7.1 Introduction

Law is conventionally associated with the law of the nation-state. Halliday and Shaffer’s seminal work on transnational legal ordering shows, however, that legal ordering occurs transnationally along multiple dimensions. The legal norms that order the understanding and practice of law transcend and permeate the boundaries of nation-states, which can give rise to transnational legal orders (TLOs) that reflect, penetrate, and harness national law and legal institutions.Footnote ¹

This chapter demonstrates that transnational legal ordering is particularly evident in the law of trusts. The concept of local or national trust law does not adequately capture the global and transnational flow of ideas and institutions that shape the making of modern trust law, as it exhibits variations in legal ordering beyond nation-states. Instead, modern trust law exemplifies the dynamics of TLOs, because modern trust norms are themselves transnational: They often vary in their geographic and substantive legal scope, producing multiplicities of legal orders that invariably transcend, span, and permeate nation-states, including both offshore and onshore jurisdictions, as well as both common law and civil law jurisdictions.

This chapter focuses on the processes through which modern trust norms develop and flow across borders to become a substantive body of transnational and comparative trust law. It discusses how the making of modern trust law at the transnational, national, and local levels develops dynamically over time, by reference to two recent phenomena that illustrate the interplay of trust norms across national boundaries. The first phenomenon pertains to the rise of global wealth, which is driving offshore trust jurisdictions to adapt and embrace innovations and transformations in trust law in order to remain competitive in the holding and management of that wealth. This has prompted some onshore jurisdictions to adopt certain offshore modifications, a practice Lionel Smith calls the “onshoring of the offshore.”Footnote ² Second, the interplay of trust norms across national boundaries is evident in the rise of the civil law trust in East Asia, which has led both civil and common law jurisdictions to rethink the core elements of the trust. These phenomena have prompted scholars to explore how transnational trust law has developed through horizontal interactions among onshore and offshore jurisdictions and civil law and common law jurisdictions. This chapter concludes that examining the trust law terrain would make a significant contribution to TLO theory, because such an examination would go far beyond the traditional categorization of laws as civil versus common, or Asian versus Anglo-American, and demonstrate that transnational legal ordering processes apply in the making of modern trust law.

Although this chapter focuses on the horizontal dimensions of transnational legal ordering, it is worth noting that, in addition to horizontal dimensions, there are also vertical dimensions of transnational legal ordering in the context of modern trust law. Vertical ordering of trust law occurs whenever non-state actors purport to provide benchmarks for the creation of trust norms on the national level within multiple national states. A notable example is the Hague Convention on the Law Applicable to Trusts and on their Recognition (“Hague Trusts Convention”).Footnote ³ The Hague Trusts Convention was developed by the Hague Conference on Private International Law, an international organization with ninety-one members, with another sixty-five nonmember states being parties to conventions that it has developed. As the trust institution was developed by courts of equity in common law jurisdictions, civil law jurisdictions – which do not have the concept of a trust (or equitable proprietary interest) as part of their domestic law – could not give effect to a trust by simple analogy to existing civil law institutions. Aiming to address this problem and providing guidance on choice of law rules in cross-border trusts disputes, the Hague Trusts Convention purports to “establish common provisions on the law applicable to trusts and to deal with the most important issues concerning the recognition of trusts.”Footnote ⁴ Notably, it proposed a harmonized definition of the trust:

Insofar as the Hague Trusts Convention provides benchmarks for the creation of trust norms on the national level in multiple states, it is a basis for transnational legal ordering of the modern trust law. Vertical ordering takes place to the extent that trust norms created by the Hague Trusts Convention trickle down into national legal systems and gain normative force comparable to national law. Because, however, this sort of vertical ordering has played a comparatively minor role,Footnote ⁶ this chapter focuses upon horizontal interactions that have shaped trust law as a transnational body of law.

7.2 Trust Law as a Transnational Body of Law: Offshore Innovations and Onshore Modifications

7.3 Trust Law as a Transnational Body of Law: Civil Law Trusts in East Asia

The transplantation of the common law trust to civil law jurisdictions first took place in Europe and then in East Asia. Following national recognition of the Hague Trusts Convention by countries such as Italy and the Netherlands, the trust as a legal institution has gained ground in other civil law countries in Europe.Footnote ³⁸ In East Asia, Japan historically led the way in introducing the Western legal system and ideas to the region.Footnote ³⁹ Many civil law jurisdictions in East Asia have introduced the trust by legislation.Footnote ⁴⁰ Starting in Japan, the trust as a legal institution spread via South Korea and Taiwan to China.Footnote ⁴¹ As the Japanese economy flourished after the Second World War, trust banks emerged to focus mainly on commercial trust activities, such as pension trusts or loan trusts to raise funds for infrastructure projects. The Japanese experience in the reception of the trust inspired South Korea, Taiwan, and China, and trust laws were enacted to regulate trust and investment companies. Most of the theoretical obstacles to the reception of the trust in these civil law jurisdictions stem from the perceived incompatibility of the trust with civil law property concepts. These include the absolute nature of ownership, the doctrine of numerus clausus, the absence of certain key trust components in indigenous law (such as the fiduciary duty of loyalty), and the existence of different remedial rules in civil law jurisdictions, to name but a few. While it is easy to lift specific rules pertaining to the trust concept and codify it in a trust statute, the presence of the aforementioned theoretical obstacles made the transplantation of the system of laws pertaining to the trust a mammoth task. A process of transnationalization has emerged regarding the conceptual foundation of the trust, the duties requiring a trustee’s loyal behavior, and remedies for breaches of trust. What follows is an examination of how these trust norms have settled and become aligned at the transnational level in the East Asian jurisdictions of Japan, South Korea, Taiwan, and China.Footnote ⁴²

7.4 Conclusion

This chapter uses TLO theory to explore the processes through which modern trust law has developed transnationally. It focuses on the horizontal interactions among onshore and offshore jurisdictions, and civil law and common law jurisdictions, as the driver of transnational legal ordering of trust law. Both offshore and onshore jurisdictions, as well as both common law and civil law jurisdictions, have developed rules to regulate the voluntary arrangement involving a settlor, trustee, and beneficiary that is known as the trust. The TLO concept as applied to trusts captures the creation, diffusion, and modification of trust norms across national borders, and it fosters a deeper understanding of the nature of the trust and the process of lawmaking and application regarding trusts in a globalized world.

The modern transnational trust, whether offshore or onshore, is almost antithetical to our conventional understanding of the English trust wherein the settlor drops out of the picture and the trustee assumes equitable obligations to the beneficiaries, who have proprietary rights attached to the trust fund. The transnational dimension of the trust shows that the English trust is but one type of trust; it is definitely not the only acceptable rendition of the trust concept. Only some features of the trust constitute features that are minimally necessary for a civil law trust to exist and function. These observations suggest that regardless of their differences in traditions and technical approaches, from a functional and pragmatic perspective, the divide between onshore and offshore, and between common law and civil law, may be crossed. Nonetheless, given the varieties of the modern transnational trust, a single, unified theoretical approach to trusts is unlikely to produce a better understanding of the institution.

8.1 Introduction

East Asia provides fertile soil for cross-fertilization of theories of transnational legal ordering and fiduciary law.Footnote ¹ Modern fiduciary law provides underlying principles in a broad array of fields, including corporate and financial transactions as well as various context of workaday lives.Footnote ² In East Asian jurisdictions, at least, there are also historical dimensions, as these Western fiduciary norms were received as part of modernization in the nineteenth to twentieth century. While East Asian jurisdictions incorporated modern notions within the traditional or indigenous notion of loyalty, the forms of transplants varied depending on the patterns of modernization and the reception of Western law. The course of history reveals constant interactions of various fiduciary norms across jurisdictional borders, and the patterns were made complex by historical events that included the shifting colonial pressures and economic hegemony, wars, revolutions, and financial crises, as well as legislative imitation and academic exchange of ideas. This chapter attempts to portray this complex process on the East Asian canvass and understand its mechanism against the theoretical framework of transnational legal orders.

Fiduciary norms – particularly those found in agency law, trust law, and company law – were among the most important legal norms received by East Asian countries in the late nineteenth to early twentieth century. Though civil law jurisdictions rarely used the terms “fiduciary” and “duty of loyalty” until recently, their legislation routinely contained the notion of duty of care and the regulation of conflicted transactions. In this chapter, the term “fiduciary norm” is used loosely to include both specific doctrines, such as those concerning the duties of loyalty and care, and normative statements concerning who should be recognized as fiduciaries, whom they should serve, and how those rules should be enforced. The term “norm” broadly encompasses rules, principles, and customary notions that relevant parties perceive as binding, although not necessarily legally enforceable.

In East Asia, modernization in the late nineteenth century onward was carried out by the introduction of the Western legal system and concepts. This has meant that indigenous East Asian norms have seldom been discussed in legislation or legal scholarship. Nevertheless, traditional values in the region contain elements that overlap with modern fiduciary notions. Two strands of loyalty form part of traditional Confucian thought: loyalty to familial elders (孝: ko in Japanese and xiào in Mandarin Chinese) and loyalty to authority (忠: chu in Japanese and zhōng in Mandarin). Between loyalty to the family and loyalty to the State, there is room in this traditional framework for loyalty to the corporation. Teemu Ruskola has detected a parallel between modern norms of fiduciary duty, on the one hand, and the head of the household’s duty to the household corporation as its manager or as a trustee for his heirs in late Imperial China, on the other.Footnote ³ These status-based notions have played an important role in modern social and economic life in Japan and East Asia. Among other things, they have created tensions in debates on the reform of fiduciary governance in the region.

Within East Asia, multiple strands of received fiduciary norms have interacted with each other and with indigenous notions of loyalty. Section 8.2 of this chapter explores the transnational dimension of these processes from the late nineteenth to the late twentieth century. From there, the discussion will chart the increasing frequency, intensity, and complexity of interactions among fiduciary norms from the 1990s to the present day. Section 8.3 will discuss these dynamics against the backdrop of greater cross-border transactions and jurisdictional competition aiming to attract transnational capital, as well as the impact of regional and global crises. Lawyers and policymakers in East Asian jurisdictions embraced different fiduciary models with mixed motives and varying degrees of enthusiasm, as their attractiveness shifted along with changes in market dynamics both domestically and globally.

Market dynamics do not, however, fully explain the transnational development of fiduciary norms in East Asia. In addition, differences between common law and civil law traditions have inflected these transnational processes. On the one hand, this chapter will discuss Hong Kong and Singapore collectively as “common law East Asia,” representing East Asian jurisdictions where common law influence predominates. On the other hand, Japan, Taiwan, Korea, and mainland China will together be discussed as “civil law East Asia” to represent jurisdictions where the influence of civil law has been more pronounced. Although such categorization is inevitably an oversimplification, I do so for the sake of exposition. Section 8.2 will show that civil law East Asia has also received common law influences to a significant degree. Section 8.3 will suggest that within common law traditions, the differences between American and British approaches have had important consequences.

