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Obligations in the shade: the application of fiduciary directors' duties to shadow directors

  • Colin R. Moore (a1)
Abstract

This paper argues that shadow directors, as defined in English law, ought to owe the full range of directors' duties, both fiduciary and non-fiduciary, enacted in the Companies Act 2006 (CA 2006), ss 171–177, to the relevant company under their influence. Following the enactment of the recent Small Business, Enterprise and Employment Act (SBEEA) 2015, these general duties are likely to apply to shadow directors, although there is still a case to be made as to why shadow directors should owe fiduciary duties to the relevant company. It is argued here that such a relationship is fiduciary in nature, but the current approach deployed in the English courts, based upon the application of Finn's originally formulated ‘undertaking’ test alone, is inadequate. Given these inadequacies, it is proposed that the Canadian ‘power and discretion’ test be deployed alongside the ‘undertaking’ test, in order to provide a far more comprehensive justification for the application of fiduciary obligations to shadow directors. This position is supported by establishing a theoretical basis for the ‘power and discretion’ test, via Paul Miller's ‘fiduciary powers theory’, as well as considering the application of such a test to shadow directors.

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Corresponding author
Colin R Moore, Associate Lecturer, Kent Law School, Eliot College, University of Kent, Canterbury CT2 7NZ, UK. Email: c.r.moore@kent.ac.uk
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An earlier version of this paper was presented at the SLS Conference 2014, in Nottingham. Many thanks to those present, and to the anonymous reviewers, for the excellent suggestions made regarding potential revisions to this paper.

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1. See generally Insolvency Act 1986, Pt IV, Ch X.

2. See Company Directors Disqualification Act 1986, s 15.

3. CA 2006, s 175.

4. Ibid, s 177.

5. Ibid, s 176.

6. Ibid, s 172.

7. Ibid, s 171.

8. Ibid, s 260.

9. It has long been established that de jure directors owe fiduciary duties to the company; see eg Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq. 461, Parker v Mckenna (1874) LR 10 Ch App 96, Regal Hastings v Gulliver [1967] 2 AC 134 and Guinness plc v Saunders [1990] 2 AC 663. This has also been established in relation to de facto directors, in eg Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) and Re: Canadian Land Reclaiming & Colonizing Co (1880) 14 Ch D 660 at 670, 673, amongst others. See generally McGhee J (ed) Snell's Equity (London: Thomson Reuters, 32nd edn, 2010) para 7004.

10. See eg CA 2006, s 187 in relation to the shadow directors' duty to declare an interest in an existing transaction.

11. CA 2006, s 170(5) (now repealed). See below for a full discussion of how s 170 was altered after recommendations made by the Law Society. See also I Moore ‘Duties of a shadow director: recent developments considered’ (2013) 345 CLN 1 at 2–3.

12. CA 2006, s 174.

13. CA 1980, s 63. See also Davies P and Worthington S Gower & Davies: Principles of Modern Company Law (London: Sweet & Maxwell, 9th edn, 2012) p 513.

14. Since the Companies (Particulars as to Directors) Act 1917, s 3.

15. See generally McGhee, above n 9, para 7–006. Cases where a fiduciary relationship has been found on a factual basis in England include: O'Sullivan v Management Agency & Music Ltd [1985] 1 QB 428, where a manager of a young musician was found to owe fiduciary duties; English v Dedham Vale Properties Ltd [1978] 1 WLR 93, where a prospective purchaser of a property owed fiduciary duties to the owner of the property by virtue of applying for planning permission; and Cobbetts LLP v Hodge [2009] EWHC 786 (Ch), where a senior employee was found to owe fiduciary duties to his employer.

16. Yukong Line of Korea Ltd v Rendsburg Corp Investments of Liberia Inc [1998] 1 WLR 294.

17. Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch).

18. [2013] EWHC 3006 (Ch).

19. P Miller ‘A theory of fiduciary liability’ (2011) 56 McGill L J 235; P Miller ‘Justifying fiduciary duties’ (2013) 58 McGill L J 969; Miller PThe fiduciary relationship’ in Gold A and Miller P (eds) Philosophical Foundations of Fiduciary Law (Oxford: Oxford University Press, 2014) p 63.

20. This definition was first introduced by the Companies (Particulars as to Directors) Act 1917, s 3. Prior to CA 2006, it was also used increasingly extensively in the Companies Acts of 1928, 1929, 1947, 1948, 1967, 1981 and 1985.

21. [1994] BCC 161.

22. [1994] BCC 161 at 163.

23. Ibid.

24. Secretary of State for Trade and Industry v Deverell [2001] Ch 340.

25. Ibid, para 35.

26. Ibid, para 36.

27. See re Lo-Line Electric Motors Ltd [1988] Ch 477 at 489 (per Sir Nicolas Browne-Wilkinson V-C), re Unisoft Group Ltd (No 3) [1994] 1 BCLC 609 at 620 (per Harman J), re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 at 183 (per Millett J) and Secretary of State for Trade and Industry v Laing [1996] 2 BCLC 324 (per Evans-Lombe J).

28. Lord v Sinai Securities Ltd [2004] EWHC 1764 (Ch), [2004] BCC 986 at 993, para 27; see also the Privy Council decision in Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187.

29. Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch).

30. Ibid, paras 1270–1272 (per Lewison J).

31. [1994] 2 BCLC 1 at p 183. This position was also accepted by Evans-Lombe J in Secretary of State for Trade and Industry v Laing [1996] 2 BCLC 324 and by Etherton J in Secretary of State for Trade and Industry v Hollier [2006] EWHC 1804 (Ch), [2007] BCC 11.

