2012 QCCA 1376, 2012 QCCA 1376

Unofficial English Translation Souscripteurs du Lloyd's c. Alimentation Denis & Mario Guillemette inc. 2012 QCCA 1376 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF QUEBEC No.: 200-09-007438-119 (200-17-009550-088) DATE: AUGUST 2, 2012 CORAM: THE HONOURABLE BENOÎT MORIN, J.A. JULIE DUTIL, J.A. MARIE-FRANCE BICH, J.A. LLOYD'S OF LONDON APPELLANT – Defendant v.

ALIMENTATION DENIS & MARIO GUILLEMETTE INC. and DENIS GUILLEMETTE and FRANCE MERCIER RESPONDENTS – Plaintiffs and LE GROUPE BOUDREAU RICHARD INC. in its capacity as trustee for the estate of iForum Financial Services Inc. and LE GROUPE BOUDREAU RICHARD INC. in its capacity as trustee for the estate of iForum Securities Inc. IMPLEADED PARTIES – Defendants JUDGMENT [ 1 ] The appellant appeals from a judgment of the Superior Court, District of Quebec (the Honourable Mr.

Justice François Huot), rendered on May 17, 2011, that condemned the appellant and the impleaded parties jointly and severally to pay $460,053.45 to the respondents, plus interest and the additional indemnity. [ 2 ] For the reasons of Bich J.A., with which Morin and Dutil JJ.A. agree, the Court: [ 3 ] DISMISSES the appeal, with costs. BENOÎT MORIN, J.A. JULIE DUTIL, J.A. MARIE-FRANCE BICH, J.A.

Mtre Richard Biron La Roche, Rouleau & Assoc. For the appellant Mtre Serge Létourneau Mtre Audrey Létourneau Létourneau Gagné Avocats For the respondents Date of hearing: June 5, 2012 REASONS OF BICH J.A. [ 4 ] If cases had titles, this one could be, "Variation on the theme of investors swindled by their financial advisers". I. Background [ 5 ] The respondents, spouses Denis Guillemette and France Mercier, operate the grocery store known as Alimentation Denis & Mario Guillemette inc. (their alter ego), also a respondent.

From 1996 to 2005, the first two parties, either directly or through the intermediary of the third party, entrusted their savings to Yves Tardif, who worked first for Norshield Fund Management Ltd. and then for iForum Financial Services, a firm that has since gone bankrupt and is represented here by the impleaded trustee.

In January of 2004, Tardif transferred the respondents' account to a company related to the preceding one, iForum Securities Inc. [1] that has also since gone bankrupt and is represented here by the same trustee. [ 6 ] For the entire relevant period, Tardif held the following certificates, pursuant to the Act respecting the distribution of financial products and services (" ADFPS "): [2] - prior to October 1999: mutual fund representative, financial planner on behalf of various firms, successively (Investors Group from 1990 to 1994, IMAC or RIMAC Financial in 1995–1996, and Norshield Fund Management as of 1996 or 1997) [3] - from October 1, 1999, to October 31, 2000: financial planning representative for the firm Olympus United Inc., formerly Norshield Fund Management Ltd. - from October 1, 1999, to June 14, 2001: mutual fund dealer for the firm Olympus United Inc., formerly Norshield Fund Management Ltd. - from October 1, 1999, to October 31, 2002: independent representative in group insurance of persons - from October 1, 1999, to February 9, 2006: independent representative in insurance of persons - from October 1, 1999, to February 9, 2006: independent representative in financial planning - from June 18, 2001, to January 7, 2004: mutual fund dealer for iForum Financial Services Inc. (his certificate was subject to a restriction under which he could not sell commodity pools for a certain period) - from January 14, 2004, to December 1, 2005: full-service broker representative for iForum Securities Inc. (his certificate contained a restriction authorizing him to sell mutual funds only). [4] [ 7 ] The respondents Guillemette and Mercier wished to provide for their retirement by making investments that were safe and low- risk but still more profitable than a bank term deposit or a savings instrument at a credit union.

Tardif was clearly informed of these objectives. The evidence – which, it should be noted, was not contested in this respect [5] – reveals that while Tardif occasionally made investments that showed good initial returns, he chose, however, to concentrate most of his clients' portfolio in high-risk products. The respondents ended up losing all of their money. [ 8 ] In March of 2008, the respondents brought an action in damages against Tardif, iForum Financial Services Inc., and iForum Securities Inc.

They also sued the appellant, who insured the services of Tardif and iForum Financial Services Inc. in two separate policies during the relevant period.

Finally, in August of 2008, they sued Liberty International Underwriters Canada, the insurer of iForum Securities Inc. [ 9 ] Following the bankruptcy of iForum Financial Services Inc. and iForum Securities Inc., the respondents obtained leave to continue their action against the bankrupts. [6] [ 10 ] Tardif also went bankrupt, [7] but the action was not continued against him. [ 11 ] According to the court ledger dated September 11, 2009, the respondents also discontinued their action against Liberty International Underwriters Canada. [ 12 ] On May 17, 2011, the Superior Court, per François Huot J., allowed the respondents' action.

Relying on the uncontradicted testimony of the respondents Guillemette and Mercier, as well as on that of their expert, Jocelyne Marquis, the trial judge found that

Tardif was liable. In his view, Tardif had breached the duty to inform and the duties of prudence and diligence incumbent upon him as adviser to and manager of the assets of the respondents, who were unversed in the subject matter. By failing to respect his clients' will or to ensure the adequate diversification of their portfolio, and by investing in securities of uncertain value, among other things, Tardif broke the rules governing his profession. The judge wrote: [ translation ] [75] The Court therefore finds that Tardif's conduct in carrying out his mandate was wrongful.

He did not conduct himself as a prudent representative with a good knowledge of his clients and their investment objectives, thus incurring civil liability. [ 13 ] It should be noted that the appellant does not contest the trial judge’s findings on these points (although he does contest their characterization, as we shall see later on). [ 14 ] The final item on the list of Tardif's breaches is the fact that he also invested part of the amounts entrusted to him by the respondents in financial products that he was not authorized to trade pursuant to the various certificates he held during the relevant periods. [ 15 ] The judge also found that iForum Financial Services Inc. and iForum Securities Inc. were liable, in part because of s. 80 ADFPS , which states: 80.

Un cabinet est responsable du préjudice causé à un client par toute faute commise par un de ses représentants dans l’exécution de ses fonctions. Il conserve néanmoins ses recours contre eux. 80. A firm is responsible for any injury caused to a client by the fault of one of its representatives in the performance of the representative’s functions.

However, the firm retains the remedies available to it against the representative concerned. [ 16 ] Although the judge does not refer to it expressly, a review of the file reveals that the liability of iForum Financial Services Inc. and iForum Securities Inc. arises not only from the fact that they are liable for Tardif's fault, but also from their own fault: Neither firm provided the necessary oversight of Tardif's conduct to ensure that he (and his colleagues, for that matter) was complying with the law and, in particular, with any restrictions on his professional certifications despite the fact that this was a duty incumbent upon them under

section 85 ADFPS : [8] 85. Un cabinet et ses dirigeants veillent à la discipline de leurs représentants. Ils s’assurent que ceux-ci agissent conformément à la présente loi et à ses règlements. 85. A firm and its executive officers shall oversee the conduct of the firm’s representatives.

They shall ensure that the representatives comply with this Act and the regulations. [ 17 ] Thus, the personal liability of these two companies also flows from a wrongful breach of the duties prescribed in this provision. [ 18 ] Finally, the judge considered whether the appellant is required to compensate the respondent under the respective liability insurance policies of Tardif and iForum Financial Services Inc.

At trial, the appellant raised various grounds in this respect that in its view justified dismissing the respondents' claim against it. [ 19 ] On the one hand, both policies covered only certain "professional activities", an expression referring solely to services provided pursuant to the Act respecting the distribution of financial products and services by representatives in the performance of their duties. The appellant argues that Tardif acted beyond the sphere of these activities by providing his clients with financial products governed by the Securities Act , which his certificates did not authorize.