Against this descriptive backdrop, Section 8.4 will draw upon the theory of transnational legal ordering to examine the factors and mechanisms that have shaped the reception, transformation, synchronization, and divergence of fiduciary norms in domestic, regional, and international contexts.Footnote ⁴ Underlying the transnational developments are the change in the pattern of social interactions from status-based one to more particularized and functional ones, the transformation in the forms of norms from rule-based ones to standard-based ones, and the shifts in the regulatory approach from the reliance on hard law to a greater use of soft law. Each of these transformations facilitated the broader reception of fiduciary norms in East Asian jurisdictions of different social backgrounds and legal traditions. The inquiry will point to the emerging trend in East Asia where evolving corporate and trust laws influence fiduciary norms in nonprofit and family-related areas.

8.2 Modernization and Reception: The Late Nineteenth Century to the Late Twentieth Century

The modern form of fiduciary law arrived in East Asia in the late nineteenth to early twentieth century, as Western imperial powers advanced in the region and Asian countries were compelled to respond. The process of modernization through Westernization began in Japan by the introduction of the civilian codes in the 1890s. Parallel efforts started soon after in China, and although the civilian-inspired legislation was discontinued on the mainland after Communist Revolution in late 1940s, it was carried over to Taiwan. Meanwhile, Common law trusts were introduced in Japan toward 1920s, and a set of legislation reflecting both civilian and common law influence was extended to Korea and Taiwan that it eventually colonized. The civilian influence endured after Japan lost the World War II and its colonial rule was over, while American influence became pronounced in the region. In these jurisdictions, the fiduciary norms are characterized by their mixed sources and nature. By contrast, the reception of fiduciary law in Hong Kong and Singapore was more consistent. Under British rule, these jurisdictions adopted English equity jurisprudence and UK-style legislation. This English legacy, bringing about certainty and predictability for overseas investors, has been used to advance the status of these two jurisdictions as international financial centers in more recent years. These historical courses of reception laid the foundation for the translational evolution of fiduciary norms that accelerated in the 1990s and onward.

8.3 Greater Transnationalization: Reforms Since the 1990s

8.4 National, Regional, and Transnational Fiduciary Orders

The historical account thus far shows that various strands of fiduciary norms interacted to create a dynamic evolution of legal orders across East Asia. They were derived from civil law, American and English common law, and indigenous sources sometimes dating back centuries. The theory of transnational legal ordering provides a framework for evaluating these complex patterns of fiduciary norms’ rise and transformation across jurisdictional borders, their normative settlements and institutional underpinnings, and the interactions among various components or subsets of fiduciary norms.Footnote ¹⁴⁰

8.5 Conclusion

In her 2014 article exploring the possibility of universal fiduciary principles, Tamar Frankel sought to bridge differences between the common law and civil law jurisdictions.Footnote ¹⁷⁰ Although evolution is not yet complete, the East Asian example suggests that fiduciary norms may gradually settle upon certain standards that cut across the divide between common law and civil law. In evaluating the degree of settlement (or lack thereof), the theory of transnational legal ordering provides a useful analytical framework for the detailed understanding and nuanced explanation of the evolution of fiduciary law across jurisdictional borders.

Fiduciary law’s development in East Asia, which spans more than a century, provides a particularly rich field for exploring processes of transnational legal ordering. The historical development of East Asian fiduciary law contains certain unique features. The conspicuous role of national law set fiduciary law apart from other examples of transnational legal ordering.Footnote ¹⁷¹ Indigenous loyalty norms have uniquely worked with local conditions, as they facilitated the transnational settlement of fiduciary norms, but at the same time created tensions implicating modern reform debates and implementation of reforms. To the extent that the theory of transnational legal ordering has been shown to provide a valuable framework of analysis for this area of law that is historically unique, dynamically changing, and attracting attention worldwide, this chapter has confirmed its validity and broad application.

9.1 Introduction

Transnational law is a far-from-settled concept.Footnote ¹ There is uncertainty as to what the term actually means,Footnote ² and how it differs from other concepts,Footnote ³ such as national legal ordering or global law.Footnote ⁴ For early theorists in the field, the essence of transnational law was its role in regulating conduct or events that crossed national boundaries.Footnote ⁵ More recent scholarship, however, has focused not on what is being regulated,Footnote ⁶ but rather on how laws and norms are transmitted between supranational and local levels.Footnote ⁷ Nonetheless, a common theme underpinning most conceptions of transnational law is that it involves social problems and solutions that transcend any individual state,Footnote ⁸ and that, as a result, “[l]aw can no longer be viewed through a purely national lens.”Footnote ⁹

Corporate governance, with its array of public and private actors,Footnote ¹⁰ fits naturally within the concept of transnational law.Footnote ¹¹ Financial markets today are global and interconnected,Footnote ¹² and transnational law provides a valuable framework for examining a range of contemporary corporate governance issues. Although capital market structures across jurisdictions vary significantly,Footnote ¹³ globalization increases the risk of similar or shared problems, which can be exacerbated via contagion across financial markets.Footnote ¹⁴ In this environment, the corporation has taken on a greater societal role.Footnote ¹⁵ Indeed, according to The British Academy’s influential Future of the Corporation project, the main purpose of business today is “to solve the problems of people and planet profitably.”Footnote ¹⁶

A spate of corporate law scandals and crises in recent decades has highlighted the transnational nature of contemporary corporate governance. At the beginning of the twenty-first century, scandals, including Enron and WorldCom in the United States,Footnote ¹⁷ occurred around the world.Footnote ¹⁸ Although these scandals appeared in multiple jurisdictions, they were arguably isolated events with different origins and motivations.Footnote ¹⁹ The same cannot be said of the 2007–09 global financial crisis, which exemplified the risk of contagion across interconnected financial markets.Footnote ²⁰ This risk is again apparent in the continuing economic fallout from the COVID-19 crisis.Footnote ²¹

Not only can corporate governance problems transcend national boundaries, so too can their solutions, which often involve regulatory efforts at both a national and transnational level.Footnote ²² Discerning the causes of these crises is rarely an easy feat, yet the framing of the underlying problems can be critical to the particular legal solutions adopted.Footnote ²³

Corporate governance today is highly fragmented; it has been described as “a braided framework encompassing legal and non-legal elements.”Footnote ²⁴ These elements operate to “constrain and enable” the behavior of key corporate players, which is an important aspect of transnational legal orders.Footnote ²⁵ This chapter explores, from a transnational perspective, the transmission of laws and norms that constrain directors’ conduct and enhance corporate accountability,Footnote ²⁶ focusing on two key examples of such accountability mechanisms – fiduciary duties and corporate codes. The chapter begins with a comparative and historical examination of directors’ fiduciary duties in the United States, the United Kingdom, and Australia. It analyzes whether the transfer of fiduciary law to these common law jurisdictions has resulted in a unified approach to directors’ duties, as is often assumed by studies such as the law matters hypothesis.Footnote ²⁷ The chapter then moves on to discuss the modern phenomenon of national corporate codes, which originated in the United Kingdom in the early 1990s. The chapter considers the global transmission of these codes and their role as “norm creators.” It also assesses the transmission of these laws and norms against the backdrop of convergence and path dependence theories in corporate governance.

9.2 Transmission of Law through Legal Transplantation and Imitation: Uncommon Common Law Approaches to Directors’ Fiduciary Duties

Fiduciary duties constitute one of the most important legal mechanisms for constraining the conduct of company directors. The law of fiduciary duties was, from a historical perspective, a distinctly national affair.Footnote ²⁸ The classification of company directors as “fiduciaries” represented a central pillar of early British law, developing by analogy to trustees and agents,Footnote ²⁹ who were considered archetypal fiduciaries.Footnote ³⁰ The famous 1742 UK decision, Charitable Corp v. Sutton (“Sutton’s case”),Footnote ³¹ laid the groundwork for modern directors’ duties, with Lord Hardwicke LC stating that directors were bound to execute their responsibilities with “fidelity and reasonable diligence.”Footnote ³²

There are strong similarities in the approach to directors’ fiduciary duties across common law jurisdictions, such as the United Kingdom, the United States and Australia.Footnote ³³ This is hardly surprising, given the United Kingdom’s colonial past.Footnote ³⁴ The similarities are often clear historical examples of legal transplantationFootnote ³⁵ of British law to other common law jurisdictions.Footnote ³⁶ In Delaware, the most important US state for the purposes of corporate law,Footnote ³⁷ directors’ duties of loyalty and care today are the direct descendants of Lord Hardwicke’s description of eighteenth-century British directors’ responsibilities.Footnote ³⁸

Similarities between common law jurisdictions were an important aspect of La Porta et al.’s influential law matters hypothesis, promulgated over two decades ago.Footnote ³⁹ This hypothesis had significant implications for the “settlement and unsettlement of legal norms”Footnote ⁴⁰ within a transnational legal ordering framework. The hypothesis claimed that investor legal protection is directly linked to a jurisdiction’s financial development,Footnote ⁴¹ and predicted that jurisdictions with superior investor protection would develop deep dispersed capital market structures, such as those in the United States and the United Kingdom.Footnote ⁴² “Legal origins” played a central role in the hypothesis, since the study concluded that common law jurisdictions within the British “legal family”Footnote ⁴³ provided stronger investor protection than civil law jurisdictions.Footnote ⁴⁴ One feature of the common law system that the study viewed as particularly advantageous was the central role of independent judges, who rely on legal reasoning to decide cases.Footnote ⁴⁵ Judicial reasoning is a central feature of the development of fiduciary law.

