Canson Enterprises Ltd. v. Boughton & Co.

Canson Enterprises Ltd. v. Boughton & Co.
Collection
Supreme Court Judgments
Date
1991-11-21
Report
[1991] 3 SCR 534
Case number
21672
Judges
Lamer, Antonio; Wilson, Bertha; La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley; Stevenson, William
On appeal from
British Columbia
Subjects
Torts
Notes
SCC Case Information: 21672
Decision Content
Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534
Canson Enterprises Ltd. and Fealty Enterprises Ltd. Appellants
v.
Boughton & Company, Ralph R. Wollen, George O. Treit,
Treit Land Consultants Inc., Pacific Mortgage Corporation
Limited, Gordon Bert Wilkins, Sun‑Mark Development
Corporation and Peregrine Ventures Inc. Respondents
Indexed as: Canson Enterprises Ltd. v. Boughton & Co.
File No.: 21672.
1990: October 29; 1991: November 21.
Present: Lamer C.J. and Wilson*, La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin and Stevenson JJ.
on appeal from the court of appeal for british columbia
Damages -- Breach of fiduciary duty -- Solicitor preparing conveyance not advising purchasers of secret profit made on a flip -- On agreed facts, purchasers fully apprised of situation would not have entered the transaction -- Action arising because inability of other professionals found liable in tort for faulty construction of building on subject lands to pay damages -- Whether or not damages recoverable.
In May, 1977, the appellants and respondent Peregrine Ventures Inc. agreed (on the proposal of respondent Treit) to purchase a piece of property and to enter a joint venture to develop it. The purchasers agreed to pay Treit a commission of 15 percent of any profit on resale. Unknown to the appellants, but known to Peregrine, Treit had arranged for an intermediate company, Sun‑Mark Development Corporation, to share in the profit from the sale, a profit from which Treit would share equally. This profit came about because Sun‑Mark had entered an interim agreement to buy the land from the vendors (the Hendersons) for $410,000. The purchasers paid $525,000 and the secret profit to Peregrine and Treit from the "flip" was therefore $115,000. Appellants would not have purchased the property or entered into the joint venture had they known of the interim agreement with Sun‑Mark.
The alleged breach of fiduciary duty arose out of the following circumstances. The solicitor, Wollen, of the defendant law firm, Boughton & Co., acted for the purchasers in the preparation of the conveyance and joint venture agreement. He also acted for Sun‑Mark in its purchase and resale of the property, but did not disclose to the appellant purchasers that the property was not being purchased directly from the Hendersons. The statement of adjustments for the Hendersons prepared by Wollen showed the sale price to be $410,000 while that prepared for the purchasers (the appellants and Peregrine) showed it to be $525,000 paid to the Hendersons. Therefore, this statement of adjustments did not disclose Sun‑Mark's interest. Wollen paid over the $115,000 secret profit to Sun‑Mark and did not disclose this payment to the appellants. Although the conveyance he prepared transferred the property directly from the Hendersons to the appellants and Peregrine, Wollen did not apportion the land title fees or the conveyancing fees between Sun‑Mark and the appellants but rather rendered a bill to the appellants and Peregrine for the entire amount of his services.
Following the purchase, the appellants proceeded with a warehouse development on the property, but suffered substantial losses when piles supporting a warehouse constructed on the property began to sink, causing extensive damage to the building. The appellants then brought action against the soils engineers and a pile‑driving company retained by the purchasers for the damage to the warehouse. At trial, the soils engineers were found negligent and damages of $4,920,200.33 were awarded against them. On appeal, the pile‑driving company was also found liable in damages for breach of contract. As a result of the inability of the pile‑driving company to pay, the matter was settled for a sum less than that awarded at trial. The engineering firm was unable to pay any part of the damage award, and the mortgage company, from which the appellants and Peregrine had borrowed funds, ultimately foreclosed on the property. The appellants and Peregrine received the proceeds of the settlement of the lawsuit, but were left with a shortfall of $801,290 for Canson and $280,000 for Fealty.
