Salomon v. Matte‑Thompson

Salomon v. Matte‑Thompson
Collection
Supreme Court Judgments
Date
2019-02-28
Neutral citation
2019 SCC 14
Report
[2019] 1 SCR 729
Case number
37537
Judges
Wagner, Richard; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Gascon, Clément; Côté, Suzanne; Brown, Russell; Rowe, Malcolm; Martin, Sheilah
On appeal from
Quebec
Notes
Case in Brief SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Salomon v. Matte-Thompson,
2019 SCC 14, [2019] 1 S.C.R. 729
Appeal Heard: March 19, 2018
Judgment Rendered: February 28, 2019
Docket: 37537
Between:
Kenneth F. Salomon and Sternthal Katznelson Montigny LLP
Appellants
and
Judith Matte-Thompson and 166376 Canada Inc.
Respondents
Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Côté, Brown, Rowe and Martin JJ.
Reasons for Judgment:
(paras. 1 to 97)
Gascon J. (Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Rowe and Martin JJ. concurring)
Dissenting Reasons:
(paras. 98 to 215)
Côté J.
Salomon v. Matte‑Thompson, 2019 SCC 14, [2019] 1 S.C.R. 729
Kenneth F. Salomon and
Sternthal Katznelson Montigny LLP Appellants
v.
Judith Matte‑Thompson and
166376 Canada Inc. Respondents
Indexed as: Salomon v. Matte‑Thompson
2019 SCC 14
File No.: 37537.
2018: March 19; 2019: February 28.
Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Côté, Brown, Rowe and Martin JJ.
on appeal from the court of appeal for quebec
Law of professions — Lawyers — Professional liability — Duty to advise — Duty of loyalty — Lawyer recommending financial advisor to clients — Clients investing millions of dollars with recommended financial advisor’s firm — Lawyer repeatedly endorsing advisor and encouraging clients to make and retain investments — Investments made in funds that were parts of Ponzi scheme — Millions lost in fraud — Clients claiming that lawyer and his law firm were professionally negligent — Trial judge dismissing claim — Court of Appeal allowing appeal and ordering that clients be compensated for losses — Whether Court of Appeal erred by employing notion of distorting lens in determining whether trial judge had made palpable and overriding errors — Whether Court of Appeal expanded professional obligations of lawyers who refer clients to independent advisors — Whether Court of Appeal erred by interfering with trial judge’s findings relating to faults committed by lawyer and to causation.
In 2003, a lawyer introduced two clients to his financial advisor and personal friend, and recommended that they consult him. In the following four years, the clients ended up investing over $7.5 million with the recommended financial advisor’s investment firm. Over the course of those four years, the lawyer repeatedly endorsed the recommended advisor as a financial advisor and encouraged his clients to make and retain investments with the investment firm. In 2007, the recommended advisor and his associate disappeared with the savings of around 100 investors, including those of the lawyer’s clients. The clients instituted legal proceedings, claiming that the lawyer and his law firm were professionally negligent in two ways: first by breaching their duty to advise them and second, by disregarding their duty of loyalty to them.
The trial judge dismissed the claim. The Court of Appeal concluded that the trial judge had made reviewable errors, and it reversed her judgment. In its opinion, the trial judge had viewed the lawyer’s acts and their consequences through a distorting lens which had led her to erroneously assess the evidence in isolated silos, without the insight provided by a global analysis. The Court of Appeal ordered the lawyer and his law firm solidarily to fully compensate the clients for their losses.
Held (Côté J. dissenting): The appeal should be dismissed.
Per Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Brown, Rowe and Martin JJ.: The Court of Appeal had a sufficient basis for intervening and reversing the trial judge’s decision. It properly applied the standards of appellate review, as imposed by Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. The professional liability of the lawyer and the law firm for the clients’ losses has been established.
Findings with respect to fault involve questions of mixed fact and law and findings with respect to causation, questions of fact. In both situations, absent a palpable and overriding error, an appellate court must defer to the conclusions reached by the trial judge. It can only intervene if there is an obvious error in the trial decision that is determinative of the outcome of the case. The fact that an alternative factual finding could be reached based on a different ascription of weight does not mean that a palpable and overriding error has been made. An appellate court must identify a crucial flaw in the lower court’s decision, and a distorting lens, that is, a lens through which a trial judge assessed the evidence and that had a distorting effect, cannot be invoked as a substitute for identifying a reviewable error or to mask the fact that an error identified by an appellate court does not meet the high standard imposed by Housen. In the case at bar, the Court of Appeal held that the distorting lens through which the trial judge has viewed the evidence — in this case a narrow, siloed approach — had led her to make precisely identified palpable and overriding errors. The notion of a distorting lens was nothing more than a metaphor the Court of Appeal used to explain why the standard of appellate review established in Housen was met; it was not used to mask an absence of palpable and overriding errors. The Court of Appeal did not err by employing the notion of a distorting lens in determining whether the trial judge had made palpable and overriding errors.