The law matters hypothesis contributed to a major debate in comparative corporate governance as to whether corporate law regimes would convergeFootnote ⁴⁶ or whether, as path dependence theorists argued, legal differences around the world would persist.Footnote ⁴⁷ The law matters hypothesis provided powerful support for convergence theory,Footnote ⁴⁸ since it assumed that jurisdictions with substandard legal rules would follow the siren song of economic efficiency and adopt superior rules by means of voluntary imitation.Footnote ⁴⁹

The law matters hypothesis proved to be extraordinarily influential in defining a set of problems and their solutions.Footnote ⁵⁰ It also had real-world consequences in terms of changes to legal rules and norms. On the premise that good corporate governance can improve national economic performance, major international organizations, such as the Organisation for Economic Co-operation and Development (“OECD”), developed model corporate governance rules for ready international transplantation.Footnote ⁵¹ The World Bank also adopted the methodology of the law matters study, applying it to a number of working papers, including the bank’s Doing Business reports.Footnote ⁵² These supranational organizations sometimes required corporate governance reforms as a condition of financial assistance.Footnote ⁵³

In spite of its influence, the law matters hypothesis attracted widespread academic criticism.Footnote ⁵⁴ Much of the censure related to the study’s Manichean divide between common law and civil law systems.Footnote ⁵⁵ Another, albeit less prominent, criticism was that the hypothesis overstated the similarities within the common law world.Footnote ⁵⁶

Although it is often assumed that there is a unified common law approach to fiduciary duties, there are, in fact, significant granular differences at a national level, which, in accordance with transnational legal theory, is also reflected in actual legal practice at the local level. These differences across common law jurisdictions illustrate how supposedly shared laws and norms can diverge in their operation across jurisdictions and over time.Footnote ⁵⁷

For example, although US corporate law descended from English company law, each legal system had a different organizational starting point.Footnote ⁵⁸ These different starting points radically altered UK and US corporate law trajectories. Modern UK company law derives from the unincorporated joint-stock company, which was a quintessentially private body, with strong contractual elements.Footnote ⁵⁹ US corporate law, on the other hand, developed from a very different type of organization, the British royal chartered corporation, which had strong quasi-public roots and strict mandatory rules limiting directors’ actions.Footnote ⁶⁰ The effect of these different organizational starting points – and subsequent backlash against those starting points – affected the scope of directors’ discretion and the role of fiduciary duties.Footnote ⁶¹ Whereas, for instance, early American general incorporation law statutes tightly constrained directors’ conduct,Footnote ⁶² this changed in the late nineteenth-century era of competition for corporate charters.Footnote ⁶³ It was during this period, that Delaware substituted the corporation, rather than the state, as primary “law-maker,”Footnote ⁶⁴ resulting in a new vision of US corporate law as inherently “enabling.”Footnote ⁶⁵

Another difference across common jurisdictions relates to the sources of modern directors’ duties. In Delaware, directors’ fiduciary duties, true to their historical roots, are purely equitable.Footnote ⁶⁶ There has been a shift, however, under modern UK and Australian law toward statutory directors’ duties.Footnote ⁶⁷ UK directors’ statutory duties, which were introduced in 2006,Footnote ⁶⁸ eradicate and replace common law and equitable duties,Footnote ⁶⁹ whereas Australia’s statutory dutiesFootnote ⁷⁰ operate in addition to the general law.Footnote ⁷¹

The jurisdictions also adopt different approaches as to which directors’ duties should, and should not, be classified as “fiduciary.” US corporate law tends to regard all directors’ duties, including the duty of care, as fiduciary in nature; however, UK and Australian courts only characterize proscriptive duties (or duties requiring “self-denial”)Footnote ⁷² as fiduciary.Footnote ⁷³ The jurisdictions differ too on the extent to which stakeholder interests are implicated in directors’ duties. Whereas Delaware and Australia have traditionally adopted a shareholder-centred approach to directors’ duties, the United Kingdom now applies an “enlightened shareholder value”Footnote ⁷⁴ approach to corporate governance, which requires directors to consider the interests of a wide range of stakeholders when making business decisions.Footnote ⁷⁵ India, another common law jurisdiction, goes even further in this regard, adopting a “pluralist approach” that recognizes the interests of both stakeholders and shareholders, “without necessarily indicating a preference to either.”Footnote ⁷⁶

The stringency of fiduciary duties is affected by the scope of certain safe harbors available to directors.Footnote ⁷⁷ A disparity across jurisdictions in this regard is particularly evident in the context of the duty of care.Footnote ⁷⁸ In Delaware, for example, directors receive a high level of protection against monetary liability for breach of the duty of care as a result of the generous US business judgment rule.Footnote ⁷⁹ Even gross negligence will not generally attract liability,Footnote ⁸⁰ given the operation of Del GCL § 102(b)(7), which expressly authorizes the inclusion of exculpation clauses in corporate charters.Footnote ⁸¹ It also seems that the bedrock of Delaware fiduciary law,Footnote ⁸² the duty of loyalty, can itself now be waived in some circumstances.Footnote ⁸³ The same is certainly not true of the UK and Australian legal regimes, which offer far less protection to directors for breach of their duties.Footnote ⁸⁴

Enforcement of directors’ duties is another important way in which these jurisdictions differ from one another. Although private enforcement is the norm in the United States and the United Kingdom,Footnote ⁸⁵ Australian corporate law relies predominantly on a public enforcement regime, whereby the business regulator, the Australian Securities and Investments Commission (“ASIC”), is responsible for enforcing statutory directors’ duties. It appears that this mode of enforcement has also affected the substance of directors’ duties in Australia, shifting them from the realm of private duties to public duties.Footnote ⁸⁶

These differences relating to fiduciary duties in jurisdictions that share a common law heritage sit uneasily with the law matters hypothesis. Furthermore, the kind of global convergence in corporate law rules, and the accompanying shift in capital market structure, which was predicted by the law matters hypothesis, has not eventuated. Concentrated share ownership has, in fact, increased and continues to be a far more common capital market structure around the world than dispersed ownership.Footnote ⁸⁷

These fiduciary duty differences are more consistent with a path dependence theory of legal development.Footnote ⁸⁸ Path dependence stresses the importance of historical, political, and social factors in the settling of laws and norms.Footnote ⁸⁹ Each of these factors is important in explaining fiduciary duty differences across common law jurisdictions. Legal change in this area has also often occurred as a result of commercial backlash and strategic responses of regulated parties themselves.Footnote ⁹⁰

Finally, corporate scandals and crises are prime drivers of legal change. They often result in jurisdictionally tailored regulatory responses,Footnote ⁹¹ which can differ depending upon the framing of the underlying problem that needs to be addressed.Footnote ⁹² Transmission of law by means of transplantation or voluntary imitation is, therefore, by no means the end of the story. The transmitted law will remain dynamic and continually evolving in local context. This is inevitable, given the possibility of different interpretations of the law at a local level, different priorities concerning policy and enforcement, and the way in which commercial pushback can actually alter the contours of the law.

9.3 The Transnational Impact of Corporate Codes as Norm Creators

The behavior of corporate actors is not only shaped by enforceable national laws. It is also shaped by social normsFootnote ⁹³ and governance practices, which may indeed be more important than formal legal rules in affecting the behavior of certain corporate actors, including directors.Footnote ⁹⁴

Corporate codes can be influential sources of norms that affect directors’ behavior.Footnote ⁹⁵ These codes, which provide a sharp contrast with state-made law,Footnote ⁹⁶ have become an important feature of modern corporate governance, and the norms they create are in a state of continuous development.Footnote ⁹⁷ Two types of code are particularly significant in this respect – corporate governance codes (“governance codes”) and shareholder stewardship codes (“stewardship codes”).

In establishing norms associated with governance procedures and practices, these codes operate in a parallel universe to corporate law. However, they can also interact in complex ways with mandatory corporate law rules, such as fiduciary duties,Footnote ⁹⁸ to drive greater international convergence or divergence. Whereas fiduciary law constitutes an ex post species of regulation, governance codes operate as a form of ex ante self-regulation, which can determine and transmit societal expectations of corporate actors.Footnote ⁹⁹ Such codes can affect the scope of directors’ discretion; the balance of power within the corporation; the nature of the directors’ obligations; and enforcement mechanisms.

Corporate codes epitomize the movement away from “legal rules standing alone to legal rules interacting with non-legal corporate processes and institutions,”Footnote ¹⁰⁰ which characterizes modern corporate governance. Furthermore, the lines between formal legal rules and norms can sometimes be blurred and hard to define,Footnote ¹⁰¹ and there can be movement in either direction between hard law, comprising enforceable legal rules, and soft law, encompassing norms. For example, the appointment of independent directors on US listed public company boards was a prevalent business norm well before it became mandated under the 2002 reforms following Enron’s collapse.Footnote ¹⁰²

Interesting tensions between hard law and soft law are also apparent at an international level. Many common law jurisdictions – though not the United States – protect certain fundamental shareholder rights by mandatory rules in their corporations legislation.Footnote ¹⁰³ The vision of Delaware corporations law as inherently “enabling”Footnote ¹⁰⁴ has restricted the level of mandatory rules under US state corporations law.Footnote ¹⁰⁵ As a result, much of US corporate law is made, not by the state but rather by private ordering by corporate actors.Footnote ¹⁰⁶ In recent times, institutional investors have sought to use private ordering to transplant numerous mandatory shareholder protection rules, embedded by statute in other common law jurisdictions, into the United States on a company-by-company basis.Footnote ¹⁰⁷ This US trend demonstrates the use of private ordering by shareholders as a self-help mechanism. It suggests that, in an era of globalized investment, institutional investors have become increasingly aware of comparative legal rights across jurisdictions,Footnote ¹⁰⁸ and it has effectively rendered the United States an importer, rather than exporter, of corporate law.Footnote ¹⁰⁹ The trend also represents a challenge to transnational law assumptions about the meaning of “globalized business interests,”Footnote ¹¹⁰ since it highlights the fact that there is a power struggle in this regard between formidable global institutional investors and US boards of directors.Footnote ¹¹¹

Corporate codes have been responsible for the global transplantation of norms over the last few decades. Governance codes can be traced back to the influential 1992 UK Cadbury Committee Report.Footnote ¹¹² Although the concept of “corporate governance” had entered the US lexicon during the 1970s,Footnote ¹¹³ it was not embraced in other common law jurisdictions, such as the United Kingdom and Australia, until the beginning of the 1990s.Footnote ¹¹⁴ The Cadbury Committee Report was a major catalyst in its uptake.Footnote ¹¹⁵

The Cadbury Committee’s Final Report was accompanied by a Code of Best Practice.Footnote ¹¹⁶ The famous “comply or explain”Footnote ¹¹⁷ aspect of many governance codes was bolstered shortly afterward by an amendment to the London Stock Exchange Listing Rules, requiring all listed companies to include a statement in their annual reports as to whether they fully adhered to the Code of Best Practice.Footnote ¹¹⁸ Although adherence to the code was not mandatory, any divergence required an explanation. The current version of this code is the 2018 UK Corporate Governance Code.Footnote ¹¹⁹

Since the Cadbury Committee laid down the blueprint for governance codes, their transmission around the world has been remarkable. In 1999, only twenty-four countries were reported to have a national governance code.Footnote ¹²⁰ This number rose to sixty-four by 2008 and to ninety-three by 2015.Footnote ¹²¹ Almost all of the forty-nine jurisdictions evaluated in a 2019 OECD surveyFootnote ¹²² had a national governance code or principles,Footnote ¹²³ with 83 percent of those operating on a “comply or explain” basis.Footnote ¹²⁴ Yet, the exceptions in the OECD survey were notable. Neither the United States nor India had adopted a national governance code.Footnote ¹²⁵ China was also an outlier,Footnote ¹²⁶ though for different reasons. China has a national governance code in place, but, unlike most other countries’ codes, which operate on a voluntary, “comply or explain” basis, the Chinese provisions are mandatory.Footnote ¹²⁷

What accounts for the success of governance codes as a regulatory technique and their rapid transmission? One important factor was timing. The 1990s, which have been described as “the decade of corporate governance,”Footnote ¹²⁸ witnessed a decline in capital market segmentation, accompanied by the rise of globalized capital markets and investment strategies.Footnote ¹²⁹ This proved to be a ripe environment for reception of norms relating to improved governance practices and procedures.

