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Articles And Notes
Positions De Confiance Under Jersey Law
Simon
Howard
Fiduciary obligations form
part of a range of equitable doctrines, which include duress, undue influence
and unconscionability, developed by the Chancery courts in England and Wales
to justify intervention by the courts to prevent abuse of power and position
in certain categories of a relationship between private parties. In essence,
fiduciary status seeks to promote good faith and fair dealing and prevents
persons from using their position to prefer their own interests over the
interests of others for whom or in relation to whom they are acting.
Looking back to the Jersey case law reports of the last century, the term
"fiduciary" does not seem to feature in the vocabulary of the
Jersey court [1] . But there is ample authority and
material suggesting that the fiduciary concept does form part of the Island’s
jurisprudence and has not just been grafted on by reception from English law
in recent decades. Of course, the emergence of Jersey as a leading
international finance centre responsible for managing and conserving
substantial amounts of property and wealth has resulted in increasing
prominence for the fiduciary concept and the importation into a growing
number of modern Jersey statute laws of fiduciary rules and principles mainly
derived from English law.
No comprehensive definition of what is a
fiduciary has been attempted by the English courts and English case law has
tended to focus on status based fiduciaries; people who by virtue of certain
relationships such as trustee/beneficiary, director/company,
solicitor/client, partner/co-partner and in certain instances
agent/principal are considered without enquiry to be fiduciaries. Under
English law it is now reasonably well established that fiduciary status gives rise to four rules or duties [2]
: (i) the no conflict rule preventing a fiduciary placing himself in a
position where his own interests conflict or may conflict with those of his
client or beneficiary; (ii) the no profit rule which requires a fiduciary not
to profit from his position at the expense of his client or beneficiary;
(iii) the undivided loyalty rule which requires undivided loyalty from a
fiduciary to his client or beneficiary; and (iv) the duty of confidentiality
which prohibits the fiduciary from using information obtained in confidence
from his client or beneficiary other than for the benefit of that client or
beneficiary.
Under Jersey law certain
categories of relationship are well accepted as being fiduciary
in nature. They tend to reflect, however, reception from English law. Article
74 (1)(a) of the Companies (Jersey) Law 1991 (as amended) expressly
recognises the fiduciary status of directors of Jersey companies, requiring
them to act honestly and in good faith with a view to the best interests of
their company. A number of Jersey reported cases illustrate the application
of one or more of the four rules developed by the English courts in the
context of the actions of directors of Jersey
companies [3] . The preponderance of authorities cited
in these Jersey cases, however, are English precedents and
legal texts [4] .
The Trusts (Jersey) Law, 1984 (as amended) also
succinctly summarises the fiduciary status of a Jersey trustee who must
observe the utmost good faith and exercise his powers
only in the interests of the beneficiaries and in accordance with the terms
of the trust [5] . Again, the trusts statute
encompasses, and provides certain derogations from, the no conflict and no
profit rules, the undivided loyalty rule and the duty of confidentiality rule [6] . Breach of
the undivided loyalty rule and the duty not to make secret profits have
also been recognised locally in the master/servant relationship and in the principal/agent relationship [7]
; in the latter relationship the Royal Court again applied English principles
expounded in Bowstead On Agency [8] .
Going back to the last century there are a
number of records of proceedings in the Royal Court dealing with alleged
breaches of duty by procureurs towards their constituents. It is
evident from the records of these proceedings that the court accepted without
question the fiduciary position of the procureur and in many cases
the outcome of the case flowed automatically from a recognition by the court
of this fiduciary status. The term used in the court records to encapsulate
the fiduciary status is the "position de confiance" of the
procureur. The use of this term emphasises the importance of the
particular type of relationship between the parties which justifies the
imposition by the court of fiduciary obligations; one involving a significant
degree of trust and dependency on the part of one towards the other in the
relationship. In Ogier v Aubin [9]a former procureur was actioned to appear
before the Greffier Arbitre to give an account of his conduct as procureur.
The Court held that the procureur occupied a "position de
confiance" vis-à-vis his constituent and should provide
copies of all documentation evidencing payments made by him for the account
of his constituent. In Blampied v Le
Feuvre [10]a former procureur générale of
a deceased person was actioned to appear before the Greffier Arbitre
to give an account of his management of the affairs of his deceased
constitutent. Amongst the payments made by the procureur which were
challenged by the executor was the payment by the procureur to
himself of £17.10.0. on account of a commission on the sale of a vessel. The
Court held that in view of the "position de confiance"
which the procureur occupied in his capacity as procureur
générale towards his constitutent, the defendant had no right to the
commission and was consquently ordered to repay it. The plaintiff voluntarily
offered thirteen pounds sterling to the defendant for the services he had rendered as procureur which was consented to by
the Court. The record notes however that in so doing the Court did not make
any finding on the legal position or right of the procureur générale
to charge remuneration for his services.
The record of the proceedings
in Bott v Gorey [11]provides a colourful
account of collusion between two procureurs who transacted in breach
of duty in immovable property to which their constituents had rights. The
action centred on an application for the cancellation of an hereditary
contract on the ground that it was "dolosif, frauduleux et
révocatoire, la loi ne permettant pas à un procureur de transiger à son
profit par rapport aux biens de son constituant." The plaintiff
claimed that the passing of the relevant hereditary contract was the result
of an "abus evident de confiance et d’un abus du contract de mandat
ou procuration". The court held that the law does not permit a procureur
to transact for his own account and profit in relation to the property of his
constituent. In the circumstances of the case the contract was nul ab
initio due to the lack of capacity of the contracting parties and "comme
étant contraire à la conservation de la police et de l’honnesteté
publique", language which emphasises the degree of importance
attached by the court to the need to maintain and enforce the good faith and
fair dealing obligations expected of fiduciaries.
