I. Introduction
A fiduciary may breach his obligation of loyalty by taking benefits from third parties, notwithstanding that the benefits never belonged to his principal. Common examples include the fiduciary who takes a bribe to betray the trust and confidence reposed in him by his principalFootnote 1 and the company director who pursues a corporate opportunity for personal gain.Footnote 2 In these circumstances equity compels disgorgement. But how is the disgorgement to be implemented? Should the fiduciary be made a constructive trustee of the gain or should he be personally liable to account for its net value? A clear and persuasive answer to this question remains elusive. The answer is, however, of crucial importance since it has far reaching implications for both the immediate parties to the relationship and outsiders, most notably unsecured creditors of the fiduciary.Footnote 3
A handful of cases over the past twenty years or so – most notably Attorney-General for Hong Kong v. Reid Footnote 4 – assert that a constructive trust is the automatic consequence of acquisitive breaches of fiduciary obligation.Footnote 5 However, this is controversial both as a matter of policy and doctrine. Concern about the impact of invisible proprietary claims on third parties has led many to question any apparent extension of such claims and the case law immediately preceding Reid was notable for its lack of clarity, if not hopeless ambiguity. Boardman v. Phipps Footnote 6 is illustrative. The focus there was on whether a breach of fiduciary obligation had occurred, there was no discussion of the remedy and inconsistent and contradictory language was used to describe the nature of the fiduciary's liability.Footnote 7 Consequently judges and jurists cannot even agree on whether proprietary relief was ordered in the case.Footnote 8 There were, of course, cases in which proprietary claims were clearly recognised, but the facts and reasoning were capable of supporting a more limited role for the constructive trust.Footnote 9
The reasoning in Reid Footnote 10 suggests it is possible to cut through the controversy and confusion by revisiting the eighteenth century origins of fiduciary law and the seminal case of Keech v. Sandford.Footnote 11 This case, apparently, discloses a broad and neat remedial principle that has been recognised since: benefits acquired in breach of fiduciary obligation are held on constructive trust and belong in equity to the person to whom the obligation is owed. Complex policy issues can be side-stepped neatly, ambiguous cases can be interpreted correctly, and aberrations can be identified and cast aside. Returning to the original authority, it seems, provides a clear and simple answer to a potentially tricky remedial question.
The basic message of this article is that things are not so simple. Little in Keech v. Sandford or in two and a half centuries of subsequent equity jurisprudence supports the broad remedial principle. Rather, the principle is an invention of the nineteenth century equity and trust treatises. Accounts of how treatise writings influenced the judicial development of various doctrines in the nineteenth century are, of course, nothing new.Footnote 12 However, what makes the broad remedial principle of particular interest is not simply its origin in the treatises but its subsequent widespread acceptance without clear judicial sanction or development. This article charts the rise of the broad remedial principle, demonstrating how legal doctrine can be generated by jurists and become entrenched without clear judicial sanction. It is therefore primarily a case-study of the influence of legal treatises on legal doctrine. However, its findings – that the broad remedial principle is increasingly unsuited to modern contexts and was invented in the treatises for reasons which today carry little weight – will also be of interest to those who support the development of more flexible remedial approaches for breach of fiduciary obligation.
The discussion is arranged as follows. Section II provides, by way of background, a brief account of Keech v. Sandford and its recent treatment as authority for the broad remedial principle. Section III places Keech v. Sandford in its historical context and suggests it offers only a very weak foundation for the broad remedial principle. It further suggests that there is little discernable support for the principle elsewhere in eighteenth and nineteenth century equity jurisprudence. Section IV develops the central argument of this article that the true origins of the broad remedial principle are to be found not in the cases but in the nineteenth century equity and trust treatises. It tracks the influence of these sources on later textbooks, casebooks and practitioner works. It further seeks to explain why, when there was little historical or contemporaneous judicial support for the principle, it became so firmly entrenched in the work of jurists who purported to do no more than exposit the law. Section V exposes some weaknesses of the broad remedial principle in modern contexts and identifies in contemporary scholarship a shift away from the nineteenth century treatise thinking – the beginning of the end of the broad remedial principle.
II. Background
A. Keech and Its Modern Influence
Keech v. Sandford – the “Rumford Market case” – was decided by Lord Chancellor King on 31st October 1726. Prior to the case Chancery had established that a trustee, mortgagee or executor who renewed a lease for his own benefit held it subject to the same equitable obligations as he held the original.Footnote 13 However, this rule was never stringently applied. Lord Nottingham, for instance, was reluctant “to construe a trust unless there [was] some clear equity against the alleged trustee”.Footnote 14Keech v. Sandford marks the point at which the rule became strict and absolute.
The reported facts of this famous case are well known.Footnote 15 A lease of Rumford Market was devised to a trustee for the benefit of an infant. Prior to the expiration of the lease the trustee apparently sought a renewal for the infant. The landlord refused since he was dissatisfied with the security for the rent. Being a lease of the profits of the market there could be no distress and the infant lacked the capacity to enter into an enforceable covenant. Having failed to renew for the cestui que trust the trustee took the renewal personally. The infant sought an assignment of the lease and an account of profits. In granting the relief Lord Chancellor King said:
I must consider this as a trust for the infant; for I very well see, if a trustee, on the refusal to renew, might have a lease to himself, few trust-estates would be renewed to cestui que use; though I do not say there is a fraud in this case, yet he should rather have let it run out, than to have had the lease to himself. This may seem hard, that the trustee is the only person of all mankind who might not have the lease: but it is very proper that rule should be strictly pursued, and not in the least relaxed; for it is very obvious what would be the consequence of letting trustees have the lease, on refusal to renew to cestui que use.Footnote 16
It is from these few words and scantily reported facts that the legal significance of Keech has been determined. The decision is best known for establishing the strict rule against lease renewals by trustees and as the genesis of the broader principle of strict fiduciary loyalty.Footnote 17
Keech has also proved influential in the development of the constructive trust. The “well established”Footnote 18 remedial principle of the case, it is said, is that benefits acquired in breach of fiduciary obligation immediately and automatically become trust property and the fiduciary is transformed instantly into a constructive trustee. Thus, in Attorney General for Hong Kong v. Reid Lord Templeman reasoned that since the lease acquired by the trustee in Keech was not previously owned by the trust, since the trustee acted in good faith, and since the beneficiary could not have acquired the new lease, the “rule must be that property which a trustee obtains by use of knowledge acquired as trustee becomes trust property”.Footnote 19
A constructive trust founded on the Keech v. Sandford principle thus “arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed.”Footnote 20 Equally, the remedial principle “is not confined to cases of express trusts [but] applies to all cases in which one person stands in a fiduciary relation to another”.Footnote 21 For this reason, in Normalec v. Britton,Footnote 22 Walton J was prepared to find that the whole of a competing business wrongfully established by a corporate fiduciary was held on constructive trust for the company, notwithstanding that many lines pursued by the fiduciary were different. It was, he opined, “nihil ad rem that that business may itself have dealt in a large number of matters with which the plaintiff itself did not deal. If authority is wanted for that it is Keech v. Sandford”.Footnote 23
B. Lord Chancellor King and the Chancery Reports