The spread of governance codes was also aided by a development involving the vertical transmission of norms. In 1999, when only twenty-four countries had adopted a UK-style governance code,Footnote ¹³⁰ the OECD released the first version of its supranational Principles of Corporate Governance.Footnote ¹³¹ As one scholar has noted, the OECD principles were not plucked “from thin air.”Footnote ¹³² Rather, they relied on national governance codes, predominantly from common law jurisdictions like the United Kingdom.Footnote ¹³³ As the OECD principles received increased attention at the supranational level, the rate of horizontal transmission of governance codes accelerated. This two-directional dynamic effectively transformed the Cadbury Committee’s original governance code into an international standard.Footnote ¹³⁴ Top-down vertical transmission of norms by transnational networks, such as the OECD,Footnote ¹³⁵ became increasingly visible during the 2007–09 global financial crisis.Footnote ¹³⁶ These developments in contemporary corporate regulation epitomize the fact that transnational legal ordering occurs “multi-directionally and recursively up from and down to the national and local levels.”Footnote ¹³⁷

Corporate scandals and crises have had a central role in the development of corporate codes. In the case of governance codes, for example, the Cadbury Committee’s relevance was heightened by a wave of British business scandals that occurred during the committee’s deliberations.Footnote ¹³⁸ The United Kingdom also became the first jurisdiction to adopt a national stewardship code,Footnote ¹³⁹ which was a direct response to the global financial crisis.Footnote ¹⁴⁰ The original UK Stewardship Code was adopted in 2010,Footnote ¹⁴¹ with revised versions issued in 2012Footnote ¹⁴² and 2020.Footnote ¹⁴³

Stewardship codes highlight the important link between problem framing and regulatory outcomes.Footnote ¹⁴⁴ For example, a common view in the United States in the aftermath of the global financial crisis was that shareholders contributed to the crisis, by exerting pressure on corporate managers to engage in excessive risk-taking to increase profitability.Footnote ¹⁴⁵ Yet, a very different interpretation of the crisis existed in the United Kingdom. The prevalent UK view was that the real problem had been the failure by institutional investors to participate actively in corporate governance and to provide an effective counterweight to excessive managerial risk-taking.Footnote ¹⁴⁶ The 2010 UK Stewardship Code was designed to address this problem.Footnote ¹⁴⁷

The horizontal transmission of stewardship codes has, like governance codes, been rapid and widespread. Since 2010, more than twenty countries have followed the United Kingdom’s lead in adopting stewardship codes, and that number is growing.Footnote ¹⁴⁸ Like the original UK Code, most stewardship codes around the world operate on a “comply or explain” basis, and signing up to such codes is also usually voluntary.Footnote ¹⁴⁹

Asian jurisdictions, in particular, have been eager to embrace stewardship codes.Footnote ¹⁵⁰ This is in spite of the fact that the structure of Asian capital markets is fundamentally different from the UK capital market structure. Unlike UK listed companies, where the vast majority of shares are held by institutional investors,Footnote ¹⁵¹ Asian listed companies typically have concentrated ownership structures, with family members or the state as controlling blockholders.Footnote ¹⁵² This underlying difference can skew the operation of these codes, so that any similarity to the original UK model is superficial only.Footnote ¹⁵³ For example, it has been argued that Singapore’s “near carbon-copy” of the UK Stewardship Code in fact upends the UK model’s goal of enhancing institutional investor participation.Footnote ¹⁵⁴ Instead, Singapore’s version can operate to bolster the existing power of majority shareholders in state-controlled and family-controlled companies, thereby potentially reducing the incentives of institutional investors to participate in corporate governance.Footnote ¹⁵⁵

Although the United Kingdom has been the progenitor of governance codes and stewardship codes around the world, the adopted codes are by no means uniform. There is considerable divergence in the substance of these codes,Footnote ¹⁵⁶ which is attributable to a range of factors, including the issue of “who writes the rules.”Footnote ¹⁵⁷ Divergence is particularly noticeable in terms of the emphasis given to environmental, social and governance (ESG) in modern codes.Footnote ¹⁵⁸

A range of different organizations have responsibility for the authorship of corporate codes. They include government agencies, stock exchanges, and business organizations.Footnote ¹⁵⁹ These diverse origins can result in major differences concerning the stringency and enforceability of codes.Footnote ¹⁶⁰ They can also affect the content of the codes, including whether the codes emphasize shareholder or stakeholder interests.Footnote ¹⁶¹ For example, the United States does not have a national governance code. However, in 2017, the Investor Stewardship Group (“ISG”)Footnote ¹⁶² issued the US Corporate Governance Principles,Footnote ¹⁶³ which are a set of purely voluntary, self-regulatory norms concerning governance. ISG is a collective of some of the largest US-based and international asset owners and managers,Footnote ¹⁶⁴ including several activist hedge funds.Footnote ¹⁶⁵ Given the identity of the actors behind the US governance principles, it is hardly surprising that the norms they contain reflect a strongly private, shareholder-focused conception of corporate governance and directors’ duties.Footnote ¹⁶⁶

These US norms provide a striking contrast with the trajectory of contemporary UK and Australian governance codes. The UK governance code is administered by an independent government-backed regulator, the Financial Reporting Council (“FRC”),Footnote ¹⁶⁷ and the Australian version is overseen by a governance committee of the Australian Securities Exchange (“ASX”).Footnote ¹⁶⁸ Recent amendments to the UK and Australian governance codes represent a far more public conception of the corporation and of directors’ responsibilities than the US Corporate Governance Principles.Footnote ¹⁶⁹ The 2018 UK Corporate Governance Code notes, for example, that the role of a successful company is not only to create value for shareholders but also to contribute to “wider society.”Footnote ¹⁷⁰ Both the UK and the Australian governance codes also pay heightened attention to the interests of stakeholders, particularly employees.Footnote ¹⁷¹ They exemplify how, in contrast to traditional corporate law, governance norms today cover a pluralistic range of concerns, which are promoted by state and private actors alike.Footnote ¹⁷²

The issue of “who writes the rules” is also highly relevant to stewardship codes. In some jurisdictions, such as the United Kingdom and Japan, stewardship codes are issued by government regulators or quasi-regulators.Footnote ¹⁷³ In others, such as South Korea and South Africa, they are promulgated by industry players.Footnote ¹⁷⁴ Finally, in some countries, including Australia, Canada, and the United States, stewardship codes have been initiated by investors themselves.Footnote ¹⁷⁵ This divergence concerning “who writes the rules” can influence the content and effectiveness of particular stewardship codes, and can also affect the extent to which shareholder activism, including collective activism, is tolerated and encouraged.Footnote ¹⁷⁶

The regulatory goals underpinning the introduction of stewardship codes also vary across jurisdictions. The aim of the original UK Stewardship Code was to provide a check on excessive risk-taking in the aftermath of the global financial crisis. Yet, in Japan, one of the earliest jurisdictions to transplant a UK-style stewardship code, the policy rationale was quite different. Japan’s code was designed to reverse declining profitability and increase investor returns, by creating a “warmer climate” for foreign investors and shareholder activists.Footnote ¹⁷⁷ Japan’s adoption of a stewardship code also demonstrates how localized political friction can affect the content of such codes. Japan’s stewardship code adopted a relatively gentle approach concerning shareholder activismFootnote ¹⁷⁸ compared to the UK prototype.Footnote ¹⁷⁹ It seems that this was a compromise to appease Japanese critics, who resisted the shift effected by the code from a stakeholder-oriented approach to a stronger shareholder-oriented focus.Footnote ¹⁸⁰ It has been argued that other Asian jurisdictions, such as Singapore, Hong Kong, and Malaysia, have adopted stewardship codes in order to signal their commitment to good corporate governance, thereby attracting foreign investment in global capital markets.Footnote ¹⁸¹

Another factor undermining international convergence of corporate codes is that the underlying UK model has itself undergone fundamental changes over time, creating further disjunction across jurisdictions. For example, in 2018, a British regulatory reviewFootnote ¹⁸² branded the much-vaunted and imitated UK Stewardship Code a failure.Footnote ¹⁸³ The FRC responded to this damning assessment by adopting a “substantial and ambitious” revised version of the code, the 2020 UK Stewardship Code.Footnote ¹⁸⁴ This new UK Code emphasizes shareholder stewardship activities and outcomes over aspirational policies.Footnote ¹⁸⁵ It also includes far broader aims than earlier versions, with a marked shift from stewardship involving protection of shareholder interests toward stewardship that encompasses ESG issues, including climate change.Footnote ¹⁸⁶

9.4 Conclusion

Fiduciary duties and corporate codes, which are designed to constrain directors’ conduct and enhance corporate accountability, are key aspects of corporate governance. This chapter discusses some of the complex processes by which these laws and norms have been transmitted nationally and transnationally, and the extent to which this transmission has contributed to a uniform regulatory approach.

It is often assumed that there is a cohesive approach to the law of fiduciary duties across common law jurisdictions. The chapter provides a comparative and historical analysis of three common law jurisdictions – the United States, the United Kingdom, and Australia – and shows that, in spite of their common legal heritage, there are sufficiently important granular differences at a national level, in terms of both law and local legal practice, to challenge the existence of any homogeneous law regarding directors’ fiduciary duties in these jurisdictions.Footnote ¹⁸⁷

The chapter also discusses an important transnational regulatory development, which has occurred in recent decades across both common law and civil jurisdictions. This is the rise of corporate codes, such as governance codes and stewardship codes. These codes also embody important norms, and could, in theory, contribute to greater corporate governance convergence around the world. However, a critical issue in relation to corporate codes is “who writes the rules.” In fact, a range of different bodies issue and administer these codes, and this can affect the focus of the codes and the norms they contain.

