Galambos v. Perez

Galambos v. Perez
Collection
Supreme Court Judgments
Date
2009-10-23
Neutral citation
2009 SCC 48
Report
[2009] 3 SCR 247
Case number
32586
Judges
McLachlin, Beverley; Binnie, William Ian Corneil; LeBel, Louis; Deschamps, Marie; Fish, Morris J.; Abella, Rosalie Silberman; Charron, Louise; Rothstein, Marshall; Cromwell, Thomas Albert
On appeal from
British Columbia
Subjects
Torts
Notes
SCC Case Information: 32586
Decision Content
SUPREME COURT OF CANADA
Citation: Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247
Date: 20091023
Docket: 32586
Between:
Michael Z. Galambos and Michael Z. Galambos Law
Corporation, both carrying on business as “Galambos
& Company” and the said Galambos & Company
Appellants
and
Estela Perez
Respondent
Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.
Reasons for Judgment:
(paras. 1 to 88)
Cromwell J. (McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ. concurring)
______________________________
Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247
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
Indexed as: Galambos v. Perez
Neutral citation: 2009 SCC 48.
File No.: 32586.
2009: April 15; 2009: October 23.
Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.
on appeal from the court of appeal for british columbia
Torts — Negligence — Fiduciary duty — Bookkeeper making unsolicited and voluntary cash advances to employer law firm which was experiencing financial difficulties — Law firm acting on bookkeeper’s behalf in preparing two wills and in handling two mortgage transactions while she was working for it — Law firm going bankrupt and bookkeeper finding herself unsecured creditor — Whether duty of care under negligence principles or per se fiduciary obligations arose within solicitor‑client relationship — Whether ad hoc fiduciary duties arose from power dependency relationship existing between bookkeeper and lawyer — Whether in such relationships, fiduciary duties may arise simply on basis of reasonable expectations of weaker party and without any mutual understanding of both parties that one must act in interests of the other — Whether fiduciary duties may arise although fiduciary has no discretionary power to affect other party’s legal or important practical interests.
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, an instruction 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 was placed in receivership and G went bankrupt, P found herself an unsecured creditor. She 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 concluded that P was entitled to equity’s protection because there were ad hoc fiduciary duties owed to her by G and his law firm in relation to the cash advances, which they had breached. 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.
Held: The appeal should be allowed and the trial judgment should be restored except that, if the parties cannot agree, the question as to whether P is entitled to a judgment in debt against the law firm and, if so, whether there is any impact on the costs ordered at trial or on appeal to the Court of Appeal flowing from that judgment, should be remanded to the Court of Appeal.
The Court of Appeal exceeded the limits of appellate review and unduly extended the scope of fiduciary obligations. Absent an error of law or a palpable and overriding error of fact, of which there is none, 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. [3] [49] [53]
In holding that the relationship between P and G and his firm gave rise to an ad hoc fiduciary duty, the Court of Appeal erred in three respects. First, the conclusion that G was in a position of power and influence relative to P is directly at odds with the clear findings of fact at trial. The trial judge found that P was not vulnerable in terms of her relationship with G, that she probably had more knowledge of the state of G’s financial affairs than he did, that she had not relinquished her decision‑making power with respect to the loans and that G had no discretion over her interests that he was able to exercise unilaterally or otherwise. The trial judge specifically rejected P’s contention that due to the power dynamics of their relationship she was simply unable to refuse requests for loans. There was no evidence accepted by the trial judge 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. [48] [51‑55] [57]
