the beige pact

7/30/2019 The Beige Pact

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340 FACTORS TENDING TO DEFEAT CONTRACTUAL LIAtsILITY

(d) CONTRACTS BETWEEN THOSE IN A FIDUCIARY RELATIONSHIPThose in a fiduciary relationship with another are under a duty to make full disclosureof all material facts which might be considered likely to affect a transaction withthose to whom the duty is owed. This is a component of wider and rigorous equitableobligations. While not all fiduciaries owe the same duties in all circumstances,28sthey are broadly obliged to act in good faith, not to place themselves in a positionwhere their duty and their interest may conflict, or to act for their own benefit or thebenefit of a third Person without the informed consent of those to whom the duty isowed.286 Breach of these duties is sometimes, rather misleadingly, called'equitable; or'consLructive' fraud.(i) Who is a fiduciary?By contrast to a contractual relationship where, subject to the terms of the contract, theparties may legitimately act for their own interests, albeit sometimes in cooperationwith the other party, the key feature of fiduciary relationships is a duty to act in theinterests of another-287 Fiduciary relationships can be divided into two categories,those that are status-based and those that are fact-based.z8s Examples of the formerinclude principal and agent, solicitor and client, guardian arrd *a.d, and trustee andbeneficiary.

The second category arises where, in the absence ofan inherently fiduciary status,the factual situation of the particular relationship between the parties gives rise toa fiduciary relationship.28e The relationship of the parties *uy b" contractual but acontractual relationship gives rise to particularfiduciaryobligations onlywhere specificcontractual obligations have been undertaken which place one party in the posiiion inwhich equity imposes its rigorous duties on that party in addition to the contractualobligations.2e, while fiduciary duties should not be superimposed on common lawcontractual duties simply to improve the nature or extent of the remedy available,2elthey may arise where one party is in a position of influence over another, is in receiptof information imparted in confidence by the other, or has undertaken to act in theinterests of another or placed himself or herself in a position where he or she is obligedso to act.2e2 In such cases the fiduciary obligation is, however, circumscribed by thecontractual terms: equity cannot alter the terms of a contract validly undertaken.2e3

285 Hende.rsonvMerrettsyndicatesLtd[199512AC145,206(LordBrownewirkinson).260 Bristol and West BS v Mothew [199s] I Ch 1, 18. See generally Finn, Fitluciary obligations (t977);Hanbury & Martin, Modern Equity (18th edn, 2009) paras 21.017-21.025. Fiduciaries are also under a dutyto use care and skill: Nocfon v Lord Ashburton ll9l4l AC 932,954.287 Bristol and west BS v Mothew lr99s) t ct r, t-s. 288 Flannigan (1989) 9 OILS 285.28e- Reading v Attorney-General Il 95 t] AC 507; Ho spital Products Ltd v Ltnited States Surgical Corp (19g4)156 CLR 41 (High Court of Australia).2e0 Nottingham lJniversity v Fishel [2000)typically fiduciary: see below, p 341).2e2 Millett (1993) 114 LQR214.ICR 1462, 1491 (contract of employment, not otherwise2er Norberg v Wynrib (1992) 92 DLR (4th) 44g, 4Bt.

^293 Nottingharn Universi4) v Fishel, above, n 290,1491; Hospital products Ltd v United States SurgicalCorp, above, n 289, 97. See also Ke lly v Cooper [1993] AC 205.


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N,lISREPRESENTATION AN D NON-DISCLOSU R F]

Examples of such fact-based fiduciary relationships may be see, in certain jointventures2ea and employment relationships.2es(ii) Examples of duties of disclosureThe duty to disclose all material facts which might be considered likely to affect atransaction can be illustrated by examples. Thus a broker who is employed to buy sharestbr a client cannot sell his own shares to the client unless a full and accurate disclosureof this fact is made to the client and the client's consent is obtained.2e6 Again, thepromoters of a company, who stand in a fiduciary rerationship with the company, arerequired to make a full disclosure of their interest either to an indepenclent board ofdirectors or to the interrded shareholders.2eT In some situations, all that equity requiresis disclosure of material facts. In others, however, where the f,duciary relationship givesrise to a presumption of undue influence2e8 disclosure in itself may be insuflicient, andIt must be shown that the transaction is the result of the act of a free and independentrind.:ii) Employment-he relationship between an emproyer and employee is ,ot inherently ,fiduciary,:'jt it may be the foundation for a fiduciary relationship as a result of the terms; the particular contract or where, for example, the employee is in receipt of: - nfidential information. An employee is not, however, unde, a duty to disclose his-.,0'n misconduct. In Bell v Lever Brothers Ltd2t)e the respondent, Lever Brothers, had:.,tered into a contract with two of its employees whereby it promised to pay, and did

