Smith, Beverley G.

English

University of New Brunswick: Centre for Digital Scholarship Journals

BOOK REVIEWS • REVUE BIBLIOGRAPHIQUE 309The Law of Fiduciaries, J.C. Shepherd, Toronto: The Carswell Company Limited, 1981. Pp. xxix, 386, $55.00 (cloth).T o  quote Black in part, a fiduciary is “a person holding the character o f a trustee, o r a character analogous to that o f  a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires.”1 Most o f us in the legal profession know this. Are we equally knowledgeable when confronted with the title o f J.C. Shep­h erd ’s book. The Law of Fiduciaries} My guess is that we are not. Mr. Shep­herd attem pts to fill a large part o f the probable gap in o u r collective knowledge o f the topic. In this reviewer’s opinion he succeeds to a signif­icant degree, even while his work does not deal in extenso with fiduciary remedies.In a preface the au tho r indicates his belief that the ability o f hum an beings to trust each o ther is the single most im portant elem ent in in ter­personal relataionships. He then states: “T h e  law of fiduciaries is the legal system’s attem pt to recognize the m ore blatant abuses o f the trust we place in each o th er.”2 It might have been m ore in keeping with a book on the law of fiduciaries to place its th rust in a m ore positive vein, ra ther than accentuating an im m ediate recognition o f the negative aspects (which ad ­mittedly are all too frequently attendant upon it). Notwithstanding that, the book’s basic th rust and content appear to m ore than justif y its existence, as it offers both com parisons o f the existing law on the subject from  a Canadian perspective as well as suggested courses for the law’s fu tu re growth in the area.T he  book proceeds from  an introductory portion o f some 42 pages (Part I), th rough  theoretical considerations (Part II) to dealings with the corpus (Part III), the beneficiaries (Part IV) and collateral profits (Part V). It finally looks at considerations in Part VI such as confidential inform ation, conflict o f interest and corporate interrelationships. T h e  book is thus a varied mine o f thought-provoking ore. While asking as well as answering questions, it can be o f significant assistance in making members o f our profession — wherever placed — aware o f those areas o f the law which deal with situations involving the fiduciary relationship.Attem pts to define even the term  fiduciary, says the author, have m ore often resulted in evasion than in definition. In C hapter 4 he offers some legal philosophical suggestions as to why such a definition should be a problem  e.g., is the law relating to fiduciaries based in property o r justice?'Black's Law Dictionary 5th n l . ; (St. Paul M inn.: West Publishing Co. 1979) at 563.'J .C . S hepherd , The Law o f Fiduciaries (T oron to : T h e  Carswell C om pany Limited. 1981) at \310 U.N.B. LAW JOURNAL • REVUE DE DROIT U.N.-B.W hatever the reasons for definitional problem s — and a m ajor cause o f the fogginess su rround ing  the terir. the au tho r lays at the feet o f  historical anomalies — he feels that “too mar y developm ental and external factors force on the fiduciary concept a vagueness not intrinsic to the concept itself.’’3 He sees the largest stum bling block as being the distinguishm ent between the substantive theory o f fiduciary relationships, and the eviden­tiary and procedural superstructu re which has developed around  it. “As long as we continue to see the various procedural rules as substantive, and vice versa, the theoretical basis o f  the fiduciary relationship must rem ain out o f  ou r conceptual grasp.’MT he au tho r then points to the decision o f the Suprem e C ourt o f C anada in Canaero v. O'M alley5 and pays high credit to C hief Justice Laskin for having swept aside rules relating to fiduciaries in favour o f a m uch m ore flexible approach to the determ ination o f the fiduciary concept in a given set o f circumstances. But, he indicates, ra ther than giving us a general theory or principle the Suprem e C ourt o f  Canada only stated that each case should be decided on its own facts, taking into account a listed num ber o f considerations. T h e  au th o r takes up  the task o f  enunciating a general theory o f fiduciaries to fill what he sees as a gap left by o u r highest Court.While stating that the two main duties o f fiduciaries have been de­scribed as responsibility and loyalty, o f the two the au th o r appears to em ­phasize the loyalty aspect. He then em barks on a classification, with descriptions, o f those who are considered by ou r law to be fiduciaries. T he  list includes property  holders (those who hold o r m anage property  on behalf o f others); representatives, stem m ing from  the law o f agency; and a th ird  class called advisors, arising out o f considerations su rround ing  u n ­due influence. T h e  au tho r recognizes overlap and the increase in the num ­ber o f categories within each o f the groups nam ed. Somewhat hesitantly he also m entions a fourth  class, a good exam ple o f which is the majority shareholder o f a corporation.Next follows a sum m ary o f existing