2009 SCC 48,  3 S.C.R. 24719
Ms. Perez was an employee at a law firm that was operated by the Appellant. While working at the firm, Perez became aware that the firm was struggling financially. As a result of her observations, Perez took out personal loans in order to make unsolicited cash advances to the firm. The first of the advances were made without the knowledge of Galambous. When Galambous finally became aware of the advances, he instructed Perez to repay herself. Perez repaid some of the first advances that she had made, however over time she continued to make cash advances to the firm. Eventually the firm went bankrupt and Perez, as an unsecured creditor was unable to collect on any of the $200,000 that she had invested.
With leave of the Court, Perez brought a claim against Galambos for negligence, breach of fiduciary duty, and breach of contract. Perez claimed these heads of damages because of the insolvent status of the Appellant and his firm. Claiming against Galambos’ personal liability insurance was the only means through which Perez could hope to collect the funds which she had invested.
Throughout Perez’s time with the firm Galambos acted as her lawyer on various occasions. The firm prepared and executed wills for both Galambos and her husband, and assisted Perez with two mortgage transactions. Both parties understood that Perez would not pay for the legal services that she received. Perez argued that these legal services were a part of her employment contract with the firm. She also argued that the provision of these services created a solicitor-client relationship between her and Galambos.
Perez took the position that Galambos and the Firm owed her a fiduciary duty because they had acted as her lawyers from time to time. Further, Perez submitted that Galambos either acted negligently or breached his fiduciary obligations to her because of the investments. At trial, the judge found that the legal services were an not an implied term of her employment contract. Further, there was no ongoing legal relationship which existed in relation to the cash advances forwarded by Perez. The Court of Appeal overturned the trial judge’s decision indicating that a fiduciary duty was owed to Perez. That Court indicated that the fiduciary duty arose out of all the circumstances, or “ad hoc”. The issues before the Supreme Court concerned the fiduciary duty owed to Perez, if any, and the negligence of Galambos through the alleged breach of Perez’s employment contract.20
The trial judge made three factual findings which guided the result of the final appeal. First, there was no ongoing solicitor/client relationship. Second, any retainer paid to the firm by Perez for legal services was for specific work and could not be construed to relate to the advances made by Perez. Third, nothing was said between Perez and Galambos when the advances were made. Galambos did not advise Perez, and Perez did not rely on Galambos.
The Supreme Court concluded that, in light of the factual findings of the trial judge there was no ongoing duty of care owed to Perez by Galambos in relation to the cash advances. Galambos owed Perez a duty of care only in relation to those matters for which he was retained as counsel. His duty did not extend beyond that. Also of note was the fact that Galambos violated the professional code of conduct by accepting the advances. The Court is clear in stating that such a violation is not determinative in finding that Galambos was negligent in law; the two concepts are distinct.
On the issue of whether an ad hoc fiduciary duty existed, the Supreme Court confirmed that such a duty may arise in the context of certain circumstances. Where there is a mutual understanding between parties that one, the fiduciary, will relinquish their own self interests in order to work exclusively in the interests of the other, the beneficiary, a fiduciary duty may arise.21 Additionally, the mere existence of a power imbalance in a relationship is not enough to create an ad hoc fiduciary duty. Something more (such as an undertaking on the part of the fiduciary to act solely in the interests of the beneficiary) is required.
The existence of an ad hoc fiduciary duty is dependant on the facts of a case. Therefore, deference is owed to the trial judge when making such a determination. Save for an overriding, palpable error, the Court of Appeal was not entitled to find that such a duty was owed to Perez. This is a matter of law, see Shafron v. KRG Investment Brokers (Western) Inc.22. The Supreme Court noted that such an error did not exist in the trial judge’s reasoning.
The Court of Appeal’s judgement was overturned, and the trial judge’s finding in favour of Galambos was restored.