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Fiduciary duties are critical to the integrity of a remarkably wide variety of relationships and institutions.[1] Lawyers, doctors, investment advisors, and other professionals are fiduciaries of their clients. Trustees, executors, and agents are fiduciaries of their beneficiaries, testators, and principals. Directors, officers, and trustees of corporations, hospitals, universities, and charities are fiduciaries of the legal entities under their charge. Parents and guardians are fiduciaries of their children and wards. These relationships and institutions are obviously of profound social and economic importance. Professional fiduciaries have charge of critical personal interests of their clients. Trustees have responsibility for great fortunes settled on trust for donative and commercial purposes. Directors and officers of non-profit and business corporations determine the disposition of vast amounts of wealth for charitable and commercial purposes. Parents and guardians determine most of what matters to the well-being of children and incapable adults.

Clearly, fiduciary duties are pervasive in modern civil society. Whether we are aware of it or not, virtually all of us have, in our lives or upon our deaths, interests subject to the discretion of a fiduciary. In most cases, where we rely on another person to represent us or to take care of our person or property, we do so within a fiduciary relationship. Fiduciary law, as much as contract, property, or tort law, is a dominant mode of imposing legal structure on day-to-day life.

The mandates under which fiduciaries act differ widely across categories of fiduciary relationship. However, despite the diversity of factual scenarios in which fiduciary duties arise, these relationships share a set of legal principles common to all fiduciary relationships. Furthermore, all fiduciary relationships attract the consequences attached by law to this kind. The consequences are several.[2] Most prominent is the asymmetrical assignment of legal duties between the parties, notably the distinctive duty of loyalty.[3] All fiduciaries are, by virtue of this duty of loyalty, subject to exacting expectations of faithful service. Fiduciaries are expected only to pursue the interests of beneficiaries when executing a fiduciary mandate. To that end, the duty of loyalty strictly forbids conflicts of interest and conflicts of duty, on pain of powerful remedies that strip fiduciaries of any gains realized in breach.[4]

Surprisingly, given their importance, we know relatively little about the justification for fiduciary duties. Philosophers have generated important accounts of the justification for liability in tort, contract, property, and unjust enrichment.[5] However, they have been virtually silent on fiduciary duties.[6]

Claims that have been made about the justification for fiduciary duties reflect two analytical strategies. Reductivists allege that fiduciary duties are derivable from nonfiduciary forms of private liability (e.g., contract or tort). Reductivists assert that the justification for fiduciary duties, as a secondary form of liability, is the same as that of the primary nonfiduciary form of liability. Instrumentalists, by contrast, claim that fiduciary duties are directly justifiable on the basis of some independently-valuable end (e.g., a policy goal or moral norm). Most reductivist and instrumentalist argument capitalizes on important insights about the juridical character of fiduciary liability. However, for reasons that I will develop below, these arguments are ultimately unsound. This article thus offers a novel account of the juridical justification for fiduciary duties.

Juridical justificatory argument aims to reveal the justificatory structure of the settled practices and principles of liability constitutive of a given legal form of an institution or mode of interaction (e.g., the idea of ownership, contract, gift, or treaty). As I shall explain, it is different from, but has certain affinities with, Weinrib’s formalism and Zipursky’s pragmatic conceptualism.[7] The juridical justification for fiduciary duties contends that formal characteristics of the fiduciary relationship support fiduciary duties in all circumstances in which fiduciary duties arise.

The argument will unfold as follows. Part I explains the nature of the problem of justification. Part II offers a thin description of the juridical character of fiduciary liability, making stipulations necessary to motivate the critical and constructive contributions of the article. Parts III and IV critically assess leading claims about the justification for fiduciary duties and emphasize insights about the juridical character of fiduciary liability that they afford. Collation of these insights permits the development of a thicker description of the juridical character of fiduciary liability. Part V advances this description as well as the novel juridical justification for fiduciary duties.

I. The Problem of Justification

Many private law theorists, economists and doctrinalists in particular, claim only descriptive ambitions for their work. Doctrinalists aim to clarify the operation of principles of private liability, to analyze actual or apparent doctrinal problems (ambiguities in, or inconsistencies or gaps between, legal principles), and to suggest ways in which these problems may be resolved in a manner consistent with logic and precedent.[8] Economists aim to explain private law, not (or not principally) in its own terms, but rather in terms of its general economic context or impact on any of a number of measures of economic welfare (e.g., efficiency in respect of social costs, transaction costs, or information costs).[9]

While much of private law theory is concerned with descriptive problems of explanation and classification, much of it is also given over to the normative problem of justification. The problem of justification has many variants, but all are ultimately concerned with the normative coherence of, and foundations for, private law. Historically, normative private law theory has been the ken of philosophical theorists.[10]

The distinctions between problems of justification, on the one hand, and explanation and classification, on the other, are not neat. Doctrinalists sometimes address the justification for legal principles, particularly when offering a novel interpretation or recommending that principles be amended or extended in a way not clearly supported by precedent. Economists are well-known for combining descriptive with normative argument; indeed, some have been criticized for a tendency to make normative claims in the guise of explanatory statements.[11] And most philosophers are aware that justificatory argument about law must accurately account for its posited character. Inevitably then, efforts to explain and justify law become intertwined. An implication is that there is no monopoly on normative argument in private law theory.

The problem of justifying fiduciary duties does not differ from that of justifying other kinds of private law duties. In each case, the challenge is one of identifying a normative basis for the duty. To qualify as a justificatory claim, an argument must articulate reasons for the imposition and enforcement of fiduciary duties. As is well-known, law has both positive and normative aspects; it is authoritatively articulated, and insofar as it purports to direct conduct, it makes a claim of obedience that stands in need of justification. Justificatory analyses accordingly may be evaluated for normative and descriptive merit.

Normative merit entails that the reasons given for the duty are good; that is, that they offer sufficient logical support for its content and any conditions on its imposition and enforcement. I take it that a justificatory argument need not be exhaustive or exclusive in the set of reasons offered in support of a duty in order to have normative merit. A given reason or set of reasons may have normative merit but be capable of supplementation by additional supporting reasons or broader normative argument (e.g., about the justification for any system of private liability or the various forms such a system might take).

Descriptive merit requires that the reasons said to support the obligation demonstrate a reasonable degree of fit or conformity with the positive law. Where the obligation is juridical (as is the case for common law and equitable obligations), fit is a function of the capacity of the reasons given to explain the juridical character of the obligation. As I will explain in Part V, juridical character is expressed in judicial reasoning on the basis, content, scope, and limits of the obligation.

II. The Range, Content, and Basis of Fiduciary Duties

Before analyzing the justification for fiduciary duties, we must register some stipulations about the positive law. As noted above, justificatory analysis is impossible without some agreement on the subject matter; in this case, basic elements of the juridical character of fiduciary liability, including the duties considered fiduciary as well as their content and source. There is significant disagreement on aspects of the juridical character of fiduciary liability. However, there is sufficient consensus on basic aspects to motivate and orient our analysis.

As to the range of fiduciary duties, there is doubt over the status of several duties often said to be fiduciary.[12] For instance, it is uncertain whether the duty of confidence that governs the handling and use of confidential information by fiduciaries is properly considered a fiduciary duty.[13] It is likewise unclear whether the duty of care, which requires fiduciaries to act reasonably in fulfilling their mandates, is a fiduciary duty.[14] It has also been controversially suggested that fiduciaries are subject to a positive duty to act in the interests of beneficiaries.[15]

The boundaries of fiduciary obligation are poorly defined, but there is consensus on its essence. At the core lies the cardinal fiduciary duty of loyalty.[16] Whatever else fiduciary law might require of fiduciaries, it undeniably demands that they act faithfully toward beneficiaries. The duty of loyalty applies to all fiduciaries regardless of differences among the mandates under which they act.[17] Indeed, it is the universal applicability of the duty in the face of marked factual differences among fiduciary mandates that underscores the importance of the problem of justification in fiduciary law theory. Accordingly, for present purposes, I focus exclusively upon the justification for the duty of loyalty.

While there is broad agreement that the duty of loyalty is distinctively fiduciary, there is some disagreement over its content. It is widely accepted that the duty of loyalty prohibits fiduciaries from acting under conflicts of interest.[18] This prohibition is usually expressed in the form of two rules. The conflict of interest rule prohibits the fiduciary from allowing personal interests actually or potentially to conflict with the interests of the beneficiary.[19] The conflict of interest rule thus prohibits disloyal conduct grounded in the self-interest of the fiduciary. The conflict of duty rule prohibits the fiduciary from acting under conflicting mandates.[20] In other words, it prohibits disloyal conduct grounded in conflicting duties to two third parties, even if the fiduciary’s self-interest is not in play. The conflict of duty rule thus proscribes disloyal conduct rooted in inconsistent allegiances of the fiduciary.

It is debatable whether there is anything else to the duty of loyalty. Some have argued that it includes a requirement of good faith.[21] But it is unclear what this obligation requires of the fiduciary and how it relates to the substance of the duty of loyalty.[22] Equally contentious is the question whether the duty of loyalty includes an independent rule prohibiting receipt of profits by fiduciaries under a fiduciary mandate.[23] The so-called no profit rule is ordinarily expressed as requiring the fiduciary to disgorge all profits received by virtue of a fiduciary office or position.[24] There is ample authority for the proposition that the rule exists and is enforceable as such. Nevertheless, it has been doubted that the rule is independent of the duty of loyalty.[25] Fortunately, for present purposes, it is of no consequence whether the duty of loyalty encompasses independent no profit and good faith requirements. It has minimum core content consisting of the conflict rules. Meaningful progress on the problem of justifying the duty of loyalty may be had in accounting for these rules.

