A shift from contractarianism to ‘characterisation’: Assessing the ideal Australian approach for determining fiduciary duties in a commercial context

Abstract

In the wake of excessive judicial reliance on a contractarian approach to the assessment of fiduciary duties in commercial contexts, both judicial and academic concern has been voiced as to whether such an approach is the most appropriate to ensure fair dealing. What's more, the emergence of novel commercial relationships facilitated by changing values in business and exponential leaps in the capabilities and use of technology warrant a reassessment of whether contractarianism is fit for the purpose of ushering in appropriate legal analysis so that such new developments can be appropriately facilitated. This article argues that contractarianism is not fit for that purpose and that the ‘characterisation’ of the relationship between parties is a superior and more equitable approach to determining the extent of fiduciary duties in commercial contexts.

Introduction

The nature, scope and recognition of fiduciary duties and the discordant debate as to whether they can/should be entirely modifiable by contractual agreement has remained a prominent feature of legal literature. However, academic commentary as to whether this ‘contractarian’ approach to the scope of fiduciary law in commercial arrangements is the ideal one for courts to preserve confidence in putative fiduciary positions and apply fiduciary law to new commercial contexts in the Australian jurisdiction remains scant. Recent academic commentary and case law raise doubt as to whether such an approach compromises the capacity of the law to ensure fair dealing in commercial arrangements by precluding conflicts of interest and curtailing unfair opportunism. Fiduciary duties create obligations of a different character and purpose than that of contract and yet Australian case law continues to err, generally, to the practice of prescribing parties’ rights so exhaustively by contract that there is less room than ever for the recognition of duties that might avert exploitation. That practice poses serious consequences where changing values and new agency-like contexts in the commercial space require more from the law to preserve well-functioning commercial institutions. This article intends to challenge the Australian position on the subject and argue that there are real reasons to consider a more comprehensive approach to determining the scope of fiduciary duties that focuses on the legal character of certain relationships. It will attempt to address two questions: is a contractarian approach to determining the scope of fiduciary duties/relationships in commercial arrangements the most effective approach to securing fair dealing and confidence in the fiduciary position and if not, is there an appropriate alternative? There are many reasons to believe the contractarian view is on precarious footing given the controversy it has generated in the Australian domain.

Firstly, this article will argue that where contract law encourages self-interested commercial practice, the contractarian approach to determining fiduciary duties in commercial contexts undermines any attempt to thwart opportunism, warranting an alternative approach. It will then analyse the state of the Australian case law and propose that the broader approach of ‘characterisation’ is a response better suited to ensure fair dealing than contractarianism. Thirdly, it will examine the claim that fiduciary duties are merely a branch of contractual undertakings and propose that characterisation facilitates the equitable functions of those duties. This article will conclude with the idea that a broader approach is needed so that the law is permitted to extend the application of fiduciary duties to emerging innovations, and examines environmental, social and governance (ESG) investment, artificial intelligence (AI) and cryptocurrency as examples of some new commercial contexts in which fiduciary duties may be recognised with the help of characterisation.

Contractarianism and fiduciary duties

For the purposes of this paper, ‘contractarianism’ refers to the legal theory that all rules of fiduciary law are freely variable by contract, ¹ with no moral footing that would require them to be enforced in ways other than as a contractual undertaking ² or considered more than a species of contractual obligation. ³ In contrast, fiduciary duties, in commercial contexts, aim to ensure fair dealing by obviating the abuse of entrustment and custodianship ⁴ that might otherwise be legally permissible in ordinary self-interested behaviour. ⁵ The friction between these two doctrinal positions renders a contractarian approach to determining the scope of fiduciary duties a poor choice if those duties are still to be recognised by courts for the purpose of ensuring fiduciaries behave at a ‘level higher than that trodden by the crowd.’ ⁶ A fiduciary duty might simply be regarded as the fiduciary's obligation to give their undivided loyalty to a person to whom the duty is owed. ⁷ However, that definition provides little, if any, insight into the practicality and spirit of such duties. Fiduciary duties, in Australia, are better defined as the twin obligations to not have a conflict between the fiduciary position and that fiduciary's private interest as well as the obligation not to profit from the fiduciary position beyond authorised remuneration. ⁸

Fiduciary duties are, of course, those that arise in fiduciary relationships which exist when a person has undertaken to act in the interest of another rather than their own, subject to the specific circumstances of that relationship. As observed in Breen v Williams (1996) 186 CLR 71, Australian courts have consciously refrained from defining this relationship by means of any general test. Notwithstanding, certain classes of relationships have been established by the courts as recognised categories of fiduciary relationships since Hospital Products Ltd v United States Surgical Corporation (1984) 156 CR 41 (Hospital Products). Examples include trustee and beneficiary, agent and principal, partners, employer and employee, solicitor and client and director and company. However, aside from those categories, fact-based (or ‘ad hoc’) fiduciary relationships can sometimes arise in commercial contexts based on the critical feature of an ‘undertaking’ ⁹ or agreement by the putative fiduciary to act for or on behalf of the interest of another person in the exercise of some power or discretion which presents the opportunity to act to the detriment of the accordingly vulnerable principal. It is in these latter, ad-hoc type, relationships that some tension between contractarianism and fiduciary duties seems to emerge.

The relationship between contractarianism and fiduciary duties

Fiduciary duties are intimately intertwined with contract law to such a degree that courts/commentators have relied on contractarianism to justify the claim that fiduciary duties are always subject to contractual manipulation. In Australia, the connection between fiduciary and contract law was entrenched by Mason J in Hospital Products ¹⁰ wherein he stated that:

‘…the existence of a basic contractual relationship has…provided a foundation for the erection of a fiduciary relationship, it is the contractual foundation which is all important because it is the contract that regulates the basic rights/liabilities of the parties and that if a fiduciary relationship is to exist at all, it must accommodate itself to the terms of the contract….’ ¹¹

Commentators such as Eastwood and Hastings argue it then follows logically that where a contract provides the foundation for a fiduciary relationship in which such duties are recognised, it must be possible for the parties to exclude such a relationship, ¹² especially where the law has recognised that it is conceivable that the effect of provisions of an agreement, ¹³ could be that the fiduciary relationship between the parties was excluded. ¹⁴ Despite a manifestly fiduciary relationship existing on the facts of a given case, the imposition of fiduciary duties can be excluded if a written agreement contains sufficiently clear ¹⁵ wording that reflects the intentions of the parties to do so. ¹⁶ Contractarians thus argue that the contract may expand or reduce the scope of any fiduciary relationship that might otherwise exist, even in part, within a commercial arrangement, forcing any fiduciary duties to the status of mere contractual terms to avoid the imposition of rules by the courts. ¹⁷ However, those commentators fail to acknowledge the extent to which these two areas of law serve different purposes. Australian courts have already acknowledged that parties in commercial arrangements should be expected to act selfishly rather than in the interest of each other. ¹⁸ Conversely, in Grimaldi v Chameleon Mining, the full court of the Federal Court, of which included the late honourable Justice Paul Finn, acknowledged that fiduciary law is concerned with setting the standards for persons in fiduciary positions as one of disinterestedness and undivided loyalty and generating an avenue for judicial review of the exercise of powers entrusted to a fiduciary for the interest of another where that other has no authority over how the power is used. ¹⁹ Attempting to combine these areas subverts any intended protection of undivided loyalty and gives way to opportunism. It also robs the courts of their function of review into how fiduciary powers are exercised in a way that inhibits the regulation of fair commercial dealing. These two effects are worth further examination.

