You may have heard the term "fiduciary" many times,
but what does it mean exactly? The term "fiduciary"
originates from the Latin word fiduciarius, meaning
"holding in trust". According to Black's Law
Dictionary, a fiduciary is a person who is required to act for the
benefit of another person on all matters within the scope of their
relationship, and one who owes to another the duties of good faith,
trust, confidence and candour. Since fiduciaries are bound to act
in the best interests of their beneficiaries, they must avoid
personal interests that may have a negative impact on their
beneficiaries' interests and focus solely upon their duties to
their beneficiaries. As such, our courts over the years have
strictly enforced "no conflict" and "no profit"
principles of fiduciaries.
When does a person (or organization) become a fiduciary? Certain
relationships have traditionally been recognized as subject to the
duties and obligations imposed upon fiduciaries. These traditional
categories include, amongst others, trustee and beneficiary,
solicitor and client, principal and agent, and director and
However, it is open to the courts to find fiduciary
relationships and impose fiduciary obligations in other trust-like
relationships. In 1987, the Supreme Court of Canada in Frame v.
Smith set out the following elements of a fiduciary
The fiduciary has the ability to exercise discretion or
The fiduciary can unilaterally exercise that power or
discretion so as to affect the beneficiary's legal or practical
The beneficiary is peculiarly vulnerable to or at the mercy of
the fiduciary holding the discretion or power.
Guided by the three criteria, the courts of various levels and
jurisdictions have recognized many fiduciary relationships,
including those between financial advisors and their clients,
school boards and students, the Federal government and First
Nations whose affairs the Federal government is managing, and
between a holder of a power of attorney and the donor of the
The list continues to expand. A fiduciary duty may be found even
if the alleged fiduciary is not a professional of any sort. For
instance, in Janz v. McIntosh, the plaintiff's husband
asked a neighbour and friend to take care of his wife after his
death. After the husband's death, the neighbour stepped in to
help the unsophisticated plaintiff (the wife) in her financial
dealings for several years. During this time, the neighbour
borrowed amounts from the plaintiff, which were later repaid.
Subsequently, the plaintiff received an $80,000 inheritance which
the neighbour suggested be placed in a joint bank account. The
neighbour later borrowed $74,000 of the amount interest-free with
the plaintiff's permission, repaid $15,000 of it and then went
bankrupt. The Court held that the neighbour owed a fiduciary duty
to the plaintiff, which he had violated by using undue influence to
borrow funds from her inheritance without disclosing the benefits
he would derive from it, without having posted any security or
agreeing to pay interest, and without having advised her to seek
independent legal advice.
A breach of a fiduciary duty can give rise to a wide range of
remedies. One overreaching principle is that where a breach of
fiduciary duty occurs, any gain the fiduciary obtained resulting
from the breach belongs to the beneficiary; if the breach resulted
in a loss, the loss is the fiduciary's personal loss and full
restitution to the beneficiary must be made. In the Janz v.
McIntosh case, the Court found that the loan agreement between
the neighbour and the plaintiff was unconscionable and was
voidable. The Court imposed a "constructive trust" on the
neighbour's home to the extent the money that the neighbour
obtained from the plaintiff was used to pay off the mortgage. The
Court further ordered that the plaintiff was entitled to bring
legal action against the neighbour's pension to the extent of
the monetary compensation that the Court awarded to the
Canadian courts are increasingly willing to recognize the
existence of a fiduciary relationship when there is an inherent
relationship of trust with a potential for exploitation. If you
suspect that you or your organization might be in a fiduciary
position with respect to the affairs of another person, and that
you might be in a "conflict of interest" position or may
potentially gain a "profit", either intentionally or
unintentionally, from your position, it is prudent that you seek
legal advice to ensure that proper disclosure procedures are
followed and that any transactions involved are fair and
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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