fiduciary principles. T he  au thor first indicates that the law o f  fiduciaries is a two-step process: the finding o f a fiduciary relationship o r obligation (a duty o f loyalty), and the d e te r­m ination o f w hether the duty owed in the relationship has been breached. He then postulates nineteen o ther definitions or statem ents which deal with the law o f fiduciaries — either as it presently exists or as it is proposed should exist in o rd e r that the law be analytically consistent. T hese include a definition o f when a fiduciary relationship exists; the necessity for the use o f presum ptions and o ther tools to enable a determ ination  o f w hether a fiduciary loyalty has been breached; m ethodology to be em ployed by the courts in individual cases; evidentiary rules; and some special rules e.g.,5I b i d at 5.Ubid.. at 7.5Canadian Aero Services Ltd. v. O ’Malley, [1974] S.C.R. 592, 40 D.L.R. (3d) 317.BOOK REVIEWS • REVUE BIBLIOGRAPHIQUE 311“C onfidential inform ation is a species o f property , and  the doctrine re ­specting it is analogous to but d ifferen t from  the law o f  fiduciaries.”* In a subsequent analysis o f  the law o f fiduciaries relevant principles are dis­cerned, then their rationale and effects discussed.T h e  booK is helpful in a com parative way (and to this reviewer has one o f its most instructive chapters) when in C hap ter 5 it presents several com peting theories o f the fiduciary relationship. In presenting  these, the au tho r — perhaps not immodestly — makes the statem ent that each o f the com peting theories discussed is susceptible o f m odification and sophisti­cation which could remove all o f its weaknesses; and that “the exercise o f so m odifying any given theory m ust necessarily result in the creation o f a theory identical to the theory proposed by us in ch ap te r 6 .”7 T h e  theories raised by the au th o r in C hapter 5 include *he p roperty  theory (“A fiduciary relationship exists where one person has legal title and /o r control over p roperty  or any o ther advantage, and ano ther is the beneficial ow ner thereof.”);8 the reliance theory (“. . . a fiduciary relationship exists where one person reposes trust, confidence o r reliance in an o th er.”);9 the unequal relationship theory (“A fiduciary relationship exists w herever there is es­tablished an inequality o f footing between two parties.”);10 the contractual theory (“A fiduciary is a person who undertakes to act in the interests o f ano ther person.”);11 the unjust enrichm ent theory (“A fiduciary relationship exists w here one person obtains property  or o ther advantage which justice requires should belong to ano ther person.”);12 the com m ercial utility theory (“A fiduciary relationship will be found by the court in every situation in which the court feels it necessary to hold a person o r a certain class o f persons to a h igher than average standard o f ethics o r good faith in the interests o f protecting the integrity o f  a com m ercial en terp rise .”);13 the power and discretion theory (“. . . there  is a relation in which the principal’s interests can be affected by, and are therefore d ep en d en t on, the m anner in which the fiduciary uses the discretion which has been delegated to him. T he  fiduciary obligation is the law’s blunt tool for the control o f this dis­cretion.”);14 and the rule o r dualistic theories, w here one o r m ore than one o f the foregoing theories may be m arried to another, o r where categories o f persons w here fiduciary relationships may be found  are suggested.bSupra, footnote 2 at 40.7I b i d ., at 51."/bid.. at 52.V b t d . ,  at 56.'° l b id . . at 61.n l b t d . ,  at 64.•*/faW.. at 71." I b i d . .  at 78."Ibid., at 83.312 U.N.B. LAW JOURNAL • REVUE DE DROIT U.N.-B.In C hap ter 6 the au th o r proposes a theory, which is at least in part a synthesis from  the requirem ents o f a fiduciary relationship discussed earlier in the book. His theory is that “A fiduciary relationship exists whenever any person acquires a power o f  any type on condition that he also receive with it a duty to utilize that power in the best interests o f another, and the recipient o f the power uses that pow er.”15 This postulation is followed by an analysis and examples, both helpful in understand ing  the content and the extent o f the theory. Basic to this theory, which the au tho r calls the theory o f the transfer o f encum bered power, is that it treats the power transferred  as if it were in fact a piece o f property. And, since powers have been trust res for some time, there appears to be little difficulty in com bining the concept o f a power being held by a fiduciary with a particular way in which it is to be held — i.e., as encum bered — under the au th o r’s theory o f the transfer o f  an encum bered power.It appears that Mr. Shepherd  in C hapter 6 endeavours to reduce the num ber o f sometimes com plem entary yet often com peting theories o f the fiduciary relationship which he has set out in C hapter 5. This in itself is a laudable objective. W hether one succeeds in whole o r in part in such an endeavour must await, it is suggested, the