Understanding Fiduciary Duties And Relationship Fiduciarity.

AuthorRotman, Leonard I.

How well do we truly understand the legal concepts we regularly use and discuss? Truly understanding a legal concept necessitates understanding why it exists, what it was constructed to accomplish, and the purpose or purposes it was intended to facilitate. A lack of attentiveness to that raison d'etre results in the loss of connection between the concepts and their underlying rationales. The divorce between legal concepts and their philosophical foundations renders the former susceptible to manipulation and misuse as they lose their connection to their philosophical and doctrinal foundations and subsequently become more and more unintelligible.

As it presently sits, fiduciary jurisprudence is one of the most confused and least understood areas of contemporary law. This is not a new development, but one of long standing. Jurisprudence and legal commentary indicate that both lawyers and judges misuse fiduciary principles for reasons inconsistent with fiduciary law's conceptual foundation.

The primary purpose of this article is to enhance the understanding of fiduciary duties and relationship fiduciarity by promoting a more robust understanding of the fiduciary concept centred upon its foundational raison d'etre. In the process of establishing a stronger philosophical and doctrinal base for the fiduciary concept, the article will also contemplate the contributions provided by of one of the more recent additions to fiduciary law scholarship, authored by Remus Valsan and published in a recent issue of this same law journal.

Dans quelle mesure comprenons-nous reellement les concepts juridiques que nous utilisons et discutons regulierement? Une reelle comprehension d'un concept juridique necessite de savoir pourquoi il existe, quelle est la fonction pour laquelle il a ete concu, et le ou les buts qu'il visait a atteindre. Or, le manque d'attention octroye a leur raison d'etre a pour consequence la perte du lien entre ces concepts et leurs logiques sous-jacentes. Le divorce entre les concepts juridiques et leurs fondements philosophiques rend les premiers susceptibles a la manipulation et a l'abus, perdant ainsi le hen avec leurs fondements philosophiques et doctrinaux, et devenant de plus en plus inintelligibles.

La jurisprudence du droit fiduciaire est presentement l'une des plus confuses et moins bien comprises du droit contemporain. Or, ceci n'est pas un nouveau developpement, mais un probleme de longue date. La jurisprudence et les commentaires juridiques indiquent tous deux que les avocats et les juges abusent des principes fiduciaires pour des raisons qui sont incompatibles avec le fondement conceptuel de ce droit.

L'objectif premier de cet article est d'ameliorer notre comprehension des obligations fiduciaires et de la relation fiduciaire en favorisant une comprehension plus robuste du concept fiduciaire, centree sur sa raison d'etre fondamentale. En etablissant une base philosophique et doctrinale plus solide pour le concept fiduciaire, l'article examinera egalement la contribution recente au droit fiduciaire de Remus Valsan, publiee sous la forme d'un article dans un numero recent de cette meme revue.

Introduction I. The Problem of Definition A. The Uncertainty of the Fiduciary Concept B. The Function and Purpose of the Fiduciary Concept II. The Animating Forces of Fiduciary Duties A. Essential Fiduciary Points of Emphasis B. Valsan's Emphasis: A Primary Focus on Conflicts of Interest 1. Establishing the Parameters of Valsan's Thesis 2. Conflicts of Interest 3. Reconciliation with Private Law 4. Linking Traditional Approaches to Conflict of Interest and the Fiduciary Concept's Raison d'Etre C. A Distinction Without a Difference? III. Understanding the Purpose of The Fiduciary Concept A. Focusing on the "Big Picture" B. Meinhard v. Salmon: Illustrating Fiduciary Purpose Conclusion Annex Introduction

Why is the fiduciary concept so difficult to understand? After all, its history in English law dates back more than three hundred years and its philosophical and doctrinal origins reach back even farther. Fiduciary principles in common law jurisprudence predate even the seminal case of Keech v. Sandford (1) (Keech) in 1726 that is generally referenced as the first to outline fiduciary principles in English law. (2) The fiduciary concept's civil law origins are even older, dating back to principles of Roman law, (3) while its foundational principles may be discovered in both ancient Greek thought and in the Old Testament. (4)