Less scholarly attention has been paid to the basis of fiduciary duties. Fortunately, the authorities are clearer on this question. The conventional position is that fiduciary duties arise upon the establishment of a fiduciary relationship. The analytical priority of relationship to duty is reflected in many canonical statements of Commonwealth law.[26] American law is less explicit,[27] but an overwhelming majority of learned analyses accept the priority of relationship to duty.[28]

Given that fiduciary duties originate in fiduciary relationships, the nature of the fiduciary relationship is a matter of some importance. An account of the justification for fiduciary duties will be incomplete if it does not explain the connection between relationship and duty. This, in turn, requires that one have a clear concept of the fiduciary relationship.

Having identified the extent of consensus on the juridical character of fiduciary liability, we are now able to formulate the problem of justification more precisely. The problem lies in explaining why fiduciary relationships generate a duty that (at the very least) implies that the fiduciary is to act solely in the interests of the beneficiary, and prohibits her from acting in self-interest or for third parties with conflicting interests.

III. Reductivist Justifications

One of the two dominant analytical strategies for dealing with this problem is characterized by reductivist reasoning. Reductivists claim that fiduciary duties are not distinctive but are rather derived from other bases of private liability.

A. The Argument from Contract

The most prominent reductivist argument is that from contract. This argument holds that fiduciary duties are justified just as ordinary contractual obligations are. There are two variants on the argument. The first provides that fiduciary duties have contractual justification because they are properly understood as contractual terms. The second holds that fiduciary duties have contractual justification in that they are founded on consent.

The argument from contract is rooted in three insights about fiduciary liability. The first is that fiduciary duties typically arise in relationships that are contractual or are otherwise voluntarily entered into by the fiduciary. The second is that fiduciary duties frequently constrain the performance of contractual undertakings. The third is that the application or effect of fiduciary duties, or extent of liability for breach, may be partially determined by mutual consent. These features of fiduciary liability are thought to suggest that fiduciary duties have contractual justification.[29]

Frank Easterbrook and Daniel Fischel have advanced the best-known version of the first variant on the argument from contract.[30] Noting the absence of a convincing theory of fiduciary duties that treats them as distinctive, they start with an inferential leap to the conclusion that they are not:

Scholars of non- or antieconomic bent have had trouble coming up with a unifying approach to fiduciary duties because they are looking for the wrong things. They are looking for something special about fiduciary relations. There is nothing special to find. ... [T]here is no subject here, and efforts to unify it on a ground that presumes its distinctiveness are doomed.[31]

Easterbrook and Fischel claim that fiduciary duties should instead be understood as implied terms of contract. More particularly, the duty of loyalty is an implied term of relational service contracts in which expertise is hired by a nonexpert. The implied term is required where complete contractual specification of terms would be impossible or inefficient. They explain:

One party to the contract may desire an objective (maximum income from an investment, a favorable outcome to litigation) but have neither an idea nor much concern how the objective is to be achieved. Specialists in achieving this objective (trustees, managers, lawyers) agree to lend their efforts. When the task is complex, when efforts will span a substantial time, when the principal cannot measure (or evaluate) the agent’s effort, when an assessment of the outcome is not a good substitute for measuring effort ... and when a relative shortage of information hinders the drawing of conclusions even when the outcome may be highly informative, a detailed contract would be silly.[32]

The content of fiduciary duties is said to reflect exigencies of relational service contracts involving the hiring of expertise. In such contracts, the nonexpert faces agency costs—due to shirking and self-dealing—associated with delegation to the expert. Fiduciary duties protect against these costs:

When one party hires the other’s knowledge and expertise, there is not much they can write down. Instead of specific undertakings, the agent assumes a duty of loyalty in pursuit of the objective and a duty of care in performance. These legal duties reflect both the nature of the principal’s choice (he is hiring expertise) and an obvious condition (the principal is unwilling to put himself at the mercy of an agent whose effort and achievements are both exceedingly hard to monitor).[33]

Easterbrook and Fischel contend that courts are justified in recognizing fiduciary duties not on the basis of the actual common intent of the parties but instead on the basis of a hypothetical bargain. According to Easterbrook and Fischel, “[C]ourts flesh out the duty of loyalty by prescribing the actions the parties themselves would have preferred if bargaining were cheap and all promises fully enforced.”[34] They conclude that fiduciary duties “are not special duties ... [instead] they are the same sort of obligations, derived and enforced in the same way, as other contractual undertakings.”[35]

Easterbrook and Fischel’s argument has generated significant criticism.[36] Accepting the insights on which it is based, it is still deeply flawed. Let us consider first its descriptive failings.

First, the argument fails properly to account for the formation of fiduciary relationships. Many, but not all, fiduciary relationships are established through contract. Fiduciary relationships may alternatively be established by non-contractual agreement, by unilateral undertaking, or by legislative or judicial decree.[37] An argument from contract law cannot account for fiduciary duties generated by relationships established other than by contract.

Second, the argument does not accurately describe the nature of the fiduciary relationship. Some, but not all, fiduciary relationships involve the engagement of an expert by a nonexpert. Expertise is not a de jure or de facto qualification of fiduciaries.[38] Furthermore, one expert may hire another without their shared or similar levels of expertise being considered inconsistent with the fiduciary nature of their relationship.[39] The hiring of expertise is therefore not the sine qua non of the fiduciary relationship.

Third, the argument does not account well for the content of fiduciary duties. If the duty of loyalty really were an implied contractual term, one would expect its content and application to turn on material facts (other terms, the expectations of the parties, representations made by the parties, and industry practice). Instead, the core content of the duty of loyalty is fixed, and the duty applies wherever a fiduciary relationship exists.[40]

Finally, the argument is inconsistent with judicial practice. In deciding whether fiduciary duties should govern a particular relationship, courts do not generally engage in construction of contracts. Rather, they determine directly whether a relationship is fiduciary. The imposition of fiduciary duties follows from that determination and is not mediated by explicit or implicit contractual terms.

Easterbrook and Fischel’s argument is also normatively unsatisfying. First, it fails to account for a deep inconsistency in presuppositions about the rightful conduct of people in contractual and fiduciary relationships, respectively. In contract it is assumed that the parties will act in a mutually self-interested manner. Each is responsible for securing their interests in dealings with the other. In fiduciary law, by contrast, it is assumed that the parties are interacting for the exclusive benefit of one of them—the beneficiary.[41] The fiduciary is responsible for the beneficiary. The beneficiary is entitled to the fiduciary’s loyalty. There is no mutuality, for the beneficiary has no duty to the fiduciary by virtue of the fiduciary relationship as such.

Second, the argument is only falsely suggestive of a contractual justification for fiduciary duties. Easterbrook and Fischel do not in the end claim that fiduciary duties are contractual terms in the ordinary sense. They are not based on the common intent of the parties, express or implied. Rather, they are purportedly imposed by courts on a hypothetical footing, upon judicial determination of what reasonable people would do in the circumstances. The normative difference between real and hypothetical bargains is immense. Hypothetical contracts are counterfactual constructions of reason; they lack the immediate and direct normative suasion for ordering private legal relations that real bargains have. Furthermore, their justificatory power turns on the real world tractability of presuppositions that inform the hypothetical (here, that the parties are free to behave, and would behave, as economically rational persons without contingent preferences, endowments, or capacities).

Ultimately, then, Easterbrook and Fischel’s variant on the argument from contract rests on contractualist rather than contractual reasoning. It is thus not actually a reductivist argument. Hypothetical contracts do not furnish actual contractual justification. Indeed, their appeal to philosophers lies in their potential as a source of general moral and political justification.[42] But Easterbrook and Fischel do not employ the hypothetical contract device in that way.[43] They feel that it proves that fiduciary duties “are the same sort of obligations, derived and enforced in the same way, as other contractual undertakings.”[44] They are wrong.

Supposing fiduciary duties are not contractual, might they nonetheless share with contractual duties a normative foundation in consent? If so, the above-noted insights about fiduciary liability might be accounted for in a manner which demonstrates the affinity of fiduciary and contract law without raising problems generated by contract-based reductivist argument.

