Fiduciary Duties and Obligations in Canada
By Brian Madigan LL.B., Broker
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. Hodgkinson 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";
Comment
Sorry, this article is far too long for AR
Balance of article to follow if you are interested may be found at:
Comments(0)