The Equitable Principle of Disgorgement

Disgorgement is the giving up of funds by a fiduciary where a breach of fiduciary duty was involved. They typically involve the restitution remedy of recovering ill-gotten profits made by the fiduciary.

There is a large degree of discretion in ordering disgorgement: Strother v. 3464920 Canada Ltd., 2007 SCC 24 at para. 74; Wang v. Wang, 2020 BCCA 15 at para. 59.

As Justice Cromwell notes in Kerr v. Baranow, 2011 SCC 10, all equitable remedies are characterized by the necessity of designing them to be responsive to the particular facts of each case:

This public interest aspect is served by the prophylactic purpose of disgorgement.

Disgorgement of a gain obtained in a breach of a fiduciary duty, irrespective of the plaintiff’s loss, “teaches faithless fiduciaries that conflicts of interest do not pay. The prophylactic purpose thereby advances the policy of equity, even at the expense of a windfall to the wronged beneficiary”: Strother at para. 77 [emphasis in original].

However, there are limits to prophylactic disgorgement    -Pirani v Pirani, [2021] BCJ No 1725, 2021 BCSC 1530

Sarzynick v Skwarchuk 2021 BCSC 443 reviewed the remedies available for a breach of fiduciary duty including the equitable principle of disgorgement.

The equitable remedy of disgorgement serves two purposes:

One is restitutionary and the other prophylactic: Strother, at paras. 75–77. The restitutionary component of disgorgement aims to restore to the aggrieved party the benefits that they otherwise would have enjoyed, such as when a fiduciary usurps a business opportunity or purchases a property that otherwise would have gone to the beneficiary

Two- The prophylactic rationale aims to deter faithless behaviour and preserve the sanctity of fiduciary relationships by forcing the fiduciary to disgorge all profits obtained from their breach.

Prophylactic disgorgement arises even in circumstances where the beneficiary has suffered no loss. This can often result in a windfall for the plaintiff.

Where a fiduciary has retained profits by breaching their fiduciary obligations, they can be disgorged of their profits in one of two ways:

(1) by imposing a personal debt on the fiduciary, thereby requiring them to repay the unjustified gain; or
(2) by imposing a constructive trust requiring the fiduciary to transfer the gain to the aggrieved party (Kyle Estate v. Kyle, 2017 BCCA 329 at para. 37).

The use of remedial constructive trusts for disgorgement in the breach of fiduciary duty context is well-established:
in The Law of Restitution, loose-leaf (Toronto: Tomson Reuters, 2020) at 27:500, “a principal may assert a proprietary claim not only for misappropriated assets, but for property…and opportunities which the fiduciary has deflected and captured for personal benefit.”

Fraudulent Executor Ordered to Pay Costs

Fraudulent Executor Ordered to Pay Costs

Kyle estate 2017 BCSC 752 held that an executor who misappropriated trust funds was denied the legal costs of defending the pursuit of those assets and either double costs or special costs were awarded against the executor on the basis of public policy, rather than the costs be borne by the estate.

The executor had been removed by court order, and it was determined that approximately $450,000 had been misappropriated from estate funds by him.

He was not forthright with his mother and siblings regarding what appeared by them to be sums missing from the estate of the deceased, had obtained a grant of probate of the will of the deceased without disclosing the joint account, and had failed to meet the onus of showing that it was the intention of the deceased to make an absolute gift of the monies in the joint account to himself.

The court also found that the former executor undertook almost 2 years of misdirection and deceit to knowingly permit inaccurate information to be conveyed by the estate lawyer and was not honest, complete or neutral in disclosing the benefits he had received from the deceased.

The other beneficiary was awarded full indemnification for his legal costs and expenses as a result of pursuing a claim against the former executor.

In a proceeding involving the misconduct of an executor or trustee, including where the executor has acted dishonestly and in breach of fiduciary obligations, the beneficiary may obtain an award of special costs against the executor personally and, if the executor is a beneficiary under the estate, these costs can come out of the executor share of the estate. Szpradowski v Szpradowski Estate (1992) 44 ETR 89

Szpradowski at para. 227 stated ” there is no reason why the estate of the legatee, should bear the cost of which the executor put the estate “-

Fiduciary Relationships: Ad Hoc and Per Se

At the highest level of generality, a fiduciary must act with utmost loyalty, good faith, and in the best interests of the person over whom they exercise discretion or control: Galambos v. Perez, 2009 SCC 48 at para. 69.

