Hodgkinson v. Simms

Hodgkinson v. Simms
Collection
Supreme Court Judgments
Date
1994-09-30
Report
[1994] 3 SCR 377
Case number
23033
Judges
La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; McLachlin, Beverley; Iacobucci, Frank; Major, John C.
On appeal from
British Columbia
Subjects
Contract
Trust
Notes
SCC Case Information: 23033
Decision Content
Hodgkinson v. Simms, [1994] 3 S.C.R. 377
Robert L. Hodgkinson Appellant
v.
David L. Simms and Jerry S. Waldman,
carrying on business as Simms & Waldman,
and the said Simms & Waldman, a partnership Respondents
Indexed as: Hodgkinson v. Simms
File No.: 23033.
1993: December 6; 1994: September 30.
Present: La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for british columbia
Fiduciary duty -- Non-disclosure -- Damages -- Financial adviser -- Client insisting that adviser not be involved in promoting -- Adviser not disclosing involvement in projects -- Client investing in projects suggested by adviser -- Ultimate decision as to whether or not to invest that of client -- Substantial losses incurred during period of economic downturn -- Whether or not fiduciary duty on part of adviser -- If so, calculation of damages.
Contracts -- Contract for independent services -- Breach by failure to disclose -- Calculation of damages.
Appellant, a stock broker who was inexperienced in tax planning, wanted an independent professional to advise him respecting his tax planning and tax sheltering needs. He hired respondent Simms, an accountant, who specialized in providing general tax shelter advice, and specifically, real estate tax shelter investments. Appellant relied heavily on the respondent's advice, a reliance assiduously fostered by the respondent. The relationship was such that the appellant did not really question him about the reasons underlying the advice given. Respondent advised appellant to invest in MURBs, real estate investment projects which, by the conventional wisdom, were safe and conservative. Appellant bought 4 MURBs (income tax sheltered properties) on the accountant's advice and lost heavily when the value of the four MURBs fell during a decline in the real estate market.
The gravamen of appellant's action lay in the fact that respondent was acting for the developers during the relevant period in the "structuring" of each of these MURB projects and did not disclose this. Fraud and deceit were not at issue. Appellant got the investments he paid for from the developers, but the same could not be said of his relationship with his accountant. He looked to the respondent as an independent professional advisor, not a promoter, and would not have invested in the impugned projects had he known the true nature and extent of respondent's relationship with the developers.
Appellant brought an action in the Supreme Court of British Columbia for breach of fiduciary duty, breach of contract and negligence to recover all his losses on the four investments recommended by the respondent accountant. The claim in negligence was dismissed at trial and was not pursued before the Court of Appeal. The trial judge, however, allowed his action for breach of fiduciary duty and breach of contract and awarded him damages. The British Columbia Court of Appeal upheld the trial judge on the breach of contract issue, but reversed on the issue of fiduciary duties. It also varied the damages award, setting damages at an amount equal to the fees received by respondent accountant from the developers on account of the four projects, prorated as between the various investors in those projects. This, therefore, was a case of material non‑disclosure in which the appellant alleged breach of fiduciary duty and breach of contract against the respondent in the performance of a contract for investment advice and other tax‑related financial services.
Held (Sopinka, McLachlin and Major JJ. dissenting): The appeal should be allowed.
Per La Forest, L'Heureux-Dubé and Gonthier JJ.: Liability here flows from the principles underlying the notion of fiduciary duty, one of a species of a more generalized duty by which the law seeks to protect vulnerable people in transactions with others. This generalized duty unites such related causes of action as breach of fiduciary duty, undue influence, unconscionability and negligent misrepresentation. A fiduciary obligation carries with it not only a duty of skill and competence; the special elements of trust, loyalty, and confidentiality that obtain in a fiduciary relationship give rise to a corresponding duty of loyalty.
