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The Need for Speed

Time Limitation Periods

Each province and territory has a legislated time limitation period for bringing civil claims against people responsible for damages. In Ontario, prior to 2004, a claim could be brought within six years of the time the damages occurred and the victim was aware of the right to sue for the loss. Different rules applied to children and incapable people. On January 1, 2004, the basic time limitation period was changed from six years to two years.

This means investors in Ontario, who suffer financial losses must act quickly to preserve their rights and claim compensation from those who have wronged them. Ignoring the need for speed may result in a loss of all rights to recover their losses.

When the Countdown Begins

Determining when a claim arises and the countdown to civil action begins is complex. At first, one must establish the date when the investor should have known all the material facts that gave rise to the loss. This can be a tricky process, the concept being that, before this date, the investor could not reasonably be expected to know of the right to take legal action.

Must there be losses before the countdown begins? Typically, the answer is yes. Must all of the losses be known before the clock starts to tick? Typically, the answer is no. There is a grey area between when losses first occur and when the full extent of the losses becomes known. In other words, when did the investor know enough to appreciate that a court action is a reasonable option?

While each case is different, the general rule is that the time limitation period begins when the investor knows that the misconduct or negligence of the financial advisor has caused the loss. This means that the investor must appreciate both that there was misconduct and that the misconduct caused a loss. Often, this appreciation will not arise until the investor consults a different and unbiased financial advisor, or a lawyer. Also, as with many areas of expertise, not all financial advisors and not all lawyers are able to identify an act of misconduct causing loss.

Investors who fail to quickly recognize that misconduct has caused their losses may miss out on the opportunity to receive compensation. Therefore, they should consult an expert who can efficiently identify both the misconduct and the amount of the loss.

Time Flies!

Investors who gamble and lose on their own have no right of recovery. Investors who seek the advice of a financial advisor and lose may well have the right to recover all or part of their losses, if the advisor makes mistakes or deliberately misadvises them. The pressing question for these investors is, when does their right to sue end? 

Many investors suffered substantial losses arising from the market meltdown in 2008. In some cases the investments regained most of their value with the market rebound in 2009.  However, investors have continued to ride the market roller coaster since then. Regrettably, for a great number of these investors, the recovery will not occur, either because they panicked and sold at the market bottom or because they misallocated their investment funds. (Did Nortel shareholders recover from the 2000-2002 meltdown?)  More regrettably, others will not have the opportunity to recover their losses through legal proceedings, because they have not adhered to the time limitation period.

In some cases, the investor will have made a written complaint to the financial advisor, to the compliance department of the investment firm, or to a regulator. In such cases, it seems likely that the investor knew both of the material facts, namely that there was misconduct or negligence, and that this caused the loss; therefore, the countdown on the time limitation period may have begun. However, even when initiating a complaint, some investors do not fully appreciate the nuances behind the misconduct, or that the proof of misconduct was available, or that some other misconduct was actually the cause of the loss. These are considerations that a court will take into account in determining when the clock starts to tick.

Time is of the Essence

Two years may seem like a long time. However, consider that by September 2010, 24 months had passed from the September 2008 market meltdown date, and it is possible that the cause of action for some investors commenced on that date, or even earlier.

The right to sue is best exercised by hiring a lawyer. However, even a lawyer who is an expert in financial loss recovery will require more than a moment's notice to assess an investor’s right to sue and provide an opinion on the practical merits of initiating a court action or an alternative dispute resolution process. The lawyer will require time to investigate the material facts and to determine whether the investor is on solid ground in making a claim, and whether a cost/benefit analysis supports loss recovery steps.

Lawyers are well aware of the negative impact that a poorly-framed or ill-founded lawsuit can have on a settlement agreement or ruling. To best serve their clients, they require time to diligently research and investigate a case before initiating a lawsuit.

Time Serves the Financial Advisor

The cold, hard fact is that the new time limitations governing financial loss recovery have been designed to lift the burden of claims against financial advisors and investment firms at the expense of investors. It is hard to imagine how society could benefit from this shift, especially when for all intents and purposes, it can result in rewarding professional misconduct. This unfair situation being understood, investors still have the right to seek compensation, and are more likely to succeed if they act promptly and seek legal counsel.

Fighting for Your Rights
John Hollander & Harold Geller

We represent clients who have suffered a loss due to the performance of their financial advisors. If you think you have been wronged by your financial advisor and are concerned about the effect the time limitation period may have on your ability to make a claim, contact us immediately for a free, no-obligation consultation.