in hand with the obligation to act in good faith, which is a general obligation in all contractual relations, and an obligation to show transparency. Furthermore, a client can expect the representative to [TRANSLATION] "respect the parameters of the mandate the client gave the representative" [See Note 54 below].

   Note 54: Financière McLario inc. v. Groupe Albatros International inc., J.E. 2001-478 (S.C.).

¶ 487      The obligation to advise goes even further. Not only does it involve the obligation to inform, but it also requires [TRANSLATION] "an objective presentation of all the information obtained, an evaluation of the different decisions that the co-contracting party can make, and even an eventual opinion on the appropriateness of the co-contracting party's making a commitment" [See Note 55 below].

   Note 55: J.-L. Baudouin and P.-G. Jobin, op. cit. note 12 at para. 307.

¶ 488      Baudouin and Jobin [See Note 56 below] point out that the Supreme Court has determined the conditions under which that general obligation concretely applies. The information must be necessary and determinative, which is the case here. The information must be known or presumed to be known by the party that must provide it, for example, because that party is an expert in the field. That is also the case here. Lastly, the party entitled to the advice must not have the information or be able to obtain it, or the party must, in the circumstances, maintain a bond of trust in regard to the debtor of the obligation such that the party can reasonably expect that the debtor of the obligation will provide information of that importance. The two components of that condition, which is nevertheless an alternative, are found here. There is no doubt that the Markarians knew only very little about the stock market and stock market investments, and that they expected the brokerage firm and its representative to guide them in that regard. Hence, it was perfectly legitimate for the Markarians to rely on them.

   Note 56: Ibid. at 270, para 314.

¶ 489      The Supreme Court ruled in Hodgkinson v. Simms [See Note 57 below] on the dynamic underlining the bonds that exist between a professional and a client, and the resulting vulnerability. What is described applies to the relationship existing between the plaintiffs, on the one hand, and the defendant and its representative Migirdic, on the other:

   Note 57: [1994] 3 S.C.R. 377.

¶ 490      That judgment, which deals with a fiduciary obligation in common law, is obviously not applicable as a legal source in Québec civil law. The comments bearing on the relationship of trust and dependency in relations between a broker and client are, however, wholly relevant in themselves, regardless of the legal system.

¶ 491      The Supreme Court also pointed out, in Laflamme v. Prudential-Bache Commodities Canada Ltd. [See Note 58 below], the bond between manager and client, and the importance that trust plays in it:

   Note 58: [2000] 1 S.C.R. 638.

¶ 492      The Supreme Court added in the same judgment that the existence of such a bond of trust also involves a correlative reduction, protected by law, in the vigilance expected of the client:

¶ 493      In reality, no one will contest that investor and general public trust in financial institutions, including those that solicit and encourage that trust, constitutes an essential condition for the viability of our economic system. The defendant argued that the acknowledgment of documents signed and the obligation of clients to check the documentation sent to them are essential [TRANSLATION] "to the security of commercial exchanges, the stability of our economic system and the stability of our legal system; to conclude otherwise would have incalculable consequences". The same is even more true of the trust and honesty that must be shown by brokers and their representatives.

¶ 494      The securities industry is based on a relationship of trust between broker and client. In fact, the code of conduct of the defendant's employees acknowledges this, and all the defendant's representatives who testified before the Court acknowledged that it is legitimate and normal for a client to have complete trust in his or her brokerage firm and its employees.

¶ 495      The defendant itself acknowledged the extent and importance of its obligations and those of its representative toward clients. It agreed that the duties of faithfulness, honesty and integrity are at the heart of the relationship with the client. In its advertising brochure P-112 is the following:

¶ 496      All the defendant's advertising encourages its clients to place their trust in the company and its representatives: [TRANSLATION] "reputation as a leader and for integrity", "tradition of excellence", "peace of mind", "client protection", "investor protection", "integrity" and so on. It even makes those attributes a sales argument.

¶ 497      Tom Monahan, the president of CIBC Wood Gundy, testified that his firm [TRANSLATION] "places the interests of clients above its own interest".

¶ 498      The Court is of the opinion that a climate of trust is even more important with a bank. CIBC is not a fly-by-night operation. It is a serious financial institution with a good reputation. It is one of the six main banks in Canada. It inspires great trust, much more than that given other financial institutions. The defendant itself relies on that to attract clients. Clients' expectations are proportionately high. That trust is even a source of clients for the defendant. It derives considerable profits from it. Its obligations are just as considerable. CIBC cannot now reproach the plaintiffs for having placed their trust in it. When Mr. Markarian decided to do business with one of the major financial institutions in the country, he had no reason to suspect that an employee would defraud him... and that CIBC would tell him to get lost.

¶ 499      At a time when financial fraud seems unfortunately to have become a daily subject in the news, Stephen Jarislowsky, president of the celebrated firm of Jarislowsky Fraser, declared on September 15, 2005 that [TRANSLATION] "small investors should think twice before entrusting their money to strangers... Institutions with a good reputation, like the National Bank or the Royal Bank should be preferred" [See Note 59 below]. Mr. Jarislowsky did not specifically mention CIBC, but CIBC would likely not appreciate being placed on a different footing from the two other major banks cited and his comments concerned it as well. That advice from a man with a very high reputation in financial circles clearly illustrates all the credibility enjoyed by the major Canadian banks in the business world, and the extent to which trust is even more important in regard to such an institution compared with other financial institutions.

   Note 59: La Presse, Montréal, Thursday, September 15, 2005, "Que faire pour éviter les fraudes?", article written by Francis Vailles.

¶ 500      In this case, remember that Mr. Markarian had very little stock market knowledge, as the Court explained in paragraphs 240 to 245 above. He knew very little about stock market investments or brokerage practices. He had always had extremely traditional and conservative investments, and preferred by far term deposits and government bonds to stock market investments. His investments were made at the suggestion of the representative and he relied on those recommendations. As Mr. Markarian very accurately said: [TRANSLATION] "I knew nothing about investment. That is why I sought advice from a specialist". A novice in the field, he was the exact opposite of a seasoned investor.

¶ 501      The plaintiffs were right to argue that, by entrusting their savings to the defendant and its representative, they were entitled to expect and indeed expected to receive professional, informed, honest and independent advice from them. They were justified in assuming that, in exercising their profession, the defendant and its representative would act faithfully, honestly and in accordance with the laws, regulations and other standards governing their activities. Not very knowledgeable about stock market investments, the plaintiffs could rely spontaneously on the skills that the defendant and its representative appeared to have in managing the plaintiffs' investments. The plaintiffs were perfectly justified in automatically having confidence in Migirdic and his employer, comforted by the fact that they were doing business with professional managers whose sole objective was to protect their interests (the plaintiffs' that is!). And if it is true, as the defendant pointed out, that stock market activity by nature involves major risks, the plaintiffs were justified in believing that, conversely, doing business with a broker did not, in and of itself, constitute a major risk, but rather a source of confidence, especially if the broker was one of the largest banks in Canada.

¶ 502      In fact, in its defence, the defendant admitted that "it was bound to ... act professionally in all integrity and independence".

¶ 503      The defendant in the case chose to make the plaintiffs even more comfortable with its representative and invited them to place even more trust in him. It gave him special titles, some very important, that could not fail to have a deep meaning and real consequences for clients. It told everyone that Migirdic was one of its vice-presidents and directors, and it allowed him to represent himself as a retirement specialist.

¶ 504      The plaintiffs were all the more entitled to rely on and place trust in the defendant as it never prompted them to beware of Migirdic or informed them that he might be more or less honest or compliant with the regulations, or that he had been sanctioned on several occasions for professional misconduct.

¶ 505      Hence, it is not surprising that the Markarians had complete trust in Migirdic, encouraged as they were by the firm with which they did business, its status, the defendant's advertising and the qualities attributed to Migirdic by the defendant itself.