Second, 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. It follows that there are not, and should not be, special rules for recognition of fiduciary duties in the case of power‑dependency relationships. Here, 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 provided there is proof of an expectation on the part of the plaintiff, which is reasonable in all of the circumstances, that the defendant would act in his or her best interests. The Court of Appeal found P to have such a reasonable expectation. While a mutual understanding may not always be necessary — a point that need not be decided here — it is fundamental to all ad hoc fiduciary duties that there be an undertaking by the fiduciary, which may be either express or implied, that the fiduciary will act in the best interests of the other party, in accordance with the duty of loyalty reposed on him or her. The fiduciary’s undertaking may be the result of the exercise of statutory powers, the express or implied terms of an agreement or, perhaps, simply an undertaking to act in this way. In cases of per se fiduciary relationships, this undertaking will be found in the nature of the category of relationship in issue. The critical point is that 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. [63‑64] [66] [74‑75] [77] [80]
The third error arises by implication because 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, perhaps 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. While what is sufficient to constitute power in the hands of the fiduciary may be controversial in some cases, the requirement for the existence of such power in the fiduciary’s hands is not. 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, with which the Court of Appeal did not disagree, are 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. [50] [84‑86]
Moreover, given the limited nature of the retainers and the unusual nature of the advances, the trial judge did not err in finding that 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. Similarly, there could not be in these unusual facts any reasonable apprehension of conflict. Given the very limited nature of those 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. [33]
With respect to P’s contractual claims against the law firm, out of an abundance of caution and if the parties cannot agree, the question of whether a judgment in debt in P’s favour against the firm should issue and, if so, its impact, if any, on the costs ordered at trial and on the appeal to the Court of Appeal should be remanded to the Court of Appeal. [46]
Cases Cited
Referred to: Hodgkinson v. Simms, [1994] 3 S.C.R. 377; MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235; Meadwell Enterprises Ltd. v. Clay and Co. (1983), 44 B.C.L.R. 188; R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631; Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; Strother v. 3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177; Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157; Norberg v. Wynrib, [1992] 2 S.C.R. 226; Mustaji v. Tjin (1995), 24 C.C.L.T. (2d) 191, aff’d (1996), 25 B.C.L.R. (3d) 220; Guerin v. The Queen, [1984] 2 S.C.R. 335; Frame v. Smith, [1987] 2 S.C.R. 99.
Statutes and Regulations Cited
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, s. 69.4 .
Supreme Court Act, R.S.C. 1985, c. S‑26, s. 46.1 .
Authors Cited
American Law Institute. Restatement (Third) of the Law Governing Lawyers. St. Paul, Minn.: American Law Institute Publishers, 2000.
Finn, P. D. Fiduciary Obligations. Sydney: Law Book Co., 1977.
Grant, Stephen M., and Linda R. Rothstein. Lawyers’ Professional Liability, 2nd ed. Toronto: Butterworths, 1998.
Jackson & Powell on Professional Liability, 6th ed. London: Sweet & Maxwell, 2007.
Law Society of British Columbia. Professional Conduct Handbook. The Society, 1993.
Scott, Austin W. “The Fiduciary Principle” (1949), 37 Cal. L. Rev. 539.
Smith, Lionel. “Fiduciary Relationships — Arising in Commercial Contexts — Investment Advisors: Hodgkinson v. Simms” (1995), 74 Can. Bar Rev. 714.
Weinrib, Ernest J. “The Fiduciary Obligation” (1975), 25 U.T.L.J. 1.
APPEAL from a judgment of the British Columbia Court of Appeal (Rowles, Levine and Thackray JJ.A.), 2008 BCCA 91, 78 B.C.L.R. (4th) 268, 253 B.C.A.C. 149, 425 W.A.C. 149, 291 D.L.R. (4th) 537, [2008] 7 W.W.R. 39, 55 C.C.L.T. (3d) 243, [2008] B.C.J. No. 309 (QL), 2008 CarswellBC 339, setting aside a decision of Rice J., 2006 BCSC 899, [2006] B.C.J. No. 1396 (QL), 2006 CarswellBC 1523. Appeal allowed.
George K. Macintosh, Q.C., and Tim Dickson, for the appellants.
Robert D. Holmes and John W. Bilawich, for the respondent.
The judgment of the Court was delivered by
Cromwell J. —
I. Introduction
[1] This appeal arises out of the developing jurisprudence about fiduciary obligations. The facts are unusual, if not unique. At the centre of the case are sizeable advances of cash — some $200,000 in total — made by Ms. Perez to her employer, the appellant law firm founded by Mr. Galambos. Ms. Perez made these advances voluntarily, much on her initiative and often without informing Mr. Galambos beforehand. When the firm was placed in receivership and Mr. Galambos went bankrupt, she found herself an unsecured creditor. She recovered nothing. With the necessary leave of the court (under s. 69.4 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3 ), she sued Mr. Galambos and the defunct firm for negligence, breach of contract and breach of fiduciary duty, no doubt in the hope that, as the trial judge observed, success in these claims might allow her to recover from the appellants’ professional liability insurance.