Where the first court of appeal has justifiably intervened in the trial judgment and disagreed with the trial judge, the Court will intervene only if its own disagreement stems from a clear satisfaction that an error has occurred in the first appellate court’s assessment of the facts. The focal point of the analysis that the Court — as the second and final court of appeal — has to perform in applying the Housen standards of review is the decision of the first court of appeal, not that of the trial judge. The onus is on the appellants to demonstrate an error in the court of appeal’s decision. Here, the appellants did not satisfy their onus. The Court of Appeal did not err by concluding that the trial judge had made palpable and overriding errors, by interfering with the trial judge’s findings relating to the lawyer’s duty to advise and duty of loyalty, nor by interfering with the trial judge’s findings that the lawyer’s fault had not caused the clients’ losses. There is no reason for the Court to interfere with the Court of Appeal’s findings.
The relationship between lawyers and their clients can usually be characterized as a contract of mandate. Although lawyers, as mandataries, do not guarantee the services rendered by professionals or advisors to whom they refer their client, they must nevertheless act competently, prudently and diligently in making such referrals, which must be based on reasonable knowledge of the professionals or advisors in questions. Lawyers who refer clients to other professionals or advisors have an obligation of means, not one of result. They must be convinced that the professionals or advisors to whom they refer clients are sufficiently competent to fulfill the contemplated mandates. Referral is not a guarantee of the services rendered by the professional or advisor to whom the client is referred, but it is also not a shield against liability for other wrongful acts committed by the referring lawyer. In the instant case, the lawyer had done far more than merely make a referral. It was the entirety of his conduct that led the Court of Appeal to hold the lawyer and his law firm liable in the circumstances. The Court of Appeal’s decision did not broaden the basis of liability for lawyers who refer clients to other professionals or advisors.
A lawyer’s duty to advise is threefold, encompassing duties to inform, to explain, and to advise in the strict sense. It is inherent in the legal profession and exists regardless of the nature of the mandate. Its exact scope depends on the circumstances, including the object of the mandate, the client’s characteristics and the expertise the lawyer claims to have in the field in question. When lawyers do provide advice, they must always act in their clients’ best interests and meet the standard of the competent, prudent and diligent lawyer in the same circumstances. Any advice lawyers give that exceeds their mandate may, if wrongful, engage their liability. Here, the Court of Appeal had sufficient basis to intervene and find that the lawyer had failed to advise his clients as a competent, prudent and diligent lawyer would have done. It properly and precisely identified palpable and overriding errors made by the trial judge in her assessment of the parties’ relationships, which had a direct impact on her findings regarding the scope of any wrongful advice given. When properly assessed as a whole, as the Court of Appeal did, the evidence reveals that the lawyer’s advice and reassurances were all part of a single continuum, and that placing them in separate silos would be artificial. The lawyer breached his duty to advise by recommending a non-diversified investment in offshore hedge funds to clients whose primary goal was to preserve the capital, by recommending financial products without performing due diligence and by repeatedly reassuring his clients that their investments gave them security of capital.
As mandataries, lawyers also have a duty to avoid placing themselves in situations in which their personal interests are in conflict with those of their clients. The duty to avoid conflicts of interest is a salient aspect of the duty of loyalty they owe to their clients. The duty of loyalty shields the performance of the lawyer’s duty to advise clients from the taint of undue interference. In the instant case, the Court of Appeal was justified in finding that the lawyer’s personal and financial relationship with the recommended advisor had placed him in a conflict of interest and that he had neglected his clients’ interests. The trial judge adopted an unduly restrictive approach in analyzing the principles relating to conflicts of interest, which tainted her entire analysis concerning the breach of the lawyer’s duty of loyalty. A proper consideration of the evidence as a whole leads to the conclusion that this very close relationship affected the lawyer’s objectivity in advising his clients. The lawyer’s divided loyalties led him to neglect his clients’ interests: he disregarded his duty of confidentiality regarding his communications with them and teamed up with the recommended advisor in an attempt to convince them not to withdraw their investments.