The appellants commenced the present action against the respondent solicitor and his law firm for the amount of the shortfall, alleging that the failure to disclose the secret profits was actionable as deceit or breach of fiduciary duty. The action was brought as a special case on the basis of an agreed statement of facts. The sole issue before the court was whether and what damages were recoverable from the defendants (respondents), assuming the facts in the agreed statement were true.
The trial judge found the solicitor Wollen was not liable in deceit but liable for breach of fiduciary duty and awarded damages on the same basis as for an action for deceit. The Court of Appeal dismissed an appeal from that judgment. The appellants appealed to this Court on the ground that compensation for breach of the fiduciary duty should be calculated on the same footing as for a breach of trust.
Held: The appeal should be dismissed.
Per La Forest, Sopinka, Gonthier and Cory JJ.: The situation here involved a breach of a fiduciary duty sufficient to call upon equity's jurisdiction to compensate the appellants for breach of the duty. A fiduciary duty may be breached when the solicitor fails to inform a client of a fact of which he should have informed him, or that he should seek independent advice. A solicitor may be liable for a fiduciary duty for non‑disclosure of a factor of some importance, even when his or her personal interest is not at stake. The law does not limit fiduciary obligations to situations where the solicitor may benefit from a misstatement.
The manner of calculating compensation adopted by the courts in trust cases or situations akin to a trust do not apply, however. There is a sharp divide between a situation where a person has control of property which in the view of the court belongs to another, and one where a person is under a fiduciary duty to perform an obligation where equity's concern is simply that the duty be performed honestly and in accordance with the undertaking the fiduciary has taken on. The principles applicable to trusts should not be transposed to a breach of a fiduciary duty of the type in question here. The harshness of the result is reason alone, but apart from this, the claim for the harm resulting from the actions of third parties can fairly be looked upon as falling within what is encompassed in restoration for the harm suffered from the breach.
The equitable remedy of compensation is not likely to be resorted to frequently, except as adjunct to some other equitable remedy. The tort of deceit has long provided a convenient common law remedy that makes resort to the equitable remedy infrequent in cases of fraud, and with the development of the principle in Hedley Byrne & Co. v. Heller & Partners Ltd., it is unlikely to be used often in cases of negligent misstatement. An award of compensation, however, is no less that because the amount recovered in a particular case is the same as would have been awarded in an action at common law.
Policies underlying concepts like remoteness and mitigation might have developed from an equitable perspective. However, given the paucity of authority in the field, it is scarcely surprising that courts will deal with a case falling properly within the ambit of equity as if it were a common law matter or as justifying the use of its mode of analysis.
The maxims of equity are malleable principles that can be flexibly adapted to serve the ends of justice as now perceived. Law and equity have long overlapped in pursuit of their common goal of affording adequate remedies against those placed in a position of trust or confidence when they breach a duty that reasonably flows from that position and it was reasonable and proper that the courts have tended to merge the principles of law and equity. Only when there are different policy objectives should equity engage in its well‑known flexibility to achieve a different and fairer result.
The fusion of law and equity provides a general, but flexible, approach that allows for direct application of the experience and best features of both law and equity, whether the mode of redress (the cause of action or remedy) originates in one system or the other. The whole of the two systems should not be indiscriminately melded together; some equitable concepts like trusts, equitable estates and consequent equitable remedies must continue to exist apart, if not in isolation, from common law rules.
With fiduciary relationships and the law regarding misstatements, both the courts of common law and of equity provided remedies where a person failed to meet the trust or confidence reposed in that person. There was throughout considerable overlap. In time, however, the common law outstripped equity and the remedy of compensation became somewhat atrophied. Under these circumstances, there is no reason why equity should not borrow from the experience of the common law. Whether the courts refine the equitable tools such as the remedy of compensation, or follow the common law on its own terms, is not particularly important where the same policy objective is sought.
Where a situation requires different policy objectives, the remedy may be found in the system that appears more appropriate. This will often be equity. Its flexible remedies such as constructive trusts, account, tracing and compensation must continue to be moulded to meet the requirements of fairness and justice in specific situations. This process should not be confined to pre‑existing situations.
