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I BANKING: FIDUCIARY DUTIES
BankerlCustomer Relationship
Fiduciary Duties and
Conflicts of Interest
4 path that they are following runs alongside
Introduction
In 19th-century Britain, bankers and their
customers, like the rest of society, knew their place.
Customers were gentlemen, people of position and
power, and bankers were men of trade. While their
position in a developing industrial society was
honourable, like tailors or gamekeepers, they existed
to serve the needs of their social superiors. The law
of banker and customer, like the law of master and
servant or principal and agent, evolved in this social
context. Its main concern was to set rules which
would protect those who entrusted their personal
wealth and affairs to the care of others.
That background has been swept away. Banks
(which for the purposes of this article includes both
commercial and investment banks as well as
stockbrokers and securities houses) are producers of
services to their customers and are also major
players in financial markets for their own account.
Large corporate customers, for their part, are direct
participants in capital markets. Yet the law which
deals with the relationship between a bank and its
customer (ie any non-bank with which it has a
business relationship relating to financial markets)
is said to look back to the Victorian relationships.
There is said to be a mismatch between the
expectation of the law and modern commercial
reality. This problem crystallises around the rule
relating to conflict of interest and the concept and
nature of so-called fiduciary duties.
The purpose of this article is to examine these
two concepts in the light of modern case-law and to
seek to show that the courts throughout the common
law world are pursuing the same course and
that the
developing commercial practice. The mismatch
between legal obligations and commercial
expectations does not present a real problem which
needs statutory intervention.
Meaning of conflict of interest
The legal issues arising when an individual or firm
discovers that he or it has a conflict of interest have
been the subject of much discussion in the UK in
recent years. The Financial Services Act 1986 and
rules made under it have established a
comprehensive code for those carrying on business
in financial markets, designed to provide by statute
and regulation a degree of protection to those
dealing with market participants. The concern has
arisen that this regime, which must be presumed to
reflect an accepted view of the proper behaviour of
market participants, might envisage patterns of
behaviour different from those reflected in the
common law rules which circumscribe the conduct
of market participants.
The unspoken assumption is that, if a mismatch
exists between regulatory rules and the rules of law,
International Business Lawyer February 1997
it should be resolved by statutory amendment of the
common law regime, in order to make it congruent
with the regulatory structure, which has been
designed deliberately to be appropriate in modern
commercial conditions.
This concern led to a reference to the Law
Commission in April 1990 in the following terms:
'Certain professional and business activities are
subject to public law regulation by statutory and
self-regulatory controls. The Law Commission is to
consider the effect of such controls on the fiduciary
and analogous duties of those carrying on such
activities, and to make recommendations. The
enquiry will consider examples from differing areas
of activity but will be with particular reference to
financial services.' The Law Commission's report
was published in December 1995.'
Before looking at the area of activity which
produces the concern, and which led to the Law
Commission project, it is helpful to consider more
broadly the situations in commercial life where a
conflict of interest might arise and to examine how
such conflicts are usually resolved. Only in this way
can one view the problem in proper perspective.
The phrase 'conflict of interest' is one which
carries an implied response. There is a natural
sympathy for anyone who finds himself in a position
of conflict, and a wish to help the resolution of that
conflict. However, in most cases the conflict of
interest does not present a significant problem or, if
it does, the answer to the question posed is obvious.
Only in a small proportion of cases does the person
subject to the conflict of interest ('the conflictee')
find himself in a genuine dilemma.
The kinds of conflicts of interest can be divided
into three separate categories, two of which have
further sub-divisions:
Conflict of opportunity
In commercial life a person will often find himself
in a position where his commercial interests offer
two opportunities, only one of which can in practice
be accepted. The answer in this case is obvious: the
conflictee must make a decision which of the
opportunities he will take, and must reject the other.
In a financial context, an organisation which is
offered the opportunity to make two attractive
investments, but only has the financial resources
available to make one of them will have to decide
which to take. The option which the law does not
allow is the option of 'borrowing' money from client
funds in order to take up both.
International Business Lawyer February 1997
The answer to this dilemma is obvious. It does,
however, illustrate a basic fact about conflicts of
interest: the resolution of a conflict involves the
making of a choice. The making of this choice may
involve financial cost or loss of opportunity to the
conflictee. This is not in itself a reason for the law to
provide assistance. The law should only intervene if
it has itself created a situation where the conflictee
is unable reasonably to make a choice.