A fiduciary duty is distinct from other equitable and common law doctrines. Undue influence focuses on the sufficiency of consent and unconscionability on the reasonableness of a given transaction. The fiduciary principle monitors the abuse of a loyalty reposed. The existence of a contract does not necessarily preclude the existence of fiduciary obligations between parties. Indeed, the legal incidents of many contracts give rise to a fiduciary duty.
A party becomes a fiduciary where it, acting pursuant to statute, agreement or unilateral undertaking, has an obligation to act for the benefit of another and that obligation carries with it a discretionary power. Several indicia are of assistance in recognizing the existence of fiduciary relationships: (1) scope for the exercise of some discretion or power; (2) that power or discretion can be exercised unilaterally so as to effect the beneficiary's legal or practical interests; and, (3) a peculiar vulnerability to the exercise of that discretion or power.
The term fiduciary is properly used in two ways. The first describes certain relationships having as their essence discretion, influence over interests, and an inherent vulnerability. A rebuttable presumption arises out of the inherent purpose of the relationship that one party has a duty to act in the best interests of the other party. The second, slightly different use of fiduciary exists where fiduciary obligations, though not innate to a given relationship, arise as a matter of fact out of the specific circumstances of that particular relationship. In such a case the question to ask is whether, given all the surrounding circumstances, one party could reasonably have expected that the other party would act in the former's best interests with respect to the subject matter at issue. Discretion, influence, vulnerability and trust are non‑exhaustive examples of evidentiary factors to be considered in making this determination. Outside the established categories of fiduciary relationships, what is required is evidence of a mutual understanding that one party has relinquished its own self‑interest and agreed to act solely on behalf of the other party. In relation to the advisory context, then, there must be something more than a simple undertaking by one party to provide information and execute orders for the other for a relationship to be enforced as fiduciary.
Relationships characterized by a unilateral discretion, such as the trustee‑beneficiary relationship, are a species of a broader family of relationships termed "power‑dependency" relationships. The concept accurately describes any situation where one party, by statute, agreement, a particular course of conduct, or by unilateral undertaking, gains a position of overriding power or influence over another party.
In seeking to identify the various civil duties that flow from a particular power‑dependency relationship, it is wrong to focus only on the degree to which a power or discretion to harm another is somehow "unilateral". This concept has neither descriptive nor analytical relevance to many fact‑based fiduciary relationships. Ipso facto, persons in a "power‑dependency relationship" are vulnerable to harm. Further, the relative "degree of vulnerability" does not depend on some hypothetical ability to protect one's self from harm, but rather on the nature of the parties' reasonable expectations. A party which expects the other party to a relationship to act in the former's best interests is more vulnerable to an abuse of power than a party which should be expected to know that it should take measures to protect itself.
The precise legal or equitable duties the law will enforce in any given relationship are tailored to the legal and practical incidents of a particular relationship.
Commercial interactions between parties at arm's length normally derive their social utility from the pursuit of self‑interest, and the courts are rightly circumspect when asked to enforce a duty (i.e., the fiduciary duty) that vindicates the very antithesis of self‑interest. Parties, in all other respects independent, will rarely be justified in surrendering their self‑interest so as to invoke the fiduciary principle. The law does not object to one party's taking advantage of another per se, so long as the particular form of advantage taking is not otherwise objectionable.
In the professional advisor context, however, a person receiving advice should not need to protect him‑ or herself from the abuse of power by his or her independent professional advisor when the very basis of the advisory contract is that the advisor will use his or her special skills on behalf of the advisee. In sharp contrast to arm's length commercial relationships, which are characterized by self‑interest, the essence of professional advisory relationships is precisely trust, confidence, and independence. Concern about the dangers of extending the fiduciary principle in the context of an arm's length commercial relationship is simply not transferable to professional advisory relationships.
Finding of a fiduciary relationship in the independent professional advisory context does not represent any addition to the law. Courts exercising equitable jurisdiction have repeatedly affirmed that clients in a professional advisory relationship have a right to expect that their professional advisors will act in their best interests, to the exclusion of all other interests, unless the contrary is disclosed.
