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Fiduciary Duties and Obligations in Canada

August 7, 2013 - Updated: August 7, 2013


Fiduciary Duties and Obligations in Canada


The case of Hodgkinson v. Simms (1994) in the Supreme Court of Canada is the landmark case on this subject.


The facts are relatively simple and straightforward. Hodginson was a very successful young stockbroker. He sought the advice of Simms a Chartered Accountant who had special expertise in tax planning and tax sheltered investments.


Simms recommended that Hodgkinson purchase four MURBS, which he did. The real estate market went sour and Hodgkinson lost all his money. What Simms didn’t tell the young stockbroker was that he was an advisor to the MURB promoter and that he made commissions on the sale.


Hodgkinson had confidence in Simms. He trusted him to do the required analysis and didn’t ask too many questions. He acted upon Simms’ recommendations.


This case is about a material non-disclosure. The Trial Judge found that Simms owed a duty of disclosure which arose out of the fiduciary relationship.


The Court commented: 


                  Thus, while Mr. Hodgkinson got what he paid for from the developers, the same cannot be said of his relationship with Mr. Simms.  Mr. Hodgkinson looked to Mr. Simms as an independent professional advisor, not a promoter.  In short, Mr. Hodgkinson would not have invested in the impugned projects had he known the true nature and extent of Mr. Simms' relationship with the developers.



The Trial Judge expressed the law and facts as:     


  • In a relationship as fiduciary, everything turns on the particular facts of the relationship. 


  • a fiduciary relationship exists where one party agrees to act on behalf of, or in the best interests of another person and, as such, is in a position to affect the interests of that other person in a legal or practical sense. 


  • fiduciary relationships are marked by vulnerability in that the fiduciary can abuse the power or discretion given to him or her to the detriment of the beneficiary.


  • Simms never once referred Mr. Hodgkinson out for any other kind of professional advice. 


  • Simms led Mr. Hodgkinson to believe that everything was in hand and that he was doing his homework and was in control of the situation. 


  • Simms knew that Mr. Hodgkinson was not relying on any other professional advice except his own with respect to all of these projects. .


  • Simms assumed the responsibility for Mr. Hodgkinson's choice. 


  • He analyzed the investments, he recommended the investments, and he effectively chose the investments for Mr. Hodgkinson.



The Trial Judge (Prowse J.) also concluded that Simms had a conflict of interest and that he was indeed promoting his own personal interest over that of Hodgkinson. In effect, Simms was serving two masters, at the same time, trying to please them both. The more MURBS he sold, the better the promoter would like him, and the more work might be referred to him in the future.


Prowse J. examined the professional standards requirements for chartered accountants and concluded that Simms was obligated to disclose both real and potential conflicts.


On the issue of damages, the law of restitution (for breach of a fiduciary duty) and the law of contracts would both yield the same result. Damages in negligence would be calculated differently, but in this case, there was no evidence of negligence.


The case was overturned on appeal to the British Columbia Court of Appeal. That Court believed that the stockbroker effectively made his own decisions.

On further appeal to the Supreme Court of Canada, The Chief Justice, at that time Gerald LaForest said:    


  • fiduciary duty may properly be understood as but one of a species of a more generalized duty by which the law seeks to protect vulnerable people in transactions with others. 


  • the concept of vulnerability is not the hallmark of fiduciary relationship though it is an important indicium of its existence. 


  • Vulnerability is common to many relationships in which the law will intervene to protect one of the parties. 


  • It is, the "golden thread" that unites such related causes of action as breach of fiduciary duty, undue influence, unconscionability and negligent misrepresentation.


  • while both negligent misrepresentation and breach of fiduciary duty arise in reliance-based relationships, the presence of loyalty, trust, and confidence distinguishes the fiduciary relationship from a relationship that simply gives rise to tortious liability. 


  • Thus, while a fiduciary obligation carries with it a duty of skill and competence, the special elements of trust, loyalty, and confidentiality that obtain in a fiduciary relationship give rise to a corresponding duty of loyalty.


  • The concepts of unequal bargaining power and undue influence are also often linked to discussions of the fiduciary principle. 


  • Claims based on these causes of action, it is true, will often arise in the context of a professional relationship side by side with claims related to duty of care and fiduciary duty.


  • all three equitable doctrines are designed to protect vulnerable parties in transactions with others. 


