Constructive Fiduciaries?

Smith, Lionel

doi:10.1093/oso/9780198764885.003.0009

Chapter

9 Constructive Fiduciaries?

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https://doi.org/10.1093/oso/9780198764885.003.0009

Pages

249–268

Published:

September 1997

Abstract

Fiduciaries breach their trust with unfortunate regularity. When this hap pens, equity provides a range of legal responses. Moreover, recourse may be available not only against the fiduciary himself, but against those who assisted him. On the other hand, losses are often incurred, through mistake or fraud, without the presence of any fiduciary relationship. The interesting thing is that the litigation arising out of such acts is often framed in terms of fiduciary law. The goals of this Chapter are (i) to examine why this happens; (ii) to assess the continued usefulness of this kind of reasoning; and (iii) to explore whether the law is capable of effectively assisting the victims of fraud and mistake without resort to the fictional discovery of fiduciary relationships.As a starting point, take the typical facts of Bank Tejaratv. Hong Kong and Shanghai Banking Corp. (CI) Ltd.2 The plaintiff was the Iranian state bank. One of its customers, an Iranian company called Acier, had in the past imported steel into .Iran. Acier approached Tejarat to set up a letter of credit for the purchase by Acier of 4,600 tonnes of steel sheets. The letter of credit was opened by Tejarat in the amount of DM 5m, Tejarat taking 35 per cent of this amount up front from Acier. The letter was in favour of CAK (Import/Export) Ltd (‘CAK’), a Jersey company. A few weeks later, CAK sent to Tejarat’s London branch the shipping documents to show that the steel was on the way to Iran. Tejarat then authorised payment on the letter of credit, which was made to CAK via a German bank. Of course, the shipping documents were forged.

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9 Constructive Fiduciaries?

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