Fiduciary Legal Definition:

A legal duty of loyalty and faithfulness towards another.

Related Terms: Accounts , Accounting , Trust , Trustee , Beneficiary , Agent , Principal

In Joostens Canada v Gibsons Studios (42 BCLR 3d 149, 1997), the British Columbia Court of Appeal wrote of fiduciary:

"The word itself is of Latin origin from the noun fiducia meaning trust which is related to the noun fidelitas from which we derive the word fidelity through, if not a common descent, then association with the word fides (faith) which turns up in the phrase bona fide and which itself is closely linked to the word fidere (to trust), which brings us back to fiducia.

"Every servant and every agent owes to his master or principal duties of good faith and fidelity.  He owes those duties because the law imports those duties as a contractual term or because the contract contains an express term to that effect or because a court of equity would have imposed an obligation of good faith and fidelity as a matter of conscience."

Normally, the term is used synonymously with trustee, the classic form of a fiduciary relationship.

A fiduciary has rights and powers which would normally belong to another person. The fiduciary holds those rights which he or she must exercise to the benefit of the beneficiary.

A fiduciary must not allow any conflict of interest to infect their duties towards the beneficiary and must exercise a high standard of care and good faith in protecting or promoting the interests of the beneficiary:

"Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound buy fiduciary ties."1

Fiduciary responsibilities exist for persons other than trustees such as between solicitor and client and principal and agent.

In Frame v Smith (cited as [1987] 2 SCR 99), the Supreme Court of Canada stated:

"In the past the question whether a particular relationship is subject to a fiduciary obligation has been approached by referring to categories of relationships in which a fiduciary obligation has already been held to be present. Some recognized examples of these categories are relationships between directors and corporations, solicitors and clients, trustees and beneficiaries, agents and principals, life tenants and remaindermen, and partners. As well, it has frequently been noted that the categories of fiduciary relationship are never closed.

"Relationships in which a fiduciary obligation have been imposed seem to possess three general characteristics: the fiduciary has scope for the exercise of some discretion or power; the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests; (and) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power."

In Ben-Israel v Valcare Medical, 78 CPR (3d) 94, 1997, Justice Beaulieu of the Ontario Court added:

"A fiduciary duty imposes the highest duty in law on the party holding the duty - the fiduciary - to act altruistically for the sole benefit of the beneficiary, to the fiduciary's own detriment if necessary. The traditional categories of relationship in which a fiduciary duty exists are agent to principal, lawyer to client, trustee to beneficiary, business partner to partner, and director to corporation. In all of these situations, a fiduciary duty exists because the fiduciary has assumed a position, and taken on a responsibility, in which the beneficiary's interest is dependent upon the fiduciary's actions. There are, however, other situations in which the duty arises, based on the particular situation and relationship of the parties...."

An important clarification was made by Canada's Supreme Court in EDG v Hammer 2003 SCC 52 where a majority of the Court agreed with Chief Justice McLachlin when she stated that:

"Fiduciary obligations are not obligations to guarantee a certain outcome for the vulnerable party, regardless of fault.  They do not hold the fiduciary to a certain type of outcome, exposing the fiduciary to liability whenever the vulnerable party is harmed by one of the fiduciary’s employees.  Rather, they hold the fiduciary to a certain type of conduct.

"(A) fiduciary is not a guarantor.  A fiduciary does not breach his or her duties by simply failing to obtain the best result for the beneficiary”.

As to a Canada-USA distinction, these words were used by the British Columbia Supreme Court in Frederickson v ICBC, published at 69 DLR 4th 399 (1994):

"(T)he doctrinal basis relied on in the U.S. is significantly different from what is commonly referred to in the law of Canada and other Commonwealth countries as breach of fiduciary duty. The U.S. cases rest on the rule that an obligation of good faith and fair dealing is implied in every contract, a rule of law not generally accepted in this country. When the American cases in this area refer to 'fiduciary duty' they refer to that implied term. What we refer to as fiduciary duty is the obligation imposed in earlier centuries by courts of equity, and authoritatively recognized in the early years of this century...."

REFERENCES: Meinhard v. Salmon, 249 N.Y. 458 at page 464 (1928)

Categories & Topics:

Unless otherwise noted, this page was written by of Duhaime.org

Always looking up definitions? Save time with our search provider (modern browsers only)

If you find an error or omission in Duhaime's Law Dictionary, or if you have suggestion for a legal term, we'd love to hear from you!