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Fiduciary - Ad Hoc. 1417217 Ontario Inc. v. River Trail Estates Inc.
In 1417217 Ontario Inc. v. River Trail Estates Inc. (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal from a ruling involving oral real estate joint venture and several related issues.
Here the court sets out the test for ad hoc fiduciary duties:[52] For an ad hoc fiduciary relationship to arise, the alleged fiduciary must undertake to act in the best interests of the alleged beneficiary; the duty must be owed to a defined person or class of persons who are vulnerable to the fiduciary in the sense the fiduciary has a discretionary power in respect of them; and, the fiduciary’s power may affect the legal or practical interest of the alleged beneficiary: Elder Advocates of Alberta Society v. Alberta, 2011 SCC 24, [2011] 2 S.C.R. 261, at paras. 30, 33, 34. . Boal v. International Capital Management Inc.
In Boal v. International Capital Management Inc. (Ont CA, 2023) the Court of Appeal considered (and allowed) a second appeal from a class action order striking a claim for not properly alleging "a cause of action for breach of fiduciary duty between certain investment advisors and a group of their clients". In these quotes the court considers the nature of an ad hoc fiduciary relationship, here that of a financial advisor:The Relevant Legal Principles
[34] The law governing ad hoc fiduciary relationships in Canada was profoundly changed in 1987 by Wilson J.’s dissenting reasons in Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99. At that time, the law recognized categories of fiduciary relationships including: directors and corporations, solicitors and clients, trustees and beneficiaries, principals and agents, and partners. While the jurisprudence acknowledged that the categories of fiduciary relationships were not closed, there were no general principles governing when, outside of the established categories, the courts would impose a fiduciary obligation on a particular relationship (an “ad hoc fiduciary relationship”).
[35] At p. 136 of Frame, Wilson J. remedied that deficiency. She said that relationships in which fiduciary obligations have been imposed possess three general characteristics:1. the fiduciary has scope for the exercise of some discretion or power;
2. the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and,
3. the beneficiary is peculiarly vulnerable to, or at the mercy of, the fiduciary holding the discretion or power. [36] Since Frame was decided, the Supreme Court has repeatedly used this analysis as the foundation for identifying ad hoc fiduciary relationships. Hodgkinson is one such case. It is particularly helpful because, in Hodgkinson, the Supreme Court addressed whether an ad hoc fiduciary relationship existed between a professional financial advisor and his client.
[37] In Hodgkinson, a stockbroker with little experience in tax planning, hired an accountant to advise him regarding his tax planning needs, particularly with respect to real estate investments. The stockbroker relied on the accountant’s advice and invested in four multi-unit residential building projects. He lost heavily when the value of the properties fell during a decline in the real estate market. It was later revealed that the accountant had a financial relationship with the developers of the projects during the relevant period which he failed to disclose to his client.
[38] The trial judge allowed the client’s action for breach of fiduciary duty and breach of contract and awarded him damages. The British Columbia Court of Appeal upheld the trial judge on the breach of contract issue but reversed on the issue of fiduciary duties.
[39] On further appeal to the Supreme Court of Canada, the majority allowed the appeal. Justice La Forest, writing for the majority, held that in view of the professional relationship between the parties, which was based on trust, confidence, and independence, and the client’s reliance on the accountant’s advice, there was an ad hoc fiduciary relationship between the parties. The accountant breached his fiduciary obligations by failing to disclose the financial benefit he obtained as a result of his client having invested in the projects that he had recommended.
[40] Justice La Forest expanded considerably on Wilson J.’s three-step analysis in Frame. His comprehensive judgment was considered by this court in Hunt v. TD Securities Inc. (2003), 2003 CanLII 3649 (ON CA), 66 O.R. (3d) 481 (C.A.), leave to appeal refused, [2003] S.C.C.A. No. 473. At para. 40 of Hunt, this court summarized the five interrelated factors that La Forest J. identified for consideration when determining whether a financial advisor stands in a fiduciary relationship to their client:1. Vulnerability – the degree of the client’s vulnerability, due to such things as age, or lack of language skills, investment knowledge, education, or experience in the stock market;
2. Trust – the degree of trust and confidence the client reposes in their advisor and the extent to which the advisor accepts that trust;
3. Reliance – whether there is a long history of relying on the advisor’s judgment and advice, and whether the advisor holds him or herself out as having special skills and knowledge upon which the client can rely;
4. Discretion – the extent to which the advisor has power or discretion over the client’s account; and,
5. Professional Rules or Codes of Conduct – which help to establish the advisor’s duties and the standards to which the advisor will be held. [41] In Hodgkinson, La Forest J. stated that the question to ask is whether, given all the surrounding circumstances, one party could reasonably have expected that the other would act in the former’s best interests with respect to the subject matter in issue: at p. 409. He noted that the essence of professional advisory relationships is trust, confidence, and independence, and that clients in such relationships have a right to expect their professional advisors will act in their best interests, to the exclusion of all other interests, unless the contrary is disclosed: at pp. 415, 417. 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 the independent advisor is not likely to be viewed with suspicion but, rather, is likely to be followed: at p. 431.
The Claim Discloses a Cause of Action for Breach of a Class Wide Fiduciary Duty
[42] As Hodgkinson makes clear, the existence of industry standards is an important factor in determining whether there is an ad hoc fiduciary relationship between a professional investment advisor and their client. ...
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[52] Accordingly, in my view, it is not “plain and obvious” that the claim for breach of a class-wide fiduciary duty has no reasonable prospect of success.
