Keech V. Sandford

is a foundational case, deriving from English trusts law, on the fiduciary duty of loyalty. It concerns the law of trusts and has affected much of the thinking on directors' duties in company law. It holds that a trustee owes a strict duty of loyalty so that there can never be a possibility of ''any'' conflict of interest.

The case's importance derives partly from its historical context, with the South Sea Bubble. Lord King LC, who decided the case, replaced the former Lord Chancellor, Thomas Parker, 1st Earl of Macclesfield who was tried and found guilty in 1725 for accepting bribes and speculating with and losing client money in the South Sea crash. Lord Macclesfield had, probably not coincidentally previously held that a fiduciary was entitled to take money from a trust, invest it on their own behalf, and keep the profit, if they restored money to the trust. ''Keech'' reversed this, and the law in England and the UK has maintained a strict opposition to any possibility of a conflict of interest ever since. The remedy of granting a constructive trust over property, and the strict approach that all possibility of a conflict of interest was to be avoided, derived from the general outrage at the time.

Facts

A child had inherited the lease on Romford Market near London. Mr Sandford was entrusted to look after this property until the child matured. But before then, the lease expired. The landlord had told Mr Sandford that he did not want the child to have the renewed lease. There was clear evidence of the refusal to renew for the benefit of the infant. Yet the landlord was happy (apparently) to give Mr Sandford the opportunity of the lease instead. Mr Sandford took it. When the child (now Mr Keech) grew up, he sued Mr Sandford for the profit that he had been making by getting the market's lease.

Judgment

The Lord Chancellor, Lord King ordered Mr Sandford should disgorge his profits. He wrote,

Significance

Mr Sandford was meant to be trusted, but he put himself in a position of conflict of interest. Lord King LC was worried that trustees might exploit opportunities to use trust property for themselves instead of looking after it. Business speculators using trusts had just recently caused a stock market crash. Strict duties for trustees made their way into company law and were applied to directors and chief executive officers.

The principle of strict and absolute duties of loyalty laid down in ''Keech'' was a decisive break with prior case law, seen in ''Holt v Holt'', '' Rushworth’s Case'', and ''Walley v Walley''.(1687) 1 Vern 484

The influence of ''Keech'' has reached beyond the duties of trustees, into the fiduciary duties of company directors. The approach being taken in England (c.f. the position in Delaware corporate law) is that any possibility of a conflict of interest means a breach of trust - unless the beneficiary of the trust consented to the conflict.

See also

* Corporate law
* UK company law
*United States corporate law
*English trusts law
*Business judgment rule
*''Whelpdale v Cookson'' (1747) 1 Ves Sen 9; 27 ER 856
*''Parker v McKenna'' (1874–75) LR 10 Ch App 96, per James LJ that the rule is necessary for "the safety of mankind"
*''Re Whiteley'' (1886) 33 Ch D 347
*''Bray v Ford'' 896AC 44 at 51-52, per Lord Herschell, the no possibility of conflict rule is “based upon the consideration that, human nature being what it is, there is danger of the person holding a fiduciary position being swayed by interest rather than duty….”
*'' Regal (Hastings) Ltd v Gulliver'' 9421 ALL ER 378
*'' Boardman v Phipps'' 9672 AC 46
*''Industrial Development Consultants v Cooley'' 9721 WLR 443
*''Oxford v Moss'' (1978) 68 Cr App R 183, information is not property under Theft Act 1968 s 4
*''Guinness plc v Saunders'' 9902 AC 663
*''Bhullar v Bhullar'' 003EWCA Civ 424; 2 BCLC 241

Notes

References

*S Cretney, 'The Rationale of Keech v. Sandford' (1969) 33 Conveyancer 161
*DR Paling, 'The Pleadings in Keech v Sandford' (1972) 36 Conveyancer 159
*J Getzler, 'Rumford Market and the Genesis of Fiduciary Obligation' in A Burrows and A Rodger (eds), ''Mapping the Law: Essays in Memory of Peter Birks'' (Oxford 2006) 577
*AD Hicks, 'The remedial principle of ''Keech v. Sandford'' reconsidered' (2010) 69(2) Cambridge Law Journal 287
*''Queensland Mines Ltd v Hudson'' (1978) 18 ALR 1

{{law

United Kingdom company case law
1726 in British law
English trusts case law
1726 in Great Britain
Exchequer of Pleas cases