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139 In order to assess the effectiveness of the fiduciary duty as regulation it is necessary to first define the regulatory objectives of the duty against which success can be measured. To some extent this has already been done in earlier sections of this thesis but it is useful to do so again here in a simplified fashion. The three objectives of the fiduciary duties which will be examined here are: firstly, to provide a legal remedy in cases where a fiduciary has failed to avoid conflicts of interest or has made secret profits; secondly, to discourage fiduciaries from putting themselves in a position of conflict of interest and from making secret profits; and finally, to introduce the principles of loyalty, trust and confidence into fiduciary relationships as organising concepts. This is not intended as an exhaustive list, but an attempt to define the core objectives at a high level of abstraction.

The first of these objectives is uncontroversial, breach of fiduciary duty is a cause of action with a range of remedies appropriate to the specific facts of the case. The second, too would rarely be disputed. The law is generally understood to be intended to induce compliance and have a deterrence effect against non-compliance. Fiduciary duties are particularly seen as been intended to have a kind of deterrence effect in that liability is strict and remedies are forceful.1 _{Going beyond simple deterrence it is also commonly understood that fiduciary duties}

impose an obligation of loyalty.2 _{Loyalty is a positive obligation to observe standards of}

behaviour considered loyal, as well as a negative one to avoid acts which could be considered disloyal. This leads into the third objective, which might be considered most controversial. Some commentators would deny that it is a regulatory objective of fiduciary duties at the most basic level.3 _{They would hold that regardless of the fact the nature of the duty is expressed as}

an obligation of loyalty, it is in fact, or at least should be, simply a system of legal rules proscribing specifically conflicts of interest and secret profits. However, most would accept the proposition that loyalty is a central concept of the fiduciary duty,4 _{and this position is supported}

1 _{Consider for example the famous discussion on the strictness of the rule in the cases of Regal (Hastings)}

[1967] 2 AC 134 and Phipps v Boardman [1967] 2 AC 46. For further discussion of the value of this strict approach see Flannigan, R; “The Strict Character of Fiduciary Liability” [2006] New Zealand Law Review 209. For some commentary on deterrence as a rationale for fiduciary accountability directly see Grimaldi v Chameleon Mining (No2) [2012] FCAFC 6, para 576, and Goode, R; “Proprietary Liability for Secret Profits: a Reply” (2011) 127 LQR 493.

2 _{It was described as the “distinguishing obligation” of the fiduciary in the leading case of Bristol and West}

Building Society v Mothew [1998] Ch 1 at pp 18.

3 _{See for example, Goode, RM; “Proprietary Liability for Secret Profits - a Reply” [2011] 127 LQR 493 and}

“Questioning the Trust Law Duty of Loyalty: Sole Interest or Best Interest?” (2005) 114 Yale LJ 929 .

4 _{Almost any of the other commentators referenced in the 1}st _{Chapter or other Chapters of this these would}

subscribe to this view to some extent. See for example, Millett, P; “Bribes and Secret Commissions” [1993] R.L.R. 7, Millett, P; “Remedies: The Error in Lister v Stubbs” in Birks, P (ed.); The Frontiers of liability: Vol I (Oxford1994), p51 and most recently in Millett, P; “Bribes and Secret Commissions Again” [2012] 71(3) CLJ 583

140 by case law,5 _{but might have disagreements about precisely what that means for the practical}

regulatory objectives of the fiduciary obligation.

Consider for example Worthington’s explanation of fiduciary duties in her study of the whole field, Equity.6 _{She begins Chapter 5 with a study of the measures taken by equity to restrict}

the personal autonomy of particular actors. This is an examination of the way in which different prescriptive and proscriptive strategies are pursued in different contexts in order to achieve outcomes which can be complex or difficult. Of fiduciary duties she makes the following claims: Firstly, that due to the “impossibility of defining an end position,”7 _{equity, “identifies the type of}

conduct that is likely to put the claimant most at risk, and bans, or proscribes it.”8 _{A compelling}

position which she builds out of the necessity and difficulty of regulating the exercise of discretionary powers in complex factual scenarios. Secondly that equity, “imposed fiduciary duties of loyalty to ensure that trustees preferred their beneficiaries’ interests to their own in managing the property.”9 _{This is offered as a straightforward description of how the fiduciary}

duties operate to address the problem identified above by banning the highest risk behaviour. And thirdly that, “the fiduciary duty of loyalty requires fiduciaries to put their principals’ interests ahead of their own; it requires fiduciaries to act altruistically.”10

As Worthington moves deeper into the analysis of the fiduciary duty she sets out an explanation of how the fiduciary duty restricts personal autonomy in order to proscribe behaviour. Taking those ideas together Worthing clearly recognises that the objectives of the fiduciary duty cannot merely be remedial and the deterrence of specific behaviour, but the wider objective of ensuring that no trustee behaviour is not tainted by self-interest and instead is conducted in an altruistic manner. She herself does not reach the conclusion that the fiduciary duty is intended to promote loyalty in the relationship in general, rather than simply in the moment of particular decisions of when and how to exercise powers and discretions. However it could be said this flows naturally from the logic of the position. Given that it is accepted that there are specific desirable and altruistic actions which constitute the “end position” sought by equity it seems unrealistic to suppose that the only means of achievement is by merely by prohibiting the greatest risks to their occurrence. Rather it is the contention of this thesis that in grounding the response to such risks in the concept of loyalty and altruism it is intended that the regulation increase the likelihood of loyalty and altruism in the actions of

5 _{Supra n2.}

6 _{Worthington, S; Equity (2}nd _{Ed 2006; Oxford: Oxford University Press)} 7 _{Ibid. p128}

8 _Ibid. 9 _{Ibid. p130} 10 _{Ibid. p131}

141 trustees in general, by endowing the relationship with a particular ‘fiduciary character’, making desirable but unknowable fiduciary actions more likely to occur.

This contention is in part based in the fact that it is difficult to conceptualise any of the regulatory objectives being successful without the pursuit of the others given the context and manner in which fiduciary duties operate. Once the loyalty, trust and confidence is gone from a fiduciary relationship that is a state of affairs which requires a remedy in and of itself, as well as restitution of lost assets. A replacement fiduciary is needed to conduct and advance the affairs of the principal. Thus discouraging disloyalty in fiduciary relationships in general is the most desirable approach to the problem. Given the informational asymmetry in fiduciary relationships, and the power advantage which is by definition enjoyed by the fiduciary, adequately providing remedial responses will always be challenging.11 _{The complexity of the}

factual scenarios and the flexibility in determining what constitutes desirable behaviour by fiduciaries in different circumstances mean that to some degree the law of fiduciary duties will not know clearly what it is trying to remedy or deter until it occurs. In that context it is highly desirable that the guiding principle of the regulation be to instil an ethic into such relationships which will allow them to ‘self-govern’ to some extent. Ideally it will be apparent to the participants in any given fiduciary relationship what the desirable actions of the fiduciary are given the level of loyalty which is present and necessary in their relationship to their principal.