  • However, whereas undue influence focuses on the sufficiency of consent and unconscionability looks at the reasonableness of a given transaction, the fiduciary principle monitors the abuse of a loyalty reposed


  • while the existence of a fiduciary relationship will often give rise to an opportunity for the fiduciary to gain an advantage through undue influence, it is possible for a fiduciary to gain an advantage for him- or herself without having to resort to coercion


  • while the doctrine of unconscionability is triggered by abuse of a pre-existing inequality in bargaining power between the parties, such an inequality is no more a necessary element in a fiduciary relationship than factors such as trust and loyalty are necessary conditions for a claim of unconscionability;


  • It cannot be the sine qua non of a fiduciary obligation that the parties have disparate bargaining strength. . . . 


  • In contrast to notions of conscionability, the fiduciary relation looks to the relative position of the parties that results from the agreement rather than the relative position that precedes the agreement.


  • Finally, I note that the existence of a contract does not  necessarily preclude the existence of fiduciary obligations between the parties. 


  • On the contrary, the legal incidents of many contractual agreements are such as to give rise to a fiduciary duty. 


  • The paradigm example of this class of contract is the agency agreement, in which the allocation of rights and responsibilities in the contract itself gives rise to fiduciary expectations;


  • In other contractual relationships, however, the facts surrounding the relationship will give rise to a fiduciary inference where the legal incidents surrounding the relationship might not lead to such a conclusion;


  • the "end point" in each situation is to ascertain whether "the one has the right to expect that the other will act in the former's interests (or, in some instances, in their joint interest) to the exclusion of his own several interests";



The Court went on to quote with approval the Honourable Mr. Justice Dickson in Guerin:


“Dickson J. (as he then was) in Guerin v. The Queen,  [1984] 2 S.C.R. 335, at p. 384:


. . . where by statute, agreement, or perhaps by unilateral undertaking, one party has an obligation to act for the benefit of another, and that obligation carries with it a discretionary power, the party thus empowered becomes a fiduciary. . . .


                  It is sometimes said that the nature of fiduciary relationships is both established and exhausted by the standard categories of agent, trustee, partner, director and the like.  I do not agree.  It is the nature of the relationship, not the specific category of actor involved that gives rise to the fiduciary duty.  The categories of fiduciary, like those of negligence, should not be considered closed.  [Emphasis added.]”



The Court further went on to describe and approve of the Honourable Madame Justice Bertha Wilson’s reasons in Frame v. Smith:


  • This conceptual approach to fiduciary duties was given analytical structure in the dissenting reasons of Wilson J. in Frame v. Smith, [1987] 2 S.C.R. 99, at p. 136, who there proposed a three-step analysis to guide the courts in identifying new fiduciary relationships. 


  • She stated that relationships in which a fiduciary obligation has been imposed are marked by the following three characteristics: 



  1. scope for the exercise of some discretion or power;


  1. that power or discretion can be exercised unilaterally so as to effect the beneficiary's legal or practical interests; and,


  1. a peculiar vulnerability to the exercise of that discretion or power. 


  • Wilson J.'s guidelines constitute indicia that help recognize a fiduciary relationship rather than ingredients that define it.


  • In seeking to determine whether new classes of relationships are per se fiduciary, Wilson J.'s three-step analysis is a useful guide.


Concluding, LaForest stated:


  • In these cases, the question to ask is whether, given all the surrounding circumstances, one party could reasonably have expected that the other party would act in the former's best interests with respect to the subject matter at issue. 


  • Discretion, influence, vulnerability and trust were mentioned as non-exhaustive examples of evidential factors to be considered in making this determination.


  • Thus, outside the established categories, what is required is evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party. 


 Commenting about advisory relationships, the court stated:


  • In relation to the advisory context, then, there must be something more than a simple undertaking by one party to provide information and execute orders for the other for a relationship to be enforced as fiduciary. 


  • … most everyday transactions between a bank customer and banker are conducted on a creditor-debtor basis;



  • … the relationship of an investor to his or her discount broker will not likely give rise to a fiduciary duty, where the broker is simply a conduit of information and an order taker.


  • … other advisory relationships where, because of the presence of elements such as trust, confidentiality, and the complexity and importance of the subject matter, it may be reasonable for the advisee to expect that the advisor is in fact exercising his or her special skills in that other party's best interests, unless the contrary is disclosed. 



