Archive for January, 2012

L.S. Sealy – Categories of Fiduciary Duties

Tuesday, January 10th, 2012

In a law review article published 50 years ago, Cambridge law professor L.S. Sealy reviewed two centuries of English case law on fiduciary relationships.  He concluded, correctly, that different relationships give rise to different duties.

As a starting point, “Fletcher Moulton L.J. once warned against what he called ‘the danger of trusting to verbal formulae’ in this way. After illustrating a number of fiduciary situations and describing the ways in which the courts had interfered to grant relief in these cases, he said:

“Thereupon in some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it.  They conclude that every kind of fiduciary relation justifies every kind of interference.  Of course that is absurd.

“The nature of fiduciary relation must be such that it justifies the interference.  It is obvious that we cannot proceed any further in our search for a general definition of fiduciary relationships. We must define them class by class, and find out the rule or rules which govern each class.”

AustriaSuch statement is too often ignored by lawyers and judges alike.  Consider this further analysis:

“Fry J.’s definition emphasises the essential quality of all fiduciary relationships: every remedy which can be sought against a fiduciary is one which might be sought against a trustee on the same grounds.  But it is really not a definition at all: although it describes a common feature, it does not teach us to recognise a fiduciary relationship when we meet one.

“Still less does it assist us when we are faced with a particular relationship and asked the practical question: does a certain principle of the law of trust and trustee apply?  John is my agent and is therefore, on good authority, in a fiduciary position towards me.  Does this mean that he must not mix with his own money the sums which he holds on my account?  Is there a presumption of undue influence if I make him a gift?  Is he disqualified from becoming the lessee of land formerly held by me, after I have failed to secure a renewal of the lease for myself?  Do all the trust principles apply to this fiduciary situation?

When we examine the authorities, we learn – perhaps with some surprise – that this is not so. The word ‘fiduciary,’ we find, 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 a 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.”

And he elegantly explains why banks do not owe fiduciary duties to their borrowers: “No trust can, of course, exist where there is a debtor-creditor relationship: In equity, restitution stopped where repayment began.”

L. S. Sealy, Fiduciary Relationships, 1962 Cambridge L.J. 69 (1962)