Breach of Fiduciary Duty: Understanding Your Rights and Legal Options

When you entrust another person to act on your behalf, be it a business partner, a director, an executor, or a professional advisor, you expect them to act in your best interest. That trust is sometimes broken. A breach of fiduciary duty occurs when someone in a position of trust abuses that relationship for personal gain or fails to act in your best interests.

 

In Ontario and throughout Canada, the courts view such conduct with utmost seriousness. The courts in recent cases have imposed huge financial disabilities on individuals who did not uphold their fiduciary obligations. It shows the importance of such obligations in terms of fairness and accountability of both business and personal relationships.

 

Some of the situations are a director misappropriating corporate opportunities, a partner in a covert competition, or a trustee misappropriating estate assets. Whatever the context, understanding the law of fiduciary duty in Ontario is critical to identifying wrongdoing early and protecting your interests.

 

Our legal team at Pacific Legal assists clients in navigating these complex matters through careful analysis, informed strategy, and clear communication. This guide explains everything you need to know about fiduciary duties, how they’re breached, and what you can do about it.

What Is A Breach Of Fiduciary Duty?

Here’s one way to understand a fiduciary relationship: you are heading out of town for a while, and you give your friend the key to your house. You ask them to collect your mail, water your plants, and keep your house safe. You trust your friend to do it all.. A fiduciary relationship works the same way, but instead of house keys, you’re entrusting someone with your financial interests, business opportunities, or personal affairs.

 

A breach of fiduciary duty happens when that trusted person uses their position to benefit themselves at your expense. This is not merely about committing mistakes but is a fundamental trust that the relationship rests on.

 

In corporate law, these duties are particularly important. Directors and officers of companies have fiduciary obligations to act in good faith, in the best interest and not contrary to the fundamental trust in the foundation of the relationship. When they put their own interests first, by stealing business opportunities, competing secretly, or making decisions that benefit themselves, they breach these sacred obligations.

 

Consider a recent Ontario case that went to the Court of Appeal in 2024. In 7868073 Canada Ltd. v. 1841978 Ontario Inc¹., a key employee with specialized know-how left the company and took valuable business opportunities with him. The court found he had breached his fiduciary duties by misappropriating contracts and business that should have belonged to his former company. The consequences? Significant financial liability and a permanent mark on his professional reputation.

What Constitutes A Breach Of Fiduciary Duty?

Understanding what actually counts as a breach of fiduciary duty in Canada starts with recognizing that fiduciaries must follow three core obligations:

1. The Duty of Loyalty:

This is the cornerstone. A fiduciary must put your interests above their own, always. They cannot:

• Compete with you when in a position of trust
• Take business opportunities that belong to you 
• Take advantage of confidential information to their own benefit 
• Have undisclosed conflicts of interest

In WSIB Investments v. Plenary Group, 2024 MBKB 176 (CanLII)², the Manitoba Court of King’s Bench awarded over $259 million after finding that a general partner breached its fiduciary duty to pension and injured workers’ funds by selling its entire business and prioritizing its own interests over those of its limited partners.

2. The Duty of Care:

Fiduciaries should act reasonably in their skill, diligence and prudence. This means:

• Making informed decisions.
• Being competent in their job.
• Consulting the experts where needed.
• Preventing careless or irresponsible behaviour.

3. The Duty of Disclosure:

A fiduciary must be transparent and honest. They cannot:

• Omit material facts that impact your interests.
• Fail to disclose conflicts of interest.
• Withhold information you need to make decisions.
• Conceal their own misconduct.

Common Fiduciary Duty Examples Include:

• Directors and Officers: Taking a contract for themselves that their company could have pursued
• Partners: Secretly starting a competing business while still in partnership
• Trustees and Executors: Using estate funds for personal expenses
• Financial Advisors: Making investment suggestions that will serve their interests by giving them unreported commissions.
• Lawyers: Acting against the clients with a conflict of interest without due approval.
• Senior Employees: Theft of client lists or trade secrets.

In Boal v. International Capital Management, 2023 ONCA 840 (CanLII)³, it was reiterated that financial planners who do not disclose their interests in the investment products they recommend can breach fiduciary duties to their clients.  In this case, the disclosures were required by the relevant regulatory framework, but the limits of fiduciary obligations were an important consideration. This case demonstrates how commercial litigation courts in Ontario continue to expand protections for those who reasonably place trust in professional advisors.