¶ 506      The Markarians were entitled to trust Migirdic and CIBC in this case and not to be suspicious of them. They committed no fault in trusting CIBC and Migirdic, not being on their guard against them and being unable to uncover the fraud and expose it.

¶ 507      In fact, the defendant's argument that Mr. Markarian was a "sophisticated" and "knowledgeable" businessman who should therefore have been suspicious and not let Migirdic bamboozle him is a little odd, given that CIBC, with its huge number of even more "sophisticated" and "knowledgeable" employees, never detected Migirdic's fraud.

¶ 508      The defendant's main reproach in regard to the plaintiffs in terms of an "inexcusable error" is to have failed to read P-6 and P-7 before signing them, as well as having failed to read the audit and confirmation letters, and the notes in the monthly statements. The defendant wrote the following:

¶ 509      The defendant supported its argument with a whole series of decisions in which the courts refused to allow the allegation of an error when the documents signed in error were not read: Société québécoise d'assainissement des eaux v. B. Fréjeau & Fils inc. [See Note 60 below], Construction D.R.C. Rousseau inc. v. Enchères de Chez nous inc. [See Note 61 below], Royal Bank of Canada v. 2969408 Canada inc. [See Note 62 below], Bonin v. Picard [See Note 63 below], etc. The problem lies in the fact that, in all these cases, the error invoked was a simple one. There is no allegation of fraud in any of them.

   Note 60: J.E. 2000-809 (C.A.).

   Note 61: [1997] R.D.I. 261 (S.C.).

   Note 62: S.C. Montréal, 500-17-010040-015, May 16, 2002, Carole Hallée J.

   Note 63: [2004] R.R.A. 910 (S.C.).

¶ 510      Conversely, motions for cancellation based on an error induced by fraud have almost always been allowed, even if the document was not read. In those cases, it was ruled that false representations generally caused the signing of the document and the error, not the fact that the document was not read.

¶ 511      In Banque Nationale du Canada v. Marcoux [See Note 64 below], the motion for nullity was allowed as follows:

   Note 64: B.E. 99BE-292 (S.C.).

¶ 512      In addition, in Gingras, Jacques, Lajoie et ass. ltée v. 9081-7263 Québec inc. [See Note 65 below], the motion for cancellation was allowed although the impugned document was not read:

   Note 65: J.E. 2004-261 (C.Q.).

¶ 513      Furthermore, in Banque de Nouvelle-Écosse v. Robert [See Note 66 below], our Court also cancelled the contract on the ground of an error, even though the act impugned had not been read:

   Note 66: J.E. 2000-1639 (S.C.).

¶ 514      The same conclusion was reached in Perna v. Petoza [See Note 67 below]:

   Note 67: B.E. 97BE-335 (S.C.).

¶ 515      In 9032-4005 Québec inc. v. Société de cautionnement du St-Laurent inc. [See Note 68 below], the Court noted the following:

   Note 68: J.E. 1998-422 (S.C.).

¶ 516      Whether or not the documents were read would have changed absolutely nothing in this case.

¶ 517      What was just stated also applies to the signature on a "blank" document at the request of the defendant's representative, for the reasons indicated.

¶ 518      In this case, the Markarians fell victim to a true system of organized fraud, which was very difficult to guard against because of the skill and knowledge of Migirdic, who was the Bank's only representative in regard to the clients and could tell them anything about practices, the documents required and the meaning of the documents, without being contradicted by anyone, as I indicated earlier (at paras. 232 to 237, and para. 227). Migirdic had a real skill in confusing people and inventing stories. He explained (falsely) the reasons the various documents had to be signed and those reasons were plausible. He even explained why the documents were blank (certain indications had to be typed in later on, etc.). For all practical purposes, the system itself set up by Migirdic over the years prevented the plaintiffs from detecting the fraud: the hasty signing of documents, the brief explanations, the signing of blank documents to be completed later on, the occasional insertion of documents in with others, the plausible explanations (for example, that one account had to be guaranteed by another account belonging to the same client) and so on.

¶ 519      In the circumstances, it is difficult to understand how the defendant can reproach the plaintiffs for being unable, for all those years, to detect Migirdic's fraud and for not alerting it. CIBC itself did not see or discover anything. It was completely fooled, despite all its staff and tools, and the immense resources at its disposal.

¶ 520      Migirdic was clever and inspired neither distrust nor doubt. That is why the Markarians were deceived, were not wary of him and could do little against him.

¶ 521      Noonan, the very experienced branch manager, himself never suspected that Migirdic took advantage of him and clients. He merely wrote letters and received only signatures, all fraudulent.

¶ 522      The defendant reproached the plaintiffs for signing the audit and confirmation letters. Migirdic told them why they had to do so and justified the signatures.

¶ 523      The defendant also reproached the plaintiffs for not complaining to the compliance and customer service departments over the years. But what would they have complained of, as they were unaware they were the victims of on-going fraud? The only thing they were informed of was a mix-up between their account and Gazarosyan's. Migirdic assured them that he would take care of it and, when no results were forthcoming, he told them why. CIBC could have been informed of possible complaints if only Tom Noonan had taken the trouble to contact the plaintiffs. He never did and, in fact, the plaintiffs were always left to their own devices and were at Migirdic's mercy in their communications with the defendant.

¶ 524      The defendant also reproached the Markarians for [TRANSLATION] "functioning in a vacuum" with Migirdic and for [TRANSLATION] "shutting it out of the equation", to all intents and purposes.

¶ 525      The plaintiffs' "fault" would be sought in vain. The Markarians never did anything improper in that regard. They never failed to follow up on the requests that CIBC made to them from time to time. When a problem arose, they always communicated with their CIBC representative so that it could be resolved. CIBC can certainly not reproach them for that, since Noonan himself, in his letter of April 25, 2000 (see para. 77 above), invited the Markarians to communicate with Migirdic about any matter. If that was applicable in 2000, it must have been just as applicable before that. The Markarians never hid from anyone and never hid anything. It was not their fault if no one besides Migirdic at CIBC ever communicated with them. By consistently relying on Migirdic and asking him to act in his stead, Noonan made it possible for CIBC not to be informed of Migirdic's fraudulent manoeuvres. The defendant cannot now complain of the ignorance in which it was accordingly kept.

¶ 526      As the defendant wrote, it is true that the plaintiffs never sparked an investigation into what was happening with Migirdic and never provided the Bank with the "tools" on the basis of which it could properly supervise its employee. But the plaintiffs were unaware of the fraud and the plot against them. Furthermore, it was up to the firm and employer to take the necessary steps to supervise and control its employees.

¶ 527      The Court will not comment on the defendant's allegation that the plaintiffs kept all their assets liquid... which was said to have made the fraud possible!

¶ 528      The plaintiffs also cannot be reproached for failing to mitigate the damage, since they were wholly unaware that it was being "produced" until CIBC informed them in March 2001.

¶ 529      The defendant argued that it was actually a victim of Migirdic just as the Markarians were! That allegation must be vigorously rejected. There is no comparison between the two. Firstly, the defendant, not the Markarians, was responsible for its employee. Secondly, it alone, not the Markarians, had the obligation to supervise and control its employee. Thirdly, it alone, not the Markarians, knew Migirdic's history. Above all, it alone, not the plaintiffs, was able to see Migirdic's conduct in regard to all the accounts and with all the clients. It alone, not the plaintiffs, could carry out cross-checks and audits, and delve deeper. Those allegations are odious in the circumstances.

¶ 530      It was the defendant that committed the faults in this case (paras. 262 to 403 above).

