BC Court of Appeal addresses the Fiduciary Duties of Lawyers
The BC Court of Appeal (“BCAA”), recently commented on and considered a case on the breaches of a lawyer’s fiduciary duties; this case was a wills, estates, and trusts matter.
In Hutchison v. Moore, 2021 BCCA 301, Madam Justice Bennett writing for the Court, consider two appeals that were brought forward. The two appeals rose from two actions involving a dispute concerning a trust and a development project in relation to the trust. The appellant brought the first appeal in her capacity as capital beneficiary of the trust.
The appellant brought the second appeal in her capacity as executrix of her mother’s estate.
Both actions centred on breaches of the fiduciary duties of the trustees and solicitors.
(i) The BCSC Decision
The BC Supreme Court trial judge dismissed both actions, with the exception of the claim against one of the trustees. The judge concluded that the respondent law firm was in a fiduciary relationship with the appellants and had breached its fiduciary duties by acting in situations of clear conflict. However, the judge found that the particular circumstances of the case rendered the breach irrelevant. The trial judge found that the use of certain proceeds to fund the development project was not a breach of the fiduciary duty owed by the trustees to the beneficiaries. The judge also ordered that, with respect to one trustee, a proper accounting take place, in order to address particular issues raised around the alleged misappropriation of trust funds.
(ii) The Appeal
The appellant challenged the dismissal of the actions on the basis that the trial judge:
misapplied the law concerning the duties of fiduciaries;
committed palpable and overriding errors;
failed to address all of the claims and submissions before the court; and
misapprehended the evidence.
After considering the law, the BCCA dismissed the appeal. As noted on the BCCA website:
The judge did not commit a reversible error in applying the law of fiduciaries. Furthermore, these actions were distinctly fact-driven and unique in their circumstances, particularly with respect to the family dynamics at play amongst the parties. The appellants were well-aware of the conflicts that existed. There was ample evidence upon which the judge could conclude that the appellants received independent legal advice. The judge did err in finding that there was no material non-disclosure, however, he did not err in concluding that there was no loss as a result of the non-disclosure. All of the parties consented to the use of certain proceeds to fund the development project. The trial judge committed no palpable and overriding error, and was entitled, on the evidence before him, to conclude that the appellants would have continued with the development even if they had received the material. In relation to the alleged misappropriation of trust funds, once the passing of the trustee’s accounts has taken place, the parties are free to make submissions to the trial judge.
(iii) The Law
In considering the law, the BCCA noted as follows:
[98] It is trite law that the solicitor-client relationship is characterized as a fiduciary relationship: Hodgkinson; Galambos v. Perez, 2009 SCC 48 at para. 36.
[99]The nature of fiduciary relationships is summarized in Hodgkinson at 405:
… it is only by having regard to the often subtle differences between these causes of action that civil liability will be commensurate with civil responsibility. For instance, the fiduciary duty is different in important respects from the ordinary duty of care … the presence of loyalty, trust, and confidence distinguishes the fiduciary relationship from a relationship that simply gives rise to tortious liability. Thus, while a fiduciary obligation carries with it a duty of skill and competence, the special elements of trust, loyalty, and confidentiality that obtain in a fiduciary relationship give rise to a corresponding duty of loyalty.
[100] In Hodgkinson, the Court, at 408, quoting Dickson J. (as he then was) in Guerin v. The Queen, 1984 CanLII 25 (SCC), [1984] 2 S.C.R. 335 at 384, said:
…where by statute, agreement, or perhaps by unilateral undertaking, one party has an obligation to act for the benefit of another, and that obligation carries with it a discretionary power, the party thus empowered becomes a fiduciary…
It is sometimes said that the nature of fiduciary relationships is both established and exhausted by the standard categories of agent, trustee, partner, director and the like. I do not agree. It is the nature of the relationship, not the specific category of actor involved that gives rise to the fiduciary duty …
[Emphasis in original.]
[101] The Court in Hodgkinson continued, at 409, with respect to relationships that have as their essence discretion, influence over interests, and an inherent vulnerability:
… In these types of relationships, there is a rebuttable presumption, arising out of the inherent purpose of the relationship, that one party has a duty to act in the best interests of the other party…
[102] Thus, “the existence of a fiduciary duty in a given case will depend upon the reasonable expectations of the parties, and these in turn depend on factors such as trust, confidence, the complexity of subject matter, and community or industry standards”: Hodgkinson at 412. The question becomes whether, given all the surrounding circumstances, one party could reasonably have expected that the other party would act in the former’s best interests with respect to the subject matter at issue: Hodgkinson at 409.
[103] In addition, the relationship carries with it the duty to disclose. A fiduciary is required to disclose material facts and information, and conflicts of interest: Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23 at para. 8.