The courts have consistently shown a willingness to enforce a fiduciary duty in the investment advice aspect of many kinds of financial service relationships. This can arise even where the ultimate power remains in the beneficiary, and without regard to the level of sophistication of the client.
The relationship of broker and client is not per se a fiduciary relationship. Where the elements of trust and confidence and reliance on skill and knowledge and advice are present, the relationship is fiduciary and the obligations that attach are fiduciary. On the other hand, if those elements are not present, the fiduciary relationship does not exist. The circumstances can cover the whole spectrum from total reliance to total independence. Where a fiduciary duty is claimed in the context of a financial advisory relationship, it is at all events a question of fact as to whether the parties' relationship was such as to give rise to a fiduciary duty on the part of the advisor.
Policy considerations support fiduciary relationships in the case of financial advisors. These are occupations where advisors to whom a person gives trust has power over vast sums of money, yet the nature of their position is such that specific regulation might frustrate the very function they have to perform. By enforcing a duty of honesty and good faith, the courts are able to regulate an activity that is of great value to commerce and society generally.
In many advisory relationships norms of loyalty and good faith are often indicated by the various codes of professional responsibility and behaviour set out by the relevant self‑regulatory body. Here, the standards set by the accounting profession at the relevant time compelled full disclosure by the respondent of his interest with the developers. While there was no prohibition against the respondent's representing both a developer and an investor in relation to a real estate tax‑shelter investment, the respondent had a duty to disclose the true state of affairs to both sides.
The principle of non‑intervention by an appellate court in the findings of fact and credibility of the trial court is a rule of law. The Court of Appeal committed a reversible error when it reversed the findings of the trial judge on the question of reliance. The trial judge applied the proper legal test and that test applied was not eclipsed by Lac Minerals. The analysis of the facts was consistent with the relevant authorities and did not disclose an error of law.
Concepts like "trust", independence from outside interests, disregard for self‑interest, are all hallmarks of the fiduciary principle. The courts have frequently enforced fiduciary duties in professional advisory relationships. The type of disclosure that routinely occurs in these kinds of relationships results in the advisor's acquiring influence which is equivalent to a discretion or power to affect the client's legal or practical interests. Power and discretion in this context mean only the ability to cause harm. Vulnerability is nothing more than the corollary of the ability to cause harm, viz., the susceptibility to harm. In the advisory context, the advisor's ability to cause harm and the client's susceptibility to be harmed arise from the simple but unassailable fact that the advice given by an independent advisor is not likely to be viewed with suspicion; rather, it is likely to be followed.
Reliance is an important element in a fiduciary duty. In this context it does not mean a wholesale substitution of decision‑making power from the investor to the advisor. This approach is too restrictive; it ignores the peculiar potential for overriding influence in the professional advisor. Strong policy reasons favour the law's intervention by means of its jurisdiction over fiduciary duties to foster the fair and proper functioning of the investment market which cannot really be regulated in other ways. The facts must be closely examined to determine whether the decision is effectively that of the advisor. Here the reliance placed in the respondent (and assiduously fostered by the latter) was such that the respondent's advice was in substance an exercise of a power and discretion placed in the respondent by the appellant when the appellant invested in the MURB projects.
The proper approach to damages for breach of a fiduciary duty is restitutionary. Appellant is entitled to be put in as good a position as he would have been in had the breach not occurred. Appellant was found at trial to have changed his position because of material non‑disclosure and the respondent did not meet the burden of proving the victim would have suffered the same loss regardless of the breach. Mere speculation is not enough. Notwithstanding the general economic recession, the particular fiduciary breach initiated the chain of events leading to the investor's loss and the breaching party accordingly must account for this loss in full.