32. Secretary of State for Trade and Industry v Deverell [2001] Ch 340 at para 36 (per Morritt LJ).

33. See CA 2006, s 250. The comparison between de facto directors and shadow directors is examined in a later section.

34. The purpose was described in a speech by Lord Hylton (Lord-in-Waiting) during the second reading of the Company (Particulars as to Directors) Bill in the House of Lords. Hansard HL Deb, vol 25, col 749, 3 July 1917.

35. CCA 1908, s 75. This section also applied to managers.

36. Ibid, s 16. Under CCA, s 274, companies incorporated outside of the UK, but establishing business premises within the UK, also had to submit a list of directors, amongst other details, to the registrar of companies within one months of establishing such UK premises.

37. CDPA 1917, s 3 also used the shadow director concept to extend rules relating to the annual return and register of directors defaults (amending Companies (Consolidation) Act 1908, s 26 and s 75 respectively).

38. For example, CA 1928 extends shadow director liability to liquidation offences and fraudulent trading in CA 1928, s 73 and s 75 respectively, as well as in relation to director disqualification rules under CA 1928, s 75. The 1928 Act also added the shadow director exemption for advice given in a professional capacity; see CA 1928, s 94. These provisions were consolidated by CA 1929 just one year later.

39. DDA 1986, ss 4, 6, 8, 9E, 22, 22A, 22B, 22C, 22E, 22F and Sch 1 Pt 2. See also ibid, ss 7A, 8ZA, 8ZC, 8ZD, 8ZE, 12C, which were enacted by SBEEA 2015 but are not yet fully in force.

40. IA 1986, ss 6A, 206, 208, 210, 211, 214, 214A, 249, 251 and Sch A1, Pt II, Cls 41, 42, 60A.

41. CA 2006, ss 63(2), 68(5), 75(5), 76(6), 84(2).

42. Ibid, s 379(1).

43. Ibid, ss 272(6)(b), 275(6)(b), 276(3).

44. Ibid, s 858(1).

45. There are a couple of disclosure of information provisions in CA 2006, Pt 15 (Accounts and Reports). These relate to abuse of information supplied by HMRC for a specific purpose (ibid, s 458(6)) and disclosure of private information obtained under compulsory powers (ibid, s 460(6)). Also under CA 2006, Pt 16 (Audit), if an auditor leaves office, then the statement made on leaving office under s 519 must be forwarded to the registrar. If any of these sections are breached by a body corporate, then any shadow directors will be potentially liable alongside other officers of the company.

46. CA 2006, ss 1028A (administrative restoration) and 1032A (restoration by a court), as inserted into CA 2006 by SBEEA 2015.

47. Under CA 2006, s 260(3), a relevant breach arises ‘from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company’.

48. CA 2006, ss 156(6), 157(5)(b), 162(6), 165(4), 167(4). Note that the register of directors itself does not need to name shadow directors, but shadow directors will be liable for defaults in relation to the register and other defaults as listed in these sections: ibid, ‘Explanatory Notes’, para 289.

49. CA 2006, s 230 extends the whole of Pt 10, Ch 5 to shadow directors.

50. Ibid, s 231(5).

51. Ibid, s 187.

52. The following are subject to approval: directors' service contracts (CA 2006, ss 188–189), substantial property transactions (ibid, ss 190–196), loans (ibid, ss 197–214) and payments for loss of office (ibid, ss 215–222). A shadow director is treated as a director for all of these sections, by virtue of CA 2006, s 223(1).

53. Ibid, s 239.

54. The directors of a company have powers under CA 2006, s 247 to make provisions for employees ‘on cessation or transfer of business’. While this power itself does not extend to shadow directors, under CA 2006, s 247(5)(b), any payments to directors, former directors or shadow directors must be authorised by a resolution of the company and not simply by a resolution of the directors.

55. Ibid, Pt 10, Ch 2.

56. See The Law Commission and Scottish Law Commission Company Directors: Regulating Conflicts of Interests and Formulating a Statement of Duties Law Com no 261, Scot Law Com no 173 (September 1999) p 11. The Law Commission report itself did not take a position on whether the general duties should apply to shadow directors, on the basis that this was a matter for the Company Law Review.

57. Company Law Review Steering Group Modern Company Law for a Competitive Economy: Completing the Structure (November 2000), para 4.7 and Modern Company Law for a Competitive Economy Final Report: Final Report (URN 01/942 and URN 01/943) p 135.

58. Although the draft bill did state under clause B1(2) that the general duties would be applied to shadow directors ‘subject to any necessary adaptations’. See White Paper Company Law Reform Cm 6456, March 2015.

59. DTI Company Law Reform White Paper: CBI Response (dated June 2005) at 25; The Response of the Law Society's Company Law Committee, the Company Law Sub-Committee of the City of London Law Society and the Law Reform Committee of the General Council of the Bar (dated June 2005) at 34. Both documents available at http://webarchive.nationalarchives.gov.uk/20121029131934/http://www.bis.gov.uk/files/file25401.zip (accessed 17 July 2015).

60. Company Law Reform Bill (HL Bill 108-I) as first introduced: 16 May 2006, Cl 153(5). See also speech of Lord Goldsmith (Hansard HL Deb, col GC247, 6 February 2006), where he explicitly refers to ‘several negative consultation responses’.

61. Speech of Lord Goldsmith: Hansard HL Deb, col GC248, 6 February 2006.

62. Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch). This case is discussed in detail below.