Per Lamer C.J. and L'Heureux‑Dubé and McLachlin JJ.: Apart from cases where the trustee controls the property of the cestui que trust, damages for breach of fiduciary duty should not be measured by analogy to tort and contract. Proceeding by analogy with tort overlooks not only the unique foundation and goals of equity but also the differences between the tort of negligence and contract on the one hand and the basis of the fiduciary obligation and the rationale for equitable compensation on the other. Such an approach would also require that "true trust" situations be artificially separated from other fiduciary obligations.
Compensation is an equitable monetary remedy available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach. The plaintiff will not be required to mitigate, as the term is used in law, but losses resulting from clearly unreasonable behaviour on the part of the plaintiff will be adjudged to flow from that behaviour, and not from the breach. Where the trustee's breach permits the wrongful or negligent acts of third parties, thus establishing a direct link between the breach and the loss, the resulting loss will be recoverable. Where there is no such link, the loss must be recovered from the third parties.
The plaintiffs would not have bought an interest in the property and the joint venture had they known of the breach of fiduciary duty. The loss arising from this was caused by the breach and is recoverable. The further losses sustained in the course of construction did not result or flow from the breach of fiduciary duty. The solicitor's liability therefore did not extend to loss suffered by the plaintiff due to the negligence of architects and engineers in subsequent construction on the land. Damages should be assessed as by the trial judge and the Court of Appeal.
Per Stevenson J.: Compensation should not be determined in the same way as a court of equity would determine compensation as against a trustee and yet it should not be defined as merely putting the plaintiff in as good a position as before the breach. The measure of damages in a compensation claim may not always be the same as in an action of deceit or negligence and differs from damages particularly where equity is looking at restitution. A court of equity, applying principles of fairness, would and should draw the line at calling upon the fiduciary to compensate for losses arising as a result of the unanticipated neglect of the engineers and pile driving contractor. The fiduciary had nothing to do with their selection, their control, their contractual or bonding obligations. These losses are too remote, not in the sense of failing the "but for" test, but in being so unrelated and independent that they should not, in fairness, be attributed to the defendant's breach of duty.
The fusion of law and equity had nothing to do with deciding this case. If it did, the rules of equity would prevail. The principles of contributory negligence were not introduced by fusion.
Cases Cited
By La Forest J.
Considered: Guerin v. The Queen, [1984] 2 S.C.R. 335; Jacks v. Davis (1980), 12 C.C.L.T. 298, aff'd [1983] 1 W.W.R. 327; Brickenden v. London Loan & Savings Co., [1934] 3 D.L.R. 465 (P.C.), aff'g [1933] S.C.R. 257; Nocton v. Lord Ashburton, [1914] A.C. 932; McKenzie v. McDonald, [1927] V.L.R. 134; Day v. Mead, [1987] 2 N.Z.L.R. 443; United Scientific Holdings Ltd. v. Burnley Borough Council, [1978] A.C. 904; referred to: Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; Doyle v. Olby (Ironmongers) Ltd., [1969] 2 Q.B. 158; Rainbow Industrial Caterers Ltd. v. C.N.R., [1990] 3 W.W.R. 413, aff'd [1991] 3 S.C.R. 3; Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; Bartlett v. Barclays Bank Trust Co. (No. 2), [1980] 2 All E.R. 92; Canadian Aero Service Ltd. v. O'Malley, [1974] S.C.R. 592; Burrowes v. Lock (1805), 10 Ves. Jun. 470, 32 E.R. 927; Slim v. Croucher (1860), 1 De G. F. & J. 518, 45 E.R. 462; Culling v. Sansai Securities Ltd. (1974), 45 D.L.R. (3d) 456; Burke v. Cory (1959), 19 D.L.R. (2d) 252; Howard v. Cunliffe (1973), 36 D.L.R. (3d) 212; Laskin v. Bache and Co., [1972] 1 O.R. 465; Maghun v. Richardson Securities of Canada Ltd. (1986), 58 O.R. (2d) 1; Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465; Derry v. Peek (1889), 14 A.C. 337; Low v. Bouverie, [1891] 3 Ch. 82; Balkis Consolidated Co. v. Tomkinson (1893), 42 W.R. 204 and [1893] A.C. 396; Todd v. Gee (1810), 17 Ves. Jun. 273, 34 E.R. 106; Ex parte Adamson (1878), 8 Ch. D. 807; LeMesurier v. Andrus (1986), 54 O.R. (2d) 1; Asamera Oil Corp. v. Sea Oil & General Corp., [1979] 1 S.C.R. 633.
