The Importance of Supervision

Written on September 27, 2011.

In Straus Estate v. Decaire, 2011 ONSC 1157 (“Straus”), the Ontario Superior Court of Justice reaffirmed the importance for dealers to ensure that compliance policies and proper supervision of advisors are practiced and enforced.

The plaintiffs in this case sought damages for losses arising from an “off-book” investment recommended by their advisor.  The recommended investment was not part of the dealers’ mutual fund financial products, nor was it suitable for the plaintiffs.

In their defence, the dealers argued that the advisor acted outside the scope of his contract with the dealers and that the plaintiffs knew that the investment was not a mutual fund and, therefore, beyond the scope of authority of their advisor who was a mutual fund representative.

Although the judge found that the plaintiffs were aware that the investment was not a mutual fund investment, the judge denied the dealers’ defence and found them vicariously liable for the plaintiffs’ losses.  The dealers failure to conduct training and monitor and supervise the advisor’s activities weighed heavily on the judge’s mind, ultimately resulting in the finding of vicariously liability for the dealers. 

The plaintiffs were awarded the full amount of their losses.  Despite the fact that the plaintiffs’ request for punitive damages was denied, the trial judge went so far as to award the plaintiffs substantially all of their costs.  According to the judge’s reasons, the judge preferred the principle of restoration to that of punishment so that the plaintiffs could be restored to their original financial position.

A costly lesson for the dealers on the importance of supervision.