¶ 531      CIBC took in $5.5 million through Migirdic's commissions (excluding Migirdic's share) in the last ten years that Migirdic worked for it. It cannot now tell the plaintiffs that one of its employees committed a colossal fraud worth several million dollars, that the employee indeed hoodwinked them to the point that they realized nothing, that they therefore unknowingly signed all the documents required so that the Bank did not lose a dime, and that it is now the plaintiffs who are losing millions of dollars, not the defendant, CIBC cannot thereby argue that, because of the clients' failure to doubt what its "vice-president" told them to do, the Bank is protected and the clients must bear all the consequences of the fraud. Nor can it tell the clients that they are responsible for everything at CIBC, including its employees, and CIBC is not.

7. REIMBURSEMENT OF RITA LUTHI BY THE DEFENDANT

¶ 532      Besides "guarantee" P-6 being null, the settlement reached between Rita Luthi and the defendant in April 2002 leads to the conclusion that the defendant has no right to the sums taken from the Markarians in relation to Rita Luthi's account.

¶ 533      It will be recalled that, by March 2001, Rita Luthi had lost the entire amount in her account (between $150,000 and $160,000) and her account was over $353,000 in the red. The latter amount was withdrawn from the Markarians' joint account and the Markarians are now claiming it.

¶ 534      At the hearing of this case, it was discovered that, after sending Rita Luthi, on June 19, 2001, a formal notice to pay it $225,000, CIBC not only subsequently waived any claim against her but compensated her in the amount of $115,000 for the bulk of the loss of her investment, i.e. for nearly 75% of it. That occurred on April 10, 2002, after Rita Luthi and the defendant signed an "Agreement of settlement out of court, receipt, release and discharge, transaction and subrogation" (Exhibit P-111). Mrs. Luthi testified that she believed not only that she owed the Bank nothing, but that she still had funds with it. She was kept in ignorance of the losses. She always thought she was entitled to all the funds she had entrusted to CIBC but she settled [TRANSLATION] "to be done with the matter", which had [TRANSLATION] "made her ill".

¶ 535      The April 2002 agreement was also accompanied by a very strict confidentiality undertaking prohibiting Rita Luthi and her assigns from revealing anything about the agreement to anyone. For its part, the Bank said nothing about it. Hence, the plaintiffs were kept in ignorance of the agreement and its execution until Rita Luthi was examined in Court on the subject by the plaintiffs' attorneys and the Court ordered that the information be revealed and the documents filed (and sealed). The defendant contested the motion for disclosure until the order was issued.

¶ 536      Hence, the Markarians only learned in January 2005, once the trial had begun, of the existence of the settlement reached between Rita Luthi and the defendant, and the payment to Mrs. Luthi of compensation of more than $100,000. Until then, they were kept in total ignorance by the defendant of these very significant facts. The defendant actually did everything in its power to ensure that they did not learn of the settlement, even in January 2005.

¶ 537      Bear in mind the terms of article 2346 of the Civil Code:

¶ 538      Article 2353 reads as follows:

¶ 539      Article 2365 reads as follows:

¶ 540      And article 2345 states the following:

¶ 541      CIBC apparently did not consider the judicial proceedings instituted by the plaintiffs as a request for information on the progress made in the performance of the principal obligation. It thus took great care not to inform them of the agreement reached with Rita Luthi or its content. What is more, it even took steps to ensure that the agreement remained confidential, and even prohibited Mrs. Luthi from revealing anything about to the Markarians.

¶ 542      CIBC argued that the settlement with Rita Luthi does not indicate that the debt of $353,000 paid by the Markarians was not owed or that they should be reimbursed for the amount, CIBC indicated that it first went to the surety to obtain payment and that it was entitled to do so. Payment was in fact obtained, it was only afterward that CIBC settled Rita Luthi's claim for reimbursement of her investment. CIBC argued that the agreement never disposed of the debt existing in the account in March 2001 which was "paid" by the Markarians. CIBC never acknowledged that that debt was not owed. It was simply extinguished when Rita Luthi was reimbursed for her investment. Furthermore, the Bank contended that the settlement reached with Rita Luthi left intact the Markarians right to sue Mrs. Luthi as the principal debtor with a view to recovering their $353,000.

¶ 543      In the Court's opinion, as regards Rita Luthi, CIBC could not agree to reimburse her for her investment without first acknowledging that Mrs. Luthi owed it nothing in terms of the accumulated deficit beyond the investment. Such acknowledgment was implicit and necessary for the reimbursement of the amounts lost before the deficit began to accumulate. The deficit was possible only once the investment had disappeared. For it to be reimbursed, it had to be acknowledged that there was in fact no deficit to be considered.

¶ 544      In reimbursing $115,000 to Rita Luthi, i.e. 75% of her investment, CIBC necessarily recognized that it had no claim against her for the deficit subsequent to the depletion of the investment.

¶ 545      At best it can be said that, in this case, CIBC withdrew $353,000 from the Markarians' account, gave Rita Luthi $115,000 of it and kept the rest. The surety compensated... the principal debtor.

¶ 546      It is quite possible that the agreement signed between the defendant and Mrs. Luthi was thus worded so as not to technically prevent CIBC from claiming that the settlement was completely independent of the Bank's rights in regard to the Markarians. In actuality, that can in no way be the case. The plaintiffs were correct in contending that, when [TRANSLATION] "CIBC paid Mrs. Luthi compensation of more than $100,000 in 2002 for the losses Migirdic made her incur", it [TRANSLATION] "thereby recognized that Mrs. Luthi did not owe it a dime", including in terms of the deficit subsequent to the loss of the investment, as one was not possible without the other. CIBC cannot claim today that that was so because the Markarians had covered the deficit: the "rebirth" of the investment could not exist without the deficit first intrinsically disappearing as a debt. No "rebirth" of the investment could exist without the subsequent deficit first being renounced.

¶ 547      CIBC acknowledged that it never had any claim again Mrs. Luthi, even though it did so [TRANSLATION] "without prejudice or admission of liability". The agreement necessarily implied that it never had any claim against the Markarians in terms of Rita Luthi's account. In the circumstances, it is understandable that CIBC tried so hard to keep its agreement with Rita Luthi secret.

¶ 548      The Court concludes that, even if agreement P-6 were not absolutely null, the agreement reached in April 2002 between the defendant and Rita Luthi would, in any case, have compelled the Court to recognize the Markarians' right to the sum of $353,000 withdrawn from their joint account in relation to the account of Rita Luthi.

8. CONCLUSION ON NULLITY AND ORDER TO REIMBURSE

¶ 549      Given the preceding, the Court declares null, and where required, cancels "guarantees" P-6 and P-7 for all legal purposes.

¶ 550      Accordingly, reimbursement of the plaintiffs for the amounts taken from their brokerage accounts by CIBC will be ordered, namely, $353,026.12 for the plaintiffs Haroutioun and Alice Markarian personally, and $1,098,301.27 for 125134 Canada Inc.

9. RRSP-RELATED PENALTIES

¶ 551      The plaintiffs Haroutioun and Alice Markarian had to pay penalties of $817.03 and $1200 respectively because of the excess foreign content in their RRSP accounts as a result of the US securities acquired by Migirdic without their authorization (P-142). The Markarians paid the penalties when they transferred their RRSP accounts to the National Bank.

¶ 552      The plaintiffs' entire claim in that regard must accordingly be allowed.

10. MORAL DAMAGES

¶ 553      The plaintiffs are each claiming from the defendant $100,000 in compensatory damages for moral damage and interference in their fundamental rights. They invoke in particular the stress, anguish and insecurity that the fraud and the defendant's conduct caused them, as well as interference in their dignity and inviolability. In addition, they contend that they were deprived of the peaceful enjoyment and free disposition of their assets [See Note 69 below].

   Note 69: The charter rights contemplated here are examined in more detail in paras. 578 et seq. below.

