Breach of Fiduciary Duty: 5 Signs Your Interests Are Compromised

A fiduciary is someone in a position of trust who is legally required to act in the best interests of another party. This includes corporate directors, business partners, trustees, and financial advisors. When an individual fails to uphold their fiduciary duties, it can result in financial loss, reputational damage, and legal disputes. 

Recognizing the signs of a breach of fiduciary duty early can help you take action to protect your interests. This article outlines five key warning signs and explains the legal options available in Ontario.

1. Conflicts of Interest and Self-Dealing

A fiduciary must always put the interests of the business or individual they serve ahead of their own. If they make decisions that personally benefit them at your expense, they may be engaging in self-dealing or a conflict of interest. 

For example, a business partner who secretly diverts company opportunities to their own side business is not acting in good faith. Similarly, a corporate director who approves a contract with a company they own shares in—without proper disclosure—may be violating their fiduciary duty. 

Under Section 132 of the Ontario Business Corporations Act (OBCA), corporate directors and officers must disclose conflicts of interest in financial transactions. Failure to do so could result in financial penalties or removal from their position.

2. Misuse or Mismanagement of Funds

Fiduciaries handling financial matters must act responsibly and transparently. If you notice unexplained expenses, missing funds, or unauthorized transactions, these could be signs of mismanagement or misuse of funds. 

Examples include: 

• A trustee using estate funds for personal expenses instead of following the trust’s terms; 

• A corporate officer misallocating company funds for projects that do not align with business objectives; and/or 

• Failure to maintain proper financial records makes it difficult to track money flow. 

Under Ontario law, fiduciaries must manage finances diligently and by their legal obligations. If financial irregularities arise, affected parties can take legal steps to recover losses and hold the fiduciary accountable.

3. Lack of Transparency or Failure to Disclose Information

Fiduciaries are legally required to share important information with those they serve. If they withhold key details, misrepresent facts, or refuse to provide financial records, it may indicate a breach of fiduciary duty. 

For example, the Supreme Court of Canada case BCE Inc. v. 1976 Debentureholders established that corporate fiduciaries must act in the best interests of the corporation while balancing stakeholder interests. If a director or officer withholds financial details that result in a negative impact on shareholders or partners, it could be grounds for legal action.

 4. Negligence or Reckless Decision-Making

A fiduciary is expected to act with care, diligence, and good judgment. If they make reckless or poorly informed decisions that harm your business or financial interests, they may be liable for negligence. 

Examples include: 

• Failing to conduct due diligence before making financial or operational decisions; 

• Ignoring legal or regulatory obligations, leading to penalties or legal disputes; and/or 

• Entering into high-risk contracts without proper authorization. 

Negligent actions can expose a fiduciary to civil liability and financial consequences. In such cases, legal remedies may be available to seek compensation for damages caused by their actions.

5. Acting Beyond Their Authority

Fiduciaries must follow the rules and limitations of their role as defined by business agreements, corporate bylaws, or trust documents. If they exceed their authority by making unauthorized decisions or signing contracts without approval, they may be personally liable for any resulting losses. 

For instance, if a company executive finalizes a major business deal without board approval, the contract could be legally challenged. Similarly, if a trustee distributes assets outside of the terms of a trust, beneficiaries may have grounds to take legal action. 

Fiduciary Duties in Shareholder Disputes 

In Ontario, fiduciary duties also apply in shareholder disputes, particularly when majority shareholders owe duties to minority shareholders. Courts have recognized that controlling shareholders must not act in ways that unfairly prejudice minority shareholders. Breaches of fiduciary duty in corporate settings can result in legal actions under the Ontario Business Corporations Act (OBCA) or through oppression remedies under Section 248 of the OBCA. 

Legal Remedies for Breach of Fiduciary Duty 

If you suspect a breach of fiduciary duty, you may have several legal options, including: 

• Filing a claim for damages to recover financial losses; 

• Requesting a court order to prevent further unauthorized actions; 

• Seeking the removal of the fiduciary from their position; and/or 

• Pursuing legal action for breach of fiduciary duty through litigation. 

Legal intervention may be necessary to hold the fiduciary accountable and protect your interests. 

How Achkar Law Can Help 

A breach of fiduciary duty can have serious financial and legal consequences. Achkar Law provides strategic legal guidance to individuals and businesses dealing with fiduciary disputes. 

Our experienced lawyers assist with: 

• Legal Risk Assessments to determine whether a fiduciary breach has occurred. 

• Litigation and Dispute Resolution, whether through negotiation, mediation, or court proceedings. 

• Corporate Governance and Compliance, advising businesses on how to prevent fiduciary breaches. 

Call 1-800-771-7882 or email info@achkarlaw.com to schedule a consultation.