As a result of these obligations, a fiduciary exercising a power of attorney cannot act for their own personal benefit or use property under their power for their own gain: Zeligs v. Janes, 2016 BCCA 280 at para. 86; S

A fiduciary attorney must account for assets under their power and all proceeds generated from those assets.

Sarzynick v Skwarchuk 2021 BCSC 443 discussed how the existence of a fiduciary relationship can arise in one of two ways:

First, there are per se fiduciaries that come from certain established classes of relationships. In Public Service of Canada v. Canada (Attorney General), 2012 SCC 71 at para. 115, the list of per se fiduciary relationships include: trustee-cestui que trust, executor-beneficiary, solicitor-client, agent-principal, director-corporation, guardian-ward, and parent-child.

Second, there are ad hoc fiduciary relationships that, while not falling within the established categories of per se fiduciaries, nevertheless give rise to fiduciary obligations in the circumstances.

The test for establishing an ad hoc fiduciary relationship has gone through several iterations over the years. It was most recently reformulated in Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24 at para. 36 and clarified in Professional Institute, at para. 128.

The party seeking to establish the existence of an ad hoc fiduciary relationship must show:

(i) An undertaking by the alleged fiduciary to act in the best interest of the alleged beneficiary or beneficiaries;
(ii) A defined person or class of persons who is/are vulnerable to the fiduciary in that the fiduciary has a discretionary power over them; and
(iii) 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.

Not every breach of duty equates with a breach of a fiduciary duty: Girardet v. Crease & Co. (1987), 11 B.C.L.R. (2d) 361 at 362 (S.C.). As Justice Harris aptly summarized, a breach of fiduciary duty typically “captures circumstances in which there is a breach of the duty of loyalty owed by the fiduciary and includes circumstances involving acting in the face of a conflict, preferring a personal interest, taking a secret profit, acting dishonestly or in bad faith, or a variety of similar or related circumstances”: Meng Estate v. Liem, 2019 BCCA 127 at para. 35.

Lawyer-Client Relationships and Fiduciary Obligations

Certain categories of relationships such as the lawyer-client are considered to possibly give rise to fiduciary obligations because of their inherent purpose or their presumed factual or legal incidents.

It is well-established that not all obligations existing between the parties to a well recognized fiduciary relationship, such as lawyer and client, will be fiduciary in nature, and in the context of a solicitor client relationship, not every breach of duty will be a breach of fiduciary duty. Strother v 346-4920 Canada Inc. 2007 SCC 24 at paragraph 34.

Thus a failure on the part of a lawyer to use reasonable care and skill on behalf of a client may result in the lawyer been found to be negligent, but not necessarily in breach of the lawyers fiduciary duties to the client.

Huang v Li 20202 BCSC 1727 examined the lawyer client relationship and when a breach of fiduciary duty may arise.

Acts of professional misconduct and a failure on the part of the lawyer to comply with the professional standards described in the document, such as a professional code of conduct may result in the lawyer being disciplined by the lawyer’s governing body, but not necessarily constitute a breach of the lawyers fiduciary duties to the lawyer’s client.

In the Strother decision, the Supreme Court of Canada stated that” a fundamental duty of a lawyer is to act in the best interest of his or her client to the exclusion of all other adverse interests, except those duly disclosed by the lawyer and willingly accepted by the client.

The solicitor client relationship was described at paragraphs 34-35 as:

“ when a lawyer is retained by a client, the scope of the retainer is governed by contract. It is for the parties to determine how many, or a few, services, the lawyer is to perform, and the contractual terms of the engagement . The solicitor- client relationship thus created is, however, overlaid with certain fiduciary responsibilities, which are imposed as a matter of law.
The source of the fiduciary duty is not the retainer itself, but all the circumstances, including the retainer, creating a relationship of trust and confidence from which flow obligations of loyalty and transparency. Not every breach of the contract of retainer is a breach of a fiduciary duty.