Conflict of duties
A second kind of conflict of interest is a conflict
between legal obligations. The conflictee finds
himself in a position where he has a positive
obligation (whether imposed by public law or
private law), the performance of which is
incompatible with the performance of another such
obligation to which he is also subject.
At first sight, this situation appears to provide the
greatest dilemma. In most cases, however, there is a
solution already available, should the conflictee wish
to take it:
(i) The problem may arise as a conflict between a
public duty on the one hand and a private duty (for
example a contractual obligation) on the other. An
obvious example of such a problem is the situation
of a commercial bank which, under the terms of the
UK Drug Trafficking Offences Act 1986', is under
an obligation to disclose transactions by its customer,
but where the contract with the customer requires
that the customer's affairs should be kept
confidential.
In this situation, the law itself provides a solution.
Section 26B(4) of that Act provides that disclosure
shall not be treated as a breach of any restriction
imposed by statute or otherwise. Further, the terms
of the case which establishes the bank's implied
duty of confidentiality to its customer, Tournier's
Case,3 specifically provide an exclusion in the
circumstances where disclosure of the client's affairs
is required by law. In this case, the potential for
conflict was foreseen at the time when the duty was
delineated, and the common law provided the means
of resolution.
(ii) The second situation is where there is a
conflict between two public law duties, owed to
authorities in two different jurisdictions. An
example of this arose in the early 1980s when the
New York branch of the Swiss Bank Corporation
was ordered by a New York court to disclose to the
Internal Revenue Service details of the affairs of
its customer, Mr Marc Rich, who was suspected of
evading US tax. Under Swiss law, any officer of the
bank who permitted the transfer of customer
information outside Switzerland without the
customer's consent was guilty of a criminal offence.
Accordingly, the bank declined to transfer the
information to New York so that it could be
disclosed, and the New York court responded by
levying a heavy default fine on the bank.
The problem in that case was resolved by the
conclusion of the treaty between Switzerland and
the United States providing for the disclosure of
information from one jurisdiction to the other,
following a specified procedure. In the absence of
such a treaty, Swiss Bank Corporation (and other
Swiss banks) would have been very seriously
disadvantaged as a result of the conflict of interest
in which they might find themselves. However, it is
important to note that in this case the public duty
which the bank owed in Switzerland was a duty not
to disclose information without the consent of the
customer. A point made strongly by the US court was
that it was always open to Swiss Bank Corporation
(or indeed any Swiss bank) to ask its customers to
agree to the disclosure of their affairs to overseas
tax authorities. The banks declined to seek such
permission from their clients, because an individual
bank making such a request would put itself at a
competitive disadvantage as against other Swiss
banks, and against banks of other nationalities.
Again, this was a matter of choice: if the bank
had chosen to suffer the competitive disadvantage of
insisting on release from its statutory obligation, it
could have avoided the conflict.
(iii) A variant of this situation is that where an
institution has a positive obligation to perform a
contractual term undertaken in the ordinary course
of business, and finds the performance of that
obligation will involve a breach of a public law
obligation. An example of this situation is
illustrated in the case of Lib yan Arab lForeign Bank
v Bankers Trust Co." In that case deposits were held
on the books of Bankers Trust in London in the
name of its customer, Libyan Arab Foreign Bank
('LAFB'), a subsidiary of the Libyan central bank.
In the exercise of its sovereign authority, the United
States passed regulations prohibiting all US persons
(which for these purposes included the overseas
branches and subsidiaries of US institutions) from
doing any act which resulted in credit being given to
Libyan entities, save with specific consent. LAFB
sued Bankers Trust in London for payment of its
contractual debt. The judge, Mr Justice Staughton,
held that the contract of deposit was governed by
English law. The US regulations as a matter of
English law (though not, of course, as a matter of
New York law) had no application to acts done in
London. That was not, however, the end of the
matter. The case revolved round the possible
application of an English rule of private
international law, that a contractual obligation will
not be enforced by the English courts, if
performance of that obligation necessarily involves
the doing of an act in an overseas jurisdiction,
where that act is illegal.'
