Court strikes personal claim over portfolio

A Quebec court has partially rejected a man’s effort to sue his father for allegedly mismanaging the investment portfolio held in a corporation they co-owned — finding that any claim would have to be pursued by the corporation.

According to a decision from the Quebec Superior Court in Montreal, Brian Ludmer sued his father, Irving Ludmer, seeking more than $9 million in damages. Ludmer, who’s a lawyer, alleged that his father’s poor investment decisions and excessively conservative investing strategies between 2014 and 2023 resulted in “sub-standard” performance in a portfolio held by a corporation that they jointly own.

The corporation was established for estate and tax planning purposes, with the son holding all the participating equity shares in the corporation but only about 11% of the voting shares. The father owned the majority of the voting shares and served as the company’s sole director, the court noted.

In the legal action, the son alleged that the portfolio was largely held in cash and short-term fixed-income investments that barely kept up with inflation, and that, as a result, it missed out on the much higher returns that a balanced portfolio would have generated over the period.

The allegations have not been proven.

In its decision, the court dealt with an application from the father seeking to partially dismiss the claims.

For one, he argued that the claims relating to investment decisions that were made prior to late 2019 should be dismissed on the basis that those decisions were effectively approved by the son when he signed off on the corporation’s annual financial statements each year.

The father also argued that, as a shareholder in their corporation, the son lacks “sufficient interest” to seek damages from him personally for alleged losses suffered by the corporation.

On the first count, the court declined to dismiss claims related to investment decisions before 2019 — concluding that this would be an issue for trial and consideration of the evidence.

However, the court did side with the father on whether his son could claim damages personally. It found that the claim against the father must come from the company, not his son.

“The damages alleged relate to losses incurred by [the company] in its investment portfolio and thus represent a corporate loss, not a personal one,” it said. As a result, the court ruled that the claim must be pursued by the corporation, not by the son in his personal capacity.

And while the son claimed he personally suffered other consequences, including mental and psychological damages, from the alleged mismanagement of the portfolio, the court found that he failed to establish a connection to the alleged corporate damages.

“Specifically, there is no distinct obligation alleged to have been owed by [the father] personally to [the son] in relation to the management of [the] investment portfolio, nor is there any direct injury claimed that was suffered by [the son] that is separate and independent from the injury allegedly suffered by [the corporation],” the court said, in dismissing the son’s personal claim for $9 million in damages, “on the basis that he lacks the sufficient interest … to bring such a claim.”

The decision noted that the son is also “seeking leave to pursue a derivative action … on behalf of [the corporation] against [the father],” over the claim that it allegedly suffered damages due to the management of its investment portfolio.