- Keech v. Sandford
Keech v. Sandford" (1726) Sel Cas. Ch.61; [1558-1774] All ER Rep 230 is a foundational case on the fiduciary duty of loyalty. It concerns the law of trustsand has affected much of the thinking on directors' dutiesin company law.
A child had inherited the
leaseon a market in Romford, 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. ["Keech v. Sandford" [1558-1774] All ER Rep 230] 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.
“A person being possessed of a lease of … a market, devised his estate to trustee in trust for the infant; before the expiration of the term the trustee applied to the lessor for a renewal for the benefit of the infant, which he refused, … there was clear proof of the refusal to renew for the benefit of the infant, on which the trustee sets a lease made to himself.”
The Lord Chancellor, Lord King ordered Mr Sandford should disgorge his profits. He wrote,
“I must consider this as a trust for the infant, … if a trustee, on the refusal to renew, might have a lease to himself, few trust-estates would be renewed to the cestui que use; though I do not say there is a fraud in this case, yet [the trustee] should rather have let it run out, than to have had the lease to himself. This may seem hard, that the trustee is the only person of all mankind who might not have the lease: but it is very proper that rule should be strictly pursued, and not in the least relaxed; for it is very obvious what would be the consequence of letting trustees have the lease, on refusal to renew to cestui que use.” ["Keech v. Sandford" (1726) Sel Cas. Ch.61, at 175]
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 influence of "Keech v. Sandford" 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.
Whelpdale v. Cookson" (1747) 1 Ves Sen 9
Bray v. Ford"  A.C. 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"  2 AC 134n
Boardman v. Phipps"  2 AC 46
Industrial Development Consultants v. Cooley"  1 WLR 443
Bhullar v. Bhullar"  EWCA Civ 424; 2 BCLC 241
Business judgment rule
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