The Litigator
The Litigator
AGM :: Affleck Greene McMurtry LLP
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IIROC guidance highlights limitations on limitation of liability clauses in retail client account agreements

“By signing below, you agree not to sue me.” Not so fast, says Canada’s primary regulator of investment dealers.

On October 10, 2019, the Investment Industry Regulatory Organization of Canada (IIROC) issued what it called a Guidance Note regarding exclusion of liability clauses in  retail client account agreements that it sees as inconsistent with investment dealers’ regulatory obligations.

IIROC published this guidance after noticing objectionable clauses in its review of investment dealers’ agreements that either purport to exclude dealers’ liability for client losses completely, arbitrarily limit damages from breaches by the dealer, or attempt to relieve dealers from securities law obligations, such as suitability. Examples of objectionable clauses are cited in the Note, including the following:

  • “Customer agrees not to hold Dealer responsible for losses incurred through following Dealer’s trading recommendations or suggestions or those of its employees, agents or representatives.”
  • “We shall not be liable to you or any third party for loss or revenue or profits, failure to realize expected profits or savings, missed investment opportunities or other items of economic loss, of any nature whatsoever, or any special, indirect, consequential,
    exemplary, or incidental damages arising out of the services, however caused, and whether arising under contract, tort (including negligence) or any other theories of liability, even if we have been advised of the possibility of such damages.”
  • “Broker’s total liability under the terms of this agreement will not exceed an amount equal to the fees paid by the customer to the broker for the one calendar month in which such damages first occurred.”

Similar concerns are also raised by IIROC regarding clauses that purport to limit liability due to software malfunctions, “where the event is within the dealer’s control.”

While published as “guidance”, the Note makes it clear that IIROC views some of the problematic limitations on liability to be a violation of dealers’ suitability requirements under Dealer Member Rule 1300.1(p) and (q). As with other forms of guidance on how IIROC interprets existing rules, IIROC dealer members should understand that IIROC could very well try to pursue dealers for offending clauses in retail account agreements that existed before this Notice was released. As such, dealers should waste no time in reviewing their client account agreements and ensuring that any problematic clauses are removed.

Kenneth A. Dekker
Affleck Greene McMurtry LLP

Kenneth A. Dekker

Kenneth Dekker, a partner of the firm, is a successful trial and appellate lawyer who is valued by his clients as a resourceful and practical litigation counsel.

Over more than two decades, Ken has litigated noteworthy cases in a range of fields that include class action defence, securities and broker-dealer litigation and regulatory defence, corporate and shareholder disputes (including oppression and winding up cases), defamation, civil fraud litigation, disputes over contracts, injunctions, professional liability litigation, employment litigation and cross-border litigation issues.

Ken has appeared before all levels of courts in Ontario, including the Ontario Court of Justice, the Superior Court of Justice, the Divisional Court and the Court of Appeal for Ontario, as well as before the Supreme Court of Canada. Ken also represents and advises clients in regulatory matters before the Investment Industry Organization of Canada (IIROC), the Mutual Fund Dealers Association of Canada (MFDA) and the Ontario Securities Commission (OSC).

Ken has been ranked as Repeatedly Recommended for Securities Litigation by Lexpert, for Corporate and Commercial Litigation by Best Lawyers of Canada, and he has been given the highest available rating of AV, or pre-eminent, by his peers on Martindale-Hubbell.

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