"Law, Peter A. Allard School of"@en . "DSpace"@en . "UBCV"@en . "Wright, David Malcolm"@en . "2012-04-17T22:55:48Z"@en . "1991"@en . "Master of Laws - LLM"@en . "University of British Columbia"@en . "At present the law of fiduciary obligations is at a\r\ncrossroads in Canada. An expansionist approach advocates\r\nrecourse to this doctrine whenever a remedy is desired. The\r\nopposing argument, which perceives the fiduciary obligation\r\nin a traditional way, suggests that the fiduciary\r\nrelationship is only the highest in a series of ever\r\nincreasing standards of honesty required between parties. A\r\nbrief examination of these contending positions will lead to\r\nthe important question of permitting this equitable doctrine\r\nto operate within the parameters of a commercial context.\r\nThe courts have traditionally been reluctant to extend\r\ngeneral equitable doctrines into the commercial world. The\r\nunderlying reasons for this disinclination will be sought.\r\nIf any of these reasons are found to contain any justifiable\r\nconcerns, alternatives to the total exclusion of the\r\nfiduciary relationship will be sought.\r\nThe methodology for this thesis is clear; it is the\r\nclose analytical examination of cases to decide in which\r\ndirection the law should develop and what have been the\r\npoints of departure for this area of law. This emphasis\r\nupon the past and future of the law of fiduciaries within\r\nthe commercial context must be complemented with a detailed\r\nexamination of the present Australian and Canadian legal\r\npositions. Particular attention must be paid to any test\r\nsuggested by the recent caselaw for the determination of the\r\npresence of a fiduciary relationship.\r\nFinally the various remedies available to the court\r\nupon the determination that a fiduciary duty has been\r\nbreached needs to be examined, as the various remedies which\r\nmay be ordered can have differing consequences, particularly\r\nupon third parties, especially when the fiduciary\r\nrelationship is within a commercial context."@en . "https://circle.library.ubc.ca/rest/handle/2429/42050?expand=metadata"@en . "c. / FIDUCIARIES IN A COMMERCIAL CONTEXT by DAVID MALCOLM WRIGHT tt* T h e University of Svdnev IQflG L L B ( H o n s>' T h e University o/Sydney, 1989 A THESIS SUBMITTED IN PART'TAT v r n v - r r r . , ^ OF THE REQUIREMENTS\" F ^ S S \u00E2\u0084\u00A2 MASTER OF LAWS -in \u00E2\u0080\u00A2'\u00E2\u0080\u00A2\u00E2\u0080\u00A2.'\u00E2\u0080\u00A2:\u00E2\u0080\u00A2 ' ' THE FACULTY OF GRADUATE STUDIES FACULTY OF LAW we accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA July 1991 C David Maicolm Wright 1991 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood th3t copying or publication of this thesis for financial gain shall not be allowed without my written permission. (Signature) Department The University of British Columbia Vancouver, Canada DE-6 (2/88) ii Abstract At present the law of fiduciary obligations is at a crossroads in Canada. An expansionist approach advocates recourse to this doctrine whenever a remedy is desired. The opposing argument, which perceives the fiduciary obligation in a traditional way, suggests that the fiduciary relationship is only the highest in a series of ever increasing standards of honesty required between parties. A brief examination of these contending positions will lead to the important question of permitting this equitable doctrine to operate within \"the parameters of a commercial context. The courts have traditionally been reluctant to extend general equitable doctrines into the commercial world. The underlying reasons for this disinclination will be sought. If any of these reasons are found to contain any justifiable concerns, -alternatives to the total exclusion of the fiduciary relationship will be sought. r\" The methodology for this thesis is clear; it is the close analytical examination of cases to decide in which direction the law should develop and what have been the points of departure for this area of law. This emphasis upon the past and future of the law of fiduciaries within the commercial context must be complemented with a detailed examination of the present Australian and Canadian legal positions. Particular attention must be paid to any test iii suggested by the recent caselaw for the determination of the presence of a fiduciary relationship. Finally the various remedies available to the court upon the determination that a fiduciary duty has been breached needs to be examined, as the various remedies which may be ordered can have differing consequences, particularly upon third parties, especially when the fiduciary relationsrip is within a commercial context. IV Table of Contents Abstract ii Table of Contents . * . . . iv CHAPTER I INTRODUCTION . . . . . . . . . . . . . . . . . . . . . 1 1. Introduction. . . . . . . . . . . . . . . . . 1 2. The Fiduciary Concept . . . . . . . . . . . . 2 3. The Function of the Fiduciary Obligation . . 8 CHAPTER II THE EXTENSION OF FIDUCIARY OBLIGATIONS INTO A COMMERCIAL SETTING . . . . . 16 1. Introduction . . . . . 16 2. Recent Caselaw Involving the Application of Fiduciary Principles to a Commercial Environment . . . . . . . . . . . . . . . . . 25 3. Conclusion . . . . . . . . . . . . . . . . . 101 CHAPTER III THE DEVELOPMENT OF AN AUSTRALIAN COMMERCIAL OPPORTUNITY DOCTRINE . 103 1. Introduction . . . . . . . . . . . . . . . . 103 2. Authority for an Australian Commercial Opportunity Doctrine . . . . . . . . . . . . 1 0 7 a. ... Introduction . . . . . . . . . . . . . 107 b. Rule against Misappropriation of Assets ~~108 c. The Conflict Rule . . . . . . . . . . . 110 d. The Profit Rule . . . . . . - v . . . . . . 116 e. Fulfillment of the Commercial Opportunity Doctrine . . . . . . . . . . 139 f. Conclusion . . . . . . . . . . . . . . . 142 3. Scope of the Proposed Doctrine 144 a. Introduction . . . . . . . . . ; . . . . 1 4 4 b. What Businesses Would be Covered by the Doctrine? 145 c. Who Is a Commercial Fiduciary? 151 4. Defences 155 a. Introduction ' 155 b. Resignation 156 c. Inability to Take the Opportunity and No Damage Suffered. . \u00E2\u0080\u00A2 158 d. Ratification 163 5. Conclusion 166 CHAPTER IV REMEDIES FOR A BREACH OF A FIDUCIARY OBLIGATION IN A COMMERCIAL CONTEXT . . . . . 168 1. Introduction . . . 1 6 8 2. Quantification of the Gain of the Defaulting Fiduciary. . . . . . . . . , 1 7 0 3. Remedies . . . . . . . . . . . . . . . . . . 186 a. Introduction . . . . . . . . . . . . . . 186 b. Types of Remedies . . . . . . . . . . . 190 4. Conclusion . . . . . . . . . . . . . . . . . 209 CHAPTER V CONCLUSION . . . . . . . . . . o . . . . . . . . . . . 212 BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . 215 TABLE OF CASES . . . . . . . . . . . . . . . . . . . . 220 Chapter I Introduction 1. Introduction. Referring to the law of fiduciary obligations Sir Anthony Mason, Chief Justice of the High Court of Australia, recently stated that \"... this rich ore body has been almost fully explored\"1 If this statement means that the fiduciary law concept is settled, then it is arguably accurate in terms of the Australian jurisdiction. But, it is certainly inaccurate in the Canadian context, where the struggle to determine the essence of the fiduciary obligation is an ongoing one. The great modern theme of the law, the movement from \"contract to status,\" reversing Sir Henry Maine's famous dictum,2is reflected in the law pertaining to the fiduciary obligation. One particular battleground within this general area is that of the relevance of the fiduciary rubric to the commercial environment. It is to this question that this thesis will direct its attention. 1\"Foreword\"(1989)12 UNSWLJ 1 at 1. 2see Friedmann Law in a Changing Society 2nd Edition (New York: Columbia University Press, 1972) at pp.119-20 and 498. <> ' n ii n i * 2 n u-U > J-'-;-\" \u00E2\u0080\u00A2 - - t , \u00E2\u0080\u00A2 \u00C2\u00BB -IJ u u ~t it ' 2. The Fiduciary Concept It is essential to commence an examination of the appropriateness of the fiduciary obligation to commercial relationships by grasping what is meant by the term fiduciary. Within the parameters of the commercial sphere it is doubly important to define the term fiduciary because the traditional categories of fiduciaries, such as trustee-beneficiary and solicitor-client, do not contain the novel and often sui generis relationships constantly being spawned by the commercial world. Generally, a fiduciary is a person who must put another's interests ' above or equal to his or her own. Unfortunately, uncertainty pervades the entire area of the law of fiduciaries. As Sir Anthony Mason has stated; \"The fiduciary relationship is a concept in search of a principle.\"3 This lack of a unifying principle, tying together the law_of fiduciaries, was expressly recognized by Professor Paul Finn in his seminal work Fiduciary Obligations,4 in which he concluded that there was no central pivotal concept, but a collection of unrelated rules, linked only by the generic title of fiduciary obligations.5 This open-endedness of 3\"Themes and Prospects\" in Essays in Equity ed. by P.Finn' (Sydney: Law Book Co. 1985). '(Sydney: The Law Book Co. 1977). 5Ibid pp.1-2. the fiduciary concept has been explicitly recognized by the courts'and by academics.7 Shepherd explains this difficulty in locating the key notion by pointing to historical problems, the diverse range of social relationships to which the law of fiduciaries has been applied and the varied content of the duty imposed once the fiduciary relationship has been identified.8 However, these difficulties have not prevented persons from attempting to isolate the common element of fiduciary relationships. A Canadian writer, Shepherd, has argued\u00C2\u00AE that the fiduciary principle \"is property-based. He states that \"A fiduciary relationship exists whenever any person acquires a power of any type on condition that he also receives with it a duty to exercise that power in the best interests of another, and the recipient of the power exercises that power,\"10 The author describes this as the theory of encumbered ppwer. The power, which may be a legal power, such as a power of 6for example, Canadian Aero Services Ltd. v. O'Mallev (1984) 40 DLR (3d) 371 at 383. Tufton v. Sperni r19521 2 TLR 516 at 522, English v. Dedham Vale Properties [1978] 1 All ER 382 at 392. 7for example, Goff and Jones The Law of.Restitution 3rd Edition, (London: Sweet and Maxwell, 1989) at 632-634. \"Law of Fiduciaries (Toronto: Carswell, 1981) at p.7. 'Ibid and \"Towards a Unified Concept of Fiduciary Relationships\" (1981) 97 LQR 51. \"Supra Note 8 at 96. appointment, or * practical r.nwer. is not simply analogous to, but axtiuill}' is, property. The transferee, or recipient, is the legal owner and the transferor the beneficial owner. However, this approach by Shepherd has been convincingly criticised by Lehane,11 and Finn12 and woinhorn11 Koz-anoo nf bizarre notion of property that it is forced to utilizes, Vinter has pinpointed the unifying notion as undue influence,\" but it is open to serious question whether this approach can adequately deal with cases where the fiduciary acts without any interaction with the beneficiary and without anj detriment to wJbutf person. Gareth Jones in an influential article15 advanced the argument that the notion of unjust enrichment is at the centre of the fiduciary principle. The obvious difficulty with this is that it is circular in reasoning. A person is not permitted to retain a gain that he or she has made from a particular transaction because he or she is a fiduciary, and the reason why he or she is a fiduciary is because it would be unjust 11 \"Book Reviews\" UNSWLJ 7 (1984) 396. \"Supra Note 4 at 131-132. \"\"The Fiduciary Obligation\" (1975) 25 U-of T L.J. 1 at 11. \"A Treatise on the History and Law of Fiduciary Relationships and Resulting Trusts 3rd Ed. (London: Butterworths, 1955). \"\"Unjust Enrichment and the Fiduciary's Duty of Loyalty\" (1968) 84 L.Q. Rev. 472. for that person to retain that gain. Another approach has been suggested by Flannigan.16 He defines a fiduciary as one who has, or is assumed to have,, access to the assets of a trusting party. However, as Chief Justice Gibbs pointed out in Hospital Products Ltd v. United States Surgical Corporation\" subjective trust is not a necessary ingredient in traditional category cases. Certainly one of the most popular \u00E2\u0080\u00A2dnd recent nominations for the underlying principle of the fiduciary obligation has been the notion of vulnerability. This concept was given judicial force recently wEien it was articulated by Madame Justice Wilson in Fi.'sns v Smith.\" and this was subsequently endorsed in LAC Minerals Ltd v. International Corona Resources Ltd.\" Wilson J. held that (1) The fiduciary has scope for the exercise of some discretion or power. (2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests. (3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.\"20 16\"The Fiduciary Obligation\" (1989) 9 OJLS 285. \"(1984) 55 ALR 417 at 433. \"(1988) 42 DLR (4th) 81 at 99. \"(1989) 61 DLR (4th) 14. \"Supra Note 18 at 99. In the Supreme Court of Canada's decision in LAC Minerals the majority21 held that \"It i3 possible for a fiduciary relationship to be found through not all of these characteristics are present, nor will the presence of these ingredients invariably identify the existence of a fiduciary relationship. The one feature, however, which is considered to be indispensable to the existence of the relationship, and which is most relevant in this case, is that of dependency or vulnerability.\"22 However tempting this may at first glance seem to be, on reflection, on its own vulnerability is inadequate to catch all the traditional relationships designated as fiduciary. Of even greater concern is that if vulnerability is the sole criterion many relationships not considered to be fiduciary will be so desianated. An obvious example is a mortgagee when he or she is exercising the power of sale under the mortgage. The mortgagor is-clearly vulnerable to the mortgagee but this relationship has never been characterized as fiduciary. Another illustration of the inadequacy of the vulnerability approach is the relationship between professor and student. The student is tremendously vulnerable to the professor's actions but, once again, this relationship has never been considered .as fiduciary in nature. Although vulnerability of itself does not create a 21Sopinka, Lamer and Mclntyre J.J. \"Supra Note 19 at 63. fiduciary relationship it is one of the two constituent elements of the fundamental principle that underlies the fiduciary principle. Professor Finn in two recent articles23 convincingly argues that the second hallmark of a fiduciary relationship, the first being vulnerability, is tha;: the relationship entitles the purported beneficiary to expect that that capacity should be utilized only in the beneficiary's interest, or, rarely, in their joint interests.24 This entitlement arises from one of two sources; first, the legal character of a relationship and the respective roles of each party to it25 or, secondly, the factual matrix of the relationship, whose elements such as trust, confidence, influence and dependence are present. By the application of this two fold approach the decided cases on fiduciary law are included. Additionally, it maintains the accuracy of Dickson J. 's (as he then was) statement in Guerin v. The Queen where his Lordship~ held that 23\"The Fiduciary Principle\" in Equity, Fiduciaries and Trusts Ed. by T. Youdan (Toronto Carswell, 1989) and \"Good Faith, Fair Dealing and Fiduciary Law in Canada\" in Fiduciary Obligations - materials prepared for the Continuing Legal Education Society of B.C. April 1989. ; :4as is the case in a partnership. \"this is analogous to the categories approach, that is, certain categories of relationships, for example, trustee-beneficiary and solicitor-client, are presumptively fiduciary. 8 \"It is sometimes said that the nature of fiduciary relationships is both established and exhausted by the standard categories of agent, trustee, partner, director and the like. I do hot agree. It is the nature of the relationship, not the specific category of actor involved that gives rise to the fiduciary duty. The categories of fiduciary, like those of negligence, should not be considered closed. \"2t 3. The Function of the Fiduciary Obligation \"I listen to the evidence and if I figure one of the parties was taken advantage of, I look for means to redress the wrong ... and this fiduciary thing gives a lot of scope.\"27 These observations clearly highlight a recent tendency in fiduciary law: the utilization of the fiduciary obligation in factual situations that would not have been expected to have been appropriate to examine by application of the fiduciary principle. Indeed, McCamus in his recent article on .the expansion of the fiduciary obligation2' begins by looking at three novel situations which we're \"(1984) 13 DLR (4th) 321. \"cited by J.L. McDougall in \"The New Fiduciary Duty\", paper to the CBA (Ontario), March 1989 quoted by Finn in \"Good Faith, Fair Dealing and Fiduciary Law in Canada\" Supra Note 23 at 2.1.05. \"\"The Recent Expansion of Fiduciary Obligation\" (1987) 23 ETR 301. n i i n i n c i U L 1 U 1 L' u 3 i analysed by using the fiduciary concept,then asks how many members of the legal profession would have initially perceived the case in fiduciary terms, and concludes by saying that the fiduciary concept is being relied upon in a greater range of cases than would have previously been thought proper. Frankel in his current exposition on the law of fiduciaries has a sub-chapter heading titled \"Fiduciary Law and Social Change.\"30 The obvious question is what is driving this expansion of the territory of the fiduciary obligation? The answer to this is historical in nature and is wider than simply fiduciary law. Equity, a3 a whole, is undergoing a substantial revision. This revision manifests itself in fiduciary law. Professor Waters succinctly states that \"The historic justification for the Chancellor's intervention in the work of the common law courts was to assist the process in the- procurement of fairness and justice in the individual case.\"31 In. this way the Court of Equity could fulfill its role as the court of conscience. During the period of the reign of \"the cases are Szarfer v. Chodos (1986) 54 OR (2d) 663; 27 DLR (4th) 388 (Ont. H.C.), International Corona. Resources Ltd v. LAC Minerals 25 DI.R (4th) 504 (Ont. H.C.) and Standard Investments Ltd. v. CIBC 5 DLR-(4th) 452 (Ont. H.C.). 30in \"Fiduciary Law\" (1983) 71 Cal. L.H. 795 at 802. 31 (1990) 69 Can. Bar Rev. 455 at 479; see also Meagher, Gummow and Lehane. Equity 2nd. Edition (Sydney: Butterworths, 1984) Ch 1; Pettit Equity and the Law of Trusts 6th Edition (London: Butterworths, 1989) Ch.l. 10 the Tudors and Stuarts down to 1873 four Lord Chancellors, Lord Nottingham (1673-82), Lord Hardwicke (1736-56), Lord Thurlow (1778-83; 1783-92) and most famously Lord Eldon (1801-06; 1807-27) encouraged the systematization of equity.32 During this period equity developed rules. In an approximate way equity came to resemble the common law as the rules became more important than the equitable doctrines which underlay them. However, this rigidity has been challenged.33 Professor Finn argues convincingly that there has been an increased push for the legal system generally to reflect reasonable community stands. Thus, the central question to be asked, according to Lambert J.A, in Harry v. Kreutzinqer is whether \"... a transaction is sufficiently divergent from community standards of commercial morality that it should be rescinded.\"34 This new moral imperative, referred to by Finn as \"good faith and fair dealing\" has manifested itself in estoppel,35 catching bargains,36 unconscionable dealing37 \"see Meagher Gummow and Lehane Ibid pp.7-9; Pettit Ibid at pp.4-5. \"Stone and Rossiter \"The Chancellor's New Shoe\" (1988) 13 'UNSWLJ 11. \"(1978) 9 BCLR 166 at 177. 35eg. Waltons Store v. Maher (1989) 164 CLR 387. 11 and the appropriateness of the constructive trust.38 These representative cases are loaded with moral statements, and it is this newly enunciated morality that explains the new principles of each case. The law of fiduciary obligations has been likewise altered by this new morality. This current morality manifests itself in the fiduciary law, as the above quote from the Ontario judge indicates, by utilizing this doctrine to fill areas where it is perceived that a certain result is desirable in the name of justice but no appropriate doctrine exists to generate that desired outcome. The fiduciary obligation is therefore introduced to achieve that result. An example of this tendency, according to Professor Waters39 and Professor Finn,40 was the decision of the Supreme Court of Ontario in Standard Investment Ltd v. CIBC.41 3Seg. Commercial Bank of Australia Ltd v. Amadio (1983) 46 ALR 402, and see generally Cope \"Review of Unconscionable Bargains in Equity\" (1983) 57 ALJ 279. \"eg. Dusik v. Newton (1985) 62 BCLR 1; Doan v. Insurance Corporation of British Columbia 11987) 18 BCLR (2d) 286. 38eg. Baumgartner v. Baumgartner (1989V 164 CLR 251. 38\"LAC Minerals Ltd. v. International-Corona Resources Ltd.\" (1990) 69 Can. Bar Rev. 455 at 469. .40 \"Good Faith, Fair Dealing and Fiduciary Law in Canada\" in Fiduciary Obligations - materials prepared; for the Continuing Legal Education Society of B.C. April 1989 at 2.1.01. 41(1985) 22 DLR (4th) 410. \u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2:\u00E2\u0080\u00A2:\u00E2\u0080\u00A2:\u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2 12 The result of this tendency is that the law of fiduciary obligations is used as an ever-available gateway through which passage means reaching the rich array of remedies available on the breach of a fiduciary duty. This broad and sweeping approach is favoured in some Canadian provinces, particularly Ontario,\" but certainly is not universally approved of. The courts in British Columbia have been particularly reluctant to accept this all-embracing approach to the fiduciary obligation. In Burns v. Kelly Peters & Associates Lambert J.A., in dissent, pointed out that often the motive for adopting this new approach was for the small investor to pass along a loss to a financial consultant, and this being analogous to the \"deep pocket\" notion in tort law.\" Likewise in Litwin Construction 11973) Ltd v. Kiss\" the British Columbia Court of Appeal implicity rejected this broad approach by adopting the graduated scale of standards of extra honesty propounded by Finn. The learned author perceives extra-hortesty obligations as falling into four categories.45 Superior to the basic obligation of due care and simple honesty there is the condemnation of unconscionable: behaviour in contract, \"eg. the decision in LTiC (1987) 44 DLR 592 (Ont C.A.). \"see Friedmann Supra Note 2 Chapter \"Tort and Insurance\". \"(1988) 29 BCLR (2nd) 88. \"Supra Note 23. 13 the next step up is of good faith and fair dealing - whicc Waters suggests is the true step for the enforcement of reasonable expectations in contract and serious negotiations, uberrima fides is the penultimate step, and finally there is the fiduciary duty. By its acceptance of this graduated approach the Court of Appeal in Litwin maintained a restrictive utilization of the fiduciary obligation. Macdonald J. in Revell v. 0'Brian Financial Corporation46 also accepted this narrow approach. In Trimac Ltd v. C.I.L. Inc.47 the Alberta Supreme Court also accepted the graduated steps notion of the fiduciary obligation. \" At this base of Finn's graduated steps thesis is an attempt to prevent the debasement of the fiduciary obligation, which would cause it to become an empty shell which would be available whenever a judge wanted a particular result but could not perceive any legal doctrine to achieve that result. Fundamentally, for Professor ~Finn the fiduciary obligation is \"inappropriate, as a rule, to enforce fair dealing.\"43 Thus, we are confronted by conflicting positions, the expansionist approach best represented by the Ontario Court of Appeal and the restrictive stance to the: nature of the 45(1989) 30 BCLR 330. 47(1990) 99 AR 30 at 55. \"Supra Note 40 at 2.1.05. n n n i_> y n n i ' U U, W I , 0 U 9 b 14 fiduciary obligation, aa represented by the British Columbia Court of Appeal. The Supreme Court of Canada did not definitely decide this matter when it had the opportunity in LAC Minerals Ltd v. International Corona49 and so the choice remains open. On balance the restrictive approach appears preferable. This is for two reasons. First, to employ the term fiduciary merely to obtain a remedy debases those areas that are already covered by that name. By the expansion of the range of the title the substance of the doctrine is diluted. If the expansion continued the various graduations of extra-honesty would disappear. One purpose, to make remedies \"available, is served by the approach, but another purpose, to require oertrin persons to act in an exceptionally selfless way, is defeated. And this introduces the second reason favouring the maintenance of the traditional approach and that is the availability of another doctrine which will permit the purpose of making available a remedy to be attained without the destruction of the traditional notions of fiduciary law and this is the unconscionability principle.50 43( 19 8 9 ) 61 DLR (4th) 14. \"Supra Note 40 at 2.1.01; Black \"Baumgartner v. Baumqartner. The Constructive Trust and the Expanding Scope of Unconscionability\" (1984) 11 UNSWLJ 117; Mason \"Themes and Prospects\" in Essays in Equity Edited by Finn supra:Note 3; Austin \"The Melting Down of the Remedial Trust\" (1988) 11 UNSWLJ 66. 15 Following on from this conclusion that is desirable to maintain the fiduciary obligation as the highest degree of selfless conduct that can be required of a person this thesis will examine how this traditional formulation of the fiduciary relationship impacts upon the commercial world, and where necessary it will make suggestions towards both a more principled and pragmatic approach to this issue. 16 Chapter II The Extension of Fiduciary Obligations Into A Commercial Setting 1. Introduction The applicability of equity to the commercial world has always been controversial. Bramwell L.J. in New Zealand & Australian Land Co v. Watson1 stated \"Now, I do not desire to find, fault with the various intricacies and doctrines connected with trusts, but I should be very sorry to see them introduced into commercial transactions, and an agent in a commercial case turned into a trustee with all the troubles that attend that relation.\" Lindley L.J. held in Manchester Trust v. Furness.2 that \"as regards the extension of the equitable doctrines ... to commercial transactions, the courts -have always set their faces resolutely against it.1,3 Finally, in the seminal decision of Barnes v. Addy4 Lord Selborne L.C. found that \"It is equally important to maintain the doctrine of trusts which is established in this court, and l(1881) 7 QBD 374. 2[1895] 2 QB 539. 3Ibid. at p.545. 4(1874) 9 Ch App 244. \u00E2\u0080\u009Et - ' , n n CK i n n O . . ..' , , U U U I >c LI J J , : i f.y-'s.;. ..T \u00E2\u0080\u00A2' =V..' Zr . J Xa Ivl. a \".L. -- i. - j.\" = j A--' r.'a \u00E2\u0080\u00A2 .. l-iv'.'J \u00E2\u0080\u00A2 ' -vA Ti 17 not to strain it by unreasonable construction beyond its due and proper limits. There would be -no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them.\"5 These judicial pronouncements which clearly indicate a definite reluctance to extent equitable doctrines generally, and in particular the equitable doctrine of the fiduciary relationship, can still be heard. Indeed, it is a central tenet of this thesis that this basic desire to prevent the spread of the fiduciary relationship into the commercial sphere underlies many of the recent judicial decisions dealing with this matter. It is therefore imperative, in determining whether the fiduciary relationship may be found to exist within a commercial environment, to, examine and consider critically the reasons for this judicial reluctance.6 Although the reluctance is often shrouded in rhetoric and the expression of vague fears, the criticism of the expansion of equitable doctrines can be divided into several distinct arguments. The first is identified by Professor 5Ibid at 251. 'This reluctance is not simply limited to the judiciary. Of late academic writers have been critical of this expansion; for example, McCamus \"The; Recent Expansion of Fiduciary Obligation\" (1987) 23 ETR 301; Klinck \"The Rise of the 'Remedial' Fiduciary Relationship: A Comment on International Corona Resources Ltd v. LAC Minerals Ltd\" (1988) 33 McGill \u00E2\u0080\u00A2\u00E2\u0080\u00A2L.J. 600 n 17 n ) ' 7 n L i ri \u00C2\u00AB U U ' 1 1 u a o u 18 Austin.7 The argument is contained in a monograph by Dr. L.S. Sealy called Company Law and Commercial Reality.8 The contention that Dr. Sealy makes against the increased role of equity deals with the legal personal qualities that he perceives in the advocates and judges who are literate in the doctrines of equity. This shall be labelled the personnel argument. The Sealy book lays the responsibility for the present convoluted state of English company law squarely at the feet of Chancery judges. Dr. Sealy states \"Now in the 1880's, when the judges of the chancery courts were not dealing with partnerships and companies, they were handling questions to do with trusts \"and settlements, deceased estates, conveyances of real property, mortgages and leases and deeds. Nobody would claim that the approach of these judges to their cases in those days was brisk; even after the worse excesses immortalized by Dickens in Bleak House had been eliminated by much-needed reforms, chancery matters were dealt with thoroughly, cautiously and elaborately. And our chancery judges today are still very much concerned with trusts and settlements, with deeds and conveyances, with rights and interests in land; all of it a world away from the cut and; thrust of commerce and the risks and rapid' fluctuations of the market place.\"' The fundamental thrust of this is that equity lawyers and judges are inappropriate to deal with commercial matters. \"Commerce and Equity-Fiduciary Duty and Constructive Trust\" (1986) 6 OJLS 444. '(London: Sweet & Maxwell Centre for Commercial Law Studies. 1,984). See review of this book in (1986) 11 Can Bus L.j\". 4f>3. 