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James Edelman, When Do Fiduciary Duties Arise?, 126 Law Q. Rev. 302 (2010), available at SSRN.

Observers with a transatlantic lens will readily notice that law professors in England take legal doctrine seriously.  At the elite law faculties in Cambridge, Oxford, and London, the sophisticated study of doctrine thrives and is highly respected.  The contrast with the modern legal academy in the United States is striking.  For example, how many U.S. law professors write or teach in the field of restitution?  The American Law Institute has just completed a remarkable Restatement (Third) of the Law of Restitution and Unjust Enrichment, yet the subject is largely, though not entirely, absent from our classrooms and student-edited law reviews.  And restitution is not the only example.  Consider the trenchant observations of Professor John Langbein:

Legal doctrinal writing [in the United States has]… declined precipitously.  A good way to see what has happened is simply to compare the law reviews for then and now.  I recently had occasion to check something in the 1967-1968 Yale Law Journal, where I noticed a three-part article on federal tax liens.  I think you’d probably have to establish your own law review today in order to publish a three-part article on tax liens.  The current diet in the leading journals is mostly high falutin’ constitutional law and theory, gender and racial issues, and law-and-economics.  Doctrinal analysis is disfavored, and a good rule of thumb is that the ‘better’ the journal the less doctrinal scholarship it will publish. ((John H. Langbein, Scholarly and Professional Objectives in Legal Education: American Trends and English Comparisons, in P.B.H. Birks ed., Pressing Problems in the Law, Volume 2: What Are Law Schools For? 5-6 (Oxford: Oxford University Press 1996).))

A fascinating English study of doctrine recently crossed my desk: James Edelman’s article on “When Do Fiduciary Duties Arise?”  It appeared in the prestigious and peer-edited Law Quarterly Review.  The author teaches at Oxford, where he is Professor of the Law of Obligations.  (If only donors to U.S. law schools would endow such chairs!)

The article begins by explaining that “[t]he classic English exposition of the fiduciary concept has relied upon the ‘status’ of the defendant” (p. 304).  Over time, however, as the categories of fiduciaries expanded beyond the prototypical example of a trustee to encompass the recognition of fiduciary obligations “despite the absence of any custody of property” (p. 304) — for example between lawyer and client, doctor and patient, and parent and child — the status-based understanding of a fiduciary lost “any real explanatory power” (p. 304).

Professor Edelman proposes a different understanding of the basis of fiduciary duty.  In his formulation, fiduciary duties are simply particular terms which are expressed or implied in voluntary (contractual or non-contractual) undertakings (see pp. 302, 306).  The duties are not imposed externally by law, nor do they arise by virtue of the fiduciary’s status or relationship.  Professor Edelman quotes approvingly Professor Paul Finn (now Justice Finn of the Federal Court of Australia): “a person ‘is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary’” (p. 316, quoting P.D. Finn, Fiduciary Obligations 2 (Sydney: Law Book Co. 1977)).

The body of the article expands on Professor Edelman’s argument by exploring the basis of fiduciary obligation in voluntary undertakings, and the terms that are expressed or implied in such undertakings.  Here Professor Edelman locates the four core duties of a fiduciary: (1) to avoid actual or potential conflict with the duties owed to the principal (p. 318), (2) to avoid profiting from the relationship without the principal’s consent (p. 319), (3) to act in the beneficiary’s best interests (p. 321), and (4) to perform duties in good faith (p. 323).  As Professor Edelman emphasizes, however, the scope of the fiduciary obligation will depend on the particular circumstances of the undertaking.  Indeed, this is why he argues that his theory of fiduciary duty is superior.  In his words, “if we persist in seeing fiduciary obligations as imposed by law, and dependent upon conceptions of status, the quest to understand and explain why different fiduciaries owe different duties will remain an impossible task” (p. 326).

The article is stimulating and thought-provoking.  Moreover, this short summary of the article does not fully capture the significant extent to which Professor Edelman’s analysis is rooted in the English case-law and the scholarly literature produced by English academics on the nature of the fiduciary obligation.  It is a subject that English judges and professors take seriously.

This American reader does have a few quibbles.  One is a concern that in seeking a general theory of fiduciary duty, Professor Edelman may be giving insufficient recognition to the nature of the fiduciary obligation in the particular context of the trust, where the property-based (rather than undertaking-based) theory of fiduciary duty predominates in English law.  ((See, e.g., D. Hayton et al., Underhill and Hayton: Law Relating to Trusts and Trustees (18th ed. 2010) §1.23 (at p. 19), referring to “the proprietary nature of the trust.”))  The property-based theory of the trust is also gaining more recognition in American law.  On this, see my forthcoming article on The New Direction of American Trust Law, in 97 Iowa L. Rev. (2011) (based on my Shirley A. Webster Lecture in Wealth Transfer Law). Another quibble is that I would have welcomed some discussion of the constructive trust, wherein obligations arise by operation of law rather than by virtue of an undertaking.

But these are minor quibbles.  Professor Edelman’s article is well worth reading and I recommend it highly.

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Cite as: Thomas Gallanis, Fiduciary Obligations: Why and When?, JOTWELL (May 23, 2011) (reviewing James Edelman, When Do Fiduciary Duties Arise?, 126 Law Q. Rev. 302 (2010), available at SSRN),