The recent judicial willingness to invoke Keech v. Sandford might be considered somewhat surprising. The authority of a case, particularly an older case, is generally greatest when decided by an eminent judge with great learning in the area of law with which the case is concerned. Lord Chancellor King had neither eminence nor learning in Chancery matters.Footnote 24 Although he developed a strong reputation as Chief Justice of the Court of the Common Pleas, he was a poor equity judge. His appointment as Lord Chancellor in 1725 was politically motivated and intended primarily to restore confidence in an office that had been disgraced by Lord Macclesfield.Footnote 25 Yet King had no prior knowledge of Chancery practice or pleadings. It is said that more of his decrees were reversed than those of any other Chancellor,Footnote 26 that he frequently dozed off in court and that all too often he “found himself in the painful and humiliating situation of knowing much less of the subject than the advocates on whose arguments he was to decide”.Footnote 27 The most charitable assessment of his grasp of equity is that it became, with time, respectable.Footnote 28
The persistence of Keech as an authority is also puzzling given its obscure and partial reporting. The two anonymous reports of the case did not appear until some years after the death of Lord King in 1734. Select Cases Argued and Adjudged in the High Court of Chancery appeared first in 1740. The second volume of A General Abridgment of Cases in Equity Argued and Adjudged in the High Court of Chancery followed in 1756.Footnote 29 The latter substantially reproduces the report of Keech from the former. The former was regarded as a very poor work by eminent judges of the dayFootnote 30 and reflects the generally unsatisfactory state of Chancery reporting in this period.Footnote 31 Most reporters did not take verbatim transcripts since they were unable to write in shorthand. They sought instead to capture the flavour of a judgment in their own words or to reproduce important parts from memory. This often led to reasons for decisions and material facts being omitted, making interpretation difficult. The report of Keech v. Sandford is no different. The pleadings in the case, preserved at the National Archive and reproduced in an early volume of The Conveyancer,Footnote 32 suggest that the landlord's unwillingness to grant a renewal to the infant was by no means as absolute as implied by the reports.Footnote 33 The pleadings also disclose evidence of a possible secret premium paid by the trustee to the landlord in order to influence the decision to grant the lease.Footnote 34 The lease, moreover, was of Crown lands and hence subject to special rules and customs which may have impacted significantly on the decision of Lord King.Footnote 35
C. The Development of Legal Principle
As is evident from the judgment of Lord Chancellor King above, the broad remedial principle is not as such formulated in Keech v. Sandford. So much is to be expected. Legal principles are rarely the product of a single or “seminal” case. Subsequent cases that explain, refine, develop, affirm and reaffirm the principle are important, particularly where the putative founding case is of ancient origins. In the early stages of development a principle is unlikely to be consciously articulated. That comes with the later recognition of an emerging common theme of multiple decisions. Holmes summarised the process best:
It is the merit of the common law that it decides the case first, and determines the principle afterwards.… It is only after a series of determinations on the same subject matter, that it becomes necessary to ‘reconcile the cases’, as it is called, that is, by a true induction to state the principle which has until then been obscurely felt. And this statement is often modified more than once by new decisions before the abstracted general rule takes its final shape.Footnote 36
The principle of strict fiduciary loyalty developed in this way, over the period of a century or more.Footnote 37Keech was the first case to reflect a strict attitude towards the conduct of trustees in a particular context. Other cases were decided consistentlyFootnote 38 while inconsistent decisions were gradually overturned.Footnote 39 Over time the content of the obligation of loyalty was developed and given clear expression at the turn of the nineteenth century by Lord Eldon.Footnote 40 A clear rationale for the strict obligation was also identified. It resolved evidential difficulties created by trustees' control of the relevant informationFootnote 41 and served a prophylactic function in that trustees are not permitted to profit in situations which may cause them to lose sight of their duty.Footnote 42 The principle and its rationale were reaffirmed on countless subsequent occasions. By this process the principle of strict fiduciary loyalty was firmly entrenched in equitable doctrine. Given its forceful endorsement in recent cases we might expect to find a similar developmental process at work with respect to the broad remedial principle.
III. The Broad Remedial Principle in the Cases
A. Keech in Historical Context
Can Keech be reconciled with the remedial principle later attributed to it? The answer to this question turns on the correctness of the assumption that Keech involved a simple acquisitive wrong and the beneficiary had no pre-existing “proprietary base” or special connection to the new lease. If this assumption proves correct then, since Lord Chancellor King was prepared to accept that the beneficiary could not have acquired the renewal and hence suffered no loss, the simple presence of fiduciary gain must be a sufficient condition to trigger a constructive trust.
1. The importance of the “tenant right”
An understanding of the nature of the “tenant right” – the customary right to renew leases to maintain possession of the land over long periods and across generations – is fundamental to a proper understanding of the role of the constructive trust in most lease renewal cases. From the sixteenth century a series of statutes placed significant restrictions on the freedom of ecclesiastical and eleemosynary corporations to grant leases.Footnote 43 One restriction related to the duration of grant. Upon the observance of certain conditions leases could be granted but for no more than twenty-one years or three lives.Footnote 44 Similar restrictions were placed on Crown bodies from the beginning of the eighteenth century.Footnote 45 The legislation put tenants in a precarious position by limiting the duration for which they could securely enjoy possession of the land. However, there developed a settled practice of granting a renewal to the sitting tenant so long as the fines and rents were paid.Footnote 46 The expectation of renewal engendered by this practice was termed the “tenant right”.Footnote 47
The “tenant right” occupied a strange position in the law and practice of leases. It was neither a legal nor an equitable right to the grant of a renewal and was thus unenforceable against the landlord.Footnote 48 The tenant, it was said, had “no more than a right to expect a favour, which may either be totally with-held, or may be extended to another, without injury”.Footnote 49 However, uninterrupted possession of the leasehold for exceptionally long periods did give a legally cognisable entitlement to renewal.Footnote 50 Equally, the tenant was protected against fraudulent and unfair interference with the exercise of the right. The expectation that a renewal would be granted to the sitting tenant became so great that, in reliance upon it, settlements providing for future generations were made, leases were taken as security by mortgagees and leaseholds were sold and purchased at prices which reflected the improbability of the purchaser being removed so long as the fines and rents were paid.Footnote 51 The expectation thereby came to be viewed as “a valuable incident to the tenant's estate, a species of property which the law protects”.Footnote 52 As Matthew Bacon observed in his treatise on leases:
…. the almost invariable recurrency of the grant to the same objects, has begotten an idea something like property, and men have been so far from treating this ulterior interest as precarious, that they have acted upon it, as if it were fixed and certain. Hence, leases of this sort ….. are subject to the same limitations, and applied to the same provisions with the most permanent interests.Footnote 53
In Addis v. Clement,Footnote 54 for instance, a church lease of 21 years was held to pass with the rest of the testator's land under the terms of his will. Lord Chancellor King reasoned that, since a church lease was “always renewable, the lessee, who was the testator, might look upon himself, from the right he had to renew, as having a perpetual estate therein, a kind of inheritance”.Footnote 55 In other cases the tenant-right was treated as a trust asset with an exchange value. Thus, in Owen v. Williams Footnote 56 a party seeking a lease of the reversion from the Crown paid the sitting tenant for life £3,000 on the advice of the Treasury, to compensate for the loss of renewal. Notwithstanding the absence of a covenant for renewal Lord Bathurst held that this money belonged to the trust. It was, it seems, treated as the traceable substitute of a trust asset – the tenant right.