63. Although Lord Goldsmith (Hansard HL Deb, col GC247, 6 February 2006) does not mention Ultraframe by name, he does seem to suggest that recent case-law had influenced the government position.

64. Vivendi SA v Richards [2013] EWHC 3006 (Ch). This case is also discussed in detail below.

65. SBEEA 2015, s 89(1).

66. See Public Bill Committee, Small Business, Enterprise and Employment Bill: Written Evidence (October 2014). The British Private Equity and Venture Capital Association (at 97) expressed concern that the application of the general duties in the manner proposed was too onerous on shadow directors. The Quoted Companies Alliance (at 106) suggested that it was dangerous for the general duties to be applied to shadow directors on the basis that they are not really directors, but instead persons that policy imposes certain liabilities on. It should be noted that the Law Society now supported the imposition of these general duties on shadow directors.

67. A key concern expressed in the House of Lords, by Lord Flight and Lord Leigh of Hurley, was that the phrase ‘to the extent they are capable of so applying’, left the courts with little discretion as to whether the individual general duties would apply to shadow directors, they proposed instead an amendment (no 51) to impose the duties ‘to the extent it is reasonable, just and equitable for any such general duty to apply’. However, they were persuaded to withdraw the amendment following immediate reassurances from Baroness Neville-Rolfe (Minister for Intellectual Property and Parliamentary Under-Secretary-of-State) that the courts would retain sufficient flexibility in determining which duties would apply to shadow directors. This opinion was subsequently confirmed by letter. See Hansard HL Deb, cols GC337-GC341, 19 January 2015 and letter dated 5 February 2015 to Lord Flight and Lord Leigh of Hurley from Baroness Neville-Rolfe, Minister for Intellectual Property, BIS.

68. See SBEEA 2015, ‘Explanatory Notes’, para 97.

69. SBEEA 2015, ss 81–82 and Sch 3 provides enabling legislation for the future introduction of the People with Significant Control (PCS) register, while SBEEA 2015, s 87, requiring all directors to be natural person, is also not yet in force.

70. Such an exclusion has existed since CA 1928 and is currently found in CA 2006, s 251(2).

71. SBEEA 2015, s 90 amends IA 1986, s 251 and CDDA 1986, ss 22(5), 251(2) to include these additional exclusions from the shadow director definition.

72. SBEEA 2015, s 89(2).

73. Ibid, s 89(3).

74. Good general theoretical summaries and critiques include: Gold A and Miller P (eds) Philosophical Foundations of Fiduciary Law (Oxford: Oxford University Press, 2014); Frankel Fiduciary Law (Oxford: Oxford University Press, 2011); Miller (2013), above n 19, at 975–1004; Rotman L Fiduciary Law (Toronto: Thomson Carswell, 2005) pp 53152 ; Shepherd J The Law of Fiduciaries (Toronto: Carswell, 1981) pp 5192 ; and Finn P Fiduciary Obligations (Sydney: Law Book Company, 1977). Birks PEquity in the modern law: an exercise in taxonomy’ (1996) 26 W Aust L Rev 1 at 3, in relation to problems with the fiduciary concept. See also D DeMott ‘Fiduciary obligations under intellectual siege’ (1992) 30 Osgoode Hall L J 471; and Rotman, above n 74, pp 12–13.

75. For a discussion of this problem and the early development of fiduciary law, see Sealy LFiduciary relationships’ [1962] 20(1) Camb L J 69; Rotman, above n 74, pp 56–79; and Parkinson P (ed) The Principles of Equity (Sydney: LBC Information Services, 1996) pp 336342.

76. See Easterbrook F and Fischel DContract and fiduciary duty’ (1993) 36(1) J L & Econ 425 at 438; Miller (2011), above n 19, at 251–252; Sitkoff RAn economic theory of fiduciary law’ in Gold A and Miller P (eds) Philosophical Foundations of Fiduciary Law (Oxford: Oxford University Press, 2014) p 197 ; Cooter R and Freedman BThe fiduciary relationship: its economic character and legal consequences’ (1991) 66 NYU L Rev 1045; Easterbrook F and Fischel DThe corporate contract’ (1989) 89(7) Colum L Rev 1416; and Jensen M and Meckling WTheory of the firm: managerial behavior, agency costs and ownership structure’ (1976) 3 J Fin Econ 305.

77. Cooter and Freedman, above n 77; Easterbrook and Fischel (••••), above n 77; and Langbein JThe contractarian basis of the law of trusts’ (1995) 105(3) Yale L J 625.

78. See Miller (2013), above n 19, at 982–984; Rotman, above n 74, pp 108–126; Brudney VContract and fiduciary duty in corporate law’ (1997) 38(4) BCL Rev 595 at 605; Bratton WThe “nexus of contracts” corporation: a critical appraisal’ (1989) 74(3) Cornell L Rev 407; Frankel TFiduciary duties as default rules’ (1995) 74(4) Or L Rev 1209; FitzGibbon SFiduciary relationships are not contracts’ (1999) 82(2) Marq L Rev 303; Eisenberg MCorporate law and social norms’ (1999) 99(5) Colum L Rev 1253; Alexander GSA cognitive theory of fiduciary relationships’ (2000) 85(3) Cornell L Rev 767; Conaglen MDJ Fiduciary Loyalty (Oxford: Hart Publishing, 2011) pp 214221 ; and Galoob S and Leib EIntentions, compliance, and fiduciary obligation’ (2014) 20(2) Legal Theory 106.