'Ibid, at p.37. n n i , i n I-I / \u00E2\u0080\u00A2u u u i . o u, 0 I IS This personnel argument, as embodied by Dr. Sealy's statement, i3 flawed on two grounds. First, as Professor Austin implicitly indicates the above quotation from Dr. Sealy is a dangerous oversimplification. The reason for this is that it is difficult, if not impossible, to pinpoint any development in company law that did not involve judges with Common Law backgrounds. There exists no branch of this area of law that is not partly the creature of Common Law judges. The other flaw in the personnel argument is related to a questionable contention made by Dr. Sealy. That contention is that equity lawyers are somehow quarantined from the commercial world and so do not understand its nature nor its necessity for speed. It should be noted that whilst this argument deals with equity practitioners generally it is equally applicable to Chancery or Equity division judges who are drawn from these very ranks. This notion that equity lawyers are not familiar with~~ the business world must, with the greatest respect to the learned author, be considered wrong. As a consequence of the successful intrusion of equity into commerce, by the introduction of such equitable notions as floating charges, trading trusts and equitable mortgages, members of the equity bar have an excellent exposure to the financial world. Indeed, the eguity bar and the commercial bar are 20 often almost co-extensive in jurisdictions where separate bars even exist. As a final note on the personnel argument it is of interest that Dr. Sealy's chief criticism of the intrusion of equity personnel into a commercial sphere, apart from their alleged inexperience, is that the Chancery judges dealt with, and continue to deal with cases \"thoroughly, cautiously and elaborately.\" The learned author, by implication, criticizes these qualities. But does not the legal world, as well as the population at large, expect judges to be thorough, cautious and elaborate? Of course there are situations where the utmost speed is called for. An application for an interlocutory injunction is a clear example of this. It is interesting to note that the injunction is an equitable remedy and must often be sought from judges with an equity background. However, within the fabric of thfe judicial structure the thorough, cautious and elaborate approach is the norm and is applied by judges regardless of their legal background. The expedited matter stands as an exception to this, but the judicial figures who are involved in it attempt, as far as possible, to be thorough, cautious and elaborate. Thus, Dr. Sealy's points pertaining to both approach and experience of the chancery personnel may be seen, with all due respect, to be empty and the personnel argument does not provide substantial support to the proposition that \u00E2\u0080\u00A2..\u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2. 21 equitable doctrines, such as the fiduciary relationship, should not be extended to the commercial sphere. A second argument against the extension of the doctrines designated as equitable in nature is identified by Kennedy J.10 This is the demand by business for certainty. This criticism is premised upon two factors. The first is the inherent flexibility of equity. The second factor is the unstated assumption that common law doctrine is itself certain. Mr. Justice Kennedy indicates11 why this first factor cannot be considered to be completely accurate. Equity has, over the centuries, undergone a process of systematization. From the time of Lord Eldon equity shed its ex tempore characteristics and developed a body of principles, similar to the common law rules.\" Therefore, equity is not as uncertain as it is often depicted. However, it must be admitted that equity is the manifestation of discretion and as such this can produce uncertainty. This is most apparent in the field of fiduciaries operating within the business structure of their beneficiary. The classic example of this- is the company director. For this r e a s o n a highly certain fiduciary 10\"EciV'ity in a Commercial Context\" in Equity' and, Commercial Relationships Edited by Finn (Sydney: The Law Book Company 1987). uIbid Note 10 at pp. 5-8. \"see Meagher Gummow and Lehane Equity: Doctrines and Remedies 2nd Edition (Sydney: Butterworths, 1984) at p.7; 22 obligation is proposed for these commercial fiduciaries. This doctrine, called the Commercial Opportunity Doctriroe, is dealt with in a succeeding chapter. Mr. Justice Kennedy13 next explicitly attacks the notion that the Common Law is the guarantor of certainty. His Honour indicates that it is possible to alleviate or avoid various bargains by resort to common law doctrines. Such actions must be considered to generate uncertainty. The ways that the common law may be utilized to alleviate or avoid commercial expectations include the examination of the reality of the consent, often by application of concept of economic duress, by the implication ; of a term into a contract and by the application of various rules of construction such as contra proferentem. Whilst it is obvious that the intervention of Common Law doctrines is rare in comparison to the numerous appearances of the equitable concepts the Common Law does generate some uncertainty. Indeed, any legal system which does not want to be labelled monolithic and arbitrary must permit some degree of flexibility and hence uncertainty. This uncertainty (which it is contended not to be as great as many persons of the world of commerce portray it) is the price of possessing a legal system which attempts to achieve the goal of justice. The undesirability of complete certainty, with its attendant inflexibility, and the-\"Supra Note 10 at p.5. 23 necessity of discretionary equitable doctrines wa3 shovm by Lord Ellersmere in the Earl of Oxford's Case. His Lordship held \"The Cause of why there is a Chancery is, for that Mens Actions are divers and infinite, That it is impossible to make any general Law which may aptly meet with every particular Act, and not fail in some Circumstances.\"14 A final argument against the introduction of equitable doctrines into the business environment is that such doctrines are necessarily complex and hence interrupt the smooth flow of commerce.15 Unquestionably concepts such as the Romalpa clause16 do introduce difficult and complex notions. However, what must be remembered is that equitable notions have played a fundamental role in the development and operation of commercial life. Everyday business dealings are the products of equity. These include the floating charge17 and the equitable mortgage. Further, it must be remembered that prior to 1844 equity provided a basis for large scale business ventures to be established by the creation of unincorporated companies\u00E2\u0080\u00A2 by deeds of 14(1615) 1 Chan. Rep. 1 at 6-7? 21 ER 485 at 486. 15see Kennedy note 10 at p.8. l6see Aluminium Industrie Vaassen BV v. Romalpa [1976] 1 WLR 676. \"see Gough \"The Floating Charges Traditional Themes and New Directions\" in Equity and Commercial Relationships Edited by Finn (Sydney? Law Book Company, 1987). -24\" settlement made between the various shareholders and a trustee or trustees. Thus, the argument that equitable doctrines should not be permitted into the realm of the commercial world can be turned on its ear to show just how vital the operation of equity has been to the world of commerce. All in all the arguments against extending equitable., doctrines generally, and the fiduciary relationship in particular, are less than convincing.\"The correct approach would appear to be to permit the fiduciary relationship to function within the parameters of the commercial environment but to delineate clearly the remedies available in particular the remedies which are proprietorial in nature. The explanation for this i3 simple, proprietorial remedies have the most severe and extreme consequences, and as such are the most disruptive to business.10 The most obvious remedy of this nature is the constructive trust. This two-pronged approach, of permitting the existence of the fiduciary relationship but specifying and narrowing the remedies available, wa3 that advocated by Mason J. (as he then was) in the Hospital Products case.15 However, as will become obvious the arguments against extending the \"Goodhart and Jones in \"The Infiltration of Equitable Doctrine into English Commercial Law\" (1980) 43 Mod LR 489 criticize strongly remedies which have proprietorial consequences. \"Hospital Products Ltd v. United States Surgical Corporation (1984) 156 CLR 41. I \u00E2\u0080\u00A2 n n n n / y o 0 u K . ( U U U U ' \u00C2\u00A3> n >U 25 fiduciary relationship into the world of business have received a warm reception from some judges both in Canada and in Australia. This will be shown by close examinations of several major recent decisions. In regards to the resistance of the extension of equitable doctrines, including the fiduciary relationship, to commercial matters the words of Sir Frederick Pollock still ring true: \"Reading the majority judgements fin Re Wait [1927] 1 Ch 606], a .'modern equity lawyer cannot but feel that he is walking in a shadow of archaic superstition. Old-fashioned common law pleaders, on the principle of omne ignatum pro nigromatico, deemed all equitable notions a kind of unholy juggling, to be tolerated at need, but if possible discouraged. Their Chancery rivals rather liked a screen of mystery and were at no pains to undeceive them. Selden, indeed, might plausibly call equity a roguish thing when the Chancellor's court had no settled rules and the Chancellor or Lord Keeper was not sure to be impartial or even learned. It was left for Blackstone to explain at some length that such terms were not applicable A -J , A l\"-'.' M.\" T r, \u00E2\u0080\u00A2\u00E2\u0080\u00A2: 34 reality there may be little difference between the Gibbs formulation and that of Mason J. However, the Gibbs' test is to be preferred as it is more precise in that often a person will not make an express undertaking to act in a fiduciary way but is obliged to because of the vulnerability that the beneficiary has been exposed to. The dominant flavour of the High Court's decision is the central importance of vulnerability, which was a critical shift of emphasis from that taken by the Court, of Appeal. This focus upon vulr.erability reappears in the LAC Minerals case. Gibbs C.J. in his judgment also rejected another, proposed approach to determining the existence of a fiduciary relationship. His Honour discussed whether it was a necessary element of the relationship that there exist subjective confidence. The Chief Justice dismissed this as an essential requirement by stating that \"... a trustee will stand in a fiduciary relationship to a beneficiary notwithstanding that the latter at no time reposed confidence in him, and on other hand an ordinary transaction for sale\" and purchase does not give rise to a fiduciary relationship simply because the purchaser trusted the vendor and the latter defrauded him.\"\" One possible difficulty with the above two step \"test\"38 is that the existence of a fiduciary relationship \u00E2\u0080\u00A2 \"Supra Note 30 at 433. 3eif the language of the Chief Justice, who refers to it as \"not inappropriate in the circumstances\", permits it to assume that title. \u00E2\u0080\u00A2 a n n n t i n n u I III .11,(11,,, if..,..-i, ./.I \u00E2\u0080\u009EV 35 must depend on the breach alleged. This is the logical conclusion of the High Court declining the search for a universal all-purpose definition of what constitutes a fiduciary relationship. The test suggested here relates only to the conflict and profit rules. Thus, it would appear that the cause of the action must be framed prior to any determination of whether a fiduciary relationship existed. The approach would seem to portray the fiduciary relationship as remedial in nature. It is possible that the High Court has, largely unwittingly, established the ground for the argument that a fiduciary relationship must be found to exist only in relation to the breach alleged. The above is one possible interpretation of the High Court's decision, another view is that all the High Court of Australia was attempting to do was to indicate that the fiduciary obligation is dependent upon the context in which it arises. On this view the judgement may be perceived as merely highlighting the fact that close attention must always be paid to the scope of the obligation. Thus, the \" fiduciary relationship is not \"all or nothing\", and this introduces the third point of general agreement.\" This point is that a person may be in only a limited fiduciary relationship. The Chief Justice and Mason J.40 \"Supra Note 28 at 446. \"Supra Note 30 at 435, per Gibbs C.J.; and at 455 and 458, per Mason J. \u00E2\u0080\u00A2 36 both quoted the Privy Council decision in New Zealand Netherlands Society \"Oranie\" Incorporated v. Kuys41 where the Privy Council held that a person \"may be in a fiduciary position quoad a part of his activities and not quoad other parts.\"42 Deane and Dawson J.J.43 did not explicitly deal with whether a person may be a limited fiduciary but implicitly accepted the proposition by addressing an argument founded upon it. The fourth of Professor Austin's generalizations44 is premised upon a point dealt with only by Mason J. The learned author extrapolates the silences of the other members of the court to signify their agreement with the; proposition. According to Mason J.45 a relationship may be fiduciary in nature even though the fiduciary's duty is neither to exclude his personal interest entirely nor even to put the beneficiary's interest above his or her own. The duty may be to act in the fiduciary and beneficiary's-joint interest. The example supporting this contention is that of a partnership. \"[1973] 1 WLR 1126. \"Ibid, at 1130. 43Supra Note 30 at 474, per Deane J.; and at 490, per Dawson J. \"Supra Note 28 at 446-447. \"Supra Note 30 at 456. 37 The High Court of Australia's decision in Hospital Products turned on the application of the first three generalisations of law to the specific facts of the case. The majority judges, Gibbs C.J., Wilson and Dawson J.J., perceived the facts as being that the only restriction on B's giving preference to his own interests was the contractual term of reasonableness, which was implied by the \"best efforts\" clause. Their Honours held there was no fiduciary obligation. Mason J. disagreed. His Honour found that the distributorship agreement gave B a substantial area of discretion in promoting USSC's Australian market. This discretion gave B a special opportunity to act to the detriment of that market. Mason J. held that the respondent, USSC, relied on B to protect and promote its Australian product good will. The above findings of fact and their applicability to the law of fiduciaries were initially filtered through each judge's perception of the desirability of utilizing equitable doctrine within the commercial field. WilsoITJ. stated: \"In a commercial transaction of the kind under consideration, where the parties are dealing at arm's length and there is no credible suggestion of undue influence, I am reluctant to import a fiduciary obligation. The Courts have often expressed a cautionary note against the extension of equitable principles into the domain of 38 B fi commercial relationships, so as not to strain [them] beyond [their] due and proper limits.\"46 Dawson J. observed that \"To invoke the equitable remedies sought in this case would, in my view, be to distort the doctrine and weaken the principle upon which those realities are based. It would be to introduce confusion and uncertainty into the commercial dealings of those who occupy an equal bargaining position in place of the clear obligations which the law now improves upon them.\"47 The judgments of Wilson and Dawson J.J. were manifestations of the traditional reluctance to extend equitable doctrines, in this case the doctrine of fiduciaries, to a commercial environment. Both judges explicitly acknowledged this reluctance. It is this declared aversion that coloured their Honours' approaches to the case before them. The judgment of Deane J. gave no support to any general proposition that fiduciary relationships, cannot arise in commercial dealings, according to Lehane.48 Mason J. takes an approach directly at odds what that assumed by Wilson and Dawson J.J. His Honour noted that \"... it is altogether too simplistic, if not superficial, to suggest that commercial transactions stand outside the fiduciary regime as though in some way commercial transactions do not lend themselves to the creation of a relationship \"Supra Hote 30 at 470. \"Supra Note 30 at 494. \"Supra Note 22 at 103. nnnn < D-D'n o u u u u v( Q 3 u a 39 in which one person comes under an obligation to act in the interests of another. The fact that in the great majority of commercial transactions the parties stand at arm's length does not enable us to make a generalization that is universally true in relation to every commercial transaction. In truth, every such transaction must be examined on its merits with a view to ascertaining whether it manifests the characteristics of a fiduciary relationship.1,49 Mason J. went on to say \"The disadvantages of introducing equitable doctrine into the field of commerce, which may be less formidable than they were, now that the techniques of commerce are far more sophisticated, must be balanced against the need in appropriate cases to do justice by making available relief in specie through the constructive trust, the fiduciary relationship being a means to an end. If, in order to make relief in specie available in appropriate cases it is necessary to allow equitable doctrine to penetrate commercial transactions, then so be its see for example, Barclays Bank ltd v. Ouistclose Investments Ltd [1970] AC 567 and Swiss Bank Corporation v. Llovd3 Bank Ltd [1982] AC 584. A preferable approach to an artificial narrowing of the fiduciary relationship - the gateway to relief in specie -is to define and delimit more precisely the circumstances in which the remedy by way of constructive trust will be granted.\"50 Mason J. adopted a tolerant stance towards the intrusion of equitable principles into a commercial environment. This position is endorsed as being; both in accord with reality51 and doctrine, as the special \"Supra Note 30. at 456. 50Supra Note 30 at 457. \"Supra Note 31 at 671. 40 hallmarks of a fiduciary relationship may be present in a commercial relationship. Mason J. advocated taking a case involving an allegation of a fiduciary relationship in two stages; first, determine whether a fiduciary relationship does exist, and second, look to the appropriate remedy. Hodgekiss' statement\" commending the Mason approach is endorsed. The existence of a commercial transaction leading to a prohibition on the finding of a fiduciary relationship is a simplistic approach to a complex problem. The next recent decision of the High Court of Australia relevant to the determination of whether a fiduciary relationship exists within a commercial context is United Dominions Corporation Ltd v. Brian Ptv Ltd.\" This case involved a joint venture, a commercial vehicle that reappeared in the LAC Minerals case.34 In United Dominions three parties executed a \"joint venture\" agreement towards the end of July, 1974. The parties to this agreement were U.D.C., S.P.L. and Brian Pty Ltd. The joint venture related to the development of land. In October of 1973, after negotiations for the agreement had been completed but prior to the execution of any formal document, UDC took from SPL a \"Supra Note 31 at 671. \"(1985) 50 ALJR 676. S4for a detailed analysis of the history of the law relating to joint ventures see the essay \"Joint Ventures\" by McPherson J. in Equity and Commercial Relationships Ed. by Finn ((Sydney: Law Book Co., 1987). 41 mortgage over land that the joint venture was to develop. The money borrowed on this mortgage was to finance the venture. However, Brian was not aware of this mortgage and the joint venture agreement had required all borrowings be authorised only by the unanimous assent of the co-venturers. The mortgage also contained a \"collateralization clause\" which provided that the joint venture land was security for the repayment of any amounts advanced by UDC to SPL at any time and for any purpose. SPL was indebted to UDC in respect to other projects in which Brian had no interest at all. The land was developed and sold at a substantial profit. However, Brian received no money as UDC relied upon the \"collateralization clause.\" Brian alleged that to the extent that the mortgage authorized UDC to retain the total joint venture profit, which would include Brian's share, the mortgage given by SPL and taken by UDC were in breach of a fiduciary duty owed by each of them to Brian. The New South Wales Court of Appeal\" upheld the appeal from Waddell J.'s judgment. The Court of Appeal56 found that the mortgage, to the extent that it authorized UDC to retain Brian's share of the profit, was given by SPL and taken by UDC in breach of the fiduciary duty which each owned to Brian. 55[1983] 1 NSWLR 490. \"whose judgment preceded its own decision in the. Hospital Products care. 42 Two members of the court held that participants in a joint venture have fiduciary obligations inter se.\" Mahoney J.A. did not detail how such obligations arose, his Honour simply indicated that co-venturers did own such duties to each other and then proceeded to state that \"The question of difficulty in this case is not whether such obligations existed but the content of them and, in particular, the extent of the obligation upon UDC in its lending of money for the purposes of the joint venture.\"58 With respect, this approach ignores the difficult question of how to determine the existence of a fiduciary relationship when it is not apparently one that is traditionally recognized as being fiduciary, and a joint venture has never been so recognized. Mr. Justice Hutley59 found that the joint venture produced fiduciary obligations analogous to those that partners at will have imposed upon them. His Honour seemed to support this conclusion by relying on the High Court of Australia's decision in Canny Gabriel Castle Jackson Advertising Ptv Ltd v. Volume Sales (Finance) Pty Ltd.60 \"Hutley, J.A. at 493 and Mahoney J.A. at 510. 58Supra Note 53 at 510. \"Supra Note 55 at 493. so( 1974 ) 131 CLR 321. \u00E2\u0080\u00A2 \u00E2\u0080\u00A2 43 Mr. Justice Samuels found also that a fiduciary relationship existed. His Honour did this by holding61 that joint venturers, whether or not they become partners at law, are in a fiduciary relationship. Samuels J.A. reached this conclusion by scrutinizing the historical development of the joint venture in the United States62 where some jurisdictions forbade corporations from becoming partners. This historical examination seemed to indicate that the American development of the joint venture, which then migrated overseas, was a de facto partnership.63 At this point, Mr. Justice Samuels quoted64 various cases and academic writers who contend that joint venturers owe a duty of good faith and loyalty. His Honour's conclusion was that: \"I am therefore of the opinion that joint venturers ow to one another the duty of utmost good faith due from every member of a partnership towards each other member.\"\" \"Supra Note 55 at 504 and 506-7. \"Supra Note 55 at 505-506. \"Ladbury in \"Commentary\" at p.37 in Equity and Commercial Relationships Edited by Finn Supra Note 4 argues that the typical joint venture is not fiduciary as the co-venturers carry on business severally and in common and they are hot agents for each other. \"Supra Note 55 at 506. \"Supra Note 55 at 506. <, , > , ' n ri n n > in i wmwa , .. ... ..1 \u00E2\u0080\u00A2 u u u j j *-> c 3yi 44 It would appear that Samuels J.A. did not find that joint venturers were analogous to partners and therefore fiduciaries, but rather that they were in reality partners and hence fell under that traditionally category of fiduciary relationship. The results that Hutley J.A. and Samuels J.A. reach are identical but the analyses which got them to that result differ. Hutley J.A. utilized analogy to create a new category of fiduciary relationship, whereas Samuels J.A. found that the joint venture was merely a de facto partnership.\" The fact that the time the breaches of the fiduciary obligations took place was prior to the execution of the joint venture agreement posed no difficulty to the Court of Appeal. xhe court held that as the venture was well under way and the terms of the agreement reached when the mortgage was signed, the intending co-venturers owed each other fiduciary duties. Professor Austin contends\" that the approach of the New South Wales Court of Appeal was that the fiduciary relationship is a creature of set categories. If what is implied by this .is that the court will not find a fiduciary .\"it should be noted that other reasons apart from various U.S. states prohibiting corporate partnerships assisted in the development of the joint venture. These other reasons include taxation and financing arrangements. \"Supra Note 28 at 449. \u00E2\u0080\u00A2\u00E2\u0080\u00A2:\u00E2\u0080\u00A2.\u00E2\u0080\u00A2':\u00E2\u0080\u00A2 45 relationship outside of the traditional categories, then the statement is obviously too wide. Certainly Samuels J.A. held that the relationship fell into a traditional category and did not need to consider whether it was fiduciary although not previously recognised as such. Hutley J.A. expressly created a new category of fiduciary relationship, that of the joint venture. His Honour achieved this by the use of analogy. Thus, of the two judges in the Court of Appeal who dealt with this question> one found the joint venture to be covered by the traditional category of partnership, whilst the other judge held that, by the use of analogy, a new category of fiduciary relations was created. Thus, a clear division in the characterisation of the joint venture was obvious in the New South Wales decision. The importance of this split is also obvious, as the Supreme Court of Canada had to address this issue in the LAC Minerals case. This highlights the importance of the High Court's decision in this case. The High Court of Australia dismissed UDC's appeal. Gibbs C.J. held that the July 1974 agreement constituted a partnership between the parties; The Chief Justice found the joint venture involved here was used in \"the not uncommon sense of a partnership for one particular transaction.1168 60{1985) 59 AIJJR 676. '\u00E2\u0080\u00A2\u00E2\u0080\u00A2.\u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2 46 Gibbs C.J. alluded to the difficulties in defining the circumstances in which a fiduciary relationship will be held to exist and mentioned his judgment in the Hospital Products case.6\u00C2\u00AE The Chief Justice held that the in the circumstances before him \"a relationship between UDC and Brian based on mutual trust and confidence\"70 existed. Interestingly, these factors were held by Gibbs C.J. in Hospital Products not to be decisive of the question whether a fiduciary relationship existed or not. In United Dominions the Chief Justice held that an intending partner in the position of SPL in 1973 is subject to a duty of the utmost good faith. By this time the venture had already been embarked upon, and the execution of the agreement was a mere formality. Thus, the impact of the Gibbs approach in United Dominations upon the judgement he gave earlier in Hospital Products i3 unclear. A joint majority judgment was given by Mason, Brennan and Deane J.J.71 McPherson J.72 correctly interprets the joint judgment as finding this relationship to be, in fact, \"Supra Note 68 at 677. 70Supra Note 68 at 678. 71the Chief Justice at 677 and Dawson J. at 681 agreed with the reasoning of the majority. 72in \"Joint Ventures\" in Eauitv and Commercial Relationships Edited by Finn (Sydney: 1987- The Law Book Company, 1987). 47 a partnership and that Professor Austin's implication that the court applied some unspecified test to determine whether a fiduciary relationship outside of the traditional categories existed is inaccurate.\" The joint judgement considered that \"joint venture\" was not a technical expression with a common law meaning. Their Honours held it was, rather, in everyday language used to connote a commercial undertaking aimed at the generation of profits for all the parties, which Mason, Brennan and Deane J.T. held \"will often be a partnership\"74 Their Honours then stated that \"If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers being a fiduciary one. In; such a case, the joint ventures will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are th\u00C2\u00A7_ ordinary incidents of the partnership relationship, though these fiduciary duties will be moulded to the character of the. particular relationship (see, generally, Birtchnell v. Equity Trustees, Executor's And Agency Co. Ltd. (1929V 42 CLR 384 at 407-91.\"75 \"Supra Note 28 at 74Supra Note 68 at \"Supra Note 68 at 450. 679. 679. \u00E2\u0080\u00A2 48 Their Honours did not apply any general test to determine whether fiduciary obligations did exist; what the joint judgment did was to say that a joint venture is frequently a partnership, a partnership is fiduciary in nature, therefore to determine whether fiduciary obligations do exist, determine if a partnership exists. Mason, Brennan and Deane J.J. held that \"The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content or the obligations which the parties to it have undertaken.\"76 In this way the majority avoided providing any guidance on how to determine the existence of a fiduciary relationship. Their Honours rejected any general prohibition on prospective partners being fiduciaries. \"Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where, mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.\"77 \"Supra Note 68 at 679. \"Supra Note 68 at 680. 