As the manager is in a contractual relationship with the unitholders, it may have a contractual duty of care under the express or implied terms of the contract as contained in the unit trust deed. Historically, the court has chosen the contract as a medium of control over the conduct of people giving professional services. Invariably, the court will imply a duty of skill and care into a contract for professional services. However, as Deane J in Hawkins v. Clayton has reminded us, the preconditions for implying a term into a contract include that the term must be necessary for the efficacy of the contract, and the term must have been intended by the parties to form part of the contract.

Deane J’s reasoning does not preclude a duty in tort. Thus, there is no injury. In general, factors affecting damages do not apply. Limitations of actions may also be different.

Ultimately this resolves into the question whether there is a fiduciary duty of care. The leading case is Nocton v. Lord Ashburton . A client was induced by his solicitor to enter into a mortgage in which the solicitor had a financial interest. Subsequently, he was also advised to release part of the mortgage properties and the security was rendered insufficient. In respect of the original transaction, it was barred by the Statute of Limitations, at law, and by acquiescence, in equity. In respect of advice for release, the trial judge found that no intention to defraud was proved. The House of Lords agreed and their Lordships also held that the pleading and the conduct of the case precluded a finding of negligence. However, their Lordships found that the client succeeded on the footing that there was a breach of a duty arising from a fiduciary relationship. The interrelation between contractual, tortious, and fiduciary duty of care was explained by Viscount Haldane VC:

My Lords, the solicitor contracts with his client to be skilful and careful. For failure to perform his obligation he may be made liable at law in contract or even in tort, for negligence in breach of a duty imposed on him. In the early history of the action of assumpsit this liability was indeed treated as one for tort. There was a time when in cases of liability for breach of a legal duty of this kind the Court of Chancery appears to have exercised a concurrent jurisdiction. That was not remarkable, having regard to the defective character of legal remedies in those days. But later on, after the action of assumpsit had become fully developed, I think it probable that a demurrer for want of equity would always have lain to a bill which did no more than seek to enforce a claim for damages for negligence against a

Fundssolicitor. . . .

This, however, does not end the matter. When, as in the case before us, a solicitor has had financial transactions with his client, and has handled his money to the extent of using it to pay off a mortgage made to himself, or of getting the client to release from his mortgage a property over which the solicitor by such release has obtained further security for a mortgage of his own, a Court of Equity has always assumed jurisdiction to scrutinise his action. It did not matter that the client would have had a remedy in damages for breach of contract. Court of Equity had jurisdiction to direct accounts to be taken, and in proper cases to order the solicitor to replace property improperly acquired from the client, or to make compensation if he had lost it by acting in breach of a duty which arose out of his confidential relationship to the man who had trusted him. This jurisdiction, which really belonged to the exclusive jurisdiction of the Court of Chancery, had for the client the additional advantage that . . . the Statute of Limitations would not apply when the person in a confidential relationship had got the property into his hands.

My Lords, since the Judicature Act any branch of the Court may give both kinds of relief, and can treat what is alleged either as a case of negligence at common law or as one of breach of fiduciary duty.

It is not entirely clear from this passage whether his Lordship found in favour of the client on the basis that the solicitor had placed himself in a position where his duty conflicted with his interest or that the solicitor was in breach of a fiduciary duty of care.”‘ Nocton v. Lord Ashburton has not assumed much long-term significance in the context of negligent misstatement. This is because the utility of this case is overshadowed by the wider principle based on ‘special relationship‘ enunciated in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. Interestingly, Nocton was used as a springboard by the House of Lords in Hedley Byrne to develop the common law concept of ‘special relationship‘ in a negligence action.134 Not only did Hedley Byrne support an interpretation that Nocton did in fact establish a fiduciary duty of care, Viscount Haldane’s judgment in a Scottish appeal also lent support to this interpretation. In Robinson v. Bank of Scotland Ltd., he said:

. . . I wish emphatically to repeat what I said in advising this House in the case of Nocton v. Lord Asburton, that it is a great mistake to suppose that, because the principle in Derry v. Peek clearly covers all cases of the class to which I have referred, therefore the freedom of action of the courts in recognising special duties arising out of other kinds of relationship which they find established by the evidence is in any way affected. I think, as I said in Nocton’s case, that an exaggerated view was taken by a good many people of the scope of the decision in Derry v. Peek. The whole of the doctrine as to fiduciary relationships, as to the duty of care arising from implied as well as express contracts, as to the duty of care arising from other special relationships which the courts may find to exist in particular cases, still remains, and I should be very sorry if any word fell from me which should suggest that the courts are in any way hampered in recognising that the duty of care may be established when such cases really occur.136

Further support of the existence of a fiduciary duty of care can be found in Woods v. Martins Bank Ltd. Salmon J held that a bank was liable in tort for negligent investment advice. His alternative reasoning was that the bank was a fiduciary in breach of its duty of care138 but Nocton was not cited. This decision was approved by the House of Lords, without any adverse comment on the alternative reasoning. In the recent House of Lords decision in White v. Jones, Lord Browne-Wilkinson also accepted a duty of care as part of fiduciary duties. His Lordship said:

The paradigm of the circumstances in which equity will find a fiduciary relationship is where one party, A, has assumed to act in relation to the property or affairs of another, B. A, having assumed responsibility, pro tanto, for B’s affairs, is taken to have assumed certain duties in relation to the conduct of those affairs, including normally a duty of care. Thus, a trustee assumes responsibility for the management of the property of the beneficiary, a company director for the affairs of the company and an agent for those of his principal. By so assuming to act in B’s affairs, A comes under fiduciary duties to B. Although the extent of those fiduciary duties (including duties of care) will vary from case to case some duties (including a duty of care) arise in each case.

In two Canadian cases, Laskin v. Bache & Co. Inc. and Maghun v. Richardson Securities of Canada Ltd. , customers suing their brokers were able to rely on Nocton to obtain higher compensation on the basis of breach of fiduciary duty and not breach of contract. Dicta in support can also be found in the Australian case of Bennett v. Minister of Community Welfare.’ 44

The notion that a fiduciary owes its beneficiary a duty of care is not universally accepted. It has been rejected on the basis that this approach is a perversion of words.145 In an action by a building society against its directors for negligence in certain transactions in Permanent Building Society (in liq.) v. Wheeler, the Full Court of Western Australia rejected the claim that the directors were liable for breach of fiduciary duty. Ipp J explained:

There are indeed many difficulties inherent in the concept of ‘fiduciary wrongs’. It seems to me that many of those difficulties stem from equating an equitable duty to exercise care with a fiduciary duty to take care. It is essential to bear in mind that the existence of a fiduciary relationship does not mean that every duty owed by a fiduciary to the beneficiary is a fiduciary duty. In particular, a trustee’s duty to exercise reasonable care, though equitable, is not specifically a fiduciary duty. Similarly, in my opinion, a director’s duty to exercise reasonable care, though equitable (as well as legal) is not a fiduciary obligation.”‘

The difficulty with this reasoning is the source of the equitable duty of care asserted is not entirely clear. It seems correct to say that there is no tort of negligence in equity parallel to common law negligence.

If a manager can be characterized as a fiduciary in equity, it follows that there may be a duty of care owed to unitholders as part of its fiduciary duties. It depends on which school of thought may be accepted. This may be important to unitholders because they would be given equitable remedies against a contracting party. Moreover, cases on trustees’ investment duties can in appropriate circumstances be precedents on managers’ duties of care.

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