' .. fact pay, considerable sums to them in compensation for the prernature termination-: rheir contracts of employment. This contract, however, was st.ictly unnecessary,:-: during their employment the two men had been guilty of certain breaches of:-:r-rvhich would have entitled Lever Brothers to dismiss them immediately. when-"''er Brothers discovered this fact, it claimed to avoicl the contract and recover the:rne)'paid on the ground, inter alia, that the employees were bound to disclose: - :hem these breaches of duty. No member of the House of Lords was prepared to:-:--ept this contention,3,. and Lord Atkin said3.r that he was aware of no authority":-:ch piaced contracts of service within the limited category of contracts uberrimae;;;. Nevertheless, it has subsequently been held that in certain circumstances a1:r:':lovee may be under a duty to report to the employer misconduct on the part of'r:,,,r rr- 96pl6ygg5. 302:'- ''tc Mineruls Lttl v lnterrntionol Corortu Resources LtLl [1989] 2 SCR 571 (Supreme Court of Canada).: - t )i s t t in gh am univ er sity v F i shel, above, n 290.-- \rrtstrongv Jackson [1917] 2 KB 822. See also Regrer v campbell-stuart L),9391 Ch766; EngLish v' ' :'.;-: \itle Properties LttlllgTSl 1 wLR 93, ancl below, p 701. For an exarnple of conlractual modificarionr: -.rar)' duty cf Kelly v Cooper [1 993] AC 205.-- lritnger v New Sombrero Phosphate Co (1878) 3 Alp Cas I 2 I 8; lcg unas Nitrate Co t) Lagunas syntlicater-' lCh392;GlucksteinvBLtrrtes[1900]AC240.Seenow]rinancialservicesandMarketsAct2000,sg0,

a -.Ji. :yb r.,d Sec ht,luw. u 3tr-]_-'- .9321 AC 161, above,p279.ilrhoughitwasaccepredbyrhecourtofAppeal:[1931] lKB337. :or 1to32] AC161,227.- : rt Lt in v we s t (B utche rs) Lt d lt93 6l t All ER 224; syb ro n C or p v Ro ch e m Lt d [1g 84] ch l 12.

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342 FACTORS TENDING TO DEFEAT CONTRACTUAL LIAtsILITY(iv) Special relationshipsy";::;;::;r::ij,,nder the principle enunciated.in Hedtey Byrne 6 co Ltdv Hencneg'Iigence,;;;";iii*!1i:::l'3uffi :#: j:,!^!!:;;:,,;:;;jlt"#extensivethanmereryto refr"," i.o*-uir"r*""rro*,-rrrr*.r"rtr, u,d *uyi*por.;ffi ffir,trilil H:_ conndence i, ,ffia_",."bd;; ;ol,;.* to the orhr,**t** ffi ;*.",.# "x,rxffi ;j;**mx :tilJ&?T:'":;ru**i:**,".rlT:l;*',,:i*'"',',n:,Hreach wourd entitre the parrv to whom the dT:H:r,: ":;:;K"t::;;;:r:n" *(iv) Remedies for breach by a fi duciary of the duty of disclosureBreach of the fiduciaryt duty to make fu, discrosure wilr entitle the .to rescind the conrracr. or transactirc;-;" *:::j.^*.,j, entitle the innocent par:ril,t",:ffi llhfi rlligt1;fu tr#;:ffi*"THfi *'"'-""',ffilffi :H:3:*::::1ffi ffi ;:;Hxti::H"":iiii*Jiiil;*i".:::Elthough there haye '!rr!),c5rrB'clr and whollyinnocent breaches ofd*rrroosrringenr.,o,ffi i::ff #;ffi T:H jix',,::f ;*:*lr,.,Tffilnir1I(e) rrasrUTy rN TORT FOR NON_DTSCLOSUREIthas generallybeen said that there is no riabilityin the tortofdeceitfor non_discrosuraiffi:1ffi ff Tff:ft ';':";xli:ii:1":,r,,,.u,r"".,up,.,iur,o,r..g,."n*