DISPOSITION
[53] For these reasons, I would allow the appeal and declare that the claim discloses a cause of action for breach of a class-wide fiduciary duty. I would remit the action to the Superior Court of Justice for a fresh determination, by a different judge, of the common issues and preferable procedure certification criteria, and whether the pleaded claims of knowing assistance and knowing receipt are certifiable. . Boal v. International Capital Management Inc.
In Boal v. International Capital Management Inc. (Div Ct, 2022) the Divisional Court considered where an ad hoc fiduciary relationship stands between investors and their advisors:[64] In determining whether financial or investment advisors stand in a fiduciary relationship with their clients, the Court of Appeal summarized the five interrelated factors established by LaForest J. in Hodgkinson as follows in Hunt v. TD Securities Inc. (2003), 2003 CanLII 3649 (ON CA), 66 O.R. (3d) 481, 229 D.L.R. (4th) 609 (C.A.) at para. 40:1. Vulnerability -- the degree of vulnerability of the client that exists due to such things as age or lack of language skills, investment knowledge, education or experience in the stock market.
2. Trust -- the degree of trust and confidence that a client reposes in the advisor and the extent to which the advisor accepts that trust.
3. Reliance -- whether there is a long history of relying on the advisor's judgment and advice and whether the advisor holds him or herself out as having special skills and knowledge upon which the client can rely.
4. Discretion -- the extent to which the advisor has power or discretion over the client's account.
5. Professional Rules or Codes of Conduct -- help to establish the duties of the advisor and the standards to which the advisor will be held. ....
[69] Simply casting away an analysis of discretionary authority in the case of financial advisors casts the net too wide. As stated in Galambos at para. 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 CanLII 25 (SCC), [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 CanLII 74 (SCC), [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. [70] The goal of the imposition of fiduciary duties is to protect a relationship the law recognizes as one of high trust and confidence, based on the implicit dependency and vulnerability to another. With the recognition of the relationship comes the imposition of proscriptive duties, notably the no-profit rule and the no-conflict rules, as well as the prescriptive duties of good faith and confidence. But duties of good faith, care, confidentiality, and disclosure apply to a variety of non-fiduciaries as well. As the motion judge set out, the fiduciary standard is exceptional. Other legal concepts which may apply – protection in contract, tort, and unjust enrichment – are available to regulate the conduct alleged here, albeit not on a class, but an individual basis. While the MFDA rules and the FP Code are a part of the analysis, they are not the whole of the analysis. . Density Group Limited v. HK Hotels LLC
In Density Group Limited v. HK Hotels LLC (Ont CA, 2014) the Court of Appeal commented as follows on ad hoc fiduciary duties:[171] In her analysis of the fiduciary duty claim against Mr. Kallan, the motion judge referred to a number of leading Supreme Court of Canada decisions on fiduciary duties: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, which cites the Court’s earlier decision in Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99, and Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24 (CanLII), 2011 SCC 24, 2 S.C.R. 261.
[172] In particular, she highlighted the principle from Hodgkinson v. Simms that to establish a fiduciary duty outside the established fiduciary 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”: pp. 409-10.
[173] She also referred to the requirements set out in Elder Advocates for establishing a fiduciary relationship outside a recognized category. First, there must be evidence that the alleged fiduciary undertook to act in the best interests of the beneficiary. Second, it must be shown that the alleged fiduciary has a discretionary power over a defined person or class of persons. Third, there must be evidence that the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary: Elder Advocates, paras. 30 to 34. . Stirrett v. Cheema
In Stirrett v. Cheema (Ont CA, 2020) the Court of Appeal cited the criteria for finding an ad hoc fiduciary duty:[53] In Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261, at para. 36, McLachlin C.J., writing for the court, stated what a claimant must establish before a court will impose a fiduciary duty outside of the traditionally recognized categories of per se fiduciary relationships:In summary, for an ad hoc fiduciary duty to arise, the claimant must show, in addition to the vulnerability arising from the relationship 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. [54] Here, the trial judge recognized that the issue was whether the factual matrix before him raised a fiduciary duty. While he did not cite Elder Advocates for the factors giving rise to a fiduciary duty, he relied on Frame and Hodgkinson, two other leading cases from the Supreme Court on fiduciary duty. . The Catalyst Capital Group Inc. v. Dundee Kilmer Developments Limited Partnership
In The Catalyst Capital Group Inc. v. Dundee Kilmer Developments Limited Partnership (Ont CA, 2020) the Court of Appeal set the test for finding an ad hoc fiduciary relationship:[65] To establish the existence of an ad hoc fiduciary relationship a claimant must demonstrate three elements:(i) an undertaking, express or implied, by the alleged fiduciary to act in the best interests of a beneficiary. The claimant must be able to point to a forsaking by the alleged fiduciary of the interests of all others in favour of those of the beneficiary in relation to the specific legal interest at stake;
(ii) the identification of a defined person or class of persons who are vulnerable to the alleged fiduciary in the sense that the alleged fiduciary has a discretionary power over them; and
(iii) the alleged fiduciary’s power may affect the legal or substantial practical interests of the beneficiary. Elder Advocates of Alberta Society v. Alberta, 2011 SCC 24, [2011] 2 S.C.R. 261, at paras. 30-34; Professional Institute of the Public Service of Canada v. Canada (Attorney General), 2012 SCC 71, [2012] 3 S.C.R. 660, at paras. 124, 128 and 138.
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[71] The existence of an ad hoc fiduciary relationship is determined on a case-by-case basis, including in cases of commercial transactions: PIPSC, at para. 113; Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574, at pp. 667-668. ... . 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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