James Edelman has recently offered an argument of this sort.[45] He claims that fiduciary duties are best understood as founded on voluntary undertakings. More particularly, they are an express or implied term of an engagement accepted by the fiduciary. According to Edelman:

Fiduciary duties ... arise in the same manner as any other express or implied term: by construction of the scope of voluntary undertakings. They are not duties which are imposed by law nor are they necessarily referable to a relationship or status. It is time to move from thinking of fiduciary duties as a matter of status to understanding them as based upon consent.[46]

Wishing to emphasize the continuity between contract and voluntary undertaking, Edelman argues that in each case obligations are founded on the consent of the obligor. Consent is a “necessary condition of fiduciary obligation.”[47] Courts are said to engage in construction of the terms of consent in determining whether fiduciary duties were thereby expressly or impliedly undertaken.[48] Fiduciary duties are typically implied in “circumstances of trust, confidence, power, vulnerability and/or discretion.”[49] These factors evidence “an understanding or expectation in a reasonable person that he would behave in a particular way (for example, not put himself in a position of conflict, not make an unauthorized profit, and act in good faith and in the best interests of the beneficiary).”[50]

Relative to Easterbrook and Fischel’s account, Edelman’s approach offers the virtues of parsimony and enhanced explanatory power. It is a purer and less intricate voluntarist account of the justification for fiduciary duties. The argument is, in essence, that fiduciaries are rightly subjected to fiduciary duties where they consent to them. However, Edelman’s concession that consent may be implied dilutes the voluntarist appeal of his argument and brings it quite close to that of Easterbrook and Fischel. Each says that fiduciary duties may be imposed on the basis of a judicial determination of whether this would be consistent with the expectations of reasonable persons. It is just that Easterbrook and Fischel focus on agreement (what reasonable parties to a hypothetical contract would have agreed to), while Edelman focuses on consent (what a reasonable person must be taken to have accepted, whether on a contractual or extracontractual basis). Each contemplates the imposition of fiduciary duties on the basis of actual or constructive consent, with construction guided by legal or economic standards of reasonableness. Edelman’s account enjoys improved explanatory power simply because most fiduciary relationships are entered into voluntarily by the fiduciary, even if not through contract.

Edelman improves on the argument from contract. However, his account is also unsound. Descriptive problems arise from the insistence that consent, divorced from any concept of the fiduciary relationship, is sufficient to ground fiduciary duties.[51] To appreciate the significance of consent to fiduciary liability, one must understand how it factors into the formation and during the currency of the fiduciary relationship. It is true enough that fiduciary liability is ordinarily premised upon voluntary undertakings, as most fiduciary relationships are established consensually. But it turns out that consent in itself offers little explanatory yield.

First, while the engagement of a fiduciary is ordinarily consensual, fiduciary relationships are sometimes (if rarely) established constructively, and consent is never in itself sufficient to make a relationship fiduciary. Parents have fiduciary duties toward their children as a matter of right, without any requirement of consent.[52] In most countries, directors and fund managers have fiduciary duties to corporations and investors as a matter of legislative decree. Presumably, the occupation of these offices is consensual, but consent does not explain the imposition of fiduciary duties on all holders of the office as a matter of law. Fiduciary duties are attached to the office by the statute under which they are created or regulated. The same is true of relationships deemed to have fiduciary status.

Second, the list of factors said to support the implication of fiduciary duties raises the question of the significance of the fiduciary relationship to fiduciary liability. Edelman says implication is warranted where a relationship is characterized by “trust, confidence, power, vulnerability and/or discretion.”[53] However, he does not explain these terms, let alone the support they provide for implying fiduciary duties. It is telling, however, that these factors are among the most discussed indicia of fiduciary relationships.[54] Edelman’s argument appears to be that fiduciary duties are implied terms governing interactions that have the classic hallmarks of a fiduciary relationship. Fiduciary relationships generate fiduciary duties. That is right of course, but we want to know why fiduciary relationships generate fiduciary duties.

Edelman’s analysis has normative failings as well. Consent is capable of reconciling fiduciary duties with the imperative of respect for autonomy. With rare exceptions, it would be inconsistent with that imperative for the law to require one person to serve another as a fiduciary. That would be to enable individuals or the state to coercively extract servility from others. Consent is thus ordinarily a necessary condition of fiduciary liability. However, it is not a sufficient condition, as consent alone does not give reason for imposing the duty of loyalty. It is surely significant that most fiduciaries undertake voluntarily to act in the beneficiary’s interest, but it remains unclear why the law insists upon that undertaking as a condition of entering a fiduciary relationship.

B. The Argument from Property

Another popular reductivist argument holds that fiduciary duties are a kind of private property right or are necessarily incidental to private property rights. So understood, fiduciary duties enhance ownership by facilitating delegation of power over property and protect ownership interests by deterring misappropriation or misapplication of that property. The justification for fiduciary duties derives from that for ownership and private property rights.

The argument from property also draws attention to important aspects of fiduciary liability. The first is that many fiduciary relationships involve the exercise of power by the fiduciary over property owned (in a legal or equitable sense) by the beneficiary.[55] The second is that by constraining the exercise of power over property, fiduciary duties deter the misapplication or misappropriation of property. The third is that rights correlative to fiduciary duties have the appearance of property rights in that they secure the exclusivity of the beneficiary’s claim on the exercise of fiduciary power. This suggests that fiduciary power over property may itself be a form of property belonging to the bundle of rights constitutive of ownership.

Here again there are two variants of the argument. The first, advanced by Larry Ribstein, blends arguments from contract and property. Ribstein claims that all fiduciary relationships “involve the contractual delegation of broad power over one’s property.”[56] Fiduciary duties are justified solely on the basis of characteristics of the fiduciary relationship, so understood.[57] Ribstein endorses Easterbrook and Fischel’s argument that fiduciary duties are implied terms of contract.[58] He believes, however, that fiduciary duties respond to the exigencies of contractual delegation of power over property rather than to the hiring of expertise. All fiduciary relationships are said to feature separation of ownership and control of property. Beneficiaries are entitled to “residual benefit” from property subject to fiduciary administration. Fiduciaries exercise control over that property. Fiduciary duties govern fiduciary relationships by default because “the fiduciary’s discretion cannot readily be constrained by devices other than fiduciary duties without undermining the owner’s objectives in delegating control.”[59]

The elements of Ribstein’s analysis adopted from Easterbrook and Fischel are subject to the criticisms raised above. The innovative arguments from property are problematic as well. Consider first the descriptive issues.

First, while many fiduciary relationships involve the exercise of power over property, not all do. The paradigmatic fiduciary relationship between trustee and beneficiary is a misleading paradigm in that respect. Many relationships of recognized fiduciary status do not necessarily implicate any of the beneficiary’s proprietary interests. Parents enjoy fiduciary power over the person and property of their children. Lawyers enjoy fiduciary power over legal interests (rights, obligations, powers) of clients that often have no bearing on their property. In many cases, the interests subject to the fiduciary relationship cannot reasonably be construed as proprietary.

Second, it follows that fiduciary duties do not just prevent misapplication or misappropriation of property. The duty of loyalty also prohibits conflicts that might compromise the pursuit of a beneficiary’s other practical interests.

This carries a clear normative implication. If beneficiaries are often not owners and the interests subject to fiduciary relationships are often not proprietary, it follows that the normative foundations for property rights and ownership cannot alone support fiduciary duties. Where fiduciary law protects property rights and enhances ownership, it does so in a manner incidental to its core purpose.

Gordon Smith has offered an interesting variant on the argument from property.[60] He is keenly aware of the limitations of an argument from the law of property:

Lawyers have long understood that one who deals with property on behalf of the beneficial owner of the property is subject to fiduciary duties. The quintessential fiduciary relationship—the trust—follows this pattern. Despite the obvious connection between property and fiduciary duty in the trust context, property-based theories of fiduciary duty have not commanded widespread support because so many fiduciary relationships appear to exist without the requisite property.[61]

Smith gets around the problem of identifying as “property” interests that are not by referring instead to “resources”. He defines the fiduciary relationship as follows: “fiduciary relationships form when one party (the ‘fiduciary’) acts on behalf of another party (the ‘beneficiary’) while exercising discretion with respect to a critical resource belonging to the beneficiary.”[62]

Smith says that he substituted “critical resource” for “property” partly in recognition of the fact that fiduciary relationships must have an object.[63] He explains the meaning of “critical resource” as follows:

Like property, critical resources may be tangible or intangible. The “owner” of critical resources need not have legally enforceable rights in the same way that an owner of property has such rights, but she must have residual control rights that, at a minimum, provide practical control over the resources.[64]

Like Ribstein, Smith locates the justification for fiduciary duties in the nature of the fiduciary relationship. More particularly, he says that fiduciary duties are justified by the vulnerability of the beneficiary to the fiduciary. He explains, “[T]he beneficiary’s vulnerability emanates from an inability to protect against opportunism by the fiduciary with respect to the critical resource. ... [F]iduciary law can be justified on the grounds that it deters opportunistic behavior.”[65]

Smith claims superior explanatory power for his theory. He argues that other “attempts to rationalize the law of fiduciary duty ... share a common failing, namely, the inability to simultaneously identify all fiduciary relationships and distinguish fiduciary relationships from nonfiduciary relationships.”[66] Unfortunately, the substitution of “critical resource” for “property” does not appreciably increase the explanatory power of the argument. The former concept is not well-defined. We are told nothing about the character of a resource other than that, like property, it encompasses tangible and intangible things. In any event, fiduciary relationships feature objects that cannot plausibly be construed as resources, including persons.[67]

The critical resource theory is also normatively unconvincing. Smith argues that fiduciary duties are justified by the beneficiary’s need for protection from opportunistic appropriation of critical resources. But it is not clear that the concept of a critical resource has any normative significance at all. For its significance to be clear, one would need to know what makes a resource “critical”, what kinds of interest one may have in such a resource, and how, if at all, those interests are recognized in law.

C. The Argument from Tort

The last reductivist argument for consideration is one that has surprisingly found virtually no academic support. As I will explain, breach of fiduciary duty has sometimes been called a tort. But no one has yet argued that it is properly understood as a tort.