More than one fault can cause a single injury so long as each of the faults is a true cause, and not a mere condition, of the injury. A fault is a true cause of its logical, immediate and direct consequences. This characterization is largely a factual matter, which depends on all the circumstances of the case. A person who commits a fault is not liable for the consequences of a new event that the person had nothing to do with and that has no relationship to the initial fault. Two conditions must be met for the principle of novus actus interveniens to apply. First, the causal link between the fault and the injury must be completely broken. Second, there must be a causal link between that new event and the injury. A client’s ability to rely on advice given by his or her lawyer is central to the lawyer-client relationship and a client’s acceptance of a lawyer’s negligent advice cannot shield the lawyer from liability. Fraud committed by a third party also does not shield from liability persons who failed to take required precautions. Where the risk of a decline in market prices or fraud by a third party materialize, and where lawyers have failed to abide by the standards of professional conduct that are meant to protect their clients against these very risks, they may be liable for their clients’ investment losses. Here, the trial judge’s findings regarding the extent of the faults committed by the lawyer no doubt had an impact on her causation analysis. Assessing the evidence in separate silos based on the timing of the events and the specific funds that had been recommended was artificial. The trial judge’s causation analysis was also distorted by her erroneous finding that the lawyer had not breached his duty of loyalty. Taken together, the lawyer’s faults with respect to both his duty to advise and his duty of loyalty were a true cause of the losses suffered by his clients. The fraud did not break the chain of causation — no losses would have been suffered without the faults first committed by the lawyer.
Per Côté J. (dissenting): The appeal should be allowed. The Court of Appeal should not have substituted its own view of the case for that of the trial judge as there were no palpable and overriding errors in her key findings. The Court of Appeal wrongly intervened on the basis of mere differences of opinion regarding the assessment of the evidence, which is clearly inconsistent with the role of an appellate court. When a first appellate court interferes with a trial judge’s findings in the absence of reviewable errors, it is the Court’s role to step in and to restore the trial judge’s decision.
On questions of fact or of mixed fact and law, an appellate court cannot make its own findings and draw its own inferences unless the trial judge is shown to have committed a palpable and overriding error. As a precondition to intervening in a trial judge’s decision, the appellate court must point to a specific and identifiable error that amounts to more than a divergence of opinion and that error must be shown to be determinative of the outcome of the case. The identification of a palpable and overriding error does not require a review of the evidence as a whole. The focus of the review is the trial judge’s reasons and, if need be, specific pieces of evidence to which the appellant draws the attention of the appellate court to show that a given finding is unsupported by the evidence. It would be inappropriate for the appellate court to conduct its own assessment of the evidence and then to take note of points of disagreement with the trial judge’s findings and hold that those findings result from palpable and overriding errors in order to justify intervening. Appellate courts are, in comparison to trial judges, ill-equipped for the task of fact-finding and must thus leave the task to trial judges.
The distorting lens metaphor does not dispense with the requirement of identifying reviewable errors in accordance with the standards articulated in Housen. A “distorting lens” cannot justify a wide-ranging review of the entire record unless adopting the lens is shown to be, in itself, a reviewable error. The distorting lens metaphor may arguably be useful to illustrate how certain palpable errors taint the analysis of the evidence to the point of having an overriding effect, but a metaphor is not a full explanation. The appellate court must explain why the trial judge erred by viewing the case through the impugned “distorting lens”, why that error amounts to more than a mere divergence in opinion, and precisely how it distorted the trial judge’s analysis and affected the outcome of the case.
Part of the Court’s role as a second and final court of appeal is to ensure that a trial judge’s findings of fact or of mixed fact and law remain undisturbed unless a palpable and overriding error is established. Although the focal point of the Court is the first appellate court’s decision, not that of the trial judge, the Court must inevitably return to the trial judge’s reasons in order to determine whether the first appellate court correctly identified reviewable errors. In that regard, the Court should not defer to the first appellate court with respect to the identification of reviewable errors. When the Court reviews a decision in which the first appellate court has substituted its own findings of fact or of mixed fact and law for those of the trial judge, it must first inquire into whether the first appellate court correctly identified reviewable errors. If it did not, the trial judge’s findings must be restored regardless of the merits of the first appellate court’s findings. If, however, the Court agrees that the intervention was warranted, it must ask whether the first appellate court has erred in making its own independent assessment of the relevant evidence. It is only at this step that the Court will show a certain deference and will therefore avoid intervening unless clearly satisfied that the first appellate court’s findings are erroneous.