This result is not affected by the fact that a court exercising equitable jurisdiction may consider the principles of remoteness, causation, and intervening act where necessary to reach a just and fair result. A breach of a fiduciary duty can take a variety of forms, and as such a variety of remedial considerations may be appropriate. Equity is not so rigid as to be susceptible to being used as a vehicle for punishing defendants with harsh damage awards out of all proportion to their actual behaviour. On the contrary, where the common law has developed a measured and just principle in response to a particular kind of wrong, equity is flexible enough to borrow from the common law. This approach is in accordance with the fusion of law and equity. Courts should strive to treat similar wrongs similarly, regardless of the particular cause or causes of action that may have been pleaded. The courts should look to the harm suffered from the breach of the given duty, and apply the appropriate remedy. Here, however, the duty breached by the respondent was directly related to the risk that materialized and in fact caused the appellant's loss. The respondent was specifically retained to give independent advice about suitable investments, which gave the respondent a kind of influence or discretion over the appellant such that the respondent effectively chose the risks to which the appellant would be exposed.
Courts have treated common law claims of the same nature as the wrong complained of in the present case in much the same way as claims in equity. Where a party can show that but for the relevant breach it would not have entered into a given contract, that party is freed from the burden or benefit of the rest of the bargain. The wronged party is entitled to be restored to the pre‑transaction status quo.
From a policy perspective, placing the risk of market fluctuations on a plaintiff who would not have entered into a given transaction but for the defendant's wrongful conduct is unjust. The proper approach to damages in this case was the monetary equivalent of a rescisionary remedy. The appellant should not suffer from the fact that he did not discover the breach until such time as the market had already taken its toll on his investments. This principle is reflected in the common law of mitigation, itself rooted in causation.
The trial judge's award of damages should also be upheld in order to put special pressure on those in positions of trust and power over others in situations of vulnerability. Here, the wrong complained of goes to the heart of the duty of loyalty that lies at the core of the fiduciary principle. A measure of damages that places the exigencies of the market‑place on the respondent can be used because it is in accordance with the principle that a defaulting fiduciary has an obligation to effect restitution in specie or its monetary equivalent.
The respondent's behaviour calls for strict legal censure. The remedy of disgorgement is not sufficient to guard against the type of abusive behaviour engaged in by the respondent. The law of fiduciary duties has always contained within it an element of deterrence. The law can accordingly monitor a given relationship that society views as socially useful while avoiding the necessity of formal regulation that may tend to hamper its social utility.
Given the fiduciary duty between the parties, damages for breach of contract need not in strictness be considered. Damages in contract follow the principles stated in connection with the equitable breach. Respondent breached his contractual duty to make full disclosure of any material conflict of interest ‑‑ a contract providing for the performance of obligations characterized in equity as fiduciary. But for the non‑disclosure, the contract with the developers for the MURBs would not have been entered into. It was foreseeable that if the contract were breached the appellant would be exposed to market risks to which he would not otherwise have been exposed. Since damages must be foreseeable as to kind, but not extent, any distinction based on the unforeseeability of the extent of the market fluctuations must be dismissed.
Per Iacobucci J.: Agreement with the reasons of La Forest J. on the following points: the existence of fiduciary duty between the parties, the existence of a breach of duty by respondent through non-disclosure of the pecuniary interest with the developers and the question of damages. Lac Minerals Ltd. v. International Corona Resources Ltd., however, should simply be distinguished.
Per Sopinka, McLachlin and Major JJ. (dissenting): The hallmark of a fiduciary relationship is that one party is dependent upon or in the power of the other. In determining if this is the case, the court looks to the three characteristics of a fiduciary relationship: (1) The fiduciary has scope for the exercise of some discretion or power and (2) can unilaterally exercise that discretion or power so as to affect the beneficiary's legal or practical interests, and (3) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power. This descriptive list does not form an absolute legal test. A fiduciary relationship can be found even though all of these characteristics are not present. The presence of these ingredients will not invariably identify the existence of a fiduciary relationship. Vulnerability is the one feature considered indispensable to the existence of the relationship.
