Markarian v. CIBC World Markets Inc. “fraud" mentioned 226 times in this judgement against CIBC.
Markarian v. CIBC World Markets Inc.
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HAROUTIOUN MARKARIAN, ALICE MARKARIAN and 125134 CANADA INC.,
Plaintiffs
v.
CIBC WORLD MARKETS INC., Defendant
and
RITA LUTHI, SEBUH GAZAROSYAN and COMMISSION DES VALEURS MOBILIÈRES DU QUÉBEC, Impleaded parties
and
CIBC WORLD MARKETS INC., Plaintiff in warranty
v.
HARRY MIGIRDIC, Defendant in warranty
[2006] Q.J. No. 5467 Unofficial translation.
For official version: [2006] J.Q. no 5467 2006 QCCS 3314
No.: 500-05-069668-018
Quebec Superior Court
District of Montreal
The Honorable Jean-Pierre Senécal, J.S.C.
Heard: January 10 to May 27, 2005 (25 days). Judgment: June 14, 2006.
(724 paras.)
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
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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.
TABLE OF CONTENTS
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INTRODUCTION
1. THE FACTS (a) Parties
(b) Opening of the accounts and signing of the guarantees
(c) Audit and confirmation letters
(d) Nature of the investments that were to be made and were made (e) Client profiles
(f) Intervention by the Compliance Department over the years
(g) Migirdic's confession and execution of the guarantees
2. NULLITY OF "GUARANTEES" P-6 AND P-7
3. FRAUD
4. LIABILITY OF THE DEFENDANT
(a) Liability for its employee
(b) Defendant's faults
(c) Misleading titles
(d) Lack of protection for clients and absence of
adequate supervision and control
(1) Applicable regulations
(2) Migirdic's numerous faults over the years
(3) An inadequate system of control
(4) Intergold and AMCC shares
(5) Failures of the Compliance Department
(6) Failures of the branch manager
(7) Duty to provide greater supervise a "delinquent" employee
(e) Defendant's liability for its own faults
5. ABSENCE OF RATIFICATION (a) Audit letters
(b) Confirmation letter (c) Monthly statements (d) Applicable legal rules
6. INEXCUSABLE ERROR AND PLAINTIFFS' ALLEGED FAULTS
7. REIMBURSEMENT OF RIToLUTHI BY THE DEFENDANT
8. CONCLUSION ON NULLITY AND ORDER TO REIMBURSE
9. RRSP-RELATED PENALTIES
10. MORAL DAMAGES
11. PUNITIVE DAMAGE
(a) Applicable law
(b) Justification for punitive damages (c) Determination of the quantum
12. EXTRAJUDICIAL COSTS
13. PROVISIONAL EXECUTION NOTWITHSTANDING APPEAL
14. ACTION IN WARRANTY
CONCLUSIONS
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JUDGMENT
¶ 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
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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
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[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
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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
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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.
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(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]
125134 Canada Inc. 12345 Toupin Blvd. Montreal, Quebec H4K 2H6
Dear Sir/Madam:
Re: Mr. Sebuh Gazarosyan - Account # 310-06094
In connection with their audit of the accounts of CIBC Wood Gundy Inc., it is necessary to verify your guarantee of all present and future debts or liabilities as at October 31, 199[5] transacted under the above-numbered account(s) to our auditors: Arthur Andersen & Co., Chartered Accountants
Toronto Dominion Centre
1900 - 79 Wellington Street West
P.O. Box 29
Toronto, Ontario
M5K 169
Attention: [Name]
If you do guarantee payment, please sign in the space provided below. If you do not guarantee payment, please indicate at the bottom of this letter or on the reverse, the manner in which you act for these accounts.
In either case, would you please return this letter directly to our auditors, Arthur Andersen & Co., in the enclosed envelope at your earliest convenience.
Yours truly,
R.A. Bishop
[Title]
Credit and Client Services
We guarantee payment against delivery and/or delivery against payment on the above numbered account(s) at October 31, 1995. [In bold in the text.]
__________ __________ (Date) (Signature)
¶ 43
contacted Migirdic to inform him of receipt of a letter bearing both the name of his company and the
Upon receipt of the first of these letters, dated October 2, 1995, Mr. Markarian quickly
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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:
[TRANSLATION]
It's a mistake. It was done in Toronto. You know how young people are today. They make mistakes. You are on the same street, boulevard Toupin, as Gazarosyan. Sign there and I'll do what is necessary for it to be
corrected.
The address of Mr. Markarian and his company was 12 345, boulevard Toupin, in Montréal.