By McLachlin J.
Considered: Nocton v. Lord Ashburton, [1914] A.C. 932; Guerin v. The Queen, [1984] 2 S.C.R. 335; Doyle v. Olby (Ironmongers) Ltd., [1969] 2 Q.B. 158; referred to: Canadian Aero Service Ltd. v. O'Malley, [1974] S.C.R. 592; Frame v. Smith, [1987] 2 S.C.R. 99; Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; Ex parte Adamson (1878), 8 Ch. D. 807; Re Dawson; Union Fidelity Trustee Co. v. Perpetual Trustee Co. (1966), 84 W.N. (Pt.1) (N.S.W.) 399; Caffrey v. Darby (1801), 6 Ves. Jun. 488, 31 E.R. 1159; Esso Petroleum Co. v. Mardon, [1976] Q.B. 801.
By Stevenson J.
Referred to: McKenzie v. McDonald, [1927] V.L.R. 134; Nocton v. Lord Ashburton, [1914] A.C. 932; Carl B. Potter Ltd. v. Mercantile Bank of Canada, [1980] 2 S.C.R. 343.
Statutes and Regulations Cited
British Columbia Supreme Court Rules, 1976, Rule 33.
Chancery Amendment Act, 1858 (Eng.), 21 & 22 Vict., c. 27.
Law and Equity Act, R.S.B.C. 1979, c. 224, s. 41.
Supreme Court of Judicature Act, 1873 (Eng.), 36 & 37 Vict., c. 66.
Authors Cited
Cooter, Robert and Bradley J. Freedman. "The Fiduciary Relationship: Its Economic Character and Legal Consequences" (1991), 66 N.Y.U.L.Rev. 1045.
Davidson, Ian E. "The Equitable Remedy of Compensation" (1982), 13 Melbourne U.L.Rev. 349.
Gummow, W. M. C. "Compensation for Breach of Fiduciary Duty". In T. G. Youdan, ed., Equity, Fiduciaries and Trusts. Toronto: Carswell, 1989.
Hanbury, Harold Greville and Ronald Harling Maudsley. Modern Equity. 12th ed. by Jill E. Martin. London: Stevens, 1985.
Meagher, Roderick Pitt, W. M. C. Gummow and J. R. F. Lehane. Equity, Doctrines and Remedies. Sydney: Butterworths, 1984.
Sealy, L. S. "Fiduciary Relationships", [1962] Cambridge L.J. 69.
Sealy, L. S. "Some Principles of Fiduciary Obligation", [1963] Cambridge L.J. 119.
APPEAL from a judgment of the British Columbia Court of Appeal (1989), 39 B.C.L.R. (2d) 177, 61 D.L.R. (4th) 732, 45 B.L.R. 301, [1990] 1 W.W.R. 375, dismissing an appeal from a judgment of Macdonell J. (1988), 31 B.C.L.R. (2d) 46, 52 D.L.R. (4th) 323, 45 C.C.L.T. 209, [1989] 2 W.W.R. 30, finding the defendant solicitor was not liable in deceit but liable for breach of fiduciary duty. Appeal dismissed.
David Roberts, Q.C., Dr. Donovan Waters, Q.C., and Murray Clemens, for the appellants.
K. C. Mackenzie, Q.C., and Carla Forth, for the respondents.
The reasons of Lamer C.J. and L'Heureux-Dubé and McLachlin JJ. were delivered by
//McLachlin J.//
McLachlin J. -- This case concerns the extent of a solicitor's obligation for breach of fiduciary duty in failing to disclose that a third party was making a secret profit in the plaintiff's purchase of land. More particularly, it raises the question of whether the plaintiff can hold the solicitor liable for loss suffered by the plaintiff due to the negligence of architects and engineers in subsequent construction on the land.
