This unanimous Supreme Court of Canada decision regarding fiduciary obligations arises from some “unusual, if not unique” facts. Ms. Perez was hired as a part-time bookkeeper by Mr. Galambos at the appellant law firm.  She eventually became the full-time office manager overseeing the firm’s income, expenses and accounting, with unlimited signing authority on firm bank accounts, except trust accounts.  During the time she worked at the firm it handled the preparation and execution of new wills for herself and her husband, as well as two mortgage transactions at no charge.  The firm began to have cash flow problems and in response Ms Perez voluntarily began making personal cash advances to the firm, eventually totaling nearly $200,000.  These advances were often made without first informing Mr. Galambos. When the firm was ultimately placed in receivership, and later bankruptcy, Ms. Perez found herself an unsecured creditor.  She recovered nothing and subsequently sued Mr. Galambos and the law firm for negligence, breach of contract and breach of fiduciary duty.

Ms. Perez contended that free legal services were part of her employment and as such there was an ongoing solicitor-client relationship.  She submitted that Mr. Galambos and the firm breached an implied term of the retainer and their fiduciary duties by failing to provide her with appropriate advice on the cash advances, acting for her while in a conflict of interest, and failing to suggest that she seek independent legal advice before making the cash advances.

Ms. Perez was unsuccessful at trial where it was found that her rights were strictly those of a creditor, but that she was not vulnerable and had not relinquished any decision-making power to Mr. Galambos.  However, the British Columbia Court of Appeal set aside the trial decision and found that there was a breach of an ad hoc fiduciary duty to Ms Perez. The Court of Appeal held that there was a power-dependency relationship between Mr. Galambos and Ms Perez and that it was not necessary for there to be any mutual understanding that Mr. Galambos had relinquished his self-interest in favour of Ms. Perez.

The Supreme Court of Canada found that the Court of Appeal had exceeded the limits of appellate review, violating the principle of non-intervention of a trial decision on appeal, and unduly extended the scope of fiduciary obligations.

With respect to the claim for negligence, Cromwell J. for the court accepted the trial judge’s finding of fact that there was no ongoing solicitor-client relationship.  The court found that with respect to the free legal services provided, the retainer was limited to the specific services requested and was unrelated to the cash advances she made to the firm.  With respect to legal advice regarding the cash advances, the court found that Ms. Perez did not ask for, or receive, advice about the advances, and that she had not relied on anything Mr. Galambos told her when she decided to make the advances.  Ultimately, the court held that the appellants had not breached their duty of care arising from the solicitor-client relationship between the parties given the trial judge’s factual findings regarding the limited nature of the retainers and the unusual nature of the cash advances. However, the court was not prepared to say that the firm complied with all of the applicable rules of professional conduct. The court noted that there was an “important distinction between the rules of professional conduct and the law of negligence. Breach of one does not necessarily involve breach of the other.”  

Similarly, the court held that the claim for breach of the Appellant’s fiduciary obligations to Ms. Perez as a client must also fail for much the same reason as the claims in negligence failed. Cromwell J.  noted that not all lawyers’ duties towards their clients are fiduciary in nature and not every breach of the contract of retainer is a breach of a fiduciary duty.  Citing Jackson & Powell on Professional Liability, Cromwell J. explained that “any breach of any duty by a fiduciary is not necessarily a breach of fiduciary duty.” In this case the court held there was no basis to interfere with the trial judge’s findings that that the retainers were unrelated to the cash advances and that no obligation arose on the part of Mr. Galambos and his firm to act solely in Ms Perez’s interest in relation to the advances. As such, there had been no breach of the per se fiduciary obligations that arose from the solicitor client relationship.

The court went on to expressly reject the Court of Appeal’s holding that in the case of a ‘power dependency’ relationship, a fiduciary duty may arise even in the absence of a mutual understanding that one party would act only in the interests of the other.  While it was prepared to accept that a mutual understanding may not always be necessary (Cromwell J. held it was not necessary to determine the point on the facts of this case), the court stressed that it was fundamental to ad hoc fiduciary duties that there be an undertaking by the fiduciary, which could be either express or implied, that the fiduciary will act in the best interests of the other party. The court also noted that not all power-dependency relationships are fiduciary in nature, and that “identifying a power-dependency relationship does not, on it own, materially assist in deciding whether the relationship is fiduciary or not”.  Cromwell J. went on to hold that the finding of the trial judge, that Mr. Galambos had no discretionary power over Ms. Perez’s interests that he was able to exercise unilaterally or otherwise, was “fatal” to her claim that there was an ad hoc fiduciary duty on Mr. Galambos’s part to act solely in her interests in relation to the case advances.

The court accordingly allowed the appeal and restored the trial judgment, with the exception that if the parties could not agree on whether Ms Perez was entitled to a judgment in debt against the law corporation, and more specifically the impact of that on the question of costs in the courts below, that issue was remanded to the Court of Appeal for determination.

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