79. This theory will be discussed in relation to its application in the Ultraframe case.

80. G Jones ‘Unjust enrichment and the fiduciary's duty of loyalty’ (1968) 84 Law Q Rev 472.

81. See Miller (2013), above n 19, at 991–994 for an analysis of a potential tort basis for fiduciary obligations. See also Frankel, above n 74, pp 240–241. Matthew Conaglen lists the following examples: Birks PThe concept of a civil wrong’ in Owen D (ed) Philosophical Foundations of Tort Law (Oxford: Oxford University Press, 1995) p 31 at p 35 ; Birks PDefinition and division: a meditation on institutes 3.13’ in Birks P (ed) The Classification of Obligations (Oxford: Clarendon Press, 1997) pp 1, 14 (referring to them as ‘meta-torts’); Burrows A Understanding the Law of Obligations: Essays on Contract, Tort and Restitution (Oxford: Hart Publishing, 1998) pp 14, 31 ; and Conaglen MThe nature and function of fiduciary loyalty’ (2005) 121 Law Q Rev 452.

82. See Miller (2013), above n 19, at 994. See generally Summers R Instrumentalism and American Legal Theory (Ithaca, NY: Cornell University Press, 1982) and D Lyons ‘Legal formalism and instrumentalism: a pathological study’ (1981) 66(5) Cornell L Rev 949.

83. DeMott DBreach of fiduciary duty: on justifiable expectations of loyalty and their consequences’ (2006) 48(4) Ariz L Rev 925 at 934–935; and Glover JThe identification of fiduciaries’ in Birks P (ed) Privacy and Loyalty (Oxford: Clarendon Press, 1997) pp 269, 275. For a critique of these views, see See Miller (2013), above n 19, at 1010; and for a defence of fiduciary law as a separate legal category, see Frankel, above n 74, pp 217–242.

84. See eg T Frankel ‘Fiduciary law’ (1983) 71 Cal L Rev 795 at 829–830. For a criticism of morality as an instrumental justification, see Miller (2013), above n 19, at 995–999.

85. For an analysis of loyalty-based justifications for fiduciary obligations, see the discussion of Ultraframe below.

86. See Frankel, above n 79, pp 6–12; and Rotman LFiduciary law's “Holy Grail”: reconciling theory and practice in fiduciary jurisprudence’ (2005) 91 Boston U L Rev 921, on the importance of trust or entrustment. See also Mitchell LThe naked emperor: a corporate lawyer looks at RUPA's fiduciary provisions’ (1997) 54(2) Wash & Lee L Rev 465 at 480–481; and Flannigan RThe fiduciary obligation’ (1989) 9(3) Oxford J Legal Stud 285 at 297. See Miller (2013), above n 19, at 997–999 for a discussion of number of problems with the trust justification. For a discussion of trust as a general characteristic of fiduciary relationships, see Harding MTrust and fiduciary law’ (2013) 33(1) Oxford J Legal Stud 81.

87. The potential for a public policy justification is discussed in relation to the Vivendi case.

88. Miller (2013), above n 19, at 973. For arguments of this type, see Birks PThe content of fiduciary obligations’ (2000) 34 Israel L Rev 3; Conaglen, above nn 79, 82. For criticisms of Matthew Conaglen's argument, see Miller (2013), above n 19, at 1001–1004; Galoob and Leib, above n 79; and Edelman JThe importance of the fiduciary undertaking’ (2013) 7 J Eq 128 at 135–138.

89. Miller (2013), above n 19, at 973 explains that ‘Juridical justificatory argument aims to reveal the justificatory structure of the settled practices and principles of liability constitutive of a given legal form of an institution or mode of interaction.’ For a further explanation of the concept of juridical justification, and a comparison with Zipursky's pragmatic conceptualism, plus Weinrib's formalist method, see Miller (2013), above n 19, at 1007–1009. See also Zipursky BPragmatic conceptualism’ (2000) 6(4) Legal Theory 457 at 459; and Weinrib E The Idea of Private Law (Oxford: Oxford University Press, 2012) p 25 . See generally Weinrib ELegal formalism: on the immanent rationality of law’ (1988) 97(6) Yale L J 949; Weinrib EThe juridical classification of obligations’ in Birks P (ed) The Classification of Obligations (Oxford: Clarendon Press, 1997) p 37 at pp 3756 ; and Simmonds N The Decline of Juridical Reason: Doctrine and Theory in the Legal Order (Manchester: Manchester University Press, 1984).

90. Shepherd, above n 74, pp 93–109 offers a similar power-based theory. For a functional-based theory of fiduciary liability, with fiduciary law cast as part of equity's safety valve, ‘aimed at countering opportunism’, see Smith HWhy fiduciary law is equitable’ in Gold A and Miller P (eds) Philosophical Foundations of Fiduciary Law (Oxford: Oxford University Press, 2014) p 261.

91. See Soar v Ashwell [1893] 2 QB 390 and Tintin Exploration Syndicate Ltd v Sandys (1947) 111 LT 41.

92. A Scott ‘The fiduciary principle’ (1949) 37 Cal L Rev 539 at 540.

93. Finn, above n 74, p 201, para 467; cited by eg Moffat G Trusts Law (Cambridge: Cambridge University Press, 5th edn, 2009) p 839.

94. Fiduciary Duties and Regulatory Rules Law Com no 236 (1995) para 1.3; See Moffat, above n 94, p 838.

95. [1995] 2 AC 207 at 271 (per Lord Browne-Wilkinson).

96. [1998] Ch 1.