The Court also quoted with approval an excerpt from a text on the issue:


Professor Finn describes these kinds of relationships in the following terms in "The Fiduciary Principle", supra, at pp. 50-51:


. . . fiduciary responsibilities will be exacted where the function the advisor represents himself as performing, and for which he is consulted, is that of counselling an advised party as to how his interests will or might best be served in a matter considered to be of importance to his personal or financial well-being, and in which the adviser would be expected both to be disinterested, save for his remuneration, and to be free of adverse responsibilities unless the contrary is disclosed at the outset.  It does seem to be the case, here, that our ready acceptance of a fiduciary expectation is coloured both by our assumption that credence is likely to be given to any advice given and by our perception of the social importance of the advisory function itself.  [Emphasis added.]


And, commenting further, LaForest said


More generally, relationships characterized by a unilateral discretion, such as the trustee-beneficiary relationship, are properly understood as simply a species of a broader family of relationships that may be termed "power-dependency" relationships. 


  • Norberg concerned an aging physician who extorted sexual favours from a young female patient in exchange for feeding an addiction she had previously developed to the pain-killer Fiorinal.The difficulty in Norberg was that the sexual contact between the doctor and patient had the appearance of consent.  However, when the pernicious effects of the situational power imbalance were considered, it was clear that true consent was absent. 


  • While the concept of a "power-dependency" relationship was there applied to an instance of sexual assault, in my view the concept accurately describes any situation where one party, by statute, agreement, a particular course of conduct, or by unilateral undertaking, gains a position of overriding power or influence over another party. 


  • Because of the particular context in which the relationship between the plaintiff and the doctor arose in that case, I found it preferable to deal with the case without regard to whether or not a fiduciary relationship arose. 


  • However, my colleague Justice McLachlin did dispose of the claim on the basis of the fiduciary duty, and whatever may be said of the peculiar situation in Norberg,


  • I have no doubt that had the situation there arisen in the ordinary doctor-patient relationship, it would have given rise to fiduciary obligations; see, for example, McInerney v. MacDonald, [1992] 2 S.C.R. 138.


  • As is evident from the different approaches taken in Norberg, the law's response to the plight of vulnerable people in power-dependency relationships gives rise to a variety of often overlapping duties. 


  • Concepts such as the fiduciary duty, undue influence, unconscionability, unjust enrichment, and even the duty of care are all responsive to abuses of vulnerable people in transactions with others. 


  • The existence of a fiduciary duty in a given case will depend upon the reasonable expectations of the parties, and these in turn depend on factors such as trust, confidence, complexity of subject matter, and community or industry standards. 


  • For instance in Norbergsupra, the Hippocratic Oath was evidence that the sexual relationship diverged significantly from the standards reasonably expected from physicians by the community. 


  • This inference was confirmed by expert evidence to the effect that any reasonable practitioner in the defendant's position would have taken steps to help the addicted patient, in stark contrast to the deplorable exploitation which in fact took place;


  • In seeking to identify the various civil duties that flow from a particular power-dependency relationship, it is simply wrong to focus only on the degree to which a power or discretion to harm another is somehow "unilateral". 


  • In my view, this concept has neither descriptive nor analytical relevance to many fact-based fiduciary relationships.


  • Ipso facto, persons in a "power-dependency relationship" are vulnerable to harm. 


  • Further, the relative "degree of vulnerability", if it can be put that way, does not depend on some hypothetical ability to protect one's self from harm, but rather on the nature of the parties' reasonable expectations. 


  • Obviously, a party who expects the other party to a relationship to act in the former's best interests is more vulnerable to an abuse of power than a party who should be expected to know that he or she should take protective measures. 


  • Where a weaker or reliant party trusts the stronger party not to use his power and influence against the weaker party, and the stronger party, if acting reasonably, would have known or ought to have known of this reliance, we can say that the stronger party had notice of the encumbrance, and therefore in using the power has accepted the duty. 



  • In summary, the precise legal or equitable duties the law will enforce in any given relationship are tailored to the legal and practical incidents of a particular relationship. 


  • . . . I do not think that an investor must inquire whether his trusted and paid adviser is joined with the developer in making secret profits at his expense, and in concealing facts material to his financial well-being.


  • In sharp contrast to arm's length commercial relationships, which are characterized by self-interest, the essence of professional advisory relationships is precisely trust, confidence, and independence. 