On the other hand, fiduciary duties provide a framework within which the lawyer performs the work and may include obligations that go beyond what the parties expressly bargain for. The foundation of this branch of the law is the need to protect the integrity of the administration of justice. MacDonald Estate v . Martin (1990) 3 SCR 1235 at paragraphs 1243 and 1265.

Fiduciary responsibilities include the duty of loyalty of which an element is the avoidance of conflicts of interest.
Two points must be made with respect to the rule of professional conduct for a lawyer:

Two Points about Professional Conduct:

1.There is an important distinction between the rules of professional conduct and the law of negligence. Breach of one does not necessarily involve breach of the other. Conduct may be negligent, but not breach rules of professional conduct, and breaching the rules of professional conduct is not necessary negligence. Codes of professional conduct while they are important statements of public policy with respect to the conduct of lawyers, are designed to serve as a guide to lawyers and are typically enforced and disciplinary proceedings.

2. The second point relates to the concerns underlying the rules of conduct in relation to borrowing from clients. The rule is a specific application of the general rules about conflict of interest. There is concern the lawyers legal skill and training, coupled with the relationship of trust arises between the solicitor and client, creates the possibility of overreaching by the lawyer. A further concern is that the lawyers in a position during the form of the transaction and may therefore further his or her own interests instead of those of the client.

Certain categories of relationships are considered to give rise to fiduciary obligations because of the inherent purpose of their presumed factual or legal incidents. These categories are sometimes called per se fiduciary relationships.

A claim for breach of fiduciary duty may only be founded on breaches of the specific obligations imposed because the relationship is one characterized as fiduciary.

Fiduciary Duties

Fiduciary Duties

An essential feature of a fiduciary relationship is the fiduciary’s duty to the beneficiary who is entitled to expect that the fiduciary will be concerned solely for the beneficiaries interests, and never for the fiduciary’s own.

It has been said that the hallmark of a fiduciary relationship is that the relative legal positions are such that one party is at the mercy of the others discretion.

Where there is a fiduciary obligation there is a relation in which the principles interest can be affected by, and are therefore dependent on the manner in which the fiduciary uses the discretion which has been delegated to him or her. The fiduciary obligation is the law’s blunt tool for the control of this discretion.

Typically, a breach of fiduciary duty captures circumstances in which there is a breach of the duty of loyalty owed by the fiduciary and include circumstances involving acting in the face of a conflict, preferring a personal interest, taking a secret profit, acting dishonestly or in bad faith, or a Friday of similar or related circumstances.

The term fiduciary, however, has been described as one of the most ill-defined, if not altogether misleading terms and are law.

Despite the fiduciary nature of the trustee beneficiary relationship, not every failure of a fiduciary is a breach of a fiduciary duty. Giradet v Crease & Co. (1987) 11 BCLR (2d) 361 at 362.

In Meng Estate v Liem 2019 BCCA 127 the court stated that not every potential breach of duty is a breach of fiduciary duty– a fiduciary may breach duties owed in contract or negligence without those breaches being transformed into breaches of fiduciary duty.

In Louie v Louie 2015 BC CA 247 at paragraph 23, the court stated” I start with the two most fundamental and long-standing obligations of fiduciary’s the “no conflict” rule and the “no profit” rule.

With respect to the no conflict rule, the the objective is to preclude the fiduciary from being swayed by considerations of personal interest.

The no profit rule  requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of the fiduciary position or of opportunity or knowledge resulting from it. The objective is to preclude the fiduciary from actually misusing his or her position for his or her personal advantage.

Thus, not only as a trustee, not to profit from his or her position, equity has an inflexible rule that he is not allowed to put himself in a position where his interest in duty conflict. Bray v Ford (1896) AC 44 at 51

Obligation of Disclosure Between Partners/Fiduciaries

Obligation of Disclosure Between Partners/Fiduciaries

McNight v Hutchinson 2019 BCSC 944 discussed the obligation of disclosure between partners and other relationships characterized by a duty of utmost fairness and good faith ( fiduciary) . ( see also Aero Services Ltd v O’Mally (1973) 4 DLR 371 ).

