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Breach of Fiduciary Duty

Fiduciary Duty: Are Beneficiaries Dependent or Vulnerable?

The case of Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 SCR 574 raised the question of when one party owes a fiduciary duty to another, even where there is no contract between them. It is the leading case in Canada on the ways fiduciary and confidential relationships come into being in business.

The background

Corona was a junior mining company looking into the mineral potential of property in northern Ontario in the early 1980s. The senior mining company Lac Minerals learned of this activity from a public newsletter, and its representatives agreed to meet with Corona and visit the property.

Corona showed Lac Minerals confidential geological findings and the theory of the site’s importance, but the parties did not discuss confidentiality.

The acquisition

Lac Minerals then went on to gather further information on the area and acquire the property itself. At no time did Lac Minerals tell Corona it planned to acquire the property. Corona sued to make Lac Minerals give it the property. At trial, the judge held that there was no binding contract between the parties, but found Lac Minerals liable on two other possible grounds, being breach of confidence and breach of fiduciary duty.

Breach of fiduciary duty?

Lac Minerals was ordered to return the property to Corona, with adjustments to reflect Lac Minerals’ development of the property. The Court of Appeal upheld this decision, and added that a constructive trust in the property was an appropriate remedy for both breach of confidence and breach of fiduciary duty.

The appeal

Lac Minerals appealed the decision, asking the Supreme Court of Canada whether it had a fiduciary duty to Corona that it breached, whether it misused confidential information to deprive Corona of the property, and what the consequences should be, should the answer to either of these questions be yes.

Despite the trial judge and the Court of Appeal being largely in agreement regarding the nature of Lac Minerals’ responsibilities to Corona and its breach of fiduciary duty, there was considerable disagreement among the justices of the Supreme Court of Canada regarding the nature of the breach and the remedy.

Breached confidence

The judges were all in agreement that Lac Minerals breached confidence in using the information as it did, but the majority found that there was no fiduciary relationship.

3 musts for a fiduciary relationship

The majority said that three characteristics must generally be present for a fiduciary relationship to exist:

  1. the fiduciary must be able to exercise some discretion or power,
  2. the fiduciary must be able to unilaterally exercise that discretion or power in a way that affects the other party’s legal or practical interests, and
  3. the other party must be vulnerable to the fiduciary, or at its mercy.

The final word

In this case, the majority found that the nature of the relationship between the parties was not yet defined at the time Lac Minerals took the steps it did, and noted that Corona had no vulnerability or dependency that would establish a fiduciary relationship.

Corona could have required Lac Minerals to undertake not to acquire the property, but it did not. The majority also noted that there was no established practice in the mining industry that would support the existence of a fiduciary relationship. The remedy of constructive trust was available for the breach of confidence as well as the breach of fiduciary duty.