Keech v Sandford

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Keech v Sandford
Havering romford welcome sign.jpg
Court Exchequer Court
Decided 31 October 1726
Citation(s) (1726) Sel Cas Ch 61, 25 ER 223, [1558-1774] All ER Rep 230 [1726] EWHC Ch J76
Transcript(s) Full text of judgment on Bailii
Court membership
Judge(s) sitting Lord King LC
Keywords
Strict liability, fiduciary duty, conflict of interest

Keech v Sandford [1726] EWHC Ch J76 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 of accepting bribes in 1725. 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[edit]

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.[1] 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[edit]

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

Significance[edit]

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,[3] Rushworth’s Case,[4] and Walley v Walley.[5]

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.

See also[edit]

Notes[edit]

  1. ^ Keech v. Sandford [1558-1774] All ER Rep 230
  2. ^ Keech v Sandford (1726) Sel Cas. Ch.61, at 175
  3. ^ (1670) 1 Ch. Cas. 190
  4. ^ (1676) 2 Freem. 13
  5. ^ (1687) 1 Vern 484

References[edit]

  • 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