In so doing, he also acted beyond the scope of his duties.

The trial judge dismissed these submissions, finding instead that Tardif’s activities were covered by the policies. [ 20 ] On the other hand, in the event that Tardif's activities were covered by the policies, the appellant raised several of the exclusion clauses therein in its defence: (1) intentional fault, (2) gross fault, (3) guaranteed return, (4) a claim that the insured had knowledge of before the policy period, (5) circumstances the insured had knowledge of before the policy period that were likely to give rise to a claim, (6) services that were or should have been provided from a branch or firm outside Canada. [ 21 ] The judge was of the view that the appellant failed to establish the conditions for the application of the last three exclusion clauses. [ 22 ] He also found that, while Tardif had acted incompetently, the evidence did not demonstrate the existence of intentional fault, let alone gross fault. [ 23 ] Finally, the judge found that, while Tardif generally offered tantalizing investment opportunities to his clients, he never guaranteed any specific returns within the meaning of the exclusion clauses in the insurance policies. [ 24 ] As for the quantum of damages, the judge accepted the assessment of the expert for the respondents and determined the appropriate amount to be the principal lost by the respondents plus the profit they would have made if the principal had been correctly invested and managed.

He therefore condemned iForum Financial Services Inc., iForum Securities Inc., and the appellant jointly and severally to pay $343,886.94 to Alimentation Denis & Mario Guillemette Inc., $82,828.62 to Denis Guillemette and France Mercier jointly, $19,066.90 to Denis Guillemette, and $14,270.99 to France Mercier, the whole with interest as of the date of the demand plus the additional indemnity.

II. Appeal [ 25 ] The appellant has appealed. I will limit my consideration of its appeal solely to the grounds presented in its factum. Its inscription in appeal contained other arguments, but they need not be discussed here since they were not raised by the appellant and should, in the circumstances, be considered abandoned. Furthermore, although a review of the file may raise a few other questions, they need not be answered if the appellant has not raised them. [ 26 ] Thus, the appeal concerns essentially the following three questions, which I will consider in an order that differs from that suggested by the appellant:

(1) Did the judge err by failing to consider the fault of the respondents, who allegedly contributed to the prejudice they claim to have suffered?

(2) Did the trial judge err by finding that Tardif's fault was committed in the course of professional activities covered under the two policies and in the performance of his duties?

(3) Did the judge err by finding that the exclusion clauses relating to gross fault and misconduct were inapplicable? III. Analysis

(1) Did the judge err by failing to consider the fault of the respondents, who allegedly contributed to the prejudice they claim to have suffered? [ 27 ] This question must be answered in the negative. [ 28 ] It should be noted that the respondents Guillemette and Mercier have relatively little formal education, know nothing about stock market investments or other financial products, and hoped to make prudent investments with their savings to provide for their retirement.

To this end, they decided to rely on a professional who, it is also worth noting, was certified in financial planning as well as mutual funds and insurance of persons. Tardif and his clients established a very strong relationship of trust. He counselled them, and they always followed his advice and allowed him to act, never suspecting that what was presented to them as safe investments were in fact risky. [ 29 ] While the respondents may be considered naive, they cannot be found negligent for failing to understand that the investments that Tardif suggested – that he in fact chose – were not at all safe.

It should be pointed out that these investments initially generated income (on which the respondents paid the taxes owing) and even increased their principal, which reassured the respondents and confirmed to them that they had made the right choice in doing business with Tardif. It was only later that things began to deteriorate and the true nature of some of the investments became apparent, at which point Tardif reassured them. [ 30 ] Should they have been less trusting? Could they have been less trusting?

Whatever the case may be, it is clear that they did not have the knowledge they would have needed to see through the facade that Tardif had built and that even he himself believed, having chosen his clients' investments on the basis of recommendations and studies by recognized financial institutions (Canadian banks, national securities trading companies, etc.).

In her report, the expert Marquis writes the following regarding the overall distribution of the respondents' assets (one of the main problems affecting their portfolio): [ translation ] An examination of the available documents has revealed that the overall distribution of the respondents' assets seemed to correspond to a very high level of safety of principal. Indeed, fixed-interest securities were preferred in Alimentation Denis & Mario Guillemette Inc.'s portfolio, representing over 90% of the portfolio for the entire period at issue.

As of 2002, fixed-interest securities represented nearly half of Denis Guillemette and France Mercier's consolidated portfolio. Consequently, Guillemette and Mercier believed that they had safe, no-risk investment portfolios, as they had requested of their adviser, Yves Tardif. [9] (Emphasis in original.) [ 31 ] It is therefore not surprising that the respondents Guillemette and Mercier let themselves be confused and misled.

Their testimony also confirms that Tardif's reassurances and the apparent high quality of their portfolio made them feel safe. [ 32 ] In my view, the principles set out by Gonthier J. in Laflamme v. Prudential-Bache Commodities Canada Ltd ., [10] a few excerpts of which follow, should be applied in this case. Page 654: The scope and nature of this duty [duty of the manager-mandatary toward his or her clients] will vary with the circumstances. Specifically, we note the importance of the client’s personality.

As René Savatier has commented, [TRANSLATION] “any mandate given by a lay person to a person with special knowledge gives rise to a duty to provide advice” (“Les contrats de conseil professionnel en droit privé”, D. 1972.chron.137, at p. 140). The substantive content of the duty to provide advice will vary inversely with the client’s knowledge of investments ( Mines v. Calumet Investments Ltd. , [1959] C.S. 455 ; Proulx v. Société de placements & Co ., [1976] C.A. 121 ).

A dealer who is a manager is also required to be well informed as to his client ( Securities Act, s. 161; Regulation respecting securities , s. 232; Commission des valeurs mobilières du Québec, I nstructions générales québécoises Q-9, s. 57). ... Pages 660-661 I would add that the sense of trust that is characteristic of a contract of mandate also has a significant impact on the state of mind

of a client who is the victim of a fault committed by a manager. In this case, that trust lay in the belief acquired in the professional merit of the manager, as a result of which a client, especially one who is not knowledgeable, may be unable or at least reluctant to believe that the manager is incompetent. Both that trust and the confusion resulting from a loss of trust will make it particularly difficult for the victim to take charge of the situation. Awareness of the extent of the injury dawns more slowly.

This situation, which the manager himself has created by representing himself as a professional worthy of trust, must be taken into account before blaming the victim for any want of diligence in mitigating damages, especially since the measures to be taken were not obvious and responsibility for taking or advising those measures rested primarily on the respondents, as knowledgeable dealers and managers. ... ...

Page 662: In order to prevail on this issue, the respondents had to show that the Laflamme family were negligent when they failed to intervene in the respondents’ management earlier in the hope of minimizing the losses. The trial judge noted the state of mind and the knowledge of the Laflamme family, who held onto securities in reliance on assurances given by the respondent Roy, whom they trusted. The losses caused by the bad advice and grossly negligent management by Roy cannot be laid at their doorstep.

It is reasonable to assume that an average investor faced with similar circumstances would have been indecisive and hesitant when faced with the various options: selling the securities and taking the loss, holding onto them and hoping that they would go back up in value, or transferring the account to another manager. Nor was any evidence tendered to suggest that, on the information available to them at the time, any of these options would have been beneficial. For all these reasons, the Laflamme family cannot be faulted for failing to take further measures in the hope of minimizing the losses.

Those losses were sustained as a result of mismanagement by the respondents, which, as the trial judge found, continued until the account was closed. [ 33 ] These remarks can be applied wholesale to the present case, as they describe precisely the relationship between the respondents and their adviser, Tardif. [ 34 ] I will also quote the following passage from a recent

article by Professor Raymonde Crête, who provides a clear

summary of the law governing such matters: [ translation ] While this argument based on the precautions consumers are expected to take is logical, in some circumstances this approach risks obscuring an important aspect of the relationship of trust between market intermediaries and their clients. Indeed, an overview of the case law reveals that the courts are aware of the reality underlying this type of relationship, in which heightened trust in professionals can lead to reduced vigilance on the part of clients.

