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LAWYERS - Duties and obligations - Duty to counsel - Business advice

Thursday, February 28, 2019 @ 1:48 PM  

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Appeal by Salomon and his firm Sternthal Katznelson Montigny LLP (SKM) from a judgment of the Quebec Court of Appeal setting aside a decision of the Quebec Superior Court dismissing a professional negligence claim against them. Salomon had been the lawyer of the respondents Matte-Thompson and 166376 Canada Inc. (166) in Quebec for a long time. He introduced them to Papadopoulos, his personal friend and his own financial advisor, and recommended that they consult him. The respondents eventually invested over $7.5 million with Papadopoulos’s investment firm, Triglobal. The funds they invested in turned out to be parts of a Ponzi scheme, and Papadopoulos and his associate, Bright, disappeared with the savings. Matte-Thompson and 166 lost more than $5 million. Although Salomon suffered a personal loss too from the fraud, he received payments by Triglobal greater than his loss. Salomon testified that these payments represented a redemption of his own investment, but in an email written by Papadopoulos at that time they were referred to as commissions. The trial judge held Papadopoulos and Bright liable for the respondents’ investment losses and for Matte-Thompson’s moral injury but dismissed the claim against Salomon and SKM. The judge stressed that Salomon could not be held liable for the fraud. The trial judge also held that Salomon had committed no fault against 166, because he had not provided investment advice to the company or gone too far in reassuring it. The Court of Appeal allowed the appeal and concluded that the judge had viewed the evidence through a distorting lens, erred by taking a restrictive approach to the evidence when considering Salomon’s duty of loyalty and erred in considering the issue of causation. The Court of Appeal therefore ordered Salomon and SKM solidarily to fully compensate the respondents for their investment losses, and Matte-Thompson for her non-pecuniary loss.

HELD: Appeal dismissed. A distorting lens could not be invoked as a substitute for identifying a reviewable error or to mask the fact that an error identified by an appellate court did not meet the high standard imposed. The Court of Appeal in this case correctly held that the distorting lens through which the trial judge had viewed the evidence had led her to make precisely identified palpable and overriding errors, including the failure to conclude that Salomon had placed himself in a conflict of interest through his divided loyalties to the respondents on the one hand and to Papadopoulos and Triglobal on the other. Although lawyers did not guarantee the services rendered by professionals to whom they referred their clients, they had to act competently, prudently and diligently. They had an obligation of means, not one of result. Just as a referral was not a guarantee of the services rendered, it was also not a shield against liability for other wrongful acts committed by the referring lawyer. Salomon had done far more than merely make a referral as he repeatedly recommended Papadopoulos, his investment firm and their in-house products, and encouraged the respondents to invest. Salomon failed to advise the respondents as a competent, prudent and diligent lawyer would have done. Salomon should not have recommended a non-diversified investment in offshore hedge funds to clients whose primary goal was to preserve the capital. To isolate the relationship between Matte-Thompson and Salomon from that between 166 and Salomon was to take an improperly narrow view of the evidence as a whole, and it properly justified the Court of Appeal’s criticism. Salomon also breached his duty to advise by continually recommending financial products without performing due diligence. Salomon had, on the sole basis of his blind confidence in Papadopoulos, induced his clients to erroneously believe their investments were safe. Salomon’s personal and financial relationship with Papadopoulos did place him in a conflict of interest in more than one way. Salomon’s faults with respect to both his duty to advise and his duty of loyalty were a true cause of the losses suffered by the respondents. The fraud did not break the chain of causation. No losses would have been suffered without the faults first committed by Salomon.

Salomon v. Matte-Thompson, [2019] S.C.J. No. 14, Supreme Court of Canada, R. Wagner C.J. and R.S. Abella, M.J. Moldaver, A. Karakatsanis, C. Gascon, S. Côté, R. Brown, M. Rowe and S.L. Martin JJ., February 28, 2019. Digest No. TLD-February252019012-SCC