How contractual terms determine fiduciary duties: a two-stage process

Abstract

The determination of the scope of the fiduciary duty of loyalty, when created by contract, is not a unitary process. It is raised following a multi-factorial enquiry, which considers the nature of the engagement, in a first stage. Here, no single factor is conclusive. It is then, in a separate, second stage, reduced by qualifying contractual terms, which are applied almost strictly logically. This second stage uses the contractual doctrines of interpretation and implication. However, since it is a form of the fiduciary doctrine of authorisation, those contractual doctrines are modified according to fiduciary principles. We argue this follows from the underlying nature of the fiduciary obligation as a way of resolving its internal tensions. While this division has not yet been fully recognised in the cases, the courts have been inching towards it. However, not fully recognising this inevitable division and eliding the two stages has led to defective reasoning and outcomes.

Not by Contract Alone: The Contractarian Theory of the Corporation and the Paradox of Implied Terms

“…In Peskin v Anderson [2001] BCC 874 (CA) [34], the English court further suggested that the entrustment of property, affairs, transactions or interests and whether there was an assumption of such responsibility were relevant. See generally Gibbs-Kneller and Whayman (2019). task of resolving the paradox, the courts resorted to non-contractual devices such as agency or trusts, but even these were limited by the selfsame phenomenon.…”