Canada: Québec Court Of Appeal Decision Impacts Insurance Brokers, Financial Planners And Insurers

On August 2, 2012, the Québec Court of Appeal rendered a decision against Les Souscripteurs du Lloyd's ("Lloyd's Decision")1 in a claim involving professional liability insurance.  The Lloyd's Decision has important implications on the obligations of dealers and their representatives, and increases the possibility of investment advisors raising a client's contributory negligence in their defence.  It will also encourage professional liability insurers to review exclusions for gross fault.


This case is one of many surrounding the Mount Real scandal where hundreds of investors were defrauded over $65M.

Plaintiffs Denis Guillemette and France Mercier invested directly or via Alimentation Denis & Mario Guillemette Inc. with Respondent, Yves Tardif, a representative who was employed by iForum Financial Services Inc. ("iForum"), a mutual fund dealer registered in Québec under an Act Respecting The Distribution Of Financial Products And Services ("Distribution Act")2.

Contrary to Plaintiffs' clear instructions, Tardif concentrated all their portfolio in high risk products, causing them ultimately to lose their investment.  In 2008, Plaintiffs filed a claim against Tardif, iForum and Lloyd's, which insured them both under separate policies. Tardif and iForum eventually sought bankruptcy protection, leaving only Lloyd's available to compensate the Plaintiffs.

In first instance, the Superior Court found that Tardif failed as financial advisor to fulfill his duties of information, care and diligence and that he invested Plaintiff's savings in products that he was not authorised to distribute. The trial Court also found iForum liable both as the employer of Tardif and as a firm for failing in its duty of supervision. Finally, the trial Court dismissed Lloyd's defense that the professional activities in question were not covered due to the exclusions contained in the policy and rendered a judgment against Lloyd's in the sum of $460,053.45 CAD.

The Court of Appeal, per Justice Bich, dismissed Lloyd's appeal.

A Question of Reliance

On the first ground of appeal the Quebec Court of Appeal dismissed Lloyd's claim that the clients had contributed to their losses by their own negligence.

The Court of Appeal applied the Supreme Court of Canada decision in Laflamme v. Prudential-Bache Commodities Canada Ltd. ("Laflamme")3 and in relation to the trust a client places on his representative, noted that:

  1. A representative has an obligation to know his client and must act prudently and diligently in order to respect the client's investment objectives.
  2. The contributory negligence of a client depends to a large degree on the level of trust that the client places on his representative. A client that does not have knowledge in the area of investments refers primarily to a representative on whom he places significance reliance and consequently, the client cannot be found to have contributed to the fault of the representative or his firm.
  3. The Lloyd's Decision lists factors that suggest a high degree of reliance by the client, which include the client's age, his knowledge and experience in the area of investment, his level of education in general, his financial situation, his occupation and his involvement in the account.
  4. In addition, the registration status of the representative, the types of services he provides to the client (such as financial planning), and his title, can increase the level of trust a client places in his representative.

Broad definition of "professional services"

The insurance policies provided coverage for representatives' actions or omissions that occurred within the scope of their "professional activities". "Professional activities" are defined in the policies as including activities rendered in accordance with the Distribution Act.

However, Tardif's registration, at the relevant time, like that of his firm, did not permit him to exercise professional activities regulated by the Securities Act (Québec)4 (i.e. the distribution of promissory notes). The argument made by Lloyd's was that Tardif was not acting in the scope of his professional activities, as he was not licensed or registered to give advice to invest in promissory notes. However, the Court of Appeal concluded that Tardif was negligent in the context of his "professional activities" because, as a financial planner, Yves Tardif advised his clients to invest in the promissory notes.

In our respectful opinion, the Quebec Court of Appeal confused the activities of a financial planner with those of an adviser or portfolio manager, a category of registration in Québec found exclusively under the Securities Act (Québec).

While a financial planner is permitted pursuant to the Distribution Act to analyse the portfolio of a client and provide recommendations relating to the types of securities and sectors of the market in which the portfolio of a client should be invested, only the adviser may provide investment advice to clients in respect of any particular security governed by the Securities Act (Québec), such as a promissory note.

The definition of the term "adviser" found in the Securities Act (Québec) describes it as follows:

"5.In this Act, unless the context indicates otherwise, "adviser" means a person engaging in or holding themselves out as engaging in the business of advising another with respect to investment in or the purchase or sale of securities, or the business of managing a securities portfolio."

Section 148 of the Securities Act (Québec) requires that persons who act as an adviser must be registered.

In the present case, the activities of Tardif did exceed the limits of his registration as a mutual fund dealing representative and financial planner because he provided advice to his clients to acquire particular promissory notes and thereafter assisted them in acquiring those securities.

Gross Fault Exclusions

The Court of Appeal concluded that the failure of iForum to monitor and supervise Tardif was not a gross fault (or gross negligence) because proof was not provided that these deficiencies were significant when compared with industry standards. The court therefore dismissed the argument that the gross fault exclusion in iForum's policy applied.

In our opinion, considering the gatekeeper duty incumbent on firms in the industry, the fault of iForum may very well have been gross negligence. It appears that not only was the supervision exercised by iForum insufficient but the firm also permitted Tardif to offer and advise his clients in securities that exceeded the limits of his registrations5.

What is more, even though the Court of Appeal concluded that the issue of whether Tardif committed a gross fault is debatable, it found that the exclusion would still not be enforceable because the law requires liability insurance to cover "any fault".

The Court relies on Article 17(3)(a) of the Regulation Respecting The Pursuit Of Activities As A Representative6 and Article 29(3) of the Regulation Respecting Firms, Independent Representatives and Independent Partnerships7, that provide that liability insurance coverage "shall extend to the liability arising from the fault, errors, negligence, or omissions". The Court concludes that because the legislator did not expressly exclude gross fault, insurers must cover gross fault.

Furthermore, the Court explained that in case of conflict between the laws of the Province of Quebec and the policy, the policy provides that it is modified to include the laws of the Province.


1 Les Souscripteurs du Lloyd's v. Alimentation Denis & Mario Guillemette, 2012 QCCA 1376 ("Lloyd's Decision").

2 Act respecting the distribution of financial products and services, R.S.Q. c. D-9.2.

3 Laflamme v. Prudential-Bache Commodities Canada Ltd., [2000] 1 R.C.S. 638.

4 Securities Act, R.S.Q. c. V-1.1.

5 Paragraph 60 of the Lloyd's Decision, note 1.

6 Regulation respecting the pursuit of activities as a representative, R.R.Q., c. D-9.2, r. 10.

7 Regulation respecting firms, independent representatives and independent partnerships, R.R.Q., c. D-9.2, r. 2.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions