Notes for Equity and Trusts by Sukhninder Panesar English law categorizes certain relationships as fiduciary per se. Settled categories of fiduciary relationships include lawyer and client; agent and principal; company director and the company; and trustee and beneficiary. Still, the courts have not settled on a comprehensive definition of a fiduciary. The central defining features of a fiduciary relationship is one party acting in the best interests of another party, owing a great duty of loyalty to the other. Equity will find a fiduciary relationship exists where one party has assumed to act in relation to the property or affairs of another, whether the assumption is expressed or implied by action and behavior; ‘a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single minded loyalty of his fiduciary...’ Courts have employed concepts such as ‘undertaking to act on behalf of another’ or ‘the exercise of a power or discretion so as to affect the principal’s legal position’ to find a fiduciary relationship. A fiduciary ‘is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary.’ In other words, it is the particular circumstances which give rise to the finding of a fiduciary relationship, rather than the nature of the primary relationship of the parties. The court is required to examine facts for these features: •An element of undertaking by the fiduciary to act for or on behalf of another to procure the best terms for that person •An element of reliance by the principal that the fiduciary will act in his or her best interest •An element of vulnerability, i.e. the fiduciary may be in a position to negatively affect the interests of that other person Fiduciary Obligations in Commercial Contracts or Commercial Relationships Millett L.J. commented that ‘it is of the first importance not to impose fiduciary obligations on parties to a purely commercial relationship.’ This relates to the nature of commercial transactions and the relationships. Unlike the relationship of trust, the assumption in commercial relationships is that each party is bargaining at arms’ length and is not acting in the best interests of the other but has its own interests foremost; it is normally inappropriate to expect a commercial party to subordinate its own interest to those of another commercial party.’ A second reason for reluctance to apply fiduciary law in a commercial context relates to the remedies in cases of breach of fiduciary duty and loyalty. In fiduciary, the beneficiary will have a right to equitable compensation for a suffered a loss; or where the fiduciary has made a profit, the beneficiary is entitled to restitution by: The fiduciary accounting for the profit or, Or by imposition of a constructive trust on the profit giving the beneficiary a proprietary claim to such profit. The imposition of the constructive trust gives a commercial party, which is the principal of a fiduciary relationship, priority over the property of an insolvent fiduciary. Why does fiduciary law adopt a very strict approach to the no-profit rule? Where a profit is made by a fiduciary the court will require that the profit be returned to the principal or beneficiary despite the honesty or good faith of the fiduciary. From the early nineteenth century the Court of Chancery preferred strict deterrence because of evidential difficulties in determining the motive of the fiduciary and establishing whether he did act honestly and in good faith. The ultimate question is whether the fiduciary has really put the interests of the beneficiary first, or whether his decision was clouded by the fact that he sees the opportunity to make a profit for himself. The matter is explained by Moffat: ‘The courts of equity in the nineteenth century, particularly, under the early guiding influence of Lord Eldon, favored the deterrent approach. This was in large measure because of concern over evidentiary difficulties facing a court in determining a trustee’s motives where a possible conflict existed.’
Posted on: Sat, 17 Jan 2015 00:34:06 +0000
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