testing o f the theory by many minds and the crucible o f the effluxion o f time with its cases and its com­ments. An early criticism o f the shortened rule could be m ade that it does not cover all bases — for exam ple, the imposition aspect emphasized by courts in the unjust enrichm ent theory. However, if a change in emphasis (and in some instances o f substance) were to be accepted by the profession in the interests o f simplification and uniform ity, the au th o r’s theory may tu rn  out to be the “app ro p ria te” one for the foreseeable legal future.C hapter 7 is devoted to the determ ination o f the breach by a fiducuary of the relationship. As indicated earlier in his book, the au thor sees this as a two-stage process: finding a fiduciary relationship with its duty o f loyalty, and then ascertaining w hether the duty o f loyalty has been breached. He indicates that presum ptions and procedural devices may be used in finding w hether the latter exists. Ultimately in the i hap ter the au tho r suggests seven distinct steps as being an effective m eans to cover the two-stage process m entioned.In C hapter 8 the au tho r com m ents on the “dizzying waltz” the follow­ing two principles have had th rough the history o f the law o f fiduciaries. T he first principle is that “A fiduciary is not allowed to put himself in a position where his interest and his duty conflict.” T h e  second is “A fiduciary is disentitled from  m aking a profit out o f his position.”16 T he  au thor appears to treat the conflict o f interest concept as the central problem  and indicates that both principles are saying the same thing. More strongly he suggests that both are red  herrings because . . the main rules in the law o f fidu-13Ibid.. at 93.I6/M ., at 147.BOOK REVIEWS • REVUE BIBLIOGRAPHIQUE 313ciaries, which are . . . evidentiary rules created solely for practical purposes, are directed at the determ ination  o f w hether a fiduciary has actually chosen against his duty .”17Having postulated his theory o f the transfer o f encum bered power the au thor then  tu rns his attention to the testing o f the theory un d er various headings, some o f which were m entioned previously: dealings with the corpus (Part III); dealings with the beneficiaries (Part IV); collateral profits (Part V); and o ther issues such as confidential inform ation, conflict o f interest, corporate  interrelationships and fu tu re  directions o f the law of fiduciaries (all in Part VI). By way o f testing his theory in the waters o f the topics chosen, the au tho r in many instances had m ade a further-theory  approach at the beginning o f a chapter. For example, in C hapter 12, en ­titled Self-H iring, the proposition is expressed at the com m encem ent as follows:“Where any fiduciary who has the power to h ire.or otherwise have trade dealings on behalf o f his corpus, hires or has dealings with himself or any business en­terprise with which he is connected, there is a rebuttable presumption that the fiduciary has misused his powers in the transaction. The beneficiarv can avoid the transaction, and can require the fiduciary to refund fees paid to him or his business enterprise in his personal capacity. The defences available to the fi­duciary are the same as in Rule 5.”'8T he fu rther-theory  approach is both illustrative and helpful in a com par­ative way, bringing to the read er’s attention many o f the usual kinds o f particular classes o f situations in which actual o r potential fiduciaries find themselves. While in some instances one m ight wish for m ore conclusiveness on some issues raised (for exam ple, in com m ents on disclosure four ex­amples are  given w here disclosure could be relevant), a num ber o f analyses and explanations are tendered  which are at least directory, if not conclusive. Again, the book is seen to be valuable for the insights tendered.W hether one agrees o r does not agree with the au th o r’s basic theory o f the transfer o f encum bered power, and the m anner in which he tests the same u n d er the headings and with the fu rth e r theories just m entioned, it would have to be adm itted  that a guiding spotlight has been shone by him on the oftentim es nebulous topic o f fiduciaries and the law(s) su r­round ing  them . And, while his book should be classified as o ther than a how-to book for quick referential use by the general practitioner, its m a­terials in this reviewer’s opinion m erit an ingestion and a slow, thorough digestion by both Bench and Bar. Through a careful testing o f the au th o r’s suggested approaches against the existing concepts on the topic, the legal profession should be able to prom ote a continuing evolution o f the law o f fiduciaries which will be based upon reasoned analysis.BEVERLEY G. SMITH*xtIbid., at 185. T h is ap peared  as Rule 7 in C h ap ter 3 entitled  “Fiduciary Principles — Sum m ary" at 38. •B.C.L. (U .N .B .). Professor, Faculty o f  Law. University o f  New Brunswick.17Ibid., at 150.

Shepherd, The Law of Fiduciaries

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Shepherd, The Law of Fiduciaries

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