[2] Ms. Perez’s claims failed at trial where the judge found that her rights were those of a creditor and nothing more (2006 BCSC 899, [2006] B.C.J. No. 1396 (QL)). The Court of Appeal, however, set aside that decision (2008 BCCA 91, 78 B.C.L.R. (4th) 268). It concluded that Ms. Perez was entitled to equity’s protection because there were fiduciary duties owed to her by the appellants which they had breached. The appellants now appeal to this Court. Although there are several issues, the main question is whether the Court of Appeal was correct to find the appellants owed and breached fiduciary duties to Ms. Perez.
[3] In my respectful view, the Court of Appeal exceeded the limits of appellate review and unduly extended the scope of fiduciary obligations. The trial judge was right to dismiss Ms. Perez’s claims and the Court of Appeal erred in law by reversing that decision.
II. Issues
[4] The focus of the appeal is the appellants’ contention that the Court of Appeal wrongly found that they were Ms. Perez’s fiduciaries in relation to the cash advances which she made. Ms. Perez, in responding to the appeal, not only defends the Court of Appeal’s decision, but also renews other arguments which she advanced unsuccessfully at trial. She submits that the appellants acted throughout as her lawyers and in the course of doing so, breached fiduciary duties inherent to the solicitor‑client relationship, acted negligently and in breach of contract. She also raises arguments based on her employment contract and her claim in debt against the firm.
[5] I find it more convenient to address Ms. Perez’s submissions on these points first and then turn to what I view as the heart of the appeal, the appellants’ challenge to the Court of Appeal’s decision. A brief overview of the facts, claims and proceedings will set the stage.
III. Overview of Facts, Claims and Proceedings
A. Facts
[6] Ms. Perez was hired in May 2001 as the firm’s part‑time bookkeeper. She did excellent work and in October 2001 she started to work full-time, effectively becoming the office manager. As part of her duties, she oversaw all of the firm’s income, expenses and accounting and had unlimited signing authority on the firm’s bank accounts, except trust accounts.
[7] In January 2002 the firm experienced a cash flow problem. To resolve it, Ms. Perez obtained a personal loan and deposited $40,000 into the firm’s account. The trial judge found that Mr. Galambos did not ask her to advance this money and that he did not even know about the advance until several days later (para. 61). It is common ground that Mr. Galambos instructed Ms. Perez to reimburse herself with interest, an instruction she did not follow other than by repaying herself $15,000.
[8] During and after 2002, the firm’s financial situation deteriorated. Ms. Perez made several more deposits of her own funds into the firm’s account and covered some firm expenses with her personal credit card. The trial judge found that Ms. Perez made several of the advances without informing Mr. Galambos beforehand and that she extended the loans voluntarily, much on her own initiative and without undue influence by Mr. Galambos (paras. 62-63). The trial judge described what happened this way:
As the [financial] decline continued, Mrs. Perez began to deposit more monies of her own into the general account of the firm. On February 12 and 21, 2003, she deposited cheques for $10,000 and $22,000. She testified that she would observe that the funds were needed and inform Mr. Galambos. According to her, he would simply ask her to "do something". She would then, without necessarily telling him first, deposit more funds of her own into the firm’s account.
In addition to these deposits, Mrs. Perez frequently paid for the firm’s supplies with her own credit card and then reimbursed herself for those expenses. She even used her card to make certain personal purchases for Mr. Galambos, such as two suits when she accompanied him once to Harry Rosen’s and a down payment when she accompanied him once to sign a lease for a Mercedes. Mr. Galambos was aware that this was her practice. He said she volunteered to use her personal credit card in this way so that she could pick up frequent flyer points as a perquisite.
