Breach of Fiduciary Duty in Ontario Business: When a Director, Officer, or Partner Betrays Your Trust

Your business partner diverts a lucrative contract to their own company. A director sells confidential information to a competitor. A senior officer lines their pockets with kickbacks from suppliers. These are not just moral failures — they are potential breaches of fiduciary duty under Ontario law, and they can give rise to significant legal liability.

This article explains who owes fiduciary duties in a business context, what kinds of conduct breach those duties, and what remedies are available to the company or partners who were betrayed.

What Is a Fiduciary Duty?

A fiduciary duty is the highest duty of loyalty known to law. A fiduciary must act in the best interests of the person or entity they serve, not their own interests. They must avoid conflicts of interest, not profit from their position without disclosure and consent, and not use their position to gain an advantage at the expense of those they serve.

The duty has two main components:

1. Duty of loyalty — put the beneficiary's interests first; avoid self-dealing
2. Duty of confidentiality — protect confidential information obtained through the fiduciary relationship

Who Owes Fiduciary Duties in Ontario Businesses?

Directors and Officers

Under the Business Corporations Act (Ontario), directors and officers owe a statutory duty to act honestly and in good faith with a view to the best interests of the corporation. This statutory duty is the codification of the common-law fiduciary duty. It runs to the corporation itself — not to individual shareholders (though shareholders have other remedies if they are harmed as a result).

Directors and officers must:

• Avoid undisclosed conflicts of interest
• Disclose material interests in contracts or transactions to the board
• Not use corporate opportunities for personal gain

Partners

Partners in a general partnership owe each other fiduciary duties under both common law and the Partnerships Act (Ontario). Partners must account for any benefit derived from partnership business without the consent of co-partners.

Other Fiduciaries

Courts have found fiduciary duties in other business relationships, including senior employees with special access to confidential information or client relationships, though this must be assessed on the specific facts of each case.

Common Scenarios

Usurping a Corporate Opportunity

A director learns about a profitable business opportunity while working for the corporation — say, a commercial property coming to market or a new client looking for services. Instead of presenting it to the corporation, the director forms a personal company and takes the opportunity for themselves.

This is a classic breach: the director placed their own financial interests ahead of the corporation's, using information and position gained through their fiduciary role.

Undisclosed Self-Dealing

A director approves a contract between the corporation and a company they secretly own, at inflated prices. The director profits; the corporation overpays. Even if the price were fair, the failure to disclose the conflict is itself a breach.

Diverting Clients or Referral Fees

An officer who receives kickbacks or referral fees from suppliers — and pockets them rather than disclosing them to the corporation — breaches their duty to account for unauthorized profits.

Partner Taking Partnership Business

In a professional services firm, a partner uses the firm's client relationships and confidential information to set up a competing practice and takes clients with them — without accounting to the partnership for the business taken.

The Remedy for Breach: What You Can Recover

A breach of fiduciary duty can support several remedies:

Accounting for Profits

The defaulting fiduciary must disgorge any profit made as a result of the breach — even if the corporation or partnership suffered no corresponding loss. The gain itself is wrongfully held and must be returned.

Damages

Where the corporation or partnership suffered losses as a result of the breach (a lost contract, overpayment, business diverted), the claimant can seek compensatory damages.

Constructive Trust

Courts can impose a constructive trust — declaring that property held by the fiduciary (including shares in a competing business) is held in trust for the corporation or partnership. This is a powerful remedy where the wrongdoer holds identifiable assets traceable to the breach.

Injunction

Courts can grant an injunction preventing the fiduciary from continuing the offending conduct — for example, stopping a director from continuing to operate a competing business built on the corporation's opportunities.

Defences

The fiduciary is not automatically liable in every case. Key defences include:

• Full disclosure and consent — if the fiduciary disclosed the conflict and the corporation (through disinterested directors or shareholders) gave informed consent, there is no breach
• Board ratification — in some cases, after-the-fact ratification by disinterested shareholders can cleanse a transaction
• The opportunity was not a corporate opportunity — not every business deal a director considers is a corporate opportunity; courts look at proximity to the corporation's existing business

Frequently asked questions