I agree with Justice La Forest that the solicitor's liability does not extend this far and that damages should be assessed as by the trial judge and the Court of Appeal. I base this result, however, in equity. I cannot concur in the suggestion in my colleague's reasons that apart from cases where the trustee controls the property of the cestui que trust, damages for breach of fiduciary duty should be measured by analogy to tort and contract.
My first concern with proceeding by analogy with tort is that it overlooks the unique foundation and goals of equity. The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges herself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged. The freedom of the fiduciary is diminished by the nature of the obligation he or she has undertaken - an obligation which "betokens loyalty, good faith and avoidance of a conflict of duty and self-interest": Canadian Aero Service Ltd. v. O'Malley, [1974] S.C.R. 592, at p. 606. In short, equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart.
The trust-like nature of the fiduciary obligation manifests itself in characteristics which distinguish it from the tort of negligence and from breach of contract. Thus Justice Wilson in Frame v. Smith, [1987] 2 S.C.R. 99, at pp. 136-138, (approved by Justices Sopinka and La Forest in Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, at pp. 559 and 646) attributed the following characteristics to a fiduciary obligation: (1) the fiduciary has scope for the exercise of some discretion or power; (2) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests; (3) the beneficiary is peculiarly vulnerable or at the mercy of the fiduciary holding the discretion or power.
Cooter and Freedman, in "The Fiduciary Relationship: Its Economic Character and Legal Consequences" (1991), 66 N.Y.U.L.Rev. 1045, offer a similar formulation of the characteristics of a fiduciary obligation: (i) separation of ownership from control or management, (i.e., one party has some power or discretion which can be exercised unilaterally so as to affect the other party's legal or practical interest); (ii) open-ended obligations, in that specific conduct or definite results are not stipulated; (iii) asymmetry of information concerning acts and results. The first characteristic in this formulation parallels Wilson J.'s first and second characteristics, and the remaining two can be seen as treating the notion of vulnerability in Wilson J.'s test.
Cooter and Freedman go on to point out that because the fiduciary has superior information concerning his or her acts, it will be difficult to detect and prove breach of these wide obligations; and because the fiduciary has control based on the notion of implicit trust, there is a substantial potential for gain through such wrongdoing. This may justify more stringent remedies than for negligence or breach of contract. As Lord Dunedin put it in Nocton v. Lord Ashburton, [1914] A.C. 932, at p. 963: "there was a jurisdiction in equity to keep persons in a fiduciary capacity up to their duty."
These differences suggest that we cannot simply assume that an analogy with tort law is appropriate. And even if we could, the analogy would not be of great assistance. For tort offers different measures of compensation, depending on the nature of the wrong. The measure for deceit, for example, is more stringent than for negligence. So adoption of a tort measure does not solve the problem. The further question arises: which tort measure? One might argue that the appropriate analogy is with the tort of deceit, since both deceit and breach of fiduciary obligation involve wrongful acts with moral overtones. But the better approach, in my view, is to look to the policy behind compensation for breach of fiduciary duty and determine what remedies will best further that policy. In so far as the same goals are shared by tort and breach of fiduciary duty, remedies may coincide. But they may also differ.
The danger of proceeding by analogy with tort law is that it may lead us to adopt answers which, however easy, may not be appropriate in the context of a breach of fiduciary duty. La Forest J. has avoided one such pitfall in indicating that compensation for a breach of fiduciary duty will not be limited by foreseeability, but what of other issues? For instance, the analogy with tort might suggest that presumptions which operate in favour of the injured party in a claim for a breach of fiduciary duty will no longer operate, for example, the presumption that trust funds will be put to the most profitable use. And it is clear that tort law is incompatible with the well developed doctrine that a fiduciary must disgorge profits gained through a breach of duty, even though such profits are not made at the expense of the person to whom the duty is owed. La Forest J. allows that benefits may be disgorged, but addresses only the case where no such benefit was obtained (at p. 000). From this it appears that he would treat benefit to the fiduciary on the basis of equitable principles, and losses to the plaintiff on the basis of common law. In my view it is preferable to deal with both remedies under the same system -- equity. Rather than begin from tort and proceed by changing the tort model to meet the constraints of trust, I prefer to start from trust, using the tort analogy to the extent shared concerns may make it helpful. This said, I readily concede that we may take wisdom where we find it, and accept such insights offered by the law of tort, in particular deceit, as may prove useful.
