Trusts & Trustees Advance Access published July 21, 2014

Trusts & Trustees, 2014

Modern fiduciary liability: the sick man of

equity?y
JD Heydon*

Abstract
Some think that fiduciary liability has shrunk,
is shrinking and should be shrunk further.
In particular, it has been said that traditional
equitable duties of skill and care are not fiduciary,
and, indeed, are not even equitable. It has also
been said that no positive duty can be fiduciary.
The article contends that these trends conflict
with established authority, are unsound
in principle, and have undesirable effects in
practice.

Introduction
Czar Nicholas I of Russia is a potentate on whom
history has not looked kindly. Almost no-one has
ever stood to the right of him, and he has correspondingly few supporters. Every time he drifted into the
pages of Tolstoy, the author let fly. Things have not
improved since. Now his reputation is at its lowest.
For President Putin has selected a portrait of his predecessor for visitors to gaze at as they wait in an antechamber before an audience. But he did utter one
memorable phrase that provides the theme for this
lecture.
In 1853 Czar Nicholas I had a celebrated conversation with Sir Hamilton Seymour, the British
Ambassador to St Petersburg. He broached the ugly

subject of dismembering the Ottoman Empire.

He remarked:
The affairs of Turkey are in a very disorganised condition. We have on our hands a sick man a man
gravely ill. It would be a grave misfortune if one of
these days he slips through our hands, especially
before the necessary arrangements are made.

These words were unfortunate, for the Czar soon after

succumbed, in the prime of life, to an attack of influenza, shortly before his own Empire lost the Crimean
War to a group of allies which included Turkey.
It was true that by the time the Czar spoke, the
rulers of the Ottoman Empire had had to endure,
almost every decade, the loss of some additional province in Europe, Africa, or Asia or some humiliating
peace treaty or both. The process lasted another seven
decades. Every so often the Sublime Porte would default on its loans from foreigners and enter a condition of national bankruptcy, as the process of entering
new loans simply to pay the interest on continuing
loans reached the conclusion which our own adoption of that technique may soon result in. The world
called Turkey the sick man of Europe. Innumerable
cartoons portrayed the sultan as emaciated, enervated,
addicted to the hookah and the harem, clad in primitive looking robe and fez, worn out by vice. These
judgments were short sighted. A regime which for
centuries had kept both the Balkans and the Middle

* Dyson Heydon, Queens Counsel (NSW).

y
The paper on which this article is based was the keynote address presented at the STEP 2014 Australasian Conference on 30 May 2014.
The Author (2014). Published by Oxford University Press. All rights reserved.

doi:10.1093/tandt/ttu148

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East under some not wholly inhumane control deserves respect. For there were frightful consequences
for the world when the Balkans and the Middle East
fell out of control. The sultans and their advisers
asked themselves:
Are we on a downward path to inevitable extinction?
Or do these setbacks strengthen the Empire by making
it more manageable?

In hindsight the second question can probably be answered Yes, even though the servants of the Empire
were only getting it into a fit shape to fall into the
hands of its gravedigger, Mustafa Kemal Ataturk.
Similar questions arise about modern fiduciary liability. For this conference, centred on trusts, they are
crucial, because the trustee is the archetypical fiduciary. Is fiduciary liability so sick that its life will soon
move peacefully to its close? Or will it, by becoming
smaller, also become leaner and more effective? Or
will its greedy and expectant heirscontract, tort,
restitution, and, most insatiably greedy of all, statute, together with the agitation of their academic
paladins, cause it to be torn apart by judicial violence?

The causes and symptoms of the

illnesses afflicting fiduciary liability
The last illness of the Ottoman Empire was triggered
when it backed the wrong side in the First World War
in 1914. One hundred years later, all sorts of theses
about the origins of that war are being propounded.
One is the Fischer thesisthough no-one seems to
be giving it that name. In 1961, Fritz Fischer contended, with considerable ability, and, considering
that he was a West German, with considerable courage, that Germany had been planning the war for
years and willingly took advantage of the AustroSerbian crisis to start it. The causes and symptoms
of fiduciary weakness can be grouped under theses
as well. There is the Mothew thesis, the Breen v

1. [1998] Ch 1, 16.
2. [1998] Ch 1, 18.

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Williams thesis, the Edelman thesis, the Conaglen

thesis, and Lord Diplocks thesis.

The Mothew thesis

Bristol & West Building Society v Mothew was a case
involving the consequences of a solicitors negligence.
The English Court of Appeal posed two key questions.
The first was: Are equitable doctrines of skill and
care fiduciary? The Court gave the answer No.
The second key question was:
Even if equitable duties of skill and care are not fiduciary, but are only equitable, is the remedy for breach
of them different from and ampler than the remedy
for breach of common law duties?

The court gave the answer No. But in answering

these questions, Millett LJ explained his view of the
nature of fiduciary duty more generally. He said:
The expression fiduciary duty is properly confined to
those duties which are peculiar to fiduciaries and the
breach of which attracts legal consequences differing
from those consequent upon the breach of other duties.

Hence, he said, not every breach of duty by a fiduciary is a breach of fiduciary duty.1 Millett LJ also
said that fiduciary duty was a duty of loyalty (or loyalty and fidelity). He said that this core liability has
several facets. These are:
A fiduciary must act in good faith; he must not make a
profit out of his trust; he must not place himself in the
position where his duty and his interest may conflict;
he may not act for his own benefit or the benefit of a
third person without the informed consent of his
principal.2

With the possible exception of the duty to act in good

faith, discussed below, these various facets of the duty

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of loyalty boil down to the no conflict rule and the no

profit rule. The no conflict rule requires a fiduciary to
avoid getting into a position of conflict between duty
to the principal and self-interest, or duty to the principal and duty to a third party. The no profit rule
requires the fiduciary to not make a profit from the
fiduciary position. According to Millett LJ, a fiduciarys duties of care and skill are outside the duty
of loyalty.
This outcome reflected a relatively narrow view of
fiduciary duty. The discussion by Millett LJ in 1996
reflected similar views that had been put by particular
judges in 1987 in the Supreme Court of British
Columbia,3 in 19894 and 19915 in the Supreme
Court of Canada, on 25 July 1994 in the House of
Lords,6 and on 28 July 1994 in the Supreme Court of
Western Australia.7
The words of Millett LJ are lapidary. They have
been approved on innumerable occasions. There
may be significant criticisms to be made of them.
But there have been very few critics.