49 Their Honours indicated that \"mutual confidence and trust\" exists in most consensual fiduciary relationship, but they failed to indicate whether this was a requirement for the generation of the relationship or merely a feature of the fiduciary relationship. Further, the heavy qualification of \"most consensual\" denies the statement any real import as providing adequate guidance to . the determination of the que3-ion of the existence of such a relationship. Dawson J., li e Samuels J.A. in the New South Wales Court of Appeal, found that the \"joint venture\" business entity had arisen as a response to the prohibition on corporate partners.70 His Honour held: \"Although the relationship between participants in a joint venture which is not a partnership will be governed by the particular contract rather than extrinsic principles of law, the relationship may nevertheless be a fiduciary one if the necessary confidence is reposed by the participants in one another. Of course, in a partnership, the parties are agents for each other and this may constitute a separate reason for the fiduciary character of a partnership. There may be no such agency between participants in a joint venture but, as Dixon Jr-pointed out in Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd (1929) 42 CLR 384 at 407-8, even in a partnership it is\u00E2\u0080\u00A2\u00E2\u0080\u00A2 really the mutual confidence between partners which imposes fiduciary duties upon them and the same confidence may, in appropriate circumstances, be found to exist between participants in a joint venture.\"75 78Supra Note 68 at \"Supra Note 68 at 6 8 1 . 681. ' 50 The fundamental requirement that Dawson J. proposed for the fiduciary relationship was that of \"mutual confidence\". However, as Gibbs C.J. correctly pointed out in his learned judgment in Hospital Products not all fiduciary relationships possess such a subjective element, and what is required is vulnerability, which may or may not be related to the reposing of confidence. The immediate result of the High Court's decision was that UDC was precluded from relying upon the benefit of the mortgage as it was obtained and retained in breach of the fiduciary obligation it owed to Brian. The larger jurisprudential impact of the UDC case is not the exposition of a test for a fiduciary relationship. This issue, unfortunately, was not addressed in any detailed way. The true importance of the High Court decision is that the majority held that a joint venture is often a partnership and a partnership is fiduciary in nature. Professor Austin's conclusion pertaining to the UDC case, that the approach enunciated by Mason J. in Hospital Products has gained the ascendancy in\" Australia, is .incorrect80 if the learned author is taken to mean that UDC represented a shift in legal principle. The decision by the High Court of Australia was premised upon the finding that the . joint venture was a partnership and thus fiduciary in nature. This wa3 the application of a traditional approach 80Supra Note 28 at 448. \u00E2\u0080\u00A2\u00E2\u0080\u00A2 51 to determining fiduciary obligations. The only judgment that dealt with non-partnership joint ventures possibly being fiduciaries is not addressed by Austin. The test in this situation to determine whether a fiduciary relationship exists, according to Dawson J., is that \"... the necessary confidence .is reposed by participants in one another.\"81 This cannot be construed to be an adoption of the Mason approach. However, what the UPC case does indicate is that possibly the High Court of Australia has moved towards a greater willingness to permit the existence of equitable doctrines in a commercial sphere. It is at this junction that the most recent Canadian decisions upon the importation of fiduciary obligations into a commercial context begin. The first is the Ontario Court of Appeal decision in Standard Investments Ltd v. Canadian Imperial Bank of Commerce.92 The plaintiffs transferred their accounts to the Bank and sought, from the Bank's president, both advice and finance in regard to a possible take-over of Crown Trust. whilst this was occurring the chairman of the Bank with one of its directors directed the Bank to buy shares in Crown Trust. The Bank acquired \"Supra Note 68 at 681. 02(1985) 22 DLR (4th) 410, leave to appeal to S.C.C. refused 53 DR (2d) 663n. 52 approximately 10% of the shares in Crown Trust for $18 per share. During this period the actions of the Bank's president and chairman were not known to each other. Later, when the president did discover what the chairman had directed the Bank to do, he only informed tha plaintiffs that their proposed take-over would fail. During a 5 year period Standard Investments Ltd had continued to purchase Crown Trust shares. They accumulated about 32% of Crown Trust's shares. A director of the Bank acquired a 44% interest in Crown Trust, and this was achieved with the Bank's financial assistance. The director sold his shareholding, and the Bank sold off its 10% holding, to a third party. The consequence of this sale was that the market value of the plaintiffs shares fell by over 50%. At first instance Griffiths J. held that the Bank owed a fiduciary duty to the plaintiff. His Honour held: \"I have no hesitation in holding that in 1972 a fiduciary relationship between the plaintiff and the Bank was created. All of the essentiat\u00E2\u0080\u0094 elements were present. Messrs. Cohen and Ellen reposed a trust and confidence in the Bank. On April 6, 1972, they came to the Bank. On April 6, 1.972, they came to the Bank and confidentially outlined their plan for acquisition and control of Crown Trust to Mr. Wadsworth, the president of the Bank. The Bank undertook to advise them generally on the soundness of their plan and more importantly for their purposes, to effect an introduction to Mr. McDougald. The Bank then had not only a confidence reposed in it but it undertook to act on behalf of the plaintiffs in this limited way.\"\" \"5 DLR (4th) 452 at 484. 53 The criteria that Griffiths J. applied to determine whether a fiduciary relationship existed was whether one party had confidence reposed in it and that party undertook to act on behalf of the other. This diverges from the approach of Gibbs C.J. in Hospital Products as here confidence must be reposed whereas the Chief Justice expressly rejected this as a necessary element.84 Professor Austin85 contends that these two judicial approaches are similar. The formulations are, however, only similar in that both are analyses premised upon two questions; and one of these questions is similar in wording, however, as Professor Austin points out this common question is actually addressed to different matters.86 The High Court of Australia looks for an undertaking to act in the interests of another, whilst the trial judge in Standard Investment's looked to an undertaking to advise. It would be difficult to imagine that the Bank when first approached by the plaintiffs, had undertaken to act in the plaintiff's interests during the j^ ---whole of the takeover struggle. Thus, on the High Court'3 criteria advocated in Hospital Products it would have been 84Supra Note 30 at 433-4. 05 \"Commentary: The Corporate Fiduciary: Standard Investments Ltd v. Canadian Imperial Bank of Commerce.\" (1986) 12 Can Bus L.J. 96 at 103. 8SIbid at 103. \u00E2\u0080\u00A2> J ' o t ' \" n n n n n o minn >.' \u00C2\u00AB , > * 54 unlikely that the Bank would have been held to have owed the extensive fiduciary duties found at first instance. Following his conclusion that the Bank did owe a fiduciary duty to the plaintiff Griffith J. held that no breach of that duty had taken place.87 His Lordship's reasoning leading to this finding can be summarized thus: the ;3ank acted lawfully in buying its shareholding; that it could not make disclosure to Standard Investments without breaching a duty of confidentiality to Crown Trust; the confidential information that the Bank had received from the plaintiff at the initial meetings had ceased to be confidential and no further confidential information was given to the Bank at later dates; and finally, had Standard Investments known the Bank was buying 10% of the shares in Crown Trust it would have made no difference to it. Standard Investments appealed this decision. > The Ontario Court of Appeal upheld the trial judge's finding that there existed a fiduciary relationship.88 ; The Court of Appeal attempted to buttress its findings of a fiduciary relationship by reference to Lloyd's Bank Ltd v. Bundv.89 This is an unfortunate case to rely so heavily upon in the determination of the existence of a fiduciary \"Supra Note 83 at 484. \"\"Supra Note 82 at 426 & 434. \"[1975] QB 326. 55 relationship. As Sir Eric Sachs states, his use of the phrase \"fiduciary care\" was \"to avoid confusion with the common law duty.\"50 The explanation why his Lordship did not employ the term \"fiduciary relationship\" was that his lordship was not dealing with such an issue. The care involved an allegation of undue influence. Although undue influence involves persons who are in a fiduciary relationship it is not a necessary element in proving a case of undue influence.\" This explains why Lord Scarman in the House of Lords in the later case of National Westminster Bank v. Morgan92 clearly indicated that he would have preferred Sachs L.J. not to have used the language of confidentiality. The allegation in Standard Investments did not relate to undue influence, but to the conflict rule. The reliance upon Lloyd's Bank by the Court of Appeal was incorrect, as indicated above, but also unnecessary as there existed Canadian authority dealing with the fiduciary nature of a banker/client relationship.\" However, the Ontario Court of Appeal s0Ibid at 340. \"see, for example, Meagher Gnmmow and Lehane Equity: Doctrines and Remedies (Supra Note 31 of para 1519); Anson's Law of Contract Edited by Guest 26th Edition (London: Butterworths, 1987) at p.245. \"[1985] AC 686. \"for example Guertin v. Roval Bank of Canada (1983) 1 DLR (4th) 68, affirmed 12 DLR \"(4th) 640n. . \u00E2\u0080\u00A2:. 56 appears to be moving towards a unified approach to cases involving conflict of interests rule and undue influence.'4 Unfortunately, the Court did not articulate this purpose. It was when deciding the question of whether there had been a breach of fiduciary duty that the Court of Appeal differed with Griffiths J. The Court of Appeal's judgment on the question of breach was an effective demolition of the trial judge's reasoning. The Court of Appeal found\u00C2\u00AE- that the lawful nature of the Bank's actions was not material, the question to be asked was whether the Bank was entitled to put. itself in a position of conflict.'6 The Bank could have avoided its position of conflict by refusing to advise or assist. If it had refused no problem of confidentiality would have been involved.\u00C2\u00AE7 The fact that there was no longer any confidential information did;not necessarily mean that there was no longer any fiduciary duty.\u00C2\u00AE8 Finally, the Court of Appeal held that whilst it may have made a great difference to the plaintiffs had the known that the \u00C2\u00AE4see Havward v. Bank of Nova Scotia (1985 V 19 DLR (4th) 758. . . \u00C2\u00AE5Supra Note 82 at 405. \u00C2\u00AEsSupra Note 82 at 437. \u00C2\u00AE7Supra Note 82 at 436-8. \"Supra Note 82 at 437. 57 Bank was purchasing a 10% shareholding, it was not significant to the question of conflict of interest.\" At this point, the Court of Appeal had found a fiduciary duty did exist and had neutralized the trial judge's reasoning as to why this duty was not breached. Unfortunately, Professor Austin' s comment100 that the Court then failed to justify its conclusion that a breach had occurred must be agreed with. The Court held that \"The breach of duty on the part of the defendant's consisted in its failure to declare its conflict of interest at any time, its subsequent giving of assistance and advice, and its later sale of its shares (the acquisition of which and the purpose of such acquisition it had never revealed to the plaintiffs) for its own benefit and to the detriment of the plaintiffs.\"101 The scope of the duty, never addressed by the Court of Appeal, must have been extraordinary for a banker/client relationship and deserved great attention. Unfortunately, this attention was not paid. With respect, the Court of Appeal appears to\u00E2\u0080\u0094have adopted the wrong approach to the question of remedies. The court was correct in its finding that a breach of a fiduciary relationship does not necessarily give rise to a \"Supra Note 82 at 440. 100Supra Note 85 at 106. 101Supra Note 82 at 440. trust.102 The Court awarded Standard Investments damages calculated as the cost of the shares which it had purchased, plus borrowing costs, and interests which would have been earned had the plaintiff's funds been invested, .less dividends received and also less the proceeds of sale of the shares. As is obvious the court awarded damages assessed on the loss sustained by the beneficiary.103 However, in the law of fiduciaries liability is not based upon the plaintiff's loss,104 but rather the gain of the defaiulting fiduciary. One other aspect of the Court of Appeal decision needs to be addressed.105 This is, when dealing with a non-natural entity, such as a corporation, who may enter into a fiduciary relationship which binds the corporate being? On the facts of this case the Court of Appeal helci that bath the Bank's chairman and president could, and cJid, bind the bank. The Court of Appeal determined this by finding the criminal law doctrine of \"identification\" w'birjb provides that the actions and thoughts of various officers and 102Supra Note 82 at 443. 103similar to the approach used to quantify damagss xn. tort actions. 104for example, Phipps v. Boardman f 18 671 2. AC; 46; Canadian Aero Services Ltd v. O'Mallev [1974] SCft SB2 per Laskin J. at 621-622; Keech v. Sandford [1726], Sal Cos t King 61; 25 ER223. 105this has been the central fccus of the rsus/wroue business articles concerning this case. 59 directors of the company are to be treated as the actions and thoughts of the company, was applicable to actions for breach of fiduciary duty.105 The Court held that the\" task was to identify the \"directing mind and will\" of the company. After that, their actions had to be examined to gauge whether acts sufficient to constitute the creation of a fiduciary relationship had occurred. These actions would then be imputed to the company. The Court of Appeal then held \"... as a matter of law a corporation may have more than one directing mind operating within the same field of operations but I am of the further view that where such a state of affairs exists, a corporation cannot be found in law to have a split ' personality so that it can rely on the lack of knowledge on the part of one of its directing minds of the acts, intentions and knowledge on the part of one of its directing minds of the acts, intensions and knowledge of the other directing mind operating in the same sphere to protect it from liability for the actions of the first, directing mind or the combined activities of both directing minds. At least, in civil cases, where the elements of mens rea is not applicable, where \u00E2\u0080\u00A2;\u00E2\u0080\u00A2 there are two or more directing minds operating within the same field assigned to both of them,-\u00E2\u0080\u0094 the knowledge, intention and acts of each become together the total knowledge, intention and acts of each become together the total knowledge, intention and acts of the corporation which they represent.\"107 106Supra Note 82 at 429. 107Supra Note 82 at 430-1. 60 As Professor Waters points out108 this holding must cause great concern in large ornanizations which possess many persons sufficiently senior to be designated as the directing mind and will of it. Professor Waters notes that \"Chinese Walls\" may not be adequate to such organizations protection.109 However, as Professor Austin indicates'\" even if \"Chinese Walls\" continue to operate they may be largely irrelevant to a claim against a large corporation \u00E2\u0082\u00ACor breach of fiduciary duty where the breach is not caused by the Plow of information, The penultimate decision to be examined is that of the Ontario's Court of Appeal decision in International Corona Resources v. LAC Minerals Ltd,m The relevant facts of the case were the Corona owned mining leases on a parcel of land. After various tests and exploration Corona believed that there were valuable metal deposits on an adjacent parcel of land (known as the Williams property) . A limited amount of this information had become public. LAC expressed an interest to Corona about joint development of the Williams property. Corona and LAC began negotiating towards a possible joint venture. In the course of the negotiations 108\"Banks, Fiduciary Obligations and . Unconscionable Transactions\" (1986) 65 Can. Bar Rev. 37. \"'Ibid at 56 \u00C2\u00A3f, 110Supra Note 85 at 108. 111 (1988) 44 DLR ,(4th) 592. 61 Corona gave LAC information acquired by its exploration. Corona attempted to gain the Williams property's mining right however LAC submitted a competing offer to the owner, and it was successful. LAC then developed, by itself, a successful gold mine on the land. It should be noted that this case had a superficial similarity to United Dominions Corporation v. Brian Pty Ltd,U! as both cases involved situations moving towards a joint venture, and that that commercial vehicle had not been formalized when the alleged breach occurred. The important difference, however, was that in UDC the parties had reached verbal agreement and were acting upon that basis. That had not occurred here. At first instance Holland J. held that LAC had committed a breach of confidence by misappropriating the information that Corona had given to it. Additionally, his Lordship held that there was a fiduciary relationship subsisting between Corona and LAC, and LAC also breached this. Be ordered that upon Corona paying LAC $153,978,000 LAC had to transfer its interest in the mining rights to Corona. The $153,978,000 order in LAC's favour was made upon s.37 (1) of the Conveyancing and Law of Property Act113 which permits such an order to be made when a person \"makes lasting improvements on land under the belief that it is his 112Supra Note 68. U3R.S.O. 1980, c.90. 62 own.\" The award is \"a lien upon it to the extent of the amount by which its value is enhanced by the improvements,\" The Court of Appeal, in analysing this problem, divided it into four parts: 1. was there a fiduciary relationship? 2. what is the appropriate remedy? 3. was there a breach of confidence by LAC? 4. was LAC to be compensated for the improvements it had made to the property? By examining the Court's decision by utilizing its own schema it will be relatively straightforward to highlight any difficulties that emerge from the judgements, a . F i d u c i a r y R e l a t i o n s h i p The initial problem that the Court of Appeal had to address was whether there was, or should be, a Prohibition on extending the fiduciary doctrine into a situation where the parties involved are commercial entities of similar strength. The Court held \"We agree that the law of fiduciary relations doee-not ordinarily apply to parties who are involved in arm's length commercial transactions. Nevertheless, it appears to be clear that the law of fiduciary relations does apply in certain 6i\u00C2\u00A3>rmation c a u s e d t h e b r e a c h o f t h e f i d u c i a r y relationship. U n f o r t u n a t e l y , t h e C o u r t d i d n o t d o t h i s . Their Lordships, i n \" d e a l i n g \" w i t h t h e c o m p l i c a t e d m a t t e r o f tte connection b e t w e e n t h e b r e a c h o f c o n f i d e n c e a c t i o n and the allegation o f b r e a c h o f a f i d u c i a r y r e l a t i o n s h i p inadequately h e l d \"In t h e c a s e a t b a r , t h e t r i a l judgs* concluded t h a t t h e l e g a l p r i n c i p l e s regarding the o b l i g a t i o n s i m p o s e d by t h e d e l i v e r y o f c o n f i d e n t i a l i n f o r m a t i o n and t h e o b l i g a t i o n s i m p o s e d a s a r e s u l t o f t h e e x i s t e n c e o f a f i d u c i a r y r e l a t i o n s h i p a r e i n t e r t w i n e d . W a r e o f t h e o p i n i o n t h a t h e was c o r r e c t i n t h i s c o n c l u s i o n . _ a n d t h e l a w o f f i d u c i a r y r e l a t i o n s h i p s c a n a p p l y t o p a r t i e s i n v o l v e d , a t l e a s t i n i t i a l l y , i n a r m ' s l e n g t h c o m m e r c i a l d i s c u s s i o n . 1,137 137Supra Note 111 at 639. 71 The h i g h e s t c o u r t i n O n t a r i o a g r e e d w i t h t h e t r i a l j u d g e t h a t t h e i n t e r t w i n e d n a t u r e o f c o n f i d e n c e i n f o r m a t i o n and f i d u c i a r y o b l i g a t i o n s c a u s e d a j u r i s p r u d e n t i a l p r o b l e m . U n f o r t u n a t e l y , t h a t i s a l l t h e C o u r t o f A p p e a l d i d ; t h e i r L o r d s h i p s d i d n o t p r o f f e r any s o l u t i o n t o t h e p r o b l e m . The c o u r t d e a l t o n l y w i t h o n e b r e a c h , t h a t o f t h e f i d u c i a r y r e l a t i o n s h i p , b u t l a t e r it d e a l t w i t h t h e r e m e d i e s f o r b r e a c h o f t h e f i d u c i a r y r e l a t i o n s h i p and f o r b r e a c h o f c o n f i d e n c e . T h i s a p p r o a c h w o u l d b e d e f e n s i b l e i f t h e C o u r t o f A p p e a l h a d h e l d t h a t t h e b r e a c h o f t h e f i d u c i a r y r e l a t i o n s h i p was c a u s e d by t h e b r e a c h o f c o n f i d e n c e . Then t h e q u e s t i o n o f d i f f e r i n g r e m e d i e s w o u l d h a v e m e a n t t h a t t h e C o u r t h a d t o i n d i c a t e w h i c h d o c t r i n e w a s s u p e r i o r . N e e d l e s s t o s a y t h e C o u r t o f A p p e a l i n LAC M i n e r a l s f a i l e d ' t o do t h i s . A f t e r s i m p l y a d d r e s s i n g t h e p r o b l e m o f w h e t h e r t h e r e h a d b e e n a b r e a c h o f t h e f i d u c i a r y d u t y , t h e C o u r t o f A p p e a l h e l d t h a t it w a s u n n e c e s s a r y t o c o n s i d e r t h e p r o p e r r emedy f o r t h e b r e a c h o f confidence\"8 t h e C o u r t w e n t a h e a d w i t h h o l d i n g t h a t t h e c o n s t r u c t i v e t r u s t was - t h e a p p r o p r i a t e remedy. This was the same award made for the breach of the fiduciary duty, so no question of which doctrine was pre-e m i n e n t a r o s e . One major difficulty that Gibbens identifies\"* is that the breach of confidence action, U3Supra N o t e 111 a t 656. \"'Supra Note 119 at 498. 72 according to Gurry,140 is based upon contract, equity and property. This, of course, impacts on the remedies available for a breach. Unfortunately, the Court of Appeal did not allude to this difficulty. d. Compensations for Improvements to the williams Property. Holland J., at first instance, ordered that LAC was to transfer tha property to Corona upon Corona paying $153,978,000. This amount was based upon s , 3 7 ( l ) of the Conveyancing and Law of Property A c t l u which allowed a person who \"makes lasting improvements on the land under the belief that it is his own ... a lien upon it to the extent of the amount by which its value is enhanced by the improvements.\" Although the Court of Appeal arrived at the same conclusion it rejected the reasoning of Holland J,U! As Gibbens points out m the Court of Appeal ordered a lien f o r the above-mentioned amount by the application of the doctrine of change of circumstance. The Court q u o t e d -G&tt and Jones1\" as suggesting that in future years coarts will accept as a full defence the doctrine of change of position. \"'Supra Note 128 at 2 3 f f , H 1 R , S , 0 . 1 9 8 0 c , 9 0 , \"'Supra Note 111 at 659. \"'Supra Note 119 at 499. 1<4The Law of Restitution 3rd Edition (London: Sweet'and Maxwell, 1986) at 661. 73 From this speculation the bench explicitly found change of position or circumstance as a partial defence.145 However*. Gibbens indicates that what the court did not do was t\u00C2\u00A7 create a partial or complete defence, but rather it allowed an independent claim for improvements to be made. Thi\u00C2\u00A7 contention is centred upon the fact that if it was a defence it should have affected the remedy claimed, but : as the constructive trust remained untouched it could not have beeft a defence. Interestingly, Halsbury's146 defines a lien as being over property. The Court of Appeal ^^^ 1 ot indicate what property the lien was over, but it biay be presumed to have related to the pxopsxty to the constructive trust. If this is Gibbens criticisms would appear unfounded. As is obvious the Ontario Court of Appeal in LAC Minerals failed to grapple with many of the issues posed by the case. The Courts \u00C2\u00A7 decisis\u00C2\u00A9 wa\u00C2\u00A7 by the Supreme Court of Canada.147 The judgments nf t-he Supreme Court must be carefully arranged to uncover the majority decision. -The only issue all of the Justices agreed upon was that there had been a breach of confidence. Mr. Justice La Forest and Madame 145Ibid. at 661. 14SHalsburv's Law of England (4th Edition 1979) Vol.28 at para 501. 147(1989) 61 DLR (4th) 14. 74 J u s t i c e W i l s o n c o n s i d e r e d t h a t t h e r e h a d a l s o b e e n a b r e a c h o f f i d u c i a r y d u t y . T h e s e t w o j u d g e s c o n s i d e r e d t h a t t h e a p p r o p r i a t e r e m e d y f o r b o t h b r e a c h o f a f i d u c i a r y d u t y was a c o n s t r u c t i v e t r u s t . Mr. J u s t i c e S o p i n k a a n d Mr. J u s t i c e M c l n t y r e d i s a g r e e d w i t h t h e t w o p r e c e d i n g c o n c l u s i o n s . The f i f t h member o f t h e b e n c h , Mr. J u s t i c e L a m e r , p o s s e s s e d t h e d e c i d i n g v o t e . H i s L o r d s h i p a g r e e d w i t h S o p i n k a J . t h a t t h e r e was n o f i d u c i a r y r e l a t i o n s h i p , a n d h e a g r e e d w i t h La F o r e s t J . t h a t t h e r e m e d i e s a v a i l a b l e f o r a b r e a c h o f c o n f i d e n c e i n c l u d e d a c o n s t r u c t i v e t r u s t , w h i c h was a p p r o p r i a t e i n t h i s c a s e . As c a n b e s e e n n o o n e J u s t i c e w r o t e a m a j o r i t y d e c i s i o n on a l l i s s u e s . T h i s i n d i c a t e s t h a t f u t u r e l i t i g a t i o n c o n c e r n i n g f i d u c i a r i e s i n a c o m m e r c i a l c o n t e x t i s v e r y p r o b a b l y . A l t h o u g h i t i s r e c o g n i s e d I hat the decision in this c a s e t u r n e d o n t h e finding of a breach of confidence this a s p e c t o f t h e d e c i s i o n will only be examined in terms of its c o n n e c t i o n w i t h t h e existence (or lack thereof) of a f i d u c i a r y r e l a t i o n s h i p . \" \" U 8 t h i s c o n c e n t r a t i o n marfo whilst recognising that by t h e d e c i s i o n .\"The doctrine of breach of confidence has finally come of age in this country\" per P. Maddaugh \"Confidence Abused: LAC Minerals Ltd. v. International Corona Resources Ltd.\" (1990) 16 Can Bus. L.J. 198 at 198. 75 All five members of the court found a breach of confidence.\"\u00C2\u00AE Unlike the Ontario Court of Appeal which recognised that the doctrine of confidential information and the law of fiduciary obligations are \"intertwined\" but then neglected this issue, the Supreme Court dealt with the doctrines in conceptually separate ways. A question arises as to how did the judgments differentiate between the two doctrines. Sopinka J., with whom Mclntyre and Lamer J.J. agreed, held that 150 obtaining confidential information is not-itself sufficient to lead to a fiduciary relationship. For his Lordship when the essence of the complaint is misuse of confidential information the appropriate course of action is to bring a suit for breach of confidence. 'Jhis point by Sopinka J. suggests a \"purity\" doctrine. A relationship built purely on confidential information will not be a fiduciary relationship, and that an action premised upon a substantially pure breach, of confidence allegation will be a tos&ck of This is similar to how Gurry151 would present the matter. At what point\" the level of impurity of the confidential information to the relationship is high enough to convert the relationship into being \"'Supra Note 145; Lamer J. at 15, Mclntyre J. at 15, Wilson J. at 17, La Forest J. at 25 and Sopinka at. 74. 150Supra Note 145 at 64. 151Supra Note 128 at 161. 76 fiduciary in nature and the cause of action into one for breach of a fiduciary obligation was not addressed by his Lordship. La Forest J. held that \"... the law of confidence and the law relating to fiduciary obligations are not co-extensive. They are not, however, completely distinct.\"152 What points of divergence did his Lordship perceive? One ground is \"A claim for breach of confidence will be made out, however, when it is shown that th\u00C2\u00AE confidee has misused the information to th\u00C2\u00A3, detriment of the confider. Fiduciary law,, being . concerned with the exaction of a duty of loyalty, does not require that harm in the particular case \u00E2\u0080\u00A2 be shown to have resulted.11153 This observation is interesting on two grounds. First, it indicates that fiduciary law is wider than the law of confidences. Secondly, earlier in his judgment La Forest J. had adopted the test of Mayarry J. (\u00C2\u00A33 he then was) in Coco v. AJJ.. Clark (Engineers) Ltd1M to determine whether there ~ had been a breach of confidence.155 The third element of this test is that there is an unauthorised use of the 152Supra Note 145 at 35. \"'Supra Note 145 at 36. 154[1969] RPC 41 (Ch). 155it should be noted that Gurry at pp.3-5 essentially adopts Megarry J.'s criteria. 77 confidential information to the detriment of the part^ communicating it. However, Megarry J. himself left upon thS question whether detriment, at least to the confider him of herself in an absolute prerequisite.156 Gurry states that while it is often said that the unauthorised use of disclosure must be to the detriment of tue confider before A cause of action is established, detriment is more a factot which affects the remedy.157 It would appear that LA Forest J., has made detriment a requirement for a Canadian breach of Confidence cause of action. The second ground of difference is that of duty of. confidence can arise outside of a direct relationship.15\" The example La Forest J. gives is where a third party has received confidential information from a confidee in breach of the confidee'g obligation to the confider. The third ground of difference that his Lordship noted15' was that the breach of confidence has a jurisdictional base at law, whereas fiduciary obliaations are solely an equitable creation.160 l56Supra Note 151 at 48. 157Supra Note 128 at 5 fn 8. 158Supra Note 145 at 36. 159Supra Note 145 at 63. 1S0see Gurry chapter 2 for a discussion of the origins of the relationship of confidence. 