When the court finds a breach of fiduciary obligations, should equitable or legal remedies flow?

Author:Veitch, Edward
Position::Canada
 
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All law students can recite the judicial remedies utilized in their respective settings. In equity the list comprises an account of profits, restitution damages, the disgorgement of ill-gotten gains, the imposition of a constructive trust, rescission of contract, the decree of specific performance, and injunctive relief. And at common law, the range is somewhat constrained--damages ranging from compensatory to prophylactic to punitive do the trick. Pedants will no doubt argue that what is in the equitable grouping above should instead fall within the common law territory. But such quibbles can only lead to an extended stay in a psychiatric unit as we must cope with what our courts actually do and not fret over how much we would prefer judges to explain their judgments in light of our superior academic understanding.

A comparative reading of the recent jurisprudence of Canada's superior courts--with an occasional glimpse at that of our 'neighbours-in-law'--reveals that questions remain not only as to the nature of the fiduciary duty itself but also regarding the appropriate remedy to be employed in any particular dispute. For instance, should the remedy be legal or equitable? Interestingly--yet not surprisingly--the obvious questions for litigants and their counsel regarding this conundrum differ. Litigants ask whether these differences even matter. And their legal counsel query, "Well, yes, the type of remedy matters, but how we to render a reasoned opinion as to any possible outcome are?"

The diversity of judicial responses to these queries is nicely observed in the case law of the late 20th century. Earlier in the 20th century it was deemed inappropriate to award punitive damages for a breach of fiduciary duty, (1) but later decisions reversed this position in Canadian jurisprudence. (2) Our neighbours in the Antipodes were not impressed with this switch. They've stated: "The separation of equity and common law is of greater strength in Australian jurisprudence than appears to have become the case in other nations with similar traditions, including Canada and, it appears New Zealand." (3) And again: "Canadian authorities on equity must be treated with considerable caution." (4) Ouch!!! If there are fundamental questions still being posed on remedial choices then there also remain important queries regarding the very nature of fiduciary obligations.

The words of Professor Hector MacQueen--Head of the School of Law at the University of Edinburgh, in an opening address at a conference on point-- catch this uncertainty exactly:

Fiduciaries are of considerable importance in the modern legal system and across a very wide range. Is the subject a wilderness of single instances trusts, partnerships, agency--or is there a unifying principle covering those areas and others hitherto unidentified as such? What are the remedies for breach of fiduciary obligations? (5) Professor MacQueen's venue was, of course, Scotland--one of the so-called "mixed jurisdictions" enjoying a Roman or civilian law base with a common law overlay. (6) But that Roman law heritage does not appear to have offered up a unifying principle any more concrete than those the common law jurisdictions have developed by plodding along case-by-case. I suspect that our Canadian law is way too far along the road of serendipity to turn back to the original precepts of the Roman law. But it cannot be too harmful to refresh our memories of this ancient wisdom ...

Let's get into the Roman law. The verb fidere translates "to trust" and the phrase pactum fiduciae describes the contract of trust. Furthermore, the words actio bonae fidei speak to the cause of action for breach of trust. Additionally, the term negotiorum gestio historically established the duty on the holder of the assets of another to treat them as her or his own. Is this comparable to the common law's officious intermeddler? Perhaps it is. Perhaps we are closer to our Roman roots than previously suspected. Presumably then in the early 20th century the most distinguished of jurist--Justice Cardozo--got it right when he wrote: "The fiduciary is held to something stricter than the morals of the market place." (7)

In Canada--as elsewhere--judges have imposed fiduciary duties on parties in everyday commercial matters by fiat. This has escalated the degrees of legal responsibility in the market place. Those specifically affected have been realtors, (8) business consultants, (9) architects, (10) corporate directors, (11) and employees. (12) This "judicial creep" has caused some hand wringing in certain quarters--and particularly amongst financial advisers and parties to joint ventures ("JVs"). With regard to the former, their worries stem from the very essence of their operations--to recommend safe investments with low yields or riskier possibilities with higher returns, but all the while their commissions derive from whichever advice is given. (13)

The Alberta Law Review Institute has a considered opinion regarding JVs. (14) It has recommended a JV-specific statute so that participants are protected from the vagaries of judicially imposed fiduciary duties into their operations, which are unwanted. Interestingly, it is in this discrete area of commercial activity that the separation between the approaches of the courts and the expectations of the players in the market place is most discernable. That is, participants in JVs wish to have their liabilities inter se determined precisely by contractual provision so that they can obtain appropriate insurance coverage. JVs, therefore, have no desire for their negotiated positions to be varied by the imposition of fiduciary duties by court rulings. Nevertheless, it is only possible to speculate whether or not the parties to a JV can insulate themselves by some "ousting of the jurisdiction" clause, which expressly excludes such additional obligations at this time. (15) In essence, this is not immediately clear.

Yet we must not castigate the judiciary for such interference into commercial matters. Instead we should recognize that they have been encouraged to do so by lawyers through the everyday practice of pleading in the alternative. Since the invitation of the Ontario Court of Appeal in Fine's Flowers of 1977, no responsible plaintiff's counsel will fail to plead in triplicate--i.e., to plead in breach of contract, in some tortuous omission, and a breach of fiduciary duty. (16) This practice raises the question of whether there is any remedial advantage to be gained through this practice. Or does this just create uncertainty in the jurisprudence?

A recent decision of the Alberta Court of Appeal illustrates one form of the lawyers' response to Fine's Flowers. This appellate court assessed...

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