Two considerations may act as false indicators of a fiduciary relationship. First, conduct that incurs the censure of a court of equity in the context of a fiduciary duty cannot itself create the duty. Secondly, the "category" into which the relationship falls, such as doctor‑patient or lawyer‑client, is not determinative for not every act in a so‑called fiduciary relationship is encumbered with a fiduciary obligation and, conversely, fiduciary obligations may arise in relationships not traditionally considered fiduciary. The relationship here was not a traditional "fiduciary relationship".
An objective criterion is necessary to identify the measure of confidence and trust sufficient to give rise to a fiduciary obligation in order to establish some degree of certainty. The cases suggest that the distinguishing characteristic between advice simpliciter and advice giving rise to a fiduciary duty is the ceding by one party of effective power to the other. The mutual conferring and acceptance of power to the knowledge of both parties creates the special and onerous trust obligation. Vulnerability, in this broad sense, may be seen as encompassing all three descriptive characteristics of the fiduciary relationship. It comports the notion, not only of weakness in the dependent party, but of a relationship in which one party is in the power of the other ‑‑ a relationship of dependency or implied dependency.
A total reliance and dependence on the fiduciary by the beneficiary is necessary to establish a fiduciary relationship. This accords with the concepts of trust and loyalty at the heart of the fiduciary obligation. The word "trust" connotes a state of complete reliance and the correlative duty of loyalty arises from this level of trust and the complete reliance which it evidences. Where a party retains the power and ability to make his or her own decisions, the other person may be under a duty of care not to misrepresent the true state of affairs or face liability in tort or negligence but is not under a duty of loyalty. That higher duty arises only when the person has unilateral power over the other person's affairs.
Policy considerations may support a fiduciary duty's being imposed on services requiring skills that are very costly to master. In the case of such special skills, the client is effectively obliged to give exclusive power to the person with these skills and a fiduciary obligation may accordingly be appropriate. The law aims at deterring fiduciaries from misappropriating the powers vested in them solely for the purpose of enabling them to perform their functions. Further, the imposition of fiduciary obligations in some cases may be justified on the ground of maintenance of the public's acceptance of, and the credibility of, important institutions in society which render fiduciary services. Neither of these rationales justifies imposing a fiduciary obligation on the purveyor of investment advice where the client retains the power and ability to make the decisions of which he or she later complains. And neither undermines the view that, once imposed, the fiduciary rule should be strictly pursued. Ultimately, the stringent measure of compensation for breach of fiduciary duty, which may take a different view of loss causation than tort and contract law, can be justified only in cases where true trust in the sense of complete reliance is demonstrated.
A court of appeal must not interfere with the findings of fact of the trial judge unless they are clearly unsupported on the evidence. Here, the trial judge's error lay in the failure to ask whether appellant had given and the investment counsellor had assumed total power over the affairs in question. The evidence did not establish the necessary total grant of power and the trial judge accordingly could not have reasonably concluded the assumption of a fiduciary obligation.
Losses recoverable in an action arising out of the non‑performance of a contractual obligation are limited to those which will put the injured party in the same position as he would have been in had the wrongdoer performed what he promised. In order to avoid either under‑compensation or over‑compensation, the measure of damages in law is limited by the concept of the foreseeability of the resulting loss. Moreover, the principles must be sufficiently flexible in their application to insure that the measure of damages is reasonable in the circumstances of the individual case. Two considerations have emerged in the legal analysis associated with the measure of damages; causation and the reasonable contemplation of the parties.
The results of supervening events beyond the control of the defendant are not justly visited upon him/her in assessing damages, even in the context of the breach of an equitable duty.
The principle that the plaintiff must prove both transaction causation (that the violations in question caused the plaintiff to engage in the transaction) and loss causation (that the misrepresentations or omissions caused the harm) can be applied where the application of the principle in situations where the representation itself is not causally connected to the devaluation. In such situations, where the losses incurred by a plaintiff are related to the contractual breach of the defendant merely on a "but for" basis, it would be unduly harsh to impose liability for all of the losses upon the defendant, especially where the direct cause of the loss is outside of the defendant's control.
