Rescission in the Context of Fiduciary Relationships Lionel Smith

<p><span>It is frequently said that rescission is one of the remedies available for breach of fiduciary duty. This claim is a misleading simplification. Rescission can arise in the context of fiduciary relationships in several different ways, that are importantly different from one another. First, the exercise of a fiduciary power by a fiduciary can be rescinded when the power was used improperly according to the mission for whose better accomplishment it was granted. This includes the positive proof of use for an improper purpose or following inadequate deliberation. It also includes exercise of a fiduciary power while the holder was in a conflict of self-interest and fiduciary duty, or of fiduciary duty to one beneficiary and fiduciary duty to another. These kinds of rescission therefore include the so-called ‘self-dealing’ rule. They do not depend upon a breach of duty in the Hohfeldian sense. They do not involve rescission for any defect of consent, but for the improper use of a fiduciary power as judged according to its purpose. &nbsp;A quite different kind of rescission arises in the context of fiduciary relationships under the so-called ‘fair-dealing’ rule, when a fiduciary contracts with their own beneficiary. The rescission that can arise here is not the rescission of the exercise by a fiduciary of a fiduciary power. It is the rescission of a legal act (usually consent to a contract) by the <i>beneficiary</i> of a fiduciary relationship, on the basis that their consent to that legal act was impaired. This kind of rescission is an example of rescission for mistake. Usually there is a need to show the breach of a Hohfeldian duty of disclosure, although the role of this breach is not as the basis of rescission. It is rather to show that the fiduciary is legally responsible for the mistake of the beneficiary, since that mistake arose through the fiduciary’s failure to disclose information that was pertinent to the beneficiary’s decision-making process.</span><span></span></p>