Perez v. Galambos et al., (2009) 394 N.R. 209 (SCC)

• Judge: McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ.
• Court: Supreme Court (Canada)
• Case Date: April 15, 2009
• Jurisdiction: Canada (Federal)
• Citations: (2009), 394 N.R. 209 (SCC);2009 SCC 48

Perez v. Galambos (2009), 394 N.R. 209 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2009] N.R. TBEd. OC.059

Michael Z. Galambos and Michael Z. Galambos Law Corporation, both carrying on business as "Galambos & Company" and the said Galambos & Company (appellants) v. Estela Perez (respondent)

(32586; 2009 SCC 48; 2009 CSC 48)

Indexed As: Perez v. Galambos et al.

Supreme Court of Canada

McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ.

October 23, 2009.

Summary:

Perez was employed by Galambos as his law practice office manager. Perez made unsecured loans to the firm of $200,000. Galambos declared bankruptcy and the firm went into receivership. Perez recovered nothing. Perez sued Galambos and the firm (the defendants), alleging negligence, breach of contract and breach of fiduciary duty.

The British Columbia Supreme Court, in a decision reported at [2006] B.C.T.C. 899, dismissed the action. Perez appealed.

The British Columbia Court of Appeal, in a decision reported at (2008), 253 B.C.A.C. 149; 425 W.A.C. 149, allowed the appeal, granting Perez judgment against the defendants for $200,000. Perez sought costs of the trial and the appeal against the non-party insurer who defended the action on behalf of the defendants. The defendants sought leave to appeal.

The British Columbia Court of Appeal, in a decision reported at (2008), 259 B.C.A.C. 310; 436 W.A.C. 310, declined to order costs against the insurer. Perez was entitled to recover her costs from the defendants.

The Supreme Court of Canada, in a decision reported at (2008), 391 N.R. 391, granted the defendants' motion for leave to appeal.

The Supreme Court of Canada allowed the appeal. The trial judgment was restored except that, if the parties were unable to agree about whether Perez was entitled to a judgment in debt against the firm and the costs consequences, if any, flowing from that, the question was remanded to the Court of Appeal.

Barristers and Solicitors - Topic 1502

Relationship with client - General - Lawyer as fiduciary - Perez was employed by Galambos as his law practice office manager - Perez made unsecured loans to the firm of $200,000 - Galambos declared bankruptcy and the firm went into receivership - Perez recovered nothing - Perez sued Galambos and the firm (the defendants) - The action was dismissed - Perez's appeal was allowed - She was granted judgment for $200,000 - The Supreme Court of Canada allowed the defendants' appeal, restoring the trial judgment - The court rejected Perez's submission that the defendants had acted throughout as her lawyers and that, in doing so, they acted negligently and in breach of a fiduciary duty - The solicitor/client relationship was very limited - There was no plausible suggestion that the defendants' preparation of two wills and two mortgage transactions breached the standard of care owed to Perez - Those retainers had no bearing on the cash advances made by Perez - The cash advances were made outside of the particular solicitor/client relationship - This did not circumvent the nearly absolute professional standard not to borrow from clients - However, there was a distinction between breaching the rules of professional conduct and negligence - Codes of professional conduct did not necessarily describe the applicable duty or standard of care in negligence - Further, the rule against borrowing from clients was a specific application of the general rules about conflict of interest - On the unusual facts here, those concerns did not arise - Perez appeared to have extended the loans voluntarily and on her own initiative - The firm did not in any way trade on its position as Perez's lawyer to obtain them - There was no duty on the defendants under negligence principles to give Perez advice about the loans or to insist that she obtain independent advice - Perez's claims that the solicitor/client contract and the fiduciary obligations owed by lawyers to clients had been breached failed for the same reason - No obligation arose on the part of the defendants to act solely in Perez's interests in relation to the loans - The trial judge had not erred in dismissing Perez's claims - See paragraphs 15 to 40.

Barristers and Solicitors - Topic 1504

Relationship with client - General - Solicitor-client relationship - What constitutes - [See Barristers and Solicitors - Topic 1502 ].

Barristers and Solicitors - Topic 1505.1

Relationship with client - General - Solicitor-client relationship - Breach of - [See Barristers and Solicitors - Topic 1502 ].

Barristers and Solicitors - Topic 1548

Relationship with client - Duty to client - General - Fiduciary duty - [See Barristers and Solicitors - Topic 1502 ].

Barristers and Solicitors - Topic 1554

Relationship with client - Duty to client - General - Duty to inform or advise client - [See Barristers and Solicitors - Topic 1502 ].