All the while, throughout 2003 and early 2004, the decline in the firm’s fortunes continued, and clearly so. The DOJ work, which had made up most of the firm’s revenue, continued to drop. The firm laid off staff. The bank overdraft was constantly at its limit and beyond. The plaintiff kept advancing money, asserting several times in her testimony that she did so in reliance on Mr. Galambos’s promises that the firm’s fortunes would improve and that he would pay her back. According to Mrs. Perez, he told her that there were one or two files soon to be completed with high contingency fees and that he was on the verge of obtaining lucrative new legal work. He even took her to meet the new client. By March 2004, the firm owed Mrs. Perez approximately $200,000. [paras. 17-19]
[9] During the time she worked for the firm, it handled the preparation and execution of new wills for Ms. Perez and her husband as well as two mortgage transactions, with respect to at least one of which the firm also acted for the lender. The firm did not expect to be and was not paid for these services.
B. Claims
[10] Ms. Perez claimed that there was an ongoing solicitor-client relationship between her and Mr. Galambos’s firm because free legal services were part of her employment contract. She submitted that Mr. Galambos and the firm breached an implied term of the retainer and their fiduciary duties to her by failing to provide her with the legal advice she required in connection with her loans to the firm and by acting for her while in a conflict of interest. She also asserted that Mr. Galambos and the firm were fiduciaries even apart from the solicitor-client relationship and that they had breached their obligations to her. She made other claims in contract and negligence.
C. Proceedings
[11] At trial, all of Ms. Perez’s claims were dismissed. The trial judge, Rice J., found that there were no fiduciary duties in relation to the cash advances. He rejected Ms. Perez’s contention that there was any ongoing, general solicitor-client relationship; he found, contrary to her position, that free legal services were not a term of her employment. He concluded that the retainers for the wills and mortgages were each distinct and limited to the services requested and that the loans were outside the ambit of the limited solicitor-client relationship which existed between the parties (paras. 24-40). He also found that there was no fiduciary relationship apart from these retainers since Ms. Perez was not vulnerable and had not relinquished any decision-making power to Mr. Galambos (paras. 41-46). As for Ms. Perez’s negligence claim, the trial judge concluded that Mr. Galambos had not been negligent in his conduct of his business, that he owed no special duty to Ms. Perez in that regard in any case, that she did not rely on Mr. Galambos’s expressions of hope that things would turn around and that it would have been unreasonable for her to do so, given her detailed knowledge of the firm’s finances. Finally, the judge firmly rejected Ms. Perez’s allegations of coercion and undue influence by Mr. Galambos (paras. 54-55).
[12] Writing for the Court of Appeal, Rowles J.A. agreed with the trial judge that it was not a term of Ms. Perez’s employment that the firm would provide free legal services on all matters or act as her lawyer generally. Also in apparent agreement with the trial judge, the court doubted that the limited solicitor-client relationships that did exist between Ms. Perez and the firm provided a basis for finding any breach of the per se fiduciary obligations arising from the relationship of solicitor and client. However, the court concluded that Mr. Galambos had breached an ad hoc fiduciary duty which arose in all of the circumstances, even though Ms. Perez did not specifically submit before the Court of Appeal that there was a duty arising that way. The court held that there was a “power-dependency” relationship between Ms. Perez and Mr. Galambos; it is not necessary for the duty to arise that there be any mutual understanding that Mr. Galambos had relinquished his self-interest in favour of hers; Ms. Perez was vulnerable; and the evidence “overwhelmingly” supported the conclusion that Mr. Galambos took advantage of her trust (paras. 16 and 50-56). The Court of Appeal therefore allowed the appeal and granted Ms. Perez judgment for $200,000.
IV. Analysis
A. Respondent’s Issues
[13] Ms. Perez submits that the appellants acted throughout as her lawyers and that, in doing so, they acted negligently, in breach of contract and in breach of a fiduciary duty flowing from that solicitor-client relationship. She also makes brief submissions with respect to her contract of employment and her claim in debt against the now-defunct firm.
[14] Except in one aspect, I am not persuaded that these points have merit. I will first address the submissions arising from the solicitor-client relationship and then turn to the other claims.
1. Claims Arising From the Solicitor-Client Relationship
a. Negligence
[15] At trial, Ms. Perez submitted that the appellants had a duty of care towards her under negligence principles, both within the solicitor-client relationship and apart from that relationship. In this Court, her submissions about negligence are limited to breaches of duty within the solicitor-client relationship.