Autonomy vs. opportunism

Firstly, the contractarian approach to determining the scope of fiduciary duties encourages opportunism where it prioritises the autonomy of the contracting parties over the loyalty exhibited by the fiduciary and secondly, prevents courts from any equitable consideration of vulnerability that might promote fair commercial dealing. Critics such as Butler and Ribstein disagree, arguing that the contractarian approach preserves the autonomy of contracting parties ²⁰ and private commercial dealing by providing parties the choice to ‘opt out’ of any fiduciary duties imposed by the courts. ²¹ This permits parties to solve any agency problems in a manner they see fit, regardless of any exploitation, because contract law expects commercial rivalry at arm's length negotiations for the pursuit of self-interest. ²² On the other hand, commentators such as Smith point out the purpose of fiduciary law is an equitable one, ²³ aimed at protecting that party that has become vulnerable by virtue of entrusting to the purported fiduciary a power over their interest. ²⁴ The duty of loyalty, ²⁵ ensured by the no conflict and no profit rules ²⁶ is untidy, ²⁷ but might best be understood as the law's attempt to combat opportunism by enforcing duties to abrogate self-interest and encourage the fiduciary to act loyally/selflessly in the interest of another party. ²⁸ Therefore, fiduciary duties combat opportunism by preserving the loyalty of the purported fiduciary to an entrusting party and in doing so, promote fair commercial dealing by inspiring commercial actors to place trust, confidence and reliance in powerful positions such as agents, ²⁹ directors, ³⁰ partners ³¹ and even financial advisers. ³² Without a deterrence against opportunism or a preservation of the loyalty of the fiduciary position, the law cannot support the fair functioning and evolving nature of business organisations.

The contractarian approach to the determination of fiduciary duties also prevents the law from deterring against opportunism by insisting on a deference to contract ³³ in any examination of a commercial relationship, inciting competitiveness rather than fair dealing. In opposition, Butler argues the contractarian approach strikes a balance between competitive commercialism and the protection from opportunism because the contractual exclusion of the fiduciary relationship is usually traded for lower service fees ³⁴ priced to factor in the risk of the fiduciary making ‘sub-optimal’ decisions born of some conflict of interest. ³⁵ Critics such as Alces suggest that such a balance cannot be struck because the gap between what the principal knows at the point of entering the contract compared to what they will know as the relationship continues and becomes more fiduciary in nature is too great to accurately price agreements that fairly reflect risk of opportunism at the outset. ³⁶ Those suggestions might be over-stated where the pricing of arrangements is adequately risk-assessed. ³⁷ The stronger retort against Butler's view is that principals would not be willing to enter such arrangements at all if the other party was allowed to advance their self-interest over them. ³⁸ The principal has a justifiable expectation that the other party not indulge in self-dealing at their expense. ³⁹ A good example of that expectation appears in the decision in Hodgkinson v Simms of the Supreme Court of Canada, often cited in Australian case law. ⁴⁰ The appellant in that case hired the respondent to advise him on real estate tax shelter. The respondent advised the appellant to invest in four income tax sheltered properties from which the appellant sustained significant losses. However, the respondent was covertly acting for the developer of those properties and benefitted from each investment. The appellant successfully argued the respondent had breached a fiduciary duty because he would not have invested had he known the respondent would act self-interestedly. ⁴¹ An Australian example is Commonwealth Bank of Australia v Smith, where the court recognised a fiduciary relationship where the customer in that case was entitled to consider that his interest was consistent with that of the bank when he retained the bank to advise on a proposed investment in a country hotel. ⁴² Samet captures the unique constellation of confidences the law imposes on fiduciaries to preserve fair dealing by stressing the hypothetical betrayal that would be felt by a client learning that their lawyer worked to serve selfish interest over theirs. ⁴³ While the example that Samet offers refers to an established class of fiduciary, her point concerning the justifiable expectation of the principal and the level of trust that is liable to be broken upon on any breach of duty by the fiduciary is also relevant to ad-hoc relationships in commercial contexts. Critics like Butler and Ribstein ⁴⁴ fail to appreciate that where the fiduciary relationship has trust, not self-interest at its core, the contractarian approach undermines the confidence of those positions that fiduciary duties usually attach to. Where contractarianism is rooted in self-interested private law that declares that arrangements between parties may always allow for competitive dealing, ⁴⁵ the ability to freely exclude the court's imposition of fiduciary relationships entirely ignores their broader equitable objective to avoid opportunism. If promised loyalty of some form induces a party to enter a relationship, courts are responsible for recognising that the relationship is fiduciary regardless of whatever legal character a contract attempts to confer upon it. ⁴⁶ Yet, the contractarian approach prevents courts from doing so by insisting that to do so would intrude on the autonomy of the contracting parties. ⁴⁷ The objectives of contract and fiduciary law are plainly at odds and where courts determine fiduciary duties based solely on the wording of a contract, that approach is liable to result in judicial decisions that permit a putative fiduciary to escape his duties. ⁴⁸

This leaves the area of fiduciary law in a state of flux where the courts cannot fully commit to the recognition of such duties and must settle for outcomes that might not necessarily promote fair dealing. Australian case law has become famous for one such controversial outcome from the Federal Court; ASIC v Citigroup Global Markets Australia Pty Ltd (Citigroup), ⁴⁹ an examination of which suggests that opportunism can only be effectively combatted where the courts carefully weigh the nature of the relationship against the contract. Before that examination is commenced below, it can already be seen that the contractarian approach to fiduciary duties suffers a significant deficiency where it sets Australian common law to a default setting in favour of the strict wording of an arrangement and avoids the equitable objective of such duties. The following analysis suggests the jurisdiction might be better off shifting to the broader approach of ‘characterisation’ which arguably boasts comparable judicial support but more adequately balances the competing objectives of contract and fiduciary doctrines.

