March 14, 2017

Quebec : A warning on the scope of a lawyer’s duty to advise

The Quebec Court of Appeal recently overturned a Superior Court ruling and found a lawyer and his firm jointly liable to pay nearly $7 million in damages as a result of his advice given to a former client and her company, in connection with investments in certain offshore funds. These later turned out to be a scheme by a financial services firm to defraud clients.

The case Matte-Thompson vs. Salomon concerns a widow, Judith Matte-Thompson, who, after her husband’s death, regularly sought counsel from her family lawyer, Kenneth F. Salomon, about her role as estate beneficiary, trustee and liquidator of several companies — among them 166376 Canada inc. ("166"). Mr. Salomon strongly recommended that she consult a financial advisor — also a personal friend of his — by the name of Thémis Papadopoulos. Papadopoulos was head of the financial services firm Triglobal Capital Management ("Triglobal").

In 2004, based on the recommendation and advice of Papadopoulos, Ms. Matte-Thompson entrusted part  of her personal savings in a Triglobal offshore fund. Over the following three years, she increased her transfers to various Triglobal offshore funds, which included assets of 166.  In 2007, Papadopoulos and his partner, Mario Bright, disappeared.  Investments of roughly $100 million from their clients, including 166 and Ms. Matte-Thompson, went missing.

Ms. Matte-Thompson and her company sued both Papadopoulos and Bright, personally and as 166's representatives, to recover their losses as a result of the Ponzi scheme. They also went after Mr. Salomon and his law firm, Sternthal Katznelson Montigny LLP, on the grounds that their conduct, advice and recommendations violated the professional industry standards.

At trial, the Superior Court found Papadopoulos and Bright to be fraudulent but dismissed the action against the lawyer and his firm.  Although it acknowledged that Mr. Salomon and his firm were in breach of their professional duties to Ms. Matte-Thompson, it concluded that there was no causal link between their faults and the damages she suffered. In the Court's view, she was the victim of a fraud carried out by Papadopoulos and Bright. What’s more, the Court found that no fault was committed by Salomon with respect to 166 since Ms. Matte-Thompson was the one who took the initiative to transfer the sums to Triglobal. This was done without the advice of Mr. Salomon. The Court also ruled that Mr. Salomon could not be at fault as the losses resulted in later investments.

Ms. Matte-Thompson and 166 appealed the decision. The Court of Appeal overturned the trial judge's conclusions and held Salomon and his firm jointly liable.

First, the Court of Appeal found that it had been inadequate to assess the lawyer’s liability and compartmentalizing it in a chronological timeline analysis of the different investments. Instead, it must look at M. Salomon’s liability and that of his firm, globally, suggesting that the relevant events formed a continuum. It also determined that Mr. Salomon had failed in his duties of loyalty and independence, as well as in in his duty to provide advice to both Ms. Matte-Thompson and 166.

In reaching its decision, the Court of Appeal concluded that the faults had been perpetuated over the years, and applied the principles set out in Lacombe vs. André, finding that, although the fraudsters had committed subsequent faults, there had not been a rupture of the causal link between the lawyer’s faults and losses suffered by Ms. Matte-Thompson and 166.  Furthermore, the absence of simultaneity between the conduct of the fraudsters and the actions of Mr. Salomon has no grounds for exoneration.

The Court of Appeal concluded that the lawyer had repeatedly failed in his duties towards Ms. Matte-Thompson until Triglobal’s major fraud was discovered. Ms. Matte-Thompson and the company would not have invested in Triglobal had Mr. Salomon complied with his duty to advise from the beginning.  Accordingly, the losses she and 166 suffered had a logical, direct and immediate connection, not only to the fraudsters' actions but to Mr. Salomon and his firm as they were logically, directly and immediately related to his conduct and that of his firm, as well as that Mr. Papadopoulos and Mr. Bright. The Court therefore solidarily sentenced Mr. Solomon and his firm to pay nearly $7 million in compensatory damages.

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In our view, the Court of Appeal's analysis tends to dispel notions surrounding causation by giving greater consideration to distant facts that played out over a sustained period of time. By treating different faults as forming part of a continuum, the Court is suggesting that it must give equal significance to different circumstances that ultimately lead to the injury.

It is surprising, though, that the Court of Appeal did not share the liability between Mr. Salomon and the fraudsters based on each wrongdoer’s transgression. Even in the presence of contributory faults, it could have acknowledged that the actions of the fraudsters were more determinant than those committed by M. Salomon and his firm.

That said, the ruling is a reminder of the importance of a lawyer’s professional obligations and stands as a clear warning to anyone who might be tempted to offer advice beyond the scope of their professional mandate.

Please note the Court of Appeal suspended execution of the judgment on March 10, 2017 until a decision is rendered on an application for leave to appeal to the Supreme Court of Canada.

Also, on October 12th, 2017, the application for leave to appeal was granted by the Supreme Court of Canada.