In assessing the damages for respondent's breach of contract it is necessary to ask whether the loss sustained by the appellant arose naturally from a breach thereof or whether at the time of contracting the parties could reasonably have contemplated the loss flowing from the breach of the duty to disclose. In the event that either criterion is satisfied, the respondent should be held liable for that loss. Finally, the damage assessment as a whole must represent a fair resolution on the facts of this case.
The devaluation of the appellant's investments did not arise naturally from the respondent's breach of contract. It was caused by an economic downturn which did not reflect any inadequacy in the advice provided by the respondent. The "but for" approach to causation is rejected where the loss resulted from forces beyond the control of the respondent who, the trial judge determined, had provided otherwise sound investment advice.
The parties would not reasonably have contemplated the losses associated with an economic downturn as liable to result from the respondent's breach of his duty to make full disclosure. The two events were in no way causally related. The continuing nature of the breach of the duty to disclose does not affect this conclusion.
In situations involving breach of a duty to disclose, courts have consistently recognized the right of plaintiffs to compensation for losses equivalent to the difference between the price which they paid for a particular investment and the actual value of the investment purchased. Here, since the appellant had paid nothing more than the fair market value for the investments, no damages should have been assessed. The damages award made by the Court of Appeal could not be reduced here because no cross‑appeal was made from the judgment of that Court.
Cases Cited
By La Forest J.
Considered: Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; Burns v. Kelly Peters & Associates Ltd. (1987), 16 B.C.L.R. (2d) 1; Frame v. Smith, [1987] 2 S.C.R. 99; Varcoe v. Sterling (1992), 7 O.R. (3d) 204; Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., [1991] 3 S.C.R. 3; K.R.M. Construction Ltd. v. British Columbia Railway Co. (1982), 40 B.C.L.R. 1; Waddell v. Blockey (1879), 4 Q.B.D. 678; Huddleston v. Herman & MacLean, 640 F.2d 534 (1981), aff'd in part 459 U.S. 375 (1983); Chasins v. Smith Barney & Co., 438 F.2d 1167 (1970); referred to: Hospital Products Ltd. v. United States Surgical Corp. (1984), 55 A.L.R. 417; Jacks v. Davis, [1983] 1 W.W.R. 327; Lloyds Bank Ltd. v. Bundy, [1975] Q.B. 326; Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534; Nocton v. Lord Ashburton, [1914] A.C. 932; Canadian Aero Service Ltd. v. O'Malley, [1974] S.C.R. 592; Waters v. Donnelly (1884), 9 O.R. 391; Norberg v. Wynrib, [1992] 2 S.C.R. 226; Johnson v. Birkett (1910), 21 O.L.R. 319; McLeod v. Sweezey, [1944] S.C.R. 111; Standard Investments Ltd. v. Canadian Imperial Bank of Commerce (1985), 52 O.R. (2d) 473, leave to appeal refused, [1986] 1 S.C.R. vi; Keech v. Sandford (1726), Sel. Cas. T. King 61, 25 E.R. 223; M. (K.) v. M. (H.), [1992] 3 S.C.R. 6; Guerin v. The Queen, [1984] 2 S.C.R. 335; Dolton v. Capitol Federal Sav. & Loan Ass'n, 642 P.2d 21 (1982); Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan, [1980] 1 S.C.R. 433; Thermo King Corp. v. Provincial Bank