2. Remedial implications of the “tenant right”
It follows that the renewal cases did not rest exclusively on a simple breach of fiduciary obligation. Rather Chancery's intervention was premised, at least partially, on interference with the “tenant right”.Footnote 57 This cannot be ignored when determining the principle of the cases. One option might be to confine these cases narrowly to their peculiar context, being cases in which there is interference with a custom or contract for renewal. Another option is to view the constructive trust as protecting a reasonable expectation of renewal engendered by the nature of the trustee-beneficiary relationship and the prevailing practice of renewal.Footnote 58 On this interpretation the remedial principle of Keech would not trigger a constructive trust absent a reasonable expectation that the benefit is one which would accrue to the principal if the fiduciary executes his office properly.
Alternatively, the constructive trust of the renewal might be understood as vindicating a property right. This interpretation would be consistent both with the reasoning in many of the cases and the broader intellectual climate of the period. The dominant political philosophy of the eighteenth century identified government and civil society as created primarily for the purpose of protecting private property.Footnote 59 The role of the courts was to enforce property rights and their consensual transfer. The courts were not to engage in the non-consensual redistribution of those rights. Only Parliament could do that and then only exceptionally and upon payment of full compensation for the injury sustained by the owner.Footnote 60 Equally central to understandings of private property was the notion that one's ownership of property gave an entitlement to all profits and advantages naturally or artificially resulting from it.Footnote 61
Against this backdrop the new lease was probably viewed as trust property since it was the “fruit” of an original trust asset, not because a redistribution of the trustee's bargained for entitlements was necessary to implement a policy of deterring wrongful conduct. The tenant right was treated as trust property and by renewing for his own benefit the trustee was presumed to exercise that right. By acquiring the new lease the trustee thereby came into possession of the fruit of trust property. The tenant right provided a proprietary link between the original lease and the new lease. The new lease was thereby characterised as “a continuation of the old lease”Footnote 62 which comes “from the old root”.Footnote 63 Entitlement to the new lease was simply part of the content of the trust's proprietary rights in the old lease. Thus limited, Keech is consistent with Lister v. Stubbs Footnote 64 and does not support a constructive trust in cases such as Boardman or Reid, where there is no interference with the principal's property rights.Footnote 65
B. The Principle in Other Fiduciary Cases
The nineteenth century saw a dramatic increase in the utilisation of fiduciary organisation and a corresponding increase in the volume of fiduciary litigation. Yet across all of the fiduciary cases in this period there is little to support the broad remedial principle. Indeed, by the late nineteenth century the recognition of a constructive trust was limited to three classes of case: (1) those in which the gain was an original trust asset – that is it belonged to the principal before the alleged breach was committed – or was the traceable substitute of an original asset; (2) those in which the gain derived from the fiduciary's use or ostensible ownership of an original trust asset; and (3) those in which the fiduciary's acquisition frustrated the objectives of the relationship by depriving the principal of a benefit which could and, consistently with the fiduciary's undertaking, should have been obtained for the principal.
1. Appropriation of opportunities
As fiduciaries assumed more active management functions their positions gave them greater opportunity to appropriate benefits before they reached their principals. A fiduciary's acquisition and retention of a benefit that could and should have been acquired for his principal had the potential to cause significant harm and frustrate the objectives that the fiduciary was engaged to further. Conscious of this evil Chancery was quick to establish that such benefits were held on trust for the principal.Footnote 66 Equally damaging to commercial relationships were factors, directors and other fiduciaries exercising acquisitive functions that purchased property on their own account before selling it on to their principals at a profit.Footnote 67 In these circumstances the principal was permitted to retain the property and recover the fiduciary's profit on the ground that the initial purchase was made as agent for the principal.Footnote 68 When the property was sold on to the principal at the higher price the principal was simply paying an additional sum for that which he already owned.Footnote 69
In both types of case, by taking benefits that could and, consistently with the fiduciary's undertaking, should have been obtained for the principal, the fiduciary's acquisition frustrated the objective that the fiduciary was engaged to further.Footnote 70 A constructive trust simply preserved the utility of fiduciary relationships by placing the parties in the positions they would have occupied had the fiduciary acted consistently with his duties and the terms of his engagement.Footnote 71 Any other result would have risked diminishing the utility of commercially important organisational forms.