As Jean-Pierre Sénécal states in Markarian : [ translation ] "... such a bond of trust cannot exist without a correlative decrease, which the law protects, in the vigilance expected from the client". The courts recognize that several factors contribute to inspiring a high degree of trust – even an "absolute" or "nearly blind" trust – on the part of the consumer. With regard to clients, the courts refer, inter alia , to their age, lack of knowledge of and experience in investment matters, financial situation, and employment.

Regarding professionals, the Courts have pointed out their status as officially recognized market intermediaries, their positions as directors of investment services firms, their connection to large financial institutions, the advertising done by these institutions, the nature of the powers conferred on the professionals, and the legal and ethical framework in which they function. In this context, the courts have found that feelings of trust and safety can influence the judgment, perceptions, and behaviour of clients by reducing their vigilance.

Taking this reality into account, the courts have, depending on the circumstances, reduced the intensity of the consumer's obligations, as the Supreme Court's decision in Laflamme clearly illustrates. ... [11] (All citations omitted.) [ 35 ] And further on: [ translation ] It has also been found that relationships in which clients trust professionals for their specialized investment knowledge are not simple business relationships or buyer-seller relationships. In business relationships, buyers generally have the duty to inform themselves, pursuant to the principle of caveat emptor (citation omitted).

In contrast, in relationships where clients rely on professionals for advice or to manage their patrimony, it is understandable that creditors of these types of services are inclined to depend on professionals without seeking to inform themselves about the implications of the advice that they receive or the transactions that are carried out. ... [12] [ 36 ] In view of the complexity of the investment world and the associated risks, it must be recognized that clients who entrust their affairs to financial advisers or intermediaries precisely because they know nothing or next to nothing about investment matters should not be burdened with the obligation to make constant checks and cross-checks when the very reason they chose to rely on a professional was to avoid having to do this work themselves. [13] Naturally, they must not shut their eyes to glaring problems.

In this case, however, given the limits of the respondents' knowledge of such matters and the assurances provided by Tardif when they expressed concern about the state of their portfolio, there was no such wilful blindness. [ 37 ] No contributory fault may be ascribed to the respondents in this case. Tardif, through his actions, abused their trust. They are not the ones who should be blamed.

(2) Did the trial judge err by finding that Tardif's fault was committed in the course of professional activities contemplated in the two policies and in the performance of his duties?

[ 38 ] Let us first recall the principles governing the

interpretation of insurance contracts: In the event of any ambiguity in the contract, this ambiguity must be resolved in light of the common intention of the parties, pursuant to the rules in

article 1425 C.C.Q. and following. This analysis must of course take into account the context of the contract, including the reasonable (that is to say, plausible [14] ) expectations of the insured (which expectations cannot be used to contradict an unambiguous clause). Any doubt persisting following such an analysis should be resolved in favour of the insured in the case of a contract of adhesion, and in favour of the debtor of the obligation in the case of a contract by mutual agreement (art. 1432 C.C.Q. – contra proferentem ).

In addition, as a general rule, coverage is interpreted broadly and exclusions are interpreted narrowly, [15] in a manner that is in keeping with the general spirit of the

chapter of the Civil Code of Québec on insurance contracts. [ 39 ] This is the spirit in which I will address the stipulations of the insurance contract at issue in both this

section and the following (see infra at paragraphs [66] and following). [ 40 ] In this case, both of the policies at issue (that is, those of Tardif and iForum Financial Services Inc.) contain the following clauses in the

section concerning coverage. [ translation ] 1. COVERAGE The Insurer shall pay on behalf of the Insured all amounts the latter is legally obliged to pay in damages to third parties pursuant to a judgment rendered in Canada or a settlement reached to avoid a lawsuit or a judgment in Canada on a claim : (

a) in the case of a firm , arising from the fault, errors, negligence, or omissions committed in the pursuit of the firm's professional activities and from those committed by its mandataries, its employees or the trainees of its representatives, in the performance of their duties , regardless of whether or not such persons are still so engaged on the date of the claim ; (

b) in the case of an independent partnership, arising from the fault, errors, negligence, or omissions committed in the pursuit of activities of his partners and the representatives in his employ and from those committed by their mandataries, their employees or the trainees of the partners and representatives in his employ, currently or in the past, in the performance of their professional activities, regardless of whether or not such persons are still so engaged on the date of the claim ;. (

c) in the case of an independent representative , arising from the fault, errors, negligence, or omissions committed in the performance of his professional activities and those committed by his mandataries, his employees or his trainees in the performance of their professional activities , regardless of whether or not such persons are still so engaged on the date of the claim ; (

d) in the case of a representative attached to but not in the employ of a firm, arising from the fault, errors, negligence, or omissions committed in the pursuit of professional activities and those committed by his mandataries, his employees or his trainees in the performance of their professional activities , regardless of whether or not such persons are still so engaged on the date of the claim ; ... 5. DEFINITION … (

a) The unqualified word " Insured " includes the Named Insured , its mandataries, its employees, and the interns of the representatives it employs, past or present, in the performance of their duties and, in the case of death, incapacity, insolvency, or bankruptcy, their heirs or legal representatives or successors; ... (

d) the words " professional activities " signify the services falling within the activities of representatives acting on behalf of a firm without being employees of said firm, of independent representatives, of firms, or of independent partnerships, insofar as they are rendered in a manner consistent with the applicable provisions of the Act respecting the distribution of financial services (sic), [16] its amendments and its regulations, and insofar as the insured is authorized to carry out certain activities as required therein, including but not limited to : ... (iii) activities concerning financial planning advice for individuals , successor programs, benefit plans, insurance and group annuity plans, retirement plans, profit-sharing plans, retirement pension plans, life, illness and disability insurance plans, including incidental funds relating to any of these programs or plans.

In this Policy, the words " incidental funds " signify funds composed of assets other than insurance contracts such as, for example, bank and trust securities investments. (iv) activities concerning the sale of separate or mutual funds , particularly group Registered Retirement Savings Plans, deferred profit-sharing plans, and registered retirement income funds. ... [Emphasis added.] [ 41 ] It flows from stipulations that Tardif's personal liability is covered by clause 1(

c) if he commits a fault in the performance of his own professional activities, which are defined in clause 5( c ). They also mean that the liability of iForum Financial Services is covered by clause 1(

a) if it commits a fault in the performance of its own professional activities within the meaning of 5(

d) or if its mandataries, employees, or representatives commit a fault in the performance of their duties. This second scenario fulfils the obligation imposed on

the firm by

section 80 ADFPS . [17] [ 42 ] According to the appellant, who reiterates the arguments made before the trial judge, the investment activities in which Tardif and, through him, iForum Financial Services Inc. were involved did not fall under the "professional activities" described in clause 5( d ), cited above, because these activities are governed by the Securities Act , whereas the policies cover only services rendered under the Act respecting the distribution of financial products and services.

Moreover, Tardif's certificates did not authorize him to trade in the financial products in which he invested the respondents' money. As a result, he was not performing his duties within the meaning of clause 1(

a) of the iForum Financial Services policy. Because of all this, the situation is not covered by clause 1(

c) of Tardif's policy any more than it is by the firm's coverage under clause 1(

a) of iForum Financial Services Inc.'s policy. [ 43 ] In my view, although for reasons that differ from the trial judge's, the appellant is wrong on this point. [ 44 ] Admittedly, although Tardif's certificates as a mutual fund representative or dealer authorized him to acquire mutual funds (see infra at para. 46), he was not authorized to trade in the securities within the meaning of the Securities Act that he acquired on behalf of the respondents. The service he thus provided was not contemplated in the Act respecting the distribution of financial products and services as required by clause 5(

d) of the policies, but instead governed by the Securities Act , which would have required the appropriate certification. Therefore, this service was not a "professional activity" within the meaning of the clause at issue. [ 45 ] But does this bar the respondents' claim? This question must be answered in the negative. [ 46 ] First, it goes without saying that neither clauses 1(

a) and 1(

c) nor clause 5(

d) of the policies can be set up against the respondents with regard to the losses resulting from the mutual fund investments that Tardif made because they are contemplated in the Act respecting the distribution of financial products and services and his certificates as a mutual fund representative or dealer authorized him to trade in those funds. Indeed, the appellant concedes this point in paragraph 56 of its factum (subject to its grounds regarding the exclusion clauses that will be considered later on): [ translation ] 56.