Tension in the Australian position and the ‘Characterisation’ approach

The Australian position with respect to determining the scope of fiduciary duties leans heavily towards contractarianism since the decision in Citigroup. This section analyses that approach by way of a comparison to the late former justice Paul Finn's process of ‘characterising’ the true relationship between the parties to emphasise that contractarianism is limited in its capacity to avoid conflicts in a way that brings about fair dealing because of the favour it must show to the parties’ contractual intentions. Alternatively, ‘characterisation’ boasts comprehensiveness and nuanced analysis of the relationships between parties in commercial arrangements that seems to better ensure fair dealing and avoid opportunism.

Citigroup and contractarianism

In Citigroup, Toll Holdings (Toll) appointed Citigroup Global Markets (Citigroup) to advise on a proposed takeover of Patrick Corporation Ltd. The mandate letter between Toll and Citigroup acknowledged that Citigroup had been retained ‘solely as an adviser,’ not in any other capacity including as a fiduciary. ⁵⁰ Jacobson J held that even where the two parties exhibited the usual indicia of a fiduciary relationship, the letter excluding the fiduciary relationship must be enforced. ⁵¹ Jacobson J held that the exclusion did not need Toll's fully informed consent to do so where the parties were not in an established category of fiduciary relationship. ⁵² But for the express terms of the mandate letter, Jacobson J said the distinguishing marks of the dealings between the two, including: the advice Citigroup gave Toll on the merits of the bid for Patrick, Toll's reliance on Citigroup to further its interest and the close professional relationship between the parties ⁵³ all pointed strongly toward the existence of a fiduciary relationship. ⁵⁴ In doing so, Jacobson J revealed the overtly contractarian sentiment of his approach by concluding that ‘there appears to be no restriction in the law to prevent a fiduciary from contracting out of…his or her fiduciary duties.’ ⁵⁵ Finn subsequently considered the decision incorrect, claiming that it betrayed the exercise of characterising the true relationship between the parties to determine the extent of any fiduciary duties that existed therein. ⁵⁶

‘Characterisation’

Characterisation was explained in Finn's own judgment in South Sydney District Rugby League Football Club Ltd v News Ltd where, in contrast to Jacobson J, he held that an agency relationship existed between two parties despite direct written wording attempting to exclude that relationship. ⁵⁷ He explained that while it is legitimate for parties to avoid the ‘unwanted consequences’ of a legal relationship by casting it in a form that takes it outside the category of that relationship, their success does not depend simply on a provision in their agreement. ⁵⁸ Rather, an ‘express labelling provision’ ⁵⁹ must be given its proper weight against the rest of their agreement and such other relevant circumstances as evidence of the true ‘character’ of their relationship. ⁶⁰ When characterising the scope of a fiduciary relationship, a contract is simply one of many factors that judges are encouraged to weigh against each other rather than the sole determinant. ⁶¹ Some, like Edelman J, contest Finn's approach on the basis that the construction of a contract determines the content of the fiduciary obligation so those obligations should be treated solely as express or implied contractual terms ⁶² and thus, freely modified to any extent. ⁶³ Edelman J's sentiment enjoys impressive judicial reliance in Australia ⁶⁴ because various courts have accepted that a fiduciary obligation cannot be superimposed upon a limited contract. ⁶⁵ For example, in Hospital Products, Mason J famously held that the fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract ⁶⁶ while Henderson v Merrett Syndicates Ltd ⁶⁷ included a passage often approved by Australian courts stating that the extent and nature of fiduciary duties are determined by reference to the contract that exists between the parties. ⁶⁸ What is more, proponents of Edelman J's contention may argue that contractaranism simply looms larger than the realm of fiduciary duties, operating more as a policy choice of the judiciary in any contractual dispute so as to preserve the private dealing of the parties, and that such a policy objective ensures that contractarianism will remain the settled position of the courts. Those proponents could point to recent cases such as ZG Operations Australia Pty Ltd & Anor v Jamsek & Ors ⁶⁹ wherein two truck drivers who had provided transport services to a single company (of which they were former employees) exclusively for almost 40 years and with trucks they owned bearing the company's logo, were held to be independent contractors pursuant to independent contractor agreements they were made to sign by that very company. While that case did not consider fiduciary duties, it demonstrated the conservatism of the court when challenged to recognise an alternative relationship than that expressed in contractual terms, even if the characteristics of that relationship persuasively point to something else. Any policy argument used in favour of the contractarian position is undermined by the fact that any preference towards contractarianism or characterisation remains unsettled in Australian case law. For example, the High Court's decision in ZG flies in the face of an earlier decision of the High Court in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd, ⁷⁰ a case involving similar legal questions to the extent it involved a contract with a provision that labelled a worker as a ‘contractor’ rather than an ‘employee’. However, in that case, the High Court had regard to the terms of the contract to characterise the nature of the relationship between the parties as one of employment, attributing weight to the fact that Personnel Contracting, the labour hire company, paid the worker's wages, directed his place of work and held control over the contracted worker through back-to-back operation of his obligations to his designated workplace. While in ZG, the High Court held that the characterisation of the parties’ relationship as one of employment must proceed by reference to the contract where the parties committed the terms of their relationship to such, in Personnel Contracting, the High Court held that the parties’ choice to label the worker a ‘contractor’ did not change the character of the relationship as one of employer/employee. That the highest court in the land produced incongruous data on when the nature of a relationship is to be derived from contract or through the characterisation exercise only further suggests the unsettled nature of the contractarian position.

In the realm of fiduciary duties, it is true that fiduciary obligations are regularly sourced in contract, but those contractual limits do not decisively determine the effect of such obligations and characterisation has appeared to call into question the primacy of contract over equitable fiduciary duties. ⁷¹ One of the instances in which those limits were not decisive, Finn had propounded, was where the conduct of the parties could add to and subtract from the scope of fiduciary duties. ⁷² That is, those instances where the characterisation of a relationship as fiduciary focused on the presence of ‘factual phenomena’ in a relationship such as ascendancy/influence acquired by a party, dependence or reliance conceded by another or a trust/confidence given. ⁷³ For example, in the case of Birtchnell, ⁷⁴ Dixon J stated the subject matter of the recognised fiduciary duty was determined from the ‘course of dealing’ actually pursued not merely the terms of the deed. ⁷⁵ In that case, the court identified some deficiency of merit in the assumption that fiduciary relationships spring only from contract, express or implied, because the fundamental principle enunciated by equity is the maintenance of fiduciary loyalty and the responsibility of agents to be faithful to their principals has previously been insisted on by the courts. ⁷⁶ On that basis, Dixon J considered that the subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking, which is to be ascertained not merely from the express agreement of the parties (whether they be enshrined in written instruments or not) but also from the course of dealing actually pursued. ⁷⁷ Another instance, argued by Leeming JA, is where parties can owe fiduciary obligations in advance of finalising a contract, which challenges the extent to which contract ‘determines’ fiduciary duties as if they were express or implied terms. The case of United Dominions Corp Ltd v Brian Pty Ltd is an example of such a situation where an undertaking to commercial enterprise including money held on trust and decision-making conducted by a business on behalf of other parties attracted fiduciary duties before any arrangement was entered. ⁷⁸ Leeming JA's point is supported by Miller who states that some fiduciary relationships are informed by non-contractual agreement, unilateral agreement or even legislative decree such as that between trustee and cestui que trust of a declaratory trust. ⁷⁹ The final instance posited here is where courts have previously held that fiduciary duties can be determined by construing the contract as a whole, in light of surrounding circumstances and from a consideration of the purpose of the transaction at the crux of that contract. ⁸⁰ As previously indicated, this is the sentiment that was endorsed by Finn in South Sydney ⁸¹ wherein he outlined that the consents given by parties need not necessarily be to relationships that the parties understand, or even accept, to be of principal and agent (so as to attract the fiduciary status), rather, it is sufficient if they have agreed to what amounts in law to such a relationship notwithstanding if it is ‘artfully disguised’ by express disclaimers. ⁸² Any such disclaimers, Finn held, must be given their proper weight in relation to the rest of the parties’ agreement and any evidence as to the true nature of their relationship. ⁸³ Despite Citigroup and the support for the contractarian approach, the approach of construing the contract as a whole to determine fiduciary duties in question has persisted in Australian law. A decade after Citigroup, Santamaria JA held in the case of Adventure Golf  ⁸⁴ that the contractual exclusion of relationships of partnership or agency was not conclusive and must give way to an analysis of the agreement in its entirety ⁸⁵ and the parties conduct. That case ultimately considered that the clause tended in favour of a finding that no fiduciary relationship existed, but Santamaria JA's observations clearly demonstrate that such exclusions are not decisive. Each one of the aforementioned instances not only challenges the claim that contractual limits decisively determine fiduciary duties but indicates that characterisation has previously appeared as the preferred approach of courts when attempting to identify fiduciary relationships in complex commercial contexts. That is because the approach is multi-faceted, analytical and emphasises the examination of specifics like surrounding factors and the purpose of the contract in question. It allows for a greater likelihood that the fact-finders of the court will identify any potential conflicts or attempts at self-interested profit that might be considered opportunistic because it prompts an engagement with the particulars of the ad hoc situation at hand.

Importantly, these instances or forms of characterisation are readily apparent in the UK, which serves as a reliable source of influence for Australian jurisprudence in this field and support for the characterisation approach. The UK and Australia positions are consistent that fiduciary duties, if they exist, must then be moulded to fit the contractual framework between parties if those parties fall outside the established categories ⁸⁶ but the UK shows that contract law does not conclusively contort the scope of fiduciary duties and legitimises the characterisation exercise. In Garnac Grain Co v HMF Fuare & Fairclough, the House of Lords held that the fact that a fiduciary relationship was expressly disclaimed was not decisive, rather, the provision was to be given its proper weight in relation to the balance of the agreement. ⁸⁷ That principle was quickly reiterated in Branwhite v Worcester Works Finance Ltd, wherein the House of Lords considered that any labelling provision in a contract involving a putative fiduciary must be given its proper weight in relation to the actual incidents and content of the relationship to determine whether the parties to the provision have consented to a state of fact upon which the law imposes the consequences of agency. ⁸⁸ This idea has endured through to more recent cases such as Fujitsu Services Ltd v IBM United Kingdom Ltd, ⁸⁹ wherein Carr J noted that while fiduciary duties must be moulded to fit a contractual framework, the mere existence of a contract did not exclude the co-existence of fiduciary duties. ⁹⁰ The persistence of the idea in UK case law has proved instrumental to extending the effect of fiduciary duties to emerging innovations, new fact patterns and social problems and this claim will be explored in the final section of this article. UK judicial theorists such as Samet argue against the contractarian perception that fiduciary law is merely a species of contract law and reiterates that the doctrines of contract and equity, while related, serve different purposes. ⁹¹ Contractual limits cannot and should not decisively determine the scope of fiduciary duties where those duties attempt to construct a separate space of law for affiliation in which a party who occupies a position of power over the other party shuns the advancement of his or her self-interest. The UK's position on characterisation over strict contractarianism and the reliance that Australian case law has placed on it only highlights the unusual incongruity of the Australian position and the utility of the characterisation exercise.

The aforementioned cases are each examples of where the respective courts carefully considered nuanced factors beyond the mere scope of a contract and identified those fiduciary relationships based on the characteristics of each relationship. They stand in stark contrast to the argument that there is no restriction in law from contracting out of a fiduciary relationship in a commercial context. Fiduciary law overlays the contract ⁹² and holds the relationship to a higher standard than that of contract law.

Favouring the characterisation approach

It is argued here that the court erred in finding no fiduciary relationship existed in Citigroup and that characterisation would have been a superior approach to promote fair dealing. Jacobson J referred to no judicial authority advocating a broader consideration of the factors surrounding the terms of the mandate letter, which is made especially peculiar given Jacobson J's concession that without the exclusion, the relationship was manifestly fiduciary. While commentators are quick to point to the judicial authority in support of the stance that fiduciary duties stemming from contracts may always be excluded, ⁹³ they do not seem to consider the extent to which the purpose of that contract and the actual course of dealing ⁹⁴ should have some influence over the weight of that exclusion. ⁹⁵ In such circumstances, the views of Finn and Leeming seem to boast greater force. If a contractual modification is not properly weighed against the actual conduct of the parties, the character of each relationship bears no significance to the parties’ duties whatsoever and the scope of fiduciary duties is left entirely to the intentions or power of that party with the greater authority. All kinds of self-interested conduct then become permitted ⁹⁶ because the courts are refused their legal basis for reviewing a party's exercise of fiduciary power, that basis being the power to recognise a fiduciary relationship. ⁹⁷ The situation may be likened to courts deciding in favour of contracts that would attempt to contract out of the law's regulation of ‘unfair contract terms.’ Without characterisation, the ‘labelling’ of a contract might allow unconscionable, misleading or deceptive conduct without any recourse to the powerful equitable doctrines/remedies that protect against it. ⁹⁸ This cannot be right. U.S law has responded to this risk by establishing some mandatory rules in fiduciary law that cannot be overridden by agreement such as prohibitions on acting in bad faith or unfairly ⁹⁹ but no Australian equivalent exists. Perhaps the clearest US example is the expulcation of personal liability allowed by almost all of the states’ commercial law for money damages, which, under the Delaware General Corporation Law, ¹⁰⁰ does not alter the nature or the scope of certain enumerated fiduciary duties ¹⁰¹ such as a director's duty of good faith. This legislative expression preserves/maintains the sanctity of fiduciary duties that have remained enshrined in US case law in spite of the contractarian push within academia. ¹⁰² In Williams v 5300 Columbia Pike Corp, ¹⁰³ the District Court of Virginia held that a by-law amendment could not eliminate a director's fiduciary duty of loyalty and fairness to its shareholders. Similarly, in Sutherland v Sutherland, the Delaware Court of Chancery held that while a contractual provision to eliminate a fiduciary duty is permissible under the Delaware Limited Liability Company Act and the Delaware Revised Uniform Limited Partnership Act, where freedom of contract is the guiding principle, such an elimination is prohibited by the Delaware legislation. Rauterberg makes the point that there is some variation on this position among the states but the ‘non-waivability’ of the fiduciary duty of loyalty appears relatively constant. ¹⁰⁴ These mandatory fiduciary duties demonstrate how contract continues to be held at bay. In turn, reasonable critics may concede that fiduciary law is not closed but nervousness about its open-endedness can explain why courts try to hew established categories ¹⁰⁵ or the scope of fiduciary duties by way of contract. ¹⁰⁶ On the other hand, characterisation does not attempt to hew at all because it does not deny the existence of mandatory fiduciary duties. Instead, it facilitates a way in which courts can delineate what Sitkoff has described as an ‘internal protective/cautionary function’ of those duties; which aim to protect a principal in a fiduciary relationship by insulating the fiduciary obligations the law assumes would not be bargained away by a sophisticated principal, and a concurrent ‘external categorisation function’; which attempts to protect third parties to contractual agreements by clarifying the nature of the parties’ relationship through clear lines of demarcation across the constituent legal relationships of the agreement. ¹⁰⁷ Characterisation is elastic and pliable, allowing a fact finder to recognise the fiduciary principle outside of the established categories and beyond the labelling of misleading exclusion provisions. Despite claims to the contrary, Citigroup does not seem to have set the contractarian position in Australian case law and there is some evidence of a move to Finn's characterisation approach.