This is surprising because, in one sense, an argument from tort is the most logical avenue of reductive analysis. The boundaries of tort law are notoriously ill-defined. Indeed, it has been described as the “umbrella category”[68] of private law and, more colourfully, as a site of “indexed chaos”.[69] The coherence of tort law has been doubted.[70] If it is an “umbrella category”, why not place fiduciary duties within it? That might resolve the problem of classifying fiduciary duties, even if order is achieved at the cost of analyticity.

The problem is that the loss of analyticity is too much to bear. Treating torts as a collection bin for the bric-a-brac of private law affords taxonomical flexibility at the expense of genuine taxonomical utility. If it is unclear what characteristics an obligation must have to count as a tort duty, calling it a tort duty tells us nothing of its nature or relationship to other kinds of private law obligations.

Without purporting to resolve the question of its coherence, it may be noted that tort law may have some defining purpose. Several theorists have attempted to articulate the core aims of tort law. These efforts may enable us to entertain hypothetical arguments that breach of fiduciary duty should be considered a tort.

One theory is that torts are civil wrongs.[71] On this view, tort law is of uniquely broad scope when compared with the other bases of private liability in that it encompasses not merely wrongs against persons but also interference with property and contractual rights. The civil wrongs theory builds on the recognition that tort liability is premised on wrongdoing but not necessarily risk, harm, or fault.

The civil wrongs theory of tort law may well have more explanatory power than its competitors. But the concept of a civil wrong is so broad that the theory is of little use in dealing with core problems of classification and justification of private law obligations.[72] The concept is insensitive to differences in the character of discrete wrongs that are relevant to these problems.[73] It may be, for instance, that trespass to land and knowing interference with contractual relations are civil wrongs that have been classified as torts. But one must appreciate the nature of the right to exclusive possession of property or to performance of contractual undertakings to understand the character of the wrongs. Understanding the nature of rights, duties, wrongs, and remedies is essential to articulating their justification. It is also relevant to reasoned classification. Breach of fiduciary duty is a civil wrong. But that tells us nothing of its distinctive wrongful character and gives little reason for classifying it a tort.

Another view is that torts are civil wrongs of harmful interference. Tort law is focused primarily on compensation for harm to protected interests.[74] Protected interests range from the personal (e.g., interests in privacy and physical integrity) to the proprietary (e.g., interests in exclusive possession of property or performance of contractual obligations).

Breach of fiduciary duty sometimes involves harmful interference by the fiduciary with the beneficiary’s personal or proprietary interests.[75] It might thus be thought that breach of fiduciary duty is just another tort of harmful interference. This view seems to be reflected in the second Restatement of Torts, which provides that an individual “standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation.”[76]

The difficulty with this view is that fiduciary liability is not contingent on interference, let alone harmful interference. Disloyalty sometimes involves assault, theft, or misappropriation, but harmful interference with the person or property of the beneficiary is not essential.[77] Fiduciaries are liable where they personally take property or profits obtained through the exercise of fiduciary power, regardless of whether the beneficiary had a pre-existing entitlement to, or even a reasonable expectation of procuring, the property or profits. The duty of loyalty prohibits conflicts regardless of whether their realization entails a risk of harm to the beneficiary. Equally, fiduciary remedies are not merely compensatory. Gain-based remedies require the fiduciary to pay over profits and property to the beneficiary whether or not the underlying disloyalty involved conduct that could be construed as conversion.[78] Whether considered from the perspective of wrongs or of remedies, it is clear that breach of fiduciary duty is not merely a tort.

IV. Instrumentalist Justifications

Our discussion has thus far shown the failure of the reductivist strategy in justifying fiduciary duties. This alone gives us a reason to think that fiduciary duties are distinctive and to predict that a successful justificatory strategy will treat them as such. The other dominant analytical strategy—the instrumentalist strategy—accepts that fiduciary duties are distinctive but typically ignores, denies, or diminishes the possibility that a justification might be rooted in the juridical character of liability.

There are several varieties of instrumentalist argument.[79] The variation reflects differences in the character of stipulated ends for law as well as differences in the structure of justificatory analysis. Some instrumentalists state as normatively desirable ends the satisfaction of moral norms or the achievement of public policy goals.[80] Others understand the end to be a legal principle or a consideration peculiar to legal institutions or the integrity of law. Furthermore, instrumentalist justificatory analysis may be direct or indirect in structure. Direct analyses seek to justify the content of an obligation directly on the basis of the stipulated independent end. Indirect analyses accept that obligations are supported by juridical reasons but claim that the latter are best explained in light of a stipulated independent end. As we shall see, instrumentalist arguments about the justification for fiduciary duties tend to be direct.[81]

A. The Argument from Morality

It is sometimes said, without much elaboration or specificity, that fiduciary law is concerned with ensuring that fiduciaries behave morally[82] and that the duty of loyalty requires fiduciaries to act altruistically.[83] But, more commonly, one sees a narrower argument from morality. Specifically, it is said that fiduciary duties have moral justification because they provide a secure basis for interpersonal trust. Fiduciary relationships are said to be relationships of trust.[84] Fiduciary duties are thought justified on the basis that they promote trust either directly or by securing conditions of trustworthiness that make it rational to place trust in fiduciaries.[85] The moral value of interpersonal trust may be understood as intrinsic (e.g., trust is critical to human flourishing given our interdependence) or in instrumental terms (e.g., trust enables individuals to co-operate effectively toward achievement of socially desirable ends). In either event, the justification for fiduciary duties is attributed to the moral value of trust.

Lawrence Mitchell, for instance, has argued that fiduciary duties make trust rational in relationships for which trust has functional significance.[86] The functional significance of trust lies in its facilitation of coordinated productive activity.[87] Speaking of relationships between business partners, Mitchell explains:

No law or contract is likely to substitute for the trust and mutual regard of the parties. But law can be used in a way that will help to foster the development of trust and make it more rational. ...

Fiduciary duty ... [makes] trust rational. ... [A] fiduciary duty gives each party a reason to trust the other in a long-term relationship of unforeseeable consequences because, backed by legal sanctions, it requires each party to act as if it were trustworthy.[88]

On Mitchell’s view, fiduciary relationships are not founded on trust but are instead relationships in which liability rules render placement of trust secure.[89] Rational actors will be willing to trust one another knowing that betrayal will be deterred by the threat of liability.

Robert Flannigan, by contrast, argues that fiduciary duties are founded on trust understood as a good (i.e., a form of social capital) with inherent moral value. According to Flannigan, “[t]here is ... no doubt as to the source of the fiduciary obligation. It is the trust which one person places in another.”[90] Fiduciary duties are, he says, imposed “for the singular purpose of maintaining the integrity of trusting relationships.”[91] Elsewhere, he elaborates:

The traditional rationale for fiduciary responsibility is straightforward. People trust others to act on their behalf or to perform tasks for them. ... The mischief that can occur in such circumstances is that the trusted party will divert value away from the trusting party. The trust placed in the trusted party, in other words, will be abused. Public morality is offended by this kind of conduct. The courts, openly asserting this public morality or policy, formulated a liability rule to deter the abuse.[92]

Flannigan is right that fiduciary relationships place fiduciaries in a position of power and as such generate a risk of abuse. But it does not follow that fiduciary relationships are defined by trust or that fiduciary duties promote trust. Fiduciary relationships may implicate trust. But there are several problems with the notion that fiduciary duties are founded on the moral value of trust.[93]

First, the meaning of trust is contested.[94] Trust may be defined as any of a number of states of mind,[95] forms of conduct,[96] or both (e.g., a demonstrated attitude or emotion).[97] In any event, there is no agreement about what trust comprises. There are other complexities. Trust may be unilateral or reciprocal.[98] It applies to different levels and kinds of social interaction (interpersonal, organizational, public, and political). It also has different objects (e.g., one can trust in the testimony of another, their promises, their competence, and so on). The correlative concept, trustworthiness, is equally unclear.[99] It is uncertain whether trustworthiness is a function of the character, competencies, or motivations of a person in whom trust is to be placed; the nature of the relationship between those who give and receive trust; or the social, political, organizational, and legal contexts which might influence their motivation or behavior. So long as it lacks clear meaning, trust cannot justify fiduciary duties.

Second, claims that the functional value of trust justifies fiduciary duties rest on the questionable premise that these functions have stable moral value. There is reason to doubt this. Most consider that, whatever it is, trust is purposive—that is, one person trusts another to do something (e.g., to tell the truth, to keep promises).[100] If that is true, the moral value of trust turns at least in part on that of its purpose. As Annette Baier notes, there “are immoral as well as moral trust relationships, and trust-busting can be a morally proper goal.”[101]

Third, the case that the duty of loyalty is trust reinforcing has not been made out. Some have argued that threats of legal sanction, or the security the threat of sanctions provides, are inimical to trust.[102] Whether this is true or not, a positive argument must be made for the trust-reinforcing function of fiduciary liability. Without one, we have no reason to believe that there is any causal relationship between levels of trust and fiduciary liability.

Finally, trust is not an essential quality of fiduciary relationships.[103] Reposal of trust by a beneficiary, whatever that might mean, does not necessarily factor in the formation of relationships established by decree or undertaking. Further, depending how it is defined, trust may or may not arise subsequently. Even where present, trust is not a unique quality of fiduciary relationships. As DeMott observes, the “trusting behaviour that a fiduciary relationship may engender does not adequately furnish a basis on which to differentiate among relationships or actors.”[104] Trust may or may not be present in fiduciary relationships; likewise, it may or may not be present in nonfiduciary relationships (e.g., contractual relationships). The moral value of trust is therefore not alone sufficient to explain or justify fiduciary duties.