  • the concern expressed by Wilson J. in Framesupra, and echoed by Sopinka J. in Lac Mineralssupra, about the dangers of extending the fiduciary principle in the context of an arm's length commercial relationship is simply not transferable to professional advisory relationships.


  • The finding of a fiduciary relationship in the independent professional advisory context simply does not represent any addition to the law.  Courts exercising equitable jurisdiction have repeatedly affirmed that clients in a professional advisory relationship have a right to expect that their professional advisors will act in their best interests, to the exclusion of all other interests, unless the contrary is disclosed. 


  • J. C. Shepherd states the following in his treatise, The Law of Fiduciariessupra, at p. 28:


  • It appears to be settled that any person can, by offering to give advice in a particular manner to another, create in himself fiduciary obligations stemming from the confidential nature of the relationship created, which obligations limit the adviser's dealings with the advisee.


  • Indeed, nobody would argue against the enforcement of fiduciary duties in policing the advisory aspect of solicitor-client relationships; see Nocton v. Lord AshburtonsupraJacks v. Davissupra


  • Similar rules apply in the fields of real estate and insurance counselling; see Henderson v. Thompson, [1909] S.C.R. 445 (real estate agents); 


  • And, Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191 (insurance agents);


  • More importantly for present purposes, courts have consistently shown a willingness to enforce a fiduciary duty in the investment advice aspect of many kinds of financial service relationships; … investment counsellor-client…stockbroker-client…banker-client…accountant-client; 


  • In all of these cases, as here, the ultimate discretion or power in the disposition of funds remained with the beneficiary.  In addition, where reliance on the investment advice is found, a fiduciary duty has been affirmed without regard to the level of sophistication of the client, or the client's ultimate discretion to accept or reject the professional's advice;


  • Much of this caselaw was recently canvassed by Keenan J. in Varcoe v. Sterling , (1992), 7 O.R. (3d) 204 (Gen. Div.), in an effort to demarcate the boundaries of the fiduciary principle in the broker-client relationship.  Keenan J. stated, at pp. 236:


  • The relationship of the broker and client is elevated to a fiduciary level when the client reposes trust and confidence in the broker and relies on the broker's advice in making business decisions.  When the broker seeks or accepts the client's trust and confidence and undertakes to advise, the broker must do so fully, honestly and in good faith. . . .  It is the trust and reliance placed by the client which gives to the broker the power and in some cases, discretion, to make a business decision for the client.  Because the client has reposed that trust and confidence and has given over that power to the broker, the law imposes a duty on the broker to honour that trust and respond accordingly.


  • In my view, this passage represents an accurate statement of fiduciary law in the context of independent professional advisory relationships, whether the advisers be accountants, stockbrokers, bankers, or investment counsellors.  Moreover, it states a principled and workable doctrinal approach.  Thus, where a fiduciary duty is claimed in the context of a financial advisory relationship, it is at all events a question of fact as to whether the parties' relationship was such as to give rise to a fiduciary duty on the part of the advisor.



  • Apart from the idea that a person has breached a trust, there is a wider reason to support fiduciary relationships in the case of financial advisors. 


  • These are occupations where advisors to whom a person gives trust has power over a vast sum of money, yet the nature of their position is such that specific regulation might frustrate the very function they have to perform. 


  • By enforcing a duty of honesty and good faith, the courts are able to regulate an activity that is of great value to commerce and society generally.


The Court mentioned Professor Frankel with approval:


  • Fiduciary law regulates the providers of very special services.  These services can be divided into two groups.  The first group consists of services that require entrustment of property or power to the fiduciary. 


  • Without such entrustment the services cannot be rendered at all, or they can be rendered with less than maximum efficiency.  The second group consists of services requiring skills that are very costly to master; for example, lawyering, and some kinds of investment management.


  • Because the relationship poses for one party ("the entrustor") substantial risks of misappropriation and monitoring costs and because public policy strongly supports both groups of services, fiduciary law interferes to reduce these risks and costs. 


  • The law aims at deterring fiduciaries from misappropriating the powers vested in them solely for the purpose of enabling them to perform their functions. . . .



The Court referred to Justice Cory's description of the investment advisor-client relationship in R. v. Kelly,  [1992] 2 S.C.R. 170, where the accused was convicted of corruptly accepting a reward or benefit contrary to s. 426(1)(a) of the Criminal Code:


  • With increasing frequency financial advisors are acting as agents for their clients. 


