Fiduciary duty

Friday's Supreme Court of Canada decision in Galambos v. Perez, 2009 SCC 48 provides a helpful re statement of the law regarding fiduciary duty. Briefly put, fiduciary duty does not arise except where there is (1) a relationship in which (2) the fiduciary agrees to act in the interest of the other and (3) where the fiduciary exercises a discretionary power. Absent these indicia there is no fiduciary relationship. The Court writes: 

[67]  An important focus of fiduciary law is the protection of one party against abuse of power by another in certain types of relationships or in particular circumstances.  However, to assert that the protection of the vulnerable is the role of fiduciary law puts the matter too broadly.  The law seeks to protect the vulnerable in many contexts and through many different doctrines. As La Forest J. noted in Hodgkinson, at p. 406: "[W]hereas 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" (emphasis added).  This brief sentence makes two important points which help sharpen the focus on the role of fiduciary law. 

 

[68]  The first is that fiduciary law is more concerned with the position of the parties that results from the relationship which gives rise to the fiduciary duty than with the respective positions of the parties before they enter into the relationship.  La Forest J. in Hodgkinson, at p. 406, made this clear by approving these words of Professor Ernest J. Weinrib: "It cannot be the sine qua non of a fiduciary obligation that the parties have disparate bargaining strength. ... In contrast to the 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" ("The Fiduciary Obligation" (1975), 25 U.T.L.J. 1, at p. 6).  Thus, while vulnerability in the broad sense resulting from factors external to the relationship is a relevant consideration, a more important one is the extent to which vulnerability arises from the relationship: Hodgkinson, at p. 406.

 

[69]  The second is that a critical aspect of a fiduciary relationship is an undertaking of loyalty: the fiduciary undertakes to act in the interests of the other party.  This was put succinctly by McLachlin J. (as she then was) in Norberg, at p. 273, when she said that "fiduciary relationships ... are always dependent on the fiduciary's undertaking to act in the beneficiary's interests".  See also Hodgkinson, per La Forest J., at pp. 404-7.

 

[70]  Underpinning all of this is the focus of fiduciary law on relationships.  As Dickson J. (as he then was) put it in Guerin v. The Queen, [1984] 2 S.C.R. 335, at p. 384: "It is the nature of the relationship ... that gives rise to the fiduciary duty."  The underlying purpose of fiduciary law may be seen as protecting and reinforcing "the integrity of social institutions and enterprises", recognizing that "not all relationships are characterized by a dynamic of mutual autonomy, and that the marketplace cannot always set the rules": Hodgkinson, at p. 422 (per La Forest J.).  The particular relationships on which fiduciary law focusses are those in which one party is given a discretionary power to affect the legal or vital practical interests of the other: see, e.g., Frame v. Smith, [1987] 2 S.C.R. 99, per Wilson J., at pp. 136-37; Norberg, per McLachlin J., at p. 272; Weinrib, at p. 4, quoted with approval in Guerin, at p. 384.

 

[71]  I return to the Court of Appeal's holding that a fiduciary duty may arise in "power-dependency" relationships without any express or implied undertaking by the fiduciary to act in the best interests of the other party.  I respectfully disagree with this approach, for two reasons: "power-dependency" relationships are not a special category of fiduciary relationships and the law is, in my view, clear that fiduciary duties will only be imposed on those who have expressly or impliedly undertaken them.

 

... 

[74]  In short, not all power-dependency relationships are fiduciary in nature, and identifying a power-dependency relationship does not, on its own, materially assist in deciding whether the relationship is fiduciary or not. It follows, in my view, that there are not and should not be special rules for recognition of fiduciary duties in the case of "power- dependency" relationships.  I am therefore of the view that the Court of Appeal erred in this respect.

...
[80]  In my respectful view, the Court of Appeal's analysis went wrong on this point.  It found a fiduciary duty without finding an undertaking, express or implied, on the part of Mr. Galambos that he would act in relation to the loans only in Ms. Perez's interests. The court's reasoning is premised on the fact that there was no such undertaking; otherwise, there would have been no need to base the conclusion that a fiduciary duty existed on Ms. Perez's expectations alone.

 
... 

[82]  In summary, my view is that the Court of Appeal erred in holding that in the case of power-dependency relationships, a fiduciary duty may arise absent some undertaking on the part of the fiduciary to act in the interests of the other party.  The Court of Appeal did not suggest that there was any such undertaking here and in any event, it would be inconsistent with the judge's factual findings to conclude that any such undertaking should be implied.

 

3.               Transfer of Discretionary Power

 

[83]  It is fundamental to the existence of any fiduciary obligation that the fiduciary has a discretionary power to affect the other party's legal or practical interests. In Guerin, Dickson J. spoke of this discretionary power as "the hallmark of any fiduciary relationship" (p. 387) and, while making no comment on whether it was broad enough to embrace all fiduciary obligations, he endorsed Professor Weinrib's description of a fiduciary relationship as one in which "the principal's interests can be affected by, and are therefore dependent on, the manner in which the fiduciary uses the discretion which has been delegated to him" (p. 384).  The influential guidelines set out by Wilson J. in Frame, at p. 136, for identifying new categories of fiduciary relationships included that the fiduciary have scope for the exercise of some discretion or power, the exercise of which affects the beneficiary's legal or practical interests.  In Norberg, McLachlin J. noted that a fiduciary must be entrusted with such power in order to perform his or her functions (p. 275).

 

[84]  The nature of this discretionary power to affect the beneficiary's legal or practical interests may, depending on the circumstances, be quite broadly defined.  It may arise from power conferred by statute, agreement, perhaps from a unilateral undertaking or, in particular situations such as the professional advisory relationship addressed in Hodgkinson,  by the beneficiary entrusting the fiduciary with information or seeking advice in circumstances that confer a source of power: see, e.g., Lac Minerals and Hodgkinson.  While what is sufficient to constitute power in the hands of the fiduciary may be controversial in some cases, the requirement for the existence of such power in the fiduciary's hands is not.  The presence of this sort of power will not necessarily on its own support the existence of an ad hoc fiduciary duty; its absence, however, negates the existence of such a duty.

 

James Morton
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