Chapter 7

The personal fiduciary duty

In 1984, after over 200 years, in the case of Guerin v R,1 the Supreme Court of Canada recognised that the Proclamation created a personal fiduciary duty. The analysis in Guerin of the relationship between the Crown and the aboriginal peoples of Canada speaks of a personal rather than a political fiduciary obligation. Just as Canadian judges classify indigenous rights as sui generis (i.e. in a class of their own), the case law produces a sui generis, unique model of fiduciary relationship as applied to indigenous rights which has developed independently of the principles laid down in the Canadian case law dealing with non-aboriginal claims of breach of fiduciary duty, which derives from the line of English cases starting with Keech v Sandford in 1726.2 According to Donovan Waters,3 ‘English equity precedents had an almost conclusive force in Canadian courts up until the 1960s. In the succeeding 30 years, however, Waters notes a trend towards ‘unjust enrichment’4 doctrines which go beyond traditional fiduciary considerations of undue influence and towards a situation where ‘undesirable conduct rather than the exact character of a fiduciary relationship gives rise to a remedy’.5

P.D. Finn6 defines the American and Canadian approach to fiduciary law as a ‘surrogate of trusts law’ as these are nations ‘with a dominant commitment to individuality’, whereas in England, Australia and New Zealand, which he characterises as societies committed to fostering social co-operation, the position of fiduciary ‘exposes that person to the full rigour of equity both in method and in remedy’.

Canadian judges in indigenous rights cases have declared a political fiduciary duty which allows justification arguments and public policy concerns to override the strict application of equity and trusts law. Furthermore, a political trust is only morally, not legally, binding.7

By contrast, the law of trusts imposes on fiduciaries a duty of the utmost good faith and an obligation never to allow their own interests, or the interests of those to whom they owe other duties, to conflict with those of the beneficiary. The personal fiduciary’s duty is one of complete loyalty. The duty, developed first in English case law and received into Canadian law, precludes any dealings in the beneficiary’s property which are not entirely for the benefit of the beneficiary (in this case the indigenous people). Thus, the fiduciary can neither purchase the beneficiary’s property nor make use of information or opportunities received through dealings with the property. The duty was made clear as early as 1726 in the Keech case, which concerned a trustee who, having failed to obtain the renewal of a lease to be held for the benefit of his beneficiary, was offered the lease for himself. The relationship of trustee and beneficiary is the prime example of a fiduciary relationship and, at English law, the case law on the duties of trustees and fiduciaries is interchangeable. In Keech Lord King LC observed: ‘This may seem hard, that the trustee is the only person of all mankind who might not have the lease, but it is very proper that the rule should be strictly pursued, and not in the least relaxed …

In England in 1896 Lord Herschell8 gave three criteria by which a beneficiary can establish the existence of a fiduciary relationship:

• the defendant is actually in a fiduciary relationship with the claimant – a relationship in which it is possible to exert undue influence;

• the defendant obtains a benefit; and

• there is a causal connection between the relationship and the benefit.

As can be seen from the cases and treaties discussed below, these criteria apply to the Crown’s dealings in indigenous land.

Lord Herschell went on to explain: ‘It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than duty, and thus prejudicing those whom he was bound to protect.’

This strict approach was confirmed in English law by the House of Lords in Boardman v Phipps,9 and at that time the decision was further explained by Professor Gareth Jones as follows: the very fact that the fiduciary had a personal interest in the assets of the beneficiary might detract from the impartiality of his decision-making.10

In both the United Kingdom and in Canada, once a fiduciary duty is established, the court will declare the fiduciary to be a constructive trustee of any assets, information or opportunities obtained by virtue of the fiduciary relationship. This entails a duty to account fully to the beneficiary for any profits or losses made. This was the approach in Guerin to the question of compensation. The court awarded C$10 million in full compensation for the breach of fiduciary duty. The fiduciary is burdened with all the duties of a trustee and, if dealing with trust property, must exercise the standard of care of the ordinary prudent man of business acting for one to whom he is morally obliged.11

Rotman claims that ‘whereas a trust relationship results in the existence of fiduciary duties, it is not the same thing as a fiduciary relationship. A trustee is a type of fiduciary, but a fiduciary is not necessarily a trustee’.12 Yet in all cases other than those concerning the Crown in its dealings with indigenous peoples, if the court declares that a fiduciary relationship exists, it will declare a constructive trust over the assets of the beneficiary and treat the fiduciary exactly as if he or she were declared a trustee.

