Two people start a business together, and one of them takes something, whether an opportunity, a side payment or a client. A partner’s fiduciary duty is what the law uses to answer for it, and it reaches further than most owners expect. It is nowhere written out in full. It starts before the paperwork does, and it does not end when the partnership does.
This guide covers where the duty comes from, how long it runs, and what an agreement can do about it.
Where a Partner’s Fiduciary Duty Comes From
Open the Partnerships Act and you will find only part of the answer.
Sections 28, 29 and 30 impose specific obligations to render true accounts and full information, to account for private benefits, and to account for the profits of a competing business. Those sections are not the whole of a partner’s fiduciary duty, because section 45 of the Partnerships Act preserves everything standing behind them:
The rules of equity and of common law applicable to partnership continue in force, except so far as they are inconsistent with the express provisions of this Act.
Read what that does. The statute is a partial codification sitting on top of equity, so a partner’s fiduciary duty can be breached in ways no section describes.
That is why the leading Ontario case on the point, discussed below, worked through both what the Act required and what equity demanded of the partner independently of it.
The Duty Starts When the Business Does
Negotiating a partnership is not the same as being in one, and the difference decides who owes what.
In Blue Line Hockey Acquisition Co. v. Orca Bay Hockey LP, 2009 BCCA 34, three businessmen joined forces to pursue an ownership stake in the Vancouver Canucks. One withdrew from the group and, months later, negotiated his own purchase.
The British Columbia Court of Appeal dismissed the appeal. The relationship lacked the usual hallmarks of a partnership, so there was no partnership and no duty of loyalty. That decision is persuasive in Ontario rather than binding, and the Supreme Court of Canada refused leave to appeal.
Negotiation alone therefore creates no partnership fiduciary duty. Something has to actually begin.
Confidential information is the exception worth knowing. In Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, a junior miner shared geological data during joint venture talks with no confidentiality agreement, and the other side used it to acquire the property.
The Supreme Court dismissed the appeal and imposed a constructive trust over the land. A majority held that no fiduciary duty arose between the negotiating parties, so liability rested on breach of confidence instead, although two judges would have found a fiduciary duty as well.
So protect the information before you shake hands. A partnership fiduciary duty will not reliably cover you during negotiations, whereas a confidentiality agreement will.
Honest Mistakes Still Breach a Partner’s Fiduciary Duty
Here is where the standard surprises people most.
Rochwerg v. Truster, 2002 CanLII 41715 shows it plainly. An accounting firm partner became a director of a firm client, disclosed the directorship, and agreed his director’s fees belonged to the partnership. He then took up the client’s employee stock plan in his wife’s name and said nothing about it.
The Court of Appeal allowed the other partners’ appeal and held him accountable for the shares and options. Note who lost. It was the partner who took the benefit, despite having disclosed the directorship itself.
The reasoning matters more than the result, and it is what makes a partner’s fiduciary duty so unforgiving. Liability needs no bad faith, fraud or deliberate concealment, and the benefit need not fall within the firm’s own line of business. It was enough that the opportunity reached him through the firm’s relationship with its client.
Consent is the answer, not good intentions
Partners may do almost anything the others agree to, which makes disclosure cheap and litigation expensive. Informed consent is what switches a partner’s fiduciary duty off for a given transaction, so put the opportunity in front of your partners in writing and let them decide.
The Duty Does Not End with the Partnership
Dissolving a firm does not necessarily release the partners from their fiduciary duty while the winding up is still running. Section 38 keeps the relationship alive for some purposes:
After the dissolution of a partnership the authority of each partner to bind the firm and the other rights and obligations of the partners continue despite the dissolution so far as is necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise …
Section 29(2) does the same work for the accounting duty, extending it to transactions undertaken after a partnership has been dissolved by the death of a partner and before its affairs have been completely wound up.
Ontario courts read a partnership fiduciary duty the same way. In Ioannidis v. Ioannidis, 2022 ONSC 3942, a family partnership held a Kitchener property, and the court held the duties between the partners remained in effect until the business was wound up and that property sold.
Note what the case actually delivered, though. The court found a breach of the duty of disclosure yet awarded no damages, because the property sold at fair market value without improvidence, and ordered an accounting of the plaintiff’s one-third share instead.
Section 38 also cut the other way. It gave the partner on title the authority to sell the property to wind up the firm without the other partners’ consent.
Ioannidis illustrates a split to be wary about. Proving the breach and proving a loss are separate exercises, and winning the first does not win the second.
What a Partnership Agreement Can and Cannot Do
An agreement does real work here, although less than owners assume.
Section 20 is the enabling provision. It allows all the partners, by their consent, to vary their mutual rights and duties, whether those were set by agreement or defined by the Act. So an agreement can define the field a partner fiduciary duty operates on, whether through consent to outside ventures, an agreed compensation formula or a majority vote on firm decisions, because the duty attaches to expectations the agreement has already settled.
What an agreement should not be expected to do is remove the core of the duty. Section 45 keeps equity in force alongside the Act, so an agreement is read against that backdrop rather than in place of it, and a partner relying on wording that appears to exclude fiduciary obligations altogether takes a real risk as to its enforceability.
What to Do Next: When to Call a Lawyer
Disclose early and in writing. A partner’s fiduciary duty is far easier to satisfy in advance than to defend afterwards, and consent recorded at the time ends most of these arguments before they begin.
Document how each opportunity reached you, since where you learned of something decides whether it was ever yours to take.
Ask for an accounting before you accept a final number. The remedy for a breach of a partner fiduciary duty is gain-based, and the Court of Appeal in Rochwerg put it as preventing the fiduciary from retaining any gain arising from the breach.
A partnership fiduciary duty is one of the strictest standards Ontario imposes on a commercial relationship, and it bites whether or not anybody meant harm. If you are worried about what a partner has done, or about something you are considering yourself, contact Cowan before the record hardens.