[16] In June of 2002, a Galambos & Co. lawyer handled the preparation and execution of new wills for Ms. Perez and her husband. The firm also handled mortgage transactions in January and September of 2003.
[17] The foundation of Ms. Perez’s negligence submission is that there was a general and ongoing solicitor-client relationship between the appellants and herself. She maintains that this relationship existed throughout her employment and covered all necessary legal work during that time including, of course, the period during which she advanced funds to the firm. Ms. Perez submits that the appellants breached the duty of care which was inherent in this solicitor-client relationship, saying that they were negligent by placing themselves in a position of conflict of interest with her, failing to advise her in connection with the cash advances and failing to require or suggest that she seek independent legal advice before making the cash advances to the firm.
[18] In the particular and admittedly unusual facts of this case, these submissions cannot be accepted. Given the strong findings of fact by the trial judge, the particular nature of the appellants’ retainers and the nature of the advances themselves, I see no reviewable error in Rice J.’s rejection of these claims.
[19] The trial judge made three especially important factual findings which in my view cannot be disturbed on appeal.
[20] The first is that, contrary to Ms. Perez’s contentions, there was no ongoing, general solicitor-client relationship. While Ms. Perez claimed that she had been promised free legal work as a condition of her employment, the judge concluded that this was not a term of her employment and that the firm had not undertaken to be her lawyer generally or to provide her with any specific legal service (para. 27). This was a finding of fact made by the judge after consideration of conflicting evidence and no basis has been made out for setting it aside. It follows that an important factual element of Ms. Perez’s claims does not exist.
[21] The judge’s second finding related to the legal work undertaken by the firm on Ms. Perez’s behalf. He found that each retainer was limited to the specific services requested and was unrelated to the advances she made to the firm. While the judge did make a factual mistake in his discussion of this issue as I shall describe, I see no proper basis to interfere with his conclusions about the nature of the retainers.
[22] With respect to the wills, the trial judge noted that Ms. Perez herself acknowledged that this legal work had nothing to do with the previous or subsequent advances of funds that she made to the firm (para. 29).
[23] With respect to the mortgages, the judge found that these retainers were unrelated to the cash advances and were limited to the particular services requested. He put it this way, at paras. 36-37:
On the whole, the evidence indicates that Mrs. Perez retained Galambos & Company for three specific legal purposes: to obtain a new will and to complete two mortgage transactions. Aside from those, Mrs. Perez’s only relationship with the firm was as an employee and a creditor. There was, at the time these services were performed, no commitment of the firm to provide Mrs. Perez with any legal service in the future. There is no evidence that Mrs. Perez consulted anyone in the firm for legal advice on any matter outside the confines of the three specific transactions. In particular, there is no evidence that she ever asked Mr. Galambos or another lawyer at the firm to advise her about the loans or about her financial circumstances generally. On the contrary, she made some advances on her own initiative without telling Mr. Galambos beforehand.
In the circumstances, I find that each retainer was separate, distinct, and limited to the specific services Mrs. Perez requested. [Emphasis added.]
[24] The judge’s third finding was that Ms. Perez did not ask for or receive advice about the advances, that she did not rely on anything Mr. Galambos told her when she decided to make the advances and that, even if she had so relied, that reliance would have been unreasonable in the particular circumstances of the case (paras. 47-53).
[25] In light of these findings, Ms. Perez’s submissions about negligence cannot succeed. The solicitor-client relationship between Ms. Perez and the appellants was very limited and there is no plausible suggestion that the firm’s preparation of the wills and the mortgages breached the standard of care owed to her. As the trial judge put it, “Mrs. Perez has no complaint relating to any of the legal services or advice that the firm provided. Those transactions did not leave her disadvantaged in any way” (para. 40).
[26] Was there a breach of any duty owed in relation to the cash advances? Ms. Perez argues that it is illogical to say that the subject matters of the legal services were distinct from the loans because drawing up a will involves knowing the state of a client’s assets and liabilities and that “the relation of the two mortgage transactions to the loans is obvious” (Factum, at para. 66). She submits that the proceeds were used to provide the advances. However, the trial judge found as a fact that the mortgages had nothing to do with her advances to the firm and rejected as inconclusive the only piece of evidence which could have supported the theory that Mr. Galambos helped her obtain one of the loans by attesting to her employment status (paras. 29 and 56-61). Ms. Perez has pointed to no proper basis for appellate interference with these findings.
