RATIONALIZING PROPERTY, EQUITY AND TRUSTS: ESSAYS IN HONOUR OF EDWARD BURN, ch. 4, J. Getzler, ed., Butterworths, 2003
28 Pages Posted: 25 Jun 2003 Last revised: 13 Dec 2013
Date Written: 2003
The fiduciary's duty of loyalty has been subjected to a great deal of analysis. That analysis usually focuses on the distinctive proscriptive rules, which forbid the fiduciary from being in a conflict of interest and related situations. This paper argues that in order to understand what is truly distinctive about fiduciary obligations, it is necessary to take account of another body of fiduciary law: that which controls the exercise by fiduciaries (such as trustees or corporate directors) of their powers. When the two are considered together, the unique feature of fiduciary obligations becomes clearer. In the vast majority of obligations, in both the common law and the civil law traditions, observance or breach of the obligation is judged by whether or not a particular result was brought about, an inquiry which may be associated with a 'standard of care' or an 'intensity' of the duty. What is unique about the fiduciary obligation of loyalty is that its observance or breach depends on the motive with which the fiduciary acted. The control of fiduciary powers follows a model of analysis which is much closer to the judicial review of administrative action than to the law of negligence. Once this is understood, the strict proscriptive rules which forbid conflicts of interest can be better analysed as protecting the beneficiary of a fiduciary obligation from the burden of proving an improper motive. The fiduciary must not only act with the proper motive; he must be seen so to act, and so he is forbidden to be in situations of conflicting motivational pressure.
Keywords: fiduciary, loyalty, conflict of interest, trusts, trustees, corporate law, directors, takeovers, powers, comparative law, civil law, common law, good
JEL Classification: K11, K12, K22, K41, K42
Suggested Citation: Suggested Citation
Smith, Lionel, The Motive, Not the Deed (2003). RATIONALIZING PROPERTY, EQUITY AND TRUSTS: ESSAYS IN HONOUR OF EDWARD BURN, ch. 4, J. Getzler, ed., Butterworths, 2003. Available at SSRN: https://ssrn.com/abstract=382341 or http://dx.doi.org/10.2139/ssrn.382341