The case of Hodgkinson v. Simms (1994) in the Supreme Court of Canada is the landmark case on this subject of Fiduciary Duties and Obligations in Canada.
The facts are relatively simple and straightforward. Hodginson was a very successful young stockbroker. He sought the advice of Simms a Chartered Accountant who had special expertise in tax planning and tax sheltered investments.
Simms recommended that Hodgkinson purchase four MURBS, which he did. The real estate market went sour and Hodgkinson lost all his money. What Simms didn’t tell the young stockbroker was that he was an advisor to the MURB promoter and that he made commissions on the sale.
- The relationship of the broker and client is elevated to a fiduciary level when the client reposes trust and confidence in the broker and relies on the broker’s advice in making business decisions. When the broker seeks or accepts the client’s trust and confidence and undertakes to advise, the broker must do so fully, honestly and in good faith. . . . It is the trust and reliance placed by the client which gives to the broker the power and in some cases, discretion, to make a business decision for the client. Because the client has reposed that trust and confidence and has given over that power to the broker, the law imposes a duty on the broker to honour that trust and respond accordingly.
The Court considered the following facts:
- Hodgkinson approached Simms as a “neophyte” taxpayer, with no experience in dealing with large real estate tax shelters.
- The parties developed a relationship that involved frequent telephone and personal contact.
- The respondent identified the appellant as one of his “special” clients.
- While the respondent did not hold himself out as an investment counsellor per se, he did not qualify his experience as a tax shelter or investment advisor in any way.
- He did not refer the appellant to any other professionals for investment advice.
- In sum, the parties’ relationship was such that the trial judge was able to conclude….. “[i]n effect, Mr. Simms assumed the responsibility for Mr. Hodgkinson’s choice. He analyzed the investments, he recommended the investments, and he effectively chose the investments for Mr. Hodgkinson”.
- The respondent, for his part, actively cultivated this high degree of reliance.
- He was fully aware of the appellant’s lack of experience with MURBs, and he held himself out as an expert in the assessment of MURB-type investments.
- The respondent’s influence over the appellant was built upon the latter’s confidence that the respondent was independent from the developers.
- The trial judge was satisfied, at p. 127, that it was the appellant’s intention to, “drop his tax and financial-planning problems into Mr. Simms’ lap and to go about his business as a stockbroker”.
- All the while, the respondent was fully aware that the appellant’s lack of expertise meant that he wielded considerable influence over the appellant’s investment decisions.
Brian Madigan LL.B., Broker