In the instant case, the trial judge did not make a palpable and overriding error with respect to fault and causation. The Court of Appeal merely preferred a different “lens” than the one used by the trial judge. Further, it relied on a broad reassessment of the evidence in order to identify the purported errors, which is at odds with Housen and its progeny. The Court of Appeal’s intervention was unwarranted and the Court must intervene to restore the trial judge’s findings.
Whenever lawyers recommend other professionals, or express confidence in them, they must meet the standard of a reasonably competent, prudent and diligent lawyer in the same circumstances. Lawyers should make such inquiries as will enable them to acquire reasonable knowledge of professionals they recommend unless they already have relevant experience dealing with them. Not every professional error made in making such inquiries — or in failing to make them — will amount to a fault if the lawyer’s conduct does not depart from the standard expected, and courts must be careful not to assess recommendations in light of facts discovered subsequently. Moreover, referring lawyers are not required to monitor the advice given by the professionals they recommended, as this would defeat the purpose of referral.
In the instant case, the Court of Appeal did not identify a specific reviewable error in the trial judge’s reasons in relation to the lawyer’s initial recommendation and later expressions of confidence. The lawyer did not commit a fault in recommending the investment firm and the financial advisor and in expressing confidence in them. While the lawyer had a duty to advise both his clients and a duty of loyalty to both of them, those duties were largely circumscribed by the very nature and scope of his mandates. The precise scope of a mandate does not always limit a lawyer’s duties, but it is certainly one of the main considerations for a judge when assessing professional liability. In the present case, as the lawyer had had no specific mandate with regard to the clients’ investments, it was appropriate for the trial judge to eschew an overly broad approach to liability. The lawyer’s confidence in the competence and probity of the investment firm and the recommended advisor was based on reasonable knowledge. He therefore acted as a reasonably competent, prudent and diligent lawyer in the circumstances.
A lawyer’s duty to advise generally includes obligations to inform the client of the relevant facts, to explain available options and their implications, and to recommend a course of action. Yet, the precise content of that duty is highly dependent on the circumstances, including the scope of the mandate, the obligations assumed by the lawyer and his or her areas of expertise. In this case, there is no palpable and overriding error in the trial judge’s finding that the lawyer’s only fault relating to his duty to advise was to recommend specific investment products. As the trial judge concluded, the lawyer failed to act as a reasonably competent, prudent and diligent lawyer in recommending specific investment products and in volunteering investment advice even though such advice fell outside of the limits of his mandates. In so doing, he breached his duty to advise. Indeed, to the extent that a lawyer does provide advice, he must meet the standard of a reasonably competent, prudent and diligent lawyer in the same circumstances irrespective of the scope of his mandate.
The Court of Appeal had some basis for concluding that the lawyer had committed the same faults in respect of both his clients, but even if this error is assumed to be palpable, it did not affect the outcome of the case. This error did not justify the Court of Appeal’s conducting a broad reassessment of the evidence for the purpose of finding other potential errors.
The analysis of an alleged fault related to the duty of loyalty involves a question of mixed fact and law and, unless a pure question of law can be extricated, the appropriate standard is that of palpable and overriding error. An extricable question of law generally concerns a mischaracterization of the applicable legal test or a failure to consider a required element of that test. The analysis of an alleged conflict of interest is inherently fact-based and alleged conflicts must be assessed on a case-by-case basis. Not every potential violation of the duty of loyalty will give rise to an action in civil liability. The court must analyze the nature and the circumstances of the alleged conflict for the purpose of characterizing the violation and, if warranted, determining the appropriate remedy.
A trial judge does not have to discuss in detail every single fact alleged by the parties or every piece of evidence and declining to draw an inference falls squarely within its purview. The question is not whether the trial judge brushed aside elements that the court of appeal deemed important, but whether those omissions might have affected the conclusion. Here, the Court of Appeal erred in interfering with the trial judge’s finding that the lawyer had not breached his duty of loyalty to his clients. It proceeded to revisit the issue of conflict of interests by applying the standard of correctness, as if a question of law had been identified. Yet, the Court of Appeal has not suggested that the trial judge failed to identify the correct legal principles applicable to the alleged fault related to the duty of loyalty or that there is an error in the trial judge’s characterization of the applicable legal test. The Court of Appeal failed to identify a palpable and overriding error and impermissibly reassessed the evidence as a whole on the basis of a disagreement over the weight to be given to the evidence. The fact that the Court of Appeal would have weighed the evidence differently, or drawn different inferences, does not justify its intervention. Even if the trial judge did not address certain aspects of the professional relationship between the lawyer and the recommended advisor, especially the disclosure by the former of communications with his client and the fact that he had cooperated extensively with the recommended advisor and the investment firm on at least one occasion, those omissions did not affect her conclusions. The trial judge properly considered the factors that could have cast doubt on the lawyer’s undivided loyalty and commitment to his clients, that is, his friendship with the recommended advisor and their financial relationship, including the gifts or commissions he had received. The conclusion that these factors were not enough to have placed the lawyer in a position where his personal interest conflicted with that of his clients was open to her, and is entitled to deference.