  • Very often business and professional people earning a good income are too busy earning that income to properly arrange their financial affairs.  They turn to financial advisors for assistance. 


  • The principal/agent relationship is almost invariably based upon the disclosure by the principal to the agent of confidential information. 


  • The relationship is founded upon the trust and confidence that the principal can repose in the advice given and the services performed by the agent.


In speaking about Codes of Ethics, LaForest for the Court stated:       


  • …. in many advisory relationships norms of loyalty and good faith are often indicated by the various codes of professional responsibility and behaviour set out by the relevant self-regulatory body. 


  • The raison d'être of such codes is the protection of parties in situations where they cannot, despite their best efforts, protect themselves, because of the nature of the relationship. 


  • These codes exist to impose regulation on an activity that cannot be left entirely open to free market forces. 


  • I have already referred to the function of the professional standards expected of doctors in Norbergsupra


  • The professional rules of conduct governing lawyers was considered in Granville Savings…The finding of a fiduciary duty was consistent with Commentary 8, Chapter 19 of the Canadian Bar Association's Code of Professional Conduct, which instructs lawyers to urge unrepresented parties to seek representation, and, failing that, to ensure that the party "is not proceeding under the impression that the lawyer is protecting such person's interests".  The code goes on to warn lawyers that they may have an obligation to a person whom the lawyer does not represent.


Referring specially to the case at bar, LaForest stated:


  • the present case, the trial judge found as a fact that the standards set by the accounting profession at the relevant time compelled full disclosure by the respondent of his interest with the developers. 


  • both experts agreed that while there was no prohibition against the respondent's representing both a developer and an investor in relation to a real estate tax-shelter investment, the respondent should have disclosed the true state of affairs to both sides.


  • In sum, the rules set by the relevant professional body are of guiding importance in determining the nature of the duties flowing from a particular professional relationship; see MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235. 


  • With respect to the accounting profession, the relevant rules and standards evinced a clear instruction that all real and apparent conflicts of interest be fully disclosed to clients, particularly in the area of tax-related investment advice. 


  • The basis of this requirement is the maintenance of the independence and honesty which is the linchpin of the profession's credibility with the public. 


  • It would be surprising indeed if the courts held the professional advisor to a lower standard of responsibility than that deemed necessary by the self-regulating body of the profession itself.



  • In my view this testimony, taken by itself, vindicates the appellant's fiduciary expectation.  Concepts like "trust", independence from outside interests, disregard for self-interest, are all hallmarks of the fiduciary principle. 


  • It lies ill in the mouth of the respondent to argue that the appellant was not vulnerable to a breach of loyalty when he himself concedes that loyalty was the central feature of the parties' business relationship. 


  • As it turned out, of course, the respondent used the position of ascendency granted him by the appellant to line his own pockets and the pockets of his developer clients.


  • The frequency with which courts have enforced fiduciary duties in professional advisory relationships is not surprising. 


  • The very existence of many professional advisory relationships, particularly in specialized areas such as law, taxation and investments, is premised upon full disclosure by the client of vital personal and financial information that inevitably results in a "power-dependency" dynamic. 


  • I would have thought it self-evident that the type of disclosure that routinely occurs in these kinds of relationships results in the advisor's acquiring influence which is equivalent to a discretion or power to affect the client's legal or practical interests. 


  • …. power and discretion in this context mean only the ability to cause harm. 


  • Vulnerability is nothing more than the corollary of the ability to cause harm, viz., the susceptibility to harm.  For this reason, it is undesirable to overemphasize vulnerability in assessing the existence of a fiduciary relationship.  In this I am in substantial agreement with the following description of the concept of vulnerability by Lambert J.A. in Kelly Peters, …. ;


  • . . . the concept of vulnerability as expressed in the Hosp. Prod. case is nothing other than a description of the victim's situation when he is in a position where the fiduciary can exert influence over him by abusing his confidence in order to obtain an advantage.  . . .


  • In the advisory context, the advisor's ability to cause harm and the client's susceptibility to be harmed arise from the simple but unassailable fact that the advice given by an independent advisor is not likely to be viewed with suspicion; rather, it is likely to be followed. 