78 Apart from listing these divergent features of the relationship of confidence and a relationship fiduciary i\u00C2\u00AE nature his Lordship indicated that in the case before him the emphasis was upon the breach of confident claim.161 Perhaps this was a de facto acceptance by La Forest J, that if the action is based purely, or at least to a substantial, degree, on a misuse of confidential information it will not be an action \u00E2\u0082\u00ACor dereliction of a fiduciary obligation. The fifth member of the bench, Madame Justice Wilson in her brief discussion of the issues,162 did not deal with the difficult problem of distinguishing between a relationship of confidence and a fiduciary relationship. What we are left with is that a majority of the Supreme Court of Canada, it is difficult to conclude whether- La Forest J. can be included in this majority, determined whether a relationship is one of confidence or is fiduciary in nature by looking towards the purity of the information as a causative agent. What this means is that if the passing of the information is the pure cause of the relationship it will be designated as one of confidence. \u00E2\u0080\u00A2 If , not, it will not be so designated. As is obvious, the question that this approach leaves is how \"pure\" is pure? LAC Minerals provided the opportunity for the SuDreme Court to discuss this as the Ontario Court of Appeal found that lslSupra Note 145 at 25-6., 162Supra Note 145 at 16-18. 79 t h e p a s s i n g o f c o n f i d e n t i a l i n f o r m a t i o n was o n l y one f a c t o r i n t h e g e n e r a t i o n o f t h e f i d u c i a r y r e l a t i o n s h i p . U n f o r t u n a t e l y , t h e m a j o r i t y o f t h e C o u r t w e r e a b l e t o a v o i d c o n f r o n t i n g t h i s i s s u e . S o p i n k a J., w i t h wham b o t h M c l n t y r e and Lamer J.J. a g r e e d w i t h on a l l m a t t e r s p e r t a i n i n g t o t h e l a w o f f i d u c i a r i e s , h e l d t h a t t h e r e w a s n o f i d u c i a r y r e l a t i o n s h i p . A f t e r h i s Lordship1\" h a d s t a t e d t h a t o b t a i n i n g c o n f i d e n t i a l i n f o r m a t i o n was n o t i t s e l f s u f f i c i e n t t o p r o d u c e a f i d u c i a r y r e l a t i o n s h i p . S o p i n k a J . a d d r e s s e d t h e o t h e r r e a s o n s w h i c h t h e C o u r t o f A p p e a l h a d h e l d g e n e r a t e d a relationship which was fiduciary in nature. There were, a c c o r d i n g t o h i s Lordship,1\" six f a c t o r s i n a l l . The first r e a s o n w a s t h a t t h e s t a t e of t h e n e g o t i a t i o n s attracted t h e U n i t e d D o m i n i o n s C o r p o r a t i o n v. R r i an\u00E2\u0080\u0094Etii Ltd165 principle. The majority of the Supreme Court of Canada identified that the negotiations in UPC had p r o g r e s s e d f u r t h e r t h a n t h e f a c t s b e f o r e t h e b e n ch. Sopinka J. a c k n o w l e d g e d t h a t t h e O n t a r i o C o u r t of Appeal had r e c o g n i z e d t h i s f a c t and t h a t t h i s r e a s o n - a l o n e could not stand to support the fiduciary relationship conclusion. It was this reason, the similarity to UPC, coupled with the 163Supra Note 145 at 64. 164Supra Note 145 at 64. 1<5Supra Note 68. 80 other five factors that tne Court of Appeal held to be the foundation of the fiduciary relationship. The second reason was that LAC sought out Corona. I'iiis point was dismissed by Sopinka J. by noting that in every commercial venture one party approaches the other. His Lordship dismissed the third reason,, relating to the arrangement of a geochemical programme, by overturning the Court of Appeal's finding of fact. The next pillar that the Court of Appeal utilized to construct, a fiduciary relationship was the provision of confidential information. With respect, his Lordship did not accurately address tht issue. Sopinka J, held that \"... the supply of confidential information is not necessarily referable to a fiduciary relationship and is therefore at best a neutral factor.\"166 This statement contains a non-sequitur. The first part of the statement reflects what his Lordship had said earlier; simply that the obtaining and misuse of confidential information cannot itself create a fiduciary relationship. Thus, the supply of confidential information is not necessarily referable to such a relationship. What Sopinka J. appears to be saying is that If the confidential information is given it may or may not lead to a fiduciary relationship. Taking into account his Lordship's earlier statements concerning that if all that has occurred is the 166Supra Note 111 at 317. 81 passing of the confidential information then this will not be referable to a fiduciary relationship. This is the \"purity doctrine\". Howevar, by his Lordship's failure to exclude a fiduciary relationship being related to confidential information, a fiduciary relationship may exist. It is where there is the passing of confidential information in addition to other acts which are all referable to a fiduciary relationship. This is precisely what the Court of Appeal was doing by listing a total of six factors, one of which was confidential information. It does not follow from the statement that if all that has occurred is the passing of confidential information, which according to the purity doctrine would not generate a fiduciary relationship, then confidential infomation accompanied by other actions can not generate a relationship which is fiduciary in nature. Unfortunately, this would be the result of the application of his Lordship's non-sequitur that the supply of confidential information is a neutral factor. That is, unless Sopinka J. would reject the proposition that the relationship of confidence and . the fiduciary relationship are \"intertwined.\" The fifth reason for tj?e finding of a fiduciary relationship by the Court of Appeal was the practice of the mining industry for a party not to act to the detriment of the party it is negotiating with. His Lordship attacked this contention on several points. The first was that in a 82 commercial environment a practice which is well-known, such a the practice here that negotiating parties do not act to the detriment of each other, is an implied term of the contract. The first of two counterpoints that can be made regarding this contention by Sopinka J. is that there was no contract here for the term to be implied into. The second counterpoint is that it is irrelevant if there was a contractual term which incorporated this practice. Simply because a contract does exist does not oust the possibility of a fiduciary relationship. A company's executive officer will usually be in a contractual and fiduciary relationship with his or her company. The second assault upon this industry practice supporting a fiduciary relationship is that Sopinka J. found that this practice is more relevant to an obligation of confidence.167 Certainly this is true if this practice and the passing of confidential information were the only factors, then it would be a relationship of confidence. This is simply an application of the doctrine of purity. However, here additional factors were being asserted so that the doctrine of purity could not apply. The only way that the practice of the industry could not' support a fiduciary relationship was if any evidence of confidential information' could not be treated in regard to a fiduciary relationship. 203Supra Note 177 at 7-8. The final assault that Sopinka J. made upon tljg industry practice supporting a fiduciary relationship w^\u00C2\u00A7 really somewhat bizarre. His Lordship suggested168 thq\u00C2\u00A3 the mining industry expert's evidence relating to tlj# practice not to use information to the detriment of tl}\u00C2\u00A7 negotiating party who gave that information was actually determining the legal issue of whether there existed g fiduciary relationship. With the upmost respect to tljg \u00E2\u0080\u00A2 learned judge this cannot be true on the facts of the case4 The expert simply stated that a particular practice w^\u00C2\u00A7 . followed and then it was up to the court as the tribunfj. law to determine the question of law upon the basis ,f evaluation of the facts. Simply because a witness give\u00C2\u00A7 pS^tiGUlafiy \u00C2\u00A7t\u00C2\u00A3QR\u00C2\u00A7 Syi-dence^ as was the situation with the expert witness, this is not determinative 6f the legal issue. If it were particularly strong evidence woui(j j3e inadmissible in court, and this is obviously an absurd proposition. It is contended that Sopinka J , ' 3 o n fete f \u00C2\u00A3 \u00C2\u00A3 & tte gSitft el finding of a fiduciary relationship can be successfully repulsed. The final point on which the Court of Appeal rested its finding of a fiduciary relationship was that the parties were not simply negotiating towards an ordinary commercial contract but were negotiating in furtherance of a common 168Supra Note 145 at 67. 84 o b j e c t . Sopinka J. s i m p l y s t a t e d \" ' t h a t all n e g o t i a t i o n s t o w a r d s a p a r t n e r s h i p of j o i n t v e n t u r e h a v e t h i s f e a t u r e i n common and so i t did n o t a d d a n y t h i n g to t h e a n a l y s i s . What t h e C o u r t of A p p e a l a p p e a r e d to be r e a r g u i n g h e r e was its earlier p o i n t r e g a r d i n g t h e a p p l i c a b i l i t y of t h e UPC c a s e . H i s L o r d s h i p is quite c o r r e c t t o reject t h i s p o i n t as a d d i n g s u p p o r t t o t h e f i n d i n g of a f i d u c i a r y r e l a t i o n s h i p . When r e - e x a m i n i n g t h e s e six p o i n t s i t w o u l d a p p e a r t h a t t h r e e r e m a i n ivitact a f t e r Mr. J u s t i c e Sopinka's assaults. They a r e t h e e x t e n s i o n of t h e UPC p r i n c i p l e , t h e d i v u l g e n c e o f c o n f i d e n t i a l i n f o r m a t i o n and t h e i n d u s t r y p r a c t i c e . F o r t h e c r e a t i o n of a fiduciary r e l a t i o n s h i p t h e first two p o i n t s a r e n o t s u f f i c i e n t of themselves. However, this c o m b i n a t i o n o f factors may, indeed, be sufficient. U n f o r t u n a t e l y , t h i s c o n t e n t i o n was not addressed by his L o r d s h i p . As is a p p a r e n t Mr. Justice Sopinka went to great l e n g t h s not to f i n d a fiduciary relationship in this case. The rationale f o r g o i n g to these lengths is his Lordship's clear reluctance to extend fiduciary relationships into a commercial c o n t e x t . Sopinka J. quoted Dawson J. in Hospital Products who r e f e r r e d to the undesirability of finding f i d u c i a r y r e l a t i o n s h i p s i n a commercial setting.170 His '\"Supra Note 145 at 67. 170Supra Mote 145 at 61. 85 Lordship also cited1\" approvingly Campbell172 who indicated clear displeasure in LAC Minerals and Standard Investments, which imposed fiduciary relations where the relationship had been formalised by contract. This importance of the contract is picked up by Sopinka J. but an initial comment must be made. Company directors and partners frequently have contracts with their beneficiaries but they are certainly examples of the traditional categories of fiduciaries. This notion that a reduction of a relationship to contractual form removes the fiduciary elements must be false. At this point Sopinka J., after acknowledging his reluctance to extend fiduciary doctrine into a commercial environment, dealt with the law of fiduciaries at a more abstract level. His Lordship held that there are well-recognise fiduciary relationships, such as trustee-beneficiary, but that exceptionally a relationship traditionally presumed to the fiduciary in nature will not be on the facts. Furthermore, Sopinka J. held, not all obligations existing between the parties to a well-recognised fiduciary relationship will be fiduciary in nature. The example he gives is of a solicitor-client. Obviously, this is a traditional category. The solicitor owes, his or her client a duty (or obligation) to use care or 171Supra Note 145 at 60. l72The Advocates' Society Journal August 1988 at p.44. 86 skill. This obligation certainly is not fiduciary l n nature. His Lordship'\" then stated, that if a relationship is not presumed to be fiduciary because of not being within a traditional category it may still be fiduciary im nature. To determine this issue Sopinka J. adopted the \"rough and ready guide\" of Wilson J. in Frame v. Smith.IU Im that case Madame Justice Wilson, dissenting but the majority made no adverse comment on this test, held \"Relationships in which a fiduciary obligation have been imposed seem to possess three general characteristics: ,(1.) The fiduciary has scope far the exercise of some discretion or power, (2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests i(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.\"1\" It i3 of worth to find the sources for Wilson J.'s \"rough and ready guide\". Her Ladyship stated176 that a similar three-fold formulation of the test had been adopted by the Australian High Court in Hospital Products. Wilson J. quoted both Gibbs: C.J. and Mason J. to support her \"'Supra Note 145 at 62. 174 (1907) 42 DLR (4th) 81, [1987] 2 SCR 99, \"RFL (3d) 225. ' 175( 1S'\u00C2\u00A3':7) 42 DLIR (4th) 81 at 99. 1?5Ibid. at 100. 87 contention. Thus Australian authority can be perceived as one of tne central pillars underlying the Canadian \"rough and ready guide\" to determine the existence of a fiduciary relationship. The explanation why the language relating to the determination of a fiduciary relationship includes expression such as \"rough and ready guide\" and \"not inappropriate in the circumstances\"177 rather than \"test\" is shown by what Sopinka J. held immediately after citing, with approval, Wilson J.'s \"rough and ready guide.\" His Lordship held: \"It is possible for a fiduciary relationship to be found although not all of these characteristics \u00E2\u0080\u00A2 are present, nor will the presence of these ingredients invariably identify the existence of a fiduciary relationship.1,178 Thus, whilst indicating factors which are strongly indicative of the relationship being fiduciary the doctrine, being the offspring of equity, will not be confined to a rigid formula. However, Mr. Justice Sopinka does identify175 one indispensable feature of a fiduciary relationship and that 177Supra Note 30. I7eSupra Note 145 at 63. 175Supra Note 145 at 63. 88 is dependency or vulnerability.180 From this propositioh Sopinka J. constructs what Potter and Laurence'\" refer tb as the dependency theory. His Lordship held that in thife case \".. . this vital ingredient was virtually lacking\"182 (emphasis added) It is an open question what the implications of \"virtually lacking\" are, but it would seem to indicate that any levei of dependence or vulnerability will not be sufficient. Mr. Justice Sopinka indicated that a psycholoc^iS3^ dependence is insufficient here.183 Dealing with vulnerability in a commercial context his Lordship again quoted Wilson J. in Frame v. Smith. Her La l d Y s h i P i n that case stated, in obiter as the decision c It with family ia*7 \"This vulnerability arises from the inability of the beneficiary (despite his or her best efforts) to prevent the injurious exercise of the power or discretion combined with the grave inadequacy or\u00E2\u0080\u0094 absence of other legal or practical remedies to redress the wrongful exercise of the discretion or power. Because of the requirement of vulnerability of the beneficiary at the hands of the fiduciary, fiduciary obligations are seldom 180Finn in \"Good Faith, Fair Dealing and Fiduciary .Law in Canada\" in Fiduciary Obligations by The Continuing Legal Education Society of B.C. [19 April, 1989]. ,m(1990) 44 Business Law Reports 1 at 7. 192Supra Note 145 at 681. 183Supra Note 145 at 68-69. 89 p r e s e n t i n dealings o f e x p e r i e n c e d businessmen o f similar b a r g a i n i n g s t r e n g t h acting at arm's l e n g t h : see f o r e x a m p l e Jirna L t d v . .Mister D o n u t of Canada L t d (1971) 22 DLR (38) 639,' [1972] 1 DR 251, 3 CPR (2d) 40 (C.A.); a f f i r m e d 40 DLR ( 3 d ) 3 0 3 , [1975], SCR 2, 12 CPR (2d) 1. The law t a k e s t h e p o s i t i o n t h a t s u c h individuals a r e p e r f e c t l y c a p a b l e of a g r e e i n g as to t h e s c o p e o f t h e d i s c r e t i o n o r p o w e r to b e e x e r c i s e d , ie. any \"vulnerability\" c o u l d h a v e b e e n prevented t h r o u g h t h e more p r u d e n t e x e r c i s e of t h e i r b a r g a i n i n g p o w e r a n d t h e r e m e d i e s for t h e w r o n g f u l e x e r c i s e or a b u s e of t h e d i s c r e t i o n or p o w e r , namely d a m a g e s , are a d e q u a t e i n s u c h a case.\"1\" From t h i s Sopinka J. h e l d t h a t h e r e as Corona placed itself i n a p o s i t i o n o f v u l n e r a b i l i t y a n d d i d n o t p r o t e c t i t s e l f by c o n t r a c t t h e n t h e v u l n e r a b i l i t y was its own fault and so no f i d u c i a r y r e l a t i o n s h i p arose. T h u s , vulnerability per se is n o t the e s s e n t i a l i n g r e d i e n t f o r Sopinka J. but it is v u l n e r a b i l i t y w h i c h c o u l d n o t h a v e b e e n removed by the benoficiary ' s a c t i o n s , s u c h as a c o n t r a c t . This shall be referred to as the d o c t r i n e of u n a v o i d a b l e v n l n B r a b i i i t y . Potter and Lawrence note with interest that if this approach was applied with rigor to the traditional fiduciary relationships they could easily be considered not to be fiduciary. The obvious example is the solicitor and client. Moreover, traditional fiduciary relationships, such as a d i r e c t o r and h i s o r her company, often have a contractual b a s i s . T h i s c e r t a i n l v h a s never prevented such relationship as b e i n g f i d u c i a r y i n nature. 184Supra Note 171 at 100. 90 If this doctrine of unavoidable vulnerability is applied in a commercial context the necessary dependency or vulnerability would rarely be found in any corwrtercial negotiations. It is contended that the dependency theory coupled with the so-called doctrine of unavoidable vulnerability is simply unwarranted. It makes it practically impossible for the fiduciary relationship ever to exist in a commercial context. It. is interesting to note what the primary source of the doctrine of unavoidable vulnerability was. It was an obviously obiter observation of Madame Justice Wilson, in dissent, in a family law matter. It is thus worthy of attention to see what her Ladyship held concerning this doctrine of unavoidable vulnerability when dealing. with a case directly on point. In an extremely brief discussion Madame Justice Wilson, without explicitly stating whether she was utilizing her own \"rough and ready\" guide, found a fiduciary duty was owned in this case.185 This duty arose by Corona making available to LAC confidential information relating to the Williams property. This, her Ladyship held, placed Corona in a position of vulnerability. If the doctrine of unavoidable vulnerability was to be invoked it would be the next logical step . in Wilson J.'s analysis. It was a step that her Ladyship aid not take. Madame Justice Wilson implicitly 203Supra Note 177 at 7-8. 91 rejected the doctrine of unavoidable vulnerability because at the commencement of her Ladyship's judgment she stated that she had read the judgement of Sopinka J. and so must have been aware of the doctrine. Regarding the breach of confidence action Wilson J. held'\" that it was a breach of confidence at common law. This would clearly indicate that for Wilson J. a party can easily pursue a breach of confidence action and a hreach of fiduciary duty action. If these two separate breaches are proved and the remedies are different her Ladyship held that a court should award the more \"appropriate\".187 One facet of Madame Justice Wilson's judgement that is of particular interest is her attempt to differentiate between a fiduciary relationship and a fiduciary duty. In the pursuit of linguistic certainty in this area of law her Ladyship drew a distinction, for which no authority was cited nor, it is respectfully suggested, exists, between a fiduciary relationship and a fiduciary duty. Certain relationships are almost always fiduciary per se. These are the traditional categories of fiduciaries; such as trustee-beneficiary. Other relationships are not \"of the essence\" fiduciary, but certain elements of the relationship may be fiduciary. The relationships which only have fiduciary duties, and are not wholly fiduciary in nature. It is 186Supra Note 145 at 17. lB7Supra Note 145 at 17. 92 contended that her Ladyship's suggested language serves no useful purpose for several reasons. The first is that not all aspects of a relationship traditionally considered as fiduciary are fiduciary obligations. For example, some of the obligations at a solicitor to his or her client will be contractual and tortious in nature. This point introduces the second reason for the contention that Wilson J.'s language is unnecessary; and that is, what precisely is. a fiduciary relationship? It cannot be that a fiduciary relationship is only present where all the duties are equitable, the solicitor-client example above shows this. Is it that a certain number of \u00E2\u0082\u00ACidiciary' duties areneeded to make up a fiduciary relationship? If so, how many? And the final point is that in the end this dichotomy serves no useful purpose. Madame Justice Wilson seemed to indicate188 that when evaluating a fiduciary duty you have to examine closely the scope and content of that duty. This is perfectly accurate, but this is also fundamentally correct for what her Ladyship has referred as a fiduciary relationship. Much of past judicial confusion in this area has stemmed from judges failing to appreciate that the scope and content of the fiduciary obligation must always be examined. 203Supra Note 177 at 7-8. 93 The fifth member of the bench was Mr. Justice La Forest. His Lordship189 reviewed Wilson J. 's \"rough and ready guide\" from Frame v. Smith for determining the existence of a fiduciary relationship and found it \"helpful.\" La Forest J. recognised that the term fiduciary is used in three different v a y s . H e r e was not an argument that negotiating towards a joint venture was a traditional, nor created a new, category of relationship where its fiduciary nature would be presumed.191 This is for his Lordship, the first way that the term fiduciary may be utilized. La Forest J. clearly held that Wilson J , ' a \"rough and ready guide\" only applies to this first usage of the term fiduciary.192 The second way of employing the term fiduciary is in a factual or ad hoc way. As opposed to the first where because of the relationship falling into a set category it will be presumed to be fiduciary, here it is necessary to prove that fiduciary obligations were owed and broken. The third use of the term is to provide relief .when a wrong has been committed. That is, the court finds 189Supra Note 145 at 27-28. '\"Finn in \"Contract and the Fiduciary Principle\" (1989) 12 UNSWLJ 16 refers to the first and second uses as \"relationships fiduciary in .law\" and \"relationships fiduciary in fact\" at p.88. '\u00E2\u0080\u00A2 \"-v; ; 191Supra Note 145 at 29. 203Supra Note 177 at 7-8. 94 w r o n g d o i n g a n d d e s i r e s t o g r a n t a s p e c i f i c r e m e d y , b u t t h e g a t e w a y t o t h a t r e m e d y i s t h e f i d u c i a r y r e l a t i o n s h i p . T h u s , a f t e r t h e c o u r t h a s d e c i d e d upon t h e a p p r o p r i a t e r emedy i t w i l l t h e n , i f n e c e s s a r y , f i n d a f i d u c i a r y r e l a t i o n . s J a . i p . The c a s e s w h i c h a d v o c a t e s u c h an a p p r o a c h i n c l u d e Sinclair v. Brougham,1\" I n r e Diplock,1\" Chase Manhattan Bank NA, v. I s r a e l - B r i t i s h Rank (London) Ltd155 and Goodbody v. Bank of M o n t r e a l . 1 9 6 T h a n k f u l l y , La Forest J. recognized this a p p r o a c h a n d t h e s e c a s e s r e a d \" e q u i t y b a c k w a r d s . \" l s 7 La F o r e s t J . i d e n t i f i e d t h a t t h e t e r m fiduciary was b e i n g u t i l i z e d h e r e i n t h e second way - a determination upon t h e f a c t s . H i s L o r d s h i p u p h e l d t h e f i n d i n g by t h e C o u r t A p p e a l t h a t t h e r e existed a f i d u c i a r y d u t y . \" 8 : In reference to the activities within a commercial context La Forest J. expressed his view to be that \"While it is almost trite to say that a fiduciary relationship does not normally arise between arm's length commercial parties, I am of the view that the courts below correctly found a fiduciary obligation in the circumstances of this case and-correctly found LAC to be in breach of it.\"199 193[ 1914] AC 398. l94[ 1948] Ch 465. 195[1981 ] Ch 105. 196( 1974) 47 DLR (3d) 335 at 339. 197Supra Note 145 at 32. l98Supra Note 145 at 33. 1\"Supra Note 145 at 34. 05 For Mr. Justice La Forest J. there was no absolute barrier to the finding of fiduciary obligations in a commercial context. The next logical step is to consider what were the factors in this case that transformed this particular relationship into one possessing fiduciary duties. The first factor that La Forest J. held to be relevant200 was trust and confidence. His Lordship held that the law of confidence and the law of fiduciary relationships, whilst distinct, are \"intertwined\". La Forest J. stressed the inportance of the giving of the confidential information by Corona to LAC in deciding the \"reasonable expectations\" that each party held regarding how the other would act. . It would appear that the second factor mentioned by his Lordship is symbiotic in regard to the first. This second factor was the industry practice not to act to the detriment of the other negotiating party by the misuse of confidential information. This industry practice also was imputed\u00E2\u0080\u0094into the \"reasonable expectation\" equation. \"It is clear to me that the practice in the industry is so well known that at the very least Corona could reasonably expect LAC to abide by it ... The industry practice therefore, while not CjUkffii_\u00C2\u00ABe,, is entitled to significant weight in determining the reasonable expectations of Corona 11201 20\u00C2\u00B0Supra Note 145 at 35. 201Supra Note 145 at 39. 96 The third factor was vulnerability. Mr. Justice La Forest explicitly held that vulnerability is not a necessary ingredient in every fiduciary relationship.202 Citing Keech v. Sandford203 La Forest J. indicated that a breach of a fiduciary duty may occur even where no harm is inflicted on the beneficiary.204 From this proposition his Lordship held that \"... susceptibility to harm will not be present in many c=ses. \"205 The example he provided is that each director of General Motors owes a fiduciary duty to the company, but it cannot be said that General Motors is vulnerable to the actions of each individual director. Whilst this appears to be sensible Mr. Justice La Forest, without realising it, demonstrates why this contention is wrong.206 His Lordship indicated that the obligation is owed because, as a class, corporations are susceptible to harm from the actions of their directors. This statement reminds us that the relationship between a director and his of her company is traditionally presumed to be fiduciary. His Lordship's 202Supra Note 145 at 39. . , ' 203( 17 2 6) Sel Cas T. King 61; 25 ER 223. 204( 1726) Sel Cas T. King 61; 25 ER 223. 205Supra Note 145 at 40. 203Supra Note 177 at 7-8. 97 entire contention proves the danger inherent when dealing with these traditional categories. That danger is that the rebuttable presumption that a relationship, that is traditionally so recognised, is fiduciary may, through the application of a lazy logical process, be perceived as irrebuttable. As the question must be how to rebut the presumption. The answer, it is contended, turns on vulnerability. The relationships traditionally recognised as fiduciary are relationships of vulnerability. Vulnerability is at the heart of the relationship. The rebuttable presumption must be rebutted when this element of vulnerability is missing.207 Thus, with the greatest respect to Mr. Justice La Forest vulnerability is an essential ingredient. However, La Forest stated his requirement for fiduciary obligations outside of the traditional categories as being \"... having regard to all the , facts and circumstances, one party stands in relation to another such that it could reasonably be expected\u00E2\u0080\u0094 that that other would act or refrain from acting in a way contrary to the interests of that other.\"206 -207see Waters' discussion of vulnerability, in \"LAC Minerals Ltd v. International Corona Resources\" (1990) 19 Can. Bar Rev. 455 at 474-475. 208Supra Note 145 at 40. 98 His L o r d s h i p ' s a p p r o a c h i s r e f e r r e d t o , by P o t t e r and L a v r e n c e l l ,20S a s t h e r e a s o n a b l e e x p e c t a t i o n s t h e o r y . P o t t e r a n d L a w r e n c e c r i t i c i z e t h i s t h e o r y b e c a u s e t h e y c l a i m t h a t i s i s d i f f i c u l t t o d e t e r m i n e \" r e a s o n a b l e e x p e c t a t i o n s . \" W i t h r e s p e c t , t h e c o u r t s h a v e b e e n d e c i d i n g w h a t i s \" r e a s o n a b l e \" f o r many d e c a d e s a n d so t h i s is n o t a v a l i d c r i t i c i s m of Mr. J u s t i c e La F o r e s t ' s a p p r o a c h . The other main criticism of the \"reasonable expectation\" theory by the learned authors is that it r e q u i r e s t h e f i d u c i a r y t o a c t f o r t h e b e n e f i t o f its b e n e f i c i a r y r a t h e r t h a n i t s e l f . T h i s , P o t t e r a n d L a u r e n c e contend, is coiadrary to business practice in M a r i h AuacEuai. However, this misunderstands what a court's finding of a fiduciary obligations means. The scope and content of the fiduciary obligation will often be limited, as it was here where it only related to the misuse of the confidential i n f o r m a t i o n . The h o l d i n g t h a t t h e r e i s a fiduciary o b l i g a t i o n i s n o t \" a l l o r n o t h i n g \" i n t h a t a relationship does not necessarily have to be held entirely fiduciary. P o t t e r a n d L a u r a n c e c a n n o t be taken to suggest that it is North American business practice to misuse confidential information. And in this case that is what the finding of a f i d u c i a r y d u t y p r e v e n t e d . - The valid criticism of Mr. Justice La Forest's judgment is that he added an expression \"reasonable expectation\" 203Supra Note 177 at 7-8. 