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Fiduciary relationships and Soong

"The existence of a fiduciary relationship is therefore the core issue of the entire case and a key point to the legal strategy of both sides."

After lawmaker hsien Chi-ta's (謝啟?j) investigative report on the James Soong (宋楚瑜) financial scandal was made public, the KMT and the relevant government departments immediately refuted the legal opinions in the report. The matter may enter the judicial process in the days to come.

Key to the investigation team's conclusion that Soong does not appear to have broken any laws was the finding of a "fiduciary relationship" between Soong and the KMT or KMT Chairman Lee Teng-hui (李登輝), and Soong's son and associates which makes all the questionable acts appear legitimate.

Whether this conclusion is warranted is determinative to a finding of embezzlement and the issue of back gift taxes. The existence of a fiduciary relationship is therefore the core issue of the entire case and a key point to the legal strategy of both sides.

What facts and legal standards were relied on by the investigation team in reaching its conclusion? These are issues worthy of our consideration.

Features of a "fiduciary relationship" include a fully authorized legal relationship under which the trustee is given high degree of authority in the management and disposition of the trust asset. It permits the independent management of trust property through the exercise of professional judgement and division of labor.

These features make it compatible with the needs of some special business or public interest needs, including the management of assets owned by political parties. However, the arrangement has its flaws.

The trustee may abuse his or her authority and injure the interest of the trustor and beneficiary. The trustee may also defraud an unknown third party in transactions of the trust property.

To prevent such abuse of discretion, the trust laws of many countries require various complicated and sometimes hard to understand preventive measures. Nevertheless, the flexibility of the trust arrangement enables it to create serious legal problems from time to time.

Does a fiduciary relationship exist in the present case? It is difficult to say. At the time of the case, Taiwan had not passed any relevant laws. The regulation on the internal operation of the KMT was less than comprehensive.

Once the present case enters the judicial process, all that a judge can do, besides consulting some less than meaningful precedents and regulations, is to resort to the fundamental principle and rationale of the fiduciary relationship.

Furthermore, as the parties lack documentary evidence of their positions, common sense and the rule of thumb become determinative as to whether a fiduciary agreement exists.

Although countries still cannot reach a consensus with respect to the nature of fiduciary relationship, if we compare the laws of other countries and various international agreements, it is not hard to deduct its important characteristics and the standard of judgement entailed.

First of all, a trustor must clearly authorize the establishment of a fiduciary relationship. Furthermore, the property must be placed in a trust for a designated person or someone capable of been ascertained.

In view of the flat denial of a fiduciary relationship by Lee and the KMT, the authorization is unilaterally alleged by the Soong.

Leaving aside the issue of whether a secret authorization truly exists, the existence of a special trust account for the Hua-hsai Investment Company (華夏?膝q) and a special bank account for the KMT Secretary-general does give the appearance a separation of trust assets.

Therefore, ample room exists for speculations about whether a fiduciary relationship exists.

Still, under what circumstances were the authorization made and was the need for secrecy great enough to demand the concealment of details surrounding the arrangement? We await more substantive explanations of these issues.

Whether the purpose and scope of authorization for the application of the trust assets are clear is also very important. Generally speaking, a judge is less likely to find the existence of a blanket authorization or an auth-orization without a specific goal.

Under the special circumstances and unique political background of the present case, how clearly can the alleged "administrative duties of the party" be clarified becomes a key.

Furthermore, although the trustee has discretion about how to execute his duties, the substantive contents and legitimacy of the execution must be scrutinized under the standard for fiduciary duties owed to trustor.

Even if Soong's status as a trustee is affirmed, his deposit of trust assets into the accounts of his son and associates is still controversial. Objectively speaking, the asset property has been transformed into personal property at this point and Soong cannot escape the suspicion of criminal offenses, such as embezzlement.

Of course, the contemporary fiduciary law gradually allows the trustee to have others execute his fiduciary duties (such as a trust company delegates the management of trust assets to other individuals).

Therefore, a fiduciary relationship could have also existed between Soong and his associates. However, whether such a further authorization exists in the present case is not unquestionable.

Besides, even if a fiduciary relationship exists, the trustee's mingling of trust funds and personal funds in one account and the failure to keep separate ledgers or accounts during the fiduciary relationship go against important rules of trust management.

It is the duty of the trustee to manage the trust property for the benefits of the trustor and beneficiary. If Soong was truly a trustee, he was obligated to take the initiative in informing third parties during a disposition or transaction of the trust property that he was acting as a trustee for the KMT or Lee.

The rationale for this requirement is to allow the third party a full understanding of the existence of a fiduciary relationship and accordingly evaluate the risks entailed in the transaction.

In other words, even though the trustee has discretion over the disposition of the property (such as making donations to political campaigns), the disposition should be made under the name of the trustor, rather than the trustee himself. After all, the trustee is merely an instrument for the management of trust assets.

Finally, a fiduciary relationship often involves disputes over the issues of gift taxes. There-fore, how to distinguish between a trust and other similar legal arrangement such as a gift is an important challenge to all the parties involved.

One important standard to consider is the substantive ownership (rather than the legal ownership) of the property in question.

The present case may be overshadow by political undertones, but now that it is entering the judicial process, the parties, legal professionals, and our society should begin to consider the matter from a legal standpoint.

All legal procedures should be complied with in order to settle all the disputes so that the fundamental concept of the rule of law may be implemented.

Wang Wen-yu is an associate professor of law at National Taiwan University.
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