Implied fiduciary relationship

implied fiduciary relationship

It examines the specific fiduciary relationship of employee and . with obligations at common law for an implied 'duty to obey directions', 'duty. 3d DCA ), putative class action plaintiffs and their attorneys were held to owe an implied fiduciary duty to potential members of a class of property owners . The central question was whether this duty was an implied term in the solicitor's contract to provide professional services, or a fiduciary duty.

If so, the above-noted insights about fiduciary liability might be accounted for in a manner which demonstrates the affinity of fiduciary and contract law without raising problems generated by contract-based reductivist argument.

James Edelman has recently offered an argument of this sort. More particularly, they are an express or implied term of an engagement accepted by the fiduciary. They are not duties which are imposed by law nor are they necessarily referable to a relationship or status. It is time to move from thinking of fiduciary duties as a matter of status to understanding them as based upon consent.

It is a purer and less intricate voluntarist account of the justification for fiduciary duties. The argument is, in essence, that fiduciaries are rightly subjected to fiduciary duties where they consent to them. Each says that fiduciary duties may be imposed on the basis of a judicial determination of whether this would be consistent with the expectations of reasonable persons.

implied fiduciary relationship

It is just that Easterbrook and Fischel focus on agreement what reasonable parties to a hypothetical contract would have agreed towhile Edelman focuses on consent what a reasonable person must be taken to have accepted, whether on a contractual or extracontractual basis. Each contemplates the imposition of fiduciary duties on the basis of actual or constructive consent, with construction guided by legal or economic standards of reasonableness.

Edelman improves on the argument from contract.

Fiduciary duties as implied contractual terms: MacRoberts LLP v McCrindle Group Ltd | The ECCLblog

However, his account is also unsound. Descriptive problems arise from the insistence that consent, divorced from any concept of the fiduciary relationship, is sufficient to ground fiduciary duties.

It is true enough that fiduciary liability is ordinarily premised upon voluntary undertakings, as most fiduciary relationships are established consensually. But it turns out that consent in itself offers little explanatory yield. First, while the engagement of a fiduciary is ordinarily consensual, fiduciary relationships are sometimes if rarely established constructively, and consent is never in itself sufficient to make a relationship fiduciary.

Parents have fiduciary duties toward their children as a matter of right, without any requirement of consent. Presumably, the occupation of these offices is consensual, but consent does not explain the imposition of fiduciary duties on all holders of the office as a matter of law. Fiduciary duties are attached to the office by the statute under which they are created or regulated.

The same is true of relationships deemed to have fiduciary status. Second, the list of factors said to support the implication of fiduciary duties raises the question of the significance of the fiduciary relationship to fiduciary liability. It is telling, however, that these factors are among the most discussed indicia of fiduciary relationships. Fiduciary relationships generate fiduciary duties.

That is right of course, but we want to know why fiduciary relationships generate fiduciary duties. Consent is capable of reconciling fiduciary duties with the imperative of respect for autonomy.

With rare exceptions, it would be inconsistent with that imperative for the law to require one person to serve another as a fiduciary. That would be to enable individuals or the state to coercively extract servility from others. Consent is thus ordinarily a necessary condition of fiduciary liability.

However, it is not a sufficient condition, as consent alone does not give reason for imposing the duty of loyalty. The Argument from Property Another popular reductivist argument holds that fiduciary duties are a kind of private property right or are necessarily incidental to private property rights.

So understood, fiduciary duties enhance ownership by facilitating delegation of power over property and protect ownership interests by deterring misappropriation or misapplication of that property.

The justification for fiduciary duties derives from that for ownership and private property rights. The argument from property also draws attention to important aspects of fiduciary liability. The first is that many fiduciary relationships involve the exercise of power by the fiduciary over property owned in a legal or equitable sense by the beneficiary. This suggests that fiduciary power over property may itself be a form of property belonging to the bundle of rights constitutive of ownership.

Here again there are two variants of the argument. The first, advanced by Larry Ribstein, blends arguments from contract and property. All fiduciary relationships are said to feature separation of ownership and control of property. Fiduciaries exercise control over that property. The innovative arguments from property are problematic as well. Consider first the descriptive issues.

First, while many fiduciary relationships involve the exercise of power over property, not all do. The paradigmatic fiduciary relationship between trustee and beneficiary is a misleading paradigm in that respect. Parents enjoy fiduciary power over the person and property of their children. Lawyers enjoy fiduciary power over legal interests rights, obligations, powers of clients that often have no bearing on their property.