[27] That said, Ms. Perez correctly submits that the judge was wrong to find that there was no solicitor-client relationship between her and the firm at the time of any of her cash advances. The record discloses that Ms. Perez did make some advances to the firm while there were open files for some of the matters in which the firm acted for her. During these periods, Ms. Perez advanced Galambos & Co. amounts which are difficult to calculate precisely from the record, but which were at least in the tens of thousands of dollars. The judge erred, therefore, in saying, at para. 37, that she was not a client at any of the times when she made loans to the firm. However, this factual mistake does not in my view invalidate the judge’s critical finding that the retainers were distinct, limited and had no bearing on these advances.
[28] I would not wish to be thought as saying that the firm complied with all of the applicable rules of professional conduct. The fact that these advances were made outside the confines of this particular solicitor-client relationship does not circumvent the nearly absolute professional standard not to borrow from clients. As provided in rule 4 of Chapter 7 of the Law Society of British Columbia Professional Conduct Handbook (1993): “Unless the transaction is of a routine nature to and in the ordinary course of business of the client, a lawyer must not borrow money or obtain credit from a client of the lawyer’s firm, or obtain a benefit from any security or guarantee given by such a client.”
[29] However, two points must be made with respect to this rule of conduct. The first is that there is an important distinction between the rules of professional conduct and the law of negligence. Breach of one does not necessarily involve breach of the other. Conduct may be negligent but not breach rules of professional conduct, and breaching the rules of professional conduct is not necessarily negligence. Codes of professional conduct, while they are important statements of public policy with respect to the conduct of lawyers, are designed to serve as a guide to lawyers and are typically enforced in disciplinary proceedings. They are of importance in determining the nature and extent of duties flowing from a professional relationship: Hodgkinson v. Simms, [1994] 3 S.C.R. 377, at p. 425. They are not, however, binding on the courts and do not necessarily describe the applicable duty or standard of care in negligence: see, e.g., MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235, at pp. 1244-45; Meadwell Enterprises Ltd. v. Clay and Co. (1983), 44 B.C.L.R. 188 (S.C.); S. M. Grant and L. R. Rothstein, Lawyers’ Professional Liability (2nd ed. 1998), at pp. 8-10.
[30] The second point relates to the concerns underlying the rules of conduct in relation to borrowing from clients. The rule is a specific application of the general rules about conflict of interest. There is concern that a lawyer’s legal skill and training, coupled with the relationship of trust that arises between a solicitor and a client, creates the possibility of overreaching by the lawyer. A further concern is that the lawyer is in a position to arrange the form of the transaction and may therefore further his or her own interests instead of those of the client: see Restatement (Third) of the Law Governing Lawyers _ 126 cmt. b (2000). However, given the trial judge’s factual findings in this unusual case, the concerns giving rise to the rule are not in play here.
[31] A situation of conflict of interest occurs when there is a “substantial risk that the lawyer’s representation of the client would be materially and adversely affected by the lawyer’s own interests or by the lawyer’s duties to another current client, a former client, or a third person”: Restatement (Third) of the Law Governing Lawyers § 121, cited with approval in R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631, at para. 31. On this point, Rice J. effectively found that there was no risk that the firm’s representation of Ms. Perez in connection with the wills or mortgages could be affected by the firm’s interest in receiving the cash advances from her. Similarly, the trial judge found no reliance and therefore certainly no overreaching and no effort on the part of the lawyers to structure the advances to their advantage. As the trial judge found, at para. 62: “. . . although it is truly strange, [Ms. Perez] appears to have extended the loans voluntarily and much on her own initiative.” He concluded that there was “no evidence of undue influence, or unconscionability” (para. 63).