In the LAFB case the argument of the bank was
that, since the account was a US dollar account, this
rule applied. The payment of a dollar obligation of
the nature concerned could only be discharged by a
series of transactions which involved (inter alia)
entries being made on the books of account of the
Federal Reserve Bank of New York. In the event, the
judge found that it was possible to perform the
obligation without anything being done in New
York, and accordingly performance would not be
excused. Had the US Government not been prepared
to sanction payment at that point, the bank would
have found itself in a very unfortunate situation.
However, it should again be noted that there is a
way in which the bank could have avoided the
conflict, and which some international banks now
take. It is now comparatively common for banks to
insert in their terms of business a contractual term
which makes any obligation to the customer
conditional upon performance not involving the
breach of a public law obligation in any jurisdiction
in which the bank carries on business.
Once again, the conflictee has a way out of the
dilemma. Provided he foresees the possibility, he can
contract out of the difficulty.
(iv) The final kind of conflict between duties is
the one which causes most difficulty. This is the
situation where there is a conflict between two
contractual duties, where an institution has
undertaken an obligation to two counterparties, in
circumstances where performance of the obligation
to one will involve a breach of the contractual
obligation owed to the other. This is dealt with in
'Private law conflicts' below.
Conflict between duty and opportunity
In commercial life it commonly happens that an
organisation or individual is presented with a
business opportunity, but finds that it has an
obligation (whether under private or public law), the
performance of which will preclude the opportunity
International Business Lawyer February 1997
 trips with her husband did not provide assistance in
being taken. For example, a bank which is holding a
any relevant sense.
charge over listed securities may have concluded However, the judgment did not question the
that its interests require that they should be sold in
assertion that there had indeed been a breach of
order to repay the loan. However, the terms of the
trust. The breach of trust identified was that of the
UK Criminal Justice Act 1993 may mean that the
money launderer. The reasoning was that the breach
bank, as an insider, is under a duty not to deal in
6 of his employment contract by the security guard at
those shares. The resolution of the conflict is
the original robbery had been a breach not only of a
simple; the law expects the bank to refrain from
contractual duty, but of a fiduciary duty. This was
taking the opportunity in order to comply with its
sufficient to be the first link in a chain of liability
public law duty.
under which every recipient of proceeds from the
Much more difficult, however, is the situation
robbery became a constructive trustee. This chain
where a contractual duty owed, for example, by a
ran as far as the money launderer for whom the
securities house to one of its clients precludes the
defendant and her husband were carrying cash. The
institution taking business opportunities for itself
breach which was relied on for the purposes of the
which are otherwise open to it. It is this conflict
Tan liability was the breach by the money launderer
within integrated financial services companies,
of his fiduciary duties.
which act as advisers and agents for clients as well as
This result is surprising, since it implies that a
trading for their own account which provide the
constructive trustee is under a positive duty to act in
main focus of concern.
a particular way. If there is no such positive duty, it
clearly cannot be breached. It is presumably thought
that a constructive trustee, such as the money
Private law conflicts launderer in this case, is under an obligation to
return cash to the original owner, and by dissipating
The area of controversy, then, concerns only a small
it he breaches that duty. The normal formulation is
percentage of the situations where a financial
to say that a constructive trustee is someone who has
institution might be required to make a choice
come under an obligation to account as if he were a
between two conflicting interests or duties.
trustee. This is not the same as saying that he has
Difficulty only arises where the choice is between
assumed the duties of a trustee. Nonetheless, the
two irreconcilable private law obligations, or
case does illustrate that parties can find themselves
between a private law obligation and a personal
in a position where they owe legal duties, usually of
interest.
a so-called fiduciary nature, quite outside the terms
In what is said below it is assumed that the
of any contractual assumption.
private law duties under discussion arise by virtue of
In the normal course, however, it will usually be
contract. This may not be the case. For example, an
the case that the private law duty or duties which
agency can arise without the need for a contract
form part of the conflict structure will arise out of a
(although this is, of course, rare) and obligations
contractual relationship.