Moving on from Citigroup

A recent Australian case of the NSW Court of Appeal (NSWCA) in Murdoch v Mudgee Dolomite & Lime Pty Ltd (Murdoch) ¹⁰⁸ might mark a move away from contractarianism following the controversy elicited by Citigroup. In that case, Brian Murdoch, director/shareholder of Mudgee Dolomite & Lime (MDL) brought proceedings against another director and senior employee for breach of fiduciary duty for causing two separate companies to perform mobile crushing and earth moving work which MDL had initially been contracted to complete. ¹⁰⁹ On appeal, Leeming JA took account of clauses contained in MDL's constitution to determine the scope of the fiduciary duties owed to MDL by the director and senior employee. The constitution contained clauses providing that a director was not disqualified from contracting with MDL nor was a director liable to account to MDL for any profit arising to that director, albeit the director's interest was required to be disclosed. ¹¹⁰ Despite this, Leeming JA held that the narrowing of the scope of the director/employee's fiduciary duties did not extend to their diversion of the work promised to MDL. In doing so, he held that the subject matter over which the fiduciary obligations extend was determined by the ‘character of the venture or undertaking for which the partnership exists, ascertained not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm.’ ¹¹¹

Murdoch exhibited a better approach to determining the scope of fiduciary relationships than Citigroup because it looked to the true nature of the relationship between the commercial parties and characterised it in a way that ensured the putative fiduciary agents did not escape their duties. The NSWCA considered those factors surrounding MDL's constitution to identify a relationship where the shareholders of MDL assumed the director had their best interest in mind. This approach allowed it to characterise the nature of the relationship between the parties in spite of the contractual attempt to modify any fiduciary duties that it may have attracted. It recognised widely accepted fiduciary indicia and ascribed more weight to the character of the partnership venture than the disclaimer in MDL's constitution. On its face, such an approach seems to protect the spirit of fair dealing much more so than if the NSWCA had simply given effect to the contractual modification in MDL's constitution because to do so would have undermined the duty of loyalty that the director and employee owed MDL. To weigh in favour of the contract in spite of the fiduciary characteristics would have been a compromise of the court's power to promote fair dealing and discourage opportunism. ¹¹² This idea is consistent with commentary from Worthington, who concedes that exclusion clauses might not be effective where a party agrees to undertake obligations consistent only with owing a fiduciary obligation. ¹¹³ Additionally, D’Angelo argues that such a characterisation approach is not so much an attempt to superimpose a fiduciary relationship upon a contract, ¹¹⁴ rather, it seeks to ‘divine the “true construction” of the contract’ by examining its merits to ascertain whether it manifests the characteristics of a fiduciary relationship. ¹¹⁵ Those views are accepted here on the basis that they are consistent with Mason J's comments in Hospital Products where Mason J confirmed that what the courts are attempting to do when determining the scope of fiduciary duties is seek to identify a relationship in which one party has relaxed his self-interested vigilance or independent judgment because he believes or is entitled to assume that another will act in his interest. ¹¹⁶ While the weight of authorities supports the Citigroup decision, the contractarian approach it endorsed did not exhibit an ideal representation of fair dealing nor did it promote confidence in the law's ability to impose fiduciary relationships where a party relaxes his self-interest in a commercial arrangement. Jacobson J's conclusion that there is no restriction in the law preventing a fiduciary from contracting out of their duties boasts very little substance when compared against those cases in which fiduciary relationships were based on the conduct of the parties, recognised without a contract, or simply based on the contract as a whole. It highlights what little regard his conclusion had to the nuanced relationship between contract and fiduciary law. ¹¹⁷ Conversely, characterisation expressly focuses the court's consideration to that very nuance to ensure that the equitable protection of loyalty and fair dealing that fiduciary law intends for is given effect. In that sense, characterisation presents as a feasible alternative that courts should begin to embrace when approaching the assessment of such duties in commercial contexts and one that boasts support in the UK and US law. This argument is only bolstered on a closer examination of those equitable functions of fiduciary law and the public policy purposes they give rise to.

Equitable functions

In Australian law, fiduciary duties boast powerful equitable functions, namely corrective justice and the protection of institutional integrity, which serve to facilitate fair dealing and characterisation. Alternatively the narrowness of the contractarian approach refuses to breathe any life into equity's incursion into contractual arrangements, a fundamental deficiency that will ultimately burden the development of Australian fiduciary law.