B. The Argument from Policy

It is also sometimes said that fiduciary liability is founded on considerations of public policy.[105] Paul Finn has advanced the most influential argument from public policy.[106] Finn, author of the groundbreaking treatise Fiduciary Obligations, was originally dismissive of the significance of the fiduciary relationship to fiduciary liability.[107] He ultimately reversed course[108] but claimed that public policy concerns account for its significance to fiduciary liability:

[T]hough the courts often enough emphasize the rigorous standards exacted by the fiduciary principle ... they less often acknowledge explicitly that it is, itself, an instrument of public policy. It has been used, and is demonstrably used, to maintain the integrity, credibility and utility of relationships perceived to be of importance in a society. And it is used to protect interests, both personal and economic, which a society is perceived to deem valuable.[109]

Concerning the duty of loyalty, Finn argues that “[i]ts function ... is to secure the paramountcy of one side’s interests or in some instances, as with partnerships, of a joint interest.”[110] This is said to be a matter of public interest and, as such, a proper concern for public policy. Finn concludes:

In this the true nature of the fiduciary principle is revealed. It originates, self-evidently, in public policy: in a view of desired social behaviour for the end this achieves. To maintain the integrity and the utility of those relationships in which the (or a) role of one party is perceived to be the service of the interests of the other, it insists upon a fine loyalty in that service.[111]

Finn rightly emphasizes the public importance of certain fiduciary relationships. Who could deny the personal and social significance of relationships between directors and corporations, doctors and patients, and parents and children? That being said, Finn leaves unarticulated the connection between the public importance of some fiduciary relationships and the policy justification for fiduciary duties in general. A policy justification is simply asserted. The assertion is hard to accept without analysis partly because of Finn’s failure to explain the nature of the fiduciary relationship. If it is unclear what makes a relationship fiduciary, it is impossible to determine whether its characteristics engage matters of public interest, and if so, how.

Supposing that the nature of the fiduciary relationship is such that it does somehow engage the public interest, it remains unclear how fiduciary duties advance the public interest. It is not obvious that a duty that requires one person to focus exclusively on the interests of another will tend to advance social welfare or some other measure of the public good. The duty of loyalty asserts the exclusivity of interest of an individual or discrete class of individuals and demands blinkered devotion to a mandate defined in terms of the interests of that individual or class. It is not impossible that the duty of loyalty might thereby advance public policy. But the claim that it does is counterintuitive and, in any event, requires argument.

C. The Argument from (Nonfiduciary) Law

The final form of instrumentalist argument holds that fiduciary duties are of consequential importance to the realization of values implicit in the law, to the promotion of lawful conduct, or to legality itself. The justification for fiduciary duties is thus found within law but beyond fiduciary law proper.

Matthew Conaglen has articulated an argument of this sort.[112] Conaglen offers a unique account of the function of the duty of loyalty. He claims that “[t]he concept of fiduciary ‘loyalty’ is an encapsulation of a subsidiary and prophylactic form of protection for non-fiduciary duties which enhances the chance that those non-fiduciary duties will be properly performed.”[113] On Conaglen’s view, the duty of loyalty always arises concurrently with nonfiduciary legal duties.[114] It is subsidiary in that its function is purely instrumental in relation to these duties. It is prophylactic in that conflict rules deter the nonperformance of these duties.[115]

Conaglen argues that the justification for fiduciary duties is as follows: “it is clear that the normative justification for [the] existence [of the duty of loyalty] is to avoid situations which involve a risk of breach of non-fiduciary duties.”[116] In other words, fiduciary duties are justified instrumentally on the basis that they provide needed security for the performance of nonfiduciary legal duties.

Conaglen’s account offers insights into fiduciary liability not mentioned thus far. First, fiduciary duties typically arise concurrently with nonfiduciary (often contractual) duties. Second, fiduciary duties always grant the beneficiary an expectation of performance. The fiduciary is expected to act in the interests of the beneficiary even if that expectation is not itself the object of prescriptive obligation.[117] Third, fiduciary duties are functionally prophylactic in that they insulate the beneficiary from the risk of compromised judgment by the fiduciary. The conflict rules require the fiduciary to avoid situations that would incentivize him to act contrary to the interests of the beneficiary.

Conaglen’s rendering of fiduciary duties is highly sophisticated but still problematic. The most important descriptive problem is the now-familiar difficulty of accounting for the significance of the fiduciary relationship to fiduciary liability. Conaglen has recently confronted this problem, saying:

Legal obligations are frequently analyzed on the basis of a syllogism: where the circumstances are X, there is a duty of kind Y. ... It is commonplace, therefore, when seeking to identify the function that legal obligations serve, to focus attention on the question of when duties of that kind arise.[118]

Conaglen explains that this has resulted in “considerable attention [being] focused on the concept of a ‘fiduciary relationship’ as the key to unlocking the function served by fiduciary duties.”[119] He declines to take this route, however, claiming that “the circumstances in which a fiduciary relationship arises ... are far from clear” and that it is debatable whether “the syllogistic mode of analysis ... accurately represents the manner in which fiduciary doctrine operates.”[120]

Elaborating on the first point, Conaglen points out that established methods of identifying fiduciary relationships do not make clear “why the relationships are recognized as fiduciary in nature.”[121] He claims that efforts to define the fiduciary relationship rest on “vain hope”, with chances of success approximating those of the search for the Holy Grail.[122] Conaglen supports his second point by citing a few cases in which judges, influenced by Finn, have suggested that the syllogism operates in reverse (i.e., that identification of a relationship as fiduciary follows from the imposition of fiduciary duties).[123]

Neither of these arguments is convincing. The claim that fiduciary law is an outlier rests on thin authority and is not based on any analysis. Conaglen says that fiduciary relationships are identified by first determining whether fiduciary duties exist. But he does not convincingly explain the incidence of fiduciary duties. Fiduciary duties must either be imposed as a general rule of conduct or arise by virtue of an interaction between individuals. They do not subsist in the air, as it were. A preponderance of authority treats the formation of a fiduciary relationship as a condition precedent to liability.[124]

The claim that it is impossible to define the fiduciary relationship is likewise unconvincing. A convincing definition has proven elusive. But as I will explain in Part V.B, existing approaches to the identification of fiduciary relationships provide a stable referent for definitional reasoning.

There are other problems. For instance, Conaglen’s argument cannot explain the distinctively wrongful character of disloyalty and its remedial implications. Something in the character of disloyalty justifies remedies so robust that they would seem punitive in other contexts.[125] Yet Conaglen cannot account for the connection between disloyalty and the remedies that correct for it. On his view, disloyalty generates liability not because it is inherently wrongful but rather because it involves a risk of the realization of a nonfiduciary wrong (i.e., breach of a nonfiduciary duty). But if that is true, it is unclear why disloyalty attracts remedies more potent than those available to correct the nonfiduciary wrongs. If the duty of loyalty is subsidiary and disloyalty is thus not inherently wrongful, remedies should track those available upon breach of the underlying duty.

This problem has a normative corollary. Conaglen says that “the normative justification for [the duty of loyalty] is to avoid situations which involve a risk of breach of non-fiduciary duties.”[126] But it is unclear why the risk of breach of nonfiduciary duties should justify a standard of conduct with the distinctive content and high burden of compliance of the duty of loyalty. Nonfiduciary duties are enforceable under independent liability rules,`` and the risk of breach is deterred by the prospect of remedies ordinarily available upon breach. There is nothing about risk of breach of a nonfiduciary duty in itself that would justify the exacting demand for faithfulness made of fiduciaries.

V. The Juridical Justification

So far, I have briefly described the juridical character of fiduciary liability, introduced the problem of justifying fiduciary duties, and reviewed prominent claims about the justification for fiduciary duties. The dominant justificatory strategies—reductivist and instrumentalist—have not proven successful.

The failures are instructive. The failure of reductivism suggests that justificatory analysis should proceed on the basis that fiduciary liability is distinctive. The failure of instrumentalism suggests that justificatory analysis should properly confront the juridical character of fiduciary liability by examining justificatory reasons that may be derived from it. In what follows, I endeavour to act on these lessons in developing a juridical justification for fiduciary duties.

A. Recapitulation

Leading claims about the justification for fiduciary duties may have proved unconvincing, but most illuminated important, sometimes underappreciated, aspects of fiduciary liability. It may be useful to begin by taking stock of what has been discussed thus far.

In Part II, I established the basic parameters of fiduciary liability. I noted that there is at least one distinctively fiduciary duty, the duty of loyalty,[127] and that this duty includes conflict rules. Specifically, the fiduciary must avoid conflicts between his mandate to serve the interests of the beneficiary and his self-interest or duty to others. It was also observed that the duty of loyalty is based on the existence of a fiduciary relationship.

The arguments canvassed in Parts III and IV emphasized other important aspects of fiduciary liability. The argument from contract highlights several important points. It is founded on the recognition that fiduciary duties are typically occasioned by fiduciary relationships established consensually. Pertinent modes of consent differ; they include contract, informed consent, informal agreements, and unilateral undertakings. The necessity of obtaining consent likewise varies. The consent or undertaking of the fiduciary is almost always required. The consent of the beneficiary or a third party (e.g., benefactor or guardian) will also be required in many cases.