A fundamental principle of civil liability is that a person is liable only for injury caused by his or her own fault. A true cause is established when the plaintiff proves that the injury is a logical, immediate and direct consequence of the fault. It does not suffice to show that the fault increased the likelihood of the injury occurring if there is no evidence that the fault directly caused the injury either in whole or in part. The analysis of causation remains a context-based exercise which does not lend itself to legal theorizing. It is up to the trier of fact to draw a line, or identify a breaking point, between the consequences that flow directly and immediately from the fault and the others. Proving breaches of a lawyer’s professional duties does not suffice to establish civil liability in the absence of a causal link to an injury.
In the instant case, the Court of Appeal should not have completely reassessed the evidence and interfered with the trial judge’s conclusions regarding causation of the basis of the distorting lens metaphor. It was open to the trial judge to find that the fraud was the only true cause of the losses and that the recommendation of the investment firm and financial advisor was not close enough to the injury to qualify as a logical, direct and immediate cause. With respect to the duties of loyalty and confidentiality, it is unclear how the alleged breaches might have caused the losses. Moreover, even if the lawyer did commit additional faults related to his duty to advise and his duties of loyalty and confidentiality after he had become aware of a news article raising doubts about the firm’s practices, the outcome would be the same as the funds were no longer recoverable by that time. Hence, any faults occurring after that date had no consequence on the losses.
Cases Cited
By Gascon J.
Distinguished: Harris (Succession), Re, 2016 QCCA 50, 25 C.C.L.T. (4th) 1; referred to: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Montréal (Ville) v. Lonardi, 2018 SCC 29, [2018] 2 S.C.R. 103; Benhaim v. St‑Germain, 2016 SCC 48, [2016] 2 S.C.R. 352; 3091‑5177 Québec inc. (Éconolodge Aéroport) v. Lombard General Insurance Co. of Canada, 2018 SCC 43, [2018] 3 S.C.R. 8; St‑Jean v. Mercier, 2002 SCC 15, [2002] 1 S.C.R. 491; South Yukon Forest Corp. v. R., 2012 FCA 165, 4 B.L.R. (5th) 31; H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401; J.G. v. Nadeau, 2016 QCCA 167; Nelson (City) v. Mowatt, 2017 SCC 8, [2017] 1 S.C.R. 138; Quebec (Director of Criminal and Penal Prosecutions) v. Jodoin, 2017 SCC 26, [2017] 1 S.C.R. 478; Ford du Canada ltée v. Automobiles Duclos inc., 2007 QCCA 1541; Softmedical inc. v. Daabous, 2017 QCCA 1270; Droit de la famille — 161960, 2016 QCCA 1300; Droit de la famille — 132381, 2013 QCCA 1505; Francoeur v. 4417186 Canada inc., 2013 QCCA 191; Desrochers v. 2533‑0838 Québec inc., 2016 QCCA 825; Gutin v. Cenfood International Inc., 2018 QCCA 317; 2758792 Canada inc. v. Bell Distribution inc., 2017 QCCA 603; Mangiola v. R., 2017 QCCA 741; Dunkin’ Brands Canada Ltd. v. Bertico Inc., 2015 QCCA 624, 41 B.L.R. (5th) 1; Hydro‑Québec v. Construction Kiewit cie, 2014 QCCA 947; R. v. Lalonde, 2014 QCCA 639; Poulin v. Pilon, [1984] C.S. 177; Labrie v. Tremblay, [2000] R.R.A. 5; Côté v. Rancourt, 2004 SCC 58, [2004] 3 S.C.R. 248; Sylvestre v. Karpinski, 2011 QCCA 2161; Daigneault v. Lapierre, [2003] R.R.A. 902; Canadian National Railway Co. v. McKercher LLP, 2013 SCC 39, [2013] 2 S.C.R. 649; R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631; Parizeau v. Poulin De Courval, [2000] R.R.A. 67; Dallaire v. Paul‑Émile Martel Inc., [1989] 2 S.C.R. 419; Compagnie 99885 Canada Inc. v. Monast, [1994] R.R.A. 217; Quebec (Commission des droits de la personne et des droits de la jeunesse) v. Bombardier Inc. (Bombardier Aerospace Training Center), 2015 SCC 39, [2015] 2 S.C.R. 789; Stellaire Construction Inc. v. Ciment Québec Inc., 2002 CanLII 35591; Laflamme v. Prudential‑Bache Commodities Canada Ltd., 2000 SCC 26, [2000] 1 S.C.R. 638; Laval (Ville de) (Service de protection des citoyens, département de police et centre d’appels d’urgence 911) v. Ducharme, 2012 QCCA 2122, [2012] R.J.Q. 2090; Lacombe v. André, [2003] R.J.Q. 720; Beaulieu v. Paquet, 2016 QCCA 1284; 124329 Canada inc. v. Banque Nationale du Canada, 2011 QCCA 226, [2011] R.J.Q. 295; Hodgkinson v. Simms, [1994] 3 S.C.R. 377.