Codes are also constantly evolving and can operate differently depending on the underlying capital market structure of the jurisdictions in which they operate. Not only can these codes differ across jurisdictions, they can also transmute over time, particularly in responding to corporate scandals and crises. For example, some recent codes, such as the 2020 UK Stewardship Code, reflect an image of the corporation as having a far greater societal role.Footnote ¹⁸⁸ The evolution of both fiduciary duties and corporate codes discussed in this chapter is more consistent with path dependence, rather than convergence, theory in corporate governance.

10.1 Introduction

For five weeks in the waning months of 1923, Zitkala-Ŝa, a Dakota writer, activist, and public intellectual, traveled around Eastern Oklahoma as a researcher for the General Federation of Women’s Clubs (GFWC).Footnote ¹ The topic of her research – Oklahoma probate law – may sound uncontroversial. Yet Zitkala-Ŝa, an advocate of American Indian suffrage and critic of the US Bureau of Indian Affairs’ corruption, was no stranger to controversy.Footnote ² And her report on Oklahoma’s probate system, published by the Indian Rights Association, was explosive. Zitkala-Ŝa and her coauthors found nothing less than “legalized plunder” of land and wealth from members of Native nations in Oklahoma.Footnote ³

Fiduciary law was at the center of this system of legalized “exploitation.”Footnote ⁴ According to the report, “Indians are virtually at the mercy of groups that include the county judges, guardians, attorneys, bankers, merchants – not even overlooking the undertaker – all regarding Indian estates as legitimate game.”Footnote ⁵ The game was played through the appointment of non-Native guardians to manage the resources of Native people. County judges, who were elected every two years, were happy to hand out “Indian guardianships” as “plums” to their “faithful friends” by declaring Indians to be incompetent to manage their own affairs.Footnote ⁶ These “professional” guardians took their cut of the wealth of their wards, as did banks and merchants, not to mention attorneys.Footnote ⁷ Thus, fiduciary law was the frame for legalizing the domination of Native people and facilitated commerce based upon the expropriation of their resources.Footnote ⁸

This is not a familiar description of the economic structure of fiduciary law. In the typical account, fiduciary law facilitates market exchanges by supplying legal standards to govern the behavior of agents who are entrusted with discretion over the interests of their principals. These government-supplied standards – the fiduciary duty of loyalty and the duty of care – make it less costly for private parties to contract for services.Footnote ⁹

The exchange-facilitating account is a law-and-economics version of the idea that fiduciary law enhances autonomy. Fiduciary law, that is, creates opportunities for individuals to pursue their own goals and be authors of their own lives. This autonomy-enhancing vision has widespread appeal, and not just for those who think fiduciary law is a species of contract law. Fiduciary law, the ideal holds, “emphasizes not personal conflict and domination,” but rather “cooperation and identity of interest pursuant to acceptable but imposed standards.”Footnote ¹⁰

I want to suggest that the familiar description of fiduciary law has a problem. Most scholarship on fiduciary law says nothing about European or US imperialism. There is no discussion of the ways in which fiduciary law framed imperial struggles over political and economic power. There is no mention of the roles that fiduciary law played in various European empires and the US Empire between the late fifteenth century, when imperial expansion began, and the time of rapid decolonization in the 1960s.Footnote ¹¹

What follows is a summary of a political economy of fiduciary law and imperialism that I hope to develop at length and in detail.Footnote ¹² My argument is that the familiar description of the economic structure of fiduciary law is incomplete. So too is the autonomy-enhancing account of fiduciary law. Fiduciary law, I want to argue, may enhance exploitation to facilitate market exchange. It provided an ideological justification for imperial expansion in the interests of opening up trade between peoples. And as Zitkala-Ŝa’s report found, and as many other examples show, fiduciary law played institutional roles in the financing, administration, and oversight of imperial exploitation and the facilitation of trade among those who benefitted from it.Footnote ¹³

10.2 Imperialism and the Typical Picture of Fiduciary Law

The case, then, for including imperialism within the picture of fiduciary law is straightforward. Imperial powers claimed to be fiduciaries acting on behalf of peoples under their rule. They used the vocabulary of “guardianship” and “trusteeship,” paradigmatic fiduciary relationships that trace back to Roman law.Footnote ¹⁴ To be sure, this fiduciary ideal was not universal, much less universally adhered to. Imperial legal systems changed over time and differed from one another. Unsurprisingly, the fiduciary ideal developed more clearly and more fully in the common law empires of Britain and the United States than in civil law systems, which never had the common law trust. Various empires, moreover, resisted the idea that the law of nations governed their relations with peoples subject to imperial rule.Footnote ¹⁵ Even so, we can trace a pattern of greater institutionalization of fiduciary norms over time as modern states emerged and consolidated their political sovereignty. By 1919, a fiduciary norm was so settled that the newly formed League of Nations system enshrined the “sacred trust of civilization” as an institution of international relations.Footnote ¹⁶

If that were not enough reason to take imperialism more seriously than the field of fiduciary law does, here is another: The “sacred trust of civilization” has a plausible claim to being fiduciary law’s first transnational legal order (TLO).Footnote ¹⁷ The League’s Mandate System entrusted authority over various territories and peoples in Africa, the Middle East, and Oceania to various mandatory powers, primarily though not exclusively European states. It included norms and institutions we typically associate with fiduciary relations, including mechanisms for oversight of the mandates. The fiduciary office – the office of the “sacred trustee,” that is – provided a frame for resolving disputes among imperial powers by allocating authority to exploit persons and resources among them.Footnote ¹⁸ Thus, the Mandate System was arguably was the first fiduciary TLO, a point that I return to later.

Fiduciary law, moreover, played a broader role in the construction and management of empires. Its role, that is, was not limited to the sacred trust of civilization or even the law of nations. What we now think of as institutions and practices associated with “private” fiduciary law – including the separation of ownership from control of property, the use of fiduciary institutions as investment vehicles, and the expectation that fiduciaries will give an accounting – were part of the financing and administration of various European and US Empires.

In short, fiduciary law played both ideological and institutional roles in various European empires and the US Empire. The ideological role of fiduciary law in imperial rule has gotten more attention, particularly among legal scholars.Footnote ¹⁹ The norm of fiduciary responsibility – the idea, that is, that fiduciaries are not self-serving actors but instead representatives acting on behalf of someone else – lent itself to discourses that legitimated imperial power based upon religious bigotry and cultural racism. The institutional dimension deserves more attention, especially in legal scholarship.Footnote ²⁰ Some institutions, particularly the “company-states” that actually administered imperial rule on behalf of European sovereigns, bridged the “sacred trust” and the private entrustment of authority for business purposes.Footnote ²¹ Consider the best-known example, the English East India Company, whose violence and corruption in Indian prompted debates in London about the allocation of trust authority within the Empire.Footnote ²² “Public” and “private” fiduciary authority were entangled in other ways that facilitated domination. For example, during the 1830s, the largest firms pooling American and British capital to finance the removal of Native nations from the southeastern United States, such as the Boston and Mississippi Land Company, were structured as trusts.Footnote ²³ The US government forced these Native nations to resettle in Indian Territory, which later became the State of Oklahoma. By the early twentieth century, as Zitkala-Ŝa reported, Oklahoma’s law of guardianship and probate was the key to a system of “legalized robbery” of the lands and wealth of Native families, including many from those nations that the United States had forcibly moved a century early.Footnote ²⁴ Thus, together, private and public fiduciary law were tools of subordination.

As these examples show, fiduciary law could enhance subordination in either of two ways. On the one hand, legal norms and institutions could facilitate subordination within a fiduciary relationship. The Mandate System of the League of Nations is one example. On the other hand, fiduciary law also facilitated subordination outside the fiduciary relationship, as with, for example, the use of trusts to funnel global capital toward the forced removal of Native nations from their homelands.

Thus, fiduciary law’s relationship to autonomy is more complicated than the field’s ideals might suggest. Many scholars argue that fiduciary law enhances autonomy by supplying standards of behavior that facilitate bargains for fiduciary services. Fiduciary law responds to the risk that comes whenever someone is in charge of someone else’s interests. People put fiduciaries in charge of their property or other interests for many reasons. Maybe the fiduciary’s an expert. Or maybe they just want someone else to do the work. Whatever the reason, the risk is the same. “Abuse of power” is one way to put the problem that comes when one person has discretionary authority over the interests of another.Footnote ²⁵ Or we might call it “an agency problem.”Footnote ²⁶ Fiduciary law aims to solve this problem by requiring fiduciaries to be loyal, that is, to subordinate their interests to the beneficiaries’ interests. Thus, fiduciary law protects people who trust others to provide them with services and expertise. In so doing, fiduciary law enhances individual autonomy.

This autonomy-enhancing account has obvious appeal. After all, many fiduciary relationships exist only because people agreed to them. For those who think fiduciary law is contract law, fiduciary duties enhance autonomy by providing default rules to fill gaps in incomplete contracts. Transaction costs prevent the parties from spelling out the details of fiduciary duties in every contract. Fiduciary law’s duty of loyalty requires the agent to pursue the principal’s interests, not the agent’s own or some third party’s interest. And the duty of care demands the agent pursue the principal’s interests with reasonable competence. The government facilitates fiduciary bargains by supplying and enforcing those duties.Footnote ²⁷

The autonomy-enhancing account has appeal even for those scholars who reject the contractarian view of fiduciary law. Consider this description by Tamar Frankel, who more than anyone is responsible for the idea that fiduciary law is a distinct body of law: “a fiduciary society emphasizes not personal conflict and domination among individuals, but cooperation and identity of interest pursuant to acceptable but imposed standards.”Footnote ²⁸ Fiduciary law, that is, facilitates relationships in which “entrustors” rely upon the services of fiduciaries for the entrustors’ own benefit.Footnote ²⁹

In this chapter, I want to ask how this picture of fiduciary law changes if we put imperialism within it.

