To all those reading this I am David Gibbs; I am a Lecturer in Company and Commercial Law at the University of Hertfordshire.

I created this blog as a general out-let of ideas for my research, as well as keeping those interested up-to-date on my research and general interests.

I completed my PhD thesis at the University of East Anglia in 2014. The thesis was recommended for the award of PhD with no corrections. My external examiner was Prof. Simon Deakin (Cambridge) and internal examiner was Prof. Morten Hviid.
My PhD research centred on directors' duties and company law. The thesis was titled 'Non-Executive Self-Interest: Fiduciary Duties and Corporate Governance'. It was a doctrinal and empirical study on whether self-interest was suitably controlled amongst non-executive directors.

My supervisors were Prof. Mathias Siems, Prof. Duncan Sheehan, Dr. Sara Connolly and Dr. Rob Heywood

All opinions of any existing or future blogpost are my own. They do not necessarily represent the views of any of my associated institutions.

Friday, 22 August 2014

Fiduciary Maxims: Some proposals

There is a concerted effort to organise fiduciary law in to a set of coherent rules. With this in mind I thought I would list some general maxims or principles in respect of fiduciaries. Some are more well-known than others but all, I believe, are of general accuracy albeit require some fine tuning with the wording. I give a very brief description next to each one This may be of use to new students to the concept as well as those more experienced. However, this is a very rough guide and some maxims may be refined or combined, nor is it meant to be exhaustive, so comments and/or additional maxims welcome.

1) Loyalty is the defining characteristic of a fiduciary - Therefore loyalty makes someone a fiduciary

2) Loyalty is an obligation owed when specific facts present themselves - Linking with above, calling someone a fiduciary is in some senses redundant. You must look for specific facts to identify the individual as a fiduciary

3) Anyone can be classed as a fiduciary if those facts present themselves - Since loyalty is owed on specific facts it is possible for anyone in any relationship that involves control over another's interests to owe the duty, similar to a duty of care. e.g. a director may owe fiduciary duties to the company, but also to an individual that the company is dealing with, if the director is shown to have undertaken the duty of loyalty to that third party

4) Loyalty is owed when you agree to advance the interests of another to the exclusion of your own or others; or when collaborative partners agree to combine resources to achieve a specific collaborative goal, both to the exclusion of their own personal interests - Loyalty requires the suspension of self-interest. Therefore it is only when you agree to do so will the duty be owed.

5) Where you are responsible for another's interests, there is a presumption you will be loyal to them - Since you are acting to assist another loyalty must be presumed unless 6 evidences otherwise.

6) Express or implied terms of the undertaking evidence whether the fiduciary undertook to behave in such a way - Whilst you may agree to be responsible for another's interests, this does not always mean loyalty will be owed if the terms of the agreement evidence that you did not agree to be loyal. For example, a term stating that 'best efforts' would be applied would be inconsistent with the duty being owed. Commercial/contractual arrangements therefore are not normally fiduciary.

7) Loyalty operates to regulate self-interest - A fiduciary who is incompetent is not disloyal. Where one agrees to advance another's interest, the concern is that they will use that control to advance their own. This is a concern since where an individual is personally interested in their undertaking to the principal, they may not perform that undertaking to the best of their ability, if at all.

8) A breach of loyalty is in respect of conflicts of interest, self-dealing and/or bribes and secret commissions - These acts all relate to situations where there is a risk one might have acted to advance their own interests. Best interests, duty of care etc. are not fiduciary in nature but are generally owed by those classified as such

9) Strict liability is imposed for breaches of loyalty - Courts cannot assess if someone was actually disloyal. Therefore liability is strict. The only consideration is whether there was a conflict, was there self-dealing, was a bribe accepted. Good faith, ability to take the asset, ownership or beneficial interest etc. over the asset are all irrelevancies.

10) A breach of loyalty is when personal or other interests are placed above the principal's - Self-interest must be suspended in the performance of the undertaking

11) Once it is established the duty is owed, the onus is on the fiduciary to prove they were not disloyal - If the onus was on the principal, who is in the weaker position, this in itself may evidence disloyalty. Once you are shown to owe the duty because you are responsible for their interests it is for the fiduciary to show they were not disloyal.

12) Only the principal can determine what it is interested in - A fiduciary cannot determine the interests of a principal in an attempt to avoid liability for disloyalty. Attempts by the fiduciary are not to the point. The point is whether there was a risk of disloyalty in respect of their undertaking.

