What is so special about being a fiduciary?

Abstract

The fiduciary label is not infrequently used. However, there has been little discussion of what it entails in Scots law, and what the consequences are of a party acting in breach of fiduciary duty. A fiduciary owes a duty of “loyalty” to his principal, which is a higher standard of conduct than a party in an “arm's length” transaction. This has the consequence that the remedies for breach of fiduciary duty are more severe. A fiduciary in breach of duty can be required to disgorge gains made as a result of that breach via a constructive trust and/or an account of profits. The constructive trust has, at times, received a somewhat hostile reception in Scots law, on two grounds. First, that it does not fit logically into the overall scheme of Scots law—being a creature of English law's Equity. Second, that it gives the beneficiary of such a trust an unfair priority in the fiduciary's insolvency, to the detriment of other creditors. However, as the constructive trust is a remedy to redress the unjustified enrichment of a fiduciary in breach of duty, its proper ‘home”, in Scots law, is the “enrichment family”, and not trusts. Moreover, by confining the constructive trust to breaches of fiduciary duty involving trust property, its impact on third parties will be reduced.