Salomon v Matte-Thompson: Recommend with Care
The legal profession revolves around the giving of advice. People seek legal counsel for a wide variety of issues, including (and perhaps most often) when they are vulnerable. Consequently, lawyers have a professional and legal duty to ensure that when they offer such advice, it is honest and informed. Where it is not, people often suffer harm.
In the case of Salomon v Matte-Thompson, 2019 SCC 14 [Salomon], the plaintiffs, Ms. Matte-Thompson and her company, “166,” suffered financial losses of $5 million as a result of negligent advice from legal counsel. More specifically, the plaintiffs lost their money as a result of investments in fraudulent ventures that had been recommended—and continually supported—by their lawyer, Mr. Salomon. The question for the Supreme Court of Canada (the “Supreme Court”) was whether to overturn the decision of the Court of Appeal of Quebec, which, contrary to the decision of the trial judge, found Mr. Salomon liable for breaching his duty to advise and duty of loyalty.
Writing for a majority of the Court, Justice Gascon held that Mr. Salomon was liable—this was “not a case about a mere referral,” but rather one in which a lawyer, “over the course of several years, recommended and endorsed a financial advisor and financial products” despite failing to “perform adequate due diligence, misrepresent[ing] investment information, committ[ing] breaches of confidentiality,” and maintaining a close relationship with the advisor that amounted to a “conflict of interest” (Salomon, para 96). According to Justice Gascon, the Court of Appeal was correct to intervene, as the trial judge had committed a series of reviewable errors in large part due to her adoption of a “distorting lens” which led to “her erroneously assess[ing] the evidence in isolated silos, without the insight provided by a global analysis” (para 5).
In dissent, however, Justice Côté disagreed, arguing that the trial judge’s thorough analysis was void of palpable and overriding errors and that, to the contrary, it was the Court of Appeal who had committed legal error by “substituting its own view of the case” on the basis of mere “divergence of opinion” with the trial judge (Salomon, para 102). Further animating Justice Côté’s position is a concern that too harsh an approach to civil liability “might inadvertently increase the exposure of numerous professionals who regularly recommend other advisors and then collaborate with them in their clients’ interests” (para 101).
A Disastrous Situation
In 2003, Mr. Salomon, Ms. Matte-Thompson’s longtime lawyer, introduced her and her company, 166, to Themis Papadopoulos, his close friend and investment advisor. The purpose of the introduction was to help Ms. Matte-Thompson manage her wealth in a manner that would provide financial security for her and her children. Between 2003 and 2007, Ms. Matte-Thompson and her company invested over $7.5 million with Papadopoulos and his firm. In 2007, it was discovered that the operation was a Ponzi scheme in which almost $100 million was lost ($5 million of the plaintiffs’). Mr. Salomon lost $20,000 in the scheme (he had invested $70,000) (Salomon, paras 2, 10-11, 16-19).
Was Mr. Salomon to blame?
At trial, the judge didn’t think so. Rather, according to her, while Mr. Salomon had overstepped his professional bounds in recommending specific investments to Ms. Matte-Thompson (in addition to his recommendation of Mr. Papadopoulos), the recommendations had not caused her losses; she had “developed her own relationship with Mr. Papadopoulos and therefore was not relying on Mr. Salomon’s advice in making her investment decisions” (para 22). Further, Mr. Salomon made no investment advice to Ms. Matte-Thompson’s company (as those investments had occurred well after the initial referral and specific investment advice to Ms. Matte-Thompson) and thus could not have had a duty to inquire or advise with respect to the company’s investments (para 23). Finally, the trial judge held that Mr. Salomon’s close relationship with Mr. Papadopoulos did not amount to a conflict of interest; while Mr. Salomon had received a series of payments from Mr. Papadopoulos totaling $38,000, these payments had been unrelated to any dealings with Ms. Matte-Thompson (they were said to be “gifts”) (paras 23, 77).
On appeal, however, the Court of Appeal of Quebec took a very different view. Intervening on the grounds of palpable and overriding errors, the court held that the trial judge had failed to consider the actions of Mr. Salomon as a whole, which had led to a series of erroneous conclusions. The court identified four errors:
- First, Mr. Salomon had been acting for both Ms. Matte-Thompson and 166 (as opposed to just Ms. Matte-Thompson individually).
- Second, Mr. Salomon’s faults were not limited to his initial action of recommending specific investments, but rather extended throughout the four year period as he “induced an air of confidence” regarding the investments.
- Third, Mr. Salomon had breached his duty of loyalty because his relationship with Mr. Papadopoulos had caused him to breach confidentiality and neglect his clients’ interests.