Corrective justice remedies

Where a contractarian approach to the recognition of fiduciary duties stifles any connection between the dealings of parties to a commercial arrangement and equity's intervention, the law is barred from exacting corrective justice by awarding remedies that disgorge a fiduciary of its ill-gotten profit. Alternatively, characterisation offers a greater allowance for the corrective justice function to have effect because it encourages a broader examination of the relationship which may be found to be fiduciary, generating a greater opportunity for the allowance of such a remedy. Langbein argues that the ‘equitable label’ should be removed from fiduciary law to promote ‘horizontal justice’ whereby all parties in comparable relationships are afforded the same suite of contractual remedies to avoid the ‘unattractive’ result of awarding more powerful remedies simply because one relationship is classified as ‘fiduciary’ while similar relationships are found to be in ‘contract.’ ¹¹⁸ However, this argument ignores the equitable nature of the remedies afforded for breach of fiduciary duties, those being disgorgement of the fiduciary's profits by way of an account of profits, ¹¹⁹ constructive trust ¹²⁰ and/or finding of knowing receipt/assistance. ¹²¹ Sangiuliano argues that these disgorgement remedies give effect to the principle of corrective justice by correcting an injustice suffered by a plaintiff at the hands of a defendant and giving back to the plaintiff something to which it had a right but where the defendant interfered with that right. ¹²² Cooter and Freedman provide substance to that claim, arguing that the agency problem renders fiduciaries difficult for the law to supervise with contractual remedies alone while ‘gain-stripping remedies’ provide a two-pronged approach by remedying any loss suffered by a principal but also by penalising fiduciaries for disloyalty. ¹²³ Disgorgement is a better fit for breach of fiduciary duties than straightforward contractual remedies because they strip the fiduciary of their gain so it is as if the wrong had not been committed and removes any incentive for other fiduciaries to act in the same way. ¹²⁴ Consider the hypothetical of party A undertaking to assist party B with the investment of B's assets in various investment options/opportunities subject to a contractual exclusion that party A is an adviser only and does not attract a fiduciary relationship. A then diverts those options/opportunities to party C from which party C profits. Without the recognition of a fiduciary relationship to bring about an equitable cause of action, party B is limited to contractual remedies with no right to recover profits diverted to party C. Corrective justice for party B is only obtained upon the allowance of those disgorgement remedies made available by a breach of fiduciary duties, ¹²⁵ which would allow B an entitlement to say a constructive trust on the gain or restitutionary damages calculated on that gain. ¹²⁶ However, if the court recognises fiduciary characteristics in A and B's relationship but shows deference to the exclusion regardless, the court is prevented from awarding such remedies. It is in this situation that characterisation finds favour because it prompts the courts to balance the particular features of the relationship against the weight of the contractual exclusion and ask itself whether it would be equitable to deny a disgorgement remedy not just for the benefit of the aggrieved party but for the benefit of penalising the fiduciary so as to enforce a normative standard in the common law. ¹²⁷ If a contractarian approach to determining fiduciary duties gives effect to a contractual exclusion despite the usual features of a fiduciary relationship, the aggrieved party is limited to provable loss for breach of contract while the agent is left to retain the profits generated by its conduct. ¹²⁸ This could create perverse incentives ¹²⁹ for putative fiduciary's to abuse their position. Australian case law's deference to the contractarian position risks a tendency to more frequently limit causes of action to loss-based remedies despite fiduciary clues that the relationships in question require disgorgement-remedies to bring about corrective justice.

Protecting integrity

The other equitable function that characterisation encourages is the protection of the integrity of commercial institutions and practices. ¹³⁰ D’Angelo argues that this specific function renders fiduciary duties ‘instruments of public policy’ in a way that contractual arrangements cannot ever be. ¹³¹ If a contractarian approach is always taken by courts when determining the extent of fiduciary duties, this function is always circumscribed. However, characterisation urges an examination of considerations beyond the contract in a way that enables judges to consider the public policy incentive of recognising a fiduciary duty in a particular case. ¹³² This is no minor objective but a real issue upon which the confidence in fiduciary positions relies on. ¹³³ In both South Sydney and Murdoch, fiduciary relationships of agencies were held to exist between the respective parties despite clear language in documents seeking to exclude that outcome. ¹³⁴ It is only by characterisation, that a proper consideration of the agency features were permitted and in doing so, the courts in those cases were able to promote a standard of conduct from fiduciaries that should be expected by commercial actors in the future. Such decisions instil clients, beneficiaries and shareholders with the requisite confidence needed for powerful fiduciary authorities to operate in the way that so many facets of professional and commercial practice depend on. ¹³⁵ This public policy effect is a powerful one and if characterisation can encourage it, then characterisation should be the standard approach to the question of fiduciary duties in Australia. Leeming J supports this idea ¹³⁶ so that due consideration can be had to desired social behaviour and commercial dealing when determining when fiduciary relationships must be recognised so that the courts can shape their analysis towards those ends. Critics counter with the argument that the ability to exclude the fiduciary relationship remains contingent on the consent of the parties rather than any standard of conduct the law intends to perpetuate. ¹³⁷ This is a disquietingly narrow view of what are complex and sophisticated commercial relationships. That counter-view fails to appreciate that allowing any conduct, even conflicted conduct with informed consent, may undermine confidence in the integrity of the market for commercial/financial services ¹³⁸ and so, the court's approach to the question of when that conduct attracts fiduciary duties should allow it to have regard to protecting that integrity.

The equitable nature of fiduciary duties is a powerful element, one that the contractarian approach indelicately attempts to stifle in the name of autonomy. However, the consequences of the narrow contractarian approach go deeper than an obstruction of corrective justice or integrity, it precludes court's from expanding the doctrine of fiduciary law into unfamiliar contexts as commercial practices change with time and technology. Therefore, characterisation is needed if the law is going to facilitate new ad hoc fiduciary relationships in the future and adequately respond to the emerging innovations of 21st century commercial dealing, some examples of which are analysed in the next section.

Facilitating emerging innovations

Lastly, if Australian law is going to be capable of construing the scope of fiduciary duties in complex and unprecedented contexts, characterisation provides courts the capacity and permission needed to look beyond the contractual intentions of parties and towards the features of the relationship that emit some semblance of fiduciary doctrine. ESG investment, the use of AI and cryptocurrencies are examples of such contexts where the law will be pushed into unknown waters of analysis. It is argued here that a deference to contract will hold the law back from making important developments in the recognition of fiduciary duties in these areas, thus warranting a shift to the broader approach of characterisation.