Barristers and Solicitors - Topic 1555

Relationship with client - Duty to client - General - Respecting independent legal advice - [See Barristers and Solicitors - Topic 1502 ].

Barristers and Solicitors - Topic 1605

Relationship with client - Conflict of interest or duties - Loan transactions - [See Barristers and Solicitors - Topic 1502 ].

Barristers and Solicitors - Topic 1617

Relationship with client - Conflict of interest or duties - Situations not resulting in a conflict - [See Barristers and Solicitors - Topic 1502 ].

Barristers and Solicitors - Topic 2501

Negligence - General principles - Standard of care - [See Barristers and Solicitors - Topic 1502 ].

Equity - Topic 3602

Fiduciary or confidential relationships - General principles - Elements of a fiduciary relationship - [See second and third Equity - Topic 3606 ].

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - Perez was employed by Galambos as his law practice office manager - Perez made unsecured loans to the firm of $200,000 - Galambos declared bankruptcy and the firm went into receivership - Perez recovered nothing - Perez sued Galambos and the firm (the defendants) - The action was dismissed - Perez's appeal was allowed on the basis that the particular circumstances of the relationship between Perez and the defendants gave rise to an ad hoc fiduciary duty - She was granted judgment for $200,000 - The Supreme Court of Canada allowed the defendants' appeal, restoring the trial judgment - The Court of Appeal found that the parties' relationship was similar in nature to the "power-dependency" relationship found in Norberg v. Wynrib (1992 S.C.C.) - This conclusion was directly at odds with the clear findings of fact at trial - In effect, the Court of Appeal retried the case, substituting its view of the facts and their significance for that of the trial judge - This was not the court's function and it erred in law by doing so - The trial judge found that Perez was not vulnerable - The Court of Appeal found that this finding of fact was unreasonable because Galambos had superior legal knowledge and experience and understood when professional financial advice was needed, while Perez looked up to and trusted him - However, the Court of Appeal identified no finding of fact relevant to the trial judge's conclusion on this point that was both clearly wrong and determinative of the result - Rather, the Court of Appeal simply drew different inferences - This was not a proper basis for appellate reversal of the trial judge's findings - It was not the Court of Appeal's role to substitute its reading of the record for that of the trial judge - The trial judge's findings of fact should not have been disturbed - See paragraphs 48 to 62.

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - Perez was employed by Galambos as his law practice office manager - Perez made unsecured loans to the firm of $200,000 - Galambos declared bankruptcy and the firm went into receivership - Perez recovered nothing - Perez sued Galambos and the firm (the defendants) - The action was dismissed - Perez's appeal was allowed on the basis that the particular circumstances of the relationship between Perez and the defendants gave rise to an ad hoc fiduciary duty - She was granted judgment for $200,000 - The Supreme Court of Canada allowed the defendants' appeal, restoring the trial judgment - Having found that a "power-dependency" relationship existed between Perez and the defendants, the Court of Appeal held that a fiduciary duty arose even in the absence of a mutual understanding that one party would act only in the interests of the other - The court disagreed with this approach for two reasons - First, "power-dependency" relationships were not a special category of fiduciary relationships - Not all power-dependency relationships were fiduciary in nature - There were not, nor should there be, special rules for recognition of fiduciary duties in the case of power-dependency relationships - Second, fiduciary duties were only imposed on those who had expressly or impliedly undertaken them - All cases required an undertaking by the fiduciary, express or implied, to act in accordance with the duty of loyalty - The undertaking might be the result of the exercise of statutory powers, the express or implied terms of an agreement or simply an undertaking to act in this way - In per se fiduciary relationships, the undertaking would be found in the nature of the category of relationship - But in both per se and ad hoc fiduciary relationships, there had to be some undertaking by the fiduciary to act with loyalty - The Court of Appeal erred in finding a fiduciary duty without finding an undertaking, express or implied, by Galambos to act in relation to the loans only in Perez's interests - There was no express undertaking - It would be inconsistent with the trial judge's factual findings to conclude that any such undertaking should be implied - See paragraphs 63 to 82.