In order for a full trust over land to be declared in Canada, the three certainties whose existence validates a trust must be present:

• certainty of intention: namely, the text of the Royal Proclamation, as confirmed by the wampum belts, which sets out that indigenous lands are to be held for indigenous peoples;

• that the lands so described form the subject matter; and

• that the intended beneficiaries are clearly the indigenous peoples.

There is only one factor which prevents this situation from resulting in a full declaration of trust – the Crown has no title to indigenous land. Thus, this must be a fiduciary relationship, under which one party takes responsibility for the other’s land and is subject to the duty to obtain prior fully informed consent for any proposed dealings in the property.

Following the English jurisprudence, in the Canadian case of Frame v Smith, Wilson J defined a fiduciary relationship as one in which:

• the fiduciary has scope for the exercise of some discretion or power;

• the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and

• the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.13

This form of fiduciary duty is described by Finn14 as a proscriptive rather than a prescriptive duty: its boundaries are set by what a fiduciary may not do. Until the decision in Guerin, in the aboriginal cases concerning the fiduciary duty of the Crown, the Crown’s duties are held to be political rather than personal, leading to an analysis that the duty is a ‘prescribed’ one – i.e. set out in terms of justification and public policy arguments. Rotman15 notes the courts’ inability to understand the historical context of the indigenous cases and the courts’ unwillingness to address the significance of this relationship. It should also be noted that elsewhere in Canadian law, if the presumed fiduciary wishes to show that the relationship does not fall into the category of a fiduciary relationship, the burden of proof falls on the fiduciary – but this is another principle ignored by the Canadian courts in indigenous rights cases. In R v Sparrow16 (1990), it was laid down that a purposive approach (looking to the purpose of the legislation rather than to the plain words of the statute) should be taken to the interpretation of indigenous rights and treaties.

Finn17 also raises the question of the purpose for which the fiduciary has acquired rights, powers and duties. He concludes that, to the extent that the fiduciary acquires such rights for his or her own purposes, he or she is bound by strict fiduciary duties. In the case of the Royal Proclamation, the purpose of taking control of indigenous land was to keep it from incursions from competing nations and from settlers who must hold land through the Crown, a purpose which only served the British Crown.

Macklem18 explains that: ‘vague treaty guarantees were infused with substantive meaning by unquestioned reference to a reliance on Anglo-Canadian categories of human understanding. Notions of private property and freedom of contract guided the judiciary.’

However, he recognises a more recent trend, namely a willingness ‘to embrace native difference, with the acknowledgement that native expectations concerning the meaning of treaty entitlements may well have been markedly different than those entertained by the agents of the Crown’.

Yet he concludes that the judgments still maintain a hierarchical approach to indigenous peoples and still rest on Anglo-Canadian conceptions.

On reviewing relevant case law, a question does arise as to whether a trust can be imposed on the Crown,19 unless the Crown voluntarily and explicitly assumes that role.20 However, in the Royal Proclamation of 1763, the Crown did exactly that and thus is precluded from denying the fiduciary relationship on this basis. In any event, the Crown should be estopped from doing so on the basis that the Crown received a benefit or benefits from the relationship created by the Proclamation and the indigenous peoples acted to their detriment in giving up freedom of alienation of their land. We know they did this willingly, because the agreement is recorded in the wampum belts, but this still allows for a fiduciary relationship because the arrangement was to the Crown’s advantage and the Crown took responsibility for the alienation of indigenous land. As explained immediately below, this would place the relationship within reliance theory, although it could also be argued that the Crown’s fiduciary duties also arise under property theory and inequality theory. Certainly, in later dealings, unjust enrichment theory would apply.21 Unjust enrichment theory applies when the fiduciary has benefitted personally from the relationship, as in the case of Keech above. Reliance theory applies when the beneficiary has acted to their detriment in reliance on an undertaking given by the fiduciary; so the duty undertaken by the Crown in the Royal Proclamation would give rise to a strong legal case under reliance theory.

By 1812, with the end of the wars with America, the British had no need of further alliances with indigenous warriors – but they did have a great and increasing need of land for settlement: ‘The association was no longer one that emphasized military alliance but rather one in which the dominant partner sought the removal of the Indian from the path of agricultural settlement … From the point of view of the European, the Indian had become irrelevant.’22

Squatters moved in and the authorities did little to protect the rights guaranteed by the Royal Proclamation. Miller notes that the settler population of Upper Canada rose from 95,000 in 1812 to 952,000 at the time of the census in 1851.23