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At 01 March 2019, after just over one year's medical leave,
Simon's law practice will re-open. Whoo-hoo ....!
- 12 February 2019

THE LATEST WORD

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Fiduciaries

1. General
2. Corporate Director as Fiduciary
3. Ad Hoc Fiduciary Duty
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1. General

'Fiduciaries' are parties with a special care relationship with respect to another. Sometimes it arises from the nature of the relationship (ie. lawyers to clients, trustees to beneficiaries) and other times the relatioship will have to be examined to see if a fiduciary relationship has been created ad hoc.

2. Corporate Director as Fiduciary

. Unique Broadband Systems, Inc. (Re)

In Unique Broadband Systems, Inc. (Re) (Ont CA, 2014) the court considered the nature of the fiduciary relatioship between a corporate director and the corporation:
General Principles

[45] It is undisputed that, Mr. McGoey, as a director and CEO of UBS, owed the company fiduciary duties. The imposition of fiduciary duties on directors and officers of a corporation is consistent with the origins of the doctrine in trust law. A director or senior officer of a corporation is in a position of trust. He or she is charged with managing the assets of a corporation honestly and in a manner that is consistent with the objects of the corporation. Courts will be loath to interfere with the legitimate exercise of corporate duties, but they will intervene where a fiduciary breaches the trust reposed in him or her.

[46] Mr. McGoey’s fiduciary duties included an obligation to act in good faith and in the best interests of the corporation. He had a specific obligation to scrupulously avoid conflicts of interest with the corporation and not to abuse his position for personal gain: Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 (CanLII), [2004] 3 S.C.R. 461, at paras. 35 and 42; and BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at paras. 39 and 89.

[47] As Granger J. stated in Moffatt v. Wetstein (1996), 1996 CanLII 8009 (ON SC), 29 O.R. (3d) 371, at p. 390 (Gen. Div.):
Subsumed in the fiduciary’s duties of good faith and loyalty is the duty to avoid a conflict of interest. The fiduciary must not only avoid a direct conflict of interest but must also avoid the appearance of a possible or potential conflict. The fiduciary is barred from dividing loyalties between competing interests, including self-interest.
[48] Disclosure of a directors’ interest in a transaction is just the first step. Disclosure does not relieve a director of his or her obligation to act honestly and in the best interests of the corporation: UPM-Kymmene Corp. v. UPM-Kymmene Miramichi Inc. (2002), 2002 CanLII 49507 (ON SC), 214 D.L.R. (4th) 496 (Ont. S.C.), aff’d (2004), 2004 CanLII 9479 (ON CA), 183 O.A.C. 310 (C.A.).

....

Defences

[63] I do not accept Mr. McGoey’s rather novel argument that there can be no finding of a breach of fiduciary duty because, before he could be paid under the SAR Cancellation Awards or the Bonus Pool, he was removed from office by the shareholders of UBS. Counsel for Mr. McGoey suggests that the breach is incomplete because no damages have been suffered.

[64] This submission is not correct at law. As stated by Mark Ellis in his text, Fiduciary Duties in Canada,[2] in the context of a discussing conflicts of interest:
Entering into a potential conflict of interest is a breach whether or not the conflict is operative; once such a conflict becomes operative to jeopardize the beneficiary or his property, the fiduciary breach would then give rise to the remedies available in law. The point is important: to wait until damage or prejudice actually occurs is to prejudice the beneficiary’s right to utmost loyalty and avoidance of conflict. If such a schism in theory is allowed, the law would be encouraging a finding that the duty “piggy-backs” the damage caused rather than premising damage on the basis of duty. [Emphasis in original.]
[65] Similarly, in Canson Enterprises Ltd. v. Boughton & Co., 1991 CanLII 52 (SCC), [1991] 3 S.C.R. 534, at p. 553, McLachlin J. (as she then was) stated that “[a] breach of fiduciary duty is a wrong in itself, regardless of whether a loss can be foreseen”.

[66] It would be a remarkable result if a fiduciary could be allowed to act in a manner contrary to his duty with impunity, on the basis that he was prevented by the beneficiary’s vigilance from receiving a personal benefit.

3. Ad Hoc Fiduciary Duty

. Garneau v. Industrial Alliance Insurance and Financial Services Inc.

In Garneau v. Industrial Alliance Insurance and Financial Services Inc. (Ont CA, 2015) the court succinctly set out the test for finding a fiduciary relationship outside a categorical fiduciary relationship (ie. one where a fiduciary relationship is established by the type of the relationship, eg. solicitor-client):
[16] The test for establishing an ad hoc fiduciary duty has been modified since Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99. This duty will only be found where the alleged fiduciary has provided an express or implied undertaking to act in the best interests of the other party: Galambos v. Perez, 2009 SCC 48 (CanLII), [2009] 3 S.C.R. 247, at para. 66; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24 (CanLII), [2011] 2 S.C.R. 261, at para. 30.
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