Statutory "Best Interest" Obligations Do Not By Themselves Create Fiduciary Duties

• Published date: 11 March 2022
• Law Firm: McCarthy Tétrault LLP
• Author: Canadian Securities Regulatory Monitor, Shane C. D'Souza, Kevan Hanowski, Sean Sadler and Rene R. Sorell

Do regulations and ethical rules requiring investment advisors to act in clients' "best interest" create a fiduciary relationship between them? Not by themselves, according to a recent 2 to 1 decision of the Ontario Divisional Court, which upheld a decision by the Superior Court of Justice not to certify the putative class action.

Background

The plaintiff, a client of defendants registered with the Mutual Fund Dealers Association ("MFDA"), commenced a putative class action for investment losses. The plaintiff sought to certify breach of fiduciary duty, knowing assistance, and knowing receipt as common issues against the defendants. The motions judge denied certification, holding that the pleaded allegations did not support a fiduciary duty claim:

A fiduciary relationship imposes obligations that are stricter than the morals of the marketplace and of the workaday world and a higher standard of behaviour, and when there is a breach of a fiduciary duty, courts mete out more powerful remedies.. The law, therefore, is very careful in determining whether a particular relationship qualifies as a fiduciary relationship .

In the immediate case, it is undisputed, and it is undisputable, that the [defendants] had a professional relationship and a duty of care relationship with all the Class Members, and, in the immediate case, there is undoubtedly some...