97. Millet LJ at p 18 stated, ‘The concept encaptures a situation where one person is in a relationship with another which gives rise to a legitimate expectation, which equity will recognise, that the fiduciary will not utilise his or her position in such a way which is adverse to the interests of the principal.’

98. English authorities for this statement include Arklow Investments Ltd v Maclean [2000] 1 WLR 594 at 599–600; Peskin v Anderson [2001] BCC 874 at para 34; Hooper v Gorvin [2001] WTLR 575 at 590; Kyrris v Oldham [2003] EWCA Civ 1506 [2004] BCC 111 at para 142; Button v Phelps [2006] EWHC 53 (Ch) at paras 58–61. See generally McGhee, above n 9, para 7–005.

99. See Scott, above n 93, for numerous examples.

100. Edelman J ‘When do fiduciary duties arise?’ (2010) 126 Law Q Rev 302.

101. Ibid, p 30.

102. See Miller (2013), above n 19, at 986–987.

103. At para 311.

104. Rotman, above n 74, pp 75–76 refers to this as ‘innate recognition identification’ or the ‘I know one when I see one’ approach. For a practical example, see the Canadian case of Lefebvre v Gardiner (1988) 27 BCLR (2d) 294 at para 17 (per Huddart J).

105. [2005] EWHC 1638 (Ch).

106. At para 1279.

107. At para 1286.

108. At para 1289.

109. It has long been established that breaches of the fiduciary duty of loyalty are strict liability in nature, see: Keech v Sandford (1726) Sel Cas Ch 61 and Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 (HL). The strictness of the rule was confirmed in Boardman v Phipps [1967] 2 AC 46. The possibility of equitable accounting to reduce the liability of a fiduciary acting in good faith was emphasised, although the scope of the equitable accounting jurisdiction is likely to be limited according to Lord Goff in Guinness Plc v Saunders [1990] 2 AC 663 at 701, ‘to those cases where it cannot have the effect of encouraging the trustees [or directors] in any way to put themselves in a position where their interests conflict with their duties at trustees [or directors]’. See generally Davies and Worthington, above n 13, pp 616–617.

110. Robert Flannigan observes that judicial statements were made to this affect, albeit in obiter, in the Court of Appeal decision in Murad v Al-Saraj [2005] EWCA Civ 959 at para 82 (per Arden LJ) and paras 156–158 (per Clarke LJ), although he observes that the stronger challenge is from academic commentators. He criticises academic challenges to the strict liability position from Gareth Jones, John Lowry (along and with various collaborators) and John Langbein, ultimately concluding that none of these challenges respond adequately to the detection concern or availability of consent issues that pervade the duty of loyalty in the fiduciary relationship. See Flannigan RThe strict character of fiduciary liability’ [2006] NZ L Rev 215; see also Flannigan RThe economics of fiduciary accountability’ (2007) 32 Del J Corp L 393, for an economic analysis and justification of the strict liability rule.

111. A number of moral justifications use philosopher Josiah Royce as a starting point. See Royce J The Philosophy of Loyalty (New York: Macmillan, 1908) ch 1); DeMott, above n 84, at 925; and Scott, above n 93, at 540. See also E Scallen ‘Promises broken v. promises betrayed: metaphor, analogy, and the new fiduciary principle’ (1993) U Ill L Rev 897; Frankel, above n 85, at 830. See generally Miller (2013), above n 19, at 995; and Rotman, above n 74, pp 140–145.

112. See Scallen, above n 112, p 909; and Rotman, above n 74, p 144.

113. Rotman, above n 74, p 143 refers to McCamus JThe evolving role of fiduciary obligation’ in Meredith Lectures 1998–1999, The Continued Relevance of the Law of Obligations: Back to Basics (Montreal: Les Editions Yvon Blais, 2000) pp 171210 at p 200.

114. Rotman, above n 74, p 144 refers to Glover J Commercial Equity: Fiduciary Relationships (Sydney: Butterworths, 1995) p 142.

115. See Hoyano LThe flight to the fiduciary haven’ in Birks P (ed) Privacy and Loyalty (Oxford: Clarendon Press, 1997) p 182; and Rotman, above n 74, pp 143–145.

116. [1999] 1 All ER 400.

117. Confirmed by Lord Millet in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at 404.

118. At para 1289, Lewison J did suggest that shadow directors may have limited fiduciary duties to the company due to particular actions that they undertake, but relied on the words of Rimer J in Brinks Ltd v Abu-Saleh (no 3) [1999] CLC 133 at 148, to suggest that this would not mean that the full range of directors' fiduciary duties were then automatically owed.

119. See Miller (2013), above n 19, at 987–989. See also L Ribstein ‘Are partners fiduciaries?’ [2005] 1 U Ill L Rev 209 at 212 for a key example of a property-based justification.

120. For a general criticism of using property theory as a justification for fiduciary relationships, see Miller (2013), above n 19, at 989. For an alternative ‘critical resource theory’, see Smith DThe critical resource theory of fiduciary duty’ (2002) 55(5) Vand L Rev 1399; and the corresponding criticism by Miller (2013), above n 19, at 989–991. See also Rotman, above n 74, pp 86–93. There is, however, a question as to whether some of these directors' duties should be considered as fiduciary in nature. Robert Flannigan has argued that only the directors' duties designed to control opportunism by errant directors should be classified as fiduciary, on the basis that the other duties require evidence of blameworthiness rather than liability being imposed on a strict liability basis. See Flannigan RThe adulteration of fiduciary doctrine in corporate law’ (2006) 122 Law Q Rev 449.

