In the recent case of Galambos v. Perez, P made voluntary sizeable advances of cash — some $200,000 in total — to her employer, a law firm founded by G, often without informing G beforehand. Although P was hired as the firm’s part‑time bookkeeper she effectively became the office manager, overseeing the firm’s income, expenses and accounting and had unlimited signing authority on the firm’s non‑trust bank accounts. Initially, to resolve a cash flow problem, P obtained a personal loan and deposited $40,000 into the firm’s bank account. G did not ask her to advance this money and he did not even know about the advance until several days later. G instructed P to reimburse herself with interest, instructions she did not follow other than by repaying herself $15,000. As the firm’s financial situation deteriorated, P made several more deposits of her own funds into the firm’s account and covered some firm expenses with her personal credit card. The firm, during the time she worked for it, handled the preparation and execution of new wills for P and her husband as well as two mortgage transactions. The firm did not expect to be and was not paid for these services. When the firm went into receivership and G went bankrupt P found herself an unsecured creditor and recovered nothing. P then sued G and the defunct firm for negligence, breach of contract and breach of fiduciary duty.
The trial judge dismissed P’s claims, finding that her rights were those of a creditor and nothing more. The Court of Appeal set aside that decision and granted P judgment for $200,000. The Court of Appeal concluded that there were ad hoc fiduciary duties owed to P by G and his law firm in relation to the cash advances. It held that: there was a power‑dependency relationship between P and G; it is not necessary that there be any mutual understanding that G had relinquished his self‑interest in favour of P’s for the duty to arise; P was vulnerable; and, the evidence overwhelmingly supported the conclusion that G took advantage of her trust.
The Supreme Court of Canada restored the decision of the trial judge and held that the Court of Appeal had exceeded the limits of appellate review and unduly extended the scope of fiduciary obligations. Absent an error of law or a palpable or overriding error of fact the SCC held that the trial judge’s findings of fact and conclusion that a fiduciary duty did not exist must be upheld on appeal. In this case, the Court of Appeal retried the case on the basis of the written record and substituted its view of the facts and their significance for that of the trial judge.
The SCC held that the Court of Appeal erred in three respects.
1. The conclusion that G was in a position of power and influence relative to P was at odds with the findings of fact at trial that P was not vulnerable in terms of her relationship with G. There was no evidence of any express requests for loans, which makes it illogical to conclude that P was unable to refuse requests when there were in fact none.
2. Not all power‑dependency relationships are fiduciary in nature and identifying a power‑dependency relationship does not, on its own, materially assist in deciding whether the relationship is fiduciary or not. There are no special rules for recognition of fiduciary duties in the case of power‑dependency relationships. The Court of Appeal erred when it held that, in the case of a power‑dependency relationship, a fiduciary duty may arise even in the absence of a mutual understanding that one party would act only in the interests of the other. In both per se and ad hoc fiduciary relationships, there will be some undertaking on the part of the fiduciary to act with loyalty. The Court of Appeal’s analysis went wrong when it found a fiduciary duty without finding an undertaking, express or implied, on the part of G that he would act in relation to the loans only in P’s interests, and based its conclusion that a fiduciary duty existed on P’s expectations alone.
3. The Court of Appeal appears to have accepted the proposition that a fiduciary duty may arise even though the fiduciary has no discretionary power to affect the other party’s legal or important practical interests. The nature of this discretionary power to affect the beneficiary’s legal or practical interests may, depending on the circumstances, be quite broadly defined. It may arise from power conferred by statute, agreement, from a unilateral undertaking or, in particular situations by the beneficiary’s entrusting the fiduciary with information or seeking advice in circumstances that confer a source of power. The presence of this sort of power will not necessarily on its own support the existence of an ad hoc fiduciary duty; its absence, however, negates the existence of such a duty. The findings of the trial judge that the evidence did not establish that P relinquished her decision‑making power with respect to the loans to G, and that G had no discretionary power over P’s interests that he was able to exercise unilaterally or otherwise, were fatal to P’s claim that there was an ad hoc fiduciary duty on G’s part to act solely in her interests in relation to these cash advances.
Finally, the SCC held there had been no conflict of interest. Given the limited nature of the retainers and the unusual nature of the advances G and the law firm did not breach their duty of care arising from the solicitor‑client relationship between them and P. There was no actual conflict of interest between the firm’s duties to her in connection with the limited retainers and its interest in receiving the advances and there was not any reasonable apprehension of conflict. Given the very limited nature of the retainers and the manner in which the advances were made — unsolicited and frequently without advance notice — there was no duty on the firm under negligence principles to give P advice about those advances or to insist that she obtain independent legal advice about them.