may arise out of a relationship as a result of the
A conflict between two contractual duties is not at
application of an entirely different legal doctrine. In
7 all uncommon in commercial life. For example, a
Brinks Limited v Abu-Saleh & Others the defendant
seller of a product may agree to sell the same item
was a lady who had accompanied her husband on
to two buyers, or a hotel may double-book a
trips to Zurich, during which he laundered funds
bedroom. A party which finds itself in this position
handed to him by a friend. The source of the funds
has two options. It can either negotiate its way out
was the theft, several years before, of gold bullion
of one of the obligations, or it can simply break one
under the custody of Brinks Limited. The theft had
of its contracts, and accept that it will be liable to
occurred because a security guard had assisted
pay damages for breach.
robbers to gain entry to the premises he was
Again, the situation where a commercial
guarding. The argument in the case was that the
organisation finds itself with a conflict between a
lady concerned was liable to Brinks Limited as a
contractual duty which it owes to a counterparty and
constructive trustee, following the principles laid
its own self-interest is very common. An owner of
down in Royal BruneiAirlinesSdn Bhd v Tan'.The to sell, and only
property may have agreed
argument was that she had behaved dishonestly, and
afterwards decide that he would prefer to keep his
that her behaviour had assisted a breach of trust.
property after all, since he now anticipates a
The claim failed, on the basis that her presence on

International Business Lawyer February 1997

 BUTIES
substantial rise in its market value. In these
circumstances the law gives him three alternatives:
he can continue to perform his commercial
obligations; he can negotiate with the purchaser a
termination of the contractual duty; or he can
commit a breach of his contractual obligation and
bear the legal consequences by paying damages.
These examples are commonplace and
unremarkable. Most importantly, they do not give
rise to any suggestion that the law should intervene
in order to make life more comfortable for the
conflictee.
One therefore has to ask why it is that a feeling
arose in the late 1980s and early 1990s that financial
conglomerates and, by extension, other organisations
servicing the same industry (for example large firms
of lawyers) should be protected from the effect of
the legal rules which would otherwise apply. The
answer was partly that the growth in the size of
these organisations since the mid 1980s, and the
conglomeration of different functions within the
same 'integrated' securities house has multiplied the
number of occasions on which a conflict of interest
or duty forces the conflictee to make an unpleasant
choice.
But this in itself would not be any reason to
believe that legislative action was necessary. As we
have seen above, there are very few circumstances
where the conflictee finds himself in a intractable
dilemma. There is almost always a way out of the
problem, even if it may be at considerable cost in
terms of lost opportunity or competitiveness. The
real reason why change was felt to be necessary is a
feeling that in some circumstances the conflictees
were being placed by the law under a burden of
duty which was excessively high. This was
illustrated by the fact that the new regulatory
regime established under the Financial Services Act
postulated a lower level of duty, which was thought
to be fair, reasonable and appropriate to protect the
public interest.
The different levels of duty can be illustrated by
a simple example. If an investment bank acts as
corporate finance adviser to a company, it will
normally be an implied term of that contractual
relationship that the investment bank should act in
the interests of its client, and certainly not take
steps which could be damaging to its client's
interests. If the bank advises other investment
clients that they should avoid buying the securities
of the first client, or itself sells the shares short
(thereby precipitating a drop in price) one would
expect primafacie that the client would have a claim
against the investment bank for breach of its
contractual duty. The SIB rules however' recognise
that the different divisions of an integrated
securities house may well find themselves in such a
position. The rules therefore permit the house to
continue to act in these situations subject to the
imposition of 'Chinese walls' which effectively
prevent the transfer of contaminating information
from one department to another. However, the legal
rules dealing with the imputation of knowledge
within companies" might well have the effect of
ignoring the existence of the Chinese wall
arrangement and produce the result that a securities
house was in breach of its contractual obligation to
its client even though the individuals within the
securities house were unaware that the company was
performing an act which amounted to a breach of
contract with one of its clients.
The reason why this situation seems to call out for
statutory intervention is not that the two different
levels of duty cause confusion or that investment
bankers are unable to understand them. It is
perfectly easy to appreciate that, although the
regulatory rules lay down one course of action that
must be adopted, the common law may lay down
another set of rules which apply in the same
circumstances, and which may be more stringent.
Complying with the regulatory rules may not be
enough in itself.