My second concern with proceeding by analogy with tort is that it requires us to separate so called "true trust" situations, where the trustee holds property as agent for the beneficiary, from other fiduciary obligations. This distinction is necessary if one proceeds by analogy with tort because the tort analogy cannot apply in the former category (see La Forest J., at p. 000). In my view, however, this distinction is artificial and undercuts the common wrong embraced by both categories -- the breach of the obligation of trust and utmost good faith which lies on one who undertakes to control or manage something -- be it property or some other interest -- on behalf of another. Nor do the cases support the distinction, as illustrated by the analysis which follows of Guerin v. The Queen, [1984] 2 S.C.R. 335.
Differences between different types of fiduciary relationships may, depending on the circumstances, dictate different approaches to damages. This may be significant as the law of fiduciary obligations develops. However, such differences must be related in some way to the underlying concept of trust -- the notion of special powers reposed in the trustee to be exercised exclusively for the benefit of the person who trusts. The distinction between the rights of a claimant in equity for maladministration of property as opposed to wrongful advice or information, resides in the fact that in the former case equity can and does require property wrongfully appropriated to be restored to the cestui que trust together with an account of profits. Where there is no property which can be restored, restitution in this sense is not available. In those cases, the court may award compensation in lieu of restitution. This is a pragmatic distinction in the form of the remedy which must not obscure the fact that the measure of compensation remains restitutionary or "trust-like" in both cases. Any further distinction is difficult to support. Why in principle, should a trustee's abuse of power in relation to tangible property attract different compensation from a trustee's abuse of power in relation to a lease or a mortgage or the purchase of a business or a home? The goals of equity in the latter category of case, as asserted in Nocton v. Lord Ashburton, supra, are not only to compensate the plaintiff but to deter fiduciaries from abusing their powers. Whence then the difference in compensation?
Having concluded that equitable compensation should not be determined by the simple expedient of resorting to tort, I come to the central question in this case. What is the ambit of compensation as an equitable remedy? Proceeding in trust, we start from the traditional obligation of a defaulting trustee, which is to effect restitution to the estate. But restitution in specie may not always be possible. So equity awards compensation in place of restitution in specie, by analogy for breach of fiduciary duty with the ideal of restoring to the estate that which was lost through the breach.
The restitutionary basis of compensation for breach of trust was described in Ex parte Adamson (1878), 8 Ch. D. 807, at p. 819:
The Court of Chancery never entertained a suit for damages occasioned by fraudulent conduct or for breach of trust. The suit was always for an equitable debt or liability in the nature of debt. It was a suit for the restitution of the actual money or thing, or value of the thing, of which the cheated party had been cheated.
It has been widely accepted ever since. As Davidson states in his very useful article "The Equitable Remedy of Compensation" (1982), 13 Melbourne U.L.Rev. 349, at p. 351, "the method of computation [of compensation] will be that which makes restitution for the value of the loss suffered from the breach."
Nocton v. Lord Ashburton, supra, one of the first cases to deal with a solicitor's breach of fiduciary obligation by way of misstatement, reflects the restitutionary approach to monetary compensation for breach of fiduciary duty. The action in negligence being statute barred and the mens rea required for deceit unproven, the House of Lords had recourse to "the old bill in Chancery to enforce compensation for breach of a fiduciary obligation" (per Viscount Haldane, at p. 946). Under this action the Court of Chancery "could order the defendant not . . . to pay damages as such, but to make restitution, or to compensate the plaintiff by putting him in as good a position pecuniarily as that in which he was before the injury" (at p. 952). Viscount Haldane held that the proper measure of compensation would have been restitution of the mortgage security and an account for the interest, observing "[t]he measure of damages may not always be the same as in an action of deceit or for negligence" (at p. 958). But since the plaintiff had not asked for the restitutionary remedy and since it was "a matter of form only", compensation was calculated as for damages in tort.