10.3 Fiduciary Exploitation and Free Exchange

Scholars have begun to explore how fiduciary law, when understood as a distinctive body of law in its own right, influenced the emergence of modern markets. In recent work, for example, Michael Halberstam and Justin Simard have argued that “lawyers as trusted agents” were important to economic development in the nineteenth-century United States.Footnote ³⁰ The story they tell is one in which lawyers performed a wide array of services for clients in “high-risk markets,” where businesspeople had to rely upon agents they could not monitor due to physical distance, the use of bills of exchange and private bank notes, and the lack of rapid means of communication.Footnote ³¹ As economic actors, lawyers were crucial to securing trust in these markets. Their work was not limited to drafting briefs. The list of typical tasks is illustrative: “lawyers surveyed land, hired workers, paid taxes, collected notes, drafted agreements, examined titles, prepared and interpreted insurance policies, managed finances, organized partnerships, transferred money, and prepared detailed reports.”Footnote ³² Many of these lawyers were graduates of Litchfield Law School, where both Aaron Burr and John C. Calhoun were once students, and whose graduates constituted “nearly 5 percent of the lawyers in the United States” by the 1830s, when the school closed.Footnote ³³ One of these graduates was Elisha Whittlesey, whose work as a land agent in Ohio is representative of the practice of lawyers as trusted agents in the early nineteenth century. Lawyers like Whittlesey “worked as long-distance land agents, helping eastern speculators sell land located in the West.”Footnote ³⁴

In the twilight of this career, when he was now the “Honorable Elisha Whittlesey,” the former Comptroller of the US Treasury, Whittlesey gave a speech to the Mahoning County Agricultural Society.Footnote ³⁵ The Society’s meeting was an opportunity for the aged attorney to reflect on the history of Ohio. Whittlesey was especially struck by an exhibition representing “pioneer life in the log cabin,” which, he commented, “reminds every old settler, of the country as it was fifty years ago.”Footnote ³⁶ The longtime Ohioan went on to offer some advice on best agricultural practices, including how to cultivate “cucumbers, tomatoes and other garden vegetables,” as well as “Indian corn.”Footnote ³⁷ Whittlesey’s references to Indian corn were his address’s only hints of what listeners must have known but were already in the process of forgetting: Land speculation and pioneer life in the West involved the sale and settlement of Indian lands. The name of Mahoning County, where Whittlesey gave his address, not to mention the name “Ohio,” and the names of all of Ohio’s “major waterways – the Mahoning, Cuyahoga, Walhonding, Miami, Sandusky, Tuscarawas, Maumee, Scioto, and Ohio rivers” – testify to the presence of Native peoples.Footnote ³⁸

Lawyers as trusted agents in nineteenth-century America were playing an important role in a system of land exchange that was built at least in part upon the exploitation of Native nations and the expropriation of their lands.Footnote ³⁹ The role of fiduciary law in this system was not limited to the role of lawyers like Whittlesey who acted as land agents for the eastern land speculators. Fiduciary law, that is, played a bigger market-constituting role than the one that Halberstam and Simard recount.

* * *

To begin to understand the ideological and institutional roles of fiduciary law in facilitating exploitation and exchange, there is no better place to start than Tizatlan, a city in what today is Mexico, and no better time than 1519, long before the 1795 Treaty of Greenville cleared the way for settlement of much of the Ohio Territory, and even longer before the so-called sacred trust of civilization had become a TLO with the Covenant of the League of Nations.

In September 1519, an alliance was struck at the palace of Xicotencatl, the tlatoani, or “one who speaks,” of Tizatlan, located in a place that today is part of the Mexican state of Tlaxcala.Footnote ⁴⁰ For weeks, the Tlaxcalans had battled a company of several hundred men who burned villages and maimed “emissaries suing for peace.”Footnote ⁴¹ Now, this company, dependent upon their translator Malintzin, a noblewoman from one of the Tlaxcalans’ traditional trading partners, promised to join forces with the Tlaxcalans against a long-standing foe, the Mexica of Tenochtitlan.Footnote ⁴² Tlaxcalan painters would later record the peace in images on palace walls and bark paper, so that all could “recall[]” the alliance in “perpetuity.”Footnote ⁴³ In December 1519, several thousand Tlaxcalans marched with several hundred of their Spanish allies into one of the largest cities in the world, with avenues so broad that they “put the tiny, mazelike streets of European cities to shame.”Footnote ⁴⁴

This grand city, Tenochtitlan, would fall two years later to allied forces. The next year, Charles V, Holy Roman Emperor and King of Spain, appointed Hernán Cortés, the leader of the Spanish company of adventurers who allied with the Tlaxcalans, as the captain-general of New Spain. As a sovereign with imperial aspirations, and no small measure of anxiety about competition from the Ottoman Empire,Footnote ⁴⁵ Charles V had placed great trust in Cortés’s company. Cortés, who “knew Spanish law well,”Footnote ⁴⁶ was not much troubled by those who would come to question the legitimacy of the Spanish Crown’s assertion of sovereignty over the lands of the Mexica and other Indigenous Peoples. But Charles V, a pious man, apparently was, and consulted confessors to quiet his troubled mind.Footnote ⁴⁷

Spanish intellectuals were divided on the question of whether European sovereigns could legitimately claim authority over those peoples they called Indios. The key figure, at least for modern international law scholars, is Francisco de Vitoria, a theologian and jurist. In a series of public lectures, which his students scribbled down, Vitoria disagreed with those who argued that Indians had did not have moral agency, natural rights, or their own governments. Instead, Vitoria argued that the Spanish claim of sovereignty over the Indigenous lands was legitimate to the extent that Spaniards acted to stop violations of natural rights, particularly “human sacrifices,” and to protect the right of all people to travel and seek to trade with one another.Footnote ⁴⁸

Guardianship itself was not a new idea. Roman law had the tutela and cura, the former a legal device for the administration of property for the benefit of children who had no paterfamilias exercising authority over them, and the latter a relationship in which one adult had authority over the interests of another deemed incapable of managing their own affairs.Footnote ⁴⁹ Canon law carried forward the idea of guardianship as the medieval church required tutors and curators “to act as fiduciaries” for those subject to their authority.Footnote ⁵⁰ Vitoria did not conclude that Indians were children or incapable of reason, but nevertheless invoked the idea of guardianship to argue that the Spanish Crown had the right to wage war against Indians in order to prevent injustice.Footnote ⁵¹

Vitoria imagined a world in which the Spanish and Indians could trade freely with one another, only to deny them equal status as political communities. Indians “lack[ed]” many “wares” that the Spanish could provide in exchange for “either gold or silver or other wares of which the natives have abundance.”Footnote ⁵² Trade bound them as equals, and the right to trade demanded that the Indians and Spanish treat with one another. As Vitoria put it, “it is certain that the aborigines can no more keep off the Spaniards from trade than Christians can keep off other Christians.”Footnote ⁵³ Both had a right to travel and seek to trade. If Indians refused to accept Spanish attempts to travel, the Spanish were justified in intervening to protect this universal right.Footnote ⁵⁴

This ideology of guardianship was a serious response to a problem of conscience. Vitoria was not the only metropolitan elite who questioned the violence of conquest. He was, however, among the most creative in offering a justification for Spanish sovereignty and identifying limits on its exercise. The key was his pairing of guardianship with a discourse of religious and cultural difference – a discourse that, as Robert Williams has put it, was the “perfect instrument of empire.”Footnote ⁵⁵

At the same time, Indigenous Peoples sought to use the Spanish system to protect their rights and sometimes punctured the pretensions of Spanish guardianship. In the mid-1550s, for example, Tlaxcalan leaders prepared a lienzo in connection with a petition to the Spanish Crown. In the Lienzo de Tlaxcala, “[i]n scene after scene, the Spaniards are in the capable hands of Indians,” as the “[t]he Tlaxcalans fight everywhere alongside the Spanish, [with] their alliance … symbolized in the person of Malintzin herself.”Footnote ⁵⁶ The lienzo thus reflects the reality of an alliance in which “the Spanish really were dependent on Indians”Footnote ⁵⁷ – not the other way around, as Cortés liked to imply in his letters and as Vitoria’s idea of guardianship would suggest to later generations of scholars of international law. It is worth remembering, however, that the Tlaxacan’s lienzo was retelling events from 1519 to 1521. By the 1550s, the balance of power had shifted in the heartland of New Spain.Footnote ⁵⁸ Even there, however, Indigenous Peoples, such as the Nahuas, sometimes succeeded in using the tools of Spanish rule, such as litigation in the Juzgado General de los Indios, to protect their lands and personal rights.Footnote ⁵⁹

The lesson is that people (or peoples) may shape the very legal order that aims to control them. Even so, we should not assume that New Spain had an institutionalized scheme for the faithful guardianship of the rights of Indigenous Peoples. We should not, in other words, mistake the power of an ideology for its institutionalization in practice.Footnote ⁶⁰ Despite all that its etymology might suggest,Footnote ⁶¹ the encomienda system was not a settled fiduciary institution. Under this system, the Crown entrusted Spanish conquerors with rights to labor and tribute from Indigenous Peoples and imposed duties on the encomenderos to convert them to Christianity and to protect them from violence. During the early-to-mid-sixteenth century, the Crown’s attempts to constrain settlers’ most violent abuses, including through laws such as the Leyes Nuevas of 1542, sparked murderous resistance in some cases and were largely ignored in others. Nor should we assume that the institution of the Protectoria de Los Indios, established in response to the advocacy of Bartolomé de las Casas and Fray Francisco Jimenez de Cisneros, was a full-fledged fiduciary institution.Footnote ⁶²

* * *

The company-states that emerged as transnational actors in the seventeenth century were closer to what we now think of as fiduciary institutions. One of the biggest differences between the Spanish empire on the one hand and the Dutch and English empires on the other hand was the latter’s reliance upon chartered companies. The Dutch and English East India Companies were formed by merchants and held charters from their respective sovereigns. As institutions, they combined functions and aims that we divide between “private” companies and “public” governments. Their charters, like constitutions, assigned various powers and rights, including powers that we associate with the sovereignty of states. These included powers to maintain armed forces, make war, and enter into treaties with foreign sovereigns. At the same time, these chartered companies had features that today we associate with private businesses, including some features, such as the separation of ownership from control of property, that are characteristic of private fiduciary relationships.Footnote ⁶³ To call the managers of these companies “fiduciaries” would be anachronistic, at least if we mean to suggest that they were subject to judicially enforceable fiduciary duties of loyalty and care in the way that corporate directors are today. Modern fiduciary law did not exist when these companies were chartered. Indeed, it began to develop during the period of their imperial expansion.