121. The requirement of dishonesty for accessories was established in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at 389 (Lord Nicholls). For subsequent controversy over the correct formulation of the test, see Twinsectra v Yardley [2002] 2 AC 164; Barlow Clowes International Ltd v Eurotrust Ltd [2005] UKPC 37; Abou-Rahman [2006] EWCA Civ 1492 and Moffat, above n 94, pp 762–764. See generally E Hadjinestoros ‘Stigmata of fiduciary duties in shadow directorship’ (2012) 33(11) Comp Law 331.

122. Although the recent Court of Appeal decision in Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908 did allow the equitable account of profits remedy to be applied to a dishonest assistant.

123. For a general discussion of this issue, see McGhee, above n 9, para 26–004; and Moffat, above n 94, pp 742–769.

124. The principles were successfully applied in Baden v Société Generale [1993] 1 WLR 509 at 573, but not in Ultraframe itself, and have been doubted or left open elsewhere: see Goose v Wilson Sandford & Co [2001] Lloyd's Rep PN189 and Gencor ACP Ltd v Dalby [2000] 2 BCLC 734 at 757. See generally McGhee, above n 9, paras 30–076 to 30–087.

125. See generally Moore, above n 11.

126. Finn PThe fiduciary principle’ in Youdan TG (ed) Equity, Fiduciaries and Trusts (Toronto: Carswell, 1989) p 54 ; Finn PFiduciary law’ in McKendrick E (ed) Commercial Aspects of Trusts and Fiduciary Obligations (Oxford: Clarendon Press, 1992) p 9; and as Finn J in Grimaldi v Chameleon Mining NL (no 2) [2012] FCAFC 6 at para 177.

127. Edelman, above n 101, at 318.

128. See J Shepherd ‘Towards a unified concept of fiduciary relationships’ (1981) 97 Law Q Rev 51 at 58–59.

129. Finn (1989), above n 127, p 26.

130. See Miller (2013), above n 19, at 1001.

131. Edelman, above n 101, at 327 does accept that fiduciary duties will be imposed in certain circumstances.

132. [2000] 1 WLR 594 at 598 (per Henry J).

133. For example, see the current Snell's Equity (McGhee, above n 9, para 7–005).

134. The key part of the judgment is paras 133–145.

135. As Newey J (para 134) identified, the assertion that a shadow director could be regarded as akin to a de facto director for the purpose of the directors' general duties was made in Law Commission Consultation Paper, Company Directors: Regulating Conflicts of Interests and Formulating a Statement of Duties Law Com no 153 (1998) at para 17.15. Indeed, this view was supported by the majority of the respondents and was subsequently echoed in the Company Law Review (Modern Company Law for a Competitive Economy: Completing the Structure URN 00/1335 (2000) para 4.7). However, the white paper, Company Law Reform Cm 6456, March 2005, para 3.3 made it clear that some duties would apply differently to shadow directors. See Moore, above n 11, at 2 and the discussion regarding shadow directors above.

136. Unreported, High Court, 11 April 2001, WL 273028.

137. Prentice D and Payne JCase comment: directors' fiduciary duties’ (2006) 122 Law Q Rev 558 at 562, as endorsed by Kershaw D Company Law in Context (Oxford: Oxford University Press, 2nd edn, 2012) p 330. Newey J's comment is at para 136.

138. Davies and Worthington, above n 13, pp 512–513.

139. Finn (1989), above n 127, p 54.

140. Edelman, above n 101, at 317.

141. Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97–98 (per Mason J).

142. F & C Alternative Investments (Holdings) Ltd v Barthelemy (No.2) [2011] EWHC 1731, [2012] Ch 613 at para 225 (per Sales J); and Ross River Ltd v Waveley Commercial Ltd [2012] EWHC 81 (Ch) at para 256 (per Morgan J).

143. [2013] EWHC 3006 (Ch) at para 139.

144. At para 139.

145. Citing White v Jones at 271 (per Lord Brown-Wilkinson).

146. [2013] EWHC 3006 (Ch) at paras 139–145.

147. At para 142.

148. The public policy justification is not explored by Newey J, but see academic criticism by Miller (2013), above n 19, at 1000–1001.

149. CA 2006, s 250.

150. See the account of Lord Collins in Holland v Revenue & Customs Commissioners [2010] UKSC 51, [2010] 1 WLR 2793 at paras 73–81. Lord Collins also suggested that the only case that foreshadowed the modern development of the law in relation to de facto directors was re Western Counties Steam Bakeries and Milling Co [1897] 1 Ch 617.

151. Re Hydrodam (Corby) Ltd [1994] BCC 161.

152. [1994] BCC 161 at 163.

153. See eg: re Richborough Furniture Ltd [1996] 1 BCLC 507; Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333; Re Kaytech International plc [1999] 2 BCLC 351; Secretary of State for Trade and Industry v Hollier [2007] Bus L Rev 35; re Mea Corpn Ltd [2007] 1 BCLC 618; and Secretary of State for Trade and Industry v Hall [2009] BCC 190. See also the earlier cases of re Lo-Line Electric Motors Ltd [1988] Ch 477.

154. [2010] UKSC 51, [2010] 1 WLR 2793.

155. See Lord Hope at [39], Lord Collins at [93,94] and Lord Walker at [108–111].

156. CA 2006, s 50.

157. Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333, where Jacob J cited a passage from Cooke J in Secretary of State for Trade and Industry v Elms (unreported, 16 January 1997). This definition of a de facto director was confirmed in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch).