Mothews case did not in terms advocate the Breen v

Williams thesis. And Breen v Williams did not in
terms advocate the Mothew thesis. It is true that all
but one of the facets of what Millett LJ called the
core fiduciary liabilitythe obligation of loyalty,
or loyalty and fidelityare expressed in negative
(ie proscriptive) terms (must not/must not/
may not). The one which is not expressed in negative terms is the duty of good faith: [a] fiduciary
must act in good faith.9 A little later Millett LJ said:10

The Breen v Williams thesis

In the first part of this passage Millett LJ states a

positive duty (must act in good faith) in apposition
with a negative duty (must not act). A similar distinction appears in the second part of the passage. It
may be that these distinctions are illusory. Perhaps
the duty of good faith is to be expressed as a duty
not to act in bad faith. Similarly, it may be that the
duty to serve faithfully and loyally means only a duty
to avoid faithlessness and disloyalty. These purely
verbal flourishes, of course, would be unsatisfactory.
Or it may be that under the Mothew thesis the duty
of good faith is always read down to a duty not to
make a profit and not to get into a position of
conflict. That possibility is supported by the extreme
narrowness of Millett LJs general approach to
fiduciary duty.

The Mothew thesis was buttressed by statements in the

High Court of Australia in the same year in Breen v
Williams. In that case four, and perhaps five or even
six, members of the High Court said that there was
a vital distinction between proscriptive dutiesnegative or prohibitory dutiesand prescriptive duties
positive or mandatory duties. They suggested that in
Australian law only proscriptive duties could be fiduciary, and the only proscriptive fiduciary duties were
the duties to avoid conflict and not to make a profit.8
Like the Mothew thesis, the Breen v Williams thesis has
been much applauded and little criticized.
At least in a formal sense, the approaches taken in
Mothews case and in Breen v Williams differ.
3.
4.
5.
6.
7.
8.
9.
10.

Even if a fiduciary is properly acting for two principals

with potentially conflicting interests he must act in
good faith in the interests of each and must not act
with the intention of furthering the interest of one
principal to the prejudice of those of the other . . . . I
shall call this the duty of good faith. But it goes further than this. He must not allow the performance of
his obligations to one principal to be influenced by his
relationship with the other. He must serve each as
faithfully and loyally as if he were his only principal.

Girardet v Crease & Co (1987) 11 BCLR (2d) 361, 362.

Lac Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574, 59798 and 647.
Canson Enterprises v Boughton & Co [1991] 3 SCR 534, 58688.
Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 205.
Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187.
(1996) 186 CLR 71, 95 and 113. See also 76 and 13738.
[1998] Ch 1, 18.
Ibid, 19 (emphasis added).

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Subject to that point, the two cases are not inconsistent. Both separately and together they have the
effect of limiting the scope of fiduciary dutynot
just by excluding duties of care and skill, but potentially more narrowly still.
Why can the Breen v Williams thesis, advocating the
proscriptive/prescriptive distinction, be said to buttress the Mothew thesis? Because, subject to the duty
to act in good faith point, Millett LJs casting of the
fiduciary duty as one of loyalty recognizes only a
group of negative dutiesnot positive ones. Hence
Millett LJs exclusion of duties to take care and
employ skillpositive dutiesfrom the fiduciary category. This exclusion flew in the face of received
understanding and conventional legal usage.11
Mothews case itself was argued in some detail by
exceptionally able and knowledgeable counselthe
future Lord Sumption and the future Lord Justice
Patten. But it is far from clear that the relevant
points were argued in the cases which preceded
Mothews case or the cases in which it has been
approved since. It is also far from clear that the relevant points were ever crucial to the outcome. It is
significant that no pre-1987 authority has been cited
which supports the Mothew thesis, though there were
a few after that date. It is also significant that no attempt was made to deal with pre-1987 authorities
inconsistent with the Mothew thesis. An example is
the very well-known case of Selangor United Rubber
Estates Ltd v Craddock (No 3). There Ungoed-Thomas
J said of company directors that all

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disposed of property under that fiduciarys control.

Taken at face value, the Mothew case stated that the
generous rules do not apply even in the latter case. It
was completely unnecessary to do this. There was no
live claim of the latter kind.
There are similar difficulties in relation to the proscriptive/prescriptive distinction for which Breen v
Williams stands. It was the subject of very little argument. No previous authority for it was cited. It did
not attempt to deal with contrary authorities (other
than North American). And it has not been shown
that application of the proscriptive/prescriptive distinction was necessary for the decision of either
Breen v Williams or the later cases which approved
that distinction.
The Mothew and Breen v Williams theses are significant for causation, remoteness of damage, and
measure of damages. They may possibly be significant
for the availability of proprietary and other remedies.
They may also possibly relate to limitation. Though it
has not yet been necessary to examine the issues closely in the authorities, pleaders assume that monetary
relief is more readily available if a cause of action can
be cast in fiduciary terms. Proprietary remedies may
become possible. Remedies involving the rescission of
unsuccessful transactions and the affirmation of profitable ones may become available as well (for example
a party entering a transaction with a defaulting fiduciary may be at peril of being compelled by the fiduciarys principal to reverse it).

The Edelman thesis

their duties, powers and functions qua directors are
fiduciary for and on behalf of the company.12

He said all their dutiesincluding their positive

duties.
Certainly Millett LJ spoke unduly widely. There is a
controversy about whether the generous rules for
equitable compensation apply to all types of breach
of duty; or only where a fiduciary has wrongly

The next possible symptom of ill health in fiduciary

doctrine may lie in the rise of a contractarian view
of fiduciary duty. One traditional view was that fiduciary duties arose from an office or status. On that
view, the holders of various offices or the possessors
of certain forms of status are subject to fiduciary
duties because of that office or status. It is a view
which, though partly attenuated, retains some

11. See RR Pennington, Directors Personal Liability (Collins Professional Books 1987) 81 (a fiduciary duty . . . to exercise their powers and functions as
directors with proper care and appropriate skill) and 145 (their . . . fiduciary duty to conduct the companys affairs with proper care and skill).
12. [1968] 1 WLR 1555, 1575.

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strength. Subject to contrary agreement, trustees,

partners, agents, company directors, and solicitors,
for example, will be presumed to owe fiduciary
duties, and it will not be easy for them to escape
that outcome. On the other hand, while other relationships will not of themselves lead to any presumption that fiduciary duties exist, the particular
circumstances may result in the conclusion that they
do. The office theory of fiduciary duty is weakened
by Mason Js judgment in Hospital Products Ltd v
United States Surgical Corporation. He was in dissent,
but it is not clear that the majority disagreed on this
point, and his views have been much cited since. He
said:13
the existence of a basic contractual relationship has in
many situations provided a foundation for the erection
of a fiduciary relationship. In these situations it is the
contractual foundation which is all important because
it is the contract that regulates the basic rights and
liabilities of the parties. The fiduciary relationship, if
it is to exist at all, must accommodate itself to the terms
of the contract so that it is consistent with, and con-

foundation of the contract so as to conform to it.

The nature of the contractual relationship can help
determine the scope and intensity, as well as the existence, of fiduciary duties. But this does not mean
that the contract and the ensuing fiduciary duties
are identical or have an identical juristic source.

