Justifying fiduciary duties.

• Author: Miller, Paul B.
• Position: IV. Instrumentalist Justifications through Conclusion, with footnotes, p. 994-1023 - The Civil Law Trust/La Fiducie en Droit Civil

4. 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. (79) The variation reflects differences in the character of stipulated ends for law as well as differences in the structure of justificatory analysis. Some instrumentalists state as normatively desirable ends the satisfaction of moral norms or the achievement of public policy goals. (80) Others understand the end to be a legal principle or a consideration peculiar to legal institutions or the integrity of law. 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. (81)

   1. The Argument from Morality

      It is sometimes said, without much elaboration or specificity, that fiduciary law is concerned with ensuring that fiduciaries behave morally (82) and that the duty of loyalty requires fiduciaries to act altruistically. (83) But, more commonly, one sees a narrower argument from morality. 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. (84) Fiduciary duties are thought justified on the basis that they promote trust either directly or by securing conditions of trustworthiness that make it rational to place trust in fiduciaries. (85) The moral value of interpersonal trust may be understood as intrinsic (e.g., trust is critical to human flourishing given our interdependence) or in instrumental terms (e.g., trust enables individuals to co-operate effectively toward achievement of socially desirable ends). 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. (86) The functional significance of trust lies in its facilitation of coordinated productive activity. (87) Speaking of relationships between business partners, Mitchell explains:

      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.... Fiduciary duty ... [makes] trust rational.... [A] fiduciary duty gives each party a reason to trust the other in a long-term relationship of unforeseeable consequences because, backed by legal sanctions, it requires each party to act as if it were trustworthy. (88) On Mitchell's view, fiduciary relationships are not founded on trust but are instead relationships in which liability rules render placement of trust secure. (89) Rational actors will be willing to trust one another knowing that betrayal will be deterred by the threat of liability.

      Robert Flannigan, by contrast, argues that fiduciary duties are founded on trust understood as a good (i.e., a form of social capital) with inherent moral value. According to Flannigan, "[t]here is ... no doubt as to the source of the fiduciary obligation. It is the trust which one person places in another." (90) Fiduciary duties are, he says, imposed "for the singular purpose of maintaining the integrity of trusting relationships." (91) Elsewhere, he elaborates:

      The traditional rationale for fiduciary responsibility is straight-forward. 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. (92) Flannigan is right that fiduciary relationships place fiduciaries in a position of power and as such generate a risk of abuse. 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. (93)

      First, the meaning of trust is contested. (94) Trust may be defined as any of a number of states of mind, (95) forms of conduct, (96) or both (e.g., a demonstrated attitude or emotion). (97) In any event, there is no agreement about what trust comprises. There are other complexities. Trust may be unilateral or reciprocal. (98) It applies to different levels and kinds of social interaction (interpersonal, organizational, public, and political). It also has different objects (e.g., one can trust in the testimony of another, their promises, their competence, and so on). The correlative concept, trustworthiness, is equally unclear. (99) It is uncertain whether trustworthiness is a function of the character, competencies, or motivations of a person in whom trust is to be placed; the nature of the relationship between those who give and receive trust; or the social, political, organizational, and legal contexts which might influence their motivation or behavior. 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.g., to tell the truth, to keep promises). (100) If that is true, the moral value of trust turns at least in part on that of its purpose. As Annette Baier notes, there "are immoral as well as moral trust relationships, and trust-busting can be a morally proper goal." (101)

      Third, the case that the duty of loyalty is trust reinforcing has not been made out. Some have argued that threats of legal sanction, or the security the threat of sanctions provides, are inimical to trust. (102) Whether this is true or not, a positive argument must be made for the trust-reinforcing function of fiduciary liability. 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. (103) Reposal of trust by a beneficiary, whatever that might mean, does not necessarily factor in the formation of relationships established by decree or undertaking. 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. As DeMott observes, the "trusting behaviour that a fiduciary relationship may engender does not adequately furnish a basis on which to differentiate among relationships or actors." (104) Trust may or may not be present in fiduciary relationships; likewise, it may or may not be present in nonfiduciary relationships (e.g., contractual relationships). The moral value of trust is therefore not alone sufficient to explain or justify fiduciary duties.

   2. The Argument from Policy

      It is also sometimes said that fiduciary liability is founded on considerations of public policy. (105) Paul Finn has advanced the most influential argument from public policy. (106) Finn, author of the groundbreaking treatise Fiduciary Obligations, was originally dismissive of the significance of the fiduciary relationship to fiduciary liability. (107) He ultimately reversed course (108) but claimed that public policy concerns account for its significance to fiduciary liability:

      [T]hough the courts often enough emphasize the rigorous standards exacted by the fiduciary principle ... they less often acknowledge explicitly that it is, itself, an instrument 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. (109) Concerning the duty of loyalty, Finn argues that "[i]ts function ... is to secure the paramountcy of one side's interests or in some instances, as with partnerships, of a joint interest." (110) This is said to be a matter of public interest and, as such, a proper concern for public policy. Finn concludes:

      In this the true nature of the fiduciary principle is revealed. It originates, self-evidently, in public policy: in a view of desired social behaviour for the end this achieves. 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. (111) Finn rightly emphasizes the public importance of certain fiduciary relationships. 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...