Elements Of A Claim For Breach Of Fiduciary Duty

To succeed in a breach of fiduciary duty claim, you need to prove three essential elements:

Element 1: A Fiduciary Relationship Existed

Not every relationship involves fiduciary duties. You must establish that the person owed you these special obligations. Courts look at five key factors:

1. Vulnerability: Were you in a vulnerable position where you depended on them?
2. Trust: Did you place special trust in this person?
3. Reliance: Did you rely on them to act in your best interests?
4. Discretion: Did they have power or discretion over your interests?
5. Professional Rules: Do professional standards or codes impose fiduciary-like obligations?

Some relationships automatically create fiduciary duties (like director-company, trustee-beneficiary, or lawyer-client). Others, called “ad hoc” fiduciary relationships, must be proven based on the specific circumstances.

 

In the landmark Supreme Court case Ontario (Attorney General) v. Restoule, 2024 SCC 27 (CanLII)⁴, the Court examined whether the Crown owed a sui generis fiduciary duty to First Nations regarding treaty annuity payments. While the Court ultimately found that specific circumstances didn’t create such a duty in that context, it reaffirmed the importance of the honour of the Crown principle and the duty to act diligently, demonstrating how fiduciary-like obligations extend into many areas of Canadian law.

Element 2: The Fiduciary Breached Their Duty

You must show that the fiduciary violated one or more of their core obligations. This might include:

• Acting in conflict with your interests
• Failing to disclose material information
• Misappropriating opportunities or assets
• Acting negligently or recklessly
• Competing with you while in a position of trust

Element 3: You Suffered Harm or Loss

While some courts recognize that breach itself can be actionable, you typically need to demonstrate:

• Financial losses directly caused by the breach
• Lost opportunities you would have gained
• Damage to your business or reputation
• The fiduciary’s unjust enrichment at your expense

Importantly, you don’t always need to prove the exact dollar amount of your loss. In cases involving disgorgement (forcing the fiduciary to give up their ill-gotten gains), the focus is on what they wrongfully obtained, not necessarily what you lost.

Consequences for a Breach of Fiduciary Duty

When fiduciary duties are breached, Canadian courts have powerful tools to make things right. The remedies for breach of fiduciary duty can be severe and far-reaching:

Financial Remedies

1. Equitable Compensation: It is intended to place you in the status that you would have been without the breach having ever taken place. In contrast to standard contract damages, it aims at recovering the particular loss that emanates as a result of breach of trust.

 

In Spisak v. Spisak, 2023 ONSC 4726 (CanLII)⁵, an executor who had misappropriated the funds of the estate was directed to compensate the rightful beneficiaries equitably, which, in essence, reimburses the beneficiaries for all losses that were a direct result of the breach.

 

2. Disgorgement of Profits: Profit disgorgement is even more stringent and powerful. It compels the fiduciary to surrender all the pennies that have been gained as a result of the breach, regardless of proving the exact account of loss. The purpose isn’t just compensation; it’s deterrence. Courts want to ensure that breaching fiduciary duty is never profitable.

 

The Court ordered $259 million award in WSIB Investments v. Plenary Group⁶, exemplifying disgorgement’s power. The court directed the defendants to hand over the profits they had attained after disposing of their business, although it would have been hard to determine the exact losses of the plaintiffs. The message becomes clear: you cannot profit from betraying trust.

 

3. Accounting of Profits: Similar to disgorgement, this requires the fiduciary to provide a detailed accounting of all profits made through their breach, which they must then return.

 

4. Damages: In some cases, traditional monetary damages may also be awarded to cover specific losses you’ve suffered.

Equitable Remedies

1. Constructive Trust: When a fiduciary has wrongly acquired property or assets, courts can impose a constructive trust, declaring that the fiduciary holds that property in trust for you. This is particularly valuable when the fiduciary might become insolvent, as it gives you priority over other creditors.

 

2. Injunction: Courts can order the fiduciary to stop their harmful conduct immediately. This is crucial when ongoing breaches threaten continuing damage.

 

3. Removal and Replacement: Fiduciaries can be removed from their positions. Trustees, executors, and directors who breach their duties can be stripped of their authority and replaced with someone trustworthy.

Additional Consequences

1. Punitive Damages: In cases of particularly egregious conduct, where the breach was malicious, oppressive, or high-handed, courts may award punitive damages to punish the wrongdoer and deter others.

 

2. Costs: Breaching fiduciaries often face orders to pay legal fees on a substantial or complete indemnity basis, meaning they cover not just your court costs but often your entire legal bill.

 

3. Reputation Damage: Beyond legal consequences, findings of breach of fiduciary duty can destroy professional reputations, making it difficult to secure future positions of trust or business opportunities.

 

4. Joint and Several Liability: If others knowingly assisted in the breach or received property knowing it came from a breach, they can be held jointly liable with the primary wrongdoer. This implies that you can recover the full amount from any of those parties and have several avenues of compensation.