To use an expression of Leeming JAs, the contract

informs the scope of the fiduciary obligations but
does not otherwise determine them.15 In passing a
paradoxical consequence may be notedthe words
of Mason J, who alone of the five judges favoured
recognition of a substantial fiduciary duty, have
been taken as the justification for a strong recent tendency to conclude that fiduciary duties have been
excluded.
However, Professor James Edelman, as he then was,
has taken the position even further than Mason J.16
He concludes that fiduciary duties do not merely conform with the undertaking (usually contractual)
which underlies them, but are identical with that
undertaking. Fiduciary duties are

forms to, them. A fiduciary relationship cannot be

superimposed upon the contract in such a way as to

based simply upon a construction of the undertaking

itself to determine the expressed or implied duties

alter the operation which the contract was intended to

undertaken by the parties.17

have according to its true construction.

The terms of the contract may mean that there is no

occasion to impose a fiduciary duty. Even if a fiduciary duty exists, its content must accommodate itself
to the contractual terms. The position of Mason J has
been summarized thus:14
The contract founding the close commercial relationship in that case was seen by Mason J as separate from
the fiduciary relationship; the two categories co-exist
such that the fiduciary duties are erected on the

The significance of this approach is that it denies any

independent role for fiduciary doctrine. If fiduciary
law becomes largely contractual, what role is there for
independent fiduciary remedies?

The Conaglen thesis

To these developments may be added a particular
thesis that Professor Matthew Conaglen has been
propounding for quite a number of years. To no
small extent it builds on the Mothew and Breen v

13. (1984) 156 CLR 41, 97 (emphasis added).

14. Joshua Getzler, Ascribing and Limiting Fiduciary Obligations: Understanding the Operation of Consent in Andrew S Gold and Paul B Miller (eds),
Philosophical Foundations of Fiduciary Law (Oxford University Press 2014) 89.
15. Mark Leeming, The Scope of Fiduciary Obligations: How Contract Informs, But Does Not Determine, the Scope of Fiduciary Obligations (2009) 3 J Eq 181.
16. James Edelman, When Do Fiduciary Duties Arise? (2010) 126 LQR 302 and The Importance of the Fiduciary Undertaking (2013) 7 J Eq 128. The Edelman
thesis has been attacked: M Conaglen, Fiduciary Duties and Voluntary Undertakings (2013) 7 J Eq 105.
17. (2010) 126 LQR 302, 327.

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Williams theses. Its classic exposition appears in

Fiduciary Loyalty: Protecting the Due Performance of
Non-fiduciary Duties. The subtitle aptly summarizes
the thesis. The thesis is that a series of legal
principles encapsulated in the fiduciary concept of
loyalty

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In Erven Warnink BV v J Townend & Sons (Hull)

Ltd, he said:19
Where over a period of years there can be discerned a
steady trend in legislation which reflects the views of
successive Parliaments as to what the public interest

provide a subsidiary and prophylactic form of protec-

demands in a particular field of law, development of

the common law in that part of the same field which

tion for non-fiduciary duties. The purpose of that protection is to enhance the chance of proper

has been left to it ought to proceed upon a parallel

rather than a diverging course.

performance of those non-fiduciary duties by seeking

to avoid influences or temptations that are likely to
distract the fiduciary from providing such proper
performance.18

The doctrine is a sign of fiduciary weakness, because

the role of fiduciary duty becomes merely subsidiaryancillary or marginalto the role of the primary duties the parties have created.
It might be objected that the theories of academic
writersand this is what the Edelman and Conaglen
theses arecan scarcely in themselves be symptoms
of fiduciary health or illness. That might have been a
forceful objection 50 years ago. But that was before
the career of Lord Goff of Chieveley took off. He
began as an extremely distinguished academic
lawyer. Since his heyday on the bench judicial citation
of academic writings has become very common. And
their influence has grown markedly. There is no need
to do more in this context than mention the names of
Birks and Finn. A plague bacillus hatched in academic
laboratories hatch in one year can infest the whole
world soon after.

Lord Diplocks thesis

A further idea which is becoming fashionable but
which tends to cripple the development of fiduciary
doctrine might be called Lord Diplocks thesis.

This has received some application in Australia.20 But

it is difficult to apply in a federation, like Australia,
which often exemplifies different patterns of
legislation.21
The significance of Lord Diplocks thesis for present
purposes is that it has been invoked as a means of
restricting equitable development of liability for secondary participation in breach of directors duties.
Thus it has been said that:22
If equity is to intervene in fixing accessorial liability in
respect of failures by directors in the exercise of nonfiduciary duties, the better view is that it would be a
misstep for equity to fix criteria more severe for the
third party than those (if any) for which the statute
provides. Where the statute provides for no accessorial
liability, as is the position with the duty of care and
diligence, equity should not do so . . . .

This, of course, assumes the correctness of the

Mothew thesis as applied to company directors. But
it may be that some breaches of a duty of care and
diligence by a fiduciary may be evidence of disloyalty
or want of good faith, to use Millett LJs language.
Distinctive equitable remedies might then be useful.
Lord Diplocks thesis, however, would have a noticeably narrowing effect on their availability. That is
because the protection of the principals for whom

18. (Hart Publishing 2011) 4. The Conaglen thesis is attacked by Rebecca Lee, In Search of the Nature and Function of Fiduciary Loyalty: Some Observations on
Conaglens Analysis (2007) 27 OJLS 327.
19. [1979] AC 731, 743.
20. Moorgate Tobacco Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 (denying the tort of unfair competition).
21. For example, Esso Australia Resource Ltd v FCT (1999) 201 CLR 49, 62-64 [25]-[34].
22. W Gummow, The Equitable Duties of Company Directors (2013) 87 ALJ 753, 758.

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fiduciaries act depends not only on the extent of liability attributable to the fiduciaries, but also on how
far the liability of those who are not fiduciaries but
participate in their breaches extends. The point is that
the wider the scope of possible claims against not only
errant fiduciaries, but also the henchmen who assist
their errancy, the better a principal is protected. The
reasoning just quoted rests on the assumption that
the legislatures role is to enact satisfactory laws,
and that it will carry that role out. But it may not.
Lord Diplocks thesis forecloses equitys role whether
or not the legislature performs its. So another threat
to the protection of principals against breaches of fiduciary duty emerges.