While the handful of procuration cases cited
above illustrate the good faith and fair dealing principles in action their
application extends across a whole range of dependence relationships. Poingdestre [12] notes "Tout
homme qui est Administrateur du bien d’autruy, comme Tuteurs ou Meneurs,
Curateurs, Procureurs, Facteurs, Recepueurs &c. sont tenus a administrer
Arbitrio boni viri, au dire d’un homme de bien, c’est a dire avec autant de
soing fidelité & diligence, comme un bon mesnager a de coustume de faire
paroistre en ses propres affaires".
The particular quality of the relationship is
once more emphasised in the 1771 Code on the subject of Tuteurs: "Ils
seront obligés de prendre le même soin des biens et des
affaires des Minuers, qu’un bon Pere de famille prend des siennes".
Due to the relatively small body of case law
generated in Jersey, it is difficult to establish with precision exactly what
general rules and principles can be drawn from the reported cases on breaches
of duty by fiduciaries. At one extreme, the application of the no conflict
rule and the no profit rule means that a fiduciary must not purchase for his
own account property under his management and control in his capacity as a
fiduciary: "L’Administrateur n’a pas le droit d’acheter ni par
lui-même, ni par personne interposée le bien dont il a l’administration" [13] . These
transactions are voidable although certain cases infer they may be void ab
initio [14] . This right to
avoid and undo the transaction may exist even though the terms of the
transaction and the price paid were fair. In other cases where the fiduciary
has breached his duties he may be required by the court to account for any
profit derived or to hold the same on a constructive trust for the
client/beneficiary. Where losses have resulted from breach of a fiduciary
duty the fiduciary will be required to make good these losses.
[15]
Other important areas in the modern application
of fiduciary law in Jersey are just beginning to be developed by case law and
it is likely that further statutory clarification may be introduced in
certain areas as part of the financial services legislative programme which
the Island has embarked upon. The ability of
fiduciaries to shelter behind limitation of liability clauses has been aired
recently in the trusts context [16] . An interesting
question remains whether a fiduciary can, or to what extent it is permissible
for a fiduciary to, contract out of obligations and duties which might
otherwise arise from his status and whether the Jersey courts will uphold
consensual arrangements to this effect between fiduciary and
client/beneficiary. The Judicial Committee of the Privy Council has issued a
clear signal in this context to English courts to found the judgment of
commercial disputes in the law of contract. If parties enter into contractual
relations at arm’s length and understand what they are agreeing
to there is limited scope to pray ficuciary obligations in aid to enlarge the
content of contractual duties. [17]
Over recent years major scandals in the United
Kingdom and further afield in the pensions and securities industries have
focused attention on the need for transparency of dealings in the market
place and accountability to investors. Jersey law has used the same broad
principles for centuries to control fiduciaries.
Poingdestre describes the
high degree of transparency which is required by the law of
all Administrateurs, that is persons who have
the management of property belonging to others [18] . Firstly, on taking up their position all Administrateurs
are required to make an inventory of all the property and assets in their
charge. Secondly, they are obliged to keep proper records of every
transaction into which they enter in the course of discharging their office.
Thirdly, on quitting their office and whenever they are requested to do so
during their appointment, Administrateurs are obliged to give a true
and faithful account of their administration. On leaving their office they
must deliver up all the assets under their control. Poingdestre emphasises
that general accounts which do not particularise details of the transactions
entered in those accounts are not sufficient . A completely open-handed
approach is necessary with the accounts detailing every amount which the Administrateurs
have received and distributed together with information on the persons,
places and other relevant circumstances of each transaction which will serve,
as Poingdestre has it, "a l’esclaircissement de la chose".
It is noteworthy that
Poingdestre records that any failure to maintain transparency
through lack of detailed accounts and records opens the Administrateur
up to allegations of dol, in the sense of
equitable fraud [19] . Indeed, there may even be an
inference in the language used by Poingdestre that a failure to maintain
transparency gives rise to a presumption of dol on the part of the Administrateur
with the evidential burden being on the Administrateur to displace
the presumption.
These references to a remedy based on dol
link into the examination of this concept in West and others v Lazard
Brothers and Company (Jersey) Limited and another
[20] where Hamon, Commissioner mused that Pothier,
Poingdestre and Le Geyt would have understood very clearly and agreed his
endorsement of the words of Lord Evershed M.R. in Kitchen v Royal Air
Force Assn. [21] where he said
"... it is, I think clear that the phrase [equitable fraud] covers
conduct which, having regard to some special relationship between the two
parties concerned, is an unconscionable thing for the one to do towards the
other." This takes one straight back to the fundamental nature and
purpose of the obligations arising from the position de confiance;
the emphasis on good faith and fair dealing and the need to restrain human weakness in the face of temptation. As Pothier [22] remarked centuries earlier, the purpose of rendering
voidable a transaction where an Administrateur has a personal
interest "n’est établie que pour empêcher les fraudes par lesquelles
un tuteur, pour son propre intérêt pourroit ou acheter à vil prix, ou se
rendre acheteur de choses qu’il n’est pas de l’intérêt de son mineur de
vendre: l’effet de la loi cesse lorsqu’il n’y a aucun intérêt de soupçonner
ces fraudes."
Simon Howard is an advocate of the Royal
Court of Jersey with Messrs. Bedell & Cristin, P.O. Box 75, One The
Forum, Grenville Street, St. Helier, Jersey, JE4 8PP
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