The authorities emphasize that the purpose served by the requirement of disclosure is to allow the informed party to exercise an independent will and take any position that party might adopt as appropriate, and to be aware of any risk that the other might be tempted to fall short of the requisite duty. Hitchcock v Sykes (1914) SCR 403.

In the case of partnerships, the institution requires there be trust. In the usual case, the firm enterprise requires contribution from each partner and proportionate division is made of the profits or losses. There is no limitation from firm liability, and each partner potentially has the power to expose the full worth of every other partner.

Where relationships are marked by the obligation of utmost fairness and good faith, the remedy for breach extends beyond damage where there has been a breach of the fiduciary duty.

The law calls on the defendants to account to the plaintiff for any profit made or benefit received is result of the breach of duty. This is not the same as damages, which are compensatory in nature. The purpose of damages is to put the plaintiff in the same position it would’ve been if not for the wrongdoing.

Secret profits can be an issue that arises between partners. The remedy for breach of a fiduciary duty by the realization of secret profits or benefits requires that the fiduciary be prevented from retaining any gain from the activity which arose from the breach of duty. The assessment for such a breach focuses on the wrongdoers gain and not the beneficiaries loss.

The Profiteering Fiduciary

Fiduciary Duties: The Rules on Profit
Fiduciaries must account for their handling of trust properties to the trust beneficiaries, and are not allowed to profit from being a fiduciary other than being paid reasonable fees for services rendered.
Equity compels a fiduciary to hold and manage trust property on the terms of the express trust by imposing a trust obligation upon it in favour of the trust beneficiaries.
The typical example of this constructive trust is found as far back as 1726 in the English decision of Keech v. Sandford , 20 E.R. 223, that is authority for the principle that a trustee may not make a profit for himself through his trusteeship. This decision has been adopted many times in Canada.
It is a fundamental duty of a trustee that he not permit his personal interest to conflict with his duty as trustee. This duty extends to any profits which the court may consider to be acquired improperly.
The principle of profiteeship encumbrances any gains made personally by the fiduciary and the law will then impose a constructive trust on the asset on the terms of the express trust, all of which depends on the facts of the particular case.
If the profit remains in the same form in which it was held by the fiduciary, then the beneficiaries can recover it in the same form or trace it into any other form into which it was converted by the trustee. The beneficiaries are entitled to argue that the property in dispute was always theirs  and never the trustee/fiduciaries, and if they can identify it among the assets in the trustee’s name, or in mixed funds, they are entitled to recover it.
The nature of the fiduciary relationship arises from the placing of trust and confidence by the claimant in the fiduciary and equity will impose express trust obligations upon the fiduciary who abuses that trust and confidence. Once equity imposes the trust provisions, the fiduciary will become a constructive trustee of the assets.

The rule against profits is a strict one, which is designed to ensure that the fiduciary acts, as equity requires, from the purest motives – the fiduciary must be motivated only by the best interest of his beneficiary.

The Supreme Court of Canada in Soulos v Korkontzilas (1997) 2 SCR 217 held that to establish a constructive trust to be imposed upon a wrongful gain, four conditions must generally be satisfied:

  1. The defendant must of been under an equitable obligation- an obligation of the type that courts of equity have enforced in relation to the activities, giving rise to the assets in his hands;
  2. The assets in the hands of the fiduciary must be shown to have resulted from deemed or actual agency activities of the fiduciary in breach of his equitable obligation to the plaintiff/owner;
  3. The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties;
  4. There must be no factors which would render imposition of a constructive trust unjust in all of the circumstances of the case- for example, the interests of intervening creditors must be protected.
The imposition of constructive trusts in breach of fiduciary obligations have included cases that vary from the crown acquiring land from first nations people in breach of its fiduciary obligations to them, to commercial cases in which one Corporation owes a fiduciary duty to another; to information where the fiduciary has acquired information that is used to acquire a personal gain.