Antidotes and signs of health

The absoluteness of the new theses
The Breen v Williams thesis, if sound, is a clear sign of
decline in the reach of fiduciary duty. So is its close
relative, the Mothew thesis. The proponents of the
Breen v Williams thesis say that not only are there
no prescriptive fiduciary duties, but that there are
only two proscriptive fiduciary duties. They allow
no exceptions. Nor do those who propound the
Mothew thesis. The formulations of the two theses
are not qualified by expressions like generally, or
usually,23 or in the ordinary course,24 or in
standard applications. Not for them the caution of
Dawson J in Hospital Products Ltd v United States
Surgical Corporation. After stating the no conflict
and no profit rules, he said:
In terms of general principle I do not think that
it is necessary to go further than that in the present
case.25

The advocates of the Breen v Williams and Mothew

theses have pushed principle unnecessarily beyond
the general to the absolute. Nor do those advocates
appear to have adverted to an ancient idea stated by
Lord Walker of Gestingthorpe, in his last, and magisterial, judgment in Pitt v Holt. He there described
the general disinclination of equity to insist on rigid
classifications expressed in abstract terms.26

The Breen v Williams and Mothew theses may fairly be

termed both rigid and abstract. Rigidity can bring
strength, but it can also bring brittleness. And the
abstract can be the enemy of the practical.
Both the Mothew and the Breen v Williams theses
offer a taxonomy of fiduciary duty. It is not entirely
clear whether they are offered as descriptive or normative. Is it said that they describe the received law?
Or is it said that the received law should be changed
to conform with the taxonomy? Does each thesis
rest on
a normative argument . . . lurking in what purports to
be a resolutive positive description?27

The answer to the last question seems to be in the

affirmative. That is suggested, with respect, by the
shrillness of tone in Mothews case; the failure to
cite convincingly any but the most recent authority
in Mothews case; the failure to cite any authority in
Breen v Williams; the dogmatism of both cases; the
fact that much of what was said in Mothews case was
not strictly necessary for the decision; and the fact
that the whole of what was said in Breen v Williams
was not necessary for the decision. Similar questions
might be asked about the Conaglen thesis, the
Edelman thesis, and Lord Diplocks thesis. Below it

23. Cf South Australia v Lampard-Trevorrow (2010) 106 SASR 331, 401 [337], where a distinction was drawn between proscriptive duties, which [fiduciary]
duties usually are and duties of affirmative action, which fiduciary duties usually are not (emphasis added).
24. Cf Wilden Pty Ltd v Green (2009) 38 WAR 429, 453 [106] (McClure JA) (Ordinarily, a fiduciary does not have a prescriptive positive duty of disclosure
emphasis added).
25. (1984) 156 CLR 41, 142 (emphasis added).
26. [2013] 2 AC 108, 156 [123]. Lords Neuberger of Abbotsbury PSC, Baroness Hale of Richmond, Lord Clarke of Stone-cum-Ebony, and Lord Sumption JJSC
agreed.
27. Joshua Getzler, Ascribing and Limiting Fiduciary Obligations: Understanding the Operation of Consent in Andrew S Gold and Paul B Miller (eds),
Philosophical Foundations of Fiduciary Law (Oxford University Press 2014) 1, 2.

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will be argued at some length that the Mothew and the

Breen v Williams theses are contrary to the existing
law. The Edelman, Conaglen and Lord Diplock theses
can be dealt with more quickly. However useful the
first two are as tools of analysis, the authorities do not
support them as exhaustive statements of the law.
They have both excited plausible academic criticism.
And Lord Diplocks thesis, if valid at all, must be used
with extreme caution in fields where the legislature
has not spoken with precision.
Now descriptive taxonomies can be helpful. But it
is necessary to change them if they do not fit the items
being described and classified. And normative taxonomies, suggesting that the received law should be
forced into new moulds, can be helpful too. But
their acceptability depends on the force of the principles which underlie them.
There are strong indications, in both recent and
older cases, that the Mothew and Breen v Williams
theses do not correspond with well accepted substantive equitable rules. And there are doubts about the
existence or force of satisfactory principles underlying
the two theses. These indications may be treated
as signs of renewed health, or underlying health,
or at least as giving grounds for hope that there will
be recovery, in the equitable regime for fiduciary
control.

Inherent in that duty is the duty to find out the terms

of the trust. These duties, of course, are not proscriptive but prescriptive.29 And these duties are quite distinct from the no conflict and no profit rules. If the
duty of obedience is the most important duty, it
would be strange to deny any fiduciary character to
it while conferring that character on less important
duties. Indeed in Abacus Trust Co (Isle of Man) v
Barr30 Lightman J did not deny that fiduciary character. He said that the trustee in that case

Duty of trustees to find out and obey

terms of trust

There is thus a collision between the views of

Gummow J and those of the Supreme Court in Pitt
v Holt. But surely it is a primary duty of all fiduciaries,
not just trustees, to ascertain and carry out the terms
of their employment. Something which is characteristic of all fiduciary obligations that would appear to
fall within Gummow Js words characteristic . . . of
fiduciary obligations generally.
Finally, to use some recent words of Lord
Neuberger, company directors are

One of these indications of health appears in the High

Court of Australia in Youyang Pty Ltd v Minter Ellison
Morris Fletcher.28 Gleeson CJ, McHugh, Gummow,
Kirby, and Hayne JJ said:
Perhaps the most important duty of a trustee is to
obey the terms of the trust.

28.
29.
30.
31.
32.

failed in its fiduciary duty to ascertain the true wishes

of the settlor.

Those words were quoted with apparent approval by

Lord Walker in Pitt v Holt.31 Yet in Breen v Williams
Gummow J said that the trustees duty to observe the
terms of the trust arose from a
particular characteristic, not of fiduciary obligations
generally, but of the trust.

On the strength of those words Professor Conaglen

said that Gummow J had
made it clear that a trustees duty to obey the terms of
the trust is not a fiduciary obligation.32

(2003) 212 CLR 484, 498 [32].

Wilden Pty Ltd v Green (2009) 38 WAR 429, 468 [166].
[2003] Ch 409, 419 [27] (end of paragraphsee also the similar words at the start of the paragraph).
[2013] 2 AC 108, 143 [84].
Fiduciary Loyalty: Protecting the Due Performance of Non-fiduciary Duties (Oxford University Press 2011) 33.

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treated as trustees as respects the assets of the com-

from other similar things which he may obtain for

pany which come into their hands or under their

control

himself or in which he may be interested.

and
a person entrusted with another persons money for a
specific purpose has fiduciary duties to the other
person in respect of the use to which those monies
are put.33

That language extends beyond prohibitions on use to

positive duties to use.

Duty of trustee to separate trust property from

property owned by trustee
There are duties other than the duty of obedience in
the same category. Trustees have a positive duty to
separate trust property from their own. That, surely,
is a duty which is of fundamental importance. But it
is not always proscriptive: at least in some of its applications, it will operate as a positive duty. And it is
not an example of the no conflict and no profit rules.
Yet Dixon J termed it fiduciary. Speaking of a
person who buys a lottery ticket for another, Dixon
J said in Van Rassel v Kroon:34
he becomes a fiduciary agent or trustee. It is not a
trust or fiduciary agency involving many burdens or
duties. It is of the simplest kind and the fiduciary
obligations flowing from it are few and for the most
part negative, that is to say he must do nothing to
impair the rights of the person for whom he holds
the ticket. But one of the duties of a person acquiring
any piece of property, whether chose in action or corporeal thing, for the benefit of others as a fiduciary is
to distinguish the piece of property he so acquires

It is necessary to stress that Dixon Js contention that

the fiduciary duties are for the most part negativenot entirely so.