In those cases where the trust consists of property or funds in a stable investment the "actual money or thing" which is to be restored to the injured party will be relatively well defined. The matter becomes more difficult when the remedy is extended from traditional trusts to breaches of fiduciary duty, where not only the value, but even the nature of the thing lost may be difficult to determine. The application of the principle of compensation in lieu of restitution in such a situation is well illustrated in the only recent decision of this Court on the subject: Guerin v. The Queen, supra. In Guerin this Court rejected the submission that tort principles should govern the assessment of compensation and proceeded on the basis that the plaintiffs were entitled to compensation based on any trust principles.
The plaintiff in Guerin was a member of an Indian Band whose lands had been administered by the Crown. The Crown was authorized to enter into a lease on terms which were authorized by the Band. Those terms could not be obtained in negotiation, and the Crown, without consulting the Band, entered into a long-term lease on the Band's behalf on terms less advantageous than those which had been authorized. The Band sued for compensation for breach of a fiduciary duty. At common law in tort or contract, damages would have been limited to the loss reasonably foreseeable or contemplated at the time the lease was made. The trial judge, however, was persuaded to take an "equitable" approach based on the unforeseen escalation of the value of the land in subsequent years, and awarded $10,000,000. In short, instead of viewing the issue of compensation from the date of the breach as required at common law, he based the damages on the trial date having regard to what had actually happened, as would be the case in an equitable award for restitution (see Wilson J. at p. 359.)
Guerin was not concerned with abuse of trust property in the classic trust sense. There were no assets or property which had been misappropriated. The wrong was the failure to adhere to the conditions of surrender and to consult with the band in accordance with the Crown's fiduciary duty. Both the judgment of Dickson J. (as he then was) (Beetz, Chouinard and Lamer JJ. concurring), and the judgment of Wilson J. (Richie and McIntyre JJ. concurring), held that, notwithstanding that the legal relationship was not a true trust but a fiduciary duty, the appropriate measure of damages was trust damages. Dickson J. put it this way at p. 376:
In my view, the nature of Indian title and the framework of the statutory scheme established for disposing of Indian land places upon the Crown an equitable obligation, enforceable by the courts, to deal with the land for the benefit of the Indians. This obligation does not amount to a trust in the private law sense. It is rather a fiduciary duty. If, however, the Crown breaches this fiduciary duty it will be liable to the Indians in the same way and to the same extent as if such a trust were in effect. [Emphasis added.]
Dickson J. was content to say that damages should be determined "by analogy with the principles of trust law" (at p. 390). The judgment of Wilson J. dealt more extensively with the principles on which compensation was to be calculated. Relying on the personal nature of the breach of a fiduciary obligation and the historical refusal to limit compensation in equity by considerations relevant to tort and contract, she concluded that the underlying goal of compensation for breach of fiduciary duty was to compensate the person who suffered from the breach by analogy to restoration in specie, taking into account unforeseen market fluctuations to the date of trial. She quoted with approval (at p. 361) the following passage from Re Dawson; Union Fidelity Trustee Co. v. Perpetual Trustee Co. (1966), 84 W.N. (Pt.1) (N.S.W.) 399, per Street J.:
The reasoning which the House of Lords adopted in Tomkinson's case proceeds upon the basis that damages at common law are ordinarily not affected by subsequent fluctuations in currency exchange rates any more than ordinarily they are affected by subsequent fluctuations in market values. This reasoning is not available in a claim against a defaulting trustee as his obligation has always been regarded as tantamount to an obligation to effect restitution in specie; such an obligation must necessarily be measured in the light of market fluctuations since the breach of trust; and in my view it must also necessarily be affected, where relevant, by currency fluctuations since the breach. [Emphasis added.]
Applying the reasoning of restitution, Wilson J. concluded that the Crown in failing to consult the band and obtain further instructions on the lease had committed a breach of trust. The Crown was required to compensate the Band for the value of what was lost because of the breach, namely, the opportunity to enter into a more favourable arrangement. The value of this lost opportunity was based not on the common law tort or contract measure of what might have reasonably been foreseen at the time, but on the equitable approach of looking at what actually happened to values in later years.
While foreseeability of loss does not enter into the calculation of compensation for breach of fiduciary duty, liability is not unlimited. Just as restitution in specie is limited to the property under the trustee's control, so equitable compensation must be limited to loss flowing from the trustee's acts in relation to the interest he undertook to protect. Thus Davidson states "it is imperative to ascertain the loss resulting from breach of the relevant equitable duty" (at p. 354, emphasis added).