99 which is superfluous and generates more terminology for the already crowded fiduciary field. It is necessary to attempt a summary of the position of the law of fiduciaries as propounded by the S u p C o u r t of Canada in LAC Minerals. Mr. Justice Sopinka, o m Mclntyre and Lamer J.J. concurred, held that the \"rough afifl ready guide\" of Wilson J. in Frame v. Smith established t suitable framework for determining whether a fiduciaBf' relationship exists. The one indispensable ingredient fSt Sopinka J. is that of vulnerability or dependency. However, if the parties could have removed t h a t vulnerability \u00E2\u0080\u0094 by contractual means but did not, as was the , ' into a commercial context was frowned upon by Sopinka J. Madame Justice Wilson, finding a fiduciary relationship on the farts before her, stressed the importance of vulnerability. La Forest J., also finding a fiduciary relationship, held that the Frame v. Smith \"rough and ready guide\" only applies to determining whether a category of relationships is or is not presumptively fiduciary.210 In the case at bar thi3 was not the relevant question. The relevant question was whether an aspect of a relationship was. fiduciary. To determine this the reasonable i case before the 210but Waters in \"LAC Minerals Ltd. v. International Corona Resources Ltd\" (1990) 69 Can. Bar Review 455 would not agree with this interpretation, see esp pp.473-474. expectations of the parties had to be assessed? Vulnerability need not be present. Finally, La Forest J.v offered cogent arguments against the \"dependency theor^\" espoused by Mr. Justice Sopinka. In conclusion, it is contended that by the adoption of the Frame v. Smith \"rough and ready guide\" and ky placing emphasis upon vulnerability Sopinka J. surely presented appropriate guidance \u00E2\u0082\u00ACor examin n,3 a relationship to determine whether it is fiducial: Wnwoiror- h-io Lordship's desire to expel the fiduciary doctrine from the commercial context drove him to add the notion of \"unavoidable vulnerability\". The critique of this offprArf hv Mr. .Tiistine La Forest is particularly accurate and this additional \"unavoidable vulnerability\" doctrine is both unwarranted and unnecessary. It was given lire simply to achieve the basic jurisprudential aim of attempting to exclude equity from the commercial world. It is contended that the \"rough and ready guide\", coupled with particular attention to vulnerability is the appropriate approach. It will be rare for parties to become fiduciaries in a commercial setting when dealing with each other at arm's length. But if the circumstances are correct, according to the criteria suggested above, then there would appear to be no logical reason why fiduciary relations should be forbidden in this area. 101 3. Conclusion At the end of the day what does the decision of the Supreme Court of Canada in LAC Minerals mean in relation to the law of fiduciaries? The Australian caselav? developments in Hospital Products and United Dominions Corporation were picked up by the majority and Wilson J,'s judgments to stress the primary importance of vulnerability. By making vulnerability the essential requirement of the fiduciary relationship the majority adopted a conservative view of the fiduciary relationship. Without expressly saying so the majority of the Supreme Court seemed to place the fiduciary relationship at the pinnacle of Professor Finn's hierarchy of judicially required honesty standards, and in this case this step was not reached. Additionally, the majority displayed a great reluctance to extend equitable doctrines into a commercial environment. Mr. Justice La Forest did explicitly address the question of the principle behind the law of fiduciaries. His Honour expressed the belief that the fiduciary standard should be utilized to achieve the reasonable expectations of the parties. This is the all-encompassing approach to the fiduciary relationship, where the fiduciary obligations are extended to guarantee community standards of morality. The conflicting judgments in LAC Minerals merely drew the battlelines for the dispute about which direction to take the law of fiduciaries. Effectively the case resolved nothing except the immediate n n ri n ., 7 1 7 \u00E2\u0080\u00A2 1 U u li u. C j 1 -I\" 102 d i s p u t e b e t w e e n t h e l i t i g a n t s . As LAC did not resolve the q u e s t i o n s of p r i n c i p l e s i n v o l v e d t h e courts in Canada will c o n t i n u e t o be f a c e d w i t h a continuous flow of disputes a l l e g a t i o n s of a b r e a c h of a f i d u c i a r y obligation.: 103 Chapter III The Development of an Australian Corrmercial Opportunity Doctrine 1. Introduction There exists within the parameters of the law of fiduciaries who operate in a commercial context an area of particular interest to Australian lawyers. This is the development of a Commercial Opportunity Doctrine.' This would be a distinct doctrine overlapping with those fiduciary principles which have been mentioned previously.' What has been examined so far has been fiduciary relations existing between commercial entities. However,, another important area for the operation of the law of fiduciaries is within a commercial entity itself. It concerns the fiduciary obligations of those who control the business. To determine whether it is possible for Australian courts to fashion a commercial opportunity doctrine, and to discover what shape it might take, Canadian'authority is of vital significance. 'This doctrine is known in the United States and Canada as the Corporate Opportunity doctrine, \u00E2\u0080\u00A2 however, it will be later argued that it should not be limited to corporations but should relate to all business entities. 2for this area generally see Corporate Directors' Liability Research Paper No.17 (1989). Institute of Law Research and Reform, Edmonton, Alberta. 104 The justification for the formulation of a new fiduciary duty is threefold. First, the new doctrine would be limited to commercial fiduciaries,3 Commercial fiduciaries are legal persons who are in a fiduciary relationship with business entity. The clearest example of a commercial fiduciary is the executive director of a company. Unfortunately, the present law relating to commercial fiduciaries is \u00E2\u0080\u00A2 \"a morass of conflicts and inconsistencies.\"* Whether this statement be true in relation to Canada, it is an all too accurate portrayal of the Australian legal position. An early application of fiduciary duties to directors occurred in the decision of the Lord Chancellor in Charitable GSEBSratiaB V. Sutton. Since that time the nature of a director or executive officer's relationship with his ox her beneficiary has became \u00E2\u0080\u00A2 more and more commercial. The courts have had to balance the right of the individual to compete with the employer with the protection q\u00C2\u00A3 the employer's interest.6 The predictable outcome of this has been confusion. It is for this very reason that '.tbis \u00C2\u00A3\u00C2\u00BBaoept will be discussed in greater detail, later in this chapter. - 'in Exco Corp. v. Nova Scotia Savings (1987) 35 BLR 149 at 246 (NSSC). 5(1797) 25 ER 642. 4see DCF Systems Ltd. v. Gellman (1978) 5 BLR 98. \u00E2\u0080\u0094 - \u00E2\u0080\u0094 J . . -i,!;^\u00E2\u0080\u00A2\u00E2\u0080\u00A2 - - i A - v.- ' - .'v - .. \u00E2\u0080\u00A2 \u00E2\u0080\u00A2 \u00E2\u0080\u00A2-- v^ --\u00E2\u0080\u00A2\u00E2\u0080\u0094\u00E2\u0080\u00A2 . 105 Prentice argued, in 1967,7 that Canadian courts re-examine this area. Australian courts have the ability to adopt the commercial opportunity doctrine to solve this confusion. Confusion is intertwined with the second justification for the creation of this new duty. That reason is certainty. Business men and women desire certainty. One of the principal grounds for attacking the role of Equity in the area of commerce is, as the preceding chapter indicated, the uncertainty that this body of law allegedly introduces. In order to minimize uncertainty a simple statement of the commercial fiduciary's obligation is desirable, The Commercial Opportunity Doctrine can provide this certainty, without the destruction of the flexibility that is also required. The final justification3 for the Australian courts td generate a Commercial Opportunity Doctrine is the prevalence of commercial fiduciaries and their power to adversely affect the fiduciaries of their fiduciary obligations*5 A beneficiary is exceptionally vulnerable when it is a 'in \"Regal (Hastings) Ltd. v, Gulliver - The Canadian Experience\" (1967) 30 Mod LR 450 at 455, ; 'which appears to underlie much of the.insider trading regulation, see Rider Insider Trading (Bristol: Jordans, 1983). \"There exists a large body of literature on.the subject of the importance of senior executive officers eg. Mace Directors: Mvth and Reality (Chicago: Brown, 1971) and Mace \"Directors: Myth and Reality - Ten Year Later\" (1979) 32 Rutgers L Rev.293. >,n n n n Ti'r \" U U U U ~<. O J. I J 106 business entity and the fiduciary in breach of its equitable duty is that entity's director or executive officer. As Beck indicates\" the commercial fiduciary is often confronted with the temptation to exploit an opportunity relevant to its beneficiary. This temptation is compounded by the low risk of apprehension. Commercial fiduciaries possess the ability to cover their wrongdoing by complicated transactions and limiting the flow of information. \" I have indicated that there exists a need Cor a Commercial Opportunity Doctrine in Australia. I will argue that there exists Commonwealth authority to support the creation of this doctrine which would prevent a commercial fiduciary from exploiting, for his or her own benefit, an opportunity of which he or she becomes aware of as a result of the execution of his or her fiduciary office or an opportunity which the commercial fiduciary knows or should reasonably know is closely related to the business in which the beneficiary is engaged or may reasonably be expected to engage in. The first part of this doctrine clearly relates to the \"profit rule\" and there exists ample\" authority which 10\"The Saga of Peso Silver Mines: Corporate Opportunity Reconsidered\" (1971) 49 Can Bar Rev 80 at 84. . \"Professor Dodd first noted this several decades ago in \"Is Effective Enforcement of the Fiduciary- Duties of Corporate Managers Practicable?\" (1934-35) 2 U. Chi. L Rev 194. Nothing has occurred in the intervening years to suggest that this combination of temptation and low risk has altered. 1546 deals with it.\" For that reason it is unnecessary to deai with it. However, it is the second half of the doctriner, relating to a prohibition on the commercial fiduciary takinf an opportunity to engage in a business activity which he oE she knows or should reasonably know is closely related tQ> the business in which the beneficiary is engaged or may reasonably be expected to engage in that is particularly contentious and will constitute the majority of this chapter. 2. Authority for an Australian Commercial Opportunity Doctrine a. Introduction It will be shown that Commonwealth caselaw exists which would support the proposed Australian doctrine. The majority of this caselaw is Canadian. It is necessary to examine these decisions under the various rules that apply ts fiduciaries generally,\" . \" . \u00E2\u0080\u0094 / \"for example; Cook v. Peeks f19161 1AL 554; Furs Ltd. v. Tomkies (1936) 54 CLR 583; Abbey Glen Property Corp. v. Stumborq (1978) 85 PLR (3d) 35. \"These rules are extensively detailed in Finn's Fiduciary Obligations, (Sydney: Law Book Co., 1977) chapters 18 and 21. 108 b. Rule against Misappropriation of Assets The rule against misappropriation of assets, unlike the profit and conflict rules, is probably a manifestation of an underlying principle against unjust enrichment.\" Professor Beck has suggested the Canadian Corporate Opportunity Doctrine is based upon the rule against misappropriation. He states that \"He (the fiduciary) cannot appropriate to himself property or opportunities, the chance for which came to him because of the position he occupied. It is this principle which is behind the development of ti\e law of fiduciaries The proposition that the Antipodean Commercial Opportunity Doctrine may be founded on the misappropriation rule is tenuous. Tha contention, which Beck does not support by reference to any authority,' is open to attack on two fronts. First, it is an interesting notion that an opportunity may be considered property, which is an obvious requirement if it is to be capable of misappropriation. Certainly an opportunity is not a \"hard \" asset16 like cash or materials. It would appear more like' a \"soft\" (or Nsee Jones \"Unjust Enrichment and the Fiduciary's Duty of Loyalty\" (1968) 84 LQR 472. ' .,\u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2'' 15\"The Saga of Peso silver Mines: Corporate Opportunity Reconsidered\" (1971) 49 Can. Bar. Rev. 80 at 91. *6to utilize the language of Professor Austin in his, scholarly and important article \"Fiduciary Accountability for Business Opportunities\" in Equity and Commercial Belations.b.i.ps Edited by Finn: (Sydney: Law Book Co., 1987) at p.144. 109 intangible) asset, and the criticisms that Austin makes of extending the rule against misappropriation to include other \"soft\" assets\" can surely be levelled against applying it to opportunities. To further lessen Professor Beck's attribution of the foundation of the Canadian Corporate Opportunity Doctrine upon the misappropriation rule is that a distinction can be drawn between what is referred to as \"soft\" assets and opportunities. That is, \"soft\" assets like goodwill are identified by accountants as intangibles and are recognized in the accounting process. Opportunities have yet to be identified by the accounting profession as constituting an asset of the firm. \" Secondly, the way that Beck has formulated his version of the doctrine it may be inadequate to fulfil the desired role that the Australian doctrine is to play. Beck includes in his formulation that the opportunity must come to the fiduciary \"because of the position he occupied.\"19 This is \"Ibid, at pp.144-146. - \u00E2\u0080\u0094 v8the entire suggestion of opportunity as property is remarkably similar to Lords Hudson and Guest's finding in Boardman v. Phipps [1967] 2 AC 46 at 107 and 115 respectively, that the information acquired by Mr- Boardman was property which belonged to the estate. Lord Upjohn rejected this idea in his dissenting judgement, at pp.127-28. Finn in Fiduciary Obligations (1977, Sydney: The Law Book Co., at paragraph 296) and subsequent writers, for example Stuckey \"The Equitable Action for Breach of Confidences Is Information ever Property?\" (1981).. 9 Syd LR 402, support Lord Upjohn's stance. However, note should be taken ;of Shepherd's counterargument in The Law of Fiduciaries (Toronto: The Carswell Company Ltd., 1981), at p.329. ; \"Supra note 14 at p.91. 110 the causal element for Professor Beck. An example will illustrate the implications and so highlight its inadequacy for the Australian doctrine. If the executive director of & supermarket is informed about the opportunity to purchase & rival supermarket by his golfing partner this opportunity cannot be said to have come to hiffi \" ecause of the position he occupied.\" If that opportunity is exploited then on Beck's formulation stemming from the misappropriation rule the commercial fiduciary will not be liable.\" However, dft the proposed approach, tkat i s where the: commercial fiduciary is prohibited fr\u00C2\u00A9n'exploitsng an opportunity to engage in a business activity which o r she knows or should reasonably know is closely related to the business which the beneficiary is engaged in or may reasonably be ejected t\u00C2\u00A3> engage jj;, tfrg QQm\u00C2\u00A7\u00C2\u00A3SZal fiduciary should be liable. Thus, Professor Beck's attempt to found the Corporate Opportunity Doctrine ug o n the misappropriation rule has been shown to be iriacc^rate and inadequate for our purposes. \u00E2\u0082\u00AC-. Ib\u00C2\u00A7 G8fifliefe &UlS It can be said with confidence that if a Commercial Opportunity Doctrine is to develop in Australia it will not stem, exclusively from the rule against misappropriation of \"this is clearly ignoring an action based upon a breach of the conflict rule. Ill assets. The two remaining contenders for paternity of this Australian doctrine are the related rules pertaining to conflict and profit. The conflict rule requires that a fiduciary must avoid situations in which his or her personal interest conflicts or may conflict with his or her duty to his or her beneficiary.?' Gibbs J. (as he then was) expressed strongly his belief that the conflict rule is more fundamental to the law of fiduciaries than the profit rule.\" Gibbs J. is supported in this contention by Beck,\" Goff and Jones,\" Vinter\" and Lord Upjohn.26 Ellis states that the Canadian Corporate Opportunity Doctrine comes from nthe possibility of conflict must satisfy the \"real, sensible possibility\" test annuciated by Lord Upjohn in Boardman v. Phiops [1967] 2 AC 124 and subsequently applied in many cases, for example, Queensland Mines Ltd. v. Hudson Ltd. (1978) 18 ALR 1 at 3; Consul Developments Ptv Ltd. (1978) 18 ALR 1 at 3; Consul Developments Ptv Ltd. v. DPC Estates Sty Ltd. V(A9;5) 132 CLR 373 per Gibbs J. at 399; Chan v. Zacharia (1984) 154 CLR 178 per Deane J. at\u00E2\u0080\u0094205; Hospital Px\u00C2\u00A3>dy\u00C2\u00A3t\u00C2\u00A3 Ltd. v. USSC (1S84) 55 ALR 417 per Mason J. at 458. \".Consul Deyeloproexit Ply Ltd. v, ppc Estates Ptv Ltd. (1975) 132 CLR 373 at 393. \"supra note 14 at pp.89-92. \"The Law of Restitution 2nd Edition (London: Sweet and Maxwell, 1978) at p.491. \"History and Law of Fiduciary Relationships and Resulting Trusts 3rd Edition (London: Butterworths, 1955) at p.11. ' 263oardman v. Phipps f19671 2 AC 46 at 123. iii. \"the basic premise that a corporate fiduciary may not place himself in a position of conflict of interest with his corporation.\"\" Obviously, the learned author is placing the paternity of the Canadian doctrine with the conflict rule. It must be said that this does appear logical. The judgement of Viscount Sankey in Reoal (Hastings) Ltd. v. Gulliver\" provides support for this contention. His Honour held \"In my view, the [directors] were in a fiduciary position and their liability does not depend upon proof of mala fides. The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect. If he holds any property so acquired as trustee, he is bound to account for it to his cestui que trust.\"\" However, Professor Austin scrutinizes the conflict rule and indicates that it is inadequate to handle all the cases of profit making by a commercial fiduciary. From this finding this learned author concludes that the conflict rule is not suitable for the task of supporting Australia's Commercial Opportunity Doctrine.30 \"Fiduciary Duties in Canada (Toroton: De Boo, 1983) Ch.15 p.9. 26[ 1967 ; 2 AC 134. \"supra note 16: at pp.147-148, \"supra note 16: at pp.147-148. 113 Austin's reasoning for the above contention can be summarized thuss the conflict rule operates at the third step of the analysis of a fiduciary problem. The first step is to identify whether a fiduciary relationship does exist; the second step is to determine the scope and content of the fiduciary duty; and the third step is to perceive whether there has been a breach of that duty. The conflict rule, whilst determining the third step, does not assist in the second step. Austin illustrates this by providing an example.31 Reworking the facts of Regal (Hastings) Austin poses the question whether directors who discover a supermarket for lease while searching for a cinema for the beneficiary's cinema business and take that supermarket lease for themselves would be liable to account on the basis of the conflict rule.32 Certainly the directors' personal interests are at stake hare but what is the conflicting interest of the beneficiary? On a commonsense and intuitive level it is obvious that therd is no conflict between the directors' interest in a supermarket and the beneficiary's cinema business. They are, according to Austin,33 too dissimilar to generate any practical conflict. But if the facts are reworked so that the business unearthed by the \" ,lsupra note 16 at pp.147-148. \"the profit rule is put to oneside for this example. \"supra note 16 at p.148. iii. directors was not a supermarket but a television store would this variation constitute a breach of the conflict rule? Altering the facts slightly more, if the lease was not of a television store but of a video store L3 there a conflict^ Ultimately Austin twists the factual basis until the lea&% concerns a rival cinema. The question he poses is this: if the directors discovered a n e a r b Y rival cinema whilst searching for a cinema on the beneficiary's behalf is there a breach of the conflict rule; The cornmonsense and intuitive reaction is to say Y e s' t h i s sat of circumstances breaches th& conflict rule. The inai equacy of the conflict. \u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2rule f o r Austin is demonstrated by this example,' a t either end of the conflict spectrum the conflict (or l a ^ thereof) is clearly apparent. On the supermarket lease ft c t s L t i s c l e a r that no real sensible possibility of c8 n f l i c t exists. But with the rival cinema scenario it is obvioug tji.at \u00C2\u00A7 S2ffflict does easily, exist between the directors' own interests and their duty to their bensficiary. However, both of these SSHSiy^ ififi'sf SiF\u00C2\u00AE fejfflfiSed on our own cornmonsense and intuitive reaction to the facts presented. Difficulties manifest themselves in the utilization of the cornmonsense and intuitive approach when the facts of the problem move away from, either pole on the conflict spectrum. Professor Austin's examples of leases over a television store and a video store are precisely that; movements away from the 115 extremes of the conflict spectrum, towards the mid-point this spectrum where cornmonsense and intuition fail provide an answer. The step that must be taken to answer the question gf whether there has been a conflict is the second stgp previously mentioned; the determiTia-n^n n-f t-ho onr.r,a =>nd content of the fiduciary duty'. The ~e. and' intuitive approach provides a de facto answer to -\"-\"-is question by asserting that the scope and content of the duty clearly do (or do not) encompass the activity complained of. Austin faults this approach,34 and quite rightly, as being of no assistance where the scope and content are in doubt. Further, the conflict rule provides no guidance in these doubtful situations. For Austin, the conflict rule can only operate when the action is near either end of the conflict spectrum, It is on proving this failure that Professor Austin turns his attention to the profit rule. This critigue of conflict. rule is accurate. However, the failings of the conflict rule does not, contrary to Professor Austin's stance, mean that it should be disregarded in the search for support for the Australian Commercial Opportunity Doctrine. If the doctrine is to prevent a commercial fiduciary from engaging in a business activity which he or she knows or should reasonably know is closely related to the business that the beneficiary is \"supra note 16 at p.148. i i i . engaged in or may reasonably dg expected to engage in then the conflict rule is of extreme iapor ance.: Much of the support for the Australian doctrine \u00C2\u00BB.s be drawn from the principles underlying the conflict rule. The conflict rul\u00C2\u00A9 would certainly be a dominant element running through th\u00C2\u00A9 Commercial Opportunity Doctrine. It would appear that-Professor Austin'3 rejection of the conflict rule a\u00C2\u00A7 sustaining the doctrine is based upon his unnecessary desire to have a single basis for it. There is no reason for this exclusively of origin, and the conflict rule must be seen to play a large part in it. However, much of the caselaw upon which a Commercial Opportunity Doctrine may be constructed from comes via the profit rule. d. The Profit Rule The profit rule reguires the fiduciary to account to the beneficiary for any gain which the fiduciary makes in connection with his or her office. The central pillar of the construction of an Australian Commercial Opportunity Doctrine will be shown to be the profit rule. For this reason the caselaw will be examined in great detail. Both Shepherd35 and Ellis36 attribute the commencement of the 3SThe Law of Fiduciaries (Toronto: The Carswell Co., 1981) at 276. \"Fiduciary Duties in Canada (Toronto: De Boo, 1988) Ch.15 p.9. iii. Canadian Commercial Opportunity Doctrine to the House of Lords decision in Regal (Hastings) Ltd. v. Gullivar.\" In that case Regal planned to acquire the leases on two cinemas. To achieve -this a wholly-owned subsidiary was to be formed. After some difficulties the directors ajjd solicitor of Regal decided to take y.p a majority holding in this subsidiary. This was done and the directors and solicitor reaped larqe profits. The new owners of Regal sued the four directors and the solicitor for an accounting of these profits. As Lord Russell of Killowen pointed out the only explanation why fraud in the normal sense was not made out was that errors in preparation and presentation of the case were made by the plaintiff.\" Viscount Sankey'3 judgment has been quoted above. The judgment that has had far reaching implications for Canada in the development of this doctrine is that of Lord Russell. His Lordship stated. '.'..:.' s v-,: \"they [the directors and solicitor] may be liable to account for the profits which they have made, if, while standing in a fiduciary relationship to Regal, they have by reason and in course of that fiduciary relationship made a-profit.\"39 \"The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or \u00E2\u0080\u00A2 \"[1967] 2 AC 137. \"Ibid, at 143. \"Ibid, at 143. 118 upon such questions or considerations as whether the profit would or should otherwise have gone to the [company], or whether the profiteer was under a duty to obtain the source of the profit for the [company], or whether the [company] has in fact been damaged or benefited by this action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account.\"40 \"Did [the directors and solicitor] acquire them [the profits] by reason and in course of their office of directors of Regal? In my opinion, when the facts are examined and appreciated, the only answer can be that they did.\"41 \"In the result I am of the opinion that the directors standing in a fiduciary relationship to Regal in regard to the exercise of their powers as directors, and having obtained these [profits] b\u00C2\u00A3 reason and only by reason of the fact that they were directors of Regal and in the course of the execution of the office, are accountable for the profits which they have made out of them.\"42 [the emphasis is by the author] The key element of Regal (Hastings) and the basis upon which the directors were found liable, requiring them to disgorge these profits, was that the commercial fiduciaries made a profit in the \"stated circumstances.\" Those _^ _stated, circumstances\" were that the profit was made \"by reason of and in the course of\" the fiduciary office. Shepherd claims43 that the legacy of Regal (Hastings) is that \"a 40Ibid. at 144-145. \"Ibid, at 149. \"Ibid, at 149. 49Supra Note 16 at 150. iii. very tight rule to be applied rigorously and with unyielding severity\" had been created. Ellis formulates the rule derived from this decision to be that \"A director or officer of a corporation may not personally profit from a opportunity presented to him as a result - and only as a result - of this being a director. Where he does so profit, the presence or absence of good faith is irrelevant to his liability to account, such liability being strictly enforced regardless of intention.1,44 According to Ellis45 this principle has been the building stone of the Canadian doctrine. It is with the influential judgment of Lord Russell that Professor Austin commences his quest for caselaw support for an Australian Commercial Opportunity Doctrine. He finds Regal (Hastings) deficient to serve that purpose. The Lord Russell test requiring that the fiduciary made that profit \"by reason of and in the course of\" his or her fiduciary duty is comprised of two elements. The first, pertaining to \"in the course of\" is a temporal limitation. The second, relating to \"by reason of\" is th\u00C2\u00ABi causal limitation. The problem connected to the temporal limitation is obvious; an apparent escape from liability is by resignation. This is, as Austin correctly indicates,46 manifestly unjust. Professor Austin's criticism of the \u00E2\u0080\u00A2 \"Supra Note 36 ch.15 p.11. 45Supra Note 36 ch.15 p.11. \"Supra Note 16 at 150. 120 causal element of the Lord Russell test is unfortunately poorly expressed. He suggests that the \"by reason of\" requirement implies that a commercial fiduciary can act in a fiduciary capacity arid in a non-fiduciary capacity.\" Obviously, Austin's objection to a commercial fiduciary also being able to operate as a non-fiduciary is not as wide as his statements suggests.48 Later in the article the learned author comments that even a full-time corporate executive in New York can write the \"great American novel\" in hi3 recreational time.45 It is easily grasped that Professor Austin does envisage a commercial fiduciary conducting him or herself for personal profit, The problem is what does he mean by the criticism of the second element of the Lord Russell. It is suggested that what Austin is endeavouring to convey is that at all times the commercial fi^taciary is a commercial fit^aciary. At any moment this duty may be breached. Whether the commercial fiduciary will be in breach of his or her duty is determined by the scope and content of the fiduciary duty. It would appear that Professor Austin's criticism of the second element is pivoted upon his perception that the causal test might indicate some way of removing the fiduciary duty. If this 47Supra Note 15 at 150. ' \"the Professor employs a hat metaphor in that the casual limitation appears to permit the taking off of the f W t a c i a T y h a t and replacing it with a non-fiduciary hat. 49Supra Note 16 at 150. 