A theory of fiduciary liability.

• Author: Miller, Paul B.
• Position: Canada

The law of fiduciaries has been developed in an unprincipled manner. Consequently, the common law lacks a clear idea of the nature of the fiduciary relationship, the justification for fiduciary duties, and the purpose of fiduciary remedies. However, according to the author a principled theory of fiduciary liability may be derived from the common law. The focal point is the recent decision of the Supreme Court of Canada in Galambos v. Perez. The theory of liability suggested by Galambos and developed by the author is based on the conventional notion that fiduciary liability is premised upon the existence of a fiduciary relationship. The author argues that a clearer account of the nature and normative significance of the fiduciary relationship is critical to developing a sound understanding of the nature and scope of fiduciary duties. Under the theory developed by the author, the fiduciary relationship is treated as a distinctive kind of legal relationship. It is one in which one person (the fiduciary) wields discretionary power over the practical interests of another (the beneficiary). According to the author, fiduciary duties are explicable solely in terms of normatively salient qualities of the fiduciary relationship. The author explains these qualities and shows how they support and limit the incidence of fiduciary duties.

Le droit fiduciaire fut developpe sans principe directeur. Par consequent, la common law n'a pas d'idee claire de ce qu'est la nature de la relation fiduciaire, de la justification des obligations fiduciaires et de l'objectif des remedes fiduciaires. Toutefois, selon l'auteur, le principe theorique de la responsabilite fiduciaire provient peut-etre de la common law. L'element principal est le jugement recemment rendu par la Cour supreme du Canada dans Galambos c. Perez. La theorie de la responsabilite suggeree par Galambos et developpee par l'auteur est basee sur la notion conventionnelle selon laquelle la relation fiduciaire est la premisse sur laquelle l'existence d'une responsabilite fiduciaire est etablie. L'auteur tente de demontrer qu'une explication plus claire de la nature et de la signification normative de la relation fiduciaire est un element essentiel au developpement d'une comprehension informee de la nature et de la portee des obligations fiduciaires. Selon la theorie developpee par l'auteur, la relation fiduciaire est traitee comme etant une relation legale distincte. II s'agit d'une relation dans laquelle une personne (le fiduciaire) exerce un pouvoir discretionnaire sur les interets d'une autre personne (le beneficiaire). Selon l'auteur, les obligations fiduciaires dependent principalement des qualites normatives saillantes de la relation fiduciaires. L'auteur explique ces qualites et demontre comment ces dernieres supportent et limitent l'incidence des obligations fiduciaires.

Introduction I. Approximate Approaches to Fiduciary Liability A. The Nature oldie Fiduciary Relationship 1. Stares-Based Fiduciary Relationships 2. Fact-Based Fiduciary Relationships 3. Problems with the Status- and Fact-Based Approaches B. The Foundation of Fiduciary Obligation 1. The Formation of Fiduciary Relationships 2. The Basis of Fiduciary Duties C. The Nature and Scope of Fiduciary Obligation II. An Emerging Theory of Fiduciary Liability A. The Nature of die Fiduciary Relationship 1. The Fiduciary Relationship Defined 2. Implications for file Status- and Fact-Based Approaches B. The Foundation of Fiduciary Obligation 1. The Formation of Fiduciary Relationships 2. The Basis of Fiduciary Duties C. The Nature and Scope of Fiduciary Obligation III. Emendations and Amplification A. The Nature of the Fiduciary Relationship 1. Moving Beyond die Status-and Fact-Based Approaches 2. Amplifying the Definition of file Fiduciary Relationship B. The Foundation of Fiduciary Obligation 1. The Formation of Fiduciary Relationships: Emendations 2. Revisiting file Basis of Fiduciary Duties C. The Nature and Scope of Fiduciary Obligation 1. Distinguishing Fiduciary from Non-Fiduciary Duties 2. Determining the Scope of Fiduciary Obligation Conclusion Introduction

Throughout the common law world, the law of fiduciaries has proven unusually vexing due to prevailing uncertainty on the essential elements of fiduciary liability. There is some consensus on the basic parameters of liability, including the kinds of relationships that are fiduciary, the duties that constrain the conduct of fiduciaries, and the remedies triggered by breach of fiduciary duty. Put simply, it is generally accepted that fiduciary relationships give rise to fiduciary duties owed by the fiduciary to the beneficiary, breach of which vests in the beneficiary remedial rights relative to the fiduciary.