Finally, in the event that this Honourable Court finds that the sale of fixed-interest securities does not fall within Tardif's professional activities, and if this Honourable Court does not accept one of the exclusions discussed in the following section, the condemnation should be limited to losses related to the mutual investment funds sold (in other words, variable interest securities), namely, $79,280.64. [ 47 ] It is clear that, save for the possibility of exclusions (see

section 3, infra ), the appellant recognizes the insurance coverage of this amount, which is related to mutual fund investments made in the performance of the "professional activities" contemplated in clauses 1( a ), 1( c ), and 5(

d) of the two policies. [ 48 ] Second, with regard to the securities in which Tardif was not authorized to trade, clause 5(

d) is no more helpful in ensuring the dismissal of the respondents' claim. [ 49 ] It is true that the insurance policies cover only services rendered in the context of activities governed by the Ac t respecting the distribution of financial products and services and performed by a properly authorized insured. It would appear, however, that Tardif did indeed render such services. [ 50 ] Tardif, it should be pointed out, was also – and indeed primarily – the respondents' duly authorized financial planner.

There can be no doubt that he failed to exercise the required prudence and diligence when acting in this capacity, but the fact remains that all of the structuring of the respondents' portfolio and his investment recommendations fell within his activities as a financial planner at least as much as his activities as a representative or dealer, if not more.

And financial planning is a service contemplated in the A ct respecting the distribution of financial products and services : see sections 1, 11, 13, 56–57, 101, 128, and 139, among others. [ 51 ] The prejudice suffered by the respondents also flows directly from Tardif's bad financial planning of their affairs.

In performing this "professional activity", he failed to follow good practice and breached certain obligations under the Code of ethics of the Chambre de la sécurité financière. [18] This poor planning is what subsequently resulted in dubious investments and constitutes the main and causal fault of the loss incurred by the respondents.

The rest, although still wrongful, was nothing more than the execution of his ill-conceived plan. [ 52 ] And since the fault took place during the provision of a service contemplated by the Act respecting the distribution of financial products and services , the requirement in clause 5(

d) of the insurance policies is met: It was a professional activity within the meaning of this provision. Consequently, the respondents' claim is covered by clause 1(

c) of Tardif's policy. [ 53 ] In addition, with regard to iForum Financial Service Inc.'s insurance contract, the condition in clause 1(

a) is also met. Since Tardif was acting as a financial planner, he was acting in the performance of his duties, and his fault incurs the firm's liability. The fact that the manner in which he provided this service and performed the said duties as planner was incompetent does not exclude him from this category. Even the fact that he provided securities for his clients (the respondents) in which he was not authorized to trade, thereby infringing the Securities Act , also does not exclude him from this category, given the circumstances accepted by the trial judge. [19] [ 54 ] That being the case, the respondents' claim is also covered by clause 1(

a) of iForum Financial Services Inc.'s policy. [ 55 ] Some may prefer to see Tardif's faulty planning on the one hand and his actions in trading certain securities for his clients outside of his "professional activities" on the other as two concurrent – and inseparable – causes of the harm suffered by his clients, of which only the first is covered by the policies. This perspective changes nothing. In such a case, the teachings of this Court in Sécurité nationale (La) v. Éthier [20] would apply, mutatis mutandis : [ translation ]

[25] It is true that, according to Canadian case law from the common law provinces, when the loss is the result of concurrent causes, one of which is expressly excluded, this exclusion should prevail . [26] It should be noted, however, that American case law is far from unanimous on this issue, even though insurance law in the United States also originates in British law. [27] In any event, I am of the view that this rule is inapplicable in Quebec , at least since the coming into force of the Civil Code of Québec or even the 1974 amendments, both of which incorporated many standards from French insurance law into the insurance law of Quebec. [28] The comments of the Minister of Justice introducing the

chapter on insurance are in my view also very helpful to our consideration of the issue: [ translation ] In non-marine insurance, that is, in the first three sections of the chapter, the new Code makes no major changes to the rules in the Civil Code of Lower Canada because this part underwent a major reform in 1974. Nevertheless, several provisions that were added at the time have been revised, either to specify the meaning of certain rules or to enshrine the case law that has developed since the reform came into effect in 1976.

New provisions were also introduced to ensure a broader scope to the principles prevailing at the time the reform was enacted. Generally speaking, the purpose of the specifications and clarifications to the former rules and the new rules is to provide greater protection to victims of damage, whether the insured themselves, third parties, or the beneficiaries of insurance of persons. Insurance contracts constitute important tools in the protection of the patrimony of persons in our society.

To encourage such protection, some of the new rules seek to ensure that the insured are better informed as to the nature and extent of their obligations and insurance coverage. The new Code takes into account the very nature of non-marine insurance contracts, which are, in most cases, contracts of adhesion, and their reading and comprehension requires technical knowledge of either the applicable rules of law or the rules of mutuality or risk assessment.

Thus, the Code takes into account the fact that, to the average consumer, this represents specialized knowledge. [29] Protection of the insured was the priority of the 1974 and 1994 reforms. Bearing this philosophy in mind, I am of the view that, in the case of concurrent causes, one of which is expressly covered – in this case under

article 2464 of the Civil Code of Québec itself – the protection must prevail even if the other concurrent cause is excluded . [30] To conclude, I will merely state that this solution is the one that exists in French insurance law, which strongly influenced the 1974 and 1994 reforms. [21] (All citations omitted; emphasis added.) [ 56 ] Professor Lluelles made the following more pithy statement: [ translation ] It is a well-established principle in insurance law that the insurer covers damage only if it is directly caused by the risk insured (see fire insurance, art. 2485 C.C.Q. , para. 1).

This principle is difficult to apply when, in addition to the foreseen risk, one or several events occurred either simultaneously or successively to the loss. In insurance law, the direct cause, not excluding the stages between cause and damage, is not necessarily the last cause, in chronological terms.

Rather, it signifies the substantive cause of the damage. [22] (All citations omitted.) [ 57 ] In this case, since the prejudice arises from the financial planning (a service contemplated in the Act respecting the distribution of financial products and services , authorized by Tardif's professional certificate and covered by the policies) at least as much as – if not more than – from the implementation of this planning through the acquisition of securities governed by the Securities Ac t (a service not contemplated in the policies), it must be concluded that the insurance contracts cover the loss and that the appellant is required to insure the risk within the meaning of clauses 1( a ), 1(

c) and 5(

d) of the policies. To paraphrase Brossard J.A., where there are concurrent causes, one of which (financial planning) is expressly covered, the protection must prevail even if the other concurrent cause (the purchase of securities) is excluded. This is the law of Quebec. [ 58 ] In its factum, however, the appellant responds as follows on the issue: [ translation ] 54.

It may be tempting to argue that Tardif committed at least one fault in the performance of his duties, not as a mutual funds dealer but as a financial planner, by giving his clients bad advice and suggesting that they purchase securities that were inappropriate because they were highly risky. It could be maintained that this one fault clearly falls within the range of professional activities of a financial planner, a title for which Tardif held certification from the AMF. 55.

