Transnational Fiduciary Law: Spaces and Elements

Even a cursory review shows ample evidence of the importance of fiduciary-related norms, not only both in common-law and civil-law jurisdictions, but also beyond the nation state. Additionally, many norms are not only created through national or quasi-national legislation on a supranational level—as, eg, in the European Union—, but also by non-governmental actors. Although civil law countries have no tradition of the trust as a legal institution, courts and scholars alike term relationships based on some kind of personal or professional trust ‘fiduciary’. The trust as a legal institution is gaining ground in civil-law countries, either following a national recognition of the Hague Trust Convention (eg, Italy and the Netherlands) or because they have introduced trust legislation (eg, Japan and other countries in East Asia). A number of more sector-specific rules and regulations issued by institutions and initiatives such as the OECD Principles of Corporate Governance and the UN report on ‘Fiduciary Duty for the 21st Century’ are shaping legal norms and legislation, addressing not only common-law countries, but civil-law regimes as well. 

In terms of fiduciary law and fiduciary legal theory, this development is far from being self-explanatory. Given its deep roots in the traditions and penumbra of equity law, many common lawyers perceive fiduciary law to be a subject limited to the common-law world. Moreover, many of the phenomena mentioned above are not ‘law’ in a technical sense. This does not change the fact, however, that the norms created by non-state actors such as the UN are highly influential in practice. This gives rise to two fundamental questions: (1) Is it possible to bridge the gap between common law and civil law with respect to fiduciary law? (2) How to deal with the creation of norms beyond the nation state and their relation to national law? 

These questions drive an article, ‘Transnational Fiduciary Law: Spaces and Elements’, recently published in the UC Irvine Journal of International, Transnational, and Comparative Law as part of a symposium co-hosted by Bucerius Law School’s Institute for Corporate and Capital Markets Law and UC Irvine’s Center on Globalization, Law, and Society, exploring the promises of Transnational Fiduciary Law.

Grappling with all the issues above, the article aims to make a twofold contribution: First and foremost, it tries to lay a ground stone for transnational fiduciary law as a field, existing at the intersection of transnational law and fiduciary law. It shows that, unsurprisingly, civil-law jurisdictions have to deal with the conflicts underlying fiduciary relationships, eg, conflicts of interest and other loyalty issues. Taking a core civil-law country, Germany, as as an example, the article explains how the mandate contract serves as a building block for fiduciary duties and then expands on areas outside of contract law. Secondly, it builds on theories of transnational law and transnational legal ordering to better explain the processes of norm creation beyond the nation state. The article distinguishes between horizontal and vertical transnational ordering.

Spaces of Transnational Fiduciary Law

The starting point is a blind spot left by conventional transnational legal theory. Concentrating on ‘norms beyond the nation state’, most scholars neglect that national laws themselves might be a suitable basis for the emergence of a transnational legal order. Drawing on the theory of histoire croisée and connected histories, the article argues that transnational law may come into existence through the entanglement of national laws. Spreading out from Japan, the trust has been diffused over South Korea, Taiwan and China—all countries with a strong civil-law background. Close historical ties and traditions shared among the ‘East Asian four’ have established connections between the legal systems and a strong sense of awareness as to how the respective others develop their national laws—allowing legal reforms in one country to echo changes in the other East Asian legal systems. Going far beyond standard comparative fare, these co-evolutions make it impossible to understand national norms without taking into account this background of entangled laws.

Vertical ordering of fiduciary law occurs whenever norms ‘beyond the state’ are implemented in multiple national systems. Good examples are the standards and principles concerning environmental, social, and governance (ESG) issues. These standards and principles, generated by the United Nations, the OECD and other non-state actors, contain a rich body of norms on fiduciary law, aiming at integrating stakeholder interests into the fiduciary duties of corporate boards and investment managers. They are directed at policy makers, practicioners and legislators all over the world and purport to provide benchmarks for the creation of legal norms on the national level. Given their intended scope of application and transformation into laws within multiple nation states, such frameworks potentially provide the basis for transnational legal orders and, in the present context, for transnational fiduciary law. The question remains, however, as to whether and how these norms turn from nonbinding standards and principles into law, at least from a socio-legal perspective. Pundits close to the Delaware approach in corporate law and traditional US investment managers’ fiduciary law are quick to deny the legal relevance of ESG standards. Both the loi PACTE, a recent piece of French legislation, and EU ESG-reporting standards prove them wrong, however. Nation states with stakeholder-oriented governance systems provide doors which allow so-called ‘soft law' to enter and settle down as hard fiduciary law.

Elements of Transnational Fiduciary Law

A transnational legal order is not only defined by its regional extension or geographic scope, but also by its normative elements or what may be called its intension. In other words, talking about ‘orders’ implies being able to define a legal scope. This can only be done by identifying the relevant norms at play in a specific area of legal ordering spanning a certain geographic space. Therefore, the article engages with different elements in the transnational ordering of fiduciary law.

It demonstrates that, compared to the traditional common-law view, the fiduciary duty of loyalty may develop different kinds of distinctiveness in transnational settings. Viewing fiduciary law(s) through the lens of transnational legal theory helps to shed some light on its confines, even within the common-law world. It is defined by specific elements, traditions, and the extent to which it binds social relationships. Whereas the duty of loyalty serves as the distinctive marker of fiduciary relationships in the common law, set apart from contract and contract-law principles, it cannot do comparable work in civil-law countries. Many of contract law’s shortcomings in the common law do not exist in a civil law regime. Therefore, the duty of loyalty is not distinctive in the way it is in England, the United States of America and other regions on the globe resting on equity traditions. It is distinctive, however, in that it separates fiduciary relationships from other agreements by implementing an obligation unknown to ‘regular’ contracts. 
Even in the common-law world, different transnational orders of fiduciary law may evolve. In a cross-border exchange, Australian and English Courts, at least according to many commentators and in contrast to US and Canadian courts, have excluded the duty of care from the canon of specifically fiduciary duties, leaving only the duty of loyalty as the distinct marker of a fiduciary relationship.

Thilo Kuntz is Professor of Corporate Law and Legal Theory and the Managing Director of the Institute for Corporate and Capital Markets Law at Bucerius Law School, Hamburg, Germany.