Keech v. Sandford
Encyclopedia
Keech v Sandford [1726] EWHC Ch J76 is a foundational case 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
.
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.
, Lord King
ordered Mr Sandford should disgorge his profits. He wrote,
. 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 officer
s.
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.
Directors' duties
Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance...
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
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
.
Facts
A child had inherited the leaseLease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...
on Romford Market
Romford Market
Romford Market is a large open market with 270 stalls, located in Romford, London Borough of Havering, east London, England. The market is open on Wednesdays, Fridays and Saturdays from 8.30 am to 4.30 pm...
near London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
. 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 ChancellorLord Chancellor
The Lord High Chancellor of Great Britain, or Lord Chancellor, is a senior and important functionary in the government of the United Kingdom. He is the second highest ranking of the Great Officers of State, ranking only after the Lord High Steward. The Lord Chancellor is appointed by the Sovereign...
, Lord King
Peter King, 1st Baron King
Peter King, 1st Baron King PC, FRS was an English lawyer and politician, who became lord chancellor of England.-Life:He was born in Exeter in 1669....
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 interestConflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
. 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 officer
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
s.
Significance
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.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.
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(1747) 1 Ves Sen 9; 27 ER 856 - Parker v McKennaParker v McKennaParker v McKenna LR 10 Ch App 96 is a UK company law case, concerning the rule against having any conflict of interest.-Facts:Mr McKenna was one of four directors of the National Bank of Ireland, a joint stock bank. In 1864 resolutions were passed to increase the capital by issuing 20,000 £50 shares...
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- Bray v FordBray v FordBray v Ford [1896] AC 44 is an English defamation law case, which also concerns some principles of conflict of interest relevant for trusts and company law.-Facts:...
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- Boardman v Phipps [1967] 2 AC 46
- Industrial Development Consultants v Cooley [1972] 1 WLR 443
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- Guinness plc v SaundersGuinness plc v SaundersGuinness plc v Saunders [1990] 2 AC 663 is a UK company law case, regarding the power of the company to pay directors. It required that whatever rules exist for payment in the company's articles, they must be strictly observed.-Facts:...
[1990] 2 AC 663*Bhullar v BhullarBhullar v BhullarBhullar v Bhullar [2003] is a leading UK company law case on the principle that directors must avoid any possibility of a conflict of interest, particular relating to corporate opportunities. It was not decided under, but is relevant for, s 175 Companies Act 2006.-Facts:Bhullar Bros Ltd was owned...
[2003] EWCA Civ 424; 2 BCLC 241