[104] As stated by the Court in Sharbern, “[w]here fiduciaries put themselves in a position where their own interests or those of others may conflict with their duty to their principal, they will be required to disclose all material information regarding the transaction in order to obtain their principal’s informed consent as to their acting despite the conflict”: at para. 148.
[105] The Court in Sharbern also laid out the important aspects of the test for materiality, at para. 61:
Materiality is a question of mixed law and fact, determined objectively, from the perspective of a reasonable investor;
An omitted fact is material if there is a substantial likelihood that it would have been considered important by a reasonable investor in making his or her decision, rather than if the fact merely might have been considered important. In other words, an omitted fact is material if there is a substantial likelihood that its disclosure would have been viewed by the reasonable investor as having significantly altered the total mix of information made available;
The proof required is not that the material fact would have changed the decision, but that there was a substantial likelihood it would have assumed actual significance in a reasonable investor’s deliberations;
Materiality involves the application of a legal standard to particular facts. It is a fact-specific inquiry, to be determined on a case-by-case basis in light of all of the relevant considerations and from the surrounding circumstances forming the total mix of information made available to investors; and
The materiality of a fact, statement or omission must be proven through evidence by the party alleging materiality, except in those cases where common sense inferences are sufficient. A court must first look at the disclosed information and the omitted information. A court may also consider contextual evidence which helps to explain, interpret, or place the omitted information in a broader factual setting, provided it is viewed in the context of the disclosed information. As well, evidence of concurrent or subsequent conduct or events that would shed light on potential or actual behaviour of persons in the same or similar situations is relevant to the materiality assessment. However, the predominant focus must be on a contextual consideration of what information was disclosed, and what facts or information were omitted from the disclosure documents provided by the issuer.
[106] The burden is on the plaintiff to prove materiality: Sharbern at para. 69. The onus is on the fiduciary to show that there was informed consent: Sharbern at para. 149.
[107] …the test has been applied by this court in non-statutory contexts. See for example, 0759594 B.C. Ltd. v. 568295 British Columbia Ltd., 2013 BCCA 381 at para. 54 (leave to appeal dismissed, February 13, 2014).
…[109] In Commerce Capital Trust Co. v. Berk (1989), 1989 CanLII 4338 (ON CA), 57 D.L.R. (4th) 759 (Ont. C.A.), at 763–65, the court, in the context of non-disclosure by a solicitor, affirmed that courts impose a high duty of disclosure on solicitors who have placed themselves in a position of conflict by acting for more than one party, citing Jacks v. Davis (1982), 1982 CanLII 485 (BC CA), 141 D.L.R. (3d) 355 (B.C.C.A.).
…[111] In the context of a realtor, the test for materiality is an objective one to be determined by what a reasonable person in the position of the agent would consider, in all of the circumstances, would likely influence the conduct of the principal. In Wang v. Laura W. Zhao Personal Real Estate Corporation, 2021 BCCA 97 at para. 26, this Court wrote:
The obligations of a fiduciary must be assessed in the context of the contract giving rise to those duties: Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23 at para. 141 [Sharbern]. For a real estate agent, the principal obligation is one of disclosure of everything known to the agent respecting the subject matter of the contract which would be likely to influence the principal’s behaviour or which would be likely to operate on the principal’s judgment: Ocean City Realty v. A&M Holdings Ltd. (1987), 1987 CanLII 2872 (BC CA), 36 D.L.R. (4th) 94 at para. 20 (B.C.C.A.). The limiting factor of this disclosure obligation is materiality; it is only information material to the transaction that must be disclosed: Sharbern at para. 148. The test for materiality is an objective one to be determined by what a reasonable person in the position of the agent would consider in all the circumstances would be likely to influence the conduct of the principal: Ocean City Realty at para. 22.
[112] Where the plaintiff has made out a case of material non-disclosure and the loss occasioned thereby is established, the onus is on the defendant to prove on a balance of probabilities that the victim would have suffered the same loss regardless of the breach, and mere speculation will not suffice: Hodgkinson at 441. There, the Court said:
What is more, the submission runs up against the long-standing equitable principle that where the plaintiff has made out a case of non-disclosure and the loss occasioned thereby is established, the onus is on the defendant to prove that the innocent victim would have suffered the same loss regardless of the breach; see London Loan& Savings Co. v. Brickenden 1934 CanLII 280 (UK JCPC), [1934] 2 W.W.R. 545 (P.C.), at pp. 550-51; see also Huff v. Price, supra, at pp. 319-20; Commerce Capital Trust Co. v. Berk (1989) 1989 CanLII 4338 (ON CA), 57 D.L.R. (4th) 759 (Ont. C.A.), at pp. 763-64.
See also Jacks at 359–61.