Duties of investment and related duties

Trustees are under a positive duty of prudent investment and a duty to act in the best interests of
beneficiaries in that regard. Sir Robert Megarry V-C
described these duties as fiduciary in Cowan v
Scargill.35 It is probably important in modern conditions that this should be so. Until recent decades a
significant aspect of the laws control over trustees in
exercising their duty and power to invest was that the
range of investments was narrow (unless the trust
instrument gave wider powers). This had undesirable
aspects, but it tended to restrict speculative investment. Now almost any form of investment tends to
be permissible provided proper care and skill is
employed.36 That increases the importance of compliance not only with statutory conditions of investment, but the general law requirements of care,
skill, and prudence (so far as they survive or operate
alongside any applicable statute). In these circumstances there is force in Sir Robert Megarry V-Cs
view that the power is fiduciary.
There are other important duties which are positive, which are similar to those just referred to, and
which it would be strange to call non-fiduciary. Some
of these duties are interrelated. One is the duty of
trustees to find and pay non-discretionary beneficiaries. Another is the duty of trustees to tell discretionary beneficiaries that they have that status. Another is
the duty of trustees or holders of fiduciary powers of
appointment, as Lord Wilberforce said, to

33. Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2012] Ch 453, 469 [34] (Lord Neuberger of Abbotsbury MR).
34. (1953) 87 CLR 298, 3023.
35. [1985] Ch 270, 276 and 28789. See also G W Thomas, The Duty of Trustees to Act in the Best Interests of their Beneficiaries (2008) 2 J Eq 177, 19 (The
duty is a fiduciary duty . . .); Lee (n 18) 33738.
36. For example, Trusts Act 2000 (UK) Pt II; Trustee Amendment Act 1988 (NZ) and its Australian equivalents.

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Article

make such a survey of the range of objects or possible

beneficiaries as will enable them to carry out their
fiduciary duty

of consideration.37 Another is the duty of trustees to

keep beneficiaries informed. In Schmidt v Rosewood
Trust Ltd38 Lord Walker said that the last-mentioned
duty existed because of the courts inherent and fundamental jurisdiction to supervise and if appropriate
intervene in the administration of a trust. It was a
duty owed to beneficiaries under a strict trust, beneficiaries under a discretionary trust, and persons who
were the object of a fiduciary power of appointment.
Lord Walker relied on Lord Wilberforces reasoning
in McPhail v Doulton.39 That reasoning saw no useful
distinction, in assessing whether powers or trusts for
distribution were certain, between trust powers and
other powers: Lord Wilberforce viewed both types of
power as fiduciary. That would suggest that the duty
to provide information is also fiduciary.

Trusts & Trustees, 2014

That is stated as a positive duty. There are modern

examples of this usage.41 The Western Australian
Court of Appeal recently concluded that that positive
duty existed, and continued to exist, as fiduciary duty.
It was necessary that the duty be fiduciary if the defendant banks, as participants in the breach of duty by
the defendant directors, were to be held liable under
the rule in Barnes v Addy, as they were. The Court
held that the fiduciary nature of the duty had not
been abolished or nullified or qualified by Breen v
Williams. Lee AJA considered that Breen v Williams
had not purported to alter the existing law: he thus
read down the relevant statements in that case.42
Drummond AJA pointed to instances where company
directors had positive dutiesthe duty to act fairly as
between classes of shareholders and the duty to take
interests of creditors into account. He could not
accept that Breen v Williams had swept this body of
law away without any examination of it.43

Fiduciary duty of care

Duties of directors to act bona fide in the
interests of the company
Then there are the positive duties of company directors to act bona fide in the interests of the company
and to exercise their powers for proper purposes.
These have often been called fiduciary. Thus in
1889 Cotton LJ said:
a director is so far in a fiduciary position toward the
company . . . that he must exercise his powers for the
general interests of the company.40

Despite the popularity of the Mothew thesis, it is

defied by common legal usage. Thus even Lord
Browne-Wilkinson, advocate of an extreme version
of the Mothew thesis in Henderson v Merritt
Syndicates Ltd, could not restrain himself from speaking of fiduciary duties of care in that very case.44
He repeated the phrase in White v Jones.45 That was
quoted with approval by Sales J in F & C Alternative
(Holdings) Ltd v Barthelemy (No 2).46 It was a usage
employed by Lightman J in Silven Properties Pty Ltd v
Royal Bank of Scotland plc.47

37. McPhail v Doulton [1971] AC 424, 457.

38. Schmidt v Rosewood Trust Ltd [2003] 2 AC 709.
39. [1971] AC 424, 44849.
40. Re Cawley & Co (1889) 42 Ch D 209, 233.
41. Bishopsgate Investment Management Ltd (in liq) v Maxwell (No 2) [1994] 1 All ER 261, 265; Regentcrest plc (in liq) v Cohen [2001] 2 BCLC 81, 105 [120][123]; Extrasure Travel Insurance Ltd v Scattergood [2003] 1 BCLC 598, 61819 [87]-[90]; Colin Gwyer & Associates Ltd v Linden Wharf (Limehouse) Ltd [2003] 2
BCLC 153, 182 [83].
42. Bell Group Ltd v Westpac Banking Corporation (No 9) (2012) 270 FLR 1, 164 [902].
43. Ibid, 344 [1962], 346 [1969], and 348 [1978].
44. [1995] 2 AC 145, 205.
45. [1995] 2 AC 207, 271.
46. [2012] Ch 613, 647 [212].
47. [2004] 1 WLR 997, 1008 [29].

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Fiduciary powers
The recent decision of Pitt v Holt on fiduciary powers
is damaging to the Mothew and Breen v Williams
theses. In that case the Supreme Court of the
United Kingdom held that discretionary decisions
taken by trustees, even if they were within the scope
of the trustees powers, were voidable if the trustees
were in breach of their duty to take into account all
relevant matters, including fiscal considerations.48
It is true that the Supreme Court did not mention
in terms either Mothews case or Breen v Williams.
Since Pitt v Holt, Lord Walker has said several times
in seminars that the parties supplied detailed submissions in writing about Mothews case but did not deal
with it in oral argument. It proved unnecessary for
the Supreme Court to deal with the Mothew submissions in order to decide the appeal. But the fact is that
the reasoning in Pitt v Holt is quite inconsistent with
both the Mothew and the Breen v Williams theses.
This is significant for the following reason. The highest court that can be said to have approved Mothews
case is the House of Lords in Hilton v Barker Booth &
Eastwood. There Lord Walker (Lords Hoffmann,
Hope of Craighead, Scott of Foscote, and Brown of
Eaton-Under-Heywood agreeing) said:49 Not every
breach of duty by a fiduciary is a breach of fiduciary
duty. For that they cited Mothews case.50 Of this
Getzler said:51
With respect, this was an obiter dictum quite unre-

11

But the status of both Mothews case and Breen v

Williams has now been much weakened by Pitt v
Holt. So, for that matter, has the dictum in Hilton v
Barker Booth & Eastwood.
Lord Walker said that Pitt v Holt concerned a
[technique] by which trust law controls the exercise of
fiduciary powers.52