The argument from contract also emphasizes the fact that fiduciary duties frequently constrain the performance of contractual undertakings. For instance, a lawyer who undertakes to represent a client on retainer is constrained by the duty of loyalty in the performance of that contractual undertaking.[128] The conflict of duty rule prevents her from representing another client in the same or conflicting matters.

Finally, the argument from contract underscores the fact that enforcement of fiduciary duties may be partially determined by consent.[129] While broad waivers or contractual clauses purporting to completely exclude fiduciary liability are usually read down or held void, consent to partial exclusion of fiduciary duties or ratification of breach does limit enforcement.[130]

The argument from property draws attention to other aspects of fiduciary liability. It underscores the fact that fiduciaries are often vested with power over property owned by the beneficiary. Trustees, for instance, have power over trust property of which beneficiaries are equitable owners. Directors and officers have power over assets and income of which corporations are legal owners.

In fiduciary relationships of this sort, fiduciary duties constrain the exercise of power over property, prohibiting its misapplication or misappropriation. Thus the duty of loyalty bars the trustee from taking a personal interest in trust property.[131] Similarly, it forbids partners from making personal use of partnership property or diverting profits realized through its productive application.[132] When fiduciary duties operate this way, the correlative rights resemble property rights; they secure the exclusivity of the beneficiary’s claim on the resource.

The argument from nonfiduciary law draws attention to yet other features of fiduciary liability. The first is that fiduciary duties typically arise concurrently with nonfiduciary duties. Fiduciary relationships established by contract invariably give rise to fiduciary and contractual duties. Where confidential information is disclosed in the execution of a fiduciary mandate, fiduciary duties will co-exist with duties of confidence.

Another important point is that fiduciary duties support an expectation of performance. Conaglen mistakenly claims that the expectation goes to the performance of nonfiduciary duties. The germane expectation is that of performance of the mandate underlying a fiduciary relationship. I will develop this point shortly. For now, it suffices to say that fiduciaries are expected to act in the interests of the beneficiary. The duty of loyalty supports that expectation notwithstanding the fact that there is no prescriptive fiduciary obligation of performance of a fiduciary mandate.[133]

B. The Nature of Juridical Justification

The justificatory analysis offered here articulates reasons for the imposition of fiduciary duties derived exclusively from the juridical character of fiduciary liability. Juridical justification differs from reductivist justification insofar as the reasons are taken to be distinctive of fiduciary liability. It differs from direct instrumentalist justification insofar as private law is taken to call for a distinctive kind of practical reasoning.[134]

Juridical justification treats the juridical character of private liability as a source rather than an object of justification.[135] It shares with Zipursky’s pragmatic conceptualism the premise that the focal point for interpretive legal theory should be “the concepts and principles embedded in the law.”[136] Unlike pragmatic conceptualism, however, juridical justification does not suppose that the normativity of private law is to be understood in terms of extrinsic values (e.g., those derived from social practices or conventions). Instead, it seeks to reveal the inherent justificatory structure of the settled principles of liability by focusing on legal forms around which these principles are organized (e.g., the form of legal personality, formal qualities of kinds of legal relationship, and formal characteristics of kinds of organization). Juridical justification is, to this extent, consistent with Weinrib’s formalist method. The focus is on the “internal structure” or “internal principle of organization” of legal relationships with regard to “how the components of a legal relationship stand to one another and to the totality that they together form.”[137]

Juridical justification involves the elucidation of coherent forms of rightful interaction. This is important to the extent that private law is partly constituted by discrete forms (again, forms of personality, relationship, and organization). It is important, however, that one be mindful of the limits of juridical justification. Juridical justification implies nothing beyond the normative coherence of given bases of private liability. Contra Weinrib, then, I do not think that juridical justification requires commitment to the idea that the normative structure of private law is expressed only in terms of corrective justice or that the only relevant measure of justice so understood is equal freedom.[138] Nor does it entail the view that private law is an autonomous normative practice.[139] It may be that the normative structure of private liability reflects considerations of distributive or retributive justice as well as corrective justice.[140] The ultimate bases of normativity might include any number of values (e.g., equal freedom, fairness, equality, virtue, or social welfare). The point is not that juridical justification has no bearing on these questions. It is rather that the methodology of juridical justification does not entail a position on them.

C. The Juridical Basis of Justification for Fiduciary Duties

As I explained in Part II, the entrenched position in the positive law is that fiduciary liability is contingent on violation of duties occasioned by the fiduciary relationship. This implies that appreciation of the nature of the fiduciary relationship is key to understanding the justification for fiduciary duties.

The juridical justification for fiduciary duties treats the fiduciary relationship as a distinctive kind of legal relationship with inherent normative salience for fiduciary liability. Its salience lies in the connection between the essential characteristics or formal properties of the relationship and the function of fiduciary duties.

The argument that there is something in the nature of the fiduciary relationship that compels the imposition of fiduciary duties presupposes that its formal properties can be identified. Some claim otherwise. For instance, Deborah DeMott says that “the characteristics of even the standard or conventional fiduciary relationships ... are too varied to enable one to distill a single essence or property that unifies all in any analytically satisfactory way.”[141] John Glover questions “[d]efinitional reasoning” that “assumes that when the term ‘fiduciary’ is applied to any type of relationship, there must be a subsisting common element.”[142]

Claims like this are understandable but not persuasive. The conclusion that a concept is indefinable because it has not yet been well- or convincingly defined follows an unwarranted leap of logic. Nevertheless, the fact that fiduciary law has evolved without consensus on a definition raises the question of the basis upon which one should be ventured and evaluated. I suggest that a definition of a juridical concept should cohere with judicial understanding and use of the concept. The purpose of definition is, after all, to make sense of the juridical character of liability expressed in the concepts through which determinations of liability are made. Fiduciary liability turns on relationship characterization under status- and fact-based methods of fiduciary relationship identification.[143] An effort to define the fiduciary relationship should thus start with these methods.

Under the status-based method, the identification of a relationship as fiduciary turns on the status of nonlegal categories of relationship. The relationships conventionally recognized as fiduciary (e.g., trustee-beneficiary, agent-principal, director/officer-corporation, lawyer-client, parent-child) are so recognized as a matter of status. Confronted with a particular relationship, the court will categorize it and determine whether the category enjoys fiduciary status. If so, the particular relationship is almost always deemed fiduciary. If not, the court may consider whether a category into which it falls merits fiduciary status. Fiduciary status is extended through loose analogical reasoning; a new category of relationship must be found sufficiently similar to one of established status to be labelled as fiduciary itself. The reasoning is loose in that it is not constrained by agreed (and therefore authoritative) criteria of relevance.

Under the fact-based method, judges determine whether a particular relationship is fiduciary by examining its characteristics. Here, facts about the properties of a relationship rather than its status drive the analysis. The most commonly cited characteristics of fiduciary relationships are discretion, power, inequality, dependence, vulnerability, trust, and confidence.[144]

The status– and fact-based methods of fiduciary relationship identification are flawed for reasons given elsewhere.[145] Neither provides the principled basis for ascription of liability demanded by the rule of law.[146] The status-based method is not disciplined by criteria of relevance. The fact-based method has generated widespread disagreement among judges over the meaning and relative salience of various purported characteristics of the fiduciary relationship.

I have argued that these methods should be, and at least in Canada have been, superseded by a general conception of the fiduciary relationship, defined as follows: “[A] fiduciary relationship is one in which one party (the fiduciary) exercises discretionary power over the significant practical interests of another (the beneficiary).”[147] This definition draws on the status- and fact-based methods of fiduciary-relationship identification. It also resonates with precedent[148] and with academic accounts[149] that treat power as an essential formal property of the fiduciary relationship. For present purposes, I offer the definition as prima facie plausible and ask that it be assumed sound for the sake of argument. I presently wish only to show that it reveals a juridical basis of justification for fiduciary duties. To appreciate how that is so, it is necessary that the definition be unpacked.

The key implication of the definition is that the exercise of power by one person over another is the object of the fiduciary relationship. Power is thus the constitutive or most basic formal property of the fiduciary relationship. It has been commonly claimed that fiduciary relationships implicate power. These claims, however, have not typically been elaborated at length, and even where they have, their authors have not always appreciated that power is ambiguous. Contrary to most, I maintain that fiduciary power is not properly understood as connoting relative strength, ability, or influence.[150] Rather, it ought to be understood as a form of authority. More specifically, fiduciary power is a form of authority derived from capacities that are constitutive of the legal personality of another individual or group of individuals. I contend that power is a constitutive formal property of the fiduciary relationship only in this sense.

The claim that power is a constitutive formal property of the fiduciary relationship has formal and practical implications. The formal implications are that power is a more fundamental formal property of the fiduciary relationship than any of its other formal properties. The most important practical implication is that possession of power is the basis on which particular relationships may be identified as fiduciary.

Given that the concept of fiduciary power is derived from a more general concept of power, its disambiguation bears further analysis. I will clarify the meaning of authority first, as this will allow for discussion of other formal properties of the fiduciary relationship. Legal capacity, being the specific form of authority at stake in fiduciary relationships, will be analyzed at greater length in Part V.D, below.