121 interpretation placed upon Austin's words is correct then this is a valid criticism of the causal limitation. However, a far stronger criticism exists of the Regal .(Hastings) decision as a basis for the Australian Commercial Opportunity Doctrine. The causal limitation requires that the opportunity must be available to the commercial fiduciary \"by reason of\" the equitable relationship. This element clearly places the Lord Russell test for liability under the profit rule. However, this is not as broad as the proposed doctrine. It has been argued, to sterilize an area of potentially great wronqdoinq, that a commercial fiduciary should be prevented from keeping an opportunity to engage in a business activity if he or she knows that the activity is closely related to the business in which the beneficiary is presently engaged or may reasonably be expected to engage in. Causation is not dealt with. This highlights the strong claim that the conflict rule has to form part of the foundation of a Commercial Opportunity Doctrine in Australia. Thus^-the Lord Russell test involves an element (causation) which is quite irrelevant to the proposed model of the doctrine. As Professor Austin acknowledges50 the facts of Regal (Hastings 1 did not offer Lord Russell much opportunity \" to consider his temporal and causal limitations. This largely untried test was subsequently applied in Canada. \"supra note 16 at p.148. iii. In Peso Silver Mines v. Cropper51 Peso was a mining company and the defendant Cropper was Peso's managing director. A prospector offered claims to Peso. At a meeting of directors, attended by Cropper, these highly speculative claims were rejected. The prospector then offered these claims to Cropper and others. This offer was accepted. The control of Peso changed and the new owners demanded that Cropper transfer these claims. He refused, and Peso pursued it's claim, based on the opportunity rule. In the British Columbia Court of Appeal Bull J.A., writing for the majority, and Norris J.A. differed in their respective interpretations of Regal (Hastings) as applied to the facts before them. Mr. Justice Bull perceived Regal (Hastings) as establishing two grounds for liability.52 The first, based on Viscount Sankey's judgment, is where the fiduciary places him or herself in a position of conflict between his or her personal interest and the duty to the beneficiary. The second ground for liability that his Lordship found established by Regal (Hastings) is that the fiduciary cannot retain a profit arising \"by reason of and in the course of his fiduciary office.\"53 51 [1966] SCR 6 73, 56 WWR 641, 58 DLR (2d) 1. \"(1966) 56 DLR '(\u00E2\u0080\u00A2&\u00C2\u00BB) VL1 at 154. \"In Zwicker v. Stanburv f19541 1 DLR 257 approval was given to the conflict rule by the Supreme Court of Canada, and the same court endorsed the profit rule in M.idcon Oil & Gas Ltd. v. New British Dominion Oil Co. Ltd. [1958] 12 DLR (2d) 705. iii. The conflict p r i n c i p l e r e c e i v e d d i s t r e s s i n g l y scant r e g a r d from B u l l J.A. H i s L o r d s h i p h e l d t h a t o n c e t h e board of Peso h a d b o n a f i d e r e a c h e d t h e d e c i s i o n n o t to p u r c h a s e the claiir.s the company no longer had any interest in them. In regard to the profit rule Peso's counsel argued that as Cropper and his associates had acquired their knowledge of t h e claims as d i r e c t o r s o f Peso, t h e i r subsequent p u r c h a s e o f t h e c l a i m s was \" i n t h e c o u r s e of\" t h e fiduciary office. Bull J.A. rejected this contention by interpreting L o r d Russell's j u d g m e n t in Regal fHastings) to necessitate the showing that the transaction was entered into only by reason of the fact that they were fiduciaries, and ira the e x e c u t i o n of t h e i r o f f i c e . H i s Lordship held that this was not proven here. The directors were acting in the course of their fiduciary office when considering and rejecting the claims. After the rejection the purchase, by the directors could not, according to Bull J.A., be said to have been made only in their capacity as directors. The majority judgement in Peso stands as authority for the proposition that the subseqnnfisntl use of knowledge acquired as a director is not, o f itself., sufficient to invoke the profit rule. Buull J.A. a l s o noted the comments, . fii'ftese K . R . i n Regal (Hastings). Greene M.R. said in the Court of \u00E2\u0080\u00A2\u00E2\u0080\u00A2Jippeai decision that \"To say that the Company was entitled to clam .the. benefit of those shares would involve this proposition: Where a Board .of \u00E2\u0080\u00A2 Directors ecus,ttiters iii. an investment which is offered to their company and bona fide comes to the conclusion that it is not an investment which their Company ought to make, any Director, after that Resolution is come to, who chooses to put up money for that investment himself must be treated as having done it on behalf of the Company, so that the Company can claim any profit that results to him from it. That is a proposition for which no particle of authority was cited; and goes, as it seems to me, far beyond anything that has even been suggested as to the duty of directors, agents, or persons in a position of that kind.\" Lord Russell in the House of Lords commented upon this statement by the Master of the Rolls. Mr. Justice Bull in Peso expressed the opinion that this comment on Lord Greene's hypothetical would have been superfluous, as the Court of Appeal's decision was being reversed, unless Lord Russell intended to agree with Lord Greene's reservation. Bull J_\_ concluded that the .facts before him did fall within this hypothetical and so the directors v;ore at liberty to take the opportunity. However, the validity of the hypothetical has been questioned. First, in reference to Lord Greene's rejection of the proposition as not possessing a \"particle of authority\" Ellis54 points out that this clearly ignores all the cases that follow Keech v. Sandford.55 Secondly, Beck convincingly suggests that a more likely explanation of Lord Russell's comment than the one expressed by Bull J.A. was a \"Supra Note 36 Ch.15 p.12. \"(1726) 25 ER 223. iii. desire on his Lordships behalf to clarify the fact that Lord Greene's hypothetical was not the case that the House of Lords was faced with. The comment was not intended to be an endorsement of the validity of the hypothetical. What informed Bull J.A.'s entire approach to the case was a decided reluctance to extend equitable principles into a commercial context,56 His Lordship stated that \". . . in this modern day and country when it is accepted as commonplace that substantially all business and commercial undertakings, regardless of size or importance, are carried on through the corporate vehicle with the attendant complexities involved by interlocking, subsidiary and associated corporations, I do not consider it enlightened to extend the application of these principles beyond their present limits. That the principles, and the strict rules applicable to trustees upon which they are based, are salutary cannot be disputed, but care should be taken to interpret them in the light of modern practice \" 5 7 A rejection of this underlying philosophy constituted th basis of the dissenting judgment of Norris J.A. His Lordship held: \u00E2\u0080\u0094 \"With, the greatest respect, it seems- to me that the complexities of modern business are a very good reason why the rule should be . enforced strictly in order that such complexities may not be used as a smoke screen or shield behind which fraud might be perpetrated. The argument is purely and simply an irrelevant argument of expediency as to what the law should be, not what it is. It might be well be said that such an !6a theme common to this entire paper. \"Supra Note 53, at 154-155. 126 argument if given effect to would open the door to fraud, and weaken the confidence which ordinary people should have in dealing with corporate bodies. In order that people may be assured of their protection against improper acts of the trustees it is necessary that their activities be circumscribed within rigid limits. ... The history today of many corporate bodies has disclosed scandals and loss to the public due to failure of the directors to recognize the requirements of their fiduciary position. No great hardship is imposed on directors by fire enforcement of the rule, as a very simple course is available to them which they may follow [full disclosure to, and seek approval of, the shareholders]\"58 With this approach39 Morris J.A. held that the actual decision of Resal (Hastings) and not Lord Greene's hypothetical covered the case before him.50 The desire of Peso to purchase the claims, which was prevented by financial inability, meant that the acquisition of the opportunity by the fiduciary brought the case fairly within the facts of Reqal (Hastings) Unfortunately this basic split between Bull J.A. and Morris J.A. concerning the application of Equity's traditional rules to the modern business world wat\u00E2\u0080\u0094 not commented upon by the Supreme Court of Canadian in its decision in Peso. Cartwright J., delivering the unanimous \"Supra Note 51 at 139. 59Prentice in \"Resal (Hastings) ~ The . Canadian Experience\" (1967) 30 Mod LR 450 at 452 finds that it is this philosophical difference that generates the conflicting judgments. \"Supra Note 51 at 125. \"Supra Note 51 at,134\u00E2\u0080\u009E ' iii. j u d g e m e n t of Canada's h i g h e s t c o u r t , a d d r e s s e d o n l y t h e p r o f i t r u l e and i g n o r e d t h e c o n f l i c t r u l e . X i s L o r d s h i p q u o t e d e a c h of t h e j u d g m e n t s in Reqal (Hastings) \u00E2\u0080\u00A2 H i s c o n c l u s i o n was62 t h a t all t h e j u d g e s i n t h e H o u s e o f L o r d s a g r e e d w i t h t h e f o l l o w i n g s t a t e m e n t o f L o r d R u s s e l l ; \" . . . a n d h a v i n g o b t a i n e d t h e s e s h a r e s by r e a s o n a n d o n l y b e r e a s o n of t h e fact t h a t t h e y were t h e d i r e c t o r s of R e g a l and i n t h e c o u r s e of t h e e x e c u t i o n o f t h a t office [ t h e y ] a r e a c c o u n t a b l e f o r t h e p r o f i t s w h i c h t h e y h a v e made o u t of t h e m . \" The finding o f a b o n a f i d e r e j e c t i o n of t h e claims by t h e board m e a n t t h a t t h e s u b s e q u e n t p u r c h a s e by C r o p p e r was n o t i n t h e c o u r s e o f t h e e x e c u t i o n of t h i s f i d u c i a r y o f f i c e and so t h e a p p e a l was d i s m i s s e d . The d e c i s i o n h a s b e e n j u s t l y c r i t i c i z e d by B e c k . \" He claims t h a t t h e d e c i s i o n in Regal (Hastings) d o e s n o t s u p p o r t t h e n a r r o w i n t e r p r e t a t i o n p l a c e d u p o n it by t h e S u p r e m e C o u r t of Canada . The s t a t e m e n t by L o r d R u s s e l l q u o t e d by C a r t w r i g h t J. came at t h e conclusion of his Lordship's e x a m i n a t i o n o f t h e facts to determine if the s h a r e s were a c q u i r e d \"by r e a s o n o f a n d Ln^t-h-e co.Lur.se of t h e i r o f f i c e of d i r e c t o r s o f R e g a l . \" As Shepherd states \"The c l e a r i m p l i c a t i o n of L o r d R u s s e l l ' s decision is t h a t , o n c e c a u s a t i o n h a s b e e n proved, no d e f e n c e s p e a k i n g t o w h e t h e r t h e beneficiary \"(1966) 58 DLR (2d) at 8. \"Supra Note 10 at 106. iii. corporation could or would have taken the opportunity is allowed.\"64 With the greatest respect Mr. Justice Cartwright erroneously interpreted and applied Lord Russell's decision. The practical implication of the decision in Peso was a move towards the relaxation of the opportunity doctrine in Canada. Effectively, the Court in Peso circumscribed the strength of Corporate Opportunity Doctrine laid down in Regal (Hastings) by permitting the fiduciary to successfully show the opportunity did not come to him or her exclusively and only in the course of the fiduciary office. One consequence of this decision has been a steady stream of academic criticism of the relaxation of the Corporate Opportunity Doctrine.65 Obviously the decision in Peso is of little assistance in the development of an Australian Commercial Opportunity Doctrine. The next significant decision in Canada concerning the doctrine is of vital importance for the Australian attempt to construct a domestic opportunity model. This is the \"Supra Note 35 at 282 footnote 31. 65for example, Beck \"The Saga of Peso Silver Mines: Commercial Opportunity Reconsidered\" (1971) 49 Can. Bar. Rev. 80; Beck \"The Quickening of Fiduciary Obligations: Canadian Aero Services Ltd. v. O'Malley\" (1975) 53 Can. Bar. Rev. 771; Prentice \"Comment Industrial Development Consultants Ltd. v. Cooley\" (1972) 50 Can. Bar. Rev. 623 Sugarman \"Comment Oranie v. Kuvs\" (1974) 52 Can. Bar. Rev. 280. 129 seminal decision of the Supreme Court of Canada in Canadian Aero Services Ltd. v. 0'Mallev.6\" The facts of the case are straightforward. The plaintiff company engaged in topographical mapping. M was a director, president and chief executive officer of the company. 2 was a director and executive vice-president. The company first became interested in the possibility of an extensive aerial mapping project in Guyana in 1961. Both M and 2 spent time in Guyana in 1961 and 1962 preparing preliminary projects and consulting with government officials. The Canadian government decided to finance the project. M and 2 were in contact with officials of the governments of both Guyana and Canada during this time. M and 2 incorporated T Ltd. and shortly thereafter resigned their positions with Canadian Aero Services. Five companies, including Canaero and T Ltd. were invited to bid on the Guyana project. T Ltd. was selected as the contractor. Canaero brought an action against M and 2 alleging that they had breached their fiduciary duty to 'it by depriving the company of an opportunity it had been developing. As Beck6' has pointed out these facts bear more than a passing resemblance to Cook v. Daeksa and it .\"(1973) 40 DLR (3d) 371. \"\"The Quickening of Fiduciary Obligations\" (1975) 53 Can. Bar. Rev. 771. \"[1916] 1 AC 554., 130 would have been understandable to assume that the Canadian courts would find as the Privy Council found in that case. However, at first instance and in the Ontario Court of Appeal no breach of fiduciary duty was found.\" A consequence of these findings required the Supreme Court of Canada to reevaluate the requirements for liability in Regal (Bastings) , Beck contends\"' and Finn agrees\" that it was this reevaluation that propelled Canada towards a \"flexible and more spacious standard\" for the Corporate Opportunity Doctrine. And it is this propulsion that gives the judgement of Canaero it's importance. Mr. Justice Laskin (as he then was), writing for the majority, had to grapple with the Ontario Court of Appeal's holding that as M and Z were defectively appointed as directors they were only employees possessing no fiduciary duties. Laskin J. dismissed this formalistic approach by stating \"Like Grant, the trial judge, I do not think \u00E2\u0080\u0094 matters whether M and Z were properly appointed as directors of Canaero or whether they did or did not act as directors. What is not in doubt is that they acted prospectively as president and \"The Ontario Court of Appeal decision was based upon the fact that neither M nor Z had been properly., as directors. Thus, the Court of Appeal found that they were only employees and therefore owed the company no fiduciary duty. \"Supra Note 61 at 775-776, nFiduciarv Obligations (Sydney: Law Book Co., 1977) at 248. iii. executive vice-president of Canaero for about two years prior to their resignations ... they acted in those positions and their enumeration and responsibilities verified their status as senior officers of Canaero. They were \"top management\" and not mere employees .. .\"72 Further, it can be contended, as Ellis does, \" that even if no appointments had been attempted H and Z would have been \"de facto\" fiduciaries according to the terminology of the High Court of Australia in the Hospital Products case.74 Can the proposed Commercial Opportunity Doctrine be based on the Canaero decision? This is dependent upon the reasoning of the Supreme Court of Canada. Thus, a thorough examination of it is required. Laskin J. held that: \"It follows that [they] stood in a fiduciary relationship to Canaero, which in its generality betokens loyalty, good faith and avoidance of a conflict of duty and self-interest. Descending from the generality, the fiduciary relationship goes at least this far; a director or a senior officer \u00C2\u00AB , . is precluded from obtaining for himself, either secretly or without the approval of the company (which would have to be propecl^ manifested upon full disclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating; and especially is this so where the director or officer is a participant in the negotiations on behalf of the company.\"75 \"Supra Note 62 at 381. \" \"Supra Note 36 at Ch.15 p.17. \"(1984) 156 CLR 41. \"Supra Note 62 at 381-382. iii. T h i s s t a t e m e n t i s o f v i t a l s i g n i f i c a n t t o t h e a t t e m p t t o d e v e l o p a n A u s t r a l i a n C o m m e r c i a l O p p o r t u n i t y D o c t r i n e , t h e C o u r t h e r e c l e a r l y f o c u s e d on t h e s t a t u s o f t h e \" p r o p e r t y o r b u s i n e s s a d v a n t a g e \" . By t h i s f o r m u l a t i o n o f t h e d o c t r i n e t h e c o m m e r c i a l f i d u c i a r y i s n o t p e r m i t t e d t o u s e a n o p p o r t u n i t y w h i c h \" b e l o n g e d \" t o t h e b e n e f i c i a r y o r f o r w h i c h it h a s b e e n n e g o t i a t i n g . T h u s , i f t h e e a r l i e r e x a m p l e i s c i t e d , w h e r e t h e c o m m e r c i a l f i d u c i a r y r e c e i v e s an o p p o r t u n i t y , i n t h e same l i n e of b u s i n e s s a s h i s o r h e r b e n e f i c i a r y , f r o m h i s o r h e r g o l f i n g p a r t n e r t h a n t h e b e n e f i c i a r y c a n n o t s u c c e s s f u l l y b r i n g an a c t i o n on t h i s doctrine.76 L a t e r , L a s k i n J. r e p e a t e d t h i s f o r m u l a t i o n . \"An e x a m i n a t i o n o f t h e c a s e l a w i n t h i s C o u r t and i n t h e C o u r t s o f o t h e r l i k e j u r i s d i c t i o n s o n t h e f i d u c i a r y d u t i e s o f d i r e c t o r s a n d s e n i o r o f f i c e r s show t h e p e r v a s i v e n e s s o f a s t r i c t e t h i c i n t h i s a r e a o f t h e l aw . I n rry o p i n i o n , t h i s e t h i c d i s q u a l i f i e s a d i r e c t o r o r s e n i o r o f f i c e r f r o m u s u r p i n g f o r h i m s e l f . . . a m a t u r i n g b u s i n e s s o p p o r t u n e cy w h i c h h i s company i s a c t i v e l y p u r s u i n g . . . . I l 7 7 E l l i s p o i n t s out78 t h a t t h e s e s t a t e m e n t s r e q u i r e t h a t the o p p o r t u n i t y m u s t b e d e v e l o p e d a t l e a s t t o w h e r e i t c o u l d b e s a i d t h a t t h e o p p o r t u n i t y w a s m a t u r i n g . I f not, no Liability fiows._ .\"clearly t h o u g h a n a c t i o n f o r breach of the conflict r u l e w o u l d b e a v a i l a b l e . \"Supra Note 62 at 381. \"Supra Note 36 at Ch.15 p.18. 133 One way of attempting to utilize Laskin J.'s judgment for an expansive Commercial Opportunity Doctrine is to examine closely what his Lordship required for liability. At pages 381-382 Laskin J. held that the fiduciary \"... is precluded from obtaining for himself ... any property or business advantage either belonging to the company or which it has been negotiating.\" In the example where the opportunity comes to the commercial fiduciary from his or her golfing partner obviously the benefit cannot be said to have been negotiated for. But can it be said that his opportunity \"belongs\" to the beneficiary? As was earlier argued it is difficult to conceptualize opportunity as property. It can be argued that the word \"belongs\" was not used in the Supreme Court's judgment to connote proprietorial rights as this is illogical when dealing with things which, by their very nature, are not property. It is reasonable to suggest that in common usage duties may be said to belong to_\u00E2\u0080\u009Ethe beneficiary. For example, the trustee owes duties to his or her beneficiary. These duties may be said to belong to the beneficiary. And what could form part of the comercial fiduciary's duty which belong to his or her beneficiary? Beck75 convincingly argues that a commercial fiduciary may receive information in a multitude of places, such as the \"Supra Note 51 at,134\u00E2\u0080\u009E ' n n n n , n u n i' U wu ,u r C I u J \u00E2\u0080\u00A2 134 boardroom and the golf course. Twinned with this the learned author demonstrates that such information does not come neatly packaged as directed towards commercial fiduciaries because of their fiduciary position. Thus, Back perceives\u00C2\u00AE0 part of the fiduciary duty to be to pass on this information (or opportunity) to his or her beneficiary. On this particular approach it is plausible to argue that this duty to pass on the information (or opportunity) is owed to the beneficiary, or phrased differently/ this duty \"belongs\" to the beneficiary. \" On this approach Canaero can be viewed as supporting the expansive doctrine for Australia. There are other statements by Laskin J,, obviously dicta, which also support the expansive approach. Laskin J. stated \"... there may be situations where a profit must be disgorged, although not gained at the expense of the company, on the ground that a director must not be allowed to use his position as such to make a profit even if it was not open to the company , . ., as for example, by reason of the legal disability, to participate in the transaction. It would be puzzling to coniine the doctrine to where the \"opportunity\" is maturing, if it is not an opportunity per \"Supra Note 67 at 783, \"Lord Roskill in Industrial Development Corporationg v. Cooley [ 1 9 7 2 ] 2 All ER 162 also supports this duty of the commercial fiduciary to his or her beneficiary .information \"which was of concern to the Plaintiffs and was relevant for the Plaintiffs to know.\" at 1 7 3 . \"Supra Note 51 at,134\u00E2\u0080\u009E ' iii. s e b e c a u s e t h e b e n e f i c i a r y c a n n o t t a k e a d v a n t a g e o f i t . H i s L o r d s h i p m u s t b e s e e n h e r e t o b e i n c l u d i n g s i t u a t i o n s w h i c h d o n o t i n v o l v e m a t u r i n g o p p o r t u n i t i e s . As s u c h , t h i s o b s e r v a t i o n p r o v i d e s f o u n d a t i o n f o r a n A u s t r a l i a n C o m m e r c i a l O p p o r t u n i t y D o c t r i n e . One d i f f i c u l t y w i t h a t t e m p t i n g to u t i l i z e L a s k i n J.'s j u d g m e n t a s t h e c o r n e r s t o n e f o r t n e p r o p o s e d d o c t r i n e i s t h a t h i s Lordship e x p l i c i t l y r e f u s e d to e s t a b l i s h s p e c i f i c r u l e s f o r c o m m e s c i a l f i d u c i a r i e s . I n s t e a d Mr. J u s t i c e L a s k i n e m p h a s i s e d t h e f l u i d n a t u r e of t h e r e l a t i o n s h i p by s t a t i n g \" I n h o l d i n g t h a t o n t h e facias f o u n d by t h e trial j u d g e , t h e r e was \u00C2\u00A3 f i d u c i a r y d u t y by M and Z w h i c h s u r v i v e d t h e i r resignation I am n o t to be t a k e n as l a y i n g down a n y rule o f liability to b e r e a d a s i f i t w e r e s t a t u t e . The g e n e r a l s t a n d a r d s o f l o y a l t y , good f a i t h and woidance o f conflict o f d u t y and s e l f - i n t e r e s t to which t h e c o n d u c t of a d i r e c t o r a n d senior officer ituust conform, m u s t b e t e s t e d i n e a c h case by many factors w h i c h it w o u l d b e r e c k l e s s to e n u m e r a t e e x h a u s t i v e l y L a s k i n J.'s r e f u s a l t o deal w i t h o r t o p r o v i d e detailed r u l e s f o r b r e a c h o f a c o m m e r c i a l f i d u c i a r y ' s d u t y i s a p p l a u d e d by S h e p h e r d \" and P r o f e s s o r Gower85 r e f e r s t o \" Supra N o t e 62 a t 383. \"Principles o f Modern Company Law 4 t h Ed. (London: B u t t e r w o r t h s : 1 9 7 9 ) a t 595. \" \"interestingly, t h e Ontario H i g h C o u r t .of Justice recent h e l d t h a t d e c i s i o n of H o f f m a n P r o d u c t s v . Karr (1990) 70 DR (2d) 789 t h e f a i r n e s s a p p r o a c h o f L a s k i n J. e n t a i l e d t h e e x a m i n a t i o n o f t h e b e n e f i c i a r y . I n t h a t c a s e t h e beneficiary had been established as a vehicle both for 136 Canaero as \"a masterly judgment.\"86 His Lordship's judgment is appropriate for non-commercial fiduciaries where the flexible and fluid nature of Equity's doctrines must be retained. However, with commercial fiduciaries operating in an environment of the business world certainty is a valuable and important commodity. The flexibility of Equity's traditional approach caused the majority of the High Court of Australia to refuse to find a fiduciary relationship in the Hospital Products case and was explicitly acknowledged by Bull J A. in Peso.87 Ziegel** criticizes the judgment in Cannero for being conducive of uncertainty regarding the liability of a commercial fiduciary. Austin3' similarly finds fault with it. It is contended that the open ended fairness approach of Laskin J. is suitable for non-concealing idsntity and for tax reasons. Chadwick J. held at,p.798 that by fitting these two factors into the fairness matrix the commercial fiduciary was not in breach of his duty. This application of Laskin J.'s fairness approach has repurcussions for business entities established for tax minimization purposes. 86the open eneded fairness approach of Lasking J. has been applied countless times, e,g, Jiffy People Sales (1966) Ltd.. v. Eliason (1975) 58 DLR (3d) 439; Redckop v. Robco Construction Ltd. (1978) 89 DLR (3d) 507; Sdqar T. Alberts ,Lt~d v. Mountjoy (1977) 79 DLR (3d) 108; Abbey Glen Property Carp. v. Strumburq (1978) 85 DLR (3d) 35; Sheather v. Assoc, financial Services Ltd.. (1979) 15 BCLR 265; Weber Feeds Ltd. v. 'Weber (1979) 99 DLR (3d) 176. .\"Supra Note 51. es\"Bora Laskin's Contributions to Commercial Contract and Corporate Law\" (1985) 35 U. Toronto LJ392 at 419. \"supra note 16 at p.148. 137 commercial fiduciaries, but not so for commercial fiduciaries. However, this contention does not mean that the law of fiduciaries should be banished from the arena of commercial fiduciaries and their business beneficiaries. It simply requires a search for an approach which brings into the fiduciary duties greater certainty whilst retaining some flexibility. This is provided by the proposed Commercial Opportunity Doctrine. The decision of the Supreme Court of Canada in Canaero does provide support for the proposed Australian Commercial Opportunity Doctrine. However, these statements in support are overshadowed by the fairness approach which is entirely discretionary. It is therefore fortunate that Canaero is not the sole authority for the Australian model. Roskili J.'s judgment in Industrial Development Consultants v. Cooley30 is also of assistance. Cooley had been the managing director of the plaintiff company. During this time he had conducted negotiations, on behalf of his beneficiary, with the Eastern Gas Board. These dealings produced no results. However; subsequently a representative of Eastern Gas Board approach Cooley, in his private capacity, with a proposition similar to that in which the plaintiffs had been interested. Cooley accepted this .offer. He resigned from the plaintiff, claiming ill health, and took up a contact with the Eastern Gas Board. 90[ 1972] 2 All ER 162. iii. On the discovery of these facts the plaintiffs brought aft action for breach of fiduciary duty. Cooley's defence, ift part, was that the information he received had been given t\u00C2\u00A9 him in his private capacity, and that there was no fiduciary obligation to pass this information to the plaintiff. Regarding this argument, claiming that he had received the inftrmation in a private capacity, Roskill J. stated \"The defendant had one capacity and one capacity only in which he was carrying out business at that time. The capacity was as managing director of the plaintiffs. Information which came to him when he was managing director and which was of concern to the plaintiffs and was relevant to the plaintiffs to know, was information which it was his duty to pass on to the plaintiffs, because between himself and the plaintiffs a fiduciary relationship existed. TViio is .-SwiniiBlv of imnortance in intemretina Laskin J.'s eoHmeciit on the opportunity fee the teenefi-eiar^: Roskill J. found Cooley liable. His Honour's reasoning was that the opportunity which Cooley exploited was of \"concern\" and \"relevance\" to the company. In\u00E2\u0080\u0094this formulation there is no requirement that the commercial -\u00E2\u0080\u00A2 - \u00E2\u0080\u00A2 \u00E2\u0080\u00A2\u00E2\u0080\u00A2 \u00E2\u0080\u00A2 -- ^.\u00E2\u0080\u0094 jj... that was in the process of being *\u00C2\u00BBatatnsBH\" by t t e bwefieiary. Prentice contends\" that this decision permits the formulation of a Commercial . \"Ibid, at 173-174. \"\"Comments: Directors' Fiduciary Duties - The Corporate Opportunity Doctrine\" (1972) 50 Can. Bar. Rev. 623 at 628-630. 139 Opportunity Doctrine along similar lines to the American Commercial Opportunity Doctrine. Austin, \" in addition, makes this contention.54 e. Fulfillment of the Commercial Opportunity Doctrine It is obvious that the Commonwealth caselaw, primarily Canadian but also English, is capable of providing a firm jurisprudential basis for the bulk of the proposed Commercial Opportunity Doctrine. However, further guidance is provided by the American lear ning in the area. The American doctrine, according to Shepherd,95 is dominated by the \"line of business\" approach. The original statement of this test was in Guth v. Loft.96 Guth was a commsrci.il fiduciary in relation to Loft, which was a wholesaler and retailer of food and beverages. Guth, in his corporate position, beqan to investigate the substitution of Pepsi-Cola for Coca-Cola. The owner of Pepsi-CSia, National Pepsi-Cola Company (NPC), subsequently went bankrupt. _ The controller of NPC and Guth formed a new company and acquired both the formula and trademark of Pepsi-C&La. This new \"Supra Note 16 at 151. 94Beck in \"The Quickening ...