There is agreement on little else. Thus, the law has evolved absent a general theory of liability. We lack a clear concept of the fiduciary relationship, the basis of fiduciary duties, or the purposes served by fiduciary remedies. This has meant considerable uncertainty and inconsistency in the authorities, as a result of which fiduciary liability has been condemned as incoherent. Some have suggested that the incoherence reflects a flawed fundamental premise in our thinking about the nature of fiduciary liability. We have been misled in assuming that fiduciary liability is a distinctive form of private liability; it might better be understood as an outgrowth of contract or unjust enrichment. (1)

The predicament facing fiduciary law is not simply the product of neglect. Several important theoretical analyses of fiduciary liability have been offered. (2) None of them has yet earned significant support. However, judges have generally been reluctant to address fundamental questions about fiduciary liability. The jurisprudence reveals a tendency to assert rather than explain the existence of fiduciary relationships and to assume rather than justify obligations attendant upon them.

The jurisprudence of the Supreme Court of Canada has departed from this tendency. The Court has shown rare sensitivity to conceptual problems and it has attempted to confront some of them. Its efforts have not been well-received. Indeed, the fiduciary jurisprudence of the Court has been roundly excoriated. Observers claim that fiduciary law in Canada is particularly unprincipled and incoherent. (3) Some think that the parameters of fiduciary liability are so ill-defined that anyone might unwittingly become a fiduciary. In A.(C.) v. Critchley, the British Columbia Court of Appeal amplified a scathing indictment rendered by the Chief Justice of Australia, as he then was:

In a speech delivered in 1988 to a Canadian-Australian legal-judicial exchange in Canberra, Mason C.J.A. commented humorously, but with considerable accuracy, that: "All Canada is divided into three parts: those who owe fiduciary duties, those to whom fiduciary duties are owed, and judges who keep creating new fiduciary duties!" Our Supreme Court of Canada has led the way in the common law world in extending fiduciary responsibilities and remedies but it has not provided as much guidance as it usually does in emerging areas of law. The law in this respect has been extended by our highest court not predictably or incrementally but in quantum leaps so that judges, lawyers and citizens alike are often unable to know whether a given situation is governed by the usual laws of contract, negligence or other torts, or by fiduciary obligations whose limits are difficult to discern. (4) To an extent, the criticism is justified. The Court has not supplied a coherent theory of fiduciary liability. It has struggled to articulate the nature of the fiduciary relationship, the foundation of fiduciary duties, and the function of fiduciary remedies. The reasoning in many leading judgments seems ad hoc. Yet, the criticism is unfair given that these failings are universal. Fiduciary law everywhere has eluded a sound theory of liability.

It is to the credit of the Court that it has been willing to hazard answers to fundamental questions about fiduciary liability. Despite its failure to provide decisive answers, the Court has meaningfully contributed to collective efforts to clarify the foundation, nature, and scope of fiduciary liability. Perhaps chastened by criticism, the Court had not for a decade addressed these issues in broad terms. (5) That alone makes its recent decision in Galambos v. Perez momentous. (6)

The history of the Court's entanglements in the fundamental questions of fiduciary liability, set off against its recent silence, might have generated expectations that it would shy away from broad pronouncements. Those expectations are not borne out. Indeed, Galambos offers an encompassing and generally salutatory reinterpretation and extension of the Court's fiduciary jurisprudence.

In what follows, I offer a contextual analysis of Galambos in light of the overriding problem of establishing the theoretical basis of fiduciary liability. In Part I, I argue that the Court's pre-Galambos jurisprudence yields approximate approaches to fiduciary liability. Determinations of liability are approximate in that they are premised not upon principles but rather upon inexact characterizations of the fiduciary relationship. Despite this, in Part II, I argue that selected elements of that jurisprudence, as interpreted in Galambos, are suggestive of a principled theory of liability. At the core of the theory lies a clear idea of the essential character of the fiduciary relationship. This idea is critical to the development of a more robust account of the foundation, nature, and scope of fiduciary obligation. In Part III, I highlight problems with residuum of the approximate approach and suggest how the emerging theory of fiduciary liability might be usefully emended, amplified, and extended.

1. Approximate Approaches to Fiduciary Liability

   Determinations of fiduciary liability are exercises in approximation. This is true...