Can a Lawyer Owe Fiduciary Duty Without a Retainer in Ontario?

Can a lawyer be liable to someone they never represented?

Yes — in certain circumstances, Ontario courts have confirmed that a lawyer can owe legal duties to people who never hired them. This is especially true in real estate closings, where multiple parties rely on the same lawyer to handle funds properly. When a lawyer receives money that is clearly earmarked for a specific purpose, they take on trust obligations that extend beyond their own client.

The decision in Stewart Title Guaranty Company v. Hutchinson et al., 2026 ONSC 4190 (CanLII) illustrates exactly how far that liability can reach — and what happens when a lawyer deliberately diverts funds that were never theirs to use.

What is a fiduciary duty in a real estate transaction?

A fiduciary duty is a legal obligation to act in someone else’s best interests, not your own. In real estate, lawyers routinely hold large sums of money on behalf of buyers, sellers, and lenders. Those funds are supposed to flow to specific destinations — a mortgage payout, a vendor’s proceeds, a tax holdback.

The court in this case reaffirmed that trust is the foundation of how lawyers handle real estate closings. Because lawyers are officers of the court, the obligation to protect funds held in trust is not simply a contractual promise — it is a duty built into the professional role itself. That duty can be owed to purchasers and even to a title insurer, even without a signed retainer.

What counts as misappropriation of trust funds?

Misappropriation means taking money that was held for one purpose and using it for something else — or simply not paying it out at all. It is not an accident or an administrative delay. It is a deliberate act.

In this case, the court found that purchase monies that had been earmarked for particular purposes were diverted. That conduct breached the fiduciary duty owed to the purchasers and, because a title insurer had stepped in to compensate those purchasers, also gave rise to liability toward the insurer. The insurer effectively stood in the shoes of the buyers once it paid out the claim.

When can punitive damages be awarded in Ontario?

Punitive damages are not awarded in every case where someone does something wrong. Ontario courts follow the framework from Whiten v. Pilot Insurance Co. — punitive damages are reserved for conduct that is a marked departure from the standards of decent behaviour that society expects. The amount must be proportionate and rationally tied to the goal of punishing the wrongdoer and deterring others.

Here, the court found the lawyer’s conduct met that high bar. Deliberately misappropriating funds that clients and third parties trusted you to protect is not a grey area. The court awarded punitive damages on top of compensatory damages, though it drew an important technical line: pre-judgment interest runs on compensatory damages only, not on the punitive award.

What happens when a defendant does not respond to a lawsuit?

When a defendant is properly served with a statement of claim and chooses not to file a defence, the plaintiff can seek a default judgment. The court does not simply rubber-stamp the claim — it still reviews the evidence and the legal basis for the amounts sought.

In this case, the lawyer did not defend the action. The court reviewed the bill of costs filed by the plaintiff and allowed it, granting default judgment that included compensatory damages, punitive damages, pre-judgment interest, and costs on a substantial indemnity scale. Substantial indemnity costs are higher than ordinary party-and-party costs and are typically awarded where the losing party’s conduct warrants a stronger sanction.

Practical takeaways for homebuyers and title insurance claimants

• Purchase title insurance for every transaction. If a lawyer misappropriates your closing funds, title insurance may be your most direct path to recovery — as this case demonstrates, the insurer can then pursue the wrongdoer on your behalf.
• Understand that your closing funds are held in trust. Even if you are not the lawyer’s client in the traditional sense, the money earmarked for your transaction is legally protected.
• Keep records of all wire transfers and closing documents. If funds go missing, you will need to show exactly what was supposed to happen and what actually happened.
• Act quickly if something seems wrong. Limitation periods apply to civil claims, and delays can complicate recovery.
• Seek legal advice before assuming a loss is unrecoverable. The absence of a retainer with the lawyer who handled the closing does not necessarily mean you have no claim against them.

If you are dealing with a dispute involving real estate fraud, missing closing funds, or a title insurance claim, our Ontario litigation lawyers can help you understand your options.

Does this decision apply across Ontario, including Hamilton and Burlington?

Yes — this is a decision of the Ontario Superior Court of Justice, which means it applies throughout the province. Whether a transaction closed in Toronto, Hamilton, or Burlington, the same principles around lawyer fiduciary duty and trust obligations govern the relationship between lawyers and the parties who rely on them.

If you are in the Hamilton or Burlington area and have concerns about a real estate closing, our team handles civil litigation matters locally. You can learn more about our services for clients in Burlington and Hamilton.

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UL Lawyers offers a free initial consultation from our Burlington office and serves clients across Ontario. If you believe funds were mishandled in your real estate transaction or you have questions about a title insurance claim, reach out to our civil litigation team to discuss your situation.

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This article is automated commentary on a public court decision and is for general information only — not legal advice. Decisions rely on facts unique to each case. If you are affected by a similar issue, contact a lawyer for advice specific to your situation.