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - Perez was employed by Galambos as his law practice office manager - Perez made unsecured loans to the firm of $200,000 - Galambos declared bankruptcy and the firm went into receivership - Perez recovered nothing - Perez sued Galambos and the firm (the defendants) - The action was dismissed - Perez's appeal was allowed on the basis that the particular circumstances of the relationship between Perez and the defendants gave rise to an ad hoc fiduciary duty - She was granted judgment for $200,000 - The Supreme Court of Canada allowed the defendants' appeal, restoring the trial judgment - It was fundamental to the existence of any fiduciary obligation that the fiduciary had a discretionary power to affect the other party's legal or practical interests - The presence of this sort of power would not necessarily on its own support the existence of an ad hoc fiduciary duty - Its absence, however, negated the existence of such a duty - The trial judge held that the evidence did not establish that Perez relinquished her decision-making power regarding the loans to Galambos or that there was any discretion over her interests that Galambos was able to exercise unilaterally or otherwise - The Court of Appeal did not disagree with these conclusions and no basis for doing so had been suggested - The trial judge's finding was fatal to Perez's claim that there was an ad hoc fiduciary duty on Galambos' part to act solely in Perez's interests in relation to the loans - See paragraphs 83 to 86.

Equity - Topic 3607

Fiduciary or confidential relationships - General principles - Relationships which are not fiduciary - [See Barristers and Solicitors - Topic 1502 and all Equity - Topic 3606 ].

Practice - Topic 8800

Appeals - General principles - Duty of appellate court regarding findings of fact - [See first Equity - Topic 3606 ].

Cases Noticed:

Hodgkinson v. Simms et al., [1994] 3 S.C.R. 377; 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1, refd to. [para. 29].

MacDonald Estate v. Martin and Rossmere Holdings (1970) Ltd., [1990] 3 S.C.R. 1235; 121 N.R. 1; 70 Man.R.(2d) 241, refd to. [para. 29].

Meadwell Enterprises Ltd. v. Clay and Co. (1983), 44 B.C.L.R. 188 (S.C.), refd to. [para. 29].

R. v. Neil (D.L.), [2002] 3 S.C.R. 631; 294 N.R. 201; 317 A.R. 73; 284 W.A.C. 73; 2002 SCC 70, refd to. [para. 31].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, refd to. [para. 36].

3464920 Canada Inc. v. Strother et al., [2007] 2 S.C.R. 177; 363 N.R. 123; 241 B.C.A.C. 108; 399 W.A.C. 108; 2007 SCC 24, refd to. [para. 37].

KRG Insurance Brokers (Western) Inc. v. Shafron et al., [2009] 1 S.C.R. 157; 383 N.R. 217; 265 B.C.A.C. 1; 446 W.A.C. 1; 2009 SCC 6, refd to. [para. 49].

Norberg v. Wynrib, [1992] 2 S.C.R. 226; 138 N.R. 81; 9 B.C.A.C. 1; 19 W.A.C. 1, refd to. [para. 52].

Mustaji v. Tjin et al. (1995), 24 C.C.L.T.(2d) 191 (B.C.S.C.), affd. (1996), 78 B.C.A.C. 178; 128 W.A.C. 178; 25 B.C.L.R.(3d) 220 (C.A.), refd to. [para. 52].

Guerin v. Canada, [1984] 2 S.C.R. 335; 55 N.R. 161, refd to. [para. 70].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 70].

Authors and Works Noticed:

American Law Institute, Restatement of the Law (Third), The Law Governing Lawyers (2000), §§ 121 [para. 31]; 126 [para. 30].

Finn, Paul D., Fiduciary Obligations (1977), para. 15 [para. 78].

Grant, Stephen M., and Rothstein, Linda R., Lawyers' Professional Liability (2nd Ed. 1998), pp. 8 to 10 [para. 29].

Jackson and Powell on Professional Liability (6th Ed. 2007), para. 2-130 [para. 37].

Law Society of British Columbia, Professional Conduct Handbook (1993), c. 7, rule 4 [para. 28].

Scott, Austin W., The Fiduciary Principle (1949), 37 Cal. L. Rev. 539, p. 540 [para. 78].

Smith, Lionel, Fiduciary Relationships - Arising in Commercial Contexts - Investment Advisors: Hodgkinson v. Simms (1995), 74 Can. Bar Rev. 714, generally [para. 76]; p. 717 [para. 78].

Weinrib, Ernest J., The Fiduciary Obligation (1975), 25 U.T.L.J. 1, p. 6 [para. 68].

Counsel:

George K. Macintosh, Q.C., and Tim Dickson, for the appellants;

Robert D. Holmes and John W. Bilawich, for the respondent.

Solicitors of Record:

Farris, Vaughan, Wills & Murphy, Vancouver, B.C., for the appellants;

Holmes & King, Vancouver, B.C., for the respondent.

This appeal was heard on April 15, 2009, by McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ., of the Supreme Court of Canada. On October 23, 2009, Cromwell, J., delivered the following judgment in both official languages for the court.