¶ 554      According to article 1407 C.C.Q., a party injured by fraud can seek damages in addition to nullity and restitution of prestations.

¶ 555      As Baudouin and Jobin have said:

   Note 70: J.-L. Baudouin and P.-G. Jobin, op. cit. note 12 at 221, para. 231.

¶ 556      In addition to what is provided for in the Civil Code, the Charter of human rights and freedoms [See Note 71 below] also allows the awarding of moral damages when fundamental rights are violated. The first paragraph of section 4 is worded as follows:

   Note 71: R.S.Q., c. C-12.

¶ 557      In this case, the Markarians in fact sustained moral damage, in addition to being stripped of a very substantial portion of their assets. The cancellation of the guarantee agreements will not compensate for the moral prejudice they sustained.

¶ 558      The Markarians were profoundly affected by Migirdic's fraud, for which CIBC is responsible. Mr. Markarian, in particular, was distraught and sustained a violent shock when he learned of the guarantees. When he left the meeting with CIBC's representatives at which he was informed of the fraud, he felt physically very ill, to the point that a physician had to be called to his bedside after he returned home. Mrs. Markarian was also affected by the bad news and to an even greater extent by the sight of her spouse in that state. For both spouses, the discovery of the fraud was followed by great anxiety and anguish a serious feeling of insecurity and much stress.

¶ 559      Furthermore, after the discovery of the fraud, not only did the defendant fail to show the Markarians the respect to which they were entitled as human beings - and as victims - but it treated them with profound contempt. It cruelly dropped them and even went after them as if they were responsible for the dreadful turn of events. It was as if the employer of a thief - the one responsible for fraud - made the victim responsible for its misfortune. That has been the attitude unfortunately taken since then.

¶ 560      The very way the Markarians were informed of the guarantees and their resulting liability, without also being informed that fraud was involved, added to the contempt and brutality with which CIBC's representatives treated them.

¶ 561      The Markarians did not suffer without reason.

¶ 562      They had another considerable shock when CIBC took money from their accounts. They then concretely realized that CIBC intended to hold them responsible for the consequences of the fraud. Mr. Markarian's son testified that his father was crushed by that news. His emotional health deteriorated still further.

¶ 563      In addition to treating them with contempt, the defendant acted toward the Markarians in bad faith and were oppressive toward them. It dealt with their complaints without giving them the attention and consideration they required. Above all, it kept them in ignorance of:

¶ 564      Furthermore, knowing the "guarantees" were fraudulent, the defendant nevertheless availed itself of them. The Markarians were thereby deprived of one third of all their assets, i.e. the considerable sum of $1.5 million. At that point, they feared they would not have enough money for their old age, given their lifestyle until then, and would even find themselves with money worries. They then substantially reduced their standard of living and activities. All that increased their stress, anguish and insecurity still further.

¶ 565      CIBC thus in bad faith deprived the plaintiffs of the peaceful enjoyment and free disposition of their property. It especially made them go through a dreadful period that is not yet over.

¶ 566      It also contested all the Markarians' proceedings, and stubbornly and in bad faith conceded nothing until the hearing, although it knew that the "guarantees" were invalid and despite the evidence. We will come back to this later (at para. 693).

¶ 567      As if that were not enough, the defendant on several occasions implied that the Markarians were perhaps in cahoots with its defrauding employee. Because of that, the Markarians were despondent, felt immensely helpless and deeply humiliated, and wore in unfathomable pain. They felt their dignity was being attacked.

¶ 568      It is noteworthy that CIBC never formally alleged that the plaintiffs took part in Migirdic's fraud or plotted with him. But many were the insinuations. In its proceedings, CIBC alleged that the Markarians kept their accounts totally liquid [TRANSLATION] "to enable them to be used as a guarantee" [See Note 72 below]! That statement has meaning only if it is assumed that the composition of the account had an illegal purpose. From the start of the hearing and numerous times after that, the defendant's attorneys and Tom Monahan, the president of CIBC Wood Gundy, also told the Court that they had many "questions", "doubts" and "suspicions" about the Markarians' actions. The defendant wrote twice rather than once that [TRANSLATION] "on the basis of the facts in the case, troubling questions arise about [the Markarians'] conduct" and that [TRANSLATION] "the conduct [of the Markarians] in fact raises troubling questions". The defendant also immediately drew the Court's attention to the following:

   Note 72: That allegation, which is rather astonishing, reads as follows: "Plaintiffs kept their accounts totally liquid to enable the use of their accounts in securing transactions in the Guaranteed Accounts" (at para. 72 of the defence) [Emphasis added.]

¶ 569      These comments (which are racist in connotation) imply that the Markarians could have been in cahoots with Migirdic, "since they belonged to the same community". The defendant also contended the following:

¶ 570      Tom Monahan, the president of CIBC Wood Gundy, himself seemed to imply in his testimony before the Court that he suspected the Markarians of being in league with Migirdic. Here is his testimony on February 14, 2005 in an exchange with the Court:

¶ 571      If Rita Luthi was not part of the Armenian community and Gazarosyan did not exist in practice, there was no one other than the Markarians who could have been in cahoots with Migirdic. Those comments were troubling and insinuate that the Markarians were not honest.

¶ 572      It must be repeated and underscored that there is not a modicum of proof of any complicity whatsoever between the Markarians and Migirdic. The defendant never, in fact, formally alleged or argued that. Furthermore, the evidence is clear that Mr. Markarian is an honest, sincere, credible man of good faith, and that he had no idea of the fraud committed by Migirdic. In the circumstances, the insinuation regarding his honesty could only be gravely offensive to him and his spouse, just like the allegations that he was aware of the "guarantees".

¶ 573      The fraud, the exercise of the false guarantees, the way the Markarians were treated by CIBC, the malicious allusions, the forfeiture of a large part of their assets and the hell they experienced after 2001 without a doubt greatly affected the Markarians. They felt stress, anguish, anxiety, insecurity and humiliation to the highest degree. Their dignity was attacked. There is no doubt that their emotional, psychological and moral equilibrium was seriously affected.

¶ 574      The Markarians lost their joy in living after the discovery of the fraud and the execution of the "guarantees". They were always under stress. Their married life and family life were much affected. Mr. Markarian's personality was affected to a great extent. Those close to him found that difficult. He was unhappy. His family's way of life even changed. The Markarians reduced their standard of living and stopped travelling. They even stopped making long-term plans. They further restricted their spending. Their social life itself changed. The affair had certain repercussions in the Armenian community and, as they were continually questioned about it, Mr. Markarian ceased to frequent the community, whereas he had been an active member of it before.

¶ 575      That moral prejudice must be compensated.

¶ 576      The Markarians were correct in arguing that a number of their fundamental rights were violated by the defendant, including the right to dignity and inviolability. The Court particularly notes the humiliating way the Markarians were treated, as well as the contempt and lack of respect they were shown. The right to the free enjoyment of their property was also violated. Those violations affected the Markarians deeply and in a more than fleeting manner. They also entitle them to moral damages.

¶ 577      In the circumstances of this case, the Court believes that, given their age and the serious impact of the wrongful conduct of the defendant on their lives, peace of mind and dignity, the plaintiffs are entitled to moral damages of $50,000 each. The Court takes into consideration the limits imposed by the Supreme Court on moral damages.

11. PUNITIVE DAMAGES

¶ 578      Mr. and Mrs. Markarian ask that the defendant be ordered to pay punitive damages of $10 million for interference in their fundamental rights through its actions. They invoke that the defendant violated their right to inviolability and dignity, and to the peaceful enjoyment and free disposition of their property.

(A) APPLICABLE LAW

¶ 579      Section 1 of the Charter of human rights and freedoms states the following: "Every human being has a right to ... inviolability ... Section 4 states that: "Every person has a right to the safeguard of his dignity, honour and reputation". Article 6 states that: "Every person has a right to the peaceful enjoyment and free disposition of his property".

