March 26, 2022

By Brian Babcock

“What is a fiduciary?” is even harder to answer than What is a Trust?”.

In the case of both related concepts, there is no single definition that is generally accepted. Instead, we are given descriptions, examples, or tests to determine whether one exists. Unlike trusts, which have been recognized for over a thousand years, the law of fiduciary obligations other than trusts is relatively new, and constantly evolving.

One text attempted to describe a fiduciary relationship, and thus a fiduciary in that relationship in their 2015 edition as follows:

A fiduciary relationship is comprised of at least two parties, one or more of whom owes equitable obligations to one or more others. These obligations are described as fiduciary obligations. The party owing those obligations is described as a fiduciary. The party who is owed fiduciary obligations is known as the beneficiary,…”[1]

In the 2021 edition, they replace that with a broader description that looks nothing like a definition.

Another writer, in a 2017 article said “…fiduciary jurisprudence is one of the most confusing and least understood areas of contemporary law.” [2]

Despite these difficulties, understanding what a fiduciary is, and what their duties may be, is important, because a breach of fiduciary duty may lead to drastic remedies.

You may recall the term “beneficiary” from earlier articles on wills and estates or trusts. Trusts and fiduciary relationships are related. It is often said that “every trustee is a fiduciary but not ever fiduciary is a trustee”.

The word fiduciary is from the Latin fiducia which means “confidence, trust, reliance, assurance”. [3]

What does this mean? That might best be answered by looking at some of the relationships other than trusts that courts have found to be fiduciary relationships, in some situations:

  • directors and corporations
  • agents and principals
  • lawyers and their clients
  • partners
  • a parent and children
  • a doctor and patient
  • a realtor and their client
  • investment advisors and their clients
  • the federal government and first nations

A few of these are always fiduciary relationships, but most of them fall into the larger group of what are called “ad hoc” fiduciary relationships. So, for example, the doctor patient relationship is not usually fiduciary, unless it crosses a line to meet the evolving test for becoming fiduciary.

The Supreme Court of Canada has struggled since at least the 1980s to develop a simple clear “one size fits all” test to determine when a relationship crosses that line into becoming fiduciary.

The most recent attempt is in a 2011 case, Alberta v. Elder Advocates of Alberta Society, which explains:

In summary, for an ad hoc fiduciary duty to arise, the claimant must show, in addition to the vulnerability arising from the relationship as described by Wilson J. in Frame: (1) an undertaking by the alleged fiduciary to act in the best interests of the alleged beneficiary or beneficiaries; (2) a defined person or class of persons vulnerable to a fiduciary’s control (the beneficiary or beneficiaries); and (3) a legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the alleged fiduciary’s exercise of discretion or control.

Although the concept of vulnerability appears twice in the test, vulnerability alone is not enough. Most cases now put more emphasis on the requirement for an “undertaking”, which means some indication of a willingness or intention to act in the best interests of the beneficiary.

This is in part because the word “vulnerable” is used in a limited or special sense here. For example, we do not typically think of corporations as vulnerable, yet because they rely upon their directors, that relationship is fiduciary.

Another way to look at fiduciary relationships is to consider that they act to protect the beneficiary against an abuse of power, but only where the rest of the test is met.

The responsibility of being a fiduciary is apparent when you consider that the undertaking must be to act in the best interests of another – that extends to putting the other person’s interests ahead of your own.

Many disputes about fiduciary obligations therefore involve conflict of interest.

More generally, the primary duty of a fiduciary is loyalty. Among other things, this means that a fiduciary may not make unauthorized profits; may not delegate their responsibilities; must keep proper accounts; and must act with due diligence and the utmost candour. [4]

It is the “utmost candour” element that tripped up the doctor in an unusual recent case where there was no negligence found, but the doctor was found to have breached a fiduciary duty by not disclosing issues arising in a research study in which a patient died.

The scope of fiduciary duties may vary depending upon both the relationship and the context. However, the remedies for a breach of fiduciary duty are the same as for a breach of trust. The courts will use extraordinary remedies, including declaring that a constructive trust of property exists, or requiring disgorgement of gains. The efforts to make a beneficiary whole extend beyond the remedies available for a simple breach of contract or negligence.

At Weilers Law, we have proven expertise and experience in advising persons in a fiduciary relationship, including pursuing remedies in the courts where necessary.

If you are a fiduciary, or think you might be, we are here to advise and assist you.

If you have suffered a loss at the hands of someone who you believe undertook to act in your best interests, we can assess your case, and where appropriate, pursue remedies on your behalf.

 

[1]    Gillen and Woodman, The Law of Trusts: A Contextual Approach  3rd edition (Toronto, Emond Montgomery 2015)

[2]    Leonard I. Rotman “Understanding fiduciary Duties and Relationship Fiduciary” (2017) 62:4 McGill LJ 975, quoted in Gillen and Woodman 4th edition p. 682

[3]    Gillen and Woodman, 4th edition at page 668.

[4]    From Eileen E. Gillese The Law of Trusts 3rd edition (Toronto: Irwin Law, 2014) p. 11.