Most abstractly, authority goes to the rightful character of the conduct of one person toward another. Rightfulness is at issue for conduct potentially inconsistent with the legal status or rights of another. Authority can render rightful conduct that would otherwise be wrongful. Fiduciary power is authority so understood. But many people have authority in this sense and are not thus considered fiduciaries. Fiduciary authority has three further qualities. First, it is discretionary in nature. Discretion entails latitude for judgment by the person invested with authority in determining its exercise. Second, fiduciary authority is relational and derivative. Fiduciaries do not enjoy a form of sovereign authority. Rather, they enjoy authority in relation to a specific individual or group and derive their authority from a legal capacity or set of capacities of that individual or group or from a benefactor of the individual or group (i.e., a private third party or the state).[151] Third, fiduciary authority is specific. Fiduciaries do not have plenary power. Rather, their authority is specified (and so limited) by grant or undertaking of authority or otherwise by law.

The relational and derivative nature of fiduciary authority gestures at the position of the beneficiary in the fiduciary relationship. Fiduciaries wield discretionary authority relative to significant practical interests of beneficiaries and derive that authority from another person. That person is typically the beneficiary, but in rare cases, it may be a benefactor such as the state (e.g., delegating power in loco parentis over a child) or a private third party (e.g., a settlor establishing a trust for the benefit of named beneficiaries). A beneficiary’s interest is practical where it connotes a real, ascertainable matter of personality, welfare, or right susceptible to the exercise of authority by another. Matters of personality include aspects of the personality of corporate or natural persons who lack legal capacity, including the determination of their ends.[152] Matters of welfare include decisions bearing on the physical and psychological integrity and well-being of natural persons.[153] Matters of right include decisions bearing upon the interests of corporate and natural persons relative to their legal rights, duties, powers, and liabilities, including those in relation to contract and property.[154] As I will explain in Part V.D., below, what unites matters of personality, welfare, and right is that they are matters for decision making ordinarily within the exclusive legal capacity of the person granting authority to the fiduciary.

Power is vested in fiduciaries to enable them to act for, or on behalf of, beneficiaries, or to otherwise serve their interests. Fiduciary power is thus a means by which to achieve the ends of beneficiaries. Power is a means in two senses. First, it may be exercised to pursue ends of the beneficiary that engage her practical interests. Second, it may be exercised in setting or determining ends of the beneficiary that engage her practical interests.

Established fiduciary relationships have structural properties that reflect the nature of fiduciary power as a distinct form of authority. It is commonly said that fiduciary relationships are characterized by inequality, dependence, and vulnerability. These characteristics are best understood as structural properties shared by all fiduciary relationships subsequent to relationship formation. Wherever one person enjoys fiduciary power over another, their relationship will be asymmetrical in respect of the power itself. The salient inequality lies in the enjoyment by the fiduciary of a particular authority that the beneficiary lacks (regardless of whether authorization may be rescinded). The pertinent forms of dependence and vulnerability simply reflect this inequality. Where effective, authority entails influence, including the risk of adverse influence. The beneficiary is invariably dependent upon the fiduciary as power is exercised to affect her practical interests. The beneficiary is likewise invariably vulnerable to the fiduciary as power may be abused, misused, or exercised carelessly with prejudice to the beneficiary’s interests.

The nature of fiduciary power is also significant for our understanding of modes of fiduciary-relationship formation. Given that fiduciary power is a form of authority derived from the legal capacity of another person, the critical matter in determining how fiduciary relationships may be formed is to identify ways in which one person may be invested with authority in this sense over another. At the highest level of generality, authority may be conferred or undertaken, or both. Depending on the circumstances, it may be conferred by law or by the consent of an individual.[155] Ordinarily, given that fiduciary power is authority derived from the legal capacity of another person, it must be conferred by some manifestation of consent of the person from whose capacity it is derived. However it arises, conferral of authority usually requires acceptance to be effective.[156] Often, conferral and acceptance will be evidenced in an agreement.[157] Rarely, conferral might be effectuated by mandatory imposition of the state, in which case acceptance is not required.[158] Finally, in the rare case that express conferral is unnecessary or impossible, authority may arise upon an undertaking by the fiduciary.[159] All of this is to say that the formation of fiduciary relationships is accomplished through valid investiture of authority in the fiduciary by cession (or conferral otherwise) of legal capacity by the beneficiary or a benefactor.[160]

D. Elements of the Juridical Justification for Fiduciary Duties

The character of fiduciary liability is such that a successful response to the problem of justification must address the connection between fiduciary relationships and fiduciary duties. The juridical justification holds that the duty of loyalty is best understood in terms of normatively salient formal properties of the fiduciary relationship.

The juridical justification for fiduciary duties has four parts, each of which goes to the normative import of the fiduciary relationship for fiduciary liability. First is an account of the constitutive formal properties of the fiduciary relationship. Second is an explanation of the import of structural formal properties of the fiduciary relationship. Third is a discussion about the significance of these properties to our understanding of the normative status of the fiduciary relationship. Last is the argument of justification proper, in which reasons for liability are located in the normative status of fiduciary power.

The constitutive formal properties of the fiduciary relationship, as reflected in the definition provided in Part V.C, are the exercise of discretionary power by the fiduciary over practical interests of the beneficiary. Power is the most basic of the constitutive properties of the fiduciary relationship; the practical interests of the beneficiary are the focal point or ground of fiduciary power, entailed by its relational character. The meaning of these properties hints at their normative salience. Fiduciary power is a form of legal authority. Normative import therefore inheres in it. Where it is validly invested and held, authority legitimates conduct that would otherwise be illegitimate or positively wrongful.[161] It therefore alters the normative conditions under which people interact. Authority enables the bearer to perform functions and to make decisions that would not otherwise be open to her. It also legitimates the subjection of others to decisions validly made pursuant to the performance of these functions.[162] Specifically, in the case of fiduciaries, authority enables the fiduciary to exercise legal capacities that, being derived from another person, would ordinarily be the beneficiary’s or benefactor’s alone to exercise. Exercise by the fiduciary of the legal capacity of another person entails their subjection to her will (i.e., the beneficiary or the benefactor from whose legal personality the capacity is derived is subject to the decision of the fiduciary in the exercise of that capacity).

The relational and derivative character of fiduciary power specifies further the normative effect of the transformation. Fiduciary power is a form of authority wielded by the fiduciary relative to the beneficiary. As such, it transforms the terms on which fiduciary and beneficiary specifically interact. Fiduciary power enables the fiduciary to do things to or for the beneficiary that she would otherwise be prohibited from doing, inasmuch as it entails her exercise of legal capacities of the beneficiary or those of a benefactor relative to the beneficiary. In any given relationship, the mandate under which a fiduciary acts may include the power to determine the ends of a beneficiary, to make decisions affecting her person or property, or otherwise to alter, assume, or determine her legal rights, duties, powers, and liabilities.[163]

The nature of fiduciary power as a form of authority derived from the legal capacity of another person therefore has fundamental normative significance.[164] Fiduciary power does not simply legitimate conduct that would otherwise be wrongful; it legitimates a limited form of substitution of legal personality.[165] Again, fiduciary powers are legal capacities derived from the legal personality of other persons, natural or corporate (e.g., capacities to make or perform contracts or to manage, sell, or invest property).[166] In wielding them, the fiduciary stands in substitution for that person within the ambit of the power.

The discretionary character of fiduciary power goes to the effect of the substitution. In exercising another person’s legal capacity, the fiduciary is not a mere proxy. The exercise of authority by the fiduciary is not subject to—and, in some cases, is not susceptible of—dictation. Its scope may be defined by instructions or limited by express retention of power. Nevertheless, within the scope of vested authority, the fiduciary is free to exercise judgment in determining whether, when, and how it is to be acted upon.[167] To that extent, the fiduciary has the capacity not merely to effectuate the will of the beneficiary or benefactor, or both, but to subject them to her will.

The specificity of fiduciary power reveals the circumscribed nature of its substitutive effect. The fiduciary does not overtake the personality of the beneficiary. This is true even where the fiduciary has broad authority to determine the ends of an incapable person, such as a child or corporation. Instead, the fiduciary exercises a particular legal capacity or range of capacities.[168] Exercise of these capacities may further be specified temporally or as to subject matter. The authorization under which a fiduciary acts may specify a term.[169] It might also stipulate the subject matter in relation to which authority is held.[170] The ability of the fiduciary to legitimately subject the beneficiary or benefactor, or both, to her will is therefore circumscribed. The fiduciary determines matters of choice only within the ambit of authority under which she acts.

As explained in Part V.C, the structural properties of the fiduciary relationship speak to the relative positioning of the fiduciary and beneficiary. I have said that there are three related structural properties of the fiduciary relationship—inequality, dependence, and vulnerability. These properties are normatively significant for the purposes of fiduciary liability only insofar as they represent the formal structural implications of the establishment of a fiduciary relationship for the parties to it.

Inequality of power inheres in the fiduciary relationship in that the fiduciary is vested with authority over the beneficiary. This inequality is not necessarily counterbalanced by reciprocal investment of power in the beneficiary.[171] Accordingly, the fiduciary relationship has an asymmetrical formal structure. The fiduciary is, simply by virtue of the establishment of the relationship, in a dominant position relative to the beneficiary and, in some cases, the benefactor.

Dependence inheres in the fiduciary relationship given that fiduciary power entails influence. Fiduciary relationships enable one person to exercise the legal capacity of another relative to a beneficiary’s practical interests. Decisions made by the fiduciary will ordinarily influence practical interests of the beneficiary (in a salutatory way, it is hoped). To the extent that fiduciary power entails influence, it establishes dependence.