Rather, the concern comes from the feeling that
the regulatory rules lay down a scheme of conduct
which is entirely reasonable and is so perceived not
only by those carrying on investment business but
also by their clients. To the extent that the law
requires more, it is being too severe or (even worse)
out of date.
Changing nature of fiduciary duties
Following this argument, the subject of conflicting
interests within the financial services industry can
be reduced to one simple question: Does the law, and
in particularcase lawfix the duty owed to clients by
financial advisers or other professionalsat an
unreasonablyhigh level My view is that it does not.
To reach this conclusion, however, one needs to look
at the development in the law in recent years in
relation to the uses of and consequences of one
simple adjective fiduciary.
The most succinct explanation of what fiduciary
duties are, and how they are relevant in this
situation is contained in the Law Commission's
International Business Lawyer February 1997
report" as follows: 'Our legal system primarily deals
with such conflicts by treating the relationship
between the provider and recipient of such services
as giving rise to fiduciary duties on the part of the
provider and conferring on the recipient rights of
action for breach of the obligations imposed on the
provider. Broadly speaking, a fiduciary relationship
is one in which a person undertakes to act on behalf
of or for the benefit of another, often as an
intermediary with a discretion or power which
affects the interest of the other who depends on the
fiduciary for information and advice.'
The report then goes on to list the basic rules of
fiduciary duty as follows (i) the 'no conflict' rule; (ii)
the 'no profit' rule; (ii) the undivided loyalty rule;
and (iv) the duty of confidentiality. The report does
say, crucially, that 'the exact scope of the fiduciary's
obligations and the consequences of breach vary
according to the particular circumstances'.
The rules, if they apply in the area with which
we are dealing, are bound to provide a severe
inhibition to the way in which business is
conducted. However, modern cases indicate that the
sting of the rules has largely been drawn. They will
often not apply, and when they do they will often be
capable of modification by contract to make them
consistent with commercial reality.
Before looking at the most important cases, it is
worth pausing for a moment to ask why the question
should so often be raised in the context of financial
dealings. The answer is that plaintiffs making a
claim in relation to a dispute arising out of a
contract in this area (eg an OCT derivatives contract
entered into between a specialist bank and its
corporate customer) will almost invariably assert, as
one of the bases of the claim that the duties owed
by the defendant were fiduciary in nature. This is
not because a breach of a fiduciary duty gives rise to
punitive or exemplary damages. It is because such a
breach of gives rise to a whole armoury of judicial
remedies which would not be available in ordinary
contract disputes. An extreme example of this is the
Brinks Case referred to above. In that case, the
starting point for the claim against the defendant
was that the action of the security guard on the
night of the robbery had not been a mere breach of
his employment contract. His obligation to behave
in good faith towards his employer attracted the
epithet 'fiduciary'. Because he had breached a
fiduciary term of his contract, this triggered off a
long chain of consequences which resulted, many
years later, in the possibility of a legal claim against
the defendant.
International Business Lawyer February 1997
Plaintiffs will wish to keep alive the idea that a
wrong for which they are claiming involves a breach
of fiduciary duty. Not only does this serve as a key to
unlock remedies that would not otherwise be
available, but it also turns up the emotional heat of
the dispute, carrying as it does connotations of
impropriety or moral turpitude on the part of the
defendant which would not otherwise be asserted.
Examples of this attitude by plaintiffs can be seen
most starkly in the cases concerning OTC
derivatives. In England in the case of Bankers Trust
v PT DharmalaSakti Sejahtera," and in the United
States in the cases of Gibson GreetingsInc v BT
5
Securities Corporation" and The Proctor& Gamble
Company v Bankers Trust Company, the aggrieved
corporate customer asserted not only that the bank
was in breach of contract, but moreover that it was a
fiduciary, and therefore owed obligations to the
defendant to protect its interests in addition to those
which will be implied into a normal contractual
relationship.
Again, following the collapse of the Maxwell
Group in England, aggrieved pension fund trustees
brought actions against custodians of the funds'
assets. There was no suggestion that those custodians
had acted in breach of their contracts at all.
However, the claim was that the managers of the
funds, which were Maxwell private companies, had
acted in breach of their fiduciary duties to their
clients, the trustees. This suggestion allowed the
trustees to assert claims against the custodians not
on the basis that they had breached the terms of
their contracts, but on the basis that they were liable
as constructive trustees, because their actions under
their contracts had assisted the defaulting manager
in the breach of its fiduciary duties to the trustees.