13) There is only a breach if duty/undertaking conflicts with principal's interests - you cannot expect loyalty in respect of interests the fiduciary did not take responsibility for.

14) The duty/undertaking is determined by looking at the contract and agreement as a whole - Whilst the contract may identify the interests the individual took responsibility for, the courts will look at the whole agreement between the parties. This is particularly important where there is no written or verbal contract to consider.

15) Any benefit derived from the undertaking is rightly that of the principal - Linking in with above on strict liability, the fiduciary is acting for the principal. Therefore any benefit derived from that undertaking is rightly that of the principal. Again, arguments of good faith, ownership, whether the benefit was intended for the principal are all irrelevancies. For example, accepting a bribe. If not for the fiduciary's act the principal has missed the opportunity to obtain a higher or lower price, depending on the scenario, than if it had done it itself.

16) Where no benefit is derived the fiduciary is liable to compensate the principal - Fiduciaries do not always derive a benefit from being disloyal. Therefore they may claim compensation but this is subject to limiting principles for remedies such as causation.

17) Any benefit obtained by a third party in respect of the fiduciary's breach is subject to limiting remedial principles - This is perhaps a much more uncertain principle as to what can be recovered from a third party. A lot depends on whether they knew the benefit received was from a breach of fiduciary duty. Even if they did know, questions of limiting remedial principles are not well answered in the courts as to what the third party would be liable for. 

Monday, 28 July 2014

WINIR Call for Papers

The World Interdisciplinary Network for Institutional Researchers has a call for papers open, due to close this Thursday 31st July. The call for papers can be found here. The Symposium is due to take place 22nd-24th April 2015 at Universita della Svizzera Italiana (USI), Lugano, Switzerland.  

Wednesday, 16 July 2014

Law Commission Consultation on Fiduciary Duties of Investment Intermediaries: A brief comment

Following on from my previous post I thought it worthwhile to note a few comments/thoughts I had on the Commission's Report on Fiduciary Duties of Investment Intermediaries.

On the whole the report gives a largely accurate portrayal of the law and is a helpful document. There are a few points that I would raise. The main point surrounds what is actually meant by contract first in determining the application of fiduciary duties.

The first point is between 3.33-3.40 in the report on duty-duty conflicts and modifying fiduciary duties. Certainly the position is correct that a fiduciary acting for two principals must obtain authorisation to do so. However, as I pointed out in my response and the Report accepts, this is not the end of the matter as the fiduciary must still comply with their other duties.

With modifying fiduciary duties at 3.37-3.40 the Report adopts a contract first approach, relying strongly on a privy council decision in Kelly v Cooper [1991] AC 205 and other Commenwealth decisions. It would perhaps have been worthwhile to assert English authorities for this proposition. Particularly since Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 has received positive judicial treatment as has Kelly v Cooper. The proposition from these cases is that contract will shape the fiduciary relationship and the duties will accommodate themselves to the contract. Fiduciary duties cannot be superimposed to alter the contract. The conclusion reached was that where a term is included in the contract, whether express or implied, that allows a fiduciary to act for multiple principals then they are free to do so. In Kelly v Cooper this was in the context of estate agents as fiduciary.

These points, however, lack detail. There are issues not addressed. It is often stated to reason by analogy in the context of fiduciary duties is dangerous and it has recently been approved that implying such terms that allow an estate agent to act for multiple principals is not automatically applicable to other types of fiduciary. See Northampton v Richard Andrew Cowling [2014] EWHC 30 (QB) at [185]. Is the report arguing that such a term is implied in to investment intermediary contracts? If so, does it apply to all types of investment intermediaries? Also, approving through an implied term to allow a fiduciary to act for multiple principals, does this always mean the principal would be prevented from claiming a conflict of interest? There perhaps needs to be a bit more clarity on how duties may be modified by contract in distinguishing between approving conflicts and attempts to stop their application all together. There is a lot more consideration needed to reconcile Professor Kay's view that contract cannot override fiduciary duties and the Reports position that they can. (see 10.48-10.49 of the Report)