158. Lord Walker confirmed this point in obiter in Holland at [2010] UKSC 51, [2010] 1 WLR 2793 at para 109. He suggested that Millett J recognised this himself, given the example that he gave in a later paragraph in re Hydrodam [1994] BCC 161, 164. He also referred to similar statements by himself in the Court of Appeal case of re Kaytech International plc [1999] BCC 390 at 402 and by Morritt LJ in Secretary of State for Trade and Industry v Deverell [2001] Ch 340 at para 36.

159. Millet J's reasoning for making this statement was that a de facto director assumes to act as a director and is held out by the company to be a director despite his or her lack of appointment, while a shadow director claims not to be a director and ‘lurks in the shadows’ (Re Hydrodam (Corby) Ltd [1994] BCC 161 at 163).

160. [2010] UKSC 51, [2010] 1 WLR 2793 at para 91.

161. Also in Holland, Lord Walker, at para 110, agreed with the view of Lewison J in re Mea [2007] BCC 288, para 89 that an individual could be a de facto and shadow director simultaneously.

162. Davies and Worthington, above n 13, p 514.

163. Ibid, p 112. Although, as Gower & Davies emphasises, a number of judicial attempts have been made: see Twycross v Grant (1877) 2 CPD 469 at 541 (per Cockburn CJ); Emma Silver Mining Co v Lewis (1879) 4 CPD 469 at 541 (per Lindley J); and Whaley Bridge Printing Co v Green (1880) 5 QBD 109 at 111.

164. See Postema GA similibus ad similia: analogical thinking in law’ in Edlin DE (ed) Common Law Theory (Cambridge: Cambridge University Press, 2007) pp 102104. Postema identifies that the importance of analogy to common law reasoning was identified as early as the thirteenth century in the writing of Henry de Bracton. On legal reasoning by analogy generally, see

165. Postema G The Problems of Jurisprudence (Cambridge, MA: Harvard University Press, 1990) pp 8698.

166. See Rotman, above n 74, pp 74–75.

167. D DeMott ‘Beyond metaphor’ (1988) Duke L J 879 at 923–924; Rotman, above n 74, pp 74–75.

168. Birks, above n 89, p 23. See Rotman, above n 74, p 75.

169. See G Lamond ‘Analogical reasoning in the common law’ (2014) 34 Oxford J Legal Stud 567 at 567–568.

170. Lamond (ibid, p 567) cites Levi EH An Introduction to Legal Reasoning (Chicago: University of Chicago Press, 1948) pp 13 and Weinreb L Legal Reason: The Use of Analogy in Legal Argument (Cambridge: Cambridge University Press, 2005) pp 15, as examples of this view.

171. Lamond, above n 169, pp 567–568 places Posner RA How Judges Think (Cambridge, MA: Harvard University Press, 2008) pp 180191 and Alexander L and Sherwin E Demystifying Legal Reasoning (Cambridge: Cambridge University Press, 2008) ch 3 in this category.

172. Lamond, above n 169, p 568 suggests that MacCormick N Legal Reasoning and Legal Theory (Oxford: Oxford University Press, 1978) ch 7 and RM Dworkin ‘In praise of theory’ (1997) 29 Ariz State L J 353 both fit this description.

173. Lamond, above n 169, p 568 suggests that Raz JLaw and value in adjudication’ in The Authority of Law (Oxford: Oxford University Press, 2nd edn, 2009) and S Brewer ‘Exemplary reasoning: semantics, pragmatics, and the rational force of legal argument by analogy’ (1996) 109 Harv L Rev 923 are both examples of this latter view.

174. Lamond, above n 169, pp 583–584.

175. Arguably, the analogy with promoters is a distant analogy, given that such individuals appear to be doctrinally separate from the company director concept.

176. Lamond, above n 169, at 569.

177. [2013]BCC 771 at 143.

178. Edelman, above n 89, at 128.

179. For arguments that such essential characteristics of the fiduciary relationship cannot be defined see DeMott, above n 84, at 934–935 and Glover, above n 84, at p 275. See Miller (2013), above n 19, at 1010 for a counter-argument.

180. For a full justification of his juridical approach see Miller (2013), above n 19, at 1007–1015.

181. Miller (2014), above n 19, p 73.

182. Ibid, p 69.

183. Ibid, pp 69–71 and Shepherd, above n 74, pp 83–88.

184. See W Hohfield ‘Some fundamental legal conceptions as applied in judicial reasoning’ (1913) 23 Yale L J 16.

185. As Miller notes, some fiduciaries wield powers over the material rather than legal interests of the principle, such as a parent; consequently, the legal position of the principal might well not be affected. Conversely, other individuals wield legal power in the manner that Hohfeld describes in non-fiduciary situations; for example, in contractual situations. See Miller (2014), above n 19, p 70 for more on this.

186. Ibid, pp 70–72. Such a definition overcomes a number of previous criticisms of ‘power and discretion’ theories: see Rotman, above n 74, pp 147–148.

187. Miller (2014), above n 19, pp 71–72.

188. Ibid, p 73.

189. See generally ibid, pp 80–82.

190. Ibid, pp 83–84.

191. [1994] 3 SCR 377 (SCC) at 466.

192. Miller (2014), above n 19, p 84.

193. Ibid, p 84, fn 76.

194. (1987) 42 DLR (4th) 81.

195. For example, Forrest J in Hodgkinson v Simms (1994) 117 DLR (4th) 161 at paras 45–52 uses both public policy and morality considerations. See Rotman, above n 87, at 965–969.

196. (1987) 42 DLR (4th) 81 at paras 39–42.