2. Bribes and commissions
In numerous instances promoters or directors arranged ostensibly legitimate purchases for companies but, pursuant to secret agreements with vendors, received part of the purchase price as commission. In the reported cases an account of profitsFootnote 72 or payment of compensation under the Companies Act 1862Footnote 73 is all that was sought. The language in the cases nevertheless suggests that the commissions were held on trust for the company.Footnote 74 This is not surprising. The transaction with the vendor simply concealed a scheme by which promoters or directors lined their own pockets with property already belonging to the company.Footnote 75 The vendor was little more than a conduit of concealment through which assets passed from company to fiduciary.Footnote 76 A proprietary claim did no more than protect existing company property from misappropriation by those entrusted with its care.Footnote 77
There were of course cases in which bribes or apparent commissions originated from third parties, but these are few and far between and offer little support for the broad remedial principle. Fawcett v. Whitehouse Footnote 78 is perhaps the most notable example. A firm conducting unprofitable business on leased lands was desperate to relieve itself of liability for the lease and engaged Whitehouse to find a purchaser. Whitehouse, intending to enter into a partnership with F and S, arranged for an under lease to be granted to the partnership in return for the partnership paying the yearly rents. The firm paid Whitehouse a £12,000 “arrangement fee”. Lyndhurst LC held that as to two thirds of the fee “the defendant must be considered a trustee for the partnership”.Footnote 79 However, no further discussion of the nature of the relief took place and nothing turned on the point since Whitehouse seems to have been good for the money. More significantly, had the £12,000 not been taken by Whitehouse there is strong evidence that the firm would have been willing to pay it over to the partnership as a bonus for taking over liability for the lease. The “arrangement fee” was really part of the benefit of the opportunity which could and should have been acquired for the partnership.Footnote 80
The only case from this period supporting the broad remedial principle is Sugden v. Crossland.Footnote 81 Crossland paid £75 to a trustee as an inducement to retire. Counsel for the trustee argued the Court had “no jurisdiction to declare that the money which Crossland had paid out of his own pocket should form part of the testator's assets”.Footnote 82 In a brief judgment Stuart V.C. disagreed. “There does not seem to be any difference in principle”, he said, “whether the trustee derived the profit by means of the trust property, or from the office itself”.Footnote 83 This comment, by a weak judge whose decisions were often reversed,Footnote 84 hardly constitutes a forceful endorsement of the principle supposed. The order also appears to have directed the solvent defendant to repay £75 to the trust rather than to account for the £75 or its traceable proceeds in specie, as trust property. Moreover, just six years later in Tyrrell v. Bank of London Footnote 85 the House of Lords rejected the argument that real estate owned by a third party and transferred to a solicitor as a bribe belonged to the latter's client. “No authority”, said Lord Chelmsford, “has been adduced in support of such a proposition, and I do not think it can be maintained”.Footnote 86
By the close of the nineteenth century that position had been confirmed on a number of subsequent occasions by the Court of Appeal.Footnote 87 Although there were some obiter statements that secret commissions and bonuses “belonged” to the principal,Footnote 88 such language, Lord Justice Lindley explained, is “ambiguous” and not necessarily to be understood in its conventional sense.Footnote 89 Of money paid to a director as a bonus or commission he said this:
In one sense it may be said to be the company's money – that is to say, in the sense that the company are entitled to get it. In another sense it is not the company's money – that is to say, the company cannot follow it into investments of it, nor, in the event of [the fiduciary's] bankruptcy, could they withdraw the money from his assets instead of ranking as creditors against his estate.Footnote 90
These comments were made shortly after a unanimous Court of Appeal, of which Lindley L.J. was part, concluded that a secret commission received from a third party was not immediately impressed with a trust in favour of the principal.Footnote 91 Contrary to the opinion of Stuart V.C. in Sugden v. Crossland, the Court of Appeal sought to maintain a conceptual boundary between ownership and obligation – between property that was owned by but misappropriated from the principal and property that was acquired from a third party in breach of a personal obligation owed to the principal.Footnote 92 In the latter case the wrongfully acquired property was not transformed instantly into trust property.Footnote 93
3. False positives
A small miscellany of other cases lends superficial support to the recognition of the broad remedial principle. However, the constructive trusts in these cases rest upon different foundations. Thus, where life tenants accepted payments to withdraw objections to Acts of Parliament sanctioning the purchase of tracts of land and the building of railways through their estates, Kindersley V.C. held the life tenant was “a trustee of that fund for the benefit of the persons successively interested in the settled estates”.Footnote 94 Some viewed such cases as evidencing the broad remedial principle.Footnote 95 However, the cases turned on whether such payments were intended by Parliament to be caught by section 73 of the Land Clauses Consolidation Act 1845. This provided that monies paid by railway promoters in circumstances caught by the section “shall be deemed to have been contracted to be paid for and on account of the several parties interested in such lands, as well in possession as in remainder, reversion, or expectancy”.
Similarly broad statements appear in Aberdeen Town Council v. Aberdeen University.Footnote 96 In establishing that a trustee's gain was held on trust for the beneficiary Lord O'Hagan stated that equity “condemns the misuse of a fiduciary position, and declares that the advantage wrongfully gained by the trustee shall enure, not to his benefit but to that of the cestui que trust”.Footnote 97 However, this comment must be limited by the context of the case, which ultimately was disposed of by application of the property fruits doctrine. The Crown had granted salmon fishing rights to Aberdeen Town Council, pursuant to its practice of granting such rights to the owners of the riparian land. Having established the Council were in fact trustees of the land for Aberdeen University the House of Lords declared the rights were held on the same trust. The trust of the rights simply vindicated the University's true ownership of the riparian land. It was, said Lord Cairns L.C., a fundamental principle that “wherever a trustee, being the ostensible owner of property, acquires any benefit as the owner of that property, that benefit cannot be retained by himself, but must be surrendered for the advantage of those who are beneficially interested”.Footnote 98
IV. The Development of the Broad Remedial Principle in the Treatises
A. The 19th Century Treatises and Their Influence
The evident lack of the broad remedial principle in the eighteenth and nineteenth century case law raises important questions. Where was the principle developed if not in courts of equity? And absent clear authority for the broad remedial principle, what can explain its acceptance and adoption in recent years by a number of judges and jurists? The answers to these questions are to be found in the equity and trust treatises of the nineteenth century.
1. The early treatises: Story, Spence and Lewin
The first to assert a fixed relationship between acquisitive breach of fiduciary obligation and constructive trust was the influential American, Joseph Story. Story cited Fawcett v. Whitehouse Footnote 99 for the proposition that:
where a trustee or other person standing in a fiduciary relation makes a profit out of any transactions within the scope of his agency or authority, that profit will belong to his cestui que trust; for it is a constructive fraud on the latter; and by operation of Equity that is immediately converted into a constructive trust in favour of the party entitled to the benefit.Footnote 100
Thus, for Story, the acquisition of gain in a fiduciary position was an event which triggered a constructive trust and such trust arose immediately and automatically upon such acquisition.
