Trust Law: Fiduciary Relationship Recognized in English Law - Assignment Example

The trustee stands in a fiduciary relationship to the beneficiaries of the trust This puts the trustee under an onerous negative duty not to abusehis position by acting in his own interests at the expense of the beneficiaries. For example if a trustee makes an unauthorized personal gain because of his position he will be required to make restitution to the beneficiaries, whether he acted dishonestly or not. Once a fiduciary relationship exists it has two functions, firstly to restrict the fiduciary's ability to act in his own interests and secondly it triggers the creation of an equitable trust interest in property by way of a constructive trust. Although there are three types of fiduciary relationship recognized in English law academics and jurists alike bewail the lack of conceptual certainty in the fiduciary relationship2. The first such relationships are those which are fiduciary per se, and secondly those which arise in the context of a relationship.3 In general the essence of a fiduciary per se - or status based - relationship is that one person occupies his position in which he has a duty to act on another's behalf and has the opportunity to abuse his position. Canadian law recognizes such a relationship existing between doctors and patients4 and even child-abuser and victim5. An unusual English example is that found in Reading v A-G [1949] where a corrupt army sergeant accepted bribes from smugglers of drugs and spirits. He was held accountable to the crown for the proceeds of his crime. Asquith LJ defined the fiduciary per se relationship as follows: (a) whenever the plaintiff entrusts to the defendant property and relies on the defendant to deal with such property for the benefit of the plaintiff or purposes authorised by him, and not otherwise, and (b) whenever the plaintiff entrusts to the defendant a job to be performedand relies on the defendant to procure for the plaintiff the best terms available6 Contextually fiduciary - or fact-based - relationships are those which turn on the nature of the relationship between the parties. Since most commercial relationships are conducted at arm's length, they do not usually give rise to such relationships since a fiduciary relationship creates obligations of a different character from those deriving from the contract itself7. However if one party makes use of confidential information derived from the negotiations to make a profit at the expense of the other it might do so.8 The law also recognizes the use of the fiduciary relationship as a means of achieving remedial justice. This was recognized as a third category by La Forest J in LAC Minerals Ltd v International Corona Resources Ltd [1989]: In this sense the label fiduciary imposes no obligations, but is rather merely instrumental or facilitative in achieving what appears to be the appropriate result.9 Whilst no one argues with the correctness of the decision in Chase-Manhatten Bank NV v Israeli-British Bank (London) Ltd [1981]10 the reasoning has been heavily criticised for artificial use of the fiduciary relationship in order to provide a remedy. The Plaintiff had mistakenly transferred $1m to the Defendant, who had since become bankrupt. Goulding J held that the Defendant had become a fiduciary of the Plaintiff and so held the money on a constructive trust. In this way the Plaintiff retained a proprietary interest to the value of $1m from the assets of the Defendant. This was necessary because the alternative would be a personal right to restitution at common law on the ground of mistake, which would be meaningless as the Defendant was insolvent. In some cases the House of Lords has allowed the equitable remedy of account of profits for a claim for breach of contract11 where the common law remedy of damages would have been inadequate. The equitable remedy of account of profits is normally available where there is a fiduciary relationship but the House of Lords permitted its application in exceptional cases where it was the effective way to remedy a wrong. Not every breach of duty is a breach of a fiduciary duty12, since the fiduciary may owe a range of duties including duties of skill and care regarding his conduct of the trust business.13 Millett LJ identified the core content of the fiduciary duty as being 'single-minded loyalty' which had the facets of good faith, not making a profit from his position and not making an unauthorized profit.14 The extent of the fiduciary duty depends on the category of fiduciary relationship, each of which possesses its own characteristics and obligations. For example an employee's fiduciary duty to an employer ends when his employment terminates.15 As it is not possible to examine and ascertain a fiduciary's motivation the courts have made an inflexible rule16 that a fiduciary is liable to account for any unauthorized profits made if there is an objective possibility of a conflict between his interests and his duty.17 Here it is not sufficient for the fiduciary to only act in the interests of the other party - it is a negative duty, not to put himself in a position where his interests and his duty conflict. The definition of fiduciary obligation needs to be more tightly defined in order to avoid the criticism that the law is simply applying the principle in order to extend the range of remedies which are available to it to 'remedy' the wrong done such as avoiding the contractual rules on remoteness of damage.18 It is submitted that in expanding the fiduciary obligation to such fact-based relationships as doctor-patient and father-child the law is undermined as it tends to promote inconsistency, unpredictability and inefficiency. This approach ignores the role of precedent and legal principles and instead focuses on pragmatism and policy. It is submitted that the latter is the prerogative of parliament. It also begs the question of the role of a remedy - is it to address specific wrongs or to affirm the defendant's general interests The term 'fiduciary obligation' does not include breaches of tort19 or contract20. The obligation of loyalty connotes an element of self-denial as the basis of the relationship.21 It is a subset of equitable obligations designed to protect economic interests - not social, employment or familial interests. The obligation is not 'wrong-based' but proscriptive.22 Most importantly it should not be invoked as a back-door to law reform where existing legal remedies are felt to be inadequate. Bibliography Hayton, D. and Mitchell, C. (2005). Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies. 12th Edition. Sweet & Maxwell. Pearce, R. and Stevens, J. (2002). The Law of Trusts and Equitable Obligations. 3rd Edition. OUP. Worthington, S. Fiduciaries: When Is Self-Denial Obligatory Available at: Cases A-G v Blake [2000] 3 WLR 625 Boardman v Phipps [1967] 2 AC 46 Bray v Ford [1896] AC 44 Bristol and West Building Society v Mothew [1996] 4 All ER 698 Chase-Manhatten Bank NV v Israeli-British Bank (London) Ltd [1981] Ch 105 Hodgkinson v. Simms (1994) 117 D.L.R. (4th) 161 Keech v Sandford [1726] Sel Cas Ch 61 LAC Minerals Ltd v International Corona Resources Ltd [1989] 61 DLR (4 th) 14. M (K) v M (H) [1992] 96 DLR (4 th) 289 Norberg v Wynrib [1992] 92 DLR (4 th) 449 Price v Blakemore [1843] 6 Beav 507 Re Goldcorp Exchange Ltd. [1994] 2 All E.R. 806 Reading v A-G [1949] 2 KB 232 Swindle v Harrison [1997] 4 All ER 705 White v. Jones [1995] 2 W.L.R. 187 Read More