The concept of fiduciary duty and its application
to financial markets is therefore alive and well, at
least in the minds of plaintiffs and their legal
advisers. Fortunately, however, the courts do not
necessarily accept these arguments. In recent years
there has been a marked trend, not only in England
but throughout the common law world to control the
impact of rules relating to fiduciaries on
commercial activities. This trend follows two
distinct lines.
Contract based
In 1992 the Privy Council heard the case of Kelly v
4
Cooper" on appeal from Bermuda. The case related
to a transaction between a vendor of property and
the estate agent employed by him to sell the
 01' '%V DUTIES
property. The same estate agent had also been
employed by the owner of the adjacent property.
The agent had concluded a sale of the neighbouring
property to Mr Ross Perot, who wished also to buy the
first property, and amalgamate the two. Both sales
were duly completed. When the plaintiff found out,
however, that the purchaser of his property and the
neighbouring house was the same person, and that
this had been known to his agent, he sued the agent
for breach of fiduciary duty. His argument was that
the agent was under a duty of full disclosure to him,
which he had failed to fulfil. Had the plaintiff
known that the prospective purchaser was also in the
process of buying the house next door, he would
have been able to ask a higher price.
The Privy Council rejected the claim. Its
argument was that the relationship between a
vendor of property and his estate agent was a
commercial arrangement. The governing terms of
the relationship were the terms expressed and
implied of the contract. It is well known to any
vendor of property that estate agents act for many
other vendors of similar properties in the same
neighbourhood (indeed that is normally why they
are selected). If they were expected to make
disclosure of all the affairs of their other clients
which might be relevant, it would make it
impossible for them to function in the way which
everyone expected. Therefore the court would not
imply into the contract the wide duty of disclosure
sought. Nor was it prepared, by attaching the
adjective 'fiduciary' to the obligations of the agent
to introduce into the relationship obligations
which could not be established as a matter of
contract.
The case is very clear, and the message is strong.
It has been criticised for being too robust, and
seeming to eliminate any question of fiduciary
duties from the context of agency law. One wonders,
for example, whether the Board would have been so
ready to reject the influence of fiduciary duties if,
for example, the purchaser had not been Mr Perot,
but a nominee acting for one of the partners in the
firm of estate agents, who wished to amalgamate
the two properties with the purpose of property
development. Nonetheless, the case gives a very
clear signal of the wish of the courts to found the
judgment of commercial disputes in the law of
contract.
This approach was confirmed in Clark Boyce v
Mouat " In this case a solicitor acted for a lady who
granted a mortgage over her property to secure a
loan made to her son. The solicitor also acted for the
son in the transaction, and urged the mother to take
independent legal advice. This she declined to do.
The transaction proceeded, the son's business failed,
and the mortgage was enforced. The plaintiff then
sued the solicitor for breach of fiduciary duty,
alleging that he owed an obligation to her to refuse
to act, to insist that she take advice elsewhere and to
advise her that it was not in her interest to enter into
the transaction.
The Privy Council found for the defendant
solicitors. First, there was no reason why the
solicitors should refuse to act, since they were acting
on the basis of the informed consent of both clients.
Most importantly, there was no duty on the
defendants to advise the plaintiff on the wisdom of
entering into the transaction. They had carried out
the necessary conveyancing on their client's behalf,
and had advised her on the consequences of the
transaction. Their contractual obligation required
them to go no further. A fiduciary duty, the Board
said, 'cannot be prayed in aid to enlarge the scope of
the contractual duties'.
Public policy approach
Both Kelly v Cooperand Clark Boyce v Mouat are
consistent with the general public policy approach
being adopted, both in the UK and in the New
World. To see the clear line of judicial thinking, one
needs to look at no more than one case from three
different jurisdictions:
(i) LAC Minerals Ltd v InternationalCorona
Resources Ltd.1" This decision of the Supreme Court
of Canada in 1989 concerned a joint venture
arrangement between two mining companies. The
parties entered into negotiations with a view to
forming a joint venture to develop a mining
property owned by the plaintiff. During the course
of negotiations the plaintiff revealed to the
defendant technical data, which indicated that
mineral-bearing deposits might also be found on
an adjacent property. The defendant, acting on this
information, bought the adjacent property for its
own account. At the trial the judge found that the
defendant was in breach of a fiduciary duty which
arose out of the negotiations to form the joint
venture. This view was upheld on appeal, but
dismissed by the Supreme Court.
The majority found that there was no fiduciary
relationship between the parties. The case involves a
thorough examination of the nature of fiduciary
duties and consideration of their place in the
commercial world. The clearest judgment in this
International Business Lawyer February 1997
respect is that of Sopinka J. He firmly rejected the
contention that a fiduciary relationship existed in
the case before him. Of particular significance to
him was the crucial element that a fiduciary
relationship must contain an element of
vulnerability and reliance. As in Kelly v Cooper and
Clark Boyce v Mouat, if parties enter into
contractual relations at arm's length and understand
what they are agreeing to, there is little scope for the
law to add the extra dimension of fiduciary duties to
the relationship which they have selected.
(ii) In re Goldcorp Exchange Ltd (in
receivership).' This case concerned a company in
New Zealand which dealt in gold and precious
metals. In particular it sold gold to members of the
public. The company retained possession of the gold
purportedly sold, although purchasers were entitled
to take delivery on giving notice. In fact the gold
purportedly sold was never allocated to the
contracts, and property never passed to purchasers.
When the company went into receivership there was
not, of course, sufficient gold in its possession to
satisfy the claims of purchasers and its creditors.
The claimants mounted a number of ingenious
and elaborate arguments which led to the conclusion
that they were entitled to claim the assets in priority
to other creditors. A number of these arguments
started from the premise that the company owed to
its customers fiduciary duties, and that those duties
gave rise to proprietary claims against the assets. On
appeal to the Privy Council, the Board rejected this
argument in very round terms. Lord Mustill put it
succinctly: 'Their Lordships have not heard in
argument any submission which went beyond
suggesting that by virtue of being a fiduciary the
company was obliged honestly and conscientiously
to do what it had by contract promised to do. Many
commercial relationships involve just such a reliance
by one party on the other, and to introduce the
whole new dimension into such relationships which
would flow from giving them a fiduciary character
would (as it seems to their Lordships) have adverse
consequences far exceeding those foreseen by Atkin
LJ in In re Wait [1927] 1Ch 606. It is possible
without misuse of language to say that the
customers put faith in the company, and that their
trust has not been repaid. But the vocabulary is
misleading; high expectations do not necessarily
lead to equitable remedies.'
(iii) The Proctor& Gamble Company vs Bankers
Trust Company and BT Securities Corporation.' In
1994 The Proctor & Gamble Company (P&G) began
proceedings against Bankers Trust Company (BT)
International Business Lawyer February 1997
and its affiliate BT Securities Corporation arising
out of OTC derivatives contracts entered into
between the P&G and BT. A number of allegations
were made, and the claims were based on a number
of different legal grounds. One of those grounds was
an alleged breach of fiduciary duty by BT. P&G's
contention was that a fiduciary relationship existed.
It had agreed to the swap transactions with BT
because of the long relationship which it had, and
the trust which it placed in BT, together with BT's
promise to look after P&G's interests in the
transaction. By entering into complex transactions
with BT, which represented itself as expert in such
transactions, P&G relied on that expertise.
The judge, The Hon John Feikens, granting
summary judgment on the issue, rejected the
argument very firmly. He quoted from a previous
case that: 'New York law is clear that a fiduciary
relationship exists from the assumption of control
and responsibility and is founded upon trust reposed
by one party in the integrity and fidelity of another.
No fiduciary relationship exists ... [where] the two
parties were acting and contracting at arm's length.
Moreover, courts have rejected the proposition that a
fiduciary relationship can arise between parties to a
business relationship.'1 9
He then goes on to conclude in his own words:
'P&G and BT were in a business relationship. They
were counterparties. Even though ... BT had
superior knowledge in the swaps transactions, that
does not convert their business relationship into one
in which fiduciary duties are imposed.'
This case is not, of course, any precedent in
English law, and in any event represents only a
summary judgment at first instance. Nonetheless, it
shows a trend in commercial common law
jurisdictions to limit the intrusion of the fiduciary
duty concept into straightforward commercial
relationships.
Conclusions
The conclusion from recent cases must be that
statutory intervention to protect financial
institutions or professionals who find themselves
with a conflict of interest is unnecessary. In the
great majority of cases where a conflict arises, there
is an obvious solution. It may, of course, cost the
conflictee money or entail some other business
disadvantage. This of itself is no reason for
intervention.
Continued on page 84
 INTERNATIONAL BAR ASSOCIATION
Conferences and Seminars
1997
17-19 February London, England
International Wealth Transfer
Techniques Seminar
SGP Committees 5 and 22 in conjunction
with the American Bar Association
3-4 March Denver, USA
International Resources Law:
Today's Oil, Gas and Mining
Projects
SERL in conjunction with the Rocky
Mountain Mineral Law Foundation
10-11 March Amsterdam, Netherlands
Rethinking the Law Firm
SGP Committee 10 in conjunction with the
American Bar Association
20-22 March Copenhagen, Denmark
The Enforcement of
Environmental Law in Europe:
The Challenges and Future
Developments
SBL Committee F1
14-15April Buenos Aires, Argentina
South American Regional
Conference
SGP, GPP and Human Rights Institute
17-18April Washington DC, USA
Project Finance
SBL Subcommittee El 1
17-18 April Cannes, France
8th Telecommunications Services
and Competition Law in Europe
SBL Committees C and Cm
4-7 May Bermuda
8th Annual Globalisation of
Mutual Funds
SBL Committee I in conjunction with the
Investment Company Institute
5-6 May Copenhagen, Denmark
International Litigation Seminar
SBL Committee 0
7 May Washington DC, USA
14th Annual Franchising
Association Seminar
SBL Committee X in conjunction with the
International Franchising Association
7-10 May Ankara, Turkey
Doing Business on the Internet:
The Technology, Intellectual
Property and Legal and
Commercial Issues
SBL Committee L and R
9-10 May Cannes, France
11th International Audio Visual
Law Seminar
SBL Committee L in conjunction with
International Chamber of Commerce
19-20 May Windsor, England
Oil and Gas in the Next
Millennium
SERL
22-24 May Prague, Czech Republic
14th Annual Seminar on
International Financial Law
SBL Committees E and Q
25-27 May Eilat, Israel
Infrastructure Projects
SBL Committees F,H, K, M, N, Q, R and T
30-31 May Hamburg, Germany
Arbitration in Maritime and
Transport Disputes
SBL Committee A and D
10 June New York, USA
Antitrust and Trade Law Seminar
SBL Committee C in conjunction with the
American Bar Association
10-11 June New York, USA
The World-wide Reorganisation
and Restructuring Seminar
SBL Committee J in conjunction with the
American Bankruptcy Institute
11-13 June New York, USA
International Bar Association
50th Anniversary Celebration
SBL Committees Q and Cm, SERL and
Human Rights Institute
9-11 July Egham, England
New Forms of Business
Organisation for the New
Millennium
SBL Committee G
8-9 September
Bratislava, Republic of Slovakia
Eastern European Forum Conference
Language and the Law -
The Clash of Legal Culture in
Central and Eastern Europe
17-19 September Caracas, Venezuela
Energy Law Seminar
SERL
19 September Barcelona, Spain
Impact of EC Trade Marks on
Commercial Transactions
SBL Committees M and L
25 September New York, USA
International Arbitration Day
SBL Committee D in conjunction with the
American Arbitration Association
29-30 September Herefordshire, England
Electricity Law Seminar
SERL
September (Date to be confirmed)
Amsterdam, Netherlands
Tax Provisions in Take-over
Agreements
SBL Committee N
September (Date to be confirmed)
Fiesole, Italy
The Future of European
Merger Control
SBL Committee C
October (Date to be confirmed)
Kathmandu, Nepal
Human Rights Institute Seminar
2-7 November New Delhi, India
Section on Business Law
Section on General Practice
1997 Conference
All Committees of the two Sections
For further information on
any of these Conferences
and Seminars, please contact:
International
Bar Association
271 Regent Street
London WIR 7PA, England
Tel: +44(0)171 629 1206
Fax: +44 (0)171 491 4470
e-mail: confs@int-bar.org