There remains the issue of when fiduciary duties arise. Discussed at 3.23 the Report gives acceptance to Edelman's view that the 'greater degree of trust, vulnerability, power and confidence reposed in the fiduciary, the more likely a reasonable person would have such an expectation' [to loyalty]. The Report at 3.24 sees this as a useful way to determine when the relationship arises. Unfortunately, it lacks precision and certainty. How much trust must be placed in one person until they are reasonably entitled to loyalty. This may lead to arbitrary court discretion without true consideration of why loyalty is imposed on an individual. This may have severe consequences either way since someone who owes loyalty must suspend self-interest. Without going in to detail myself here, the issue is not one of a sliding scale based on reasonableness but a binary approach to loyalty. The question that needs to be answered is did you or did you not undertake responsibility for the other person's interests at the expense of your own and anyone else's interests. I do not think, based on this alone, investment intermediaries are any better off in knowing if they owe fiduciary duties. However, chapter 10 of the Report does provide some more detailed insight but at 10.20 of the Report, for example, there is mention that it is possible fiduciary duties might be owed based on legitimate expectations in regards to actuaries. The use of the words 'possible' and 'might' emphasise the uncertainty such a test brings.

The next issue is the content of fiduciary duties from 3.25 (see also 10.43-10.47). The Report notes that not all fiduciaries owe the same fiduciary duties and some relationships may give rise to more onerous duties. However, the very next paragraph states that the distinguishing duty of a fiduciary is loyalty. This appears to be a stark contradiction. How can you owe different duties if the one duty is loyalty? How can you be more loyal than another fiduciary? You can't be a bit loyal. If loyalty is more onerous or different duties are owed in different circumstances the Report does not give one example to support this. If you are in a fiduciary relationship you are subject to the fully expanse of fiduciary jurisdiction. The confusion is mainly based on the notion that it is not fiduciaries owe different duties but they do not owe them in the same circumstances.

My final thought is that if fiduciary duties can be restricted by terms of a contract then this gives considerable power to the stronger party. This may lead to significant abuse and certainly more consideration is needed on this point. 

Tuesday, 1 July 2014

Fiduciary duties of investment intermediaries: Commission Report published

Today, the Law Commission published its report after consultation on fiduciary duties of investment intermediaries. The four documents published today as well as previous documents leading to the report can be found here

Friday, 20 June 2014

Leeds Conference on Accountability in Corporate Governance and Financial Institutions

Yesterday I attended a conference at the University of Leeds on Accountability in Corporate Governance and Financial Institutions. See here for the programme. The talks were very interesting and engaging with strong focus on what is meant by accountability and making people, mainly directors but also mention to owners, managers and creditors, accountable. 

Friday, 6 June 2014

Corporate Directors: The current law and reform

For those who are regular readers you may remember earlier posts about corporate directors and the definition of a director see herehere, and here. This was in response to the Supreme Court's decision in Revenue and Customs Commissioners v Holland [2010] UKSC 51 as to whether an individual who controlled a corporate director (i.e. a legal incorporated company acting as a director of another company) was a de facto director of the company which the corporate director sat on. The majority answered in the negative meaning the individual was not liable to contribute to the funds upon insolvency. I disagreed with Watts' case comment in the Law Quarterly Review that the decision failed to furnish a rationale as I argued that Watts looked to find a ratio based on a question the court was not faced with. Watts sought to find a ratio as to whether Holland was a de facto director but the question faced by the court was whether the concept of de facto directorship could be extended to cover individuals who controlled corporate directors.

The negative answer the courts gave this question left a question unanswered, that whilst the court was right to not extend the principle, it effectively allows those who control corporate directors to commit unlawful acts and incur no liability because everything was done in the name of the company. Here one does have to accept that we treat a company as a separate legal entity for genuine reasons and its personality does need to be protected to allow people to run companies without fear of incurring personal liability.

Vince Cable's recent proposals on further restrictions on the use of corporate directors and keeping a register of shareholders, see here also (the discussion paper can be found here) lead nicely to a review of the current law and its suitability in holding people to account.

Therefore I am currently looking at whether the law offers suitable avenues of recourse against those who use corporate directors for an unlawful means and consider the practical consequences of changing the law to only allow natural persons to act as directors as well as consequences of proposals for reform in the paper. Current means of holding an individual liable that will be considered include: knowing assistance, de facto and shadow directorship, section 155 of the Companies Act 2006 and agency. 

Wednesday, 30 April 2014

Learning and Teaching Institute Conference 2014

Tomorrow is the Annual Learning and Teaching Conference 2014 held at the University of Hertfordshire. It is organised by the Learning and Teaching Institute at the University. The conference brochure can be viewed here. I will be presenting a poster on student engagement with feedback to help form some initial ideas on the significant ways students engage with feedback.