Third-Party Liability

1. Knowing Assistance: If someone helps the fiduciary breach their duty, knowing what they’re doing is wrong, they can be held liable too. For instance, if a business partner helps a director secretly divert corporate opportunities, that partner can face liability.

 

2. Knowing Receipt: Similarly, if someone receives property or benefits that came from a breach of fiduciary duty, and they knew (or should have known) about the breach, they must return those benefits.

 

In Ontario, you typically have two years from when you discovered (or should have discovered) the breach to bring a claim. However, if the breach was actively concealed from you, this period may be extended. Don’t wait; once you suspect a breach of fiduciary duty, consult a fiduciary litigation lawyer immediately to protect your rights.

How do we assess your claim?

At Pacific Legal, we understand that learning you have a breach of fiduciary duty is overwhelming, frustrating, and quite personal. We offer you clear and strategic decision guidance:

Step 1: Understanding Your Situation

We start by listening. Every fiduciary relationship is unique, and we need to understand who you trusted and in what capacity, what authority they held over your interests, what they did (or failed to do) that concerns you, what losses you’ve suffered, and the timeline of events.

Step 2: Analyzing the Fiduciary Relationship

Not all trusting relationships form a fiduciary relationship. We look into the legal existence of a fiduciary relationship, which may be automatic, that is, between a director and a company, or a trustee and a beneficiary; or whether the circumstances give rise to an ad hoc fiduciary relationship, based on vulnerability, trust, reliance, and discretion.

Step 3: Identifying the Breaches

We carefully review the facts to pinpoint exactly how the fiduciary failed in their duties:

• Did they act with a conflict of interest?
• Did they fail to disclose material information?
• Did they misappropriate opportunities or assets?
• Did they compete with you while in a position of trust?
• Did they act negligently or fail to exercise proper care?

Step 4: Quantifying Your Damages

Understanding what you’ve lost is crucial. We help identify direct financial losses, lost business opportunities, diminished company or asset value, the profits the fiduciary gained through their breach, and future losses you’re likely to incur. In many cases, we work with forensic accountants and other experts to trace exactly what the fiduciary took.

Step 5: Evaluating Available Remedies

Based on the specifics of your case, we determine which remedies for breach of fiduciary duty are most appropriate:

• Should we seek equitable compensation to restore your position?
• Is disgorgement of the fiduciary’s profits the better strategy?
• Should we ask for a constructive trust over specific assets?
• Are there grounds for punitive damages given the nature of the breach?
• Would an injunction prevent ongoing harm?

Step 6: Assessing Third-Party Involvement

We also inquire as to whether or not the third parties aided the breach knowingly, or whether they accepted and misused misappropriated assets. This can greatly increase the recovery options, particularly where the main wrongdoer has limited resources.

Step 7: Considering Timing and Evidence

We evaluate:

• The limitation period on your claim.
• Evidences that support your claim.
• Whether the fiduciary has attempted to conceal their wrongdoing.
• What witnesses might testify.
• Whether we need to preserve evidence or seek urgent court orders.

Step 8: Strategic Planning

Finally, we develop a tailored strategy considering whether to attempt negotiation before litigation, the value of sending a demand letter, whether to pursue urgent injunctive relief, and the realistic outcomes and recovery prospects.

Lawyers for Breach of Fiduciary Duty

If you suspect a breach of fiduciary duty or want to prevent one, early legal advice can make all the difference. At Pacific Legal, we help clients understand their rights and obligations, assess risks, and resolve fiduciary-duty disputes efficiently and discreetly.

 

Our team represents both plaintiffs and defendants in matters involving conflicts of interest, self-dealing, diversion of opportunities, or misuse of confidential information. We also assist corporations in developing strong governance systems and compliance frameworks to avoid future disputes.

How Pacific Legal Can Help?

We combine legal precision with practical business insight to protect your interests. At Pacific Legal, we advise on complex fiduciary and contractual duty issues under Ontario and Canadian law, stay updated with the current legal trends on breach of fiduciary duty in Ontario and across Canada, pursue or defend claims involving equitable compensation, disgorgement of profits, and governance remedies, and provide proactive strategies to manage risk and maintain trust in business relationships.

 

Contact Pacific Legal today for a confidential consultation on your fiduciary-duty matter. Early insight can prevent costly disputes and help you move forward with confidence. Be it breach of fiduciary duty or whether you need advice on fiduciary duties of directors, our commercial litigation lawyers in Toronto are prepared to assist you in defending your interests as well as bringing fiduciaries to book.

Source: