What are the principles used to determine whether a fiduciary relationship exists?

A number of principles are set out in Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377 [[1994] 9 W.W.R. 609], which assist in determining whether a fiduciary relationship exists in a particular fact situation.

The notion of a fiduciary duty arises as a species of a more generalized duty by which the law seeks to protect vulnerable people in transactions with others. This generalized duty unites related causes of action such as breach of fiduciary duty, undue influence, unconscionability and negligent misrepresentation: Hodgkinson v. Simms, supra, at p. 405.

Undue influence focusses on the sufficiency of consent. Unconscionability focusses on the reasonableness of the transaction and the existence of unequal bargaining power between the parties. A fiduciary obligation carries with it not only a duty of skill and competence; the special elements of trust, loyalty and confidentiality give rise to a corresponding duty of loyalty: Hodgkinson v. Simms, supra, at pp. 405-406.

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. The following factors assist in recognizing whether a fiduciary relationship exists in a particular set of circumstances: 1. The scope for the exercise of some discretion or power; 2. That power or discretion can be exercised unilaterally so as to affect the beneficiary's legal or practical interests; and 3. A peculiar vulnerability to the exercise of that discretion or power. Hodgkinson v. Simms, supra, at p. 408.

A fiduciary relationship can arise as a matter of fact out of the specific circumstances of a particular relationship. One must then ask whether, given all of the surrounding circumstances, one party could reasonably have expected that the other party would act in the former's best interest with respect to the subject matter at issue. 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: Hodgkinson v. Simms, supra, at pp. 409-10.

Commercial interactions between parties at arm's length 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: Hodgkinson v. Simms, supra, at p. 414.