Such reasoning, however, obscures the fact that the respondents-plaintiffs would have had to use a securities broker to purchase these securities if Tardif had not proceeded with the sale of unauthorized products. Since the securities broker would also have been

subject to the obligation to ensure the appropriateness of the product for his client, he would not have sold them these securities. [ 59 ] The argument is moot. Certainly, that is what could have happened – but it is not what happened, and the causal link between the bad planning and the loss cannot be ignored under the pretext that, had circumstances been different, the harm might not have taken place. [ 60 ] In their factum, the respondents draw a distinction between the duty to provide advice, which is inherent to financial planning, and that of trading in securities.

They go on to add: [ translation ] [39] The respondents relied on Tardif's advice. If Tardif had not carried out the transactions, the respondents might have been referred to a discount broker (who does not provide advice) to perform the type of investments suggested by Tardif in his role as financial adviser. In fact, this is precisely the way iForum operates. In her testimony, Ms.

Comte Boucher, the Chief compliance officer, explained that the policy in such situations was to refer the client to the discount brokerage department at iForum Securities. [40] This type of broker, who offers services to trade securities but does not offer advice, is not required to verify the appropriateness of investments. As the authors Raymonde Crête and Cinthia Duclos state: [ translation ] Trading services are generally provided with advice. Some market intermediaries, however, including investment brokers, can offer trading services with or without advice.

With respect to trading services without advice, brokers are authorized to carry out transactions on behalf of clients but without providing advice or recommendations beforehand. Such brokers defer to the client's decisions. In the past, this type of service was provided by brokers registered as "discount brokers", “cut-rate brokers” or "no-frills brokers", as opposed to full-service brokers. This designation was abandoned in 2009, upon the enactment of Regulation 31-103.

These services are still available through investment brokers and require the opening of a special account, namely, an "order-execution account" as provided in the Dealer Member rules of the Investment Industry Regulatory Organization (the "IIROC"), the organization responsible for governing the activities of investment brokers. [Citations omitted.] [41] Finally, even in the hypothetical situation raised by the appellant wherein Tardif referred the respondents to full-service broker- dealer to carry out the transactions, they might still have relied on Tardif's advice and implemented his financial plan.

In such a case, there would have been a breach of the duty to give advice on the part of two market intermediaries. The court would then have been required to find that both of these intermediaries were liable because of their respective contributory faults: the fault of the financial planner for his erroneous advice and the fault of the securities dealer for carrying out inappropriate transactions. But here we find ourselves diving into the appellant's speculations, which are not helpful in deciding this appeal. [ 61 ] Indeed, the testimony of Ms.

Compte Boucher (referred to in paragraph 39 of the quotation above) indicates that when a client asked a mutual funds representative to purchase securities in which the representative was not authorized to trade, the firm's policy was to require the representative to refer the client to the iForum Securities Inc. discount brokers department, a no-frills dealer, and then to share the commission. [23] [ 62 ] Of course, it can be said that these remarks by the respondents are themselves hypothetical – but that hypothesis is no less plausible than the one invoked by the appellant. [ 63 ] It is not false to say that, if Tardif's involvement with the respondents had been limited to financial planning, and if the respondents had entrusted the investment plans hatched by Tardif to a full-service dealer who was subject to the duty to give advice (as opposed to a no-frills dealer), this dealer might have warned the clients of the risks they were taking by implementing Tardif's recommendations.

And perhaps the respondents, duly warned, could have avoided the loss that they in fact suffered. Their financial planner's fault would then have been without consequence. [ 64 ] But, I repeat, this is not what happened. No one intervened to prevent the risk represented by Tardif's poor planning from materializing, and consequently, its prejudicial effect was fully felt.

This is the loss that must be compensated by the insurer, who cannot refuse to meet its obligation because the loss could have been avoided, not by the victims themselves but by the intervention of a hypothetical third party. [ 65 ] In short: - To paraphrase the expression used by Professor Lluelles, [24] the prejudice suffered by the respondents resulted substantively from the services rendered by Tardif as a financial planner and in the execution of his duties in this capacity.

The fact that Tardif himself subsequently implemented this plan instead of going through an authorized dealer does not prevent the fault committed in the context of his duties as a planner from being the original fault from which all else flowed. Indeed, since the services of a financial planner are contemplated in the Act respecting the distribution of financial products and services , the operating requirements of clauses 1(

c) and 5(

d) of Tardif's insurance policy are met, and the appellant cannot deny coverage in this respect. - Alternatively, if the perspective taken is that of concurrent, inseparable causes causing the prejudice, one of these causes – the determinative one – is covered by Tardif's policy and, pursuant to the principle in S écurité nationale (La) v. Éthier , supra , insurance coverage cannot be denied. - As for the insurance policy of iForum Financial Services Inc., because Tardif remained within the scope of his duties, the insurance coverage set out in clause 1(

a) applies.

(3) Did the judge err in finding that the exclusion clauses relating to gross fault and misconduct were inapplicable?

[ 66 ] Being of the view that, in this case, Tardif's activities as a financial planner are the cause of the prejudice (the sole cause or the concurrent but determinative cause) and that they trigger coverage under clause 1(

c) of his policy and clause 1(

a) of Services financiers iForum inc.'s policy, I will now consider whether either of the exclusion clauses invoked by the appellant is applicable here. [ 67 ] Tardif and iForum Financial Services Inc.'s policies both contain the following exclusion clauses: [ translation ] 6. EXCLUSIONS This policy does not apply to claims based on or attributable to or arising from: ... (

d) any fraudulent, dishonest, or criminal act or from an intentional fault; however, when the only allegations included in the claim pertain to what is mentioned above and the claim is terminated without any payment having been made by the Insured , the Insurer shall reimburse retroactively all reasonable amounts incurred by the Insured in its defence. In any event, this exclusion does not apply to any Insured who is neither the perpetrator nor the accomplice; ... (

k) any misconduct or embezzlement or loss of amounts in trust, whether committed by the Insured , or by representatives mandataries, trainees, or employees of the Insured ; (

d) any gross fault, gross negligence, wilful blindness, or assumption of a calculated risk; [ 68 ] According to the appellant, the trial judge erred by finding that there was no gross fault and by failing to apply the exclusion clauses relating to gross fault or even misconduct. [25] Indeed, it argues that both Tardif and iForum Financial Services committed such faults. [ 69 ] Tardif's gross fault allegedly consists in recklessness, carelessness, and gross negligence in his management of the respondents' portfolio.

The appellant also maintains that Tardif attempted to camouflage some transactions by falsifying statements, clearly making his fault more serious even to the point of constituting misconduct within the meaning of clause 6(

k) of the insurance policy. [26] [ 70 ] The judge also allegedly erred by failing to apply the exclusion relating to gross fault in the case of iForum Financial Services Inc. The appellant argues that this exclusion clause focuses on claims arising from gross fault on the part of the firm itself as well as on other claims arising from gross fault on the part of the firm's representatives, mandataries, employes, and so on.

Because Tardif's fault, from which the respondents' claim arises, is of this nature, the exclusion clause applies and the appellant is therefore not required to assume iForum Financial Services Inc.'s civil liability because of the fault of its mandatary. Moreover, iForum Financial Services Inc. itself committed a gross fault by committing a serious breach of its statutory duty to supervise its representatives and ensure that they respect the limits of their professional certification.

It failed miserably in this regard, having only one person in charge of supervising the 150 representatives attached to the firm, and no measures in place to control what these representatives were selling. [27] [ 71 ] I will first consider Tardif's situation before moving on to that of iForum Financial Services Inc. a. Exclusion clauses in Tardif's policy [ 72 ] At the outset, I must reject the argument concerning misconduct, which corresponds to the exclusion in clause 6( k ).