By Côté J. (dissenting)
Laferrière v. Lawson, [1991] 1 S.C.R. 541; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Underwood v. Ocean City Realty Ltd. (1987), 12 B.C.L.R. (2d) 199; Prud’homme v. Prud’homme, 2002 SCC 85, [2002] 4 S.C.R. 663; St‑Jean v. Mercier, 2002 SCC 15, [2002] 1 S.C.R. 491; Montréal (Ville) v. Lonardi, 2018 SCC 29, [2018] 2 S.C.R. 103; Benhaim v. St‑Germain, 2016 SCC 48, [2016] 2 S.C.R. 352; South Yukon Forest Corp. v. R., 2012 FCA 165, 4 B.L.R. (5th) 31; Jaegli Enterprises Ltd. v. Taylor, [1981] 2 S.C.R. 2; Schreiber Brothers Ltd. v. Currie Products Ltd., [1980] 2 S.C.R. 78; Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247; Laflamme v. Prudential‑Bache Commodities Canada Ltd., 2000 SCC 26, [2000] 1 S.C.R. 638; Hodgkinson v. Simms, [1994] 3 S.C.R. 377; Lapointe v. Hôpital Le Gardeur, [1992] 1 S.C.R. 351; H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401; P.L. v. Benchetrit, 2010 QCCA 1505; Schwartz v. Canada, [1996] 1 S.C.R. 254; Nelson (City) v. Mowatt, 2017 SCC 8, [2017] 1 S.C.R. 138; Van de Perre v. Edwards, 2001 SCC 60, [2001] 2 S.C.R. 1014; J.G. v. Nadeau, 2016 QCCA 167; Canada (Attorney General) v. Bedford, 2013 SCC 72, [2013] 3 S.C.R. 1101; Waxman v. Waxman (2004), 186 O.A.C. 201; Ford du Canada ltée v. Automobiles Duclos inc., 2007 QCCA 1541; Beaudoin‑Daigneault v. Richard, [1984] 1 S.C.R. 2; Palsky v. Humphrey, [1964] S.C.R. 580; Maze v. Empson, [1964] S.C.R. 576; Côté v. Rancourt, 2004 SCC 58, [2004] 3 S.C.R. 248; Sylvestre v. Karpinski, 2011 QCCA 2161; Bessette v. Pharmacie Suzanne Payer inc., 2017 QCCS 2474; Harris (Succession), Re, 2016 QCCA 50, 25 C.C.L.T. (4th) 1; Roberge v. Bolduc, [1991] 1 S.C.R. 374; Phillips v. Naamani, 1998 CanLII 9332; F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41; Hinse v. Canada (Attorney General), 2015 SCC 35, [2015] 2 S.C.R. 621; Parrot v. Thompson, [1984] 1 S.C.R. 57; Quebec (Commission des droits de la personne et des droits de la jeunesse) v. Bombardier Inc. (Bombardier Aerospace Training Center), 2015 SCC 39, [2015] 2 S.C.R. 789; Dallaire v. Paul‑Émile Martel Inc., [1989] 2 S.C.R. 419; Stellaire Construction Inc. v. Ciment Québec Inc., 2002 CanLII 35591; Lacombe v. André, [2003] R.J.Q. 720.
Statutes and Regulations Cited
Civil Code of Québec, arts. 1607, 1613, 2138.
Code of ethics of advocates, CQLR, c. B‑1, r. 3.
Code of Professional Conduct of Lawyers, CQLR, c. B‑1, r. 3.1, s. 25.