He then said that the technique in question is

concerned with trustees who make decisions without
having given proper consideration to relevant matters
which they ought to have taken into consideration.53

And he also said that the technique applied to other

fiduciaries.54 Indeed, in the very appeal under consideration Mrs Pitt was acting as a receiver appointed by
the Court of Protection.
Pausing there, Lord Walker is treating the problem
as one involving breach of a positive dutyto give
proper consideration to relevant matters. And he is
not treating the problem as breach of a non-fiduciary
duty owed by a person occupying a fiduciary position.
He is treating a fiduciary power as one which creates a positive duty to be performed in connection
with its exercisethat is, a positive fiduciary duty.
One aspect of that positive fiduciary duty is a duty
to consider. In words approved by Lord Walker at a
later stage,55 it is a duty to

lated to the case, since breach of duty of care was not

put in issue and was not seemingly tested by counsel.
The Mothew theory ought to be debated in a proper

[identify] the relevant considerations and [use] all

proper care and diligence in obtaining the relevant

way before attracting ratification in the House of

Lords . . . .

information and
considerations.56

advice

relating

to

those

48. [2013] 2 AC 108, 135 [60].

49. [2005] 1 WLR 567, 575 [30]. See also Spread Trustee Co Ltd v Hutcheson [2012] 2 AC 194, 22425 [61] per Lord Clarke of Stone-cum-Ebony JSC (Lord
Mance JSC and Sir Robin Auld concurring) and Lord Kerr of Tonaghmore JSC.
50. [1998] Ch 1, 1617.
51. J Getzler, Inconsistent Fiduciary Duties and Implied Consent (2006) 122 LQR 1, 7.
52. [2013] 2 AC 108, 120 [1].
53. Ibid, 120 [2] (emphasis added).
54. [2013] 2 AC 208, 12223 [10].
55. [2013] 2 AC 108, 131 [40]-[41].
56. Abacus Trust Co (Isle of Man) v Barr [2003] Ch 409, 41718 [23] (Lightman J).

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Trusts & Trustees, 2014

Those words are directly inconsistent with the

Mothew thesis and the Breen v Williams thesis. And
on several other occasions Lord Walkers language
was inconsistent with those theses.
Thus Lord Walker spoke of

Nextly, Lord Walker approved61 the view of Lloyd

LJ that

the entirely familiar proposition that trustees, in the

exercise of their fiduciary discretions, are under con-

fiscal consequences may be relevant considerations

which the trustees ought to take into account.62

straints which do not apply to adult individuals disposing of their own property.57

Fiduciary discretions can involve positive duties.

Lord Walker referred to an earlier statement of his
that trustees
must act in good faith, responsibly and reasonably.
They must inform themselves, before making a decision, of matters which are relevant to the decision.58

Lord Walker then stressed that if the relevant

decision of a fiduciary in exercising a fiduciary
power were to be set aside, it had to amount to a
breach of trust.59
Thereafter Lord Walker repeatedly spoke of positive
duties as fiduciary. He said fiduciary discretions
were instances of trust powers. He defined a
trust power as
a discretion which it is [the trustees] duty to exercise
in some way.

He saw a fiduciary discretion as a discretion

which creates a duty in that it can only be
exercised with adequate deliberation. He said trustees
can be

57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.

in breach of duty by exercising a discretion with inadequate deliberation.60

Lord Walker then approved63 Lloyd LJs statement64 that the trustees duty to take relevant matters
into account is a fiduciary duty. Lord Walker referred
to that duty as a fiduciary duty, or adopted references by other judges to that phrase, several times.65
That language is the language of positive duties, and
they are duties which are wider than those which the
Mothew thesis sees as fiduciary, namely, the no profit
and no conflict duties. The same is true of other language Lord Walker employed or approved, such as
failing to give proper consideration to the exercise
of [trustees] discretionary powers, failure to take
professional advice, exercise of discretions, duty
to take account of relevant considerations, failure
of trustees to perform their decision-making function and failed to take relevant considerations
into account.66
Lord Walker also referred to an old example of the
relevant duty. In Klug v Klug67 the refusal of a trustee
to exercise a power of advancement in favour of a
beneficiary who was her daughter was overridden
because
she had not considered whether or not it would be for
her daughters welfare that the advance should be
made.68

[2013] 2 AC 108, 122 [10] (emphasis added).

Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705, 717 (emphasis added).
[2013] 2 AC 108, 132 [46], 134 [56], 135 [60], 138 [68], and [70].
[2013] 2 AC 108, 136 [63] (emphasis added).
[2013] 2 AC 108, 137 [65].
Sieff v Fox [2005] 1 WLR 3811, 383839 [86]; Pitt v Holt [2012] Ch 132, 17576 [115] (emphasis added).
[2013] 2 AC 108, 138 [70].
Pitt v Holt [2012] Ch 132, 179 [127] (emphasis added).
See for example [2013] 2 AC 108, 139 [71]-[73] (four times), 141 [79], 143 [84] and [86] and 147 [96].
[2013] 2 AC 108, 141 [80] and [81], 143 [88], 145 [91], and 146 [95]. See also at 120 [2], 131 [40], 135 [60], 136 [63], and 138 [68].
[1918] 2 Ch 67.
[2013] 2 AC 108, 137 [64] (emphasis added).

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Trusts & Trustees, 2014

That failure was failure to carry out a positive duty.

It may be that duties of care and skill owed by those
holding a fiduciary position do not form one homogenous group. It may be that the choice is not between
treating duties of care and skill as either all non-fiduciary or all fiduciary. It may be that some are not
fiduciary, while others, like the duty of adequate deliberation in exercising certain powers, are so close to the
core of the central fiduciary function that they are to
be characterized as fiduciary. Pitt v Holt goes at least as
far as that. In that respect it is inconsistent with the
Mothew and Breen v Williams theses.

Promoters
Promoters of companies or other ventures are commonly seen as owing fiduciary duties to those invited
to participate in the company or other venture.69
Those fiduciary duties include positive duties of speaking out with the utmost candour.70 Thus the duties
are prescriptive, requiring disclosure of all material information. Finkelstein J declined to recast them into a
proscriptive duty of loyalty or to avoid conflicts of
interest because, he said, the relevant equitable obligation has been spoken of as a positive duty for well
over 100 years71 and
[t]he law will not be seriously injured if I continue to
adopt the same language.72

Other examples
There are other examples of positive duties which
appear to be fiduciary. One is the duty of a first

13

mortgagee to account to puisne mortgagees for any

surplus after exercising the power of sale.73 Another
arose in Chequepoint Securities Ltd v Claremont
Petroleum NL.74 In discussing Bulfin v Bebarfalds
Ltd,75 McLelland J described the following as a fiduciary obligation of directors:
Where directors take it upon themselves to urge or
recommend or advise members to exercise their
powers in general meeting in a particular way, they
are in general required to make a full and fair disclosure of all matters within their knowledge which would
enable the members to make a properly informed
judgment on the matters in question.

