Deterrence, Prophylaxis and Punishment in Fiduciary Obligations

Abstract

The most prominent features of the landscape of fiduciary law are the no-conflict and no-profit rules. This paper aims to clarify the differences between existing accounts of these rules, and to propose my own argument for their justification. It first distinguishes between arguments that they have a deterrent function, and arguments that they have a prophylactic function. It goes on to argue that it is untenable, for two distinct reasons, to argue that these fiduciary norms have a deterrent function. By contrast, the paper argues that the no-conflict rules have a prophylactic function; they exist as a precaution against the exercise of duty-bound judgment in situations where improper influences may have unknown effects. It concludes by arguing that the no-profit rule has a different function: it is not a response to any kind of wrongdoing, but is a primary rule of attribution, that allocates profits and other benefits to the beneficiary at the moment they are acquired. This explains the otherwise puzzling features of the case law in this field. Moreover, these accounts of the no-conflict rules and the no-profit rule avoid all of the difficulties that beset deterrent accounts.

Keywords: fiduciary obligations; conflicts of interest

JEL Classification: K00