¶ 580      The unlawful interference with a right recognized by the Charter gives the victim not only the right to obtain "the cessation of such interference" and "compensation for the ... prejudice" sustained, but also, in the event of "intentional interference", the right to "punitive damages" from the guilty person. That is provided for in the second paragraph of section 49 of the Charter.

¶ 581      That is the basis for the plaintiffs' claim.

¶ 582      Even in common law, of which they have been a part for nearly 250 years, punitive damages are exceptional. The word is used at least four times by the Supreme Court in Whiten v. Pilot Insurance Co. [See Note 73 below]. In Québec law, they are also rarely provided for by law and rarely awarded. The Québec courts in fact (rightly) fear like the plague that punitive damages will be sought in all cases, as they fear a slippery slope in regard to quantums, like the situation in the United States.

   Note 73: [2002] 1 S.C.R. 595 at 604 (para. 4), at 617 (pare. 36), at 645 (para. 94) and at 549 (105).

¶ 583      Québec law allows for punitive damages only in cases where they are specifically provided for. That is the case with the Québec Charter. But at the risk of trivializing the rights protected by the Charter, not everything constitutes a violation of fundamental rights. This means that, even in Québec law, the awarding of punitive damages is not the rule and remains relatively exceptional, at least in practice.

¶ 584      That said, punitive damages have nothing exceptional about them. They are possible when authorized by law and all the required circumstances are present that allow them to be awarded. Moreover, the Charter must be interpreted broadly and liberally in order to ensure that people benefit fully from its protection [See Note 74 below].

   Note 74: Béliveau St-Jacques v. Fédération des employés et employées de Services Publics inc., [1996] 2 S.C.R. 345.

¶ 585      Punitive damages are awarded under the Charter only if the interference with fundamental rights was "unlawful and intentional". The Supreme Court defines "unlawful" interference as follows in Quebec (Public Curator) v. Syndicat national des employés de l'hôpital St-Ferdinand:

   Note 75: [1996] 3 S.C.R, 211 at 260, para. 116.

¶ 586      As regards the "intentional" nature of the interference, the Supreme Court wrote the following:

   Note 76: Ibid. at 260 and 261, paras. 117 and 118.

   Note 77: Ibid. at 262, para. 121.

(B) JUSTIFICATION FOR PUNITIVE DAMAGES

¶ 587      Baudouin and Jobin express the opinion that fraud is an offence that not only exposes its perpetrator to compensatory damages but also to punitive damages [See Note 78 below]. The Court does not, however, intend to accept Migirdic's fraud in this case as a source of punitive damages. An employer cannot be held liable for the payment of punitive damages solely in its capacity as employer [See Note 79 below]. But the employer must also not endorse the wrongful action of the employee post facto [See Note 80 below]. However, specifically in this case, the fraud would have had no consequence if CIBC had not decided to exercise the false guarantees generated by Migirdic. It was the actions proper to the defendant's administrators that created true problems here.

   Note 78: J.-L. Baudouin and P.-G. Jobin, op. cit. note 12 at 222 and 221, para. 231; V. Karim, op. cit. note 15 at 202.

   Note 79: Gauthier v. Beaumont, [1998] 2 S.C.R. 3 at 65-67; Béliveau St-Jacques v. FEESP, supra note 74; Augustus v. Gosset, [1995] R.J.Q. 335 at 359; Lacroutz v. Couture, [1991] R.R.A. 493 at 495 (C.A.); Claude Dallaire, Les dommages exemplaires sous le régime des chartes (Montréal: Wilson & Lafleur, 1995) at 191-192, No. 262; Alain Vallières, "La responsabilité de l'employeur pour le paiement des dommages punitifs à la suite d'un acte commis par un de ses employés", [1995] 36 C. de D. 569 at 582.

   Note 80: Alexander v. Montréal (Communauté urbaine de), [1991] R.R.A. 426 (S.C.).

¶ 588      The Supreme Court indicated in St-Ferdinand that the right to the safeguard of one's dignity as guaranteed in section 4 of the Charter "addresses interferences with the fundamental attributes of a human being which violate the respect to which every person is entitled":

   Note 81: Supra note 75 at 255-256, paras. 104 to 106.

¶ 589      A lack of respect, contempt and degrading treatment constitute interference with dignity. They must reach a certain degree to be sanctioned under the Charter.

¶ 590      There was such interference in this case. As I indicated in para. 559 above, after the discovery of the fraud, not only did the defendant fail to give the Markarians the respect to which they were entitled as human beings - and as victims - but it treated them with profound contempt. The very way the Markarians were informed of the guarantees and their attendant liability, without also being informed that fraud was involved, added to the contempt and brutality with which CIBC's representatives treated them. Furthermore, as indicated in paragraph 562 above, the Markarians concretely realized that CIBC intended to hold them responsible for the consequences of the fraud when it took money from their accounts, and that was a considerable additional shock. The Markarians were extremely affected by the lack of respect and the contempt that was shown them and continued to be shown them until now. The way the Markarians were treated can be considered degrading.

¶ 591      As if that were not enough, the defendant implied several times that the Markarians were perhaps in cahoots with the defendant's defrauding employee. Through insinuations, it challenged their honesty (at paras. 567 to 572 above). The Markarians were despondent, felt immensely helpless and deeply humiliated, and were in unfathomable pain. They believed their dignity was being attacked and their honour, and they were gravely hurt. What is more, that situation and the stigmatization persisted, as the defendant continued its insinuations through the proceedings and even during the trial, until the very end.

¶ 592      The refusal or failure to investigate the Markarians' complaints concerning the Intergold and AMCC shares are other demonstrations of CIBC's lack of respect and its contempt for the Markarians and what they might be experiencing and feeling.

¶ 593      Interference with inviolability includes interference in "the victim's physical, psychological or emotional equilibrium" [See Note 82 below].

   Note 82: Ibid. at para. 97; see also para. 95: "Section 1 refers inclusively to physical, psychological, moral and social inviolability".

¶ 594      The exercise of the false guarantees, the way they were treated by CIBC, the malicious allusions, the forfeiture of a large part of their assets and the hell they have experienced since 2001 have greatly affected the Markarians, as stated earlier (at paras. 558, 573 and 574 above). They felt stress, anguish, anxiety, insecurity and humiliation to the highest degree. They have been deeply marked psychologically and morally and in a more than fleeting manner. They will, in fact, be marked by that for life.

¶ 595      The Markarians' right to the peaceful enjoyment and free disposition of their property was also seriously violated in this case. After discovery of the fraud, the defendant seized all the plaintiffs' assets in CIBC's custody. It liquidated them and paid itself with the proceeds.

¶ 596      The Québec courts have, on several occasions, granted punitive damages under section 6. In Investissements Historia inc. v. Gervais Harding at ass. inc. [See Note 83 below], the Court of Appeal upheld the awarding of punitive damages under section 6 in the case of unlawful and intentional interference by a landlord in the rights of a tenant to the peaceful enjoyment of rented premises under a commercial lease. In Pearl v. Investissements Contempra ltée [See Note 84 below], Mr. Justice Clément Trudel, of our Court, awarded punitive damages of $1,850,000 for unlawful refusal to give towed vehicles back to their owners unless they first paid towing and storage charges. In Aubry v. 3370160 Canada Inc. [See Note 85 below], the Court concluded that forced, illegal repossession of a leased car impeded the peaceful enjoyment and free disposition of the property, and justified the awarding of $3,000 in punitive damages. In Simard v. Grenier [See Note 86 below], the Court concluded that the illegal destruction of the property of a person constituted interference in the rights of the owner under section 6 of the Charter and it awarded $3,000 in punitive damages. In Bilodeau v. Dufort [See Note 87 below], the Superior Court ordered a liquidator of a succession to pay punitive damages to the beneficiaries of the succession because he held back term deposits without being entitled to and without justification. In Paquin v. Le Territoire des Lacs inc. [See Note 88 below], punitive damages were awarded against a promoter who failed to comply with the development plan for properties sold.