\" Supra Note 66 at 777 suggests that this case does not go this far but fails to explain further. \"The ALR (77 ALR (3d) 961 at 966-967) also accepts this proposition as correct. \"(1939) 5 A 2d 503. iii. company was spectacularly successful. Loft sought relief for breach of Guth's fiduciary duty. Guth was found liable. The Supreme Court of Delaware held: \"The real issue is whether the opportunity ... was so closely associated with the existing business activities of Loft, and so essential thereto, as to bring the transaction within that class of cases where the acquisitions of the property would throw the corporate officer purchasing it into competition with his company ... [the] phrase \"in the line of business\" has a flexible meaning ... Where a corporation is engaged in a certain business, and an opportunity is presented to it, embracing an activity a3 to which it has fundamental knowledge., practical experience and ability to pursue, which, logically and naturally, is adaptable to its business having regard for its financial position, and is one that is consonant with its reasonable needs and aspirations for expansion, it may be properly said that the opportunity is in the line of corporation's business.\"\" Loft's \"line of business'; involved the sale of carbonated beverages, some of which were produced by itself.\" This \"line of business\" test has been expanded by subsequent cases to cover prospective activities,ss This expanded \"line of business\" test can be expressed as follows: the corporate fiduciary is not permitted to engage in an activity if he or she knows or should reasonably know \"Ibid, at 513-514. . . \"This case is discussed in greater detail by Bean \"Corporate Directors' Liability'\" (T9TT6) 65 Denver University Law Review 59 at 70-71. \"for example Rosemblum v. Judson Engineering Corporation 99 N.H. 267; 109 A (2d) 558 (1984), Goodman v. Perpetual Building Association 32 OF Supp 20 1970. iii. that the activity is closely related to the business in which the beneficiary is engaged or may reasonably be expected to engage in. According to Brown100 this expanded \"line of business\" test is certainly the preferred approach of the American Law Institute in its Tentative Draft Principles of Corporate Governance.11\"- This strict sterilization of a large area of potential activity by the commercial fiduciary indicates a commendable and desirable feature of applying the expanded \"line of business\" test, and that is it provides commercial fiduciaries with a great deal of certainty in reference to what they can and cannot do. The deterrence factor, required because of temptation and minimal risk of detection, coupled with the certainty generated by a categorical standard support its appropriateness f o r Australia.102 100\"When Opportunity Knocks: An Analysis of the Brudney & Clark and RLI Principles of Corporate Governance Proposals of Deciding Corporate Opportunity Claims\" Corporate Practice Cornmentor 28 (1986-87) 50 at 519. '\"s39 paragraph 5.05 (b)(2) and this has 'been applied in Klinicki v. Lundaren 298 Dr 662. ' 'The current controversy that is consuming much legal journal space in the United States, for example, \"Consent and the Contract Model oil the Corporation\" by Honabach in (1989) 18 University of Baltimore Law Review 310 and \"Free at Last? The Contractual Theory of the Corporation and the New Maryland Officer-Director Liability Provisions\" (1989) 18 University of Baltimore Law Review 352, concerning the concept that a corporation as a set of private contractual relationships and the shareholders should be free to order internal corporate relations., in particular the fiduciary duties of officers and directors will not be examined here. iii. f. Conclusion The need exists for a Commercial Opportunity Doctrine in Australia. With the assistance of Canadian, English and American authority such as doctrine can be understood and developed. No single authority is absolute in its appropriateness to Australia. The English decision of IDC v. Coolay comes near to this but Professor Austin'\" 1 identifies two problems with the approach of Roskill J. The first is that it must be remembered that here we are dealing with the general profit rule, which covers both commercial and non-commercial fiduciaries. Although appropriate for commercial fiduciaries the Roskill J. approach is too broad and onerous for a non-commercial fiduciaries. The way td escape this dilemma is to apply Roskill J. 's \"concern\" and \"relevance\" test to commercial fiduciaries but to utilize some more flexible test for a non-commercial fiduciary.104 The obvious contender for this is the fairness approach c.f Ganaerg which is designed explicitly to provide the greatest flexibility. : > The second difficulty that Professor Austin105 has with the Roskill J. formula is that, it provides an insufficient guide to the content of- the Commercial ,103Supra Note 16 at 151, 104this effectively creates a Commercial Opportunity Doctrine. 105Supra Note 16 at 151. rf 143 Opportunity Doctrine. This is a consequence of the words \"concern\" and \"relevance\" being ambiguous. Austin proposes ,los quite convincingly, that what should be of \"concern\" and \"relevance\" to the commercial fiduciary's beneficiary is determined by the fiduciary's present and likely future business. If the activity falls within this ambit then it is of \"concern\" and \"relevance\" to the beneficiary, but it falls outside of this field then it can not be considered to be of \"concern\" and \"relevance\". Therefore, it would not be prohibited. If this sensible interpretation of Roskill J,'s test is adopted, then IDC v. Cooley and Canaero both support clearly the proposed Australian Commercial Opportunity Doctrine. In its entirety the doctrine would prevent a commercial fiduciary from exploiting, for his or her own benefit, an opportunity of which he or she becomes aware of by execution of his or her fiduciary office or an opportunity which the commercial fiduciary knows or should reasonably know is closely related to the business which the beneficiary is engaged in or may reasonably be expected to engage in. This' fiduciary duty increases the certainty for the commercial fiduciary, by being strict in its prohibition whilst retaining it's Equitable nature by exhibiting flexibility. Opposed to the viewpoint of Professor Austin this doctrine is drawn from 106Supra Note 16 at 151. iii. the rule against misappropriation of assets, the conflict rule and the profit rule. 3. Scope of the Proposed Doctrine a. Introduction As has been demonstrated caselaw does exist to assist the Australian courts developing an indigenous Commercial, Opportunity Doctrine. The immediate question that is posed logically is what should the scope of this doctrine be? This question has two substantial parts. First, should the doctrine apply equally to all businesses or just to public companies and secondly, what persons should be made subject to this doctrine? b. What Businesses Would be Covered by the Doctrine? In 1981 Professor Brudney and Clarke107 proposed a corporate opportunity doctrine employing a differential standard for fiduciaries of public corporations and close c o r p o r a t i o n s T h e i r arguments supporting.this have been bxeJsen down into .several main contentions by David J. \"\"\u00E2\u0080\u00A2\"A New Look at Corporate Opportunities\" (1981) 94 BarVv L. Rev. ,997. 108see \"Corporate Opportunity\" Georgetown Law Journal 56 (1967) 381 for a general rejection of this. iii. Brown.109 There contentions will be individually examined to decide whether they can svr^art such a differentiation. The first contention by Brudney and Clark is founded upon power. The authors argue that the shareholders of a close corporation have a much enhanced position relative to their public corporation counterparts pertaining to the selection and monitoring of their fiduciaries. The close corporation shareholders can be said to have explicit practical power over their fiduciaries. Unfortunately, this generalization ignores the often powerless position of the minority shareholder, frequently trapped into this shareholding as these shares are not readily transferable. From the opposing extremity of the power continuum the public company shareholder may not be as weak as the learned professors suggest. Austin cites'10 current research indicating that today, certainly in Australia, institutional investors are managed by persons who are motivated by performance-related job security and are equipped with the resources necessary to monitor carefully, and have an input into the selection of, the commercial fiduciary. In this way the clear dichotomy between the powerful close corporation shareholder and th.pra Note 15 at 172. iii. nature of the beneficiary, as the Commercial Opportunity Doctrine only operates when the beneficiary is a busines\u00C2\u00A7 entity. Secondly, the functional roll: the. alleged commercial fiduciary must be examined. Full-time executive directors will, almost without exception, tee \u00E2\u0080\u00A2sHfe^ -eet te\u00C2\u00A9 teto\u00C2\u00A9 doctrine. Pull-time non-director executives\u00E2\u0080\u00A2 such as 0'Malley and Zanycki in Canaero, will fenerally be commercial fiduciaries, and non-employed directors rarely will be. However, the functional approach must always be applied to determine whether a person is, in reality, a commercial fiduciary. 4. Defences a. Introductio\u00C2\u00AE Various contenders for defences to a Commercial Opportunity Dcsctrine suit have been advanced. They include resignation, the beneficiary's inability to take the opportunity and connected with this defence is the claim that no damage has been suffered by the beneficiary, and, finally, ratification. It is proposed to examine each of these possible defences in turn. . b. Resignation An obvious difficulty with the \"by reason of and in the course of\" test for liability for breach of the profit rule, iii. propounded by Lord Russell in Regal (Hastings i, is tft\u00C2\u00AE temporal limitation of the test. On this approach the fiduciary can resign and is then allowed t opportunity. The conflict rule likewise has this ternporaj. defect. For a breach of this rule what is required is an actual or potential clash between the fiduc\u00C2\u00A3|\u00C2\u00A3^Jg interests and the duties of the fiduciary Qff^ c e Tjje difficulty here is answering the- argument'.that any conflict disappears on resignation. The Corrmercial O p p o r t ^ D o c t r i n e c a n o v e r c o m e these nas Deen noted earlier Laskin J. in Canaero stated \"he (the commercial fiduciary) is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish' to' acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.\"131 This statement was quoted and approved by the. .British Columbia Supreme Court recently in Roper v. Murdoch.\"2 It is obvious that termination of employment does not come within Laskin J.'s test, if the termination is bona fide. 131Supra Note 66 at 381. 132(1987) 14 BCLR (2d) 385 at 389. 157 It has been held that the test is not satisfied where the commercial fiduciary is forced to resign,1\" Ellis perceives\"' Laskin J.'s test concerning the continuation of the fiduciary duty as having two components. First, did the commercial fiduciary leave his or her employment in order to acquire the opportunity? The second component is not as straightforward as the first. The commercial fiduciary is also liable where the opportunity came to him or her as a result of his or her fiduciary position and he or she subsequently uses it for personal advantage. This second element has been addressed by Hutchinson J. in Island Export Financing Ltd. v. Umunna;135 \"literally construed, this last part of: the icamilaiiQii.\u00C2\u00A3Oiild justify holding former directors accountable for profits wherever information acquired by them as such led them to the source from which they subsequently - perhaps as the result of prolonged fresh initiative-acquired business. ... It is one thing to hold them accountable when, in the graphic words of Laskin J. (at 391), 'they entered the lists in the heat of the maturation of the project, known to them to be under active Government consideration when they-resigned from Canaero and when they, proposed to bid on behalf of [themselves]', but it is an altogether different thing to hold former directors accountable whenever they exploit for their own or a new employer's benefit information which, while they may have come by it solely because of their position as directors of the plaintiff company, in truth forms part of their 133309925 Ontario Ltd. v. Tyrrell (1981) 127 DLR (3d) 99 (Ont. HC). l34Supra Note 37 at Ch.15 p. 18. 135[ 1986] BCLC 460. 158 general fund of knowledge and their .stock-in-trade\"136 Unfortunately, Hutchinson J. did not offer an alternate test, and recently Laskin J,'s approach was approved and applied in Vertieb Anderson v. Nelford, c. Inability to Take the Opportunity and No Damage Suffered. There exists ample Commonwealth authority that a fiduciary is accountable by breach of the conflict or profit rules though no loss has been incurred by the beneficiary.138 This principle can be extended to commercial fiduciaries by utilizing jpc v. Cooley,139 according to A u s t i n . . Lord Porter's concern in Regal (3astings\ that the \"windfall\" profits of recovering from the defaulting cprmercial fiduciary would be obtained by \u00E2\u0080\u00A2 the new 136(1990) 40 BCLR (2d) 379 at 384. ., 137An unwarrented extension of Canaero occurred in Albert's (Edgar J.) Ltd. v. Mountiov (1977)- 16 OR (2d) 682 where a senior employee of an insurance corporation set up his own business. Estey J. in upholding the \"\"it ~g~ir.rt the former employee, relied on \"the implied term of the contract of fiduciary service by the defendants' or; their breach of fiduciary duty.\" 1 ^ \u00E2\u0080\u00A2.\u00E2\u0080\u009E V 138for example, Parker v. McKenna (1874) 10 Ch App.96; Biftghn.elI v.. Equity Trustees. Executors & Agency Co. Ltd. (1929) 42 CLR 384; Furs Ltd. v. Tomkies (1936) 54.CLR 583.; 135Supra Note 90. 140Supra Note 16 at 175. iii. shareholders of Regal formed the basis of McDermid J. A.'s dissent in Abbey Glenn Property Corp. v. .Stumburq.111 His Lordship agreed that there had been a breach of fiduciary duty but declined to give judgment for the plaintiff corporation. Clement J.A., for the majority, held that a change in the shareholders, of itself, can not diminish the rigour of the obligation to account to the company. Two difficulties manifest themselves with the minority approach of McDermid J.A. The first, identified by Buaithwaite,142 is that his Lordship's approach requites acceptance that unjust enrichment, in a very narrow sense, drives the fiduciary obligation. This is an extremely contentious issue. The second difficulty with Mr. Justice McDermid's approach is that it indicates that fiduciary obligations are owed to the ahareholder's and not to the company. . \u00E2\u0080\u00A2 More difficult to account for is where the beneficiary is unable to take the corporate opportunity. Clearly the trend in the United States during the 1980's was that unless a corporation is financially insolvent and not merely unable to obtain credit or pay current bills, - its financial inability to take the advantage of a business opportunity would absolve neither an officer nor a director from 14185 DLR (3d) 35. 142\"Unjust Enrichment of Directors' Duties: Abbey Glenn Property Corp. v. Stumborq\" (1979) 3 Can Bus LJ 210. 160 usurping the opportunity.'\" Shepherd'\" refers to this as the \"impossibility\" defence. The most obvious type of impossibility would be where by taking advantage of the opportunity the beneficiary would be acting ultra vires. Other examples of impossibility include where the third party refuses to deal with the beneficiary'\" and where the beneficiary, for reasons such as financial inability146 is unable to accept the opportunity. In relation to the profit and conflict rules authority has indicated that corporate inability is no defence.14' In Canaero Laskin J. held \".. . there may be situations where a profit must be disgorged although not gained at the expense of the company, on the ground that a director not be allowed to use his position as such to make a profit even if it was not open to the company ... as for example by reason of legal disability, to participate in the transaction,\"U3 u)for example Kiinicki v. Lundqren 67 Ore App 160 (1984) affmd 298 Ore 662 (1985); Nicholson v. Evans 642-Utah 2d 727 (1982). '\"Supra Note 35 at 293. - ' 145for example IDC v. Cooley, 146for example Peso. 147for example. Furs Ltd. v. Tomkies (1936) 54 (LR58); Regal (Hastings.) v, Gulliver [1967] 2 AC 134; Boardman v. phipps ( 1 9 6 7 ) 2 AC 46; IDC v. Cooley [1972] 1 WLR 443; Consul Development Pty Ltd. v. DPC Estates Pty Ltd. (1985) '373 at 395 per Gibbs J.; Green v. Bestobell Industries Pty Ltd. [1982] WAR 1. 14BSupra Note 66 at 383. 161 In Weber Feeds Ltd.. v. Wsber'\" the Ontario Court of Appeal ruled that a director may be precluded from such conflicting activities despite an inability on the part of the company to obtain the benefit. The Court of Appeal held \"In this case, the factor which, in my view, is determinative of the issue is that the transaction occurred on the eve of bankruptcy. If, as a result of the disposal of an asset by a company on the eve of bankruptcy, a right is acquired by a director, the director must, in- my opinion, account to the trustee of the bankruptcy of the company for any profit realised ... to hold otherwise, would, in my opinion, open the door to fraud. The fact that the company might not have been able to benefit from the .transaction ' is immaterial.\"150 The recent British Columbia Supreme Court decision of Roper v. Murdoch151 applied Weber Feeds. The reasoning of the Ontario Court of Appeal in Weber Feeds is reflected by the approach of Shepherd1\" who suggests, by implication, that this danger of fraud is a primary rationale for the beneficiary's inability be\u00C2\u00B1\u00C2\u00BBg no defence. Austin153 expands upon this notion by finding an underlying principle of the law of fiduciaries in regard to 149(1979) 24 OR (2d) 754. 150ibid. at 157. . 151 (1987) 14 BCLR (2d) 385. 152Supra Note 35 at 294. 153 \"Commerce and Equity - Fiduciary Duty and Constructive Trust\" (1986) 6 OJLS 444. iii. the cosnmercial field and perceives that much of the law is premised on the notion of the courts attempting to sterilize a large area of potential wrongdoing. As such, the defence of inability is regarded as exposing the beneficiary to the commercial fiduciary's actions and it will often b\u00C2\u00A7 \u00E2\u0080\u00A2 difficult to decide whether the beneficiary is or is not capable of taking the opportunit; . To feKiS problem Equity simply prohibits it. At thp hnt-tnm <->f thi 3 prohibition is the possibility of fraud. IPC v. Cooley supports the proposition that profit and loss cases holding that inability on the beneficiary's behalf is no defence \u00C2\u00AEay be extended to the opportunity doctrine. Difficulties exi\u00C2\u00A7t in t\u00C2\u00A9 the ratification of a breach of a fiduciary duty where the beneficiary is a commercial entity. The explanation of the existence of these problems is easily perceived; the commercial fiduciary is normally part of the organ by which the beneficiary makes~ business decisions. Additionally, it is often the case that a commercial fiduciary will b e a substantial shareholder in the beneficiary. Therefore, the two organs which have the power of ratification are often \"contaminated\" by the '\"various authors would divide this heading into waiver (ratification before the breach) and exoneration (ratification after the breach). For example, Austin Supra Note 16 at 182. 163 influence of the commercial fiduciary. Unfortunately, Anglo-Australian authority provides little consistent guidance as to what can be done on such occasions. Th\u00C2\u00A3 caselaw is in fundamental conflict.155 The obvious temptation is to forbid any ratification in reference to thfe Commercial Opportunity Doctrine.156 However, Shepherd15^ rejects this call for a blanket prohibition on ratification, and argues that if the commercial fiduciary can prove that he or she did not effect the decision to ratify then thfe ratification is effective. Obviously, this prohibits that fiduciary from taking part in the vote. Shepherd's approach to ratification should be adopted in regard to tft\u00C2\u00A9 Australian Commercial Opportunity ooctrine as it ca3ts a very heavy onus upon the commercial fiduciary to prove that he or she had no effect on the decision but it also does no% preclude such a defence if it is genuine. The flexibility of Equity is maintained whilst guaranteeing a high standard of conduct. 155for example, Cook v. Peeks [1916] 1 AC 554; Furs Ltd. v. Tomkies (1936) 54 CLR 583; Regal (Hastings) Ltd. v. Gulliver [1967] 2 AC App Cases 589; Consul Developments Ptv Ltd. v. DPC Estates Ptv Ltd. (1975) 132 CLR 373; and Prudential Assurance Co. Ltd. v. Newman Industries Ltd. (No.2) [1980] 2 All ER 841. 156Prentice in \"Comment; IDC Ltd. v. Cooley\" (1972) 50 Can.-Bar. Rev. 623 at 635 and Beck \"The Saga of Peso Silver Mines: Corporate Opportunity Reconsidered\" (1971) 49 Can. Bar. Rev. 80 at pp.H5ff suggest this. 157Supra Note 35 at 297. 164 The Canadian decision of Ukrainian Cultural Heritage Village v. Lakusta156 addresses an issue that may arise in seeking such a ratification: which is the correct organ of the beneficiary to grant ratification of the breach? Here it was the board of directors that we asked to ratify. Agsio J. held \"The Society bases its monetary claims on the breach of fiduciary duty owed to it by Mr. Lakuska as a Director of the Society and the resulting conflict of interest between his duty to the Society and his personal interests ... In its submissions the counsel for the [Society] relies on the authorities that no fiduciary agent should place themselves in a position in which there is a conflict between their duties to the company and their personal interests. I need not set out the authorities for the defendants do not quarrel with the principle. Counsel for the Lakvstas simply state that the fact situation discloses that no fiduciary duty has been violated ... The [company] also submits ... that the agreement was never ratified by the Society's general meeting ... It is contended that a contract made under the circumstances of this case is voidable at the instruction of the Society. Quoting from L.B. Gower's Modern Company Law 3rd Ed. at p.527: '... Disclosure (by the directors to themselves) is ineffective even if the interested directors refrained from attending and voting leaving an independent quorum to decide, for a company ha3 the right to the unbiased voice and advice of every director. Hence, in the absence of express provision in the company's articles, the only effective step is to make full disclosure to the members of the company and to have the contract entered into or 158( 19 8 3) 46 ARI 91 (QB). iii. ratified by the company at a general meeting. \"15S His Lordship found that as the shareholders had a right t\u00C2\u00A9 the opinion of every director and no ratification! could take place until full disclosure had been made to the 1 -a-i\u00E2\u0080\u0094y at a general meeting and the impugned actions ratified by the shareholders. It would appear that ratification of a commercial fiduciary's breach of his or her duty should bg possible.160 Therefore, the effectiveness of any purported ratification must be determined by a fairness standard, the factors of which must include the full disclosure to the appropriate organ (usually the genei-^ i , *-Viat the commercial fiduciary did not vote on the issue of ratification (although allowed to speak) and that the ratification was carried by a majority vote. It must be remembered that the onus of proving that the ratification was \"fair\" rests upon the commercial fiduciary. 6. Conclusion In the late twentieth commercial fiduciaries posses the ability to prey upon the vulnerability of their business li3Ibid at 1S.6-.19 7. - isopor a fuller discussion of this issue see Brown \"When Opportunity Knockss An Analysis of the Brudney and Clark and ALI Principles of Corporate Governance Proposals for Deciding Corporate Opportunity Claims.\" (1986-87) 28 Corporate Practice Commentor 508 at 521ff. iii. beneficiaries and there is little chance of them being brought to account. To combat this a strict test for liability has been proposed. This prohibition is referred to as the Commercial Opportunity Doctrine. This doctrine can be developed by the Australian courts relying upon the authority of various Commonwealth authorities, primarily Canadian. Such a doctrine would prohibit a commercial fiduciary from exploiting, for this or her own benefit, an opportunity of which he or she becomes aware of by execution of his or her fiduciary office or an opportunity which the commercial fiduciary knows or should reasonably know is closely related to the business in which the beneficiary is engaged in or may reasonably be expected to engage in. As is obvious, this doctrine draws upon the various strands of the fiduciary obligations. This doctrine generates certainty, a desirable business commodity, whilst demonstrating its Equity origins by its flexibility. issis^s 167 Chapter IV Bemedies .for a Breach of A Fiduciary Obligation In A Commercial Context 1. Introduction After a fiduciary relationship has been shown to exist within a commercial context the next step in the analysis is proof of the breach of this obligation. After establishing this factual issue attention is turned to the remedy to be ordered by the court. Lord fiodson in Phipps v. Boardman held that: \"The proposition of law involved in this case is that no person standing in a fiduciary position, when a demand is made upon him by the person to whom he stands in the fiduciary relationship to account for profits acquired by him by reason of the opportunity and the knowledge, or either, resulting from it, is entitled to defeat the claim upon any ground save that he made profits with the knowledge and assent of the other person.\"1 This quotation recognizes that the defaulting fiduciary is liable for the profit (which is often referred to as the gain) made from the breach of the equitable obligation. In a commercial context it is often difficult to identify accurately the profit or gain made. This will be the subject of detailed scrutiny later in this chapter. The other issue to be substantially reviewed in this section is 1 [1967] 2 AC 46 at 105. n f)fl*. J u 3 1. u. u u u ' C. n \"i.. I 168 the nature of the remedy to be ordered. The fiduciary relationship is, of course, equitable in nature and so involves possible recourse to equitable relief of a personal or a proprietary nature or both. Such remedies include a declaration of a constructive trust, an accounting of profits, equitable compensation and the tracing of property into the hands of third parties which are often financial institutions. Frequently the relations between the beneficiary and fiduciary will also have common law ramifications, so common law remedies such as damages may be sought in addition, or alternatively, to the equitable remedy. Two preliminary points ought to be made prior to embarking upon the examination of the main issues confronted by this chapter. The first preliminary point is that it is irrelevant to the determination of whether a breach of fiduciary duty has occurred that the fiduciary acted honestly. Lord Russell in Regal (Hastings) Ltd. v. Gulliver2 held; The rules of equity which insists on those who by u. of a fiduciary position make a profit, being lii,,jle to account for that' profit, in no way depends on fraud, or absence of bona fides.\" However, the determination of bona fides may impact upon the court's assessment of the fiduciary's gain. v .0. 2[1967] 2 AC 134 at 144-145. 169 The o t h e r i n i t i a l groint is t h a t f u l l y i n f o r m e d c o n s e n t w i l l e x c u s e a f i d u c i a r y f r o m l i a b i l i t y b u t it s h o u l d b e n o t e d t h a t t h i s c a n b e a v e r y o n e r o u s r e s p o n s i b i l i t y to d i s c h a r g e as e v i d e n c e d by t h e a t t e m p t s to d o p r e c i s e l y t h i s in Boardman v . Phipps. 2. Quantification of the Gain of the Defaulting Fiduciary. The gain must be ascertained as the liability of the f i d u c i a r y i s d e t e r m i n e d by it. O f t e n t h i s w i l l n o t b e difficult. I n t h e c a s e d e a l t w i t h i n d e t a i l in the p r e c e d i n g c h a p t e r , Reqal [ H a s t i n q s t h e s h a r e s obtained by ths defaulting fiduciaries, the price paid and the price received for their sale were known so it was a relatively straightforward t a s k to d e t e r m i n e t h e g a i n . However, the ease of the job disappears when the gain of the fiduciary takes the form of an interest in a business. Quantification becomes difficult, and this is a frequent problem e n c o u n t e r e d i n b r e a c h e s i n v o l v e d i n a commercial context. I n T i m b e r E n g i n e e r i n g Co. Ptv. Lid. v. Anderson3 Mr. Justice Kearney held that the gain made by the fiduciary was the whole of the business set up by the fiduciaries and c a r r i e d on bv l liem d u r i n g and after termination of their e m p l o y m e n t w i t h t h e b e n e f i c i a r y through the medium of companies of which they and their wives were the directors and shareholders. The facts of the case were that two 3[1980] 2 NSWLR 488. 