Joint Account Holders Are Fiduciaries

Joint Account Holders Are Fiduciaries

MacKay v. MacKay Estate,2015 ONSC 7429, held that one joint account holder may serve as a fiduciary in relation to the other simply via the traditional indicia of such a relationship as set out in Frame v. Smith, [1987] 2 SCR 99 (i.e., the ability by the fiduciary to exercise unilateral control over the beneficiary’s interests; the vulnerability of the beneficiary).

In MacKay, supra, the defendant daughter-in-law had been added as a joint account holder to her mother-in-law’s account in order to help her with her day-to-day finances; this occurred while the mother-in-law retained capacity. The daughter-in-law did not hold power of attorney. She was her mother-in-law’s main caregiver, emotional support and confidante. In her capacity as joint account holder, in addition to covering the mother-in-law’s expenses, she paid herself a modest weekly sum in compensation for her services. The son (ex-husband of the daughter-in-law at the time of litigation), who held power of attorney for his mother, brought an action against his ex-wife seeking an accounting and repayment of the funds in question.

The court held that the daughter-in-law had a fiduciary obligation to her mother-in-law in her management and operation of the joint bank account, but that she had not breached her duty; her payments to herself were reasonable in the circumstances.

The holding in MacKay underscores the principle that the prima facie nature of a joint account—that is, of its being equally owned and equally subject to the discretion of all account holders—will give way, in some circumstances, before deeper considerations of equity.

In some respects MacKay stands for this proposition more strenuously than Pecore itself, as the former is less reliant on traditional doctrines concerning gifts and donors’ intentions. MacKay does not treat the nature of a joint account as an either/or proposition by which either a gift or trust is created. Rather, MacKay concerns itself solely with the question of fiduciary obligations, specifically as they may arise in the context of a “typical” joint account where one party is vulnerable to the discretion of the other.

Company Director is a Fiduciary

Company Director is a Fiduciary

It is common in estate disputes to encounter a party attempting to deal inappropriately with the affairs of a limited company whose shares should be an estate asset, and when this occurs, one should look for a breach of the directors fiduciary duty owed to the company.

The fiduciary duty of a director to the company is one of loyalty ,good faith, avoidance of conflict of duty and self-interest.

The leading case in this area is Canadian Aero Services Ltd v O’Malley 1974 SCR 592 where the court found senior management who had left the plaintiff with confidential information were fiduciaries and that duty continued after their employment ceased.

25      An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of a strict ethic in this area of the law. In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.
26      It is this fiduciary duty which is invoked by the appellant in this case and which is resisted by the respondents on the grounds that the duty as formulated is not nor should be part of our law and that, in any event, the facts of the present case do not fall within its scope.
27      This Court considered the issue of fiduciary duty of directors in Zwicker v. Stanbury1, where it found apt for the purposes of that case certain general statements of law by Viscount Sankey and by Lord Russell of Killowen in Regal (Hastings) Ltd. v. Gulliver2, at pp. 381 and 389. These statements, reflecting basic principle which is not challenged in the present case, are represented in the following passages:
28      Per Viscount Sankey:
In my view, the respondents were in a fiduciary position and their liability to account does not depend upon proof of mala fides. The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect. If he holds any property so acquired as trustee, he is bound to account for it to his cestui que trust. The earlier cases are concerned with trusts of specific property: Keech v. Sandford ((1726), Sel. Cas. Ch. 61) per Lord King, L.C. The rule, however, applies to agents, as, for example, solicitors and directors, when acting in a fiduciary capacity.
29      Per Lord Russell of Killowen:
In the result, I am of opinion that the directors standing in a fiduciary relationship to Regal in regard to the exercise of their powers as directors, and having obtained these shares by reason and only by reason of the fact that they were directors of Regal and in the course of the execution of that office, are accountable for the profits which they have made out of them. The equitable rule laid down in Keech v. Sandford [supra] and Ex p. James ((1803), 8 Ves. 337), and similar authorities applies … in full force. It was contended that these cases were distinguishable by reason of the fact that it was impossible for Regal to get the shares owing to lack of funds, and that the directors in taking the shares were really acting as members of the public. I cannot accept this argument. It was impossible for the cestui que trust in Keech v. Sandford to obtain the lease, nevertheless the trustee was accountable. The suggestion that the directors were applying simply as members of the public is a travesty of the facts. They could, had they wished, have protected themselves by a resolution (either antecedent or subsequent) of the Regal shareholders in general meeting. In default of such approval, the liability to account must remain.