High Court resistance to the Mothew thesis

Another sign of reviving fiduciary health or equitable
health, at least in Australia, is to be found in an
important High Court statement. It would be fatal
to separate equitable protection if at least one part
of the Mothew thesis were correct. That part contends
that either the remedies for breaches of equitable
duties are identical with those for breaches of
common law duties, or that the substantive content
of the respective duties are identical. If either proposition is correct, there is no point in or room for any
separate equitable rule. Lord Browne-Wilkinson appeared to take the Mothew thesis this far in Henderson
v Merrett Syndicates Ltd76 and Millett LJ quoted what
he said with approval in Mothews case itself.77 The
High Court refused to accede to at least that aspect of
the Mothew thesis. In Youyang Pty Ltd v Minter Ellison
Morris Fletcher the High Court (Gleeson CJ, McHugh,

69. Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218.

70. Directors of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99, 113. See also New Brunswick and Canada Railway Co v Muggeridge (1860) 1 Dr & Sm
362, 38182; 62 ER 418, 425; Biala Pty Ltd v Mallina Holdings Ltd (1993) 13 WAR 11, 58.
71. Citing Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, 1229.
72. Fitzwood v Unique Goal Pty Ltd (in liq) (2001) 188 ALR 566, 576 [33].
73. Charles v Jones (1887) 35 Ch D 544, 549-550; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269, 28788 [35].
74. (1986) 11 ACLR 94, 96. See also ENT Pty Ltd v Sunrasia Television Ltd (2007) 61 ACSR 626, 63031 [15] and [18] (fiduciary obligation of the directors).
75. (1938) 38 SR (NSW) 423.
76. [1995] 2 AC 145, 205.
77. [1998] Ch 1, 16-17.

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Trusts & Trustees, 2014

Gummow, Kirby, and Hayne JJ)78 alluded to Lord

Dunedins celebrated dictum that

diligence if it is to be said that the duty of loyalty is

fulfilled. As Getzler asked:82

there was a jurisdiction in equity to keep persons in a

How can a fiduciary trustee be said to be loyal to his

fiduciary capacity up to their duty.79

beneficiary if he takes no care for the running of the

trust?

The High Court continued, in commenting on the

Mothew line of authority:
there must be a real question whether the unique
foundation and goals of equity, which has the institution of the trust at its heart, warrant any assimilation
even in this limited way with the measure of compensatory damages in tort and contract. It may be thought
strange to decide that the precept that trustees are to

In Russell McVeagh McKenzie Bartleet & Co v Tower

Corp83 Thomas J said that in equity there was a duty
of care on a fiduciary to ensure that the principals
interests are protected. He said it was part of or arose
out of the essential duty of loyalty, because true loyalty demanded that the fiduciary exercise care in discharging responsibility for the property or affairs of
the principal.

be kept by courts of equity up to their duty has an

application limited to the observance by trustees of
some only of their duties to beneficiaries in dealing

It would be an odd perception of loyalty to suggest

that [fiduciaries] must subordinate [their] own inter-

with trust funds.80

ests to those of their [charges], but that they can do so

negligently.

Another real question that arises is: if, as the High

Court suggested, the Mothew case was wrong to assimilate equitable damages and common law damages,
why was it not also wrong to limit fiduciary duties in
the way it did? And a third real question is: given that
the High Court passage was sharply attacked by
Professor Edelman,81 is there an interrelationship
between the Edelman thesis and the Mothew thesis?

The duty of care, skill, and diligence as an

aspect of the duty of loyalty
Further, a breach by the holder of a fiduciary position
of a duty of care, skill, and diligence may breach the
duty of loyalty which that person owes. The directions
of the principal to the fiduciary, or the overall
circumstances, may require the fiduciary to take
particular care or employ high levels of skill and

An example might be found in the facts of

Mothews case. The defendant solicitor acted for a
husband and wife in the purchase of a house for
73,000. He also acted for the plaintiff building society to whom the husband and wife purchasers had
applied for a loan of 59,000 to finance the purchase.
The plaintiff building society was prepared to advance
the money only on the condition that the balance of
the purchase price14,000was provided by the
husband and wife purchasers without recourse to further borrowing. Conformably with that stance, the
defendant solicitor was instructed to report to the
plaintiff building society, prior to completion, any
proposal for the husband and wife purchasers to
create a second mortgage or otherwise borrow to finance part of the 14,000 gap in the purchase price.
The defendant solicitor knew that the husband and

78. (2003) 212 CLR 484, 500 [39].

79. Nocton v Lord Ashburton [1914] AC 932, 963.
80. (2003) 212 CLR 484, 500 [39]. To a similar effect is Maguire v Makaronis (1997) 188 CLR 449.
81. S Elliott and J Edelman, Target Holdings Considered in Australia (2003) 119 LQR 545, 550.
82. J Getzler, Equitable Compensation and the Regulation of Fiduciary Relationships in P Birks and F Rose (eds), Restitution and Equity: Vol I, Resulting Trusts
and Equitable Compensation (Mansfield Press 2000) 255.
83. [1998] 3 NZLR 641, 668.

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wife purchasers were arranging for an existing bank

debt of 3350 to be secured by a second charge on the
property to be purchased. But by oversight and without dishonesty he stated in his report to the plaintiff
building society that the 14,000 balance of the purchase price was being provided by the purchasers
without recourse to further borrowing. Now the
sum of 3350 is a small one, both considered in isolation and considered as a fraction of 73,000 or
59,000 or even 14,000. However, a lender could
well regard it as very significant. The inability of borrowers to fund out of their own savings any part of
another small sum14,000could be a sign of inability to organize their affairs in such a way as to
ensure repayment of the 59,000 loan. The condition
supported the conclusion that the building society
lender did regard it as very significant. There was
also hearsay evidence of Samantha Bennett of the
building societys advances department (even
though Staughton LJ saw grounds for supposing
that it may have been open to question) that
the offer of advance would have been withdrawn
immediately if the building society had known
that even 3350 was being borrowed elsewhere.84
Negligent breach of a duty which the borrower
saw as so important could be characterized as
disloyalty.