¶44
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:
A. I told him it's a mistake, it's going to be fixed.
...
A. I told him it's a mistake, it's going to be fixed. Because I was hoping that the account that was guaranteed was going to be not needing the guarantee and that was going to be lifted, going to cancel this.
Q. Did you say that to Mr Markarian, or you think...
A. No, I thought. I only told him it's going to be fixed. I didn't give any details of
what is involved. ...
Q. Did you ask Mr. Markarian to sign that letter?
A. Yes.
Q. What reason did you give him to obtain his signature?
A. The fact that it was going to be fixed and I needed him to sign, there was going
to be fixed.
Q. So you told him he needed to sign in order to permit you to fix the error? A. To clear it, that's right. To clear it.
¶ 46
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
Mr. Markarian signed where Migirdic asked him to sign and Migirdic left with the document.
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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:
Nothing different. I had nothing else to say. I'm not going to make up new things, that's what it is. It's a big company, it's taking too long, it's bureaucracy, it's paper work. It takes a long time to get things fixed.
¶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:
[TRANSLATION]
I signed because Harry told me: "Sign it here; I'm going to do what's necessary to make sure it's corrected", and he left with the letter.
¶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,
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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:
Q. I'm showing you the letter dated October nineteen ninety-six (1996), which is part of D-1. I will ask you to read it. Do you remember that letter?
A. Yes.
Q. Could you explain when you saw that letter for the first time?
A. When he received it and he called me. It's the same as the first letter. The
same... ...
Q. He trusted you. So you asked him, I suppose, to sign the letter in order to
have the guarantee released? A. Yes.
Q. That was a condition to obtain the release? Did you tell him that?
A. Yes. Listen, you confirm your guarantee and I'll make sure it goes away.
[Examination of Harry Migirdic on July 18, 2002, questions 43, 44, 56 and 57] [Emphasis added.] [sic]
¶ 57
him was in effect but that he would have it eliminated.
CIBC thus, concluded that Migirdic clearly indicated to Mr. Markarian that a guarantee binding ¶ 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.
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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:
Q. Did Mr. Markarian give you any reason to show that he was completely understanding the meaning and the consequences of such guarantee?
A. What the guarantee or what the letter said? He understood what the letter said, but the implications and the consequences, he doesn't know...
[Examination of Harry Migirdic on July 18, 2002 at 16, question 67] [Emphasis added.]
¶ 62
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.
This other passage is also ambiguous. One cannot say in the same breath that one understands a
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¶ 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.
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¶ 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
¶79
April 25, 2000
Haroutioun Markarian or
Alice Markarian
12345 Toupin
Montreal H4K 2H6
Dear Mr. & Mrs. Markarian:
In our ongoing monitoring of service quality, we conduct regular reviews of client accounts. In your case, we note that your account guarantees that of Mrs. Rita Luthi. We wish to assure ourselves that you are aware that your significant assets are being used to cover the liability of the account that you guarantee.
In this regard, we would appreciate it if you could sign the enclosed letter of acknowledgement to this effect, and return it for our files.
Please call me or your Financial consultant, Harry Migirdic, if you have any questions in this regard.
Sincerely,
Thomas J. Noonan
Branch Manager and Director
This sentence followed, and below it the Markarians were asked to sign:
I acknowledge that I am fully aware that my account 500-01327 guarantees the liability in the account of Rita Luthi 500-01193.
Haroutioun Markarian Alice Markarian __________ __________
The letter was given to... Migirdic, who brought it himself to the Markarians for their signature!
¶80
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
That fact was contested by the defendant, but there is no doubt about it whatsoever. The Bank
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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.
CONTINUED AT
[url]https://drive.google.com/file/d/1OO6l0-XENYKp5lAhakvQyoOm9b-D44KJ/view?fbclid=IwAR3grn5T98rCsA3fqU68NclvXToALph4RCd3dTeqc4zggEebd_evUeEiQFs
[/url]
Investigative Journalist Bruce Livesey’s account of this at
https://drive.google.com/file/d/0BzE_LMPDi9UONzY5NTk3YjktZDlmZi00MWM3LWFlNDMtNTY1NDczZjk4Yzhi/view?hl=enSOOO Valuable FRAUD AND MISCONDUCT BY FINANCIAL INTERMEDIARIES First three pages well worth a read. FRANK PALMAY1 AND ASSUNTA DI LORENZO2
Partners #McMillan #LLP
https://mcmillan.ca/Files/142508_Fraud%20and%20Misconduct%20by%20Financial%20Intermediaries.PDF