Here is another reference of significance:


  • Shepherd observes that transfers of power can inform our analysis of the underlying power dependence dynamic.  He describes the power dynamic in these types of situations as follows, at p. 100:


  • Powers are not only transferred formally.  There are many ways of transferring powers either consciously but informally, or totally unconsciously.  When an individual relies on another, for example a professional adviser, there is a quite conscious transfer of power, but rarely is there a document in which the beneficiary writes "I hereby grant you the power to influence my decision-making".


  • A retainer, when combined with the disclosure of confidential information or the vesting of discretion or power, is strong evidence of the existence of an underlying dynamic of power dependency in relation to certain duties. 


In dealing with the matter of reliance, the Court said:


  • I have already noted the importance of reliance in relation to fiduciary duties; see Varga v. F. H. Deacon & Co., [1975] 1 S.C.R. 39; 


  • Reliance in this context does not require a wholesale substitution of decision-making power from the investor to the advisor. 


  • This is simply too restrictive. 


  • It completely ignores the peculiar potential for overriding influence in the professional advisor and the strong policy reasons, to which I have previously referred, favouring the law's intervention by means of its jurisdiction over fiduciary duties to foster the fair and proper functioning of the investment market, an important social and economic activity that cannot really be regulated in other ways. 


  • …. the reality of the situation must be looked at to see if the decision is effectively that of the advisor, an exercise that involves a close examination of facts. 


  • ….the trust and reliance the appellant placed in the respondent (a trust and reliance assiduously fostered by the respondent) was such that the respondent's advice was in substance an exercise of a power or discretion reposed in him by the appellant. 



The Court considered the following facts:


  • Hodgkinson approached Simms as a "neophyte" taxpayer, with no experience in dealing with large real estate tax shelters. 


  • The parties developed a relationship that involved frequent telephone and personal contact. 


  • The respondent identified the appellant as one of his "special" clients. 


  • While the respondent did not hold himself out as an investment counsellor per se, he did not qualify his experience as a tax shelter or investment advisor in any way. 


  • He did not refer the appellant to any other professionals for investment advice. 


  • In sum, the parties' relationship was such that the trial judge was able to conclude…..  "[i]n effect, Mr. Simms assumed the responsibility for Mr. Hodgkinson's choice.  He analyzed the investments, he recommended the investments, and he effectively chose the investments for Mr. Hodgkinson".


  • The respondent, for his part, actively cultivated this high degree of reliance. 


  • He was fully aware of the appellant's lack of experience with MURBs, and he held himself out as an expert in the assessment of MURB-type investments. 


  • The respondent's influence over the appellant was built upon the latter's confidence that the respondent was independent from the developers. 


  • The trial judge was satisfied, at p. 127, that it was the appellant's intention to, "drop his tax and financial-planning problems into Mr. Simms' lap and to go about his business as a stockbroker". 


  • All the while, the respondent was fully aware that the appellant's lack of expertise meant that he wielded considerable influence over the appellant's investment decisions.



There had been certain disclaimers, and the Court commented as follows:


  • Turning, then, to the disclaimers.  The letter sent out by Mr. Simms to his investor clients regarding Bella Vista stated, in part, "it is your money and you must place your expectations on what you anticipate will happen in the future . . . ".  The disclaimers attaching to the Oliver Place and Enterprise Way projects were even stronger:



  • The trial judge considered this evidence, but concluded that the appellant did not believe that the disclaimers applied to him based on his "special" relationship with the respondent. 


  • She found the letters were reasonably interpreted by Mr. Hodgkinson as endorsements, particularly given the surrounding circumstances of the parties' relationship. 


  • It must be kept in mind that throughout the period these investments were made the parties were in frequent contact, by letter, telephone, and in person. 


The Supreme Court of Canada also considered the issue of damages: 


  • The trial judge assessed damages flowing from both breach of fiduciary duty and breach of contract. 


  • She found the quantum of damages to be the same under either claim, namely the return of capital (adjusted to take into consideration the tax benefits received as a result of the investments), plus all consequential losses, including legal and accounting fees. 


  • As I stated at the outset, I cannot find fault with the trial judge's disposition of the damages question.


  • I turn now to the principles that bear on the calculation of damages in this case. 


  • It is well established that the proper approach to damages for breach of a fiduciary duty is restitutionary. 


  • On this approach, the appellant is entitled to be put in as good a position as he would have been in had the breach not occurred. 


