In certain cases, the law deems a relationship to be a fiduciary one.
For instance, a solicitor stands in a fiduciary relationship towards his or her client, a trustee for the beneficiary of the trust.
Whether a fiduciary relationship exists in other relationships is a question of fact, but for an ordinary commercial relationship to be recognized as possessing a fiduciary character, these must be special circumstances which show that one party is entitled to expect that the other will act in his or her best interests and for the relationship.
The critical feature of a fiduciary relationship is that the fiduciary undertakes or agrees to act for or on behalf of another person in the exercise of a power or discretion that will affect the interests of that other person in a legal or practical sense.
The relationship is, therefore, one of dependence which gives the fiduciary a special opportunity to exercise the power or discretion conferred upon him or her to the detriment of that other person, and because of that dependence, there is a clear vulnerability to abuse.
In virtually all cases, the officers of a municipality or private sector company who play a decision-making role in purchase and other procurement decisions will be held to occupy a fiduciary position to the organization, with respect to the discharge of the responsibilities entrusted to them.
The effect of being held to be a fiduciary is to subject the person so conceived to additional burdens of fair dealing beyond those that apply to all people engaging in contractual dealings.
In general terms, the fiduciary obligation of municipal and private sector staff includes:
A duty to act in the best interests of the municipality or company and, correspondingly, not to do anything that undermines or thwarts those best interests;
a duty not to compete with the municipality, or private sector company, including a prohibition against appropriating its business opportunities and assets or using the fiduciary position to gain some pecuniary or other advantage;
a duty to avoid any conflict of interest, whether with respect to the fiduciary’s own interest, or with respect to assuming a conflicting fiduciary duty relative to some other person; and
a duty to maintain the confidentiality of information received or knowledge obtained through the fiduciary position, including and prohibition against making use of such confidential information for the staff member’s personal benefit.
While members of municipal and private sector staff do not become subject to fiduciary obligations until they take up their respective positions in the municipality or private company, their duties are retrospective insofar as they encompass a duty to investigate mistakes and misconduct committed by past staff in management as well as a duty to supervise present staff. The duty of a fiduciary may be breached both by action or by failing to act.
In addition to the foregoing general principles of equity, many government agencies have personal policies that contain specific provisions prohibiting an employee from participating in a decision where that employee or anyone closely connected with him or her has a personal or business interest in the decision.
Generally, these policies will:
Require the disclosure of any conflict of interest (usually to the manager of the employee in question);
require the employee to refrain from any participation in the decision-making process;
prohibit the acceptance of gifts, gratuities, etc. from any existing or potential supplier to the organization, although usually items of small value are excluded from the scope of the policy; and
prohibit the acceptance of hospitality that might create a reasonable apprehension of influence on the performance of work.
The effectiveness of these policies turns to a large degree on the extent to which they are known and understood by the employees of the organization.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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