197. This test has been approved by LAC Minerals Ltd v International Corona Resources Ltd [1989] 61 DLR (4th) 14 (per Sopinka and La Forest JJ), Canson Enterprise Ltd v Boughton & Co [1992] 85 DLR (4th) 129 (per McLachlin J, Lamer CJC and L'Heureux-Dubé J) and Norberg v Wynrib [1992] 92 DLR (4th) 449 at para 70 (per La Forest J, with Gonthier J and Cory J concurring), amongst others in Canada. See DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10 at 22, CA in New Zealand, and Goose v Wilson Sandford & Co (No 2) [2001] Lloyd's Rep PN189 in England.

198. (1987) 42 DLR (4th) 81 at para 43.

199. See Norberg v Wynrib [1992] 92 DLR (4th) 449 at para 72 (per McLachlin J). The judge also referred Frankel, above n 85, at 809, who stated that ‘the fiduciary must be entrusted with power in order to perform his function’.

200. See Frankel, above n 85, at 808–809.

201. E Weinrib ‘The fiduciary obligation’ (1975) 25 U Toronto L J 1 at 7, describes this requirement as the hallmark of a fiduciary relationship; this is also approved by Dickson J in Guerin v R [1985] 13 DLR (4th) 321.

202. Weinrib, above n 201, at 7.

203. Frankel, above n 85, at 809.

204. Frame v Smith (1987) 42 DLR (4th) 81 at para 44 (Wilson J).

205. Frame v Smith (1987) 42 DLR (4th) 81 at para 45.

206. Ibid.

207. Weinrib, above n 201, at 6. Frankel, above n 85, at 810 makes a similar point.

208. Perez v Galambos (2009) 312 DLR (4th) 220 at para 68 and Hodgkinson v Simms (1994) 117 DLR (4th) 161 at para 27.

209. Perez v Galambos (2009) 312 DLR (4th) 220 at paras 67–68; Hodgkinson v Simms (1994) 117 DLR (4th) 161 at paras 25–27; and Elder Advocates (2011) 331 DLR (4th) 257 at para 28. It has also been emphasised that describing the aim of fiduciary duties as the protection of the vulnerable alone is simply too broad. See Norberg v Wynrib [1992] 92 DLR (4th) 449 at para 74; Perez v Galambos (2009) 312 DLR (4th) 220 at para 67; Hodgkinson v Simms at paras 25–27; and Elder Advocates (2011) 331 DLR (4th) 257 at para 28.

210. Frankel, above n 85, at 810.

211. Frame v Smith (1987) 42 DLR (4th) 81 at para 45 (Wilson J).

212. Hodgkinson v Simms (1994) 117 DLR (4th) 161 at paras 132–133 (Sopinka J and McLachlin J).

213. See generally Hoyano, above n 116, pp 178–189.

214. (2011) 331 DLR (4th) 257. See also P Maddaugh ‘The centrality of undertaking in identifying fiduciary relationships: Galambos v. Perez’ (2011) 26 Bank & Fin L Rev (Can) 315, for a look at the earlier cases on this point.

215. Elder Advocates of Alberta Society v Alberta (2011) 331 DLR (4th) 257 at para 29.

216. At para 36.

217. At paras 33, 34–35, 36. The two additional requirements are ‘a defined person or class of persons vulnerable to a fiduciary's control’ and a ‘legal or substantial practical interest’ likely to be effected by the principal's actions. Neither of these two requirements is likely to be problematic in the case of shadow directors.

218. (1984) 55 ALR 417. See Gibbs CJ at 432 and Mason J at 454.

219. At para 98.

220. At paras 33–34 (La Forrest J).

221. (2009) 312 DLR (4th) 220 at paras 66 and 71.

222. At para 77. Cited with approval by McLachlin CJC in Elder Advocates (2011) 331 DLR (4th) 257 at para 32.

223. Scott, above n 93, at 540; Finn, above n 74, para 15 and more recently L Smith ‘Fiduciary relationships – arising in commercial contexts – investment advisors’ (1995) Can Bar Rev 714 at 717.

224. (2009) 312 DLR (4th) 220 at paras 78–79. For a general discussion of undertaking in Canadian fiduciary law, see Rotman, above n 74, pp 93–100.

225. Miller (2014), above n 19, p 74.

226. Shepherd, above n 74, p 3.

227. See generally Rotman, above n 74, pp 6–7.

228. For a discussion of the problems with establishing definitions in law, see Rotman, above n 74, pp 79–80.

229. Obviously, the ‘power and discretion’ test has been used to increase the categories of fiduciary relationship in Canada; for example, to the doctor–patient relationship in Norberg v Wynrib [1992] 92 DLR (4th) 449 (per McLachlin J) and also to personal and private relationships, such as parent and child in KM v HM; Women's Legal Education and Action Fund, Intervener (1992) 96 DLR (4th) 289. See Miller (2014), above n 19, for a general discussion on where the dividing line should be placed. See also Finn PEquitable doctrine and discretion in remedies’ in Cornish W et al. (eds) Restitution Past, Present and Future: Essays in Honour of Gareth Jones (Oxford: Hart Publishing, 1998) p 251 at p 257.

230. Edelman, above n 183, at 325–326 and Edelman, above n 89. See Miller (2013), above n 19, at 980–987.

231. Miller (2011), above n 19, at 270–271.

232. Ibid, at 271.

* An earlier version of this paper was presented at the SLS Conference 2014, in Nottingham. Many thanks to those present, and to the anonymous reviewers, for the excellent suggestions made regarding potential revisions to this paper.

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