of Canada (1981), 34 O.R. (2d) 369, leave to appeal refused, [1982] 1 S.C.R. xi; McInerney v. MacDonald, [1992] 2 S.C.R. 138; Harry v. Kreutziger (1978), 95 D.L.R. (3d) 231; National Westminster Bank plc v. Morgan, [1985] 1 All E.R. 821; Jirna Ltd. v. Mister Donut of Canada Ltd. (1971), 22 D.L.R. (3d) 639, aff'd [1975] 1 S.C.R. 2; Midcon Oil & Gas Ltd. v. New British Dominion Oil Co., [1958] S.C.R. 314; Henderson v. Thompson, [1909] S.C.R. 445; Fine's Flowers Ltd. v. General Accident Assurance Co. of Canada (1977), 17 O.R. (2d) 529; Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191; Baskerville v. Thurgood (1992), 100 Sask. R. 214; Elderkin v. Merrill Lynch, Royal Securities Ltd. (1977), 80 D.L.R. (3d) 313; Glennie v. McD. & C. Holdings Ltd., [1935] S.C.R. 257; Burke v. Cory (1959), 19 D.L.R. (2d) 252; Maghun v. Richardson Securities of Canada Ltd. (1986), 34 D.L.R. (4th) 524; Wakeford v. Yada Tompkins Huntingford & Humphries (unreported, B.C.S.C. August 1, 1985), (Van. Reg. No. C826216), aff'd (1986), 4 B.C.L.R. (2d) 306; Laskin v. Bache & Co., [1972] 1 O.R. 465; R. v. Kelly, [1992] 2 S.C.R. 170; Granville Savings and Mortgage Corp. v. Slevin (1990), 68 Man. R. (2d) 241 (Q.B.), rev'd, [1992] 5 W.W.R. 1 (Man. C.A.), trial judgment restored, [1993] 4 S.C.R. 279; MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235; Laurentide Motels Ltd. v. Beauport (City), [1989] 1 S.C.R. 705; Lensen v. Lensen, [1987] 2 S.C.R. 672; White v. The King, [1947] S.C.R. 268; Huff v. Price (1990), 51 B.C.L.R. (2d) 282; Lapointe v. Hôpital Le Gardeur, [1992] 1 S.C.R. 351; Varga v. F. H. Deacon & Co., [1975] 1 S.C.R. 39; London Loan & Savings Co. v. Brickenden, [1934] 2 W.W.R. 545; Commerce Capital Trust Co. v. Berk (1989), 57 D.L.R. (4th) 759; BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; McGonigle v. Combs, 968 F.2d 810 (1992); Allan v. McLennan (1916), 31 D.L.R. 617; Hatrock v. Edward D. Jones & Co., 750 F.2d 767 (1984); Marbury Management, Inc. v. Kohn, 629 F.2d 705 (1980); Bastian v. Petren Resources Corp., 681 F.Supp. 530 (1988); Casella v. Webb, 883 F.2d 805 (1989); Asamera Oil Corp. v. Sea Oil & General Corp., [1979] 1 S.C.R. 633; Re Dawson; Union Fidelity Trustee Co. v. Perpetual Trustee Co., [1966] 2 N.S.W.R. 211; Island Realty Investments Ltd. v. Douglas (1985), 19 E.T.R. 56; Rothko v. Reis, 372 N.E.2d 291 (1977); H. Parsons (Livestock) Ltd. v. Uttley Ingham & Co., [1978] Q.B. 791.
By Iacobucci J.
Distinguished: Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574.
By Sopinka and McLachlin JJ. (dissenting)
Asamera Oil Corp. v. Sea Oil & General Corp., [1979] 1 S.C.R. 633; Victoria Laundry (Windsor), Ltd. v. Newman Industries, Ltd., [1949] 2 K.B. 528; Koufos v. C. Czarnikow Ltd., [1969] 1 A.C. 350; Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; Keech v. Sandford (1726), 25 E.R. 223; Guerin v. The Queen, [1984] 2 S.C.R. 335; Frame v. Smith, [1987] 2 S.C.R. 99; Hospital Products Ltd. v. United States Surgical Corp. (1984), 55 A.L.R. 417; Girardet v. Crease & Co. (1987), 11 B.C.L.R. (2d) 361; Varcoe v. Sterling (1992), 7 O.R. (3d) 204; Hadley v. Baxendale (1854), 9 Ex. 341, 156 E.R. 145; Waddell v. Blockey (1879), 4 Q.B.D. 678; Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534; McGonigle v. Combs, 968 F.2d 810 (1992); Hatrock v. Edward D. Jones & Co., 750 F.2d 767 (1984).
