The case was brought by Wei Zhu, a software engineer who used the company's NetTrader facility to sell his shares on-line. He placed an order to sell 4,000 shares, but immediately cancelled the transaction.
Wei Zhu alleged that he received a message indicating that 200 of the shares had been sold by the time he made the cancellation. He claimed that the cancellation of the remaining 3,800 was not confirmed, so he placed a new order to sell them, after waiting for five minutes.
It turned out, however, that the cancellation of the remaining shares was not complete, and he had placed duplicate orders. Mr Zhu then contacted a Merrill Lynch customer advisor by telephone, and he was told that he had no option but to buy back the 3,800 shares. He eventually lost the sum of about $9,768 because, by the time he bought the shares back, their price had increased.
Merrill Lynch denied any responsibility for the incident. The company claimed that it has placed disclaimers on its web site, warning users that it cannot be responsible for errors or omissions.
Other disclaimers advise customers requesting cancellations of transactions to wait for confirmation and, if this does not happen, to contact their local Merrill Lynch Office. Finally, Merrill Lynch alleged, all its clients were bound by these disclaimers, as provided in its user terms and conditions.
Mr Zhu, on the other hand, claimed that the disclaimers never appeared on his computer screen and he was therefore not bound by the user agreement.
The Canadian court ruled against Merrill Lynch. The disclaimers in dispute were deemed to be an agreement which "virtually eliminates liability for inaccuracy in the performance of the services contracted for by the customer", and "exonerates the broker from acts of... gross negligence." It was therefore decided that the disclaimers were unenforceable.
The court also characterised the company's computer system as "faulty", since it was "incapable of giving to a customer a simple instruction that he should not continue with a request for a trade or cancellation". For this reason, it was decided that Merrill Lynch's computer system was unable to provide "the reasonable level of performance" to which the customer was entitled.
The court therefore found the company liable for the incident and ruled that Zhu was entitled to compensation and filing fees.
The decision is available at:
www.provincialcourt.bc.ca/judgments/pc/2002/05/p02%5F0535.htm