In many cases, the interests subject to the fiduciary relationship cannot reasonably be construed as proprietary. Second, it follows that fiduciary duties do not just prevent misapplication or misappropriation of property.

Are you a fiduciary?

This carries a clear normative implication. If beneficiaries are often not owners and the interests subject to fiduciary relationships are often not proprietary, it follows that the normative foundations for property rights and ownership cannot alone support fiduciary duties.

Agency: Fiduciary Duties

Where fiduciary law protects property rights and enhances ownership, it does so in a manner incidental to its core purpose. Gordon Smith has offered an interesting variant on the argument from property. Lawyers have long understood that one who deals with property on behalf of the beneficial owner of the property is subject to fiduciary duties.

The quintessential fiduciary relationship—the trust—follows this pattern. Despite the obvious connection between property and fiduciary duty in the trust context, property-based theories of fiduciary duty have not commanded widespread support because so many fiduciary relationships appear to exist without the requisite property.

He defines the fiduciary relationship as follows: Like property, critical resources may be tangible or intangible. More particularly, he says that fiduciary duties are justified by the vulnerability of the beneficiary to the fiduciary. The former concept is not well-defined. We are told nothing about the character of a resource other than that, like property, it encompasses tangible and intangible things.

In any event, fiduciary relationships feature objects that cannot plausibly be construed as resources, including persons. But it is not clear that the concept of a critical resource has any normative significance at all. The Argument from Tort The last reductivist argument for consideration is one that has surprisingly found virtually no academic support. As I will explain, breach of fiduciary duty has sometimes been called a tort. But no one has yet argued that it is properly understood as a tort.

This is surprising because, in one sense, an argument from tort is the most logical avenue of reductive analysis. The boundaries of tort law are notoriously ill-defined. That might resolve the problem of classifying fiduciary duties, even if order is achieved at the cost of analyticity. The problem is that the loss of analyticity is too much to bear. Treating torts as a collection bin for the bric-a-brac of private law affords taxonomical flexibility at the expense of genuine taxonomical utility.

Fiduciary duties as implied contractual terms: MacRoberts LLP v McCrindle Group Ltd

If it is unclear what characteristics an obligation must have to count as a tort duty, calling it a tort duty tells us nothing of its nature or relationship to other kinds of private law obligations.

Without purporting to resolve the question of its coherence, it may be noted that tort law may have some defining purpose. Several theorists have attempted to articulate the core aims of tort law. These efforts may enable us to entertain hypothetical arguments that breach of fiduciary duty should be considered a tort.

One theory is that torts are civil wrongs. The civil wrongs theory builds on the recognition that tort liability is premised on wrongdoing but not necessarily risk, harm, or fault.

Justifying Fiduciary Duties – McGill Law Journal – Érudit

The civil wrongs theory of tort law may well have more explanatory power than its competitors. But the concept of a civil wrong is so broad that the theory is of little use in dealing with core problems of classification and justification of private law obligations. But one must appreciate the nature of the right to exclusive possession of property or to performance of contractual undertakings to understand the character of the wrongs.

Understanding the nature of rights, duties, wrongs, and remedies is essential to articulating their justification.

It is also relevant to reasoned classification. Breach of fiduciary duty is a civil wrong. But that tells us nothing of its distinctive wrongful character and gives little reason for classifying it a tort.

Another view is that torts are civil wrongs of harmful interference. Tort law is focused primarily on compensation for harm to protected interests. Disloyalty sometimes involves assault, theft, or misappropriation, but harmful interference with the person or property of the beneficiary is not essential.

The duty of loyalty prohibits conflicts regardless of whether their realization entails a risk of harm to the beneficiary. Equally, fiduciary remedies are not merely compensatory. Gain-based remedies require the fiduciary to pay over profits and property to the beneficiary whether or not the underlying disloyalty involved conduct that could be construed as conversion. Instrumentalist Justifications Our discussion has thus far shown the failure of the reductivist strategy in justifying fiduciary duties.

This alone gives us a reason to think that fiduciary duties are distinctive and to predict that a successful justificatory strategy will treat them as such. The other dominant analytical strategy—the instrumentalist strategy—accepts that fiduciary duties are distinctive but typically ignores, denies, or diminishes the possibility that a justification might be rooted in the juridical character of liability.

There are several varieties of instrumentalist argument. Some instrumentalists state as normatively desirable ends the satisfaction of moral norms or the achievement of public policy goals. Furthermore, instrumentalist justificatory analysis may be direct or indirect in structure. Direct analyses seek to justify the content of an obligation directly on the basis of the stipulated independent end. Indirect analyses accept that obligations are supported by juridical reasons but claim that the latter are best explained in light of a stipulated independent end.

