The Utility and the Extent of Fiduciary Obligations

The utility and the extent of fiduciary obligations and the remedies for breach thereof are such that claimants and courts are tempted to stretch the concept of fiduciary relationships as if it were an “accordion term”. DJ Hayton, Hayton and Marshall Commentary and Cases on the Law of Trusts and Equitable remedies p 357 Discuss.

The law of trusts is well recognised as a separate branch of the law, with its own textbooks and its own rules and principles, now highly developed. The law of fiduciary relationships will not, in general, be found in those textbooks, but the rules and principles governing these relationships are- in essence and origin- the same as those of the law of trusts… [fiduciary] is not definitive of a single class of relationships to which a fixed set of rules and principles apply. Each equitable remedy is available only in limited number of fiduciary situations; and the mere statement that John is in a fiduciary relationship towards me means no more than that in some respects his position is trustee-like, it does not warrant the inference that any particular fiduciary principle or remedy can be applied.

Fiduciary law enforces high standards of conduct on the person considered to be a fiduciary. Fiduciary relationships, then, are those where one party promises to act in the best interests of another or their joint interests. The trustee-beneficiary relationship is the basic paradigm of fiduciary relationships. In relation to the paradigm, the trustee is subject to a duty of loyalty to the beneficiary’s interests and the component duties which embrace the trustee’s loyalty are the most extensive imposed on any fiduciary. Other fiduciary relationships are recognised as similar to the paradigm; while there is a duty for loyalty, their component duties may be less than a trustee’s.
The identification of fiduciary relationships is, however, ‘problematic and controversial’ because ‘there is no agreed basis by which fiduciary relationships and duties may be recognised.’ As one commentator remarks:

The utility and the extent of fiduciary obligations and the remedies for breach thereof are such that claimants and courts are tempted to stretch the concept of fiduciary relationships as if it were an ‘accordion term.’

It is this concept which forms the subject matter of the ensuing debate.
The law relating to fiduciaries has been developing for hundreds of years; perhaps back to the Roman jurists, however, there is ‘no universal, all-purpose definition’ of the fiduciary relationship. That said, some relationships are identified as fiduciary per se, for example, a trustee-beneficiary, director-company. Where these relationships are found to exist they create fiduciary duties. Furthermore, there are ‘relationships which are not in their essence fiduciary… but this does not preclude a fiduciary duty from arising out of specific conduct engaged in by [a party] or either of [the parties] within the confines of their relationship.’ Therefore, where the relationship is fiduciary only in respect of a particular matter, it is a fiduciary duty, not a fiduciary relationship, since the whole relationship is not fiduciary. Indeed, the courts do not allow claims that treat a breach of fiduciary obligations as a breach of fiduciary duty:

The expression ‘fiduciary duty’ is properly confined to those duties which are peculiar to fiduciaries and the breach of which attracts legal consequences differing from those consequent upon breach of other duties… not every breach of a duty by a fiduciary is a breach of fiduciary duty… It is inappropriate to apply the expression to the obligation of a trustee or other fiduciary to use proper skill and care in discharge of his duties… The distinguishing obligation of a fiduciary is the obligation of loyalty… A fiduciary must act in good faith; he must not make a profit out of his position; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal… where the fiduciary deals with his principal… he must prove affirmatively that the transaction is fair and that he made the full disclosure of all the facts material to the transactions… Breach of fiduciary obligation connotes disloyalty or infidelity. Mere incompetence is not enough.

Bean remarks that this leads to the question as to what is the underlying basis of a fiduciary relationship or duty, rather than simply who is a fiduciary?
There has been an array of possible bases for such relationships and duties, though it seems that ‘trust, confidence, dependency and vulnerability’ form part of the ‘linguistic terrain of the bases for fiduciary relationships.’ It is submitted that it is equity’s remedial jurisdiction which today enables judges to provide a remedy where there is perceived injustice. For example, as there is no fiduciary relationship in respect of property vested in a beneficial legal owner, tracing would not be available if the property is stolen from him. However, the requirement for a fiduciary relationship in order to trace in equity states that if money is stolen and is mixed by the thief in his own bank account, the victim cannot claim any legal proprietary but once the victim’s legal title to the money passes, a constructive trust is imposed and a fiduciary relationship arises which enables the victim to trace in equity. This statement has authority in Westdeutsche Landesbank Girozentrale v Islington LBC. Furthermore, in Re

Diplock, money was wrongfully distributed by executors of a will to a number of charities. It was decided that the next of kin, who should have been entitled to such money, was able to trace the money from the innocent recipients. The right to trace arose due to the next of kin’s equitable right against the executors to have the estate rightly distributed.

Some commentators argue that there is a moral dimension to the existence of the fiduciary relationship. This moral dimension has however been condemned and judges have stated that there is no moral issue. Instead, it is believed that the duties created under fiduciary law aim to prevent a fiduciary from diverting gains away from the beneficiary. The enforcement of loyalty to advance the beneficiary’s interests is therefore the reason for the fiduciary relationship. This encompasses prescriptive duties; compelling the fiduciary to act in the beneficiary’s best interests, and proscriptive requirements; compelling certain standards to be maintained. Boardman v Phipps seems to be good law in this area; where the fiduciary is not expected to make a profit out of his position; must act impartially towards the beneficiary and must not place themselves in a position where their self interest and duty may conflict.

This paper has demonstrated the essence of fiduciary relationships and duties. However, to identify a fiduciary relationship is only the start of the process, as Bean comments. The court also has to: define its scope; determine whether the duty has been breached; review any defence of consent, and; determine the appropriate remedy.

In conclusion, the use of analogy to the trust and the imprecision of the language used to account for the various types of fiduciary relationships and duties has led to an array of possible bases for such relationships and duties. The flexibility awarded to fiduciary duties has its positive and negative qualities. From a positive perspective, it means that each case can be decided on its own merits and unique facts, whereas from a negative perspective, this area of the law may be seen as inconsistent and uncertain. However, the case of Foskett v McKeown, seems to suggest a less liberal attitude; by virtue of case law, therefore, there may be less pressure in the future to succumb to a claimant’s demands and therefore the current flexibility awarded to fiduciary relationships could be diminished.

Words- 1,511

Bibliography

R P Austin; The Corporate Fiduciary: Standard Investments Ltd v Canadian Imperial Bank of Commerce (1986-7) n12 Can Bus LJ 96
G Bean; Fiduciary Obligations and Joint Ventures; Clarendon Press: Oxford, 1995
P D Finn; Commerce, the Common Law and Morality (1989) 17 Melb ULR 87
L.S Sealy; Fiduciary Relationships; [1962] CLJ 69
Hayton, & Marshall; Commentary and Cases on the Law of Trusts & Equitable Remedies; Sweet & Maxwell; 11th edition; 2001
E Vinter; A Treatise on the History and Law of Fiduciary Relationships together with a Collection of Selected Cases (1932) 2.3

Lac Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14, 16, Per Wilson
Bristol & West BS v Mothew [1998] Ch 1 16 per Millett LJ
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669
Re Diplock [1948] Ch 465
Parker v McKenna (1874) 10 Ch App 96 118 per Lord Cains
Boardman v Phipps [1967] 2 AC 46
Queensland Mines v Hudson (1978) 18 ALR 1
A G Hong Kong v Reid [1994] 1 AC 324
Foskett v McKeown [2001] 1 AC 102