Lawyers must act with care and uphold their professional obligations when making referrals. The Supreme Court of Canada recently addressed the professional liability of a lawyer who advised his client to purchase specific offshore investments from an advisor where that advisor turned out to be a fraudster. In Salomon v Matte‑Thompson, 2019 SCC 14, the Supreme Court upheld the decision of the Quebec Court of Appeal holding the lawyer liable for his client’s investment losses.

FACTS

A lawyer referred his client, and her company, to Themis Papadopoulos, the lawyer’s friend. The client ultimately invested over $7.5 million with Mr. Papadopoulos’s firm, Triglobal Capital Management (Triglobal). In subsequent years, when the client expressed concerns about her investments, the lawyer repeatedly reassured her and reaffirmed his confidence in Mr. Papadopoulos and the specific investments. When the client eventually asked to redeem her investments, she discovered that Triglobal’s assets had been frozen and that Mr. Papadopoulos had disappeared. Triglobal was a Ponzi scheme. The client lost over $5 million and, in total, 100 or so Triglobal investors lost approximately $100 million.

DUTIES OF LEGAL PROFESSIONALS

The Supreme Court agreed with the Court of Appeal’s finding that the lawyer had failed in his duty to advise his client by continuing to encourage investment in Triglobal despite the fact that the investments did not align with the client’s stated goals. The lawyer failed to inform himself about the investments that he was recommending and accordingly was wrong to advise that the investments were safe. The lawyer also breached his duty of loyalty by continually recommending the financial services of a close friend, which placed the lawyer in a conflict of interest.

Justice Gascon, writing for the majority, stated that lawyers must act competently, prudently and diligently in referring clients to professionals or advisors. While a referral is not a guarantee of the services rendered by a professional or advisor, it is also not a shield against liability for wrongful acts committed by a referring lawyer. Justice Gascon reviewed the law of causation and the principle of novus actus interveniens, or intervening acts, which applies under the following two conditions:

  1. an unforeseeable event occurs and completely breaks the chain of causation between the defendant’s negligent act and the plaintiff’s injury; and
  2. there is a causal link between the new event and the plaintiff’s injury.

In this case, Mr. Papadopoulos’s fraud did not sever the chain of causation—the lawyer’s breaches directly contributed to the client’s loss. The client would not have suffered a loss in the absence of the lawyer’s breaches.