Published law reporters abound with cases that apply fiduciary principles in a variety of circumstances and discuss them in various levels of detail. The number of fiduciary law articles printed in law journals indicates that many authors have written about the fiduciary concept, particularly in the last half-century. (5) Most dedicate considerable space in their commentaries to the continuing issues that plague fiduciary jurisprudence. Despite all of the attention paid to the fiduciary concept, we seem no further ahead in our understanding of it. Curiously, this dilemma has not diminished the continuing use of fiduciary principles. Indeed, quite the opposite effect may be seen. Fiduciary principles have gained in popularity consistently over the past few decades and are now ubiquitous in contemporary jurisprudence. This reality raises significant questions about the continued use of misunderstood legal concepts in contemporary jurisprudence.

A number of difficulties and misunderstandings have arisen as a result of the misapplication of fiduciary law and its principles. These difficulties and misunderstandings provide a strong impetus to inspire more detailed examinations of fiduciary purpose and how fiduciary law functions to achieve that purpose. It is axiomatic, however, to state that the problematic application of fiduciary principles may only be replaced with more doctrinally appropriate outcomes once the fiduciary concept is better understood and its principles more appropriately implemented. The knotty situation that exists as a result of the unreflective and unprincipled application of fiduciary law is not going to resolve itself--history has already demonstrated that. More proactive and purposeful initiatives aimed at clarifying the application of the fiduciary concept are required in order to straighten out the difficulties that continue to surround the institution of fiduciary principles and cloud fiduciary jurisprudence.

There is often a wide gulf between possessing knowledge of legal concepts and possessing a sophisticated appreciation of their historical and theoretical foundations. Truly understanding a legal concept necessitates understanding why it exists: this entails knowing what that concept was constructed to accomplish and the purpose or purposes it was intended to serve. Put more simply, we should strive toward knowing not only what a particular legal concept is (its function), but also what it is for (its purpose).

For the most part, it appears that practical applications of legal concepts do not mandate this depth of knowledge. In a great many situations, the law does not appear to suffer too greatly where the practical application of its concepts implements only a fragment of what the law in a particular area is actually comprised of. There are, however, some significant exceptions. It is suggested here that the fiduciary concept is one of those exceptions because of its complexity and the continuing uncertainty over when and where it ought to apply, caused by too many improper applications of fiduciary principles.

The continued application of fiduciary principles despite the notable absence of substantive articulation of the fiduciary concept is troubling. The use of fiduciary principles in this manner dates as far back as the first half of the nineteenth century. (6) The subsequent development of a farreaching fiduciary jurisprudence, in the absence of substantive understanding of what the fiduciary concept both is and is for, is responsible for the reams of doctrinally incorrect or questionable applications of fiduciary principles. (7) The present article is unconcerned with the reason for this jurisprudential development, which is the subject for another investigation. It is concerned, however, with the fact that it has happened. Both situations are problematic: the former is the subject of historical curiosity and jurisprudential development, while the latter is a fundamental legal problem that remains particularly relevant in the present day.

Judges and legal authors have taken ample opportunities to discuss the fiduciary concept and have engaged in numerous attempts to work out perceived difficulties in its application. One of the latest names to be added to this list is Remus Valsan, who published an article in a recent issue of this law journal, (8) which has provoked this response. Although Valsan makes positive contributions to the literature on the fiduciary concept and its understanding, it is unfortunate that he, like others before him, has left unaddressed the fundamental question of what the fiduciary concept is for. It may well be that this was simply not his purpose in writing his article. Indeed, his desire to alter and expand the existing understanding of conflicts of interest appears paramount in his analysis. While that particular contribution is an important one, I argue that more fundamental fiduciary matters require attention before refinements of the type proposed by Valsan ought to be addressed. Notwithstanding the eagerness of many judges and authors to resolve the confusion surrounding the fiduciary concept, the failure to focus on why the concept exists and what it is for continues to inhibit its more fulsome understanding and hinders its application within the many common law and civil law jurisdictions in which it exists. (9)

This article asks the twin questions "What is the fiduciary concept?" and "Why does it exist?"...

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