17& fiduciaries began to sell products in fraud of theit beneficiary. One of these fiduciaries, together with his wife, incorporated a company to sell these products. ThS other fiduciary and his wife later became shareholders and directors of this company. The fiduciaries argued thai, liability should be limited to the profits of the business as the profits were derived not from its capital resourced but from the skill and industry \u00C2\u00B0f those conducting the business. Kearney J. rejected this limitation o n 'the qualification of the gain by finding that the business waS directly attributable to resources and facilities provided by the beneficiary. The logical outcome of\u00E2\u0080\u00A2this findinq, that the business of the defaulting fiduciaries was gorged out of the business of the beneficiary, was that his Honour declared that the entire business be held on trust for the beneficiary. A Queensland decision which relied on the Timber Engineering decision was tlist ef Fraser Edmiston Pty. Ltd. v. A.G.T. (Old) Pty. Ltd. and Hussey.4 The facts in that case were that the plaintiff was the lessee-of a store in a shopping mall.. When a later stage of the mall was nearing completion the landlord approached the plaintiff to attempt to entice it to open an additional outlet. As1 the. offer-was attractive the plaintiff began discussions with Hussey regarding a partnership in reference to the new store. The 4[1988] 2 Qd. R. 1. iii. p a r t i e s r e a c h e d b r o a d a g r e e m e n t b u t t h e d e t a i l s of t h e agreement r e m a i n e d to b e r e s o l v e d . The d e f e n d a n t t h e n t o o k t h e u n i l a t e r a l s t e p of o b t a i n i n g t h e lease for i t s e l f . W i l l i a m s J, in t h e Q u e e n s l a n d Supreme C o u r t , h e l d t h a t a f i d u c i a r y r e l a t i o n s h i p d i d e x i s t b e t w e e n t h e p a r t i e s . H i s H o n o u r h e l d t h a t t h e d e f e n d a n t s were l i a b l e to a c c o u n t \"for a n y b e n e f i . t or g a i n w h i c h was o b t a i n e d or r e c e i v e d by r e a s o n of t h e o p p o r t u n i t y or k n o w l e d g e t h a t was o b t a i n e d t h r o u g h t h e i r f i d u c i a r y p o s i t i o n , and any p r o f i t r e s u l t i n g f r o m t h e u s e of t h e p r o p e r t y . \" 5 T h i s w o u l d a p p e a r to b e a s t r a i g h t f o r w a r d s t a t e m e n t of p r i n c i p l e , h o w e v e r , w h a t c o n s t i t u t e d the gain was the d i f f i c u l t y h e r e . E x p l i c i t l y , w h a t should be done with.the a c c r e t i o n s i n v a l u e of t h e property that had been m i s a p p r o p r i a t e d ? W i l l i a m s J. h e l d t h a t a c c r e t i o n s form p a r t o f t h e p r o p e r t y t h a t i s s u b j e c t t o the constructive trust.5 His h o n o u r d i d t h i s by c i t i n g w i t h approval Kearney J.'s, in T i m b e r Engineering, a p p l i c a t i o n of Docker v. Somes.7 In t h a t c a s e L o r d B r o u g h a n h e l d \" W h e n e v e r a t r u s t e e , or one standing ill the r e l a t i o n o f a t r u s t e e v i o l a t e s h i s d u t y , a n d deals with th.\u00C2\u00A3 ttu^i estate fo_r h i s own b e h o o f , t h e rule is, that he shall account to the cestui que trust 5Ibid. at 11. 'see Street J. in Re. Dawson deceased [1966]. NSWR 211, quoted by the Ontario Court of Appeal in LAC Minerals at 648-649. for differences to common law damages. 7(1834) 2 My & K 655; 39 ER 1095. iii. f o r a l l o f t h e g a i n w h i c h he h a s made ... it i s so m u c h f r u i t , so much i n c r e a s e o n t h e e s t a t e o n t h e c h a t t e l o f a n o t h e r , a n d m u s t f o l l o w t h e o w n e r s h i p o f t h e p r o p e r t y a n d go t o t h e p r o p r i e t o r . ' \" A n o t h e r a u t h o r i t y c i t e d by K e a r n e y J . was Re. J a r v i s deceased.9 I n t h a t c a s e t h e d e f e n d a n t s u b m i t t e d t h a t s h e should be liable only for the value of the direct benefit proved to have flowed by reason of the breach of the f i d u c i a r y o b l i g a t i o n . U p j o h n J . r e j e c t e d t h i s l i m i t e d q u a n t i f i c a t i o n o f t h e g a i n and held that the profit obtained by the defaulting fiduciary extended to the whole business. T h e c a s e o f Hospital P r o d u c t s also highlighted the f r e q u e n t d i f f i c u l t i e s encountered with determining the gain acquired by the defaulting fiduciary. At first instance10 McLelland J. held that the fiduciary relationship had been breached. The gain from this breach, according to his Honour, was the benefit of a market in Australia which otherwise would have belonged to the beneficiary. This view of the gain explains McLelland J.'s holding that the fiduciary was liable to account for the profits thereby made . When t h i s m a t t e r w e n t on a p p e a l to the New South W a l e s C o u r t o f A p p e a l \" l l i e bench characterised the gain a c q u i r e d by t h e f i d u c i a r y differently. The Court held that \"Ibid, at 664 and 1098 respectively. '9[1958] 1 WLR 815. 10[ 1982 ] 2 NSWLR 766. \"[1983] 2 NSWLR 157. 173 the fiduciary's business was one established and built up to take over the plaintiff's market during the distributorship and so the gain from the breach was the entire business. Mason J., the only member of the High Court of Australia*** to deal with the issue, preferred the relief ordered by McLelland J, So .far what has been indicated is the obvious principle that the fiduciary is liable for the gain that flows to him or hex from the breach. The complication that often enters, particularly within a commerciaJ.' context, is that the interest obtained forms part of an ongoing business; the solution suggested by Timber Engineering is that accretions form part of the gain. The \u00C2\u00A9ther difficulty already encountered is one of fact; what actually constitutes the \"pure\" gain (without the complication of accretions of wealth). The Hospital Products litigation is a good example of the troublesome nature of this question. It would appear axiomatic that the gain recoverable by the beneficiary cannot include profits made outside of the fiduciary relationship. Support for this - straightforward proposition can be found in Aas v. Behnam13 and in Birtchnell v. Equity Trustees, Executors & Agency Co. Ltd.14 However, Mason J. in Hospital Products introduced \"(1984) 156 CLR 41. 13[ 1891 ] 2 Ch 244. \"(1925) 42 CLR 384. i n n n n n n t j u u. u u \u00E2\u0080\u00A2\u00E2\u0080\u00A2\u00E2\u0080\u00A2 \u00C2\u00BB- h '-/ -/. 174 two points of uocertainty to the above proposition. The first makes the accurate point that the true statement of principle is that the fiduciary will not be liable unless the gain comes from an action which constitutes a breach of fiduciary duty. Thus, the limiting factor is not the fiduciary relation per se, as the traditional approach would suggest, but the fiduciary duty. Mason 3. illustrated this point by stating, \"However, it does not follow as a matter of principle or logic that the profits \u00E2\u0082\u00ACor which a, P \u00E2\u0080\u00A2 I, is liable are necessarily restricted to profits made within the ambit, geographical or otherwise, of the fiduciary relationship. As a fiduciary A.P.I. is liable for any profits made in breach of its fiduciary duty, even if they happen to be made outside the area of the fiduciary relationship. If, for example, the responsibilities of' the Victorian manager of a company with a nation-wide business are limited to Victoria, this geographical limitation on his responsibility gives him no . immunity from liability to account for profits which he makes in Western Australia in competiticn with his employer by, making use in breach of his fiduciary duty of\u00E2\u0080\u00A2 knowledae of an opportunity aained in his fiduciary position: see Green and Clara Ptv, Ltd. v. Seatobell Industries Pty Ltd. {1982] W.A.R.l-j\u00E2\u0080\u0094 McLeod and More v. Sweezy f 19441 2 D.L.R. 145. Although there are cases in which the defendant turned to his own advantage confidential information or knowledge acquired in his capacity as a fiduciary, they clearly: illustrate that : limitations on the ambit of the fiduciary's.: liability to account for profits resulting from his breach of duty.1,15 The second question raised by Mason J. is whether the gain for which the fiduciary is liable to account includes a 49Supra Note 16 at 150. p n n n v n u u u , U-LLU u. S: o. a 'i 'i p r o f i t made f r o m an a c t w h i c h , by i t s e l f , i s not a b r e a c h o f t h e f i d u c i a r y d u t y b u t i s o n l y u n d e r t a k e n t o enable the gain f r o m t h e b r e a c h o f t h e f i d u c i a r y obligation to be obtained.16 It i s s u g g e s t e d t h a t h i s H o n o u r ' s a p p r o a c h t o t h i s q u e s t i o n i s p r a c t i c a l and s e n s i b l e w h i c h ' m a k e s il mos t a p p r o p r i a t e f o r t h e o f t e n d i f f i c u l t and complex cases i n v o l v e d i n t h e c o m m e r c i a l w o r l d . As Mason J. s t a t e d \" I n some c i r c u m s t a n c e s it may b e p r o p e r t o h o l d a f i d u c i a r y l i a b l e t o a c c o u n t f o r a p r o f i t o r benefit arising from the pursuit of an activity which did not rJfiount to breach of fiduciary duty but for the circumstances? that the activity was also undertaken for the purpose of obtaining another profit or benefit which was a breach of t h e f i d u c i a r y d u t y . I f t h e breach of fiduciary duty is a sine qua non in the sense that the pursuit of the activity for the purpose of obtaining the legitimate profit or benefit could not have been undertaken as a practical business operation on its own without seeking also to obtain the forbidden profit or benefit, then there is much to be said for the view that the fiduciary's liability to account should extend to all profits and benefits.\"17 In a sense the paper so far has examined the notion of . . . \u00E2\u0080\u0094\u00E2\u0080\u0094\u00E2\u0080\u00A2 . .^sa^... t h e g a i n o n l y f r o m t h e point of view of the beneficiary. ~ T h a t i s , w h a t h a s b e e n focused upon has been the \"gross\" g a i n . Once attention is redirected to the fiduciary the g a i n t h a t i s b e i n g examined is the \"net\" or true gain.18 .\"Supra Note 12 at 113-114. \"Supra Note 12 at 113-114. \"net gain is used here to indicate the gross gain less any amounts that the fiduciary is entitled to. n n n n > n u ;*/ r1 U u u u - o, i l j 176 The two important doctrines to ascertain this tree gain are just allowances and apportionment. In 0'Sullivan v. Management Aqency & Music Ltd,19 Lof$ Justice Fox held that \"A hard and fast rule that the beneficiary can demand the whole profit without an allowance for the work without which it could not have been created is unduly severe. Nor do I think that the principle is only applicable in cases where the personal conduct of the fiduciary cannot be criticised. I think that the justice of the individual case must be considered on the facts of that case. Accordingly, where there has been dishonesty or surreptitious dealing or other improper conduct then, as indicated by Lord Denning M.R., it might be appropriate to refuse relief; but that will depend upon the circumstances.\"20 This statement bv this LordshiD clearly indicates that a just allowance21 may be made to a fiduciary regardless of the moral character of the breach. Indeed, in 0'Sullivan it was found that the defaulting fiduciary was not entirely without \"moral blame.\"\" In the Manitoba Court of Appeal decision jja G. Mida Ccnctructl\" ~ \" -1 Developments (International) Ltd. and Cambridge Imperial 19[ 1985] QB 428. 20Ibid. at 468. 21see Finn Fiduciary Obligations (Sydney: Law Book Co., 1977) for a discussion of the notion of the just allowance and the vagueness which surrounds it applicability. \"Supra Note 19 at 468. NAME: P r o p e r t i e s Ltd.23 F r e e d m a n C.J.M., w i t h whom H a l l J .A. concurred, found the fiduciary to have committed morally reprehensible acts but permitted an allowance. The Nova Scotia Supreme Court, Appeal Division, has likewise held t h a t a j u s t a l l o w a n c e c a n b e g r a n t e d t o a defaulting fiduciary who has acted with mala fides.24 Also of note is the finding by Dohm J. in the British Columbia Supreme Court i n M a c M i l l a n B l o e d e l L t d . v. B in s t e a d 2 5 t h a t t h e defaulting fiduciary is liable only for the profit made, and profit is defined by this Lordship as being the surplus product after deducting wages, cost of raw materials, rent and charges. No m e n t i o n i s made of a distinction between where the fiduciary has acted with bona or mala fides. In the Ontario C o u r t of A p p e a l 2 6 d e c i s i o n in LAC Minerals27 an allowance was p e r m i t t e d b e c a u s e \" T h e s h e e r ma_qni tude of t h e e n r i c h m e n t of, or benefit conferred on Corona if LAC were denied a lien cannot be ignored, particularly in the light of the reality that the expenditures made by LAC to make the property productive inevitably wouId-have been required on the part of Corona had there been no breach of the constructive trust. The principles of equity in our view, need not be employed in a manner that itself creates an unjust 23 [ 1978 ] 5 WVJR 577. 2 4 s e e MacDona ld v. Lockhart (1980) 118 DLR (3d) 397.; 25(1983) 22 BLR 255 at 294. \"the Supreme Court of Canada did not deal with this. 27(1988) 44 DLR (4th) 592. 18?) seeks equity must do equity.\"\" By simple examination of this maxim it is obvious the great discretion that should reside with the court when it has to decide what would b\u00C2\u00A7 equitable or fair in the circumstances that confront it\u00C2\u00BB The rule-like barrier to a dishonest fiduciary at obtaining a just allowance makes practical sense in that notions of fairness would not be in such a person's fai&our but this practical approach has metarA\u00C2\u00A9rphosed into claiming that it would never be f l a i r to penflit', a dishonest fiduciary from recovering a just allowance. In this way the discretion inherent in the Court of Equity is fettered. Thus, it is suggested that the wider approach of it being possible for all fiduciaries to recover a just allowance be acknowledged as a correct application of t-he maxim. The other major mechanism utilized by the courts to ascertain the net gain is referred to as apportionment. Apportionment is simply the term used to indicate the amount of the fiduciary's cwn property that is in, a mixed fund with the property taken in breach of the fiduciary duty. The distinction that can be drawn with the just allowance is that a just allowance is concerned with the income stream that any ill-gotten gain may produce, whereas apportionment detract from the validity of the arguments here. . \"see Commercial Bank of Australia v. Amadio (1983) 57 ALJR 358 at 372 per Deane and Kearney J. supra note 29 at 197. ; \u00E2\u0080\u00A2 181 relates to the capital, that is used to produce this stream.) * The court ' s attempt to follow the gain into a mixed fund is known as \"tracing\".35 Although tracing viad originally a doctrine which only related to trust law a.i ti ioafi\u00E2\u0080\u0094\u00C2\u00A3\u00E2\u0080\u0094Savinsrs Co: v. National Trust36 is clear CanadiaA authority\" that tracing is equally ajppiifigfcls fe? any scenario involving a breach of a fiduciary duty.38 Where the property acquired bv a mixed fund is specifically severable the b e n e f i c i a r y -is entitled to that part of the property as bears the s ame proportional relationship to the whole fund as the ill-gotten gain bore to the purchase price. This principle was articulated in Brady v. Stapleton.39 in which it was held by the High Court of Australia that where a trustee holds shares in a company, some of which are his or her own and some of which \"see Klippert supra note 32 at 221 for American authorities on the question of apportionment\u00E2\u0080\u009E \u00E2\u0080\u0094 \"see Jacob's Law of Trust in Australia 5th Edition (Sydney: Butterworths, 1986) chapter 27 for a detailed ^ieMiaoinn r\u00C2\u00BB-F t-jiin ^'\u00E2\u0080\u00A2^trine. 36(1?03) T 9 M k '\u00E2\u0080\u00A2$8\u00C2\u00A3 accepting this principle .see Re West of England 6 South Wales District Bank; Ex Parte Dale & Co. (1879) 11 Ch.D. 772; Re Hallett's Estate (1879) 13 Ch.D. 696 at 709 and Holt v. Giblin (1888) 5 WN (NSW) 19. \"Elgin was expressly approved in Re Norman Estate [1951] OR 752. \"(1952) 88 CLR 322. NAME: are held on trust, the fact that precise identification of the trust shares is not possible does not preclude the m a k i n g o f a n o r d e r f o r a t r a n s f e r of the trust shares by the t r u s t e e t o t h e b e n e f i c i a r y . O f t e n a d e f a u l t i n g f i d u c i a r y i n a commercial context w i l l i n v e s t t h e p r o p e r t y o b t a i n e d i n b r e a c h of the fiduciary o b l i g a t i o n w i t h some o f h i s or her own and this investment will produce a greater capital sum. Apportionment allows the defaulting fiduciary to claim that he or she is not liable to account for the entirety of this new larger amount. This is the basis of the decision of the High Court of Australia in Scott v. Scott.40 This issue of permitting the defaulting fiduciary to seek an apportionment introduces the next difficulty in this field; upon which party i3 the onus to show whose property was utilized to generate the new capital amount? Authority on this point is quite straightforward - the onus is upon the fiduciary. Page-Wood V.C. in Frith v. Cartland held: \"If a man mixes trust money with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own.\"41 4\u00C2\u00B0(1963) 109 CLR 649. 41(1865) 2 H&M 417 at 420; 71 ER 525 at 526. t n n n n D u C iV . u u u u '.< o i. ~t n. 103 Sir George Jessel M.R. Hallett's Estate\" explicitly approved and applied this statement. In Canada this proposition relating to onus was accepted in McTaqqart v. Buffo et al,..'3 Re Norman Estate\" and in Re Kolari.45 This principle appears to comply with the notions that it is fair that if the wrongdoer fiduciary wishes to claim property he or she should prove it to be his or her's, and failure to do so disadvantages the wrongdoer and not the wronged party. One common problem with breach by a commercial fiduciary is illustrated by Paul A. Davies (Australia) Ptv Ltd. (in liq) v. Davies.46 This was a situation where company directors applied their beneficiary's money to part finance the purchase of a country property. The outstanding amount was to be paid on the completion of the sale. This outstanding amount was to be provided by a bank loan, a loan secured by the subject property. Thus the loan, which the commercial fiduciaries were claiming as their own contribution and so there should have been an apportionment they argued, was itself based on a breach of the fiduciary duty and was in reality property which belonged to the 42(1879) 13 Ch.D. 696 at719. 43(1975) 10 OR (2d) 733; 63 DLR (3d) 604. 44[ 1971 ] OR 752, [1972] 1 DLR 174. \"(1981) 36 OR (2d) 473. 46[ 1983] 1 NSWLR 440. 184 b e n e f i c i a r y . T h u s , no a p p o r t i o n m e n t was p e r m i t t e d i n t h i s c o n t e x t . One f i n a l i s s u e d e a l i n g w i t h a p p o r t i o n m e n t is w h e t h e r it s h o u l d b e available to a fraudulent fiduciary. According t o Kearney J., i n a n e x t r a - c u r i a l a r t i c l e , \" the Paul. A., Davies case is authority for the proposition that a p p o r t i o n m e n t w i l l b e d e n i e d to a fraudulent fiduciary. T h i s is t h e clear and e x p l i c i t position of Mason J. in Hospital Product.48 A c l o s e r e v i e w of his Honour's comments d o e s , however, reveal something less than a blanket prohibition. He states that \"The proposition [permitting apportionment] may also need to be modified to take account of a profit by a fraudulent fiduciary through a combination of trust property and his own property or efforts. It may well be that equity in such circumstances will not seek to apportion the gain.\" [emphasis added].49 By employing \"may\" the future Chief Justice permits i.he Court exercising equitable jurisdiction to avard a p p o r t i o n m e n t , a l t h o u g h often it would be unlikely to do so. Once again this reflects the importance of doing justice in the case before the bench rather than establishing rigid rules to be applied inflexibly. ,7Supra Note 30 at 199. 48( 1984) 156 CLR 41. \"Ibid, at 109-110. n n n n i t wc 1 U U fU U \" > n j . c NAME: 3. Remedies a. Introduction After the true gain has been determined the court must then focus its attention on the remedy to be ordered. So t h a t it may b e s t a c h i e v e what it perceives as a just result, w h i c h h a s b e e n t h e d r i v i n g f o r c e f o r t h e C o u r t o f tShancery, t h e j u d g e commences his or her investigation by returning to b a s i c p r i n c i p l e s . The fundamental notion is that a d e f a u l t i n g f i d u c i a r y c a n n o t r e t a i n any profit or benefit o b t a i n e d by r e a s o n of breach of his or her fiduciary d u t y . \" The l i a b i l i t y in fiduciary law is equivalent to that in trust law rather than in cohtract or tort. This was c l e a r l y shown i n t h e Guerin v. Rj.51 decision. In that case, which found the federal government of Canada liable for b r e a c h of its fiduciary obligation owed to native I n d i a n s , t h e Supreme Court of Canada expressly approved and adapted a statement by Street J. (as he then was) in the New South Wales Supreme Court decision of Re Dawson; Union Fidelity Trustee Co. v. Perpetual Trustee 'Co.52 where his Honour held that . 50see Ellis Fiduciary Duties in Canada (Toronto; De Boo, 1988) Ch.20-4 and Kearney Supra Notes 30 at 201. 5l[ 1984] 2 SCR 335. \"(1966) 84 WN (Pt.l.) (NSW) 399. NAME: \"The obligation of the defaulting trustee is essentially one of effecting a restitution to the estate. The obligation is of a personal character and its extent is not limited by common law principles governing remoteness of damage Caffrey v. Darbv (1801) 6 Ves. Jun. 488; 31 ER 1159 is consistent with the proposition that if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed, Considerations of causation, foreseeability and remoteness do not readily enter into the matter. The cases to which I have referred demonstrate that the obligation to make restitution, which courts of equity have from very early times imposed on defaulting trustees and nther fiduciaries is of a more absolute nature than the common-lav; obligation to pay damages for tort or breach of contract.\" [emphasis added]53 Holland J. explicitly adopted much of this quotation in the first instance decision of International Corona Resources Ltd, v. LAC Minerals Ltd.54 and when the case went.to the Ontario Court of Appeal it was affirmed.55 Thus, it is apparent that the court aims at removing any gain the fiduciary has made by the breach of the fiduciary obligation.56 The wide range of remedies available to the court include both proprietary and personal orders. \u00E2\u0080\u0094Before undertaking an exainination of these remedies and their 5!Ibid, at 404-406.' ' \"(1986) 53 OR (2d) 737 at 779. \"(1988) 44 DLR (4th) 592; !;87) 62 OR (2d) 1. ' \"the contention made by Ellis supra note 50 at Ch.20-5 that the court is attempting to restore the status quo must be incorrect ae often the fiduciary will be liable for some gain the beneficiary could not have acquired and so the status quo is larqely irrelevant. Boardman v. Phipps stands as an example of this. NAME: significance within a commercial context several initial points need to be addressed. The first relates to a particular commercial fiduciary,-the agent. This point is the heresy of Lister v. Stubbs.\" Underhill58 argues that this decision stands as authority for the proposition than an agent who receives a profit in breach of his or her fiduciary duty otherwise than by use of his or her beneficiary's property is not a trustee of that profit, but is only a debtor of his or her beneficiary, both at law and in equity.\" In the New South Wales Court of Appeal decision of Consul Developments Ptv Ltd. v. DPC,60 two judges, Hardie and Hutley JJA, held that Lister was anomalous61 and should be confined to its own facts. Unfortunately when the case went on appeal to the High Court of Australia that bench was not required to resolve this issue and so left it open.\" In Anglo-Australian jurisprudence a fiduciary who is an agent finds himself or \"Waters Supra Note 29 at 394 seems to suggest\u00E2\u0080\u0094that Lister is no longer relevant to Canada but compare the position taken by Youdan in \"The Fiduciary Principles The Applicability of Proprietary Remedies\" in Equity, Fiduciaries and Trusts Edited by Youdan (Toronto: Carswell, 1989) at 97-101. \"Law of Trusts and Trustees 12th Edition at 240. \"[1974] 1 NSWLR 443. 60[ 1974] 1 NSWLR 443. 61as they implicitly accepted Underbill's interpretation of it. \"(1975) 132 CLR 373. 1 NAME: herself in the position of being subjected to Lister Stubbs which, because of the strange interpretation of its ratio coupled with a reluctance to overrule it, confuses the nature of fiduciary liability. As it appears unlikely that courts will acknowledge the true status of this interlocutory decision the suggestion of Lehane63 angl Voudan\" that it be overruled as insupportable in principle is endorsed. Such an action would remove this quirk frojp the remedies available for a fiduciary's beach of obligation. The other initial point is that the ethical conduct of the fiduciary should not be relevant to the remedy ordered by the court.65 However, there does exist some Australian decisions suggesting that there may be circumstances wherg the court will not impose a certain remedy, usually a constructive trust,, and that decision appears to have been premised on the court's findings relating to the moral n h a r a n t p r o f t-hip f iHnnif lrv'fl nnnduct.66 However, it is 63\"Fiduciaries in A Commercial Context\" in Essays in Equity Ed. by Finn (Sydney: Law Book Co., 1984) at 107. \"Youdan Supra Note 56 at 100. \"but compare Professor Jones' \"Unjust Enrichment and the Fiduciary's Duty of Loyalty\" (1968) 84 LQR 472 at 502 and Goode \"Ownership and Obligation in Commercial Transactions\" (1987) 103 LQR 433 at 497-8. \"Hospital Products International Pty. Ltd. v. USSC [1983] NSWLR 157 at 235; Timber Engineering Co. Pry ltd, v. Anderson [1980] 2 NSWLR 488 at 499 and Daly v. Sydney Stock Exchange Ltd. f19821 2 NSWLR 42 at 426. \u00E2\u0080\u0094 : i l _ \u00E2\u0080\u00A2 - -\u00E2\u0080\u00A2-s u g g e s t e d w i t h t h e g r e a t e s t r e s p e c t t h a t these o b i t < 3 \u00C2\u00A5 c o m m e n t s i n d i c a t e w h a t is a f l a w in a n a l y s i s . T h e m o r i i n a t u r e o f c o n d u c t i s r e l e v a n t , a s h a s a l r e a d y b e e \u00C2\u00AE d i s c u s s e d , to t h e q u e s t i o n of t h e q u a n t i f i c a t i o n 0 f ^ g g a m . T h e p r i m a r y p u r p o s e g| fclftg gggjg^ i M tfegfiiSfg s h o u l d l a r g e l y d e t e r m i n e ^ v , \u00E2\u0080\u0094 t r e c o u p t h i s g a i n . It i s q u i t e a p p a r e n t t h a t e t h i c a J considerations are not directly relevant here. b. Types of Remedies P r o f e s s o r F i n n 6 7 identifies one of the great a d v a n t a g e s o f f i n d i n g s of breaches of equitable obligations, a n d h e n c e a n explanation f o r the recent increase in recourse to the fiduciary notion in Canada, is the great range of remedies available to the court. Upon what basis should the c o u r t s d e c i d e betws e n t h e available remedies? Fundamentally, two considerations must be balanced. The first is that the remedy selected should be the best go \u00E2\u0080\u009E s s i M e w a y to r e c o u p the gain made by the fiduciary: In many cases the determination of the gain will point to the appropriate remedy. A clear example of this was McLelland J.'s finding at first instance in the Hospital Products litigation regarding the gain which indicated that the gain could be best recovered by ordering an account of profits \"\"Good Faith, Fair Dealing and Fiduciary Law in Canada\" in Fiduciary Obligations (Vancouver; Continuing Legal Society of British Columbia, 1989) at 2.1.01. J 190 whereas the New South Wales Court of Appeal's finding concerning the gain dictated the ordering of A constructive trust. The second consideration is that the remedy must be \"just\" in a wider sense. Simply put, the implications of thfi orik'x musl b\u00C2\u00A3 examined. In a commercial c o n t e A t this often means looking to the impact of the remedy upon secured c r e d i t o r s . This is because an important consequence of the imposition of the constructive trust is that proprietary implications displaces the priority of the secured creditors i n favour o f t h e e q u i t a b l e owner. Paciocco68 in a closely argued article suggests a number of principles for the court to consult when determining whether a constructive trust, which would have consequences upon a third, party, should be ordered. Such a consideration will normally tell against the ordering of a constructive trust. This explains Mason J.'s delusion in Boap.lfca 1 Products6*\u00E2\u0080\u00A2 not -to \u00E2\u0080\u00A2 declare a trust over all the assets of HPI. Such an order by the court would have implications outside of the immediate parties-.to the litigation, in that HPI would have beer, prevented from legitimately competing with USSC within the American market. It was for this consideration of the wider implications for justice of 'the-, various' remedies that Reynolds J.A. in Daly 68\"The Remedial Constructive Trust: A Principled flosis for Priorities Over Crftditore\" (l.i>89? 68 Cau.. Bar 'Rev, j\"i5. \"(1984) 156 CLR 41 at 114., :.?.?\u00E2\u0080\u00A2.'..\u00E2\u0080\u00A2 ..-..' ...-., .-\u00E2\u0080\u0094.jtl\u00E2\u0080\u0094^wti.-..^. - .. V , ...'. !\u00C2\u00BB. NAME: v. S y d n e y S t o c k Exchange70 s u g g e s t e d t h a t t h e c o n s t r u c t i v e t r u s t s h o u l d n o t b e o r d e r e d a u t o m a t i c a l l y i n b r e a c h o f f i d u c i a r y o b l i g a t i o n cases. T h i s s e a r c h for j u s t i c e is also a p p a r e n t in t h e w o r d s of Cardozo J. in Beatty v. Guggenheim E^ljiration Co,71 \"A court o f e q u i t y i n d e c r e e i n g a c o n s t r u c t i v e : ifU^d is> feeund by m Uiifl^jJ^ldiny foiwla. TJae eauitv of the transaction must shape the measure o f t h e r e l i e f . \" T h u s , w h e n d e c i d i n g u p o n t h e r e m e d y or c o m b i n a t i o n of remedies to be ordered the court should keep in mind these two considerations of recoupment and justice, and if n e c e s s a r y b a l a n c e t h e m . Perhaps the best known of the remedies available, for a breach of a fiduciary obligation is the constructive trust.72 A c c o r d i n g to K e a r n e y J. \"Provided the fiduciary's gain exists in the f.\u00C2\u00BB cm of identifiable property the anticipated resu. t would be a declaration of trust.\"73 70[ 1982] 2 NSWLR 421 at 426. ' 71225 NY 380 (1919) as quolud by Mason J. in Hospital frsdusta (1984) 156 CLR* 41 at 108. 72\u00C2\u00A3 "Thesis/Dissertation"@en . "10.14288/1.0077763"@en . "eng"@en . "Law"@en . "Vancouver : University of British Columbia Library"@en . "University of British Columbia"@en . "For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use."@en . "Graduate"@en . "Fiduciaries in a commercial context"@en . "Text"@en . "http://hdl.handle.net/2429/42050"@en .