Galambos v Perez: Not Likely to Clarify Our “Mutual Understanding”

On October 23, 2008, the Supreme Court of Canada announced that it granted leave to appeal to an unusual B.C. case that, despite a recognized need for refinement, is unlikely to significantly clarify the law of fiduciary duty.

Perez v Galambos, 2008 BCCA 91 presents a fact scenario in which the relationship between the parties suffers from a rather uncommon blurring of lines, between solicitor and client, employer and employee, as well as debtor and creditor. The case will therefore be of limited precedential value.

Facts

In May of 2001, the respondent’s B.C. law firm hired Estela Perez to work as a part-time bookkeeper. Owing to a lucrative contract with Department of Justice, the firm began growing and Ms. Perez was asked to assume the role of full time office manager. Additional employees were hired and the firm also moved into a new office space.

In January of 2002, however, it became obvious that due to the increased overhead, the firm would be unable to financially cover its impending payroll, and the respondent requested that Perez “take care of it.” This request was interpreted by Perez to mean that she should loan $40,000 from her personal account to the law firm. Upon learning of the loan, the respondent instructed Perez to reimburse herself. In response, Perez partially repaid herself a total of $15,000. Perez was also instructed by the respondent that she should not disclose the transactions to the firm’s other employees.

As the law firm’s financial situation continued to deteriorate, Perez continued to transfer funds from her personal account into that of the law firm. By March of 2004, the total amount loaned was close to $200,000. Many of the deposits were made without the advance knowledge of the respondent.

During the law firm’s period of financial decline, Perez had also asked one of the firm’s lawyers to assist her in preparing a will and completing mortgage transactions. While the respondent was not personally involved in this legal work, he was clearly aware of it. Further, the respondent never suggested to Perez that she ought to have independent legal advice with regard to either the unsecured loan or with regard to the effect of the loan on the will and mortgage.

In March 2004, the respondent assigned himself into bankruptcy and the firm went into receivership. Although the respondent acknowledged that his firm owed Perez, the firm’s secured creditors left nothing for her to recover.

The automatic stay of proceedings in relation to bankruptcy was lifted by leave of the court, and Ms. Perez was allowed to bring an action for breach of contract, negligence and breach of fiduciary duty.

Trial Decision

Ms. Perez’s action was dismissed on the ground that she had not established the causes of action pleaded. In particular, the trial judge found that Perez was not a client at any of the times that she made loans to the firm. Whereas she had engaged the services of the firm, each of the retainers was for a limited and discrete task, not entitling Perez to the “full panopoly of protective duties.”

The trial judge further determined that in relation to the money loaned, Perez had not asked the respondent for legal advice, but had voluntarily given him the loan. Ultimately, the trial judge was most swayed by the finding that Perez had not proven that she had relinquished her decision-making power with respect to the loan or that the respondent had the ability to exercise unilateral discretion over it.

The Court of Appeal

As at trial, the major issue before the British Columbia Court of Appeal was whether the respondent had breached a fiduciary duty owed to Ms. Perez. After a review of the case law, Rowles J., writing for the majority, determined that a mutual understanding that one party had relinquished its own self-interest so as to act solely in the interest of the other party was not a necessary element of a fiduciary relationship.

Unlike the recent case of Strother v 3463920 Canada Inc, [2007] 2 SCR 177, the case at bar was not one that could be entirely defined under the rubric of a solicitor-client relationship (a per se fiduciary relationship). As such, and largely applying the dissenting logic of McLachlin J. (as she was then) in Norberg v Wynrib, [1992] 2 SCR 226, Rowles J. found that the relationship in question could be better defined under the broader concept of “power-dependency:”

In the circumstances this case presents, I am of the view that evidence of a ‘mutual understanding’…was not required in order for the court to make a finding that fiduciary obligations arose. The evidence overwhelmingly supports the conclusion that the respondent took advantage of the trust reposed in him by the appellant, who was in a position of vulnerability in terms of her employment, her knowledge of the firm’s prospects and her knowledge of legal rights and obligations.

Thus, it would seem that Rowles J. was most influenced by her determination that the respondent had exploited Perez’s trust, and that an overly-narrow approach to the definition of fiduciary duty would bar her from recovering. Perez was thus granted judgment in the amount of $200,000; an award which, if upheld by the SCC, will likely involve the respondent’s professional liability insurer. Ultimately, on a broad and equitable approach to the law of fiduciary duty, the decision seems to be a sound one. However, the value of such an unusual and context-driven case is likely to prove rather limited.