Neighbour Found to Be a Fiduciary re Finacial Advise/Abuse

Neighbour Found to Be a Fiduciary re Finacial Advise/Abuse

Neighbour Found to Be a Fiduciary

Janz v. McIntosh [1999] S.J. No. 121 is an excellent example of a court finding a breach of fiduciary duty where the alleged fiduciary was not a professional .

In fact he was simply a neighbor.

The Plaintiff was 58 years old female with Grade VIII education, who had never worked outside home, and lived at home with her parents until she married. The Plaintiff’s husband asked the defendant neighbour to assist plaintiff after his death.

Soon after the husband’s death, the defendant began to assist plaintiff with financial affairs to prevent the plaintiff squandering her inheritance.

Defendant borrowed $4,400 from plaintiff, then borrowed additional $10,000

Plaintiff received further inheritance after her father’s death, and defendant borrowed substantial sums from that amount to discharge his mortgage.

On her sister’s advice, the plaintiff brought action for repayment and damages from breach of trust, and the action was allowed.

While the relationship was not within recognized classes of fiduciary relationships, but defendant never the less acted in a fiduciary capacity with respect to financial advice.

The Plaintiff was vulnerable, defendant recognized plaintiff’s vulnerability and plaintiff trusted defendant to act in her best interests .

The defendant never disclosed to the plaintiff the benefits he derived from borrowing on her inheritance.

The Defendant never advised plaintiff to seek independent legal advice.

Defendant was in breach of fiduciary obligation

Plaintiff awarded outstanding amount of $58,111.40.

The defendant repaid most of the funds, but ultimately went bankrupt. The court imposed a constructive trust on the defendant’s home to the extent that the money that the neighbor 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 neighbor’s pension to the extent of the monetary compensation the court awarded the plaintiff.

A. Fiduciary Relationship

(1) The nature of a fiduciary relationship

20 In Frame v. Smith, [1987] 2 S.C.R. 99 (S.C.C.), at 136, Wilson J. in dissent identified criteria indicative of the existence of fiduciary relationships:

Relationships in which a fiduciary obligation have been imposed seem to 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.

(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

The criteria were adopted by the majority of the Supreme Court of Canada in International Corona Resources Ltd. v. LAC Minerals Ltd. (1986), 53 O.R. (2d) 737 (Ont. H.C.).

21 In Hodgkinson v. Simms, [1994] 3 S.C.R. 377 (S.C.C.), at 408-09, LaForest J. described the criteria as a useful rough and ready guide, but clearly indicated that the criteria were not definitive. In that case, a stock broker approached an accountant for tax planning advice in what was apparently a commercial arm’s length transaction. The accountant was held to be a fiduciary. Because the accountant was also acting for the developers of a real estate project, the majority found that he breached his fiduciary duty to the appellant when he advised the appellant stock broker to invest in the project and failed to disclose his pecuniary interest in the project. Writing for the majority about fiduciaries and their duties, LaForest J. stated at p. 405:

… From a conceptual standpoint, the fiduciary duty may properly be understood as but one of a species of a more generalized duty by which the law seeks to protect vulnerable people in transactions with others. I wish to emphasize from the outset, then, that the concept of vulnerability is not the hallmark of fiduciary relationship though it is an important indicium of its existence. Vulnerability is common to many relationships in which the law will intervene to protect one of the parties. It is, in fact, the “golden thread” that unites such related causes of action as breach of fiduciary duty, undue influence, unconscionability and negligent misrepresentation.