It would be too much to say that modern fiduciary law developed because of imperialism. That is not my point. It is not too much, however, to say that imperial histories and the history of fiduciary law are intertwined.Footnote ⁶⁴

It is, moreover, fair to say that chartered companies such as the East India Companies “pioneered” various “institutional features” that are characteristic of modern business firms: separate legal personality, limited liability, joint-stock ownership, and the separation of management and ownership. Imperialism did entail institutional challenges that required legal innovation. European companies seeking to establish forts and factories in Asia needed to make long-term investments, not least in their armed forces. To make such investments, they needed to lock in capital. The Dutch were the first movers in the institutional innovation of locking-in capital, which the Vereenigde Oost-Indische Compagnie (the VOC, or Dutch East India Company), deployed for trade and violence, or, perhaps more accurately, violence and then trade. By the second half of the seventeenth century, the English East India Company had “emulate[d] the VOC’s consolidation of equity maturity.”Footnote ⁶⁵

The agency problems resulting from the companies’ institutional innovations are obvious. First, there was the problem of high-level managers failing to act as faithful agents of shareholders. For example, while the Le Maire controversy is better known today,Footnote ⁶⁶ there is something strikingly familiar in the complaints about VOC mismanagement from shareholders who published pamphlets and lobbied for charter amendments from 1622 to 1625. As one pamphleteer put it, quoting the Bible, “Give an account of your stewardship, because you cannot be manager any longer.”Footnote ⁶⁷ Second, there was the problem of servants of the East India Companies pursuing their own interests while working abroad. The English East India Company, for example, permitted its employees to engage in their own trades abroad and dismissed them if they strayed too far from the limits on private trading and their obligation to pursue trades on the Company’s behalf.Footnote ⁶⁸

The English East India Company is perhaps the best-known example of an institution that bridges the sacred trust of civilization and the private entrustment of authority for business purposes. The Company’s corruption and maladministration in India prompted legal and political debates about the entrustment of sovereign authority for business purposes. While Vitoria used the idea of guardianship to limit the sovereignty of non-Christian, non-European peoples, Edmund Burke employed the idea of “trust” to deny the sovereignty of the East India Company, accusing it of plundering India and abusing the authority entrusted to it. Burke demanded that Parliament take greater control of imperial policy and supported a bill before the House of Commons that would have radically changed the management of the Company and the rights of its shareholders. As Burke put it in a 1783 speech to Parliament, “it is of the very essence of every trust to be rendered accountable.”Footnote ⁶⁹ To his listeners, whatever their views of the proposed bill, Burke’s statement about the enforceability of a trust was familiar doctrine.Footnote ⁷⁰ And while the bill failed, to be followed shortly by the enactment of a different bill reforming governance of the Company,Footnote ⁷¹ Burke’s ideas about the trust obligations of imperial officials would resonate for later generations that institutionalized the fiduciary law of British imperialism, both in India and elsewhere.

* * *

Burke’s trust speech to Parliament took place on December 1, 1783, less than two months after the signing of the Treaty of Paris between Britain and the United States. After losing their empire over thirteen colonies in North America, the British pivoted to consolidate their empire in India.Footnote ⁷² For its part, the fledgling United States hoped to secure in the eyes of the world its claims to sovereign authority. In so doing, it confronted Native nations, some of which had treaties with the English, French, and Spanish crowns recognizing them as independent peoples.Footnote ⁷³

Long before the American Revolution, Native nations in what is now the eastern United States engaged in diplomacy with various European sovereigns, including the English Crown. For many of these Native nations, concepts of kinship framed diplomacy between peoples. Parties to a treaty might refer to each other as brothers. A people that depended upon the military protection of another might use the term “father” to refer to their treaty partner. Native diplomats sometimes had to remind their English treaty partners that the use of these terms did not imply submission.Footnote ⁷⁴

In its earliest treaties, negotiated during the American Revolution when the United States needed military support, the Continental Congress recognized Native nations as independent peoples. US officials often used kinship terms drawn from Indigenous diplomacy when treating with Native diplomats.Footnote ⁷⁵ During this period, the United States typically would promise to protect Native nations from military threats as well as from white settlers. Native nations emphasized this duty of protection when demanding that the United States make good on its guarantees of security for their lands.Footnote ⁷⁶

The best-known example is the Cherokee cases of 1831–32.Footnote ⁷⁷ After gold was discovered within the territory of the Cherokee Nation, the State of Georgia enacted a series of laws that purported to regulate Cherokee territory. The Cherokee Nation unsuccessfully petitioned Congress and President Andrew Jackson for redress. It also bought a bill in equity in the original jurisdiction of the Supreme Court, which dismissed the bill on jurisdictional grounds. The leading opinion, written by Chief Justice John Marshall, reasoned that the Cherokee Nation was a “domestic dependent nation,” not a “foreign State” entitled under the US Constitution to sue in the Court’s original jurisdiction.Footnote ⁷⁸ Marshall added that the relationship between the Cherokee Nation and the United States might be described as one between a “ward” and its “guardian.” The Cherokee Nation did not, however, let the matter drop. It authorized its attorneys to represent a missionary who had been convicted of violating a Georgia law requiring whites to obtain the State’s permission before entering Cherokee territory. In the second case, Worcester v. Georgia, the US Supreme Court held that the State of Georgia had no authority over the Cherokee Nation by virtue of its treaties with the United States.Footnote ⁷⁹ The Cherokee Nation’s lawyers pointed to European international law in their arguments. Accepting those arguments, the Court cited Vattel’s Law of Nations, analogizing the Cherokee Nation to those European “tributary” states that had entered into treaties placing themselves under the protection of a more powerful sovereign while retaining their rights of self-government.Footnote ⁸⁰

The Cherokee cases give us a sense of the ways in which a fiduciary idea framed struggles over political and economic power between Native nations and settler governments. In essence, the Cherokee Nation argued that it was the beneficiary of a specific trust – a treaty promise of protection. It was like various European states that enjoyed similar treaty promises. In making this argument, the Cherokee Nation pushed back on those strands of European international law that were cited to oppose Indigenous sovereignty.Footnote ⁸¹

There is a second sense in which the Cherokee cases are illustrative. The Supreme Court’s decision in Worcester did not stop the US government from forcing the Cherokee Nation and other Native nations to leave their homelands. Fiduciary law and its associated institutions facilitated removal and the land grab that followed. As Claudio Saunt has explained, removal “was a financial as well as political and military operation, the mechanics of which were scrutinized by New York and London bankers as much as by federal officials.”Footnote ⁸² Financial firms from Wall Street, State Street, and London provided capital that went toward the dispossession of Native people. Many of these firms were trusts. They invested in land speculation, which was carried out through schemes that “were both banal and appalling”: Speculators, for example, “burned down houses and drove off the residents.”Footnote ⁸³ The result was not a well-functioning market, but one in which fraud, violence, and collusion between companies combined to deprive Native people of market value for lands they did not want to leave in the first place.Footnote ⁸⁴

Perhaps most appalling is the way in which Native peoples’ own assets were used to finance their own exploitation. Removal treaties, which were negotiated between the US and Native nations under duress, put Native assets into trust with the United States acting as the trustee. These treaties were an example of what Emilie Connolly has recently called “fiduciary colonialism.”Footnote ⁸⁵ During its first few decades, the United States promised to provide annuities to various Native nations, a practice that echoed Indigenous traditions of gift diplomacy. Over time, the US government began to promise payments of specie as annuities – a crucial development, as specie was “an exceedingly scarce and attractive form of capital to Natives’ trading partners.”Footnote ⁸⁶ By the time of the removal era, the Jackson Administration had moved to the use of investments in trust funds, with the United States investing the principal and dispensing the interest as an annuity. These investments funded “banks, canals, railways, and other state-financed carriers of westward expansion.”Footnote ⁸⁷ During the removal period, Indian agents invested Native money at the instance of land speculators and state banks, leading to a system where a speculator might, for example, borrow specie certificates tied to Native money and use those certificates to buy Native land.Footnote ⁸⁸

In short, the story of removal is one of exchange through fiduciary exploitation. It is a story that would be repeated in US history. For instance, as we saw with Zitkala-Ŝa’s report on Oklahoma guardianship and probate law, Native people whose ancestors were forced to leave their homelands in the nineteenth century would lose their wealth to fiduciary exploitation in the twentieth.

The juridical expression of this institutional dynamic may be found in the US Supreme Court’s opinion in Lone Wolf v. Hitchcock.Footnote ⁸⁹ In the late nineteenth century, the US Congress authorized the allotment of the lands of various Native nations with the aim of assimilating Native people. Allotment meant parceling out tribal lands into individual plots, with some plots to be held in trust for tribal members, while others would be sold to white settlers. Lone Wolf and other leaders of the Kiowa, Comanche, and Apache Nations filed a bill in equity to enjoin implementation of the allotment policy, arguing that the Constitution protected their treaty-guaranteed property rights against allotment. The Supreme Court dismissed the bill. It reasoned that allotment was a “mere change in the form of investment” of Native assets, one that a trustee was entitled to make.Footnote ⁹⁰

* * *

Investing the assets of Native people required an administrative apparatus for accounting for those assets. This was not the only sort of accounting that institutionalized the fiduciary ideal of imperial rule. The compiling of population statistics was another. The idea that imperial powers were guardians for particular peoples both supported, and was supported by, the institution and expansion of accounting practices that sought to quantify populations and their resources.Footnote ⁹¹

Consider, for example, the instruction that Chief Protector George Augustus Robinson sent in 1839 to every assistant protector working at the Port Phillip Aboriginal Protectorate in New South Wales.Footnote ⁹² The Protectorate was brand new, established in 1838 at the direction of the Colonial Office of the British Empire in response to an 1837 report of the House of Commons Aborigines Committee.Footnote ⁹³ What the Empire needed, the report concluded, was an institution to put Aboriginal peoples on the path to civilization, which required, among other things, protecting them from white settlers.Footnote ⁹⁴

To this day, Taungurung people remember the violence of the first encroachment of white settlers into their homelands, which are in what today is the state of Victoria, Australia. As Taungurung Elder Roy Patterson put it, “there was a big fight” between white sheep and cattle ranchers and Aboriginal people over access to water.Footnote ⁹⁵ In this fight, “[t]he white people shot the Aboriginals for killing their animals.”Footnote ⁹⁶

The Colonial Office’s idea of protection was to settle Aboriginal populations around protectorate stations and turn them into sedentary farmers. Chief Protector Robinson of Port Phillip Protectorate thought that only a gradual process of resettlement would succeed. Assistant protectors should therefore periodically travel to meet with the Aboriginal peoples entrusted to their care. On his instructions, the protectors at Port Phillip had to give biannual accountings of “the number of journeys you have made, the number of cases you have enquired into, with the results of such journey, the number of days spent at any fixed station, [and] the number of days in traveling or elsewhere.”Footnote ⁹⁷ One assistant protector, Edward Stone Parker, a teacher and lay preacher, responded with all that and more, including statistical tables offering daily average attendance figures for the Taungurung people at this station over an eight-year period ending in 1849, when the Protectorate was shut down. Never mind that Parker’s daily averages were almost certainly a “fantasy” – that is, a “projection” of Parker’s desire that the Taungurung would settle at his station and become farmers.Footnote ⁹⁸ In the end, Assistant Protector Parker was a good fiduciary. He gave his account.