- Fourth and finally, Mr. Salomon’s faults were a direct cause of the plaintiffs’ losses and that the fraud committed by Mr. Papadopoulos did not serve to break the chain of causation (Salomon, paras 25-29).
Not Just a Referral
At the hearing before the Supreme Court, a major point of emphasis for both parties was on convincing the panel that this case was, or was not, about a simple referral. For the plaintiffs, it was clearly not a simple referral—Mr. Salomon had been Ms. Matte-Thompson’s lawyer for almost 15 years, had recommended she invest her money in specific investments with his personal financial advisor (and close friend), and had offered repeated reassurances over the course of four years that these investments were sound and secure (Salomon, paras 10-11, 60). In contrast, Mr. Salomon argued that he had simply made a referral and that, while he did overstep his professional bounds in recommending specific investments to Ms. Matte-Thompson, these recommendations did not cause any of the plaintiffs’ losses. Mr. Salomon’s continued reassurances of Ms. Matte-Thompson were nothing more than those of a friend; he had no continuing duty to advise or perform due diligence for Ms. Thompson, and she did not actually rely on his comments as legal advice (Salomon, webcast).
So, whose version of events rings true?
According to the entirety of the Supreme Court (including Justice Côté), this case is clearly not about a mere referral (Salomon, paras 96, 149). Rather, it is about determining whether all of Mr. Salomon’s actions, when considered in light of his professional duties, rise to a level of professional negligence (para 49). And, in the view of Justice Gascon and the majority, they did. The Court of Appeal was correct to intervene—the trial judge’s analysis was too narrow in its assessment. The events, taken as a whole, establish that not only did Mr. Salomon recommend Mr. Papadopoulos, but that he was integrally involved in ensuring that the investments continued. He should have known at numerous times in the four years that greater due diligence was required to ensure protection of Ms. Matte-Thompson’s assets (including in 2007 when an article in La Presse Affaires signalled “serious doubts about the investments”) (para 75). Further, Mr. Salomon should have been alive to the obvious conflict that arose in light of his ongoing personal and financial relationship with Mr. Papadopoulos. According to Justice Gascon, even if the payments made to Salomon were “gifts,” they raised “serious doubts regarding the independence of the lawyer who had received them” (para 77). Overall, then, when looking at the events as “part of a single continuum,” it is clear that Mr. Salomon breached his professional duties to advise and to maintain loyalty (para 86).
Implications for Professional Referrals
In her dissenting opinion, Justice Côté notes that, in taking too harsh an approach to the requirements of lawyers in referral situations, the Supreme Court risks imposing an “excessive burden” on lawyers and other professionals “who routinely recommend other trusted professionals” (Salomon, para 146). To expect lawyers to have to make “systematic inquiries” before a referral as well as to demand “monitoring and verifying the recommended professional’s advice” might result in a chilling effect whereby professionals “might become overcautious and avoid making recommendations altogether” (which would be a “clear disservice” to their clients) (para 146).
Justice Côté’s point here is well-taken. There is no doubt that to create a burdensome standard for pre- and post-referral practice would result in increased hesitancy and reluctance in an industry dependent on relationships and fluidity of services and expertise. Lawyers are already risk-averse, and any added potential of prospective liability may only serve to hinder the ability of clients to get the help they need.
This being said, however, I do not think Justice Côté’s fears will come to pass. The majority’s decision here has not extended the duty of lawyers or other professionals (“the instant case [does] not broaden the basis of liability for lawyers who refer clients to other professionals or advisors beyond the standard recently set in Harris: lawyers can refer their clients to other professionals or advisors so long as they discharge their professional obligations in so doing” (Salomon, para 50)). Thus, in many ways, this balance is reminiscent of the Supreme Court’s approach for determining liability for auditors for negligent misrepresentations in the performance of a service (see e.g. Deloitte & Touche v Livent Inc, 2017 SCC 63; Ankita Gupta, “Deloitte & Touche v Livent Inc.: A New Duty of Care for Auditors”). Just as the scope of liability for auditors is narrowly construed to instances where they negligently perform a service that they expressly undertake, so too is the scope of liability of lawyers narrowly construed to negligence in the fulfilment of their duties when undertaking to refer clients to other professionals. In effect, then, all Justice Gascon and the majority have established is that a lawyer cannot, where they have continually engaged with and supported a client post-referral, “avoid liability by hiding behind the high threshold for establishing liability that applies in a case in which a lawyer has merely referred a client” (Salomon, para 96).