As we shall see, instrumentalist arguments about the justification for fiduciary duties tend to be direct. Specifically, it is said that fiduciary duties have moral justification because they provide a secure basis for interpersonal trust. Fiduciary relationships are said to be relationships of trust. In either event, the justification for fiduciary duties is attributed to the moral value of trust.

Lawrence Mitchell, for instance, has argued that fiduciary duties make trust rational in relationships for which trust has functional significance. No law or contract is likely to substitute for the trust and mutual regard of the parties.

But law can be used in a way that will help to foster the development of trust and make it more rational. Robert Flannigan, by contrast, argues that fiduciary duties are founded on trust understood as a good i.

It is the trust which one person places in another. The traditional rationale for fiduciary responsibility is straightforward. People trust others to act on their behalf or to perform tasks for them. The mischief that can occur in such circumstances is that the trusted party will divert value away from the trusting party. The trust placed in the trusted party, in other words, will be abused. Public morality is offended by this kind of conduct. The courts, openly asserting this public morality or policy, formulated a liability rule to deter the abuse.

implied fiduciary relationship

But it does not follow that fiduciary relationships are defined by trust or that fiduciary duties promote trust. Fiduciary relationships may implicate trust. But there are several problems with the notion that fiduciary duties are founded on the moral value of trust. There are other complexities. Trust may be unilateral or reciprocal. It also has different objects e. The correlative concept, trustworthiness, is equally unclear. So long as it lacks clear meaning, trust cannot justify fiduciary duties.

Second, claims that the functional value of trust justifies fiduciary duties rest on the questionable premise that these functions have stable moral value. There is reason to doubt this. Most consider that, whatever it is, trust is purposive—that is, one person trusts another to do something e. Some have argued that threats of legal sanction, or the security the threat of sanctions provides, are inimical to trust.

Without one, we have no reason to believe that there is any causal relationship between levels of trust and fiduciary liability. Finally, trust is not an essential quality of fiduciary relationships.

Further, depending how it is defined, trust may or may not arise subsequently. Even where present, trust is not a unique quality of fiduciary relationships. The moral value of trust is therefore not alone sufficient to explain or justify fiduciary duties.

The Argument from Policy It is also sometimes said that fiduciary liability is founded on considerations of public policy. It has been used, and is demonstrably used, to maintain the integrity, credibility and utility of relationships perceived to be of importance in a society. And it is used to protect interests, both personal and economic, which a society is perceived to deem valuable.

In this the true nature of the fiduciary principle is revealed. It originates, self-evidently, in public policy: To maintain the integrity and the utility of those relationships in which the or a role of one party is perceived to be the service of the interests of the other, it insists upon a fine loyalty in that service.

Who could deny the personal and social significance of relationships between directors and corporations, doctors and patients, and parents and children? That being said, Finn leaves unarticulated the connection between the public importance of some fiduciary relationships and the policy justification for fiduciary duties in general.

A policy justification is simply asserted. If it is unclear what makes a relationship fiduciary, it is impossible to determine whether its characteristics engage matters of public interest, and if so, how. Furthermore, written evidence existed that suggested that Mr Barrie might have been discussing settling the arbitration at an amount unacceptable to Mr McCrindle.

MGL did not contest this amount, but contended that it was not due because ML were in material breach of their contract to provide professional services by placing themselves in a position of conflict of interest. The Lord Ordinary found that ML were not in material breach of their contractual duties. It argued that the Lord Ordinary erred in law in failing to hold that, by destroying the written evidence of the 29 May discussions, ML placed themselves in a position where there was a real and sensible possibility of conflict of interest, and thus materially breached their contract.

The failure to make scanned copies of the notes was a carless mistake that had no component of disloyalty or lack of fidelity, which are required for breach of fiduciary duty.

He noted that there was no disagreement with regard to the existence of a potential conflict of interest. ML raised this issue with MGL, and instructed them to seek independent advice. Such an analysis has no purpose. If a solicitor is under a duty by virtue of the fiduciary relationship, there is no need to re-impose it by the mechanism of contractual implication. The fiduciary duty prevents a fiduciary from placing himself in a conflict situation, as opposed to the alleged implied contractual duty of not finding oneself in a position of conflict of interest.

The fiduciary duty is breached by deliberate action that carries with it an element of disloyalty or malice, whereas the alleged contractual duty would be breached by and inadvertent omission or carelessness.