Though an American, the views of Story, a Justice of the Supreme Court and Dane Professor of Law at Harvard University, were influential in England. Story was a prolific writer and already well known to an English audience through his treatises on bailmentFootnote 101 and the conflict of laws.Footnote 102 His encyclopaedic knowledge of the English cases coupled with his elegant literary style and “Blackstone-like ability to make law intelligible and coherent”Footnote 103 made him particularly popular with the English judiciary, among whom he was considered something of a celebrity.Footnote 104Equity Jurisprudence further enhanced Story's reputation and was probably his most influential work.Footnote 105 Special English editions were published until 1920 and Story described by Lord Campbell as “greater than any law writer of which England can boast, or which she can bring forward, since the days of Blackstone”.Footnote 106 “In no part of the world”, it was said upon his death, “were his learning and his attainment more highly appreciated than in England”.Footnote 107
Equity Jurisprudence exerted considerable influence on subsequent writers, including George Spence. Spence, an eminent Queens Counsel, Member of Parliament and tireless promoter of Chancery reformFootnote 108 published a detailed two volume work on equity a decade after Story.Footnote 109 In the second volume of this popular work Spence formulates a concise version of the broad remedial principle that tracks Story's closely: when a person “standing in a fiduciary character makes a profit, by means of any transaction within the scope of his agency or authority, that profit belongs to the cestui que trust”.Footnote 110 Notwithstanding the similarity Spence did not refer to Story but, like Story, cited Fawcett v. Whitehouse.Footnote 111
More accessible abridgments of these treatises soon followed. Josiah Smith's widely read manual is the most noteworthy not least for its longevity and clear statement of the principles in the two works,Footnote 112 including a pithy synthesis of the broad remedial principle.Footnote 113 However, over the longer term the work that was to have the greatest impact was Thomas Lewin's treatise on trusts and trustees. Lewin's discussion of constructive trusts in the first edition, published in 1837, is rather attenuated.Footnote 114 However, the second edition, published five years later, contains more expansive discussion and weds the constructive trust to the fiduciary relationship:
A constructive trust is raised by a court of equity wherever a person, clothed with a fiduciary character, gains some personal advantage by availing himself of his situation as trustee; for as it is impossible a trustee should be allowed to make a profit by his office, it follows that so soon as the advantage in question is shown to have been acquired through the medium of the trust, the trustee, however good a legal title he may have, will be decreed in equity to hold for the benefit of his cestui que trust.Footnote 115
Following extensive discussion of Keech v. Sandford, Lewin adds that the principle of that case:
might be pursued into numerous other instances: as if a factor,Footnote 116 agent,Footnote 117 or other confidential person, acquire an advantage to himself by the abuse of his fiduciary character, he is accountable for those profits to his employer or other person whose interests he was bound to advance.Footnote 118
Lewin's definition, his focus on Keech and the extension of the principle of the case to all classes of fiduciary and to all kinds of gain remained, with little alteration, up to and including the sixteenth edition in 1964.Footnote 119
It is interesting to speculate why Story and Spence did not similarly embrace Keech as authority for, or evidence of, the broad remedial principle that they formulated. Perhaps they thought Fawcett v. Whitehouse was nothing but a more recent (and therefore more relevant) application of the same fundamental principle. More likely, they viewed Keech as a peculiar case that was best confined to leaseholds.Footnote 120 In the later years of the nineteenth century, however, Lewin's ideas dominated and Keech was embraced as a case of much broader significance.
2. Later works
In the final quarter of the nineteenth century the number of trust and equity treatises and casebooks grew exponentially. The majority adopted Lewin's position, identifying breach of fiduciary obligation as an automatic constructive trust trigger.Footnote 121 Some went so far as to subscribe to Lewin's theory that the removal of fiduciary profit was the sine qua non of the constructive trust.Footnote 122 Elements of Lewin are clearly evident in what is perhaps the best known expression of the broad remedial principle, formulated in the seventh edition of White & Tudor's Leading Cases.Footnote 123
The first six editions of this work, published between 1849 and 1886, do not identify a fixed relationship between fiduciary gain and constructive trust. In each edition Keech is interpreted narrowly, as “the leading authority on the doctrine of constructive trusts arising upon the renewal of a lease by a trustee or executor for his own benefit”.Footnote 124 However, the seventh edition, published in 1897, adds that “the principle of that case applies to all varieties of property” as well as to all varieties of fiduciary and not merely to trustees in the “strict sense of the word”.Footnote 125 It continues:
Whenever a person clothed with a fiduciary or quasi-fiduciary character or position gains some personal advantage by availing himself of such character or position, a constructive trust is raised by courts of equity, such person becomes a constructive trustee, and the advantage gained must be held by him for the benefit of his cestui que trust.Footnote 126
It is not clear what led to the inclusion of this passage, which incorporates elements of Lewin's language, in the seventh edition. Two additional cases are cited to support the principle, but neither goes so far.Footnote 127 Perhaps the most significant event was the change in editorial control that occurred at this point in the book's history. The sixth edition was the last over which either of the founding editors exercised editorial control. Editorship of the seventh edition passed to a small team headed by an Inner Temple barrister, Thomas Snow.Footnote 128 It is also noteworthy that the practice of renewing leases to the sitting tenant disappeared in the mid-nineteenth century,Footnote 129 so that “by the turn of the [twentieth] century the substantial learning that had accumulated on the subject seems to have passed into history”.Footnote 130 This, coupled with the message in Story, Spence and, in particular, Lewin, may go some way to explaining the increasing propensity of textbook writers during this period to interpret Keech broadly. Absent the learning on the tenant right there was no apparent reason for a narrower interpretation of the leasehold cases. The fiduciary's acquisition of a lease appeared no different to the acquisition of any other property in breach of fiduciary obligation.Footnote 131
Whatever the reason for the inclusion of the broad remedial principle in the seventh edition of Leading Cases the change in editorial control did little to dent the popularity of the work. It was the practitioner's first port of call for case law research on issues of equity,Footnote 132 judges frequently cited cases to the work rather than to the nominate reports that originally carried them, and the editors' notes – including those added by Snow – were influential. Thus, in Wicks v. Bennett Footnote 133 Justice Higgins' formulation of the principle of Keech v. Sandford tracked Snow's formulation closelyFootnote 134 and in Midcon Oil & Gas Co. v. New British Oil Dominion Oil Co Footnote 135 the above-quoted passage from the seventh edition was reproduced as an accurate statement of the extent and scope of the principle of Keech. In neither case was other authority cited for the proposition.
Snow's formulation was soon adopted, without qualification, in the work of other jurists.Footnote 136 These works failed to recognise that the principle was severely undermined by a number of then recent cases, most notably Lister v. Stubbs.Footnote 137 Other writers confronted Lister but struggled to accommodate it within a framework organised around the broad remedial principle. Typically we find the exception defined narrowlyFootnote 138 and tucked well away from the prominent statement of the broad remedial principle, as if to emphasise its anomalous nature.Footnote 139Keech and Lister need not, of course, have created any tension had the treatises observed the divisions drawn in the cases and placed Keech in its appropriate historical context. This was recognised by some of the more perceptive writers who were not constrained by the conceptual and organisational limits of an earlier edition, or blinkered by Lewin's neat definition.Footnote 140 However, they represented a dwindling minority.
