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

Published date11 March 2022
Subject MatterFinance and Banking, Corporate/Commercial Law, Litigation, Mediation & Arbitration, Financial Services, Corporate and Company Law, Class Actions, Securities
Law FirmMcCarthy Tétrault LLP
AuthorCanadian 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.


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 basis in fact for the allegations that the [defendants] breached the professional standards of the MFDA and of the FP Standards Council and that they misrepresented information and were negligent in the performance of their professional obligations.

However, it does not follow . that there was a common fiduciary relationship with all or even any of the putative Class Members. ...

... in each individual case, it is contestable whether the relationship with the investor was a fiduciary relationship, and in each individual case the breach of any fiduciary duty is idiosyncratic and not common. On a class wide basis, the elements of the cause of action for breach of fiduciary duty are not made out in common.1

The plaintiff appealed to the Divisional Court.

The Divisional Court

The Divisional Court in Boal v. International Capital Management, 2022 ONSC 1280 held that regulatory "best interest" standards - such as those found in the Rules of the MFDA - do not automatically create a fiduciary relationship between advisor and client. Instead, whether an advisor owes a fiduciary duty to a particular client must be determined...

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