The need for a link between the equitable breach and the loss for which compensation is awarded is fair and sound in policy and is supported by in Guerin. The trial judge in Guerin did not measure damages as the difference between the lease which was entered into and that which the Band was prepared to authorize, because the golf club would not have entered into a lease at all on the terms sought by the Band, and it could not therefore be said that the breach had caused the Band to lose the opportunity to enter a lease on the authorized terms. Nor did the trial judge simply assess damages as the difference between the value of the lease actually entered into and the amount that the land was worth at the time of trial, which would be the result if causation were irrelevant. Rather he concluded that had there been no breach the Band would have eventually leased the land for residential development. He allowed for the time which would have been required for planning, tenders and negotiation, and he also discounted for the fact that some of the then current value of the surrounding developments was due to the existence of the golf course. In other words, he assessed, as best he could, the value of the actual opportunity lost as a result of the breach.
The requirement that the loss must result from the breach of the relevant equitable duty does not negate the fact that "causality" in the legal sense as limited by foreseeability at the time of breach does not apply in equity. It is in this sense that I read the statement of Street J. in Re Dawson, supra, that "causation, foreseeability and remoteness do not readily enter into the matter" (quoted in Guerin at p. 360), and the broad language of Caffrey v. Darby (1801), 6 Ves. Jun. 488, 31 E.R. 1159 (relied on by Street J.), where in fact a causal link between the breach and the loss was found, the Court stating that had the trustees adhered to their duty "the property would not have been in a situation to sustain that loss" (at p. 404) (appropriation by a third party).
Thus while the loss must flow from the breach of fiduciary duty, it need not be reasonably foreseeable at the time of the breach, as Guerin affirms. The considerations applicable in this respect to breach of fiduciary duty are more analogous to deceit than negligence in breach of contract. Just as "it does not lie in the mouth of the fraudulent person to say that they [the losses] could not reasonably have been foreseen", (Doyle v. Olby (Ironmongers) Ltd., [1969] 2 Q.B. 158 (C.A.), at p. 167, so it does not lie in the mouth of a fiduciary who has assumed the special responsibility of trust to say the loss could not reasonably have been foreseen. This is sound policy. In negligence we wish to protect reasonable freedom of action of the defendant, and the reasonableness of his or her action may be judged by what consequences can be foreseen. In the case of a breach of fiduciary duty, as in deceit, we do not have to look to the consequences to judge the reasonableness of the actions. A breach of fiduciary duty is a wrong in itself, regardless of whether a loss can be foreseen. Moreover the high duty assumed and the difficulty of detecting such breaches makes it fair and practical to adopt a measure of compensation calculated to ensure that fiduciaries are kept "up to their duty".
Doyle v. Olby (Ironmongers) Ltd. is likewise helpful in considering mitigation. Sachs L.J. stated, "the court must obviously take care not to include sums for consequences which may be due to the plaintiff's own unreasonable actions" (at p. 171). In a similar vein Winn L.J. remarked that:
. . . no element in the consequential position can be regarded as attributable loss and damage . . . in any case where the person deceived has not himself behaved with reasonable prudence, reasonable common sense or can in any true sense be said to have been the author of his own misfortune. The damage that he seeks to recover must have flowed directly from the fraud perpetrated upon him. (at p. 168)
(It should be noted that while in Doyle v. Olby (Ironmongers) Ltd. Lord Denning said that "[t]here is nothing to be taken off in mitigation" this is because "there is nothing more that he could have done to reduce his loss" (at p. 167). In that case the plaintiff was indeed behaving as a reasonable and prudent person in the circumstances.)
The thrust of these dicta is that while the plaintiff will not be required to act in as reasonable and prudent a manner as might be required in negligence or contract, losses stemming from the plaintiff's unreasonable actions will be barred. This is also sound policy in the law of fiduciary duty. In negligence and contract the law limits the actions of the parties who are expected to pursue their own best interest. Each is expected to continue to look after their own interests after a breach or tort