The overlooking or marginalisation of authorities inconsistent with the broad remedial principle set the tone for the textbooks of the twentieth century. For much of the century Keech, now disassociated from its historical context, was elevated to the position of central constructive trust authority. “[I]n the English books”, lamented a leading American trust law scholar, “they play up the Rumford Market case as though it were the constructive trust”.Footnote 141 Notwithstanding consistent application by the courts,Footnote 142Lister was either ignored altogether or castigated as an anomalous and inexplicable exception to the general principle.Footnote 143 Breach of fiduciary obligation was accepted uncritically as an automatic constructive trust trigger and considered in chapters on constructive trust.Footnote 144 Consequently these works devoted time and space to identifying who fell within the classification “fiduciary” and what amounted to a breach of fiduciary obligation. They did not consider the extent to which proprietary relief was in fact dictated by a careful reading of the authorities. Nor did they ask why the constructive trust was imposed or seek to determine whether the reasons for its imposition were persuasive. Notwithstanding the absence of clear judicial sanction the broad remedial principle was transformed by the treatises into an axiom of equity.
B. Why Was The Broad Remedial Principle Developed In The Treatises?
To recapitulate, in the eighteenth and nineteenth centuries the broad remedial principle was not as such formulated judicially and the cases offered little support for its development. Indeed, towards the end of the period some carefully reasoned judgments lay squarely against it. Yet the principle was articulated with confidence by writers who claimed to be expositing the law. What explains this divergence? Why did the treatise writers exhibit a preference for the broad and simple when the raw materials in the reports perhaps painted a more complex picture?
1. Certainty, legitimacy and mnemonics
The tendency of the treatise writer to incline towards abstraction and generalisation is to some extent explicable by a heightened perception of the prevailing practical concerns of the period. Most obvious was the strongly felt need to demonstrate equity was legitimate. In the early nineteenth century Chancery remained particularly sensitive to the common lawyer's taunt that equity was a “roguish thing” that varied with the length of the Chancellor's foot.Footnote 145 Thus, Lord Eldon announced that nothing would inflict on him greater pain than “the recollection that I had done any thing to justify the reproach that the equity of this Court varies like the Chancellor's foot”.Footnote 146 By demonstrating that equity's doctrines were ordered, grounded in reason and regular in application the treatise writer aimed to eradicate the “false prejudices”Footnote 147 of the common lawyer. Equity was, like the common law, a system of rules.
A further influence that pulled in the same direction was the desire for certainty. Many of equity's doctrines remained highly uncertain at the turn of the nineteenth century.Footnote 148 Yet the idea of legal certainty had become so important that many thought law could not be just without it.Footnote 149 The codification movement was particularly vociferous during this period. Proponents sought a clear and ordered code to replace what was perceived to be an incomplete and unpredictable common law that was incapable of guiding social action.Footnote 150 Equity's problem (like the common law's) was not a continuing commitment to discretionary decision making but an accumulation of unclear or conflicting judicial pronouncements in the reports. If equity's doctrines were to be administered efficiently by the courts and known by those who were subject to them then order needed to be found in the cases. Induction reduced the mass of case law to a set of comprehensible propositions and permitted incorrect judicial pronouncements to be weeded out. Enhancing certainty and regular application in turn strengthened equity's claim to legitimacy.
Writers in the early nineteenth century also recognised that general principles served an important mnemonic function. The eminent philosopher Dugald Stewart reasoned “if we wish to fix the particulars of our knowledge very permanently in the memory, the most effectual way of doing it is to refer them to general principles”.Footnote 151 Information stored in this way, he went on, “continues, in general, to be an acquisition for life; or if, accidentally, any article of it should be lost, it may often be recovered by a process of reasoning”.Footnote 152 This view struck a chord with the treatise writers.Footnote 153 The identification of broad rules and general principles facilitated an account of the equitable jurisdiction that would “readily imprint itself on the memory”.Footnote 154 This was achieved most effectively where the rules and principles laid down were limited in number, broad in scope and logical in order. It was particularly important to the authors of works which started out life as courses of lectures. As Thomas Haddan explained, “if information imparted under these conditions is to find a resting-place in the memory, most necessary and essential it is that the rules laid down should be as few, and at the same time as broad and briefly expressed as possible”.Footnote 155
2. Theoretical commitments
The organisation and formulation of equity doctrines in the treatises also owed much to the peculiar theoretical commitments of the writer.Footnote 156 Nineteenth century treatise writers increasingly identified their roles as being the discovery and coherent ordering of the general principles by which the cases were decided. They believed that although the law appeared chaotic and particularistic the mass of decided cases reflected a limited number of underlying principles.Footnote 157 If they looked closely enough and arranged their treatises systematically the true underlying principles of decisions would emerge. The nineteenth century jurist thus embraced the belief that:
private law consisted essentially of a latent scheme of principles whose workings could be seen in and illustrated by the decisions of the courts, where they were developed and applied. The text writer set out to expound these principles in a rational, coherent manner, as was appropriate to a science.Footnote 158
The belief was that “in the beginning there were principles and that in the end those principles were found to cover a large multitude of cases deducible from them”.Footnote 159 Once identified correctly the principles – sanctioned ultimately by appeals to natural law – were as fixed and immutable as the laws of nature.
The treatise writer most closely associated with this brand of legal science is Joseph Story.Footnote 160 However, the primacy of principles over cases is evident in numerous other works. In the first significant equity treatise of the nineteenth century Henry Maddock opined that cases are nothing “but corollaries from first principles”.Footnote 161 Similarly, the stated aim of Spence's treatise is to “exhibit and illustrate the principles upon which the jurisdiction of the Court of Chancery is now exercised”.Footnote 162 Likewise, having identified the mass of decided cases as “no more than illustrations of a comparatively small number of principles”Footnote 163 Underhill organised the whole of the law of private trusts around just seventy-six “articles” supplemented by “illustrations” from the cases.