Authors Cited
Baudouin, Jean‑Louis, et Pierre‑Gabriel Jobin. Les obligations, 7e éd. par Pierre‑Gabriel Jobin et Nathalie Vézina, dir. Cowansville, Que.: Yvon Blais, 2013.
Baudouin, Jean‑Louis, Patrice Deslauriers et Benoît Moore. La responsabilité civile, 8e éd. Cowansville, Que.: Yvon Blais, 2014.
Lévesque, Frédéric. Précis de droit québécois des obligations. Cowansville, Que.: Yvon Blais, 2014.
Lluelles, Didier, et Benoît Moore. Droit des obligations, 2e éd. Montréal: Thémis, 2012.
Tancelin, Maurice. Des obligations en droit mixte du Québec, 7e éd. Montréal: Wilson & Lafleur, 2009.
Thouin, Marie‑Chantal. “L’avocat, toujours de bon conseil?”, dans Service de la formation permanente du Barreau du Québec, vol. 228, Développements récents en déontologie, droit professionnel et disciplinaire. Cowansville, Que.: Yvon Blais, 2005, 49.
APPEAL from a judgment of the Quebec Court of Appeal (Kasirer, Vauclair and Parent JJ.A.), 2017 QCCA 273, 41 C.C.L.T. (4th) 1, [2017] AZ‑51368107, [2017] J.Q. no 1326 (QL), 2017 CarswellQue 1076 (WL Can.), setting aside a decision of Dulude J., 2014 QCCS 3072, [2014] AZ‑51085557, [2014] Q.J. No. 6361 (QL), 2014 CarswellQue 6527 (WL Can.). Appeal dismissed, Côté J. dissenting.
Douglas C. Mitchell, Audrey Boctor and Olga Redko, for the appellants.
Pierre Bienvenu, Azim Hussain, Andres C. Garin and Frédéric Wilson, for the respondents.
The judgment of Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Brown, Rowe and Martin JJ. was delivered by
Gascon J. —
I. Overview
[1] This case concerns the professional liability of a lawyer who has referred clients to a financial advisor where that advisor subsequently turns out to be a fraudster and where, in addition to the referral, the lawyer has over a number of years been recommending and endorsing the advisor’s investments.
[2] By 2003, the first appellant, Kenneth F. Salomon, had been the lawyer of the respondents, Judith Matte-Thompson and 166376 Canada Inc. (“166”), in Quebec for a long time. During that year, he introduced them to Themis Papadopoulos, his personal friend and his own financial advisor, and recommended that they consult him. In the following four years, the respondents ended up investing over $7.5 million with Mr. Papadopoulos’s investment firm, Triglobal Capital Management Inc. (“Triglobal”). Over the course of those four years, Mr. Salomon repeatedly endorsed Mr. Papadopoulos as a financial advisor and encouraged the respondents to make and retain investments with Triglobal. In 2007, Mr. Papadopoulos and his associate, Mario Bright, disappeared with the savings of around 100 investors, including those of the respondents.
[3] The respondents claimed that Mr. Papadopoulos and Mr. Bright had fraudulently misappropriated their investments. They also claimed that Mr. Salomon and the second appellant, his law firm Sternthal Katznelson Montigny LLP (“SKM”),[1] had been professionally negligent in two ways. First, Mr. Salomon and SKM had breached their duty to advise the respondents by recommending, endorsing and encouraging inappropriate investments with Mr. Papadopoulos’s firm. Second, they had disregarded their duty of loyalty to the respondents by placing themselves in a conflict of interest that led them to turn a blind eye to the situation. The respondents sued Mr. Papadopoulos, Mr. Bright, Mr. Salomon and SKM for the loss of their investment capital, the loss of the opportunity to realize a return on those investments, and moral injury. They also sought an award of punitive damages against Mr. Papadopoulos and Mr. Bright.
[4] The trial judge held that Mr. Papadopoulos and Mr. Bright were liable for the respondents’ investment losses and moral injury, as well as for punitive damages, but dismissed the claim against Mr. Salomon and SKM. She concluded that Mr. Salomon had not committed any fault that was a cause of the respondents’ losses. In her view, although he had breached his professional standard of care by making his initial recommendation to the individual respondent, Ms. Matte-Thompson, with regard to her investments, there was no causal link between that fault and Ms. Matte-Thompson’s subsequent losses. The trial judge also found that Mr. Salomon had not been in a conflict of interest and that he had not provided financial advice to the corporate respondent, 166.