The duty of care as an aspect of the duty of

good faith
Similarly, there is authority that negligence can
amount to dishonestya want of good faith.
It seemed to Kekewich J, in considering a negligent trustee of a building societys deed of dissolution,
that

never asks for explanations, and accepts flimsy explanations, is not honest.85

Underlying principles
The merits of the Mothew and Breen v Williams theses
must ultimately depend on their underlying principles. It is respectfully submitted that proponents
of the Mothew thesis, in isolation, have not pointed
to any arguments of principle in its favour. However,
arguments of principle have been advanced in support of the Breen v Williams thesis, and they can probably be pressed into service in support of the Mothew
thesis as well.
One argument of principle which Gaudron and
McHugh JJ relied on in Breen v Williams was that if
fiduciary liability was not kept under control, it would
drive out existing bodies of law like negligence, contract, agency, trusts and companies.86 To use the
words of Finn, on which they relied, it would outflank or render superfluous or displace other
bodies of law.87 This suggests that ideally a particular
controversy will never throw up a variety of possible
causes of action which overlap. Why should it not do
so? The suggested view would seem to stultify legal
development. It is very common for overlaps to take
place. In some circumstances one cause of action
will succeed and another fail. But in other circumstances both may succeed, possibly with differing
remedial consequences. None of these outcomes
outflanks, renders superfluous or displaces the
body of law which does not suit the plaintiff in a
particular case.
A second argument of principle advanced by
Gaudron and McHugh JJ in Breen v Williams was that

a man who accepts such a trusteeship, and does noth-

the imposition of fiduciary duties often gives rise to

proprietary remedies that affect the distribution of

ing, swallows wholesale what is said by his co-trustee,

assets in bankruptcies and insolvencies.88

84.
85.
86.
87.
88.

15

[1998] Ch 1, 26.
Re Second East Dulwich 745th Starr-Bowkett Building Society (1889) 68 LJ Ch 196, 198.
Breen v Williams (1996) 186 CLR 71, 113.
P Finn, The Fiduciary Principle in TG Youdan (ed), Equity, Fiduciaries and Trusts (Carswell 1989) 26 and 2829.
(1996) 186 CLR 71, 113.

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Article

It is true, with respect, that proprietary remedies have

to be administered with caution. But in Australia, at
least, they are. In Attorney-General for Hong Kong v
Reid, the Privy Council held that a constructive trust
over a bribe arose immediately it was paid.89 This has
proprietary consequences. But in Australia the Privy
Councils view has been rejected.90 In Australia the
remedy of constructive trust is discretionary: it does
not flow as of right. Further, in Muschinski v Dodds,
after accepting that

Trusts & Trustees, 2014

A third argument in favour of the narrowing of

fiduciary duties suggested in Breen v Williams has
been advanced by Finn. The argument is that wide
fiduciary duties create difficulties in ascertaining and
applying causation and measure of damages tests.94 It
is true that deciding upon equitable compensation for
breach of fiduciary duty can entail those difficulties. It
is not true, however, that issues relating to causation,
remoteness of damage and measure of damages at
common law are any simpler.

there does not need to have been a curial declaration

or order before equity will recognise the prior exist-

The patients prognosis

ence of a constructive trust

Assessing the health of that body of equity which controls fiduciaries is not easy. If some of what is said in
the theses described above is correct, it is already dead.
But assessing whether it is actually dead, or even dying,
would depend on the happening of various events
which have not yet happened. One is a thorough
examination, by counsel and court, of both the validity
and the utility of the five theses referred to above. At
least so far as counsel were concerned, the authority
which came closest to this examination is Mothews
case. But there has not been any post-Mothew examination of the problem in Australia. In the course of
that examination, many questions will arise. What did
Millett LJ mean by loyalty? What did he mean by
fidelity? What did he mean by good faith? What
earlier authorities were inconsistent with his analysis?
How were they to be dealt with? How could they be
dealt with? Why is it that a duty of loyalty or fidelity does not create strict liability?
Other questions will arise in relation to the other
theses. But there is one fundamental issue to be confronted. It arises in relation to the topics referred to in
this lecture. It also arises in relation to other important

Deane J said:
where competing common law or equitable claims are
or may be involved, a declaration of constructive trust
by way of remedy can properly be so framed that the
consequences of its imposition are operative only
from the date of judgment or formal court order or
from some other specified date.91

That would avoid an adverse effect on the legitimate

claims of third parties.92 Further, the reasoning in
Reids case does not take account in terms of the
question whether there is a remedy alternative to
that of constructive trust which is adequate to protect
the plaintiff and also avoids adverse effects on the
legitimate claims of third parties.93 The remedy
might be equitable compensation. It might be an account of profits. Hence Australian law, by preventing
the over-exuberant use of the remedial constructive
trust, tends to preserve equity from the risk of legislative intervention against judicial excesses.

89. [1994] 1 AC 324, 33132.

90. Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, 422 [582].
91. (1985) 160 CLR 583, 61415 (and 623). See Reid v MacDonald (1907) 4 CLR 1572, 1614 (date of order).
92. (1985) 160 CLR 583, 623.
93. cf Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566, [40]-[43]; Giumelli v Giumelli (1999) 196 CLR 101, 11314 [10] and 125 [49]-[50];
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 172 [200]; John Alexanders Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, 4445
[126].
94. Finn (n 87) 2930.

Trusts & Trustees, 2014

topics this lecture has not specifically dealt with. One is

the courts recognition of the power of fiduciaries to
contract out of what would otherwise be their obligations.95 Another is the claim that the generous rules
about causation and remoteness in relation to the reconstitution of trust funds do not apply in suits for
equitable compensation in relation to other breaches of
fiduciary duty.96
It is difficult to judge whether standards of fiduciary honesty, and standards of fiduciary care, skill
and diligence have risen or fallen in the last century.
But it is easy to conclude that modern standards are
not high. That is a factor which ought to weigh
strongly against any narrowing of the fiduciary
regime. For to narrow the fiduciary regime not only
reduces the remedies available to principals in
particular instances. It also weakens the deterrent
effect of the law in relation to future conduct. Thus,
writing in criticism of Mothews case, Getzler said:97

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17

The prophylactic pressures of equitable procedure and

remedy as applied to the loyalty duties may have point
even in the sphere of duty of care; the stringent rules
of causation, for example, are designed to put deterrent pressure on the fiduciary to reach a high standard
where proof of misfeasance may be difficult to gather.

What will happen if the fiduciary regime

withers or even dies? Are those owed duties by
fiduciaries, as a class, likely to be better off if that
takes place? Not in my opinion. That is why the
signs of continuing or reinvigorated life in the
fiduciary regime should be encouraged. The advent
of new heirs to the fiduciary empire must be resisted
more successfully than the Ottoman Empire resisted
its would-be heirsGreeks, Serbs and other
Slavs, Arabs, and Ataturks.

JD Heydon, Fellow of Keble College Oxford in 19671973, Professor of Law at the University of Sydney
from 1973, Dean in 19781979, barrister from 1979, and since 2013 member of the New South Wales
Court of Appeal from 2000 to 2003 and of the High Court of Australia from 2003 to 2013.
E-mail: dheydon@eightselborne.com.au.

95. A trend trenchantly criticized by J Getzler, Financial Crisis and the Decline of Fiduciary Law in Charles Morris and David Vines (eds), Capital Failure:
Rebuilding Trust in Financial Services (Oxford University Press 2014) 193208.
96. See C Mitchell, Equitable Compensation for Breach of Fiduciary Duty (2013) 66 CLP 307.
97. Duty of Care in P Birks and A Pretto (eds), Breach of Trust (Hart Publishing 2002) 72.