[32] I cannot fault the judge for reaching this conclusion on the admittedly unusual facts which confronted him. These were routine legal services, wholly unrelated, as the judge found, to the advances and they were provided without fee to an employee. The cash advances were unusual and far removed from the sorts of loans from clients envisaged by the professional conduct rule. The advances were not requested by the firm or Mr. Galambos, they were sometimes made without Ms. Perez advising the firm that they had been. Ms. Perez, the bookkeeper and employee of the firm, did not obey her employer’s instructions to repay the advances even when the firm’s finances would have permitted it and she did not provide an accounting to the firm of what it owed to her. This situation is as about as far removed as one can imagine from the typical case of a lawyer improperly borrowing money from a client. In short, there was no conflict between the firm’s duties to her in connection with the wills and mortgages and the advances, and the firm did not in any way trade upon its position as her lawyer to obtain them.
[33] I conclude that, given the limited nature of the retainers and the unusual nature of the advances, the trial judge did not err in finding that the appellants did not breach their duty of care arising from the solicitor-client relationship between them and Ms. Perez. 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. Similarly, there could not be in these unusual facts any reasonable apprehension of conflict. Given the very limited nature of those 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 Ms. Perez advice about those advances or to insist that she obtain independent legal advice about them.
b. Contract for Legal Services
[34] The claim that the solicitor-client contract was breached is essentially a differently labelled repetition of the claim in negligence, and this contractual claim falls with it.
c. Per se Fiduciary Duty
[35] Ms. Perez submits that the appellants breached the fiduciary obligations owed by lawyers to clients. In my view, this contention fails for much the same reason as Ms. Perez’s claims in negligence.
[36] Certain categories of relationships are considered to give rise to fiduciary obligations because of their inherent purpose or their presumed factual or legal incidents: Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, per La Forest J., at p. 646. These categories are sometimes called per se fiduciary relationships. There is no doubt that the solicitor-client relationship is an example. It is important to remember, however, that not every legal claim arising out of a per se fiduciary relationship, such as that between a solicitor and client, will give rise to a claim for a breach of fiduciary duty.
[37] A claim for breach of fiduciary duty may only be founded on breaches of the specific obligations imposed because the relationship is one characterized as fiduciary: Lac Minerals, at p. 647. This point is important here because not all lawyers’ duties towards their clients are fiduciary in nature. Sopinka and McLachlin JJ. (as the latter then was) underlined this in dissent (but not on this point) in Hodgkinson, at pp. 463-64, noting that while the solicitor-client relationship has fiduciary aspects, many of the tasks undertaken in the course of the solicitor-client relationship do not attract a fiduciary obligation. Binnie J. made the same point in Strother v. 3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177, at para. 34: “Not every breach of the contract of retainer is a breach of a fiduciary duty.” The point was also put nicely by Rupert M. Jackson and John L. Powell, Jackson & Powell on Professional Liability (6th ed. 2007), at para. 2-130, when they said that any breach of any duty by a fiduciary is not necessarily a breach of fiduciary duty.
[38] The launching pad for Ms. Perez’s submissions based on the solicitor-client relationship is that there was a general solicitor-client relationship between her and the firm for all necessary legal work during the time that she advanced funds to the firm. As noted earlier, the judge made a finding against her on this point: he found, on conflicting evidence, that it was not a term of Ms. Perez’s employment that the firm would provide her with all necessary legal services and that the cash advances were not within the terms of any of the specific and limited retainers which the firm undertook on her behalf. The Court of Appeal agreed. It concluded that whatever fiduciary obligations arose from the limited solicitor-client relationship, they did not extend to the cash advances. As the Court of Appeal put it:
While a solicitor‑client relationship existed between the parties at certain times and for certain purposes, I question whether that aspect of their relationship, standing alone, would provide a foundation for imposing fiduciary obligations in this case. Unlike the situation in 3464920 Canada Inc. v. Strother, 2007 SCC 24, [2007] 2 S.C.R. 177 (S.C.C.), (a case which both parties rely on as authority for the extent of the duties of lawyers to their clients where there is a conflict of interest), it appears to me that the nature of the relationship between Mr. Galambos and Ms. Perez and the trust and confidence that formed between them cannot be fully encompassed or explained by their interactions as solicitor and client. I agree with the trial judge that although it was reasonable for [Ms. Perez] to expect the firm to offer its services for certain discrete transactions, it was not implicit as a term of her employment that the firm wo