   Note 83: J.E. 2006-955 (C.A.).

   Note 84: [1995] R.J.Q. 2697 (S.c.).

   Note 85: J.E. 2001-908 (C.Q.).

   Note 86: J.E. 99-830 (S.c.), appeal dismissed on a motion on May 31, 1999 (C.A.Q. 200-09-002576-996).

   Note 87: REJB 2000-16738 (S.C.).

   Note 88: REJB 2002-38037 (S.C.).

¶ 597      The courts have deemed that the simple refusal to pay a sum of money owed does not constitute a violation of the right to peaceful enjoyment and free disposition of a person's property. Section 6 of the Charter then does not apply. Mr. Justice Beauregard wrote the following for the Court of Appeal in Shama Textiles Inc. v. Certain Underwriters at Lloyd's [See Note 89 below]:

   Note 89: J.E. 2000-2152 (C.A.) at para. 21.

¶ 598      To the same effect: Azoulay v. Azoulay [See Note 90 below] and Provigo Distribution inc. v. Supermarché A.R.G. inc. [See Note 91 below], two decisions of the Court of Appeal; Rocha-Souza V. Novack [See Note 92 below], Hôtel de l'Aéroport de Mirabel inc. v. Aéroports de Montréal [See Note 93 below] and Médias Trans-continental inc. v. Bernatchez [See Note 94 below], decisions of the Superior Court. Baudouin and Deslauriers subscribe to that opinion [See Note 95 below].

   Note 90: REJB 2000-21409 (C.A.).

   Note 91: [1998] R.J.Q. 47 (C.A.).

   Note 92: J.E. 2000-61 (S.C.).

   Note 93: [2002] R.J.Q. 1721 (S.C.).

   Note 94: J.E. 2005-38 (S.C.).

   Note 95: J.-L. Baudouin and P. Deslauriers, op. cit. note 17 at 280 and 281, No. 341.

¶ 599      In this case, that limitation does not apply since the defendant did indeed appropriate the property of the plaintiffs, i.e. what was in its custody. It had the property sold and it kept the proceeds. This is a case where there was appropriation of another's property and violation of the right to peaceful enjoyment and free disposition of that property.

¶ 600      A very large part of the Markarians' property was appropriated, i.e. one third of it all, at a value of over $1.5 million.

¶ 601      That violation of the Markarians' right protected by section 6 was intentional.

¶ 602      At the time the defendant seized the Markarians' property in its possession, it knew perfectly well that the "guarantees" on which it based its action had been fraudulently obtained. It nevertheless took possession of the property. Migirdic had explained to the defendant the way he had obtained the Markarians' signatures on the documents. He had also explained that the Markarians were wholly unaware of the existence of the documents. The Markarians said the same thing. Other people had also complained of being Migirdic's victims. All the testimony and facts demonstrated the truth of Migirdic's and the Markarians' words. No evidence to the contrary existed. In the circumstances the defendant knew that documents P-6 and P-7 were false and worthless. By using them to seize the Markarians' property and by using their very content to allow it to act without legal authorization, the defendant acted with full knowledge of its absence of right and in bad faith.

¶ 603      To act in that manner, the Bank had to disregard all the facts brought to its attention and common sense (the guarantees in favour of unknown persons did not hold water). It had to totally disregard everything Migirdic told it, without any reason and although what he said could be verified. It had to totally disregard the Markarians' testimony, again without reason (the Bank argued none). It had to disregard the complaints of at the other clients and the fact that they all said the same thing. The defendant acted stubbornly and despite the evidence.

¶ 604      It will be recalled that, on February 26, 2001, Migirdic contacted Tom Monahan in order to confess all his fraud and give Monahan the names of all the defrauded clients. At Monahan's request, he put everything in writing and sent his confession to Noonan. A few days later, on March 1, he went to a meeting called by Monahan where Monahan, Noonan and others were present. He provided all the information in his possession and responded to all questions. A few days later, on the 8th, he went to the office of CIBC's attorneys and, in the presence of the attorney, Tom Noonan, a representative of the Compliance Department and a few other CIBC representatives, he answered all questions, gave details, explained and explained again for a few hours. Everything was then examined in detail and the attorney himself asked many questions. Migirdic responded to all of them.

¶ 605      On each of these occasions, Migirdic clearly indicated that all the documents signed by the Markarians were false, as were those signed by Papazian, etc. He explained that he had them sign the documents by saying that the documents were [TRANSLATION] "necessary for their accounts". He explained how he had the only confirmation letter linked to the Luthi "guarantee" and the audit letters linked to the Gazarosyan "guarantee" signed. He indicated that the Markarians never knew that they "were guaranteeing" Luthi and Gazarosyan. He said they did not even know who those people were. He said that Mrs. Luthi was never aware of her losses. He explained the situation for Aida and Bedros Papazian and their "guarantor", Kiganouchi Papazian. He talked about all the other problematic cases and answered all questions, as he testified before the Court. Noonan and Monahan confirmed that that was indeed the case. Migirdic testified that no one gave him any reason to think that he was not believed, either in the first or the second meeting. In fact, everything that Migirdic said was corroborated either by the facts or by the testimony of the clients.

¶ 606      Noonan testified that he believed everything in Migirdic's e-mail was "accurate". He added that he believed Migirdic when he said and repeated that the Markarians were not aware of the guarantees and did not in any way know Rita Luthi or Sebuh Gazarosyan. He testified that, during the meeting, everyone around him thought Migirdic was telling the truth. Migirdic seemed truly sincere.

¶ 607      But CIBC wrote in its defence that it had "reasons to doubt Migirdic and the truth of what he was saying". However, at no time during the proceedings or before the Court was CIBC able to give even one of those reasons. CIBC also wrote in its defence that Migirdic's statements were "only one of the elements to be taken into consideration in assessing the situation". With the exception of the fact that it had "pieces of paper" in its possession on which the Markarians' signatures appeared, CIBC was never able to indicate what those other elements were.

¶ 608      CIBC also refused to believe what Mr. and Mrs. Markarian told it, which was wholly confirmed by Migirdic and by all the elements in the record. But it was incapable of saying what prompted it to act that way. It was incapable of saying why it did not believe the Markarians.

¶ 609      CIBC was incapable of explaining why it refused to believe that Mr. Markarian was totally unaware of the "guarantees" before Noonan showed them to him at the meeting in March 2001, despite the Markarians' reaction of extreme surprise at that time. Noonan testified however, before the Court about how shocked Mr. Markarian truly was when he was shown the "guarantees" and the extent to which he was stunned. Bear in mind that the Markarians went to that meeting at the simple request of Tom Noonan, without knowing who would be present or what the purpose of the meeting was. Noonan testified that Mr. Markarian did not, in fact, refuse to respond to any question. He was never reluctant to respond. Noonan added that, at the meeting with the Markarians, he truly believed what they said. He indicated that they seemed truly to have been deceived and that he saw no reason at the time to think they were not sincere.

¶ 610      Rita Luthi also confirmed everything Migirdic said. She confirmed that she did not know the Markarians and did not even have any idea that they existed. Tom Noonan testified that he never had any reason to doubt what Mrs. Luthi said.

¶ 611      Other people also confirmed what Migirdic said about the fraud and the fact they were also swindled: Kiganouchi Papazian (who was in the same situation as the Markarians), Aida and Bedros Papazian (who were in the same situation as Rita Luthi), Levon Afeyan, Peter Arsinian, and so on. They all explained - in the same way - how Migirdic had had them sign documents whose existence they were totally unaware of and the manner in which Migirdic kept them in ignorance about was really going on in their accounts. Hence, CIBC was able to see that the Markarians were not an isolated case and it realized at that time the system Migirdic had set up.