i',ffi :lu:mr*li:*:i*;lf ;ml:"ffi ffi ;[".":ffias recentrv been herd tr,ut *r,",. irr";; ; r*:::ffi:":TlTfi :l:fiTx,.Jffii!lli:T?J;,,:Til:: i I ;'i::;:i*i:. "",he ba sis ir, "ir,",. a,,.,o, u.. *r*o,noth ing relevant to i i r.ro r. r,, ; ril ;;,, ;;;:jil* I Jil:::rfiff :Tl:[.Jllr^ r:?u:t AC 465, above, p 323.,, ,,oi,iittiitiZ:;,1;{-' " '" I Ie88I QB 665' 674; Ba,v D.9ynslre72l 2 NS*R 4, ,105,.ffid on oil;;ffi.illqut Kevser uttman SA v skan:tia (IJ K) tn:;'-r=JUi Ras/ vAbbeyLife Ass;1.rr,.ul,ul t.".ir."or-rrtt)9ll2AC24g'Cf Diltinghamc.orrtruriior*,f.ill ::,"*, ,oi ' ""'on" co t'a is'iit'i;::r;':{"{t:J|'rl;i::;:fir;:irlf:n;?i'.i:1t. .;:;, y,':;!;:,;:;&J;lff,...y.1 civ e5e, r200st wrLR ts73 at t74t.rs2r_ r83r.r7chD30r, ;lr,;;;,';;;);R6HL377'403;seealsoLordcher..r.,i,,'rio], )iii*,,rn,,*,wbotj .5r-1X,,,',,,1il*1y:,;,',i;:r:;'{"1{.':!r'rrr:;::r t,itding Society, nu,iin',igoii; ^lifi 205 Cr hor=ryr u;trcDv-Lamlbelt (1880) 5 App Cas ezi' rso. -"''"'6 owL'c')/ v roraers t194112 Alt ER 205. Cf, horery,,, ";:i:; :y;;i,,!;;; :L :' k a n d i a ( tr K t n s u r a n,, o o u, u *n i n J; i6, ;;::, * li W*: :l !x:,i l #, X H j f:ft ;*};,, i1; l,,i'x


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M ISIIEPRESENTATION AN D NON-DISCLOSUR F ,1+Jm :: ':'ider authorities which had assumed that there is no liability for pure non_irrir-:-if, even where there is a duty of disclosure. But if it is confirmed, it may also'In,*:'-.ir the existingcase-lawwhich has held thatsection 2(l) of the MisrepresentationtL- ----j'' does not apply in its terms to cases of non-disclosure because it imposesLr;ic'*-:-,-only where a ,misrepresentation has been made,.3r2r:' :':'rt of negligence can in principle apply to non-disclosure because a craim inh*f 'a;rce does not require a'misrepresentutior,, but a breach of a duty of care.313 TorrilrrL: : : lr' to provide information requires either some prior conduct by the defendant:' {:F--: Fg his assumption of responsibility towards the claimant in reration to therFrr -:-_tl of informati("Tld : : d u t y, i + *-"'i; iii :: ffi 1.T.:[i"ffL'j,J. : ",lX.,T iT fi:,,,._'":,I ifr":'i':: :iries to provide information or advice which undermine the general principletnr;;r ----"risnodutyofdisclosurebetweenpartiesnegotiatinganordinarycommercial

-r r''r :-. -:,''r-' and the mere fact that there is a duty of disclosJre for the purpose of theEnr'--, :,irescission (for example, in negotiations for a contract of insurance) does notm - ]-.;1;xlly give rise to a concurrent duty of care in tort.3i6f ' : --irUTORY DUTIES OF DTSCLOSURE-r:-; ., lratutes impose duties of disclosure in relation to particular contracts, andiid*,. ::r-re the remedy which will be awarded for breach of the dutv.r,r _,- :rracts for the allotment of sharesf,* -.- r- :::) and drrectors of a company have information at their


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344 FACTORS TENDING TO DEFEAT CONTRACTUAL LIAtsILITY

reasonably require and reasonably expect.3re The remedy provided by the statute is r*-,:right to compensation from those responsible to persons who have acquired securit:eito which the prospectus or listing particulars apply, and have sustained loss in respr-of them as a result of the omission of information required to be included, unless thc,-responsible can show that up to the time of the allotment they had reasonable grou:-:to believe and did believe that the information was properly omitted.32o

The Financial Services and Markets Act 2000 also establishes a regulatory regir::over those conducting investment business in order to protect the purchasers of t-'-.products of the financial services industry, namely insurance policies, investmeni:.and advice. Detailed treatment of this area would be out of place in the prese::textbook,32r but a brief summary may be given. Protection is achieved by a licensrr-.system and by close control of the way those licensed conduct their businesse;.including statutory'cooling-off' periods after an agreement has been made. Mai'.{inancial services practitioners, will be in a fiduciary relationship with their clients.:lThe Financial Services and Markets Act 2000 replaced specific requirements in tL;Financial Services Act 1986323 with a general rulemaking powet'2a and a duty to a.-:in a way that is compatible with the regulatory objectives.32s These objectives a:.maintaining cr:nfidence in the market, promoting awareness of the benefits and riskiof different kinds of investments, protecting consumers by, inter.alia, advice an;accurate information and reducing financial crime.326 Practitioners continue to b'

the beige pact

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