Fiduciary Accessories

By Flannigan, Robert | University of Queensland Law Journal, June 2019 | Go to article overview

Fiduciary Accessories


Flannigan, Robert, University of Queensland Law Journal


I INTRODUCTION

Fiduciaries often contract with others (eg employees, directors, solicitors) in order to acquire assistance in performing aspects of their undertakings to their beneficiaries. (1) Those assistants may participate in the breaches of their fiduciary employers, or they may independently exploit the value of assets linked to the function of their employer. (2) The liability principles that apply when that happens are not clearly understood. Specifically, not everyone understands that assistants engaged in serving particular beneficiaries for their employers are themselves accountable as fiduciaries directly to the beneficiaries (3) (rather than only for knowing (dishonest) assistance). (4) I provide the explanation for that conclusion. I first examine the matter in terms of principle. I show that the accountability arises because assistants acquire only a limited access to beneficiary assets. Assistants are to be distinguished from other actors who interact with fiduciary employers but who do not undertake to serve the beneficiaries. (5) I then investigate the development of the English jurisprudence. The English cases, being the original authorities, are sufficient to elucidate the distinction, and there is no need to assess the case law of other jurisdictions. The relevance for all jurisdictions of the initial explanation of principle will be obvious. The subsequent discussion of the English cases will illuminate the nature of the distinction and suggest that the frequent failure to comprehend the distinction has hobbled the development of both the law of fiduciary accountability and the law of knowing assistance.

I will describe the parties to the initial fiduciary relation as the fiduciary and the beneficiary (the latter being the beneficiary of the undertaking, and the fiduciary duty, of the fiduciary). I will describe assistants as assistants, or as may be convenient, by their nominate characterisation (eg agent, solicitor).

II ACCOUNTABILITY IN PRINCIPLE

It appears to be assumed by some judges and commentators that anyone who participates in some manner in a breach of duty by a fiduciary will not themselves be liable as a fiduciary to the beneficiary of the fiduciary undertaking, but instead may be liable to the beneficiary for knowing assistance. Consider for example a corporation serving as a trustee. While the corporation itself clearly is accountable as a fiduciary to the beneficiary, it may be thought that the directors of the corporation and the solicitors advising the corporation are not. That assumption usually may be attributed to the 1874 decision of the English Court of Appeal in Barnes v Addy. (6) The case, however, is problematic because the court failed to identify a critical distinction. Some persons are engaged by fiduciaries as assistants to perform (or support) aspects of the fiduciary undertaking (eg employees, solicitors). Other persons interact with fiduciaries as parties to transactions that occur as part of performance. Such persons include third parties who purchase beneficiary assets from fiduciaries desiring to sell and bankers who accept beneficiary assets on deposit from fiduciaries. Those other classes of persons figured prominently in the jurisprudence prior to Barnes. The distinction that Barnes failed to make between assistants and those others is that the latter do not normally, for the main purpose of their interaction, undertake to act in the interest of either the fiduciary or the beneficiary. The distinction matters because when assistants do give that undertaking to the fiduciary and the beneficiary, they become accountable as fiduciaries to both and, unlike liability for knowing assistance, they are strictly liable. (7) For them, the doctrine of knowing assistance would be a weaker redundant form of accountability.

I shall first explain the distinction and then how it was masked by the abstract statement of principle in Barnes. My initial task is to explain why assistants to fiduciaries are themselves properly characterised as fiduciaries to the beneficiaries. …

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