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A Suspicious Investor With a Recording Device in his Pocket Walks Into His Investment Advisor’s Office…


  • In the recent Quebec Court of Appeal decision inBenistyv.Kloda,2018 QCCA 608, the Court of Appeal considered what to do with this type of recorded evidence. 

    The case began in 2009 when the appellant Charles Benisty ("Benisty"), brought a claim against Samuel Kloda ("Kloda") and CIBC Wood Gundy claiming the reimbursement of more than $1 million in damages. Benisty alleged that the losses arose from unauthorized discretionary trades carried out by Kloda, his financial advisor at the time. Before filing suit, Benisty had begun surreptiously recording his conversations with his advisor as he no longer trusted Kloda's explanations of the management of the accounts and believed him to be engaging in unauthorized trades.

    At trial, Benisty sought to rely on the audiocassette recordings to demonstrate dishonesty on the part of Kloda. However, the trial judge refused to admit the compilation of 50 recordings as they included numerous interruptions and deletions, whether voluntary or not. The trial judge also noted that the date of many of the conversations was unclear. As such, Benisty had not met the burden for establishing the authenticity and reliability of the conversations that they purported to record.

    The trial judge went on to note that while some extracts of the recordings were incriminating to Kloda, others supported his defence. The trial judge also noted a number of factors that affected Benisty's credibility, such as continuing to do business with Kloda despite believing him to be making unauthorized trades, transferring these supposedly unauthorized assets between his accounts, and waiting to demand the cancellation of these transactions despite knowing about them in real time. The trial judge also found that Benisty did not respect his own contractual obligations to CIBC as he did not contest any erroneous transactions within the 21 days provided in the account agreement. On that basis, the trial judge found that Benisty's action should be dismissed.

    Before the Court of Appeal, the appellant sought to file a different CD containing consolidated extracts of the recordings; this was instead of filing the original cassettes which had earlier been filed as exhibits. It was therefore impossible to verify if the information contained in the audiocassette was the same information as the one contained in the excerpts on the CD, which demonstrated that the appellant did not meet the conditions to ensure the integrity of the excerpts. As a result, the excerpts on the compact disc did not have the same legal value as the audiocassette. Thus, the appellant did not prove an overriding error from the trial judge. The Court also saw no error in the trial judge's finding that the cassettes lacked sufficient authenticity to be admitted into evidence.

    The Court of Appeal also considered new evidence in the form of a 2016 settlement agreement entered into between IIROC and Kloda wherein Kloda admitted engaging in unauthorized transactions. While the Court of appeal agreed that this new fact would have affected the credibility of Kloda's testimony, it was insufficient to conclude that the trial judge committed an overriding error in his appreciation of the facts of the case. All the financial transactions executed had been authorized by the appellant and even if one or two transactions were indeed not authorized, the appellant ratified them by transferring several of these shares between his accounts. The trial judge added that in the event that the appellant did not authorize these transactions, he did not minimize his damages, which would have resulted in a loss of $22,300 rather than the $1 million claimed by Benisty. The Court of Appeal agreed with the trial judge.