Treatises were thus presented as systematic and coherent wholes. First principles were identified to give the subject area its basic divisions and concepts. Lower level principles were deduced from them and these in turn generated further divisions and sub-divisions. At the bottom were individual doctrines and cases.Footnote 164 The cases were “interpreted” to illustrate the principles; aberrations were admitted as limited exceptions or (more usually) discarded as simply wrong. Casebooks were different in that they did not purport to offer a systematic treatment of the area of law under consideration. However, they rested on similar theoretical foundations. Implicit in the idea of a casebook was the belief that the most important and fundamental principles, under which a number of subordinate principles, rules and cases could be arranged, were to be gleaned from just a handful of carefully selected cases. White and Tudor, for instance, selected only the cases they considered enunciated important equitable principles and which permitted them through their notes to “develop the principles laid down or acted upon in the cases”.Footnote 165
C. Impact on the Development of the Broad Remedial Principle
This combination of influences generated a strong preference for broad principles that tended to be absolute and admit of no exceptions. It also encouraged the use of general categories and the pursuit of conceptual order. Against this background the constructive trust no doubt appeared an almost natural consequence of a fiduciary's acquisitive breach of duty. Since the fiduciary could not retain any gain it must have appeared self-evident that, in the run of the cases, the gain should be distributed to the party who was owed the duty that was breached by its acquisition.Footnote 166 The trust was a ready made device to accomplish this task.
The broad remedial principle also had the advantage of generating a neat doctrinal symmetry which furthered the goals of certainty, coherence and the appearance of legitimacy. A broad principle of fiduciary loyalty was worked out and its breach led to an equally broad and uniform response. It did not matter whether the breach was committed by a trustee, partner, factor or director; it was of no consequence from whom the gain derived; it mattered not whether the gain was in the nature of a lease, shares, or a plot of land. Underlying each case were the abstractions “fiduciary” and “gain”. Numerous and apparently disparate cases and contexts were thereby capable of synthesis. This aided the appearance that fiduciary doctrine was coherent, certain and, consequently, legitimate.
Recognition of the broad remedial principle also fitted neatly into the developing hierarchy of equitable principles. The top level principle upon which equity's intervention was premised was conscience. At the next level were the events to which equity's conscience responded: fraud, accident and breach of trust.Footnote 167 Fraud was divided into actual fraud and constructive fraud.Footnote 168 Breach of fiduciary duty, requiring no conscious wrongdoing, was pigeon-holed as a species of constructive fraud.Footnote 169 At the bottom specific breaches of fiduciary obligation were defined, arranged and illustrated by the cases. Since equity had long delivered fraudulently acquired property to the party entitled in conscience, organisational coherence suggested that acquisitive breaches of fiduciary obligation, as (constructive) frauds, were to be accorded similar treatment.Footnote 170 Eventually, since fiduciary or fiduciary-like relationships existed in the case of most fraudsFootnote 171 but actual fraud was not necessarily present in all cases of breach of fiduciary relationship, the fiduciary relationship became the organising idea of the constructive trust.Footnote 172 Chapters on constructive trust focused on fiduciary wrongs; other kinds of constructive trust were incorporated as “awkward appendage”.Footnote 173 Consequently, it appeared doubtful whether there could be a constructive trust without a fiduciary or analogous relationship, but a constructive trust would be inevitable where a fiduciary relationship was present.
V. Modern Challenges to the Broad Remedial Principle
A. The Treatise Influences Revisited
Many have noted the stabilising effects of the great nineteenth century treatises. Their authors, it has been said without exaggeration, were the “true codifiers of the modern law”.Footnote 174 Yet the content of the treatises was influenced by beliefs and ideals unique to the time. Today, quite different considerations take us in different directions.
We have seen already that many treatise writers perceived their role as involving a search for a priori principles and the uncovering of a natural, existing order. The beginning of the end of this brand of legal science was signalled by Holmes' famous aphorism. “The life of the law has not been logic; it has been experience.”Footnote 175 Holmes went on to emphasise the contingent and evolutionary nature of law, writing that it adapts to the “felt necessities of the time”.Footnote 176 Such views no longer excite controversy. The law, we have come to recognise, is a human construct contingent upon and responsive to social values and circumstances. It is made, not found.Footnote 177 The dynamic quality of law is now recognised and embraced openly as essential to providing “justice relevant to the times”.Footnote 178
We have also seen how the doctrinal formulations in the treatises owed much to rule-utilitarianism – to the belief that fixed general rules and broad principles furthered the fundamental goal of certainty, allowed the law to be known in advance and avoided the capriciousness of judicial discretion. Injustice in the individual case was tolerated to secure these broader benefits. Nowadays we are less tolerant of injustice in the individual case. There has been a shift in the dominant paradigm of judicial method, from a strict commitment to rules and precedents to a more open ended and fluid reasoning process in which outcomes are sought to be justified.Footnote 179 The context of the case now assumes particular importance:Footnote 180 in different situations there may be different elements of sufficient normative importance to justify an outcome that is not dictated by existing concepts and classifications. Certainty is still valued, but it is viewed as just one of many potentially conflicting values that inform our perceptions of justice. Equally, while doctrinal simplicity remains desirable for mnemonic and pedagogical reasons legal systems inevitably evolve by devising increasingly sophisticated rules, classifications and concepts to meet the demands of complex economic societies. New technology, innovations in legal publishing and the increased specialisation of the legal professions today permit a degree of doctrinal sophistication that was simply not possible when the treatise writer was confronted with nothing but a disorderly mass of nominate reports.Footnote 181
B. Fiduciaries and Constructive Trusts in Modern Contexts
Today, the outcome of a case is likely to be determined in no small part by the context in which it arises. However, contextualisation and broad legal principles exist in tension. While contextualisation demands rich factual analysis, “the whole point of principles is that they attempt to generalise, to get away from the details of the facts of particular cases”.Footnote 182 The broad remedial principle, it turns out, proves too inflexible in modern contexts.
1. The modern commercial context
Modern reports are replete with cases involving breaches of fiduciary obligation by commercial fiduciaries engaged in complex dealings and business practices. In these contexts benefits acquired in breach of fiduciary obligation may be utilised quickly and woven in to the fabric of a fiduciary's legitimate business, making constructive trust relief disproportionate or impractical. In Ocular Sciences Ltd v. Aspect Vision Care Ltd.,Footnote 183 for example, production equipment of a business was partly “contaminated” by breaches of confidence and breaches of fiduciary obligation. The breaches were small, technically inconsequential and caused no loss to the claimant. Moreover, a constructive trust over a fraction of the business assets would have created significant practical problemsFootnote 184 and led to the claimant's interference in the business, threatening its stability.Footnote 185 A constructive trust was considered inappropriate and financial relief granted in lieu.
