Private Law Theory

ABSTRACT
Steve Smith responded to my paper ‘The Motive, Not the Deed’ with his own, ‘The Deed, Not the Motive’. He argues that we do not need a legal idea of ‘loyalty’ to understand the law; the only question is whether or not a person has objectively accomplished the task assigned to them. In this paper I argue that Steve, like many others, failed to see what is distinct about the legal regulation of acting for others, a domain which cannot be apprehended using only the legal tools that apply when we act for ourselves. Steve’s great book on remedies starts from a taxonomy of remedies but largely leaves aside what he calls ‘constitutive’ orders. These are not orders against a person, but orders that change the juridical situation of one or more parties. This includes an order that sets aside the improper exercise of a juridical power. And it is this kind of order – not an order to pay money – that reveals the need for a legal concept of loyalty. The positive law shows clearly that fiduciary powers can only be unchallengeably used when they are used for the purposes for which they were given; that is, used loyally. And the inquiry into whether they were so used is necessarily one into the subjective mind state of the power-holder. That person is charged with the mission for whose accomplishment they were entrusted with the power; but they alone have the authority to decide whether and how to use that power. A challenge for ‘improper purposes’ is therefore not a challenge that the power-holder made a substantively bad decision, but that they have made a decision that was improperly motivated. Since fiduciary relationships are necessarily characterized by the presence of fiduciary powers, the regulation of the exercise of such powers is at the heart of fiduciary law. Understanding this sheds light on the supporting role of other aspects of fiduciary law, such as the rules on conflicts and the rule against unauthorized profits.

Smith, Lionel, The Cough Drops on Loyalty (April 23, 2024) in E Fox-Decent, JCP Goldberg, and L Smith (eds), Understanding Private Law: Essays in Honour of Stephen A Smith (Hart) Forthcoming.