At p. 406, LaForest J. stated that undue influence and inequality of bargaining power are not elements which must be present to make a finding that a fiduciary relationship exists. He stated:

… Indeed, all three equitable doctrines are designed to protect vulnerable parties in transactions with others. However, whereas undue influence focuses on the sufficiency of consent and unconscionability looks at the reasonableness of a given transaction, the fiduciary principle monitors the abuse of a loyalty reposed. …

With reference to factual situations which fall within the guidelines provided by Wilson J. in Frame, supra, La Forest J. noted that there are three uses of the term fiduciary, only two of which he considers truly fiduciary. He stated at p. 409-10:

… The first is in describing certain 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. Two obvious examples of this type of fiduciary relationship are trustee-beneficiary and agent-principal. In seeking to determine whether new classes of relationships are per se fiduciary, Wilson J.’s three-step analysis is a useful guide.

As I noted in Lac Minerals, however, the three-step analysis proposed by Wilson J. encounters difficulties in identifying relationships described by a slightly different use of the term “fiduciary,” viz., situations in which fiduciary obligations, though not innate to a given relationship, arise as a matter of fact out of the specific circumstances of that particular relationship; see at p. 648. In these cases, the question to ask is 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. Discretion, influence, vulnerability and trust were mentioned as non-exhaustive examples of evidential factors to be considered in making this determination.

Thus, outside the established 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. This idea was well-stated in the American case of Dolton v. Capitol Federal Sav. & Loan Ass’n, 642 P.2d 21 (Colo. App. 1982), at pp. 23-24, in the banker-customer context, to be a state of affairs

… which impels or induces one party “to relax the care and vigilance it would and should have ordinarily exercised in dealing with a stranger.” … [and] … has been found to exist where there is a repose of trust by the customer along with an acceptance or invitation of such trust on the part of the lending institution.

In relation to the advisor context, then, there must be something more than a simple undertaking by one party to provide information and execute orders for the other for a relationship to be enforced as fiduciary. …

22 The hallmark of a fiduciary duty would appear to be loyalty reasonably reposed in another, abuse of which would constitute a breach of the duty of loyalty or the fiduciary duty. To determine whether loyalty had been reasonably reposed in another one would have to examine the circumstances to see whether “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.”

(2) Was Sam in a fiduciary relationship with June Ann?

23 Sam and June Ann’s relationship does not fit into any of the recognized classes of fiduciary relationships such as trustee — beneficiary, agent — principal, or solicitor — client. That, however, does not determine the question. The existence or absence of a fiduciary relationship is a question of fact to be determined by examining the circumstances and characteristics of the relationship.

24 There are several factors which point to the early formation of a fiduciary relationship. These include the following:

a) the request by June Ann’s husband that Sam look after June Ann;

b) June Ann’s request for help in dealing with her affairs;

c) June Ann’s reliance on Sam’s advice;

d) Sam’s knowledge that June Ann had difficulty managing her affairs;

e) Sam’s intervention when he believed June Ann was spending her inheritance recklessly;

f) Sam’s acceptance of an obligation to care for June Ann.

25 June Ann would appear to be vulnerable. This was evident from the manner in which she testified. She had only a grade eight education, had never managed her own affairs and had never taken care of herself until Jake died. Sam recognized her vulnerability. He referred to her as being mentally challenged and also described her as being a dependent adult. He said that on a scale of 1-10, June was a “2” as a financial person. He said he began acting as her advisor — not only on financial matters, but also on emotional matters. Sam knew June Ann trusted him and that she believed he was looking out for her interests.

26 All of these factors support a finding that Sam accepted a fiduciary obligation early on in the relationship and acted in a fiduciary capacity when advising June Ann with respect to the administration of her affairs.

27 June Ann had the right to expect that Sam would act in her best interests, as that appeared to be the basis of their relationship. Sam agreed to intervene for her to manage her financial affairs. Their agreement went beyond Sam simply providing information to June Ann and carrying out her orders. June Ann relied on Sam’s advice and Sam knew that she did and encouraged her to do so. The circumstances support a finding that Sam owed a fiduciary duty to June Ann with respect to the advice he gave regarding the management of her affairs. Sam cannot act as an advisor and expect to receive benefits from his role as advisor (other than any remuneration for his services agreed to by the parties) without risking the scrutiny of the court and possible sanctions for breach of fiduciary duty.