A different though increasingly common situation involves fiduciaries who breach their obligation of loyalty by developing a new business. The fiduciary typically will have resigned at some point and the new business may be attributable not only to the breach of fiduciary obligation but also to “the skill, efforts, property and resources of the fiduciary, the capital which he has introduced and the risks he has taken”.Footnote 186 If a constructive trust is to effect an accurate accounting of the wrongful gain it must be limited to an appropriate share of the business. One consequence of this is that the fiduciary and principal are thrust together in a continuing business relationship when there is little or no trust and confidence between them.Footnote 187 This is avoided if either party agrees to buy out the other, or if the business is sold and the proceeds are distributed accordingly. However, this simply confirms the appropriateness of a monetary remedy which permits a clean break.Footnote 188
2. The modern insolvency context
In recent years the fiduciary relationship has become a ubiquitous organisational form while the implications for third parties of invisible proprietary claims have been brought into sharp focus. It has therefore become necessary to reassess the broad remedial principle in light of new understandings about the role of fiduciary relationships and the efficacy and fairness of equitable property rights on insolvency.
Property subject to a constructive trust is withdrawn from the pool of assets available to creditors, leaving those with unsecured claims to share what is left parri passu. The doctrinal explanation for this is that, as trust property, the property belongs to the principal and not to the fiduciary. Yet in many fiduciary cases there is no evident reason why the principal should fare better than the fiduciary's unsecured creditors. The claim to priority seems strongest where the fiduciary's breach results in the misappropriation of property belonging to the principal or prevents a benefit arriving at the principal.Footnote 189 In these circumstances a constructive trust simply preserves the objectives of the relationship by insulating those objectives from the risk of fiduciary opportunism and bankruptcy.Footnote 190 More problematic are cases in which the principal would not have received the gain even if the fiduciary observed his duties diligently. No satisfactory explanation has been provided for why, when recovery works to the detriment of other innocent creditors, the law should place the principal in a better position than he would have occupied had the fiduciary fulfilled his obligations. It is suggested that the fiduciary's creditors have no grounds for complaint since a constructive trust merely deprives the fiduciary of a benefit which he should never have received, and creditors cannot be in a better position than their debtor.Footnote 191 But this does not follow: a defendant's profits from torts or profitable breaches of contract are available for distribution to the defendant's creditors.Footnote 192
The problem stems from the unfortunate historical truth that insolvency implications had little or no impact in the formative era of the constructive trust.Footnote 193 The cases did not concern insolvent fiduciaries and so the courts were not required to confront directly the multi-party issues that insolvency throws up.Footnote 194 Since these issues did not arise in the cases they went largely unnoticed in the treatises. Emphasis was placed on explaining why the fiduciary could not retain gain – namely, to implement equity's prophylactic policy. But as a remedial goal prophylaxis explains only why it is necessary to remove the gain from the fiduciary. It does not explain why the principal should be given priority over the fiduciary's other unsecured creditors or even why the principal's claim should rank on par with them.Footnote 195
C. Developing the Law of Proprietary Remedies
It follows that in certain contexts there may be legitimate reasons for refusing to award a constructive trust following a breach of fiduciary obligation. Yet the result dictated by the context may be aberrational to the treatise-imposed order. In Attorney General for Hong Kong v. Reid Counsel for the Attorney General asserted there was “no logical distinction” between the taking of a bribe and other acquisitive breaches of fiduciary obligation and argued for the recognition of a constructive trust on the ground that its refusal was contrary to “principle” and “good order”.Footnote 196 That, however, depends on the order one seeks and the logic one applies. The starting point for Counsel was the order and logic imposed by the nineteenth century treatises. However, such order and logic is neither natural nor timeless. Today, we might seek to understand the cases and to organise our legal materials in different and more illuminating ways – ways more in tune with modern needs – so that appropriate limits to the constructive trust cease to be viewed as aberrations.
Restitution scholars have identified the law of proprietary remedies as central to the development of a clear, coherent and independent law of restitution. Concepts such as “proprietary base” and “interceptive subtraction” have been developed to sharpen analysis and allow distinctions to be drawn between different kinds of breach of fiduciary obligation. For those with an eye on insolvency policy the concepts provide the means by which authorities might be reinterpreted and proprietary claims limited.Footnote 197 For those with an eye on taxonomy and doctrinal coherence they potentially provide a clear and logical conceptual foundation for the recognition of important normative distinctions.
Others seek to address the perceived shortcomings of the traditional approach in more direct ways. Commonwealth lawyers in particular have emphasised the lack of a fixed relationship between the breach of a particular obligation and a particular remedial consequence.Footnote 198 Once liability is established they suggest a separate remedial inquiry should be undertaken to establish the remedy that is “most appropriate on the facts of the case rather than one derived from history or over-categorisation”.Footnote 199 The aim is to develop a new set of propositions which are general, desirable and have “explanatory and justificatory force in a way which can be taken into account by judges and which will provide generative norms for legal development”.Footnote 200 Thus, in Ocular Sciences Mr Justice Laddie drew upon Commonwealth authority to refuse a constructive trust for breach of fiduciary obligation.Footnote 201 In the circumstances there was no reason to grant the claimant the additional advantages that would have followed the recognition of property rights but strong reasons to deny the grant. The logic and order of the nineteenth century was ignored in favour of a context-sensitive outcome and a clear explanation for it. This approach sits increasingly comfortably with modern judicial attitudes which attach importance to justifying outcomes rather than deducing them by logic and strict adherence to precedent.Footnote 202
VI. Conclusion
Keech v. Sandford is a poorly reported decision of a less than distinguished Chancellor. Placed in its historical context, the decision offers little to support the broad remedial principle later attributed to it. Clear support for the principle is equally lacking in two and a half centuries of subsequent equity jurisprudence. At first blush recent judicial invocations of the broad remedial principle and its attribution to Keech v. Sandford therefore appear puzzling. It is, however, important not to overlook the influence of the nineteenth century equity and trust treatises. In these works we find the true origins of the broad remedial principle and its connection to Keech. Subsequent texts, casebooks and practitioner works preserved the principle and further embedded it as an organising idea. It would be surprising indeed if the uniform message of these sources did not ultimately exert influence on judges who consulted them, whether as impressionable students, at the Bar or on the Bench. By the time Buckley L.J. signalled the shape of things to come by concluding that the broad remedial principle was “well established law”Footnote 203 the principle had dominated in the textbooks for a century. In the absence of clear support in the cases it is difficult to identify any reason for this conclusion other than the influence of the texts.
It is important to remember, however, that the treatises from which the broad remedial principle emanated were influenced heavily by beliefs and ideas unique to the time. This of itself is no reason to reject the principle. Many a valuable thing has emerged from questionable origins. The problem is that the broad remedial principle appears too inflexible in modern contexts. It prescribes uniform treatment for cases that are different in normatively and analytically significant respects. Identifying the true origins of the broad remedial principle and its lack of historical warrant in the cases is therefore important since it removes a possible barrier to the development of a more appropriate remedial framework. Just what that framework will look like is something that will no doubt be determined in no small part by the work of the modern jurist.
