It is important, first of all, to define a fiduciary. Despite voluminous literature, there is no ready answer and the fiduciary relationship remains ‘a concept in search of a principle’. In general terms, it is possible to divide fiduciaries into two categories, status-based fiduciaries and fact-based fiduciaries.

The status-based category includes a core of well established relationships such as trustee-beneficiary, guardian-ward, director-company, principal- agent, solicitor-client, employer-employee, and partner-partner. They are relationships which are regarded by equity as fiduciary per se. It is debatable as to what is the common denominator behind these relationships but it is not a matter of concern here.

The fact-based category is of more immediate interest as it may embrace the trustee-manager relationship. This category must have derived from the view that the category of cases of fiduciary relationships is no more closed than the categories of negligence at common law. Unfortunately, the law is fluid and it is a category that defies definition. There are three possible bases or tests, which are not mutually exclusive , according to which the court may find the existence of a fiduciary relationship.

The first test is trust and confidence. This is generally regarded as the conventional basis of the status-based fiduciary relationships. As Sealy has pointed out, breach of trust or confidence is one of the traditional heads of Chancery’s jurisdiction from which the more technical concept of the trust is derived. The general principle is that if confidence is reposed, and that confidence is abused, a court of equity will grant relief whether or not there is any trust of property. This traditional test is best summed up in the words of McMullin J in Farrington v. Rowe McBride & Partners:

A fiduciary relationship exists whenever there is a relationship of confidence such that equity imposes duties or disabilities upon the person in whom the confidence is reposed in order to prevent the possible absence of confidence.

FundsThe second is the undertaking test. The major proponent appears to be Scott, who states in the California Law Review that:

A fiduciary is a person who undertakes to act in the interests of another person. It is immaterial whether the undertaking is in the form of contract. It is immaterial that the undertaking is gratuitous.

It has received its refinement by Finn, Fiduciary Obligations:

[A fiduciary] is, simply, someone who undertakes to act for or on behalf of another in some particular matter or matters. That undertaking may be of a general character. It may be specific and limited. It is immaterial whether the undertaking is or is not in the form of a contract. It is immaterial that the undertaking is gratuitous. And the undertaking may be officiously assumed without request.

This test was subsequently applied by the New South Wales Court of Appeal in the seminal case of Hospital Products Ltd. v. United States Surgical Corporation and was accepted by some of their Honours in the High Court—with qualifications , modifications or extensions.

The third can be labelled as the ‘vulnerability‘ test. It emphasizes the vulnerable position of the objects of the fiduciary power. The leading statement is the dissenting judgment of Wilson J in the Supreme Court of Canada in Frame v. Smith, which was approved in the leading Canadian case on fiduciary law, LAC Minerals Ltd. v. International Corona Resources Ltd. Wilson J said:

[T]here are common features discernible in the contexts in which fiduciary duties have been found to exist and these common features do provide a rough and ready guide to whether or not the imposition of a fiduciary obligation on a new relationship would be appropriate and consistent. Relationships in which fiduciary obligation has been imposed seem to possess three general characteristics:

  1. The fiduciary has scope for the exercise of some discretion or power.
  2. The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
  3. The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

This test is also supported by the judgment of Dawson J in the Hospital Products case:

There is, however, the notion underlying all the cases of fiduciary obligation that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other . . The trust and confidence test has been regarded by Gibbs CJ in the Hospital Products case as ‘neither necessary for nor conclusive of the existence of a fiduciary relationship‘. His Honour gave the example of a trustee not trusted by his beneficiaries. Dawson J also suggested that business persons might have misplaced confidence in others and this did not make the relationship a fiduciary one. Yet it may be argued that the trust and confidence in the fiduciary flows from the weak, disadvantaged, and vulnerable position that the beneficiary is in. The vulnerability test is, in substance, the other side of the same equation.

The undertaking test has been received in Australia with enthusiasm. However, it is submitted that, as the litigation in the Hospital Products case demonstrates, all commercial contracts for services have the ‘undertaking‘ element and the test by itself cannot distinguish those that create a fiduciary relationship from those that do not. Further criteria must therefore be admitted in the identification of the existence of a fiduciary relationship. Even its main proponent, Finn, has moved away from his earlier position that the test is ‘an accurate and a workable one for the purposes of the conflict rule’ to the suggestion that ‘[alt best, all one can give is a description of a fiduciary—and one which, if it expresses the fiduciary idea, is no more precise than a description of the tort of negligence’. Indeed, there are signs that the learned author is also placing less emphasis on the ‘undertaking‘ element. In ‘Fiduciary Law and the Modern Commercial World’, Finn defined a fiduciary in the following terms:

A person will be a fiduciary in his relationship with another when and in so far as that other is entitled to expect that he will act in that other’s interests or (as in a partnership) in their joint interests, to the exclusion of his own several interests. In this definition, the fiduciary’s undertaking has been replaced with the beneficiary’s entitlement to maintain an expectation. That entitlement, as explained in a footnote, ‘may arise from what one party undertakes or appears to undertake . . . for the other; from what actually is agreed between the parties; or, for reasons of public policy, from legal prescription’. “7 There appears to be a shift from the act of the fiduciary to the ‘right’ or expectation of the beneficiary. In a way, perhaps a subtle one, this is in line with the vulnerability test and the trust and confidence test which look at the beneficiary’s position in the transaction. Indeed, other proponents of an undertaking definition have found it necessary to embrace the elements of confidence reposed in the fiduciary, reliance and vulnerability. Even Mason CJ’s description of a fiduciary relationship in the Hospital Products case embraces all elements of the three theories:

The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations; cf. Phipps v. Boardman, viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions ‘for’, ‘on behalf of and ‘in the interests of signify that the fiduciary acts in a ‘representative’ character in the exercise of his responsibility . . :

Perhaps, the truth is that no single definition is possible or desirable. All we can do is to give ‘a description of a fiduciary‘ or describe ‘the critical feature of’ or ‘common features discernible in’ a fiduciary relation. Of these three tests, therefore, none should be read as exclusive of the others; they should be considered as ‘factors’ to be weighed up in identifying a relationship that would give rise to fiduciary obligations.

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