Environmental, social and governance

ESG investment broadens the decision-making role of agents such as trustees, financial advisors and directors to an extent that attracts fiduciary status, however, contractual agreements can be used to combat this. ESG refers to investment decisions aimed at balancing returns with a contribution/benefit to an environmental, social or governance initiative such as climate change, modern slavery, biodiversity or gender equality. ¹³⁹ Sullivan says that it is fairly well established that passive or inactive ESG risk management by an agent will likely constitute a breach of fiduciary duties, ¹⁴⁰ while some critics still argue that ESG investment services may still be provided without the imposition of equitable fiduciary duties so long as the scope of the relationship is unambiguously defined by the agency contract. ¹⁴¹ However, ESG investment bestows on agents an added layer of discretionary decision-making that should tip courts in favour of recognising fiduciary relationships rather than any contractual exclusions. ¹⁴² Agents of ESG investment strategies typically make contractual commitments to a beneficiary to enact certain specified ESG goals as well as generate financial returns ¹⁴³ and rely on the personal references of impact ESG investors to achieve this. ¹⁴⁴ Povilonis argues that contractarian parties are entitled to frame their agreements as exclusory of any recognition of fiduciary character so that any recourse for the agent's disregard to the ESG mandate is limited to contract. ¹⁴⁵ While this may be true, it raises a question as to whether such a practice would be justified upon a consideration of the features of the ESG investor-client relationship. Clients/shareholders entrust their capital to ESG investors, who undertake to use their expertise of the ESG market to invest that capital consistent with the elected ESG initiative. This hypothetical but common arrangement ¹⁴⁶ already exhibits several of the usual indications of a fiduciary relationship and on that basis, courts should avoid hastily deferring to any contractual exclusions that may exist to invalidate such a relationship. This is not to say that courts should completely discount any contractual exclusions. It is conceded that parties who consensually enter such agreements are entitled to determine the parameters. However, potential benefits may pass by if courts fail to take such an approach. Fiduciary duties may provide ESG investors added incentive to avoid ‘greenwashing,’ reliance on unverified ratings agencies and uncertified products, all of which hold the potential to mislead a client/shareholder. The putative principal may significantly benefit from this. Alternatively, a fiduciary's duty to focus on ESG investments may attract undesired costs for traditional profit-focused shareholders and so the contractarian approach must still be considered by the courts. ¹⁴⁷ Nevertheless, requiring a fiduciary to exercise their discretion to advance the ESG interest of the principal is so manifestly fiduciary that contracting out should be difficult. Contractarianism would simply give effect to any exclusion but characterisation permits the court to apply a multi-faceted analysis of ESG relationships that can recognise their potentially fiduciary nature.

Artificial intelligence

Additionally, characterisation will be instrumental in developing the fiduciary principles of technological innovations such as AI-based ‘robo-financial advisors.’ ¹⁴⁸ ‘Robo-financial advisors’ refer to digital platforms providing financial advice without direct human involvement. ¹⁴⁹ Examples include ‘ASIC Digital X’, ¹⁵⁰ an algorithmic software that requires clients to provide answers to questions that trigger various permutations of a coded decision tree to generate tailored portfolio investment advice. ¹⁵¹ Another is ‘ChatGPT’, the language-processing AI software with the demonstrable capacity to provide substantive advice ¹⁵² on seemingly endless topics. ¹⁵³ Recent commentary considers whether robo-financial advisers may display the requisite indicia to attract an ad hoc ¹⁵⁴ fiduciary status. ¹⁵⁵ On examination, this appears to be more than plausible and so Australian courts may eventually need to turn their minds to whether the scope of such relationships will be determined by contract or by characteristics.

Robo-financial advisers currently only have the capacity to advise, ¹⁵⁶ however, Smith has argued that despite the absence of formal power to bind a principal, that principal's reliance on the AI-generated advice may be such that it is as if the robo-adviser had that power. ¹⁵⁷ Degeling and Hudson offer a slightly more bolstered claim that fiduciary relationships might be recognised to the extent that robo-advisers allow parties to vest decision-making power in them. ¹⁵⁸ However, these arguments, without more substance, might struggle to justify the imposition of fiduciary duties on AI. The sticking point as to whether robo-advisers will attract fiduciary status might depend on the level of technology to which the client is subject. If clients rely on technology like ASIC Digital X, the experience would be rudimentary. The client crucially cannot ask for reasons beyond those automatically given by the platform nor assess the level of reliance it can place on the platform. ¹⁵⁹ However, with a ‘sophisticated’ adviser like ChatGPT which might be able to provide an undertaking, ¹⁶⁰ reasons for its decisions, ¹⁶¹ and warnings of risks, tapping into 175 billion types of information to do so ¹⁶² , a principal may rely on that platform in a way that is common to conventional fiduciary relationships. A sophisticated robo-adviser could meet the criteria of Daly v Sydney Stock Exchange ¹⁶³ for the recognition of ad hoc fiduciary status where the level of reliance referred to by Smith is present and where the robo-adviser holds out to have expertise on certain matters and then undertakes to advise a user on those matters. ¹⁶⁴ In Daly, the High Court of Australia considered whether the stockbroking firm, Patrick Partners, was in the position of a fiduciary where it had simply advised their client, Dr Daly, on investments. ¹⁶⁵ The Court held that even though Patrick Partners did not act as an agent by buying/selling shares on behalf of Dr Daly, a fiduciary relationship existed where Patrick Partners held itself out as having expertise in investment advice, undertook to give that advice ¹⁶⁶ and Dr Daly relied on that advice in making his investment decisions. ¹⁶⁷ It is not farfetched to posit that the pivotal features of ‘undertaking’ by the adviser and the ‘reliance’ of the person being advised might apply to robo-advisers in the same way where courts attribute appropriate weight to the extent that software developers hold out that the advice provided by their technology consists of expertise within which the confidence of a lay person can be reposed. However, courts need to have proper regard to those features and characterisation allows them to do so. Reasonable minds might argue that such a level of reliance and expertise is not near what it needs to be for recognition of fiduciary duties. However, a Colombian judge has already shown it is possible, relying on ChatGPT to determine whether a plaintiff's insurance policy covered the costs of certain medical expenses under national law. ¹⁶⁸ It will become difficult for courts to justify contractual exclusions of fiduciary relationship and leave this area to the regulation of private dealing once this level of reliance and expertise is common to robo-adviser technologies.

Further, AI technology recontextualises the intentions between the user and developer of the robo-adviser, in a way that might justify equity's incursion of fiduciary duties. If a service agreement between the user and developers of the robo-adviser permits the AI to either act positively or advise in the ‘best interest’ of the user, understanding the parties’ intentions as to what ‘best interest’ means will largely depend on the service/payment-agreement. ¹⁶⁹ However, decision-making and intention might be more discernible by a close analysis of the coding behind such technology, ¹⁷⁰ the database from which it focuses its research for the advice ¹⁷¹ and the substance of the advice given. Robo-advisers may draw all research from one particular source of argument or be coded in a manner that ignores specific segments of data. For example, ChatGPT has been found to be encoded with certain political slants, limiting its information to that which contains only specific words/topics synonymous with a certain opinion/position. ¹⁷² Other word-processing AI models have already shown tendencies to categorise information based on conjectural metrics and partisan datasets. ¹⁷³ These inherent algorithmic biases harbour the potential to place users in positions of conflicts that they are unable to foresee and so they can be misled because of a coding error, miscalculation or an inherent bias in the programming of the technology. ¹⁷⁴ The courts should lean towards a characterisation approach when considering the nature of relationships between robo-advisers and users so that they are permitted to properly regard these important features and identify how an undertaking, reliance and authority manifest when such features are present. These features would not be relevant to a court's consideration in a contractarian approach, which suggests that the approach might be too circumscribed by a focus on the written intentions of the parties to properly consider the nature of the technology and the user's relationship with it. This is less likely to be an issue as the technology is better understood but where it is already being used in its embryonic stage for a variety of commercial purposes, a strict contractarian approach would fail to support the integrity of emerging AI utilisation in commercial domains where potential users are concerned about the lack of legal protection measured by what might be considered fair and just. ¹⁷⁵ On the other hand, a characterisation approach would avoid any attempts that developers of robo-advisers might make to contractually exclude an undertaking that they will act in a user's best interest if such a relationship were to attract fiduciary status. Any such attempt would not be determinative of the scope of any fiduciary duties recognised by default and, instead, courts could balance the features of the relationship with appropriate weight to the parties’ intentions at the point of entering the service/payment-agreement against the actual conduct in question to ascertain a justification of equity's intrusion and remedy any violations of fair commercial dealing.