As the respondents note in paragraph 69 of their factum, and as the trial judgment reveals, the appellant did not raise this exclusion at trial and can no longer do so in appeal, if only because the respondents might have wished to counter the accusation of misconduct with additional evidence. [28] [ 73 ] The trial judge also found that Tardif did not commit an intentional fault within the meaning of exclusion clause 6(

d) or gross fault within the meaning of exclusion clause 6( l ). He stated the following: [ translation ] [105] By definition, an intentional act involves a deliberate and voluntary intention to cause prejudice. This intention must concern not only the act committed but also the damage it could potentially cause. [reference omitted] [106] In this case, the evidence heard is insufficient to justify a finding by the Court, on a balance of probabilities, that the fault of the representative Tardif was intentional.

On the contrary, the testimony, particularly that of Jocelyne Marquis, and the evidence adduced tend to demonstrate that the financial planner's actions were purely the result of incompetence. ... [118] Gross fault shows gross carelessness, gross recklessness, or gross negligence.

It in no way excludes or limits liability for bodily or moral prejudice caused to another. (citation omitted) [119] It must therefore be considered whether the disparity between the conduct normally expected of Yves Tardif and the conduct that he actually engaged in is significant enough to justify characterizing the fault as "gross". [120] In her report, the expert Marquis states: ... the adviser Tardif did not adequately fulfil his responsibility toward his clients by failing to respect both their needs and their

goals. [29] [121] Certainly, this analysis demonstrates Tardif's incompetence, but it appears to be insufficient to ground a conclusion of gross fault in the complete absence of any reference to gross carelessness or gross recklessness. [122] The evidence does not demonstrate [ translation ] "complete scorn for the interests" of the plaintiffs. (citation omitted) Moreover, Tardif regularly visited them at their home when they wished to make new investments. Most of the time, he brought them the various statements of their earlier investments himself.

In short, Yves Tardif's behaviour cannot be characterized as abnormally deficient. [ 74 ] The appellant, who in fact does not argue this expressly, certainly has not demonstrated any error that would justify overturning the trial judge's conclusion as to the absence of intentional fault. [ 75 ] As for gross fault, even if the accuracy of the trial judge's finding were up for debate, it would not be necessary to rule on this point since the exclusion clause in Tardif's insurance policy is inoperative and the appellant is therefore obliged to compensate the respondents, even in the case of gross fault. [ 76 ] The policy contains the following clause: [ translation ] 17.

Notice of compliance Any conditions of this Policy that are in conflict with the laws of the province where the Policy is issued are hereby modified to take into account the said laws .

This Policy is governed by the laws of the province of the Insured , as indicated in the Specific Conditions, and the parties agree that any litigation arising therefrom shall be subject to the exclusive jurisdiction of the competent authorities and courts of that province. [Emphasis added.] [ 77 ] The Act respecting the distribution of financial products and services , as in force at the relevant time, is a statute of public order seeking to protect investors-consumers. It contains the following provisions concerning liability insurance: 76.

La personne morale qui s’inscrit comme cabinet doit démontrer qu’elle a souscrit une assurance conforme aux exigences déterminées par règlement pour couvrir sa responsabilité. Elle doit aussi démontrer que tout représentant qui agit pour son compte sans être un des employés est couvert par une assurance conforme aux exigences déterminées par règlement pour couvrir sa responsabilité. Lorsqu’il existe un fonds d’assurance, la personne morale et le représentant qui n’est pas un de ses employés doivent plutôt acquitter la prime d’assurance fixée par l'Agence [l'Autorité]. 76.

Legal persons who register as firms must establish that they have subscribed for liability insurance that is consistent with the requirements determined by regulation . They must also establish that every representative acting on their behalf without being an employee has liability insurance that is consistent with the requirements determined by regulation . Where an insurance fund has been established, such legal persons and every representative acting for them without being an employee must, instead, pay the insurance premium fixed by the Agency [Authority].

83. Un cabinet doit, tant qu’il est inscrit, maintenir une assurance conforme aux exigences déterminées par règlement, pour couvrir sa responsabilité ou, s’il existe un fonds d’assurance, acquitter la prime d’assurance fixée par l'Agence [l'Autorité] à cette fin. Il doit aussi s’assurer que tout représentant qui agit pour son compte sans être un de ses employés est couvert par une assurance conforme aux exigences déterminées par règlement pour couvrir sa responsabilité ou, s’il existe un fonds d’assurance, qu’il a acquitté la prime d’assurance fixée par l'Agence [l'Autorité] à cette fin.

Malgré les articles 115, 117, 119, 121, 122 et 124, l'Agence [l'Autorité] suspend, ou en cas de récidive, peut radier l’inscription d’un cabinet qui cesse de maintenir cette assurance ou qui fait défaut d’acquitter la prime fixée ou dont un représentant qui n’est pas un de ses employés n’est pas couvert par une assurance pour couvrir sa responsabilité ou n’a pas acquitté la prime fixée par l'Agence [l'Autorité] à cette fin. 83.

A firm must, while registered, maintain liability insurance that is consistent with the requirements determined by regulation or, if an insurance fund has been established, pay the insurance premium fixed by the Agency [Authority] . The firm must also ensure that every representative acting on its behalf without being an employee carries liability insurance that is consistent with the requirements determined by regulation or, if an insurance fund has been established, has paid the insurance premium fixed by the Agency [Authority].

Notwithstanding sections 115, 117, 119, 121, 122 and 124, the Agency [Authority] shall suspend or, if the offence is not a first offence, may cancel the registration of a firm that fails to maintain liability insurance or to pay the premium fixed, or that acts through a representative who is not an employee and has no liability insurance or has not paid the premium fixed by the Agency [Authority]. 131. Pour s’inscrire comme représentant autonome, un représentant doit démontrer qu’il a souscrit une assurance conforme aux exigences déterminées par règlement pour couvrir sa responsabilité.

Lorsqu’il existe un fonds d’assurance, le représentant doit plutôt acquitter la prime d’assurance fixée par l'Agence [l'Autorité]. Une société qui s’inscrit comme société autonome doit faire de même à l’égard de tous ses associés et de tous les représentants qui sont à son emploi. 131. Representatives who register as independent representatives must establish that they have subscribed for liability insurance that is consistent with the requirements determined by regulation .

Where an insurance fund has been established by the Agency [Authority] , the representatives must, instead, pay the insurance premium fixed by the Agency [Authority]. Partnerships that register as independent partnerships must do likewise with respect to their partners and the representatives employed by them . 136. Un représentant autonome doit, tant qu’il est inscrit, maintenir une assurance conforme aux exigences déterminées par règlement pour couvrir sa responsabilité ou, s’il existe un fonds d’assurance, acquitter la prime d’assurance fixée par l'Agence [l'Autorité] à cette fin.

Une société autonome doit faire de même à l’égard de tous ses associés et de tous les représentants qui sont à son emploi.

Malgré les articles 115, 117, 119, 121, 122 et 124, l'Agence [l'Autorité] suspend ou, en cas de récidive, peut radier l’inscription d’un représentant autonome qui cesse de maintenir cette assurance ou qui fait défaut d’acquitter la prime fixée. 136. A firm must, while registered, maintain liability insurance that is consistent with the requirements determined by regulation or, if an insurance fund has been established, pay the insurance premium fixed by the Agency [Authority].

Partnerships that register as independent partnerships must do likewise with respect to their partners and the representatives employed by them . Notwithstanding sections 115, 117, 119, 121, 122 and 124, the Agency [Authority] shall suspend or, if the offence is not a first offence, may cancel the registration of an independent representative that fails to maintain liability insurance or to pay the premium fixed . [Emphasis added.] [ 78 ] These provisions appear in Title II of the Act and govern the registration conditions for firms and independent representatives.

