Brokers' Report October 2010 Edition - Limitation Periods

Editors: David Di Paolo and Kara Beitel

Released on Tuesday, October 26, 2010

An issue that often arises in litigation against financial advisors is whether the client has brought their action in time. Every Canadian province has limitation laws to bar late actions, but in broker cases it can be difficult to ascertain exactly when the broker went offside and, more importantly, when the client discovered that they might have a cause of action. An April 20, 2010 decision of the Alberta Court of Appeal indicates that how the action is framed against the broker can be an important factor. In that case, the client's claim for negligence was summarily dismissed, but her claim for recklessness has been allowed to proceed.

In Stack v. Hildebrand, 2010 ABCA 108, Stack sued her financial advisor, Hildebrand, and his company, PRG Financial Inc. (PRG), alleging that they misrepresented investments in certain viatical contracts that Stack purchased in 1998. She did not sue until 2006. A viatical contract is created when an insured person sells his or her entitlement to receive a life insurance policy's death benefit to a financial company, who later sells a fractionalized portion of the entitlement to investors. The financial company typically pays the premiums on the insurance policy, although this was not the case in Hildebrand where Stack was expected to pay part of the premiums. The primary risk is that the insured person (the viator) will exceed his or her life expectancy and thereby delay the insurance payout while payment of premiums continue.

On Hildebrand's recommendation, Stack purchased an interest in the life insurance policies of two people from an insurer, Mutual Benefits Corporation (MBC). She alleged that Hildebrand provided incorrect information on the investment, some of which was misinformation provided to brokers by MBC, but some of which she alleged was recklessly exaggerated by Hildebrand. Stack framed her claim two ways, alleging both negligence and fraudulent misrepresentations by Hildebrand. She claimed she was told that: the investments were guaranteed; the principal was 100% safe; the viators would be terminally ill and die within one to three years, i.e. by 2000 or 2001; only two viators had ever lived past their expected life expectancy; and, the investments were safe and secure. Happily for the viators, but less so for Stack, the viators did not expire within the expected period and Stack sued for her losses. Hildebrand...