In a recent case against an investment advisor and the firm who
sponsored his registration to sell mutual funds and other financial
products, the Ontario Court of Appeal upheld findings of direct and
vicarious liability on a broker/dealer.
In Straus Estate v. Decaire, Decaire, a
brother-in-law of the Plaintiff, Straus, acted as the financial
advisor to Straus and his wife. Decaire was licensed to sell mutual
funds and other products but only for so long as his license was
sponsored by FundEX.
Decaire became associated with a stock promoter who was pursuing
investment in needle incineration technology. This was not an
investment that Decaire was legally permitted to promote but
Decaire convinced Straus and his wife to invest in start-up
companies associated with this technology.
The investment turned out to be worthless and all that Straus
and his wife invested was lost. They sued to recover their losses
from not only Decaire but also FundEX and the company who succeeded
FundEX in sponsoring Decaire's license to sell financial
The trial judge found that Decaire was negligent and ordered
damages payable by him and the two investment firms that sponsored
his registration. Costs were also awarded.
The trial judge found that the Plaintiffs were unsophisticated
investors with only a moderate risk tolerance and minimal knowledge
and understanding of investments and securities regulated under the
Despite the terms of the written contract between Decaire and
FundEX, in which Decaire agreed he was an independent contractor,
the judge concluded that Decaire was an employee. This decision was
reached after careful consideration of the distinction between an
employee and an independent contractor with particular attention
being focused on the various Supreme Court of Canada's
decisions on vicarious liability. Decaire was not performing as if
he was a person in business on his own accord. He did not hire
employees and he worked from an office at FundEX. He was not free
to choose his own method of marketing but rather was required to
follow FundEX's business model.
FundEX was found to be directly liable for not overseeing the
activities of its advisor, Decaire, and failing to recognize that
the investment, while "off books", was inappropriate and
unsuitable for Mr. and Mrs. Straus. More significantly in relation
to this decision, FundEX was found to be vicariously liable for the
activities of Decaire while FundEX was sponsoring Decaire's
registration. The trial judge found that following FundEX's
business model created a risk that Decaire would place FundEX
client funds in inappropriate products.
The Ontario Court of Appeal found that there was no reason for
appellate intervention as the trial judge had carefully considered
the nature of the relationship that existed between Decaire and
It is clear that the Court was live to the fact that the
wrongful act may have furthered the employer's aims and the
activities of Decaire were sufficiently tied to his employment so
as to ground vicarious liability on FundEX. There was apparently a
sufficient connection between the employment enterprise and the
wrong that justified the imposition of vicarious liability
according to the principles in Bazley v. Curry as
articulated by the Supreme Court of Canada. Obviously, the risk
that was introduced or enhanced by the employer created the
While each case concerning vicarious liability will turn on its
own facts, which must each be carefully analyzed in accordance with
the principles articulated in several cases arising out of the
Supreme Court of Canada. While there is still some room for further
development of this area, a good deal of recent case law arising
out of financial advisor/investor litigation is bringing more and
more clarity to the area all the time.
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.
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