As we can see, they require representatives and firms to obtain and maintain liability insurance consistent with the requirements determined by regulation. They are supplemented by

section 196 ADFPS , which appears in Title III. Title III contains the provisions whereby the legislature created what was at the time the Agence des valeurs mobilières [Securities Agency], which later became the Autorité des marchés financier [Financial Markets Authority], investing it with various powers, including that established in

section 196:

196. L'Agence [l'Autorité] peut, pour chaque discipline ou catégorie de discipline, déterminer par règlement les exigences auxquelles doit satisfaire une police d'assurance qui couvre la responsabilité d'un cabinet, d'un représentant qui agit pour son compte sans être un de ses employés, d'un représentant autonome ou d'une société autonome. Le règlement peut notamment prévoir l'étendue de la garantie, le montant couvert pour chaque sinistre, le montant de la franchise et les délais de résiliation. 196.

The Agency [Authority] may determine by regulation, for each sector and class of sectors, the requirements with which the liability insurance contracts of firms, representatives acting on behalf of a firm without being employees, independent representatives and independent partnerships must be consistent. The regulation may, in particular, prescribe the extent of coverage, the amount covered per claim, the amount of the deductible and the notice that must be given before a contract is cancelled. [ 79 ] Thus, not only does the statute require firms and representatives to be insured,

section 196 of the Act also provides that the conditions in these policies are to be determined by regulation. The language in

section 196 is mandatory, and it does more than prescribe the obligation of firms and representatives (an obligation carrying only a disciplinary or penal sanction); it also makes it possible to determine, on a peremptory basis, the content of the policy that is required from the insurer, who is also responsible for following up on these policies: 197. Un assureur doit, dans le délai prévu par règlement, aviser l'Agence [l'Autorité] de son intention de ne pas renouveler ou de résilier un contrat d’assurance couvrant la responsabilité d’un représentant autonome, d’une société autonome ou d’un cabinet .

Il doit aussi aviser l'Agence [l'Autorité] dès qu’il reçoit un avis de résiliation d’un tel contrat de la part d’un représentant autonome, d’une société autonome ou d’un cabinet . Un représentant autonome, une société autonome ou un cabinet doit, au moins 30 jours avant l’expiration du contrat d’assurance couvrant sa responsabilité, le renouveler ou souscrire, auprès d’un autre assureur, un tel contrat pour une période d’au moins une année débutant le jour qui suit celui de l’expiration . 197.

Insurers must, within the time prescribed by regulation, advise the Agency [Authority] of their intention not to renew or to cancel the liability insurance contract of an independent representative, independent partnership or firm . Insurers must also advise the Agency [Authority] upon receiving a notice cancelling such a contract from an independent representative, independent partnership or firm .

Independent representatives, independent partnerships and firms must, at least 30 days before the date of expiry of their liability insurance contract, either renew the contract or make a contract with another insurer for a period of at least one year beginning on the day following the date of expiry. [ 80 ] In the case of representatives such as Tardif, the terms of the liability insurance policies are set out in

section 17 of the Regulation respecting the pursuit of activities as a representative [30] and

section 29 of the Regulation respecting firms, independent representatives and independent partnerships , [31] the relevant excerpts of which I reproduce here: Regulation respecting the pursuit of activities as a representative 17. The insurance contract covering the professional liability of a representative acting on behalf of, but not employed by, a firm must provide for the following: ... (3) express stipulations to the effect that: (

a) coverage is provided for liability arising from the fault, errors, negligence, or omissions committed by the representative in pursuing activities as a representative, or arising from the fault, errors, negligence, or omissions committed by the representative's mandataries, employees or trainees in the performance of their duties, regardless of whether or not such persons are still so engaged on the date of the claim; Regulation respecting firms, independent representatives and independent partnerships 29.

Except regarding the category of claims adjuster employed by an insurer, the insurance contract covering the liability of an independent representative, firm or independent partnership must satisfy the following conditions: ...

(3) The insurance contract must also contain provisions to the following effect: (

a) in the case of a firm, that the coverage shall extend to the liability arising from the fault, errors, negligence, or omissions committed

in the pursuit of the firm's activities and from those committed by its mandataries, its employees or the trainees of its representatives, in the performance of their duties, regardless of whether or not such persons are still so engaged on the date of the claim; (

b) in the case of an independent representative, that the coverage shall extend to the liability arising from the fault, errors, negligence, or omissions committed in the performance of his duties and those committed by his mandataries, his employees or his trainees in the performance of their duties, regardless of whether or not such persons are still so engaged on the date of the claim; [Emphasis added.] [ 81 ] Here, unlike what can be found in several other statutes and regulations, the regulatory authority does not distinguish between the types of fault that must be covered.

An "exact expression" search of all of the legislation and regulations available through the Publications du Québec "Laws and Regulations" website reveals that, generally speaking, when the legislature or regulatory authority wishes to exclude gross fault or specify the proper response to gross fault, it does so explicitly. As examples, we may cite, among others, articles 1471, 1474 and 1613 C.C.Q. ;

section 10 of the Act respecting the governance of state-owned enterprises [32] ("If a board member is sued by a third party for

an act done in the exercise of the duties of office, the enterprise assumes the board member's defence and pays any damages awarded as compensation for the injury resulting from that act, unless the board member committed a gross fault or a personal fault separable from those functions");

section 85.4 of the Act respecting the National Assembly [33] ("Where, in judgment in a civil suit that has become res judicata, a Member or former Member is held liable for damage by reason of

an act or omission in the performance of the Member's or former Member's duties of office, no costs or expenses may be paid and the Assembly shall recover any costs or expenses paid if the Office, after obtaining the advice of the jurisconsult, is of the opinion that the Member or former Member acted in bad faith"); sections 225.13 to 225.14 of the S ecurities Act (current version);

section 32.1 ("If the president and director general, a staff member or an appointed agent of the Authority is prosecuted by a third party for

an act done in the exercise of the functions of office, the Authority shall assume the person's defence and shall pay any damages awarded as compensation for the injury resulting from that act, unless the person committed a gross fault or a personal fault separable from those functions") and

section 104.2 (similar provision for members of the Bureau de décision et de revision) of the Act respecting the Autorité des marchés financiers ; [34] sections 56 , 93.85 , 93.155 , 93.239 and 174.10 of the Act respecting insurance [35] (in substance to the same effect as the provisions of the previous statute);

section 32 of the Public Service Act [36] ("Where a public servant is sued by a third person for

an act he has done or failed to do in the performance of his duties, the Attorney General shall take up his defense unless he is charged with a gross fault");

section 27 of the Internal by-law of Caisse de dépôt et placement du Québec ; [37] and sections 34 and 76.25 of the Regulation respecting certain terms of employment applicable to officers of agencies and health and social services institutions . [38] [ 82 ] All this to say that it may be possible (although I do not express an opinion on this point) to find that intentional fault may be excluded from an insurance contract contemplated in

section 196 ADFPS (with a view to harmonizing this provision with the first paragraph of

article 2464 C.C.Q. ). In my opinion, however, gross fault cannot be excluded without breaching the requirements of

section 17 of the Regulation respecting the pursuit of activities as a representative and

section 29 of the Regulation respecting firms, independent representatives and independent partnerships , which, like

section 196 ADFPS , were enacted in the public interest and with the objective of protecting consumers. [ 83 ] Of course, this raises the question as to whether these requirements can prevail over the purely contractual stipulations to which the parties agreed in their insurance contract. In this case, the answer to this question can be found in clause 17 of Tardif's policy. As we have seen, [39] it provides that [ translation ] "[a]ny conditions of this Policy that are in conflict with the laws of the province where the Policy is issued are hereby modified to take into account the said laws". Therefore, since the clause excluding gross fault contradicts paragraph 17(3) (

a) of the Regulation respecting the pursuit of activities as a representative and

section 29 of the Regulation respecting firms, independent representatives and independent partnerships , it would appear that it should be modified and, more precisely, be made inoperative in this case. [ 84 ] And if it is inoperative, the appellant is therefore required to compensate the respondents, even if Tardif has committed a gross fault. [ 85 ] The appellant, of course, argues that

article 2464 C.C.Q. does not prevent an insurer from excluding gross fault from its insurance coverage, as this Court found in Investissements René St-Pierre inc. v. Zurich, compagnie d'assurances . [40] General legal principles must yield before specific legislation, however, and it is not sufficient simply to validate clause 6(

l) because the insurance contract must be consistent with

section 196 ADFPS (and its attendant regulations) and because the policy at issue contains a clause ensuring compliance with the statute (and, it is understood, with the regulations).

