Supreme Court Finds Lawyer Liable For Referral To Financial Advisor

According to a recent decision of the Supreme Court of Canada, lawyers can be held liable for referring clients to another professional who subsequently turns out to be a fraudster, especially where the actions of the lawyer go beyond a mere referral. In this case, the lawyer in question not only referred clients to his financial advisor, he also recommended and endorsed the advisor's investments over several years.

Background: Kenneth Salomon was the longtime lawyer for Judith Matte-Thompson and her company 166376 Canada Inc. ("166") (collectively, the "Respondents"). In 2003, Salomon introduced Matte-Thompson to his close friend and financial advisor, Themis Papadopoulos. Salomon repeatedly endorsed Papadopoulos as a financial advisor and encouraged the Respondents to invest with Papadopoulos' investment firm, Triglobal Capital Management Inc. ("Triglobal"). Salomon specifically recommended and encouraged the Respondents to invest in two offshore hedge funds linked to Triglobal. He did so without performing even a minimum amount of due diligence, which would have revealed that the two hedge funds were not registered with Quebec's financial markets regulator, the AMF, and that Triglobal was not authorized to offer these investment funds.

Over a period of four years, the Respondents invested over $7.5 million in Triglobal.

Beginning in 2006, Matte-Thompson expressed concern to Salomon regarding her investments. Each time she expressed concern, Salomon promptly reassured her, or informed Papadopoulos, who would himself reassure her.

In 2007, Papadopoulos, and his associate Mario Bright, disappeared with the savings of around 100 investors, including those of the Respondents. The two hedge funds the Respondents had invested in turned out to be part of a Ponzi scheme, and the Respondents lost upwards of $5 million.

The Respondents not only sued Papadopoulos and Bright, but also sued Salomon and his law firm for professional negligence. The Respondents claimed that Salomon was negligent in two ways: (1) by breaching his duty to advise the Respondents by recommending, endorsing, and encouraging inappropriate investments; and (2) by placing himself in a conflict of interest and breaching his duty of loyalty.

Decisions of the lower courts: The trial judge found Papadopoulos and Bright liable, but dismissed the action against Salomon and his law firm. According to the trial judge, Salomon only breached his professional standard of care by making...