[5] The Court of Appeal concluded that the trial judge had made reviewable errors, and it reversed her judgment. It made a number of findings, including (1) that Mr. Salomon’s faults were not limited in time to that of the initial recommendation, (2) that those faults were committed not only against Ms. Matte-Thompson, but also against 166, and (3) that those faults caused the losses suffered by both of the respondents. In the Court of Appeal’s opinion, the trial judge had viewed Mr. Salomon’s acts and their consequences through a distorting lens which had led her to erroneously assess the evidence in isolated silos, without the insight provided by a global analysis. The Court of Appeal also held that the trial judge had taken an unduly restrictive approach in analyzing Mr. Salomon’s conflict of interest.
[6] I am satisfied that the Court of Appeal had a sufficient basis for intervening as it did. I would therefore dismiss the appeal.
II. Context
[7] Malcolm Thompson and his wife, Ms. Matte-Thompson, were business people who operated restaurant franchises in Ontario and Quebec. Four companies (“Companies”), including 166, were set up for the purpose of operating the restaurants. Mr. Thompson and Ms. Matte-Thompson owned, respectively, two thirds and one third of the shares of 166, and Mr. Thompson was the sole shareholder of the other three companies. In 2002, the Thompsons sold all of their restaurant franchises but one. With that one exception, the Companies remained owners of the real estate only.
[8] Mr. Thompson passed away in 2003. Ms. Matte-Thompson then became the sole director of the Companies. She remained 166’s sole director until October 2006, when David Gemmill and Joseph Miller were appointed to the board. Mr. Gemmill had been Mr. Thompson’s lawyer in Ontario, and Mr. Miller had been his brother-in-law.
[9] Mr. Thompson left two wills, in which he created three trusts for his grandchildren and one trust (“Trust”) for most of his assets, including his shares in the Companies. Mr. Thompson appointed his wife, Mr. Gemmill and Mr. Miller as the trustees and executors under the wills. The wills named Ms. Matte-Thompson as the income beneficiary of the Trust until her death. The capital of the Trust was to be distributed to the children of Mr. Thompson and those of Ms. Matte-Thompson after Ms. Matte-Thompson’s death. The purpose of this arrangement was to ensure that Ms. Matte-Thompson’s needs were met and to provide her with financial security while preserving the capital for the children. Preserving the capital was a paramount consideration under the wills.
[10] Mr. Salomon had been the Thompsons’ lawyer for their business operations in Quebec since 1989. Following her husband’s death, Ms. Matte-Thompson regularly consulted Mr. Salomon for advice regarding the interpretation and implementation of the wills. She was uncomfortable with her dual position as an income beneficiary and a trustee of the Trust, and worried about how she could maintain her lifestyle without spending the children’s capital. Ms. Matte-Thompson was an educated and experienced businesswoman, but did not have sophisticated knowledge of the investment world.
[11] Mr. Salomon introduced Ms. Matte-Thompson to Mr. Papadopoulos, his personal financial advisor and the directing mind of Triglobal, in September 2003. He had met Mr. Papadopoulos in 2001 when he himself was looking for a personal financial advisor. The two had subsequently become close friends. Mr. Salomon personally invested in three funds promoted by Triglobal: he put the bulk of his savings in a Manulife Financial product (“Manulife”) and some smaller amounts in Focus Management Inc. (“Focus”) and iVest Fund Ltd. (“iVest”). Respectively based in the Cayman Islands and the Bahamas, Focus and iVest were two offshore hedge funds linked to Triglobal and to Mr. Papadopoulos and Mr. Bright.
[12] Mr. Salomon recommended Triglobal and its iVest fund to Ms. Matte-Thompson. Among other things, he described iVest as “an excellent vehicle wherever security of capital is important” (A.R., vol. 3, at p. 352). Relying on that advice, Ms. Matte-Thompson decided to invest some of her personal savings with Triglobal in early 2004. She made an initial investment of $100,000 in iVest and a second one of $1,245,000 in Manulife. In the months that followed, she transferred $400,000 from the Manulife account to iVest.
[13] From 2003 to 2006, Mr. Salomon was involved in a reorganization of the Companies. All of them, except the one still operating a restaurant, were merged into 166. Then, in February 2006, Mr. Salomon arranged the sale of 166’s assets and prepared resolutions that authorized the opening of accounts for 166 with iVest and Manulife. In February and April 2006, following instructions received from a Triglobal representative, the proceeds of the sale, in the amount of $5,830,642, were invested entirely in Focus. In July 2006, Ms. Matte-Thompso