Statutes and Regulations Cited
Criminal Code, R.S.C., 1985, c. C-46, s. 426(1) (a).
Income Tax Act, Reg. 1100(1), Schedule B.
Income Tax Act, S.C. 1970-71-72, c. 63.
Institute of Chartered Accountants of British Columbia. Rules of Professional Conduct. Rules 204 and 208.1
Securities and Exchange Act of 1934, June 6, 1934, c. 404, Title I, § 10, 48 Stat. 891 (15 U.S.C. ¶78j(b)).
Securities Exchange Commission, Rule 10b‑5.
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APPEAL from a judgment of the British Columbia Court of Appeal (1992), 65 B.C.L.R. (2d) 264, [1992] 4 W.W.R. 330, 6 C.P.C. (3d) 141, 45 E.T.R. 270, 5 B.L.R. (2d) 236, 11 B.C.A.C. 248, 22 W.A.C. 248, allowing an appeal from a judgment of Prowse J. (1989), 43 B.L.R. 122. Appeal allowed, Sopinka, McLachlin and Major JJ. dissenting.
Earl A. Cherniak, Q.C., Gregory Walsh and Kirk Stevens, for the appellant.
Glenn A. Urquhart and Arthur M. Grant, for the respondents.
The judgment of La Forest, L' Heureux-Dubé and Gonthier JJ. was delivered by
//La Forest J.//
La Forest J. --
I. Introduction
This is a case of material non-disclosure in which the appellant alleges breach of fiduciary duty and breach of contract against the respondent in the performance of a contract for investment advice and other tax-related financial services. The respondent, Mr. Simms, was a Chartered Accountant and partner in the respondent firm Simms & Waldman. Though the firm and Mr. Waldman are parties to these proceedings, I shall, because of Mr. Simms' central role, generally be referring to him when I speak of "the respondent". Mr. Simms had developed a special expertise in relation to multi-unit residential buildings (MURBs). In 1980 the appellant Mr. Hodgkinson retained Mr. Simms' services in the areas of tax planning and preparation, and in finding stable, tax-sheltering investments. Mr. Hodgkinson was a "neophyte" in the field of tax planning and tax-related investments. He approached Mr. Simms as an independent professional who would give him the impartial service and advice he was looking for. Mr. Hodgkinson decided to put himself in Mr. Simms' hands with respect to his tax planning and tax sheltering needs. In the course of their relationship, Mr. Simms recommended four MURB projects to Mr. Hodgkinson as meeting his investment criteria. Mr. Hodgkinson duly invested in these projects. What Mr. Hodgkinson did not know, however, was that at the time Mr. Simms was making these recommendations, he was in a financial relationship with the developers of the projects. The more MURBs Mr. Simms sold to Simms & Waldman clients, the larger the fees he reaped from the developers. While Mr. Simms attempted to deny the non-disclosure by arguing at discovery that his relationship with the developers was in fact disclosed to Mr. Hodgkinson, and then stating at trial that his business relationship with the developers did not commence until after Mr. Hodgkinson had invested in the projects, this line of defence was rejected by the trial judge and was not pursued on appeal. Rather, this appeal concerns the proper characterization of the relationship between the parties and determining the nature and extent of the civil liability, if any, flowing from the non-disclosure.
The trial judge, Prowse J., found there was an implied retainer between the parties, one of the terms of which was a contractual duty of material disclosure. She went on to find the respondent in breach of this term. In addition, the trial judge, after a careful and detailed review of the facts, held that the relationship between the parties was such that the respondent owed the appellant a fiduciary duty. This duty carried with it a duty of disclosure, which, again, the respondent was found to have breached. While the finding of contractual liability was upheld