It must therefore be concluded that the clause excluding gross fault is modified, that is to say, rendered inoperative, by the fact that the Act respecting the distribution of financial products and services and the applicable regulations do not provide that the firm or the representative’s insurance coverage can exclude gross fault. [ 86 ] The appellant argues, however, that other courts have found that this exclusion applies in circumstances analogous to those in the instant case. In particular, it cites Larrivée v. Proteau [41] and Roberge v.

Planification Copepco Inc. , [42] the latter of which was upheld by this Court. [43] [ 87 ] It should first be noted that the judgment of the Superior Court in Larrivée is currently under appeal. [44] Moreover, in that case the judge found that the defendant was aware, or at least that he could not have been unaware, that he was investing his clients' money in high-risk products. It is impossible for us to determine here the accuracy of this finding, which is based on an evidentiary record that we have not seen.

Finally, it should also be noted that the issue of whether the clause excluding gross fault could be without effect was not addressed. [ 88 ] The same can be said regarding Roberge , a case in which the defendant also obtained products for his clients in which he was not certified to trade. The trial judge concluded that the defendant's fault was committed outside of his professional activities within the meaning of a policy similar to the one in this case, and that it constituted a gross fault requiring the application of the exclusion clause, a finding that was upheld by this Court in a brief judgment.

That said, the fact that the evidence in that case justified such a finding does not mean that the outcome must be the same here. Moreover, the judgment in Roberge reveals that this Court did not have to rule on the

arguments presented by the respondents here, particularly with respect to

section 196 ADFPS (and its attendant regulations), as they appear not to have been made in that case. b. Exclusion clause in the policy of iForum Financial Services Inc. [ 89 ] As we have seen, iForum Financial Services Inc.'s liability insurance policy covers claims arising from the personal liability of the firm, particularly with respect to the obligation to provide oversight under

section 85 ADFPS , as well as claims arising from its vicarious liability pursuant to

section 80 ADFPS . Clause 1(

a) of the policy provides that the claims arising from faults of the insured itself and those [ translation ] "committed by its mandataries, its employees, or the trainees of its representatives, in the performance of their duties" are covered. Tardif’s status as mandatary is not contested. [ 90 ] Three questions arise in this respect:

(1) Regarding the aspect of personal liability, can iForum Financial Services Inc.'s fault be characterized as gross fault?

(2) Regarding the "vicarious liability" aspect, can iForum Financial Services Inc.'s policy validly exclude a claim arising from the gross fault of one of its representatives, mandataries, and so on?

(3) Is the exclusion of gross fault consistent with the Act respecting the distribution of financial products and services ? [ 91 ] The first question must be answered in the negative. It is not possible to find that the defects in the oversight measures implemented by the insured and noted by the appellant [45] constitute gross fault. Certainly, the expert Marquis is of the view that these measures were insufficient and in this sense wrongful, but were they so far off the industry standards that they can be characterized as gross fault?

This is not demonstrated by the evidence on a balance of probabilities. [ 92 ] As for the second question concerning the application of the gross fault exclusion from iForum Financial Services Inc.'s liability for faults committed by its mandataries and other representatives or employees, the answer must again be negative. [ 93 ] First, it is clear from the wording of clause 6(

l) of the policy that it seeks to exclude only those claims arising from gross fault committed by the insured itself. The differences between the wording of this clause and that of clauses 6(

j) or 6( k ), for example, which concern actions of persons who control or represent the insured, leaves us with no doubt in this respect. [ 94 ] Second and above all, as the respondents suggest, this question should be answered in the negative because of articles 2414 and 2464 C.C.Q . [ 95 ] The first of these provisions applies to any non-marine insurance, which includes damage insurance (art. 2391 C.C.Q. ), which itself includes property insurance and liability insurance (art. 2393 C.C.Q. ). It reads as follows: 2414.

Toute clause d'un contrat d'assurance terrestre qui accorde au preneur, à l'assuré, à l'adhérent, au bénéficiaire ou au titulaire du contrat moins de droits que les dispositions du présent

chapitre est nulle . Est également nulle la stipulation qui déroge aux règles relatives à l'intérêt d'assurance ou, en matière d'assurance de responsabilité, à celles protégeant les droits du tiers lésé . [Emphasis added.] 2414. Any clause in a non-marine insurance contract which grants the client, the insured , the participant, the beneficiary or the policyholder fewer rights than are granted by the provisions of this

chapter is null . Any stipulation which derogates from the rules on insurable interest or, in liability insurance, from those protecting the rights of injured third persons is also null . [ 96 ] The second, which applies to liability insurance, [46] states the following: 2464. L'assureur est tenu de réparer le préjudice causé par une force majeure ou par la faute de l'assuré, à moins qu'une exclusion ne soit expressément et limitativement stipulée dans le contrat. Il n'est toutefois jamais tenu de réparer le préjudice qui résulte de la faute intentionnelle de l'assuré.

En cas de pluralité d'assurés, l'obligation de garantie demeure à l'égard des assurés qui n'ont pas commis de faute intentionnelle . Lorsque l'assureur est garant du préjudice que l'assuré est tenu de réparer en raison du fait d'une autre personne, l'obligation de garantie subsiste quelles que soient la nature et la gravité de la faute commise par cette personne . [Emphasis added.] 2464. The insurer is liable to compensate for injury resulting from superior force or the fault of the insured, unless an exclusion is expressly and restrictively stipulated in the policy.

However, the insurer is never liable to compensate for injury resulting from the insured's intentional fault. Where there is more than one insured, the obligation of coverage remains in respect of those insured who have not committed an intentional fault .

Where the insurer is liable for injury caused by a person for whose acts the insured is liable, the obligation of coverage subsists regardless of the nature or gravity of the fault committed by that person . [ 97 ] Taken together, articles 2414 and 2464 C.C.Q. mean that the parties to an insurance contract seeking to cover the insured’s vicarious liability for the fault of another party, as in the present case, cannot stipulate the exclusion of gross fault committed by that

third party. If they do so, the clause is null. According to the appellant, however, the objective of clause 6(

l) is to exclude insurance coverage not only in the event of gross fault on the part of the insured, but also in the event of gross fault on the part of the mandataries and representatives of the insured. If that truly is the meaning that must be given to this clause, then it is null in this respect. [ 98 ] This means that, even if it were found that Tardif committed a gross fault, the appellant would be required to compensate the respondents under iForum Financial Services Inc.'s policy. [ 99 ] As for the third and final question, where a discussion of this issue is necessary, it is sufficient to refer once again to sections 76, 83, 131, 136, and 196 ADFPS and

section 29 of the Regulation respecting firms, independent representatives and independent partnerships , which, as in the case of Tardif's policy, are contradicted by clause 6(

l) of iForum Financial Services Inc.'s policy. Like Tardif's policy, the policy at issue contains clause 17, which provides: [ translation ] 17. NOTICE OF COMPLIANCE Any conditions of this Policy that are in conflict with the laws of the province where the Policy is issued are hereby modified to take into account the said laws .

This Policy is governed by the laws of the province of the Insured, as indicated in the Specific Conditions, and the parties agree that any litigation arising therefrom will be subject to the exclusive jurisdiction of the competent authorities and courts of that province. [Emphasis added.] [ 100 ] For the reasons already given regarding Tardif's policy, the clause excluding gross fault is inoperative. * * [ 101 ] In short, and to recapitulate:

(1) The respondents committed no fault and did not contribute to the harm at the source of their claim.

(2) Even if Tardif committed actions that fell within the scope of the Securities Act and were not authorized by his various professional certificates, the fault giving rise to the harm was connected to his activities as a financial planner for the respondents, which

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