¶ 612      In light of all that, it also knew that the documents in its possession were null.

¶ 613      But it would deny in its defence that it was aware of the fraud, irregularities and dishonest actions of Migirdic in the accounts, despite Migirdic's written confession and all the meetings with him and the clients.

¶ 614      Daniel Bowering, Compliance Department officer, was mandated by CIBC to investigate Migirdic's fraud and he testified. He wrote to his bosses at the end of his investigation that the firm should probably absorb the Markarians' losses, given all the irregularities committed by Migirdic, Migirdic's statements, the Markarians' statements and all the information revealed in Bowering's investigation. Bowering's recommendation was not followed.

¶ 615      So why was everything blocked? Why were the false guarantees exercised? Why did CIBC seize the Markarians' assets?

¶ 616      Because Tom Monahan, the president of CIBC Wood Gundy, decided that was what to do.

¶ 617      He testified before the Court. He said he did not believe Migirdic was telling the truth and he still does not believe it. He said CIBC had reasons to doubt Migirdic's allegations [TRANSLATION] "given his stress, the written documents signed by the Markarians, the monthly statements" and the fact that Mr. Markarian was a "sophisticated businessman". He said he did not believe the Markarians any more than he did Migirdic and he still has "questions" today. He said he also did not believe Rita Luthi, although he believes her now. He said he did not believe the elderly Kiganouchi Papazian, her son, or Aida or Bedros Papazian. He met with none of these people but he did not believe the comments reported to him.

¶ 618      Tom Monahan reiterated before the Court that [TRANSLATION] "CIBC had valid guarantees in its hands" and decided to execute them. He confirmed that he was the one who made the decision, after discussing the matter with his colleagues and his immediate superior, who gave her agreement. He acknowledged, like his attorney, that CIBC did not invoKe the opinion of its attorneys to justify its decision and conduct.

¶ 619      Tom Monahan testified very reluctantly at first. He did not respond to questions, often beat around the bush and responded several times by saying "I don't recall". After a time, he remembered, when the plaintiffs' attorney pressured him and insisted on a response. At one point, the Court had to intervene to remind him of his obligation to respond to the questions asked without trying to avoid them and without reluctance. It was only then that his manner of testifying improved.

¶ 620      Tom Monahan was never able to indicate in his testimony why he doubted all the testimony and statements of Migirdic and the clients, if only to say that the fraud continued for too long to be believable and that too many documents were signed for the guarantees not to be good. He added that the Armenian clients all belonged to the same community as Migirdic.

¶ 621      Monahan acknowledged that Migirdic's fraud justified his dismissal. He acknowledged that it did not, however, prevent ... the guarantees from being executed.

¶ 622      Monahan testified that, at the time the guarantees were executed, he was not 100% convinced that his decision was well founded. But he felt he had documents [TRANSLATION] "with a legal basis". His view was that the written documents CIBC had were [TRANSLATION] "solid" [See Note 96 below] (that is, the "guarantees", and audit and confirmation letters) and that he was justified in relying on them rather than on the various testimonies. From his comments, we can see, on the one hand, the expression of a voluntary blindness and considerable bad faith, and on the other, that all that CIBC wanted was a "legal basis" for acting, regardless of its value.

   Note 96: He even repeated that and stressed the word [TRANSLATION] "solid".

¶ 623      Monahan acknowledged that he was well aware the Bank could have applied to the Court before acting in order to find out its rights in regard to the plaintiffs' assets in its custody. But it deliberately decided not to do so.

¶ 624      CIBC's bad faith and obstinacy continued.

¶ 625      Its obstinacy and bad faith continued despite the settlement with Rita Luthi, the repeated confessions of Migirdic in his examinations on discovery and the IDA's decision in 2004.

¶ 626      Indeed, CIBC did not change its tune when the IDA tribunal concluded that Migirdic had defrauded the clients, including the Markarians, and decided to bar him for life from working as a securities representative, in addition to ordering him to pay a fine of over $300,000, and underlining the criminal nature of his actions.

¶ 627      Monahan testified that the IDA's decision did not change his mind, although he acknowledged that he had no reason to doubt what the IDA investigations revealed, their observations or their conclusions.

¶ 628      Tom Monahan still concludes the following:

   Note 97: Examination of February 14, 2005, question 717.

   Note 98: Examination of February 15, 2005, question 371.

¶ 629      Let me point out that, in this case, CIBC was sent a formal notice by the plaintiffs' attorneys not to act as it did. It was formally advised by the attorneys that the documents were false. It nevertheless deliberately decided to disregard the notice.

¶ 630      CIBC even took money from one account to cover a debt that the account did not guarantee. That matter has since been settled but it illustrates the Bank's scandalous conduct.

¶ 631      Although it could not fail to realize that the "guarantees" were fraudulent and worthless, CIBC nevertheless availed itself of them. In the circumstances, it must be concluded that, at best, CIBC was voluntarily blind and showed bad faith in seizing the Markarians' assets and subsequently maintaining its position, while acknowledging it was aware of the inevitable consequences of its actions.

¶ 632      CIBC retreated behind a "logic" that led to the trial; it refused to see the invalidity of P-6 and P-7 and to conclude that its employee had committed fraud. CIBC persisted in that "logic" well beyond what reasonable diligence or prudence dictated. It made a deliberate decision to wear blinders and never show the least bit of good faith.

¶ 633      By acting as it did, the defendant truly violated the Markarians' right to the peaceful enjoyment and free disposition of their property. And they did so unlawfully and intentionally.

¶ 634      CIBC must have, in fact, been aware that there was no basis for acting as it did. It was perfectly aware of the situation. It had no real reason for refusing to accept the facts. It had no reason for ignoring what Migirdic and its own clients were telling it. It had no reason to ignore even what its own employees observed and told it.

¶ 635      CIBC acted with full knowledge "of the immediate and natural or at least extremely probable consequences that [its] conduct [would] cause", to use the Supreme Court's words. In fact, there is reason to wonder whether it acted in "a state of mind that implies a desire or intent to cause the consequences of [its] wrongful conduct".

¶ 636      CIBC's conduct as a whole demonstrates that it either intended to whittle down the plaintiffs' resolve and bring about a settlement for less than they were entitled to, or to ensure the plaintiffs paid dearly and laboured to exhaustion to obtain their due (perhaps because of the bad faith Monahan attributed to them), or both. Nothing else can explain why CIBC acted as it did in the circumstances.

¶ 637      It must be concluded that CIBC used its dominant position and its custody of sizable assets belonging to the plaintiffs for a "power grab" at their expense, in order to seize their assets, sell them and pay itself.

¶ 638      CIBC thus became the accomplice in Migirdic's fraud and did everything in its power to benefit from it directly.

¶ 639      CIBC could have applied to the courts before seizing the plaintiffs' assets, if it so firmly believed it was right. It responded that it was not obliged to do so and had the right to act as it did, according to the very terms of P-6 and P-7. But those documents were null and worthless, and CIBC knew that. Everyone told it so! In the circumstances, its actions were perfectly illegal.

¶ 640      Those who have a right to take the law into their own hands under contractual agreements with clients have a weapon of formidable power. Consequent prudence is required in using that weapon. Here, the Bank totally failed to fulfil its obligations of prudence and diligence in using its power to seize the plaintiffs' assets of which it had custody and in taking the law into its own hands. The Banks duty to use that power in good faith is an obligation distinct from its other duties. It cruelly failed to fulfil it here.