Vulnerability follows in that the influence associated with fiduciary power entails risk. The fiduciary is expected to exercise power for the benefit of the beneficiary, but that expectation may be disappointed. The fiduciary may neglect the interests of the beneficiary or may prefer her own interests or those of a third party.

Having discussed the constitutive and structural properties of the fiduciary relationship, I am now better positioned to consider the normative implications of these properties for fiduciary liability. Fiduciary power is substitutive. The fiduciary exercises a legal capacity of another person in setting or pursuing practical interests of the beneficiary. Legal capacities are integral to the actual capacity of a person to set and pursue her ends. These capacities—to contract, to inherit, to establish a trust, to establish possessory interests in property—are the very means by which individuals act purposively through law. Fiduciary power, and by extension the fiduciary relationship, thus enables one person to act purposively on behalf of another. The ability to confer fiduciary power and so to establish a fiduciary relationship enhances the beneficiary’s or benefactor’s ability to effectively pursue her purposes, for it enables her to draw upon a fiduciary’s means (e.g., skills, knowledge, experience, professional licensure) in the exercise of her capacities.

The purpose for which fiduciary power is held is implicit in its substitutive nature. It is rendered explicit in the innumerable authorities that hold that fiduciaries are to act in the interests of beneficiaries.[172] This requirement is not itself imposed by way of enforceable legal duty.[173] It is best understood as expressing the normative status of fiduciary power. Fiduciary power, being derived from capacities constitutive of the legal personality of another person, cannot but be understood as an extension of that other person’s personality. It is partly through their legal capacities that persons are recognized as such in private law (i.e., as purposive beings, with standing to act in ways permitted or facilitated by law). Fiduciary power, being an extension of the legal personality of the person from whose capacity it is derived, is thus properly understood as a means—that is, a way of effectuating one’s purposes—belonging rightfully to the beneficiary. Fiduciary power is a means of a beneficiary even where it is derived from the personality of a benefactor, for the effect of the benefaction is devotion of the power to the beneficiary’s ends. To say, as courts routinely do, that fiduciaries are to act in the interests of the beneficiary is simply to assert as normatively controlling the status of fiduciary power (i.e., its status as a constituent element of the personality of the beneficiary or benefactor) and the purpose for which fiduciary power is held (i.e., to enable the determination or pursuit of the ends of the beneficiary).

This permits clarification of the justification for fiduciary duties. Given that fiduciary power is a means of the beneficiary, the interaction between fiduciary and beneficiary must be presumptively conducted for the sole advantage of the beneficiary. Fiduciary power, as a means derived from or devoted to the beneficiary, is held for the advancement of the beneficiary’s ends alone. A fiduciary relationship may be formed by contract and so coincide with expectations of mutual advantage. But within the fiduciary relationship, the fiduciary is to serve the interests of the beneficiary.[174] Fiduciary duties help to ensure that fiduciary power is exercised in a manner consistent with its status and purpose.

The conflict rules constitutive of the duty of loyalty constrain fiduciaries in the exercise of fiduciary power. Specifically, the conflict of interest rule prohibits fiduciaries from exercising fiduciary power in self-interest. The conflict of duty rule prohibits fiduciaries from exercising fiduciary power in the interests of third parties under a conflicting mandate. The juridical reasons for imposing the duty of loyalty follow from what we have said about the juridical character of the fiduciary relationship and, particularly, what we have said about the status of fiduciary power, its most basic constitutive formal property. The content of the duty of loyalty is a direct reflection of the normative status of fiduciary power. The conflict rules proscribe appropriation by the fiduciary of fiduciary power understood as means belonging exclusively to the beneficiary. The fiduciary may not treat fiduciary power as an unclaimed means or as a personal means. The duty of loyalty secures the beneficiary’s legitimate expectation that fiduciary power, as one of her means, will be used only to achieve her ends. The wrongful character of fiduciary disloyalty is the same regardless of whether the conduct of the fiduciary is self- or other-regarding; in either event, the fiduciary has treated fiduciary power as a means at his disposal and, in doing so, has violated the beneficiary’s exclusive claim upon the disposition of her means.

E. Revisiting the Problem of Justification

The juridical justification locates reasons for fiduciary duties in the nature of the fiduciary relationship and judicial assertions of the normative status of its most basic constitutive formal property—fiduciary power. Fiduciary power is a kind of authority derived from legal capacities integral to the legal personality of the beneficiary or benefactor. As an extension of the legal personality of the beneficiary or benefactor, fiduciary power is properly understood as a means belonging rightfully to the beneficiary (either by original status or through benefaction). The duty of loyalty ensures that fiduciary power is exercised in a manner consistent with its status by proscribing its appropriation by the fiduciary. The fiduciary may not treat fiduciary power as an unclaimed means. By regulating the ends for which fiduciary power may be exercised, the duty of loyalty does not guarantee satisfaction of the particular ends of beneficiaries in particular fiduciary relationships. It does, however, secure the exclusivity of their claim upon fiduciary power as a means to be applied to their ends.

The juridical justification for fiduciary duties does not offer whatever additional justificatory power may be found in normative moral or political theory. But that is an intentional concession made necessary by my aim for modest normative claims that prioritize consistency with the juridical character of fiduciary liability. Juridical justification is not inconsistent with philosophical justification. Rather, as a precondition of sound philosophical analysis, it simply leaves the question of the philosophical justification open.

The juridical justification fits well with thin and thick descriptions of fiduciary liability. Recalling the thin description provided in Part II, it is clearly consistent with the conventional view that fiduciary liability is contingent on the establishment of a fiduciary relationship. The juridical justification locates reasons for liability in the nature of the fiduciary relationship. In doing so, it offers support for the assumptions implicit in practice that the fiduciary relationship is a distinctive kind of legal relationship and that fiduciary duties reflect properties of the fiduciary relationship so understood.

The juridical justification also fits well with the thick description of fiduciary liability that emerged over Parts III and IV. It is capable of explaining features emphasized by the argument from contract. First, it accepts that most fiduciary relationships are established consensually. Often, but not always, consent will be manifested in contract. Consent and contract are modes of authorization going to relationship formation. Second, it can accommodate the insight that fiduciary duties sometimes constrain the performance of contractual undertakings. Where conferred by contract, fiduciary power is typically subject to terms expressed contractually. These terms at once define the ambit of fiduciary power and generate a contractually enforceable obligation that power be exercised as agreed. Third, it is consistent with limited consensual exclusion of fiduciary liability. Fiduciary power is presumptively exercised for the sole benefit of the beneficiary. But the beneficiary may decide to partially alienate her means. Consent grounds limited departure from the conflict rules precisely because fiduciary power is a means belonging rightfully to the beneficiary.

The juridical justification also embraces insights of the argument from property. First, it is consistent with the claim that fiduciaries often have control over property owned by beneficiaries. Where fiduciary power is held in relation to property, the fiduciary is properly understood as exercising the legal capacity of another (the beneficiary or benefactor) in respect of it. Owners have authority over property secured by legal rights of ownership, including the right to manage it, to control its disposition, and to determine its use.[175] Ownership rights may be exercised personally by the owner or by a fiduciary acting as a substitute. But ownership interests are just one kind of practical interest over which fiduciary power may be exercised. Second, the juridical justification can account for the fact that fiduciary duties often prevent misapplication and misappropriation of property. Fiduciary power over property entails the risk of diversion of the property or its fruits. This is but an example of fiduciary disloyalty. The primary function of the duty of loyalty is to secure the exclusivity of the beneficiary’s claim on power as a means, whatever the nature of the underlying interest.

Finally, the juridical justification addresses well the insights that motivated the argument from nonfiduciary law. First, it allows for concurrent liability and explains how it may arise. Depending on material facts relating to the nature of the power conferred, the mode of authorization through which the fiduciary relationship is formed, and the manner in which the fiduciary mandate is executed, fiduciary duties will frequently arise concurrently with nonfiduciary duties. But the concurrence is a contingent matter. Fiduciary duties are not called forth by nonfiduciary duties or vice versa. Second, it recognizes that fiduciary duties are premised on an expectation of performance. Fiduciaries are expected to exercise power to set or pursue the practical interests of beneficiaries. Exercise of power is the material kind of performance. Compliance with nonfiduciary duties is not, and for good reason; expectations of performance of nonfiduciary duties are secured by nonfiduciary principles of liability.


Fiduciary duties govern relationships of great personal and social importance. Fiduciary relationships are a distinctive form of relationship through which myriad individual and joint ends are advanced. They range from interpersonal to institutional, undergirding family life, our interactions with most professionals, and the productive activities of many organizations. Notwithstanding their importance, the justification for fiduciary duties has been underanalyzed. Leading arguments employ reductivist and instrumentalist analytical strategies. Neither has yet produced convincing results, but both have generated arguments that highlight important aspects of fiduciary liability. The resulting enriched perspective on fiduciary liability points to a more promising avenue of justification.

That avenue is juridical. The juridical justification offered here holds that fiduciary duties are distinctive and supported by reasons derived from formal properties of the fiduciary relationship. In fiduciary relationships, one person (the fiduciary) exercises discretionary power over the practical interests of another (the beneficiary). Fiduciary power is a form of authority derived from the legal capacity of the beneficiary or a benefactor. The normative status of fiduciary power is that of a means belonging exclusively to the beneficiary. The duty of loyalty secures this status by prohibiting the fiduciary from treating fiduciary power as an unclaimed means.