The history of the British Empire is full of fiduciaries who gave their account. One of the most influential and representative was The Dual Mandate in British Tropical Africa, a work of imperial theory by the Right Honourable Lord Frederick John Dealtry Lugard, whose many administrative positions include the Governor-Generalship of Nigeria and the Governorship of Hong Kong. The title page of the 1922 edition, published in Edinburgh and London by William Blackwood and Sons, included a pithy quotation from Joseph Chamberlain that stated the dual mandate of European empires: “We develop new territory as Trustees for Civilisation, for the Commerce of the World.”Footnote ⁹⁹ Imperial administrators, that is, had a fiduciary duty to civilize peoples subject to their rule and open up markets for their benefit and the benefit of the people of the imperial metropole. For Lugard, the most effective system for fulfilling this dual mandate was indirect rule, which incorporated local leaders and political systems into imperial administration. Assimilation would be gradual and “progressive”; the imperial government would be “sympathetic” to the “aspirations” of peoples “and the guardians” of their “natural rights.”Footnote ¹⁰⁰ At the same time, the peoples of Africa could not deny the right of Europeans to trade in Africa’s natural resources. The “task of developing these resources was … a ‘trust for civilisation’ and for the benefit of mankind.”Footnote ¹⁰¹ Indeed, this sacred trust had already been institutionalized as a principle of international relations.

* * *

Four hundred years after Tlaxcalans and Spaniards marched to Tenochtitlan, the US Government Printing Office in Washington, DC, printed two monographs on the same subject: “wardship” in international law. That was the title of the monograph by Charles Fenwick, a political scientist whose career included a stint as the president of the American Society of International Law (ASIL).Footnote ¹⁰² His Wardship in International Law focused upon states that were (or had been) wards of other states. The other monograph was The Question of Aborigines in the Law and Practice of Nations by Alpheus Henry Snow, who, like Fenwick, was a member of ASIL.Footnote ¹⁰³ Snow’s monograph concluded that “Aboriginal Tribes,” as he put it, are wards of whatever “civilized State” colonizes their lands.Footnote ¹⁰⁴ According to Fenwick and Snow, wardship was a settled TLO.

The year 1919 not only marked the four-hundredth anniversary of the alliance between the Tlaxcalans and Cortes’s company. It also was an important one in the history of European international law – and in the history of the idea that “civilized States” were guardians for colonial wards. In that year, the Covenant of the League of Nations entered into force. Article 22 of the Covenant created the Mandate System, which proclaimed that so-called “advanced nations” would hold a “sacred trust of civilization” for “peoples not yet able to stand by themselves under the strenuous conditions of the modern world.”Footnote ¹⁰⁵

Thus, four hundred years after Cortes’s company and their Tlaxcalan allies marched several thousand strong into Tenochtitlan, and three hundred and eighty years after Vitoria delivered his lectures at the School of Salamanca, the League of Nations treated trusteeship as an organizing idea of international law and international relations.

It is not surprising that the US government printed monographs on trusteeship in 1919. US President Woodrow Wilson played an important role in the creation of the League of Nations’ mandate system. The original proposal for the mandate system, crafted by General Jan Smuts of South Africa, included parts of Europe that had been under the rule of the Austro-Hungarian Empire, the Ottoman Empire, and the Russian Empire. Wilson’s counterproposal, which carried the day, applied the Mandate System of trusteeship to peoples outside Europe. So-called class A territories in the Middle East were formerly controlled by the Ottoman Empire and placed under the mandate power of France or the United Kingdom. The remaining Class B and C territories had been German colonies. Belgium, France, and the United Kingdom assumed authority with respect to the Class B mandates, which were in East Africa, the Cameroons, and Togoland. Class C mandates in Oceania were assigned to Australia, Japan, New Zealand, and the United Kingdom, while South West Africa was assigned to South Africa. Wilson claimed that the Mandate System would protect “helpless peoples” from “exploitation” and support them on the path to collective self-determination.Footnote ¹⁰⁶

The Mandate System’s “sacred trust of civilization” is arguably fiduciary law’s first TLO. We can, of course, trace the “sacred trust” from the League of Nations through legal commentary all the way back to Vitoria.Footnote ¹⁰⁷ In doing so, we would pause over international predecessors to the League of Nations’ trusteeship system, including the Berlin Conference of 1884–85 and the international response to the Congo Free State.Footnote ¹⁰⁸ The former arguably confirmed that trusteeship was a transnational norm of European imperialism.Footnote ¹⁰⁹ Trusteeship was linked with the Conference’s aim to settle disputes about European claims to African territory, with European imperialists assuming a dual mandate in the interests “of free commerce, tutelage, and security from war.”Footnote ¹¹⁰ The horrors of the Congo Free State, and the international response, repeated this theme.Footnote ¹¹¹ These examples underscore the role of fiduciary law in allocating authority among imperial powers; in this sense, imperial trusteeship was not about the relationship between a fiduciary and a beneficiary, but rather about the relationships among fiduciaries. The League of Nation’s innovation was to institutionalize trusteeship as a system of colonial administration subject to transnational oversight.

The result was a full-fledged TLO. In the terms of TLO theory, a TLO emerges as people (and institutions) settle upon legal norms that order how they act. Thus, a TLO is “a collection of formalized legal norms and associated organizations and actors that authoritatively order the understanding and practice of law across national jurisdictions.”Footnote ¹¹² In these terms, a TLO is fully institutionalized when people “simply take for granted” the relevant “set of legal norms,” following them at the transnational, national, and local levels.Footnote ¹¹³

The Mandate System was an institutionalized TLO. Its norms were legal norms formalized in the Covenant of the League of Nations, not to mention other legal documents, such as the mandate agreements that the League and the mandate powers agreed to and the questions that the Permanent Mandates Commission (PMC) propounded to the mandatory powers, not to mention the annual reports from those powers to the League.Footnote ¹¹⁴ These norms were directed toward the mandate powers, the territories subject to the mandates, and the League as an overseer of the Mandate System. These norms aimed – and, in some measure, succeeded – at “produc[ing] order” in response to the disorder of war among imperial powers.Footnote ¹¹⁵ And this legal order was transnational: It ordered legal and political relationships that transcended the boundaries of the nation-state and, indeed, helped (re)constitute the system of state sovereignty after World War I.Footnote ¹¹⁶ This TLO was institutionalized over time through the work of the League Council, the Permanent Mandates Commission (PMC), and the Permanent Court of International Justice, as well as the administrative and reporting activities of the mandate powers. In addition, the peoples of the mandate territories could and did petition the League, notwithstanding the limits that the Commission put on the right to petition.Footnote ¹¹⁷

There is perhaps no better evidence of the institutionalization of the Mandate System than the accounting practices that it generated. Fiduciaries are expected to account for their administration of another’s interests. And that is precisely what the Mandate System demanded. As Antony Anghie has summarized it, “the PMC sought an immense amount of information” from the mandatory powers on various topics, including the economy and labor.Footnote ¹¹⁸ In 1926, for example, the PMC drew up 118 questions for B and C Mandates on this wide-ranging set of topics: “Status of the Territory”; “Status of the Native Inhabitants of the Territory”; “International Relations”; “General Administration”; “Public Finance”; “Direct Taxes”; “Indirect Taxes”; “Trade Statistics”; “Judicial Organisation”; “Police”; “Defence of the Territory”; “Arms and Ammunition”; “Social, Moral and Material Condition of the Natives,” including the telling query, “please state approximately the total revenue derived from the natives by taxation and the total amount of the expenditure on their welfare”; “Conditions and Regulation of Labour”; “Liberty of Conscience and Worship”; “Education”; “Alcohol, Spirits and Drugs”; “Public Health”; “Land Tenure”; “Forests”; “Mines”; and, finally, “Population.”Footnote ¹¹⁹ The production of legal documents is not necessarily the production of legal order. But the accounting that the League demanded from the mandatory powers, and the annual reports they provided, underscore the depth of the institutionalization of the “sacred trust” as a frame for administration.

For a system nominally adopted to enhance the autonomy of colonized peoples, the Mandate System proved well adapted to facilitating their subordination. As Antony Anghie has argued, the Mandate System maintained significant continuity with prior periods of imperialism, even as it departed from the sort of “outright exploitation of native peoples by charter companies that took place in the nineteenth century.”Footnote ¹²⁰ For example, though members of the PMC sometimes questioned it, the familiar pattern of fiduciary administration in which peoples paid “for their own exploitation and conquest” continued.Footnote ¹²¹

Here too, however, people could and did shape the legal order that sought to control them.Footnote ¹²² As Anghie points out, for instance, “the people of Nauru succeeded in protecting their interests, at least in part, through an astute use” of international procedures.Footnote ¹²³ Citing the terms of the Mandate System, as well as those of the successor UN Trusteeship system, the Republic of Nauru brought a case to the International Court of Justice against Australia for destructive mining and other practices that violated its rights to self-determination and permanent sovereignty over natural resources.Footnote ¹²⁴ More recently, however, Nauru has become the site of an offshore immigration detention facility for the Australian government, suggesting that legacies of the Mandate System persist.

Following World War II and the creation of the United Nations, the Trusteeship Council, which began its work in 1947, took up the task of overseeing the fiduciary administration of trust territories, most of them former mandate territories.Footnote ¹²⁵ In 1994, the Council ended its work when Palau became a UN member. Decolonization in the 1960s punctuated the Council’s period of operations. During the decolonization era, nationalist leaders such as Nnamdi Azikiwe of Nigeria and Kwame Nkrumah of Ghana criticized the ideology and institution of international trusteeship as paternalistic and exploitativeFootnote ¹²⁶ – a far cry from scholars’ typical story about fiduciary law.

10.4 Conclusion

Imperialism is part of the big picture of world history. Yet, it is not part of the typical picture of fiduciary law. This omission has made for incomplete theory and an incomplete political economy of fiduciary law. By putting imperial histories into the picture of fiduciary law, this chapter has explored what fiduciary law has done in the world and the values it has served. The aim is to think about fiduciary law descriptively in a way that may have implications for normative theory building.

Taking imperialism seriously would mean recognizing that fiduciary law can simultaneously be for autonomy and for domination. There is much to be said for a pluralist view of fiduciary law, one that, as Dagan puts it, sees fiduciary law as a “heterogeneous” legal category in which some fiduciary relationships “enhance autonomy.”Footnote ¹²⁷ This heterogeneity raises the question whether it makes sense to think of fiduciary law as a field in its own right. Perhaps the lesson of this chapter is that certain categories of legal relationships – guardianship, for example – are just so different from other categories – agency, let’s say – that we should not lump them. Yet, I think, the lesson is that we should be thinking of these sorts of relationships together, because they are bound together as a matter of political economy. Not simply autonomy enhancing, nor simply subordinating, fiduciary law has framed struggles over political and economic power, while fiduciary institutions have been sites of those struggles.