¶ 641      In a case where the very validity of the documents it intended to use as a basis for seizing the assets and taking the law into its own hands was contested, where it was alleged that the documents were false, where the allegations seemed serious (to say the least) and where its investigations had revealed that the documents no doubt were actually worthless, the Bank should certainly have refrained from exercising the supposed power it was given by the impugned documents and should have applied to the courts to find out its rights.

¶ 642      By acting as it did here, CIBC found itself in a situation not very different from that of the towing companies ordered to pay punitive damages because they used force and carried out a de facto seizure of property in order to obtain immediate payment, without regard for the rights of the owners of the vehicles, even if it meant that the victims would then apply to the courts themselves. That is not the way that life in society and the rules of law work in a free and democratic society governed by the rule of law.

¶ 643      Some of CIBC's conduct also demonstrates a troubling determination on its part to dissimulate. CIBC first hid Migirdic's confessions in order to claim from the Markarians the execution of P-6 and P-7. It even hid from them the extent of the fraud, the number of people involved, the existence of a true system and the fact that Gazarosyan was actually Migirdic. It even forbade Migirdic to reveal to the clients anything about his actions. Furthermore, CIBC did everything in its power to conceal from the plaintiffs the settlement it reached with Rita Luthi and to ensure it would remain secret... whereas it had an impact on the plaintiffs' rights.

¶ 644      CIBC also abusively refused to investigate the Markarians' allegations about the AMCC and Intergold shares. Not the least verification was made by CIBC in that regard. No one at CIBC even called Migirdic to ask him whether the transactions had been authorized, how the shares found their way into the Markarians' accounts and so on! The plaintiffs had to fight fiercely to obtain the relevant documents from the Bank, which objected strenuously to providing them, even before the Court. As it was of the opinion that the contestation deadlines had expired, the Bank had no interest in knowing the truth or doing justice to its clients.

¶ 645      To all intents and purposes, CIBC gave no attention or consideration to the Markarians' complaints. Their claims were simply rejected out of hand, whereas, on their very face, they provided serious reasons for investigating. For example, the transactions involving the Intergold and AMCC shares were obviously speculative and not suitable for the Markarians, and Migirdic admitted he had parked the shares and acted in an irregular manner many times.

¶ 646      The bad faith of CIBC is also apparent in the way it conducted the proceedings and made them last inordinately, as we will see later on.

¶ 647      Some may object that the worthlessness of "guarantees" P-6 and P-7 was not so "obvious", since a judgment of 140 or so pages was required to dispose of the matter. That is not true. The nullity of guarantees P-6 and P-7 is explained in nine pages, while six other pages deal with the fraud and eight with the pseudo-ratification. It is essentially the explanation of the facts (long and tedious, but necessary) that required some 30 pages and the explanation of the defendant's faults that took up 30 or so additional pages. Moral damages, punitive damages and so on also had to be disposed of. The debate made it necessary to discuss so many matters that disposing of them ultimately proved excessively long. But the basic issue is extremely simple and limpid.

¶ 648      In this case, interference was clearly intentional within the meaning of the Charter.

¶ 649      That said, not all interference with fundamental rights gives rise to punitive damages. As the Supreme Court said in St-Ferdinand:

   Note 99: Supra note 75 at 264, para. 125.

¶ 650      However, the Supreme Court pointed out the following:

   Note 100: Ibid. at para. 126.

¶ 651      The Supreme Court has clearly established that the purpose of punitive damages awarded pursuant to the Charter is to punish and deter [See Note 101 below]. In fact, the word "punitive" clearly indicates that the awarding of punitive damages constitutes a punishment. Furthermore, article 1621 C.C.Q. explicitly states that the primary function of punitive damages is preventive, hence, deterrence. By awarding them, the court seeks to discourage the defendant and others from re-offending and doing the same thing again - hence, the expression "exemplary damages", often used as a synonym for punitive damages. Because of their punitive and deterrent nature, punitive damages also have a denunciation function.

   Note 101: Ibid. at 261, para. 119; Béliveau St-Jacques v. Fédération des employés et employées de services publics, supra note 74 at 126.

¶ 652      Thus, for punitive damages to be awarded, the simple application of the normal rules in remedying moral or material prejudice is insufficient; the imperatives of punishment, deterrence and denunciation must also be fulfilled. Moreover, since punitive damages are the expression of the court's disapproval of reprehensible conduct, the Court must wish to express that disapproval.

¶ 653      That is so here. The Court's conscience was aroused by the many aspects of this case. Furthermore, the simple application of the normal rules in remedying moral or material prejudice is insufficient here. Imperatives of punishment, deterrence and denunciation irremediably require that we go further.

¶ 654      Punitive damages are therefore required in this case and are even absolutely necessary. All the conditions for their being awarded are fulfilled.

(C) DETERMINATION OF THE QUANTUM

¶ 655      The amount of punitive damages is determined at the Court's discretion [See Note 102 below]. However, that discretion is circumscribed by the jurisprudence and the Civil Code [See Note 103 below].

   Note 102: St-Ferdinand supra note 76 at 264, para. 125.

   Note 103: Ibid. at para. 126.

¶ 656      Punitive damages must be determined in the manner provided for in article 1621 of the Civil Code:

¶ 657      The basic rule, which is imperative, is that punitive damages "may not exceed what is sufficient to fulfil their preventive purpose", which means that that limit cannot be exceeded. However, at the same time, that means punitive damages must be sufficiently high to fulfil their preventive purpose. The amount necessary to deter must be awarded.

¶ 658      There is no mathematical rule for ceiling the quantum of punitive damages. It cannot be done mechanically or by using a formula. Furthermore, there is no set ceiling for punitive damages or a ratio (a multiple) between compensatory and punitive damages. In addition, punitive damages have no connection with the plaintiff's loss and the compensation awarded; rather, they are a function of the defendant's reprehensible conduct.

¶ 659      The amount of punitive damages awarded must simply have a rational connection with the purpose pursued by such damages. It must also consider factors that can be taken into account in determining the quantum.

¶ 660      Some of those factors are listed in article 1621 C.C.Q.:

   Note 104: Whiten v. Pilot Insurance Co., supra note 73 at 615.

   Note 105: Ibid. at 654.

   Note 106: Ibid.

¶ 661      The list of factors found in article 1621 is not exhaustive, as can be seen from the text of the second paragraph itself. It clearly states that the Court must assess punitive damages "in light of all the appropriate circumstances", thus not only what is listed in article 1621. Moreover, the list is preceded by the words "in particular".

¶ 662      As regards punitive damages' imperatives of punishment, deterrence and denunciation, among the other factors that can be taken into consideration in determining the quantum are the following:

¶ 663      The amount of court costs and extrajudicial costs cannot be taken into consideration in determining punitive damages, since the Court of Appeal has established explicit rules for awarding them, which implies that they must be awarded in their own right.

¶ 664      In this case, the defendant's conduct was highly reprehensible. The defendant was associated with fraud. It unlawfully appropriated $1.5 million. It took possession of a very large portion of the Markarians' assets without any right and through the use of worthless documents. What is more, it tried to do so at the expense of clients to whom it had promised protection, security and peace of mind. It also treated the Markarians without respect and with contempt. And it made malicious insinuations in their regard.

¶ 665      What is worse, that conduct persisted. The defendant continued to reject the Markarians' requests for reimbursement, despite the build-up of elements establishing that what they were saying was true. It also persisted in stigmatizing the Markarians as being responsible for the fraud, if not mixed up in it. CIBC retreated into "its own" logic, refused to see anything else, persisted to an unreasonable degree and deliberately decided to wear blinders. That situation lasted for four years, until the trial, and it continues today.

¶ 666      Even today, CIBC refuses to acknowledge its wrongs and continues to condemn the Markarians.

¶ 667      CIBC also forced the plaintiffs to undergo a trial stretching over four months.

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