Cryptocurrency

Finally, the relationship between the developers of cryptocurrency networks and cryptocurrency owners is another emerging commercial relationship that fiduciary law will need to contend with and one that contract law will find difficult to regulate. The introduction of cryptocurrencies, intangible software-based assets, ¹⁷⁶ into international financial markets has raised the question of what fiduciary duties surround such assets and to what extent a contractarian approach enhances or impedes their utility in market economy. ¹⁷⁷ The fiduciary status surrounding cryptocurrencies was very recently at the forefront of common law contemplation in Tulip Trading Limited, ¹⁷⁸ (Tulip) a decision of the England and Wales Court of Appeal (EWCA). Tulip (a company) claimed to own ‘bitcoin’ valued at around $4 billion held at two different addresses on the electronic-ledger system, blockchain. Tulip alleged that the private keys to each address had been stolen in a hack, precluding it from accessing the bitcoin. Tulip contended that the developers of four bitcoin networks (the defendants) had undertaken to control the software of the network that the bitcoin was held on and had the power to safely move it to another address that Tulip could then access. Tulip contended that the feature of control and the defendant's undertaking gave rise to a new ad hoc fiduciary relationship between developers and owners of cryptocurrency to ‘positively’ ¹⁷⁹ secure jeopardised cryptocurrency.

In a startling development, Lord Justice Birss relied on Bristol and West Building Society v Mothew ¹⁸⁰ to assert that the developers of cryptocurrency networks exhibited the ‘relevant characteristics’ of a fiduciary, in that they undertook a role which bore some relationship to the interest of the cryptocurrency owners and undertook to control the network on which the cryptocurrency was stored. ¹⁸¹ What completed the analysis was a consideration of the dealings between the parties, including the defendants undertaking a role that involved making discretionary decisions on behalf of the cryptocurrency owners and in relation to their property. ¹⁸² Crucially, the developers had control of the mishandled cryptocurrency by virtue of their access to source codes; providing them a choice to abstain from conduct or positively move the assets to a new blockchain address for the purpose of safeguarding those assets from the hack. ¹⁸³ The court recognised that such a role involved the exercise of some authority when that situation arose and their role then turned into a decision-making one on behalf of all participants in the bitcoin network. The combination of authority and discretionary decision-making was held to attract the fiduciary status. ¹⁸⁴

The Tulip case is an example of characterisation applied to a novel subject area and its capacity to recognise traditional fiduciary characteristics in non-traditional circumstances. The approach encouraged the court to consider the custodianship and control demonstrated by the developers and the entrustment placed in them by Tulip, all factors reminiscent of a fiduciary relationship. The court's approach demonstrated a capacity to recognise new ad hoc relationships. However, that capacity seemed only possible because the court characterised the nature of the relationship between Tulip and the defendants by taking account of the undertaking, entrustment and authority present in the relationship. A strict contractarian approach might have ascribed little value to those features in order to pay deference to the wording of the ‘terms of service’ that might have attempted to exclude a fiduciary relationship. ¹⁸⁵ Samet suggests that the nature of some relationships can be so imbalanced that the dealings of those parties are the more reliable indicator of their intentions rather than any contractual exclusion that is mass-produced in generic payment-agreements and this was certainly the sentiment of the EWCA in Tulip. Australian courts would do well to take note of that sentiment and ponder the comprehensive characterisation practiced in Tulip. The decision highlights another excitingly novel area of commercial dealing where the contractarian approach to determining the scope of fiduciary duties did not seem ideal and reiterates the judicial need to focus on the elements, or characteristics, of the arrangement. ¹⁸⁶ To do otherwise, robs courts the opportunity to consider new and emerging commercial innovations, the extent to which those innovations create the potential for inappropriate opportunism amongst parties and where equity's protection of integrity is needed to inspire public confidence in new commercial domains. The counter-argument that doing so will be too much of an intrusion on the rights of parties seems a short-sighted attempt to preserve traditional contractarian sentiments. Tulip is an exciting example of what courts can achieve when characterising the scope of fiduciary relationships.

Conclusion

This article has examined the contractarian approach to the determination of fiduciary duties/relationships and weighed it against the doctrinal and practical functions of fiduciary duties. It has argued that the self-interested conduct encouraged in contract runs contrary to the fiduciary's duty of loyalty. The attempt to determine the scope of fiduciary duties purely within the context of contract threatens the confidence placed in fiduciary positions and allows cracks in legal regulation through which potential fiduciaries may slip. It then considered the contractarian approach in Australian common law, highlighting the primacy of contractarianism in the influential Citigroup decision, and concluded that the approach is not entirely effective at promoting confidence/fair dealing because it pays too much deference to the wording of the parties’ contractual exclusions. That deference was argued to be ineffective because fiduciary relationships/duties are recognised beyond the contract alone such as in pre-contractual dealings, having regard to the whole contract (not just the exclusion) and/or from the nature of the parties’ conduct. Contrastingly, Finn's characterisation approach was argued to be an appropriate alternative because it permits courts to afford determinative weight to more than just the contract, such as the nature of the venture/undertaking for which the relationships exists. It then supported the argument that characterisation was an appropriate alternative because it broadens the court's consideration of putative fiduciary relationships to equitable factors, in turn, giving effect to the functions of corrective justice and integrity protection. Finally, it proposed that the broader approach of characterisation is required to properly facilitate fair dealing and confidence in fiduciary relationships where they exist in emerging commercial domains such as ESG-investment, AI and cryptocurrency. An examination of those domains suggested that contractarianism might stifle the development of such innovations while characterisation can allow courts the permission needed to comprehensively assess those innovations for fiduciary features that exist beyond the contract. Overall, Australian courts may still be inclined to prioritise contractual exclusions when considering the scope of fiduciary duties/relationships in commercial contexts but this article has relied on some of the recent available evidence to argue that a contractarian approach is not the most effective way to secure fair dealing and confidence in fiduciary law but that characterisation serves as a more complex and nuanced alternative to a complex and nuanced area of law.