  • On the facts here, this means that the appellant is entitled to be restored to the position he was in before the transaction.  The trial judge adopted this restitutionary approach and fixed damages at an amount equal to the return of capital, as well as all consequential losses, minus the amount the appellant saved on income tax due to the investments.


  • The plaintiff is the innocent victim of a misrepresentation which has induced a change of position.  It is just that the plaintiff should be entitled to say "but for the tortious conduct of the defendant, I would not have changed my position".  A tortfeasor who says, "Yes, but you would have assumed a position other than the status quo ante", and thereby asks a court to find a transaction whose terms are hypothetical and speculative, should bear the burden of displacing the plaintiff's assertion of the status quo ante.


  • A breach of a fiduciary duty can take many forms.  It might be tantamount to deceit and theft, while on the other hand it may be no more than an innocent and honest bit of bad advice, or a failure to give a timely warning.


  • Canson is an example of the latter type of fiduciary breach, mentioned by Huband J.A.  There, the defendant solicitor failed to warn the plaintiff, his client, that the vendors and other third parties were pocketing a secret profit from a "flip" of the subject real estate such that the property was overpriced. 


  • . . . barring different policy considerations underlying one action or the other, I see no reason why the same basic claim, whether framed in terms of a common law action or an equitable remedy, should give rise to different levels of redress.


  • In other words, the courts should look to the harm suffered from the breach of the given duty, and apply the appropriate remedy.


  • where a party can show that but for the relevant breach it would not have entered into a given contract, that party is freed from the burden or benefit of the rest of the bargain; see also BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12, at pp. 40-41 (per La Forest and McLachlin JJ.). 


  • In short, the wronged party is entitled to be restored to the pre-transaction status quo.


  • Moreover, there exists a second line of United States authority that has a greater affinity to the case at bar. 


  • These cases deal with the self-interested behaviour of stockbrokers and other professionals in the investment industry. 


  • Here, the American courts have apparently decided that the policy against giving the investor an "insurance plan" against market fluctuations is outweighed by the need to ensure that persons with power over individual investors act in good faith in carrying out their professional services, and have awarded damages on the principle of full restitution. 


  • From a policy perspective it is simply unjust to place the risk of market fluctuations on a plaintiff who would not have entered into a given transaction but for the defendant's wrongful conduct. 


  • There is a broader justification for upholding the trial judge's award of damages in cases such as the present, namely the need to put special pressure on those in positions of trust and power over others in situations of vulnerability. 


  • This justification is evident in American caselaw, which makes a distinction between simple fraud related to the price of a security and fraudulent inducements by brokers and others in the investment business in positions of influence. 


  • In the case at bar, as in Kelly Peters and the American cases cited by the appellant, the wrong complained of goes to the heart of the duty of loyalty that lies at the core of the fiduciary principle. 


  • In redressing a wrong of this nature, I have no difficulty in resorting to a measure of damages that places the exigencies of the market-place on the respondent. 


  • In view of my finding that there existed a fiduciary duty between the parties, it is not in strictness necessary to consider damages for breach of contract. 


  • However, in my view, on the facts of this case, damages in contract follow the principles stated in connection with the equitable breach. 


  • The contract between the parties was for independent professional advice.  While it is true that the appellant got what he paid for from the developers, he did not get the services he paid for from the respondent. 


  • The relevant contractual duty breached by the respondent is of precisely the same nature as the equitable duty considered in the fiduciary analysis, namely the duty to make full disclosure of any material conflict of interest. 


  • This was, in short, a contract which provided for the performance of obligations characterized in equity as fiduciary.


  • Further, it remains the case under the contractual analysis that but for the non-disclosure, the contract with the developers for the MURBs would not have been entered into.  The trial judge found as a fact that it was reasonably foreseeable that if the appellant had known of the respondent's affiliation with the developers, he would not have invested.    


  • I would allow the appeal, set aside the order of the British Columbia Court of Appeal and restore the order of the trial judge, with costs throughout, including letter of credit costs to avoid a stay and allow recovery on the trial judgment pending appeal to the Court of Appeal.





You will notice that I have chosen to quote verbatim from the Judgment of Gerald LaForest writing the reasons for the majority of the Supreme Court of Canada.


These are indeed the words, the expressions, the paragraphs and the law that will be quoted in future cases.


Brian Madigan LL.B., Broker


Tagged with: fiduciary duties obligations code of ethics requirements proof damages ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

Phone: 416-745-2300

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