11. Fiduciary Duties Flashcards
Who is a fiduciary
A fiduciary is someone ‘who has undertaken to act for or on behalf of another in a particular
matter in circumstances that give rise to a relationship of trust and confidence’
Core fiduciary Duties
- No conflict rule: must not put themselves in a position where their own interests conflict with the interests of their
principal - No profit Rule: must not make an unauthorised personal profit from their position or use their principal’s property to make such a profit
Liability for breaching fiduciary Duties
Strict - if loss is caused to trust it does not matter if they were honest etc
When can trustees make and keep a personal profit (and not be in breach of their duties)
(a) this is authorised by the declaration of trust;
(b) all the beneficiaries are aged 18 years or over, know the full facts and consent; or
(c) this is authorised by a court order or by statutory provision.
If a trustee buys trust property in circumvention of the self-dealing rule, but pays a fair market price - are they still in breach?
Yes, the courts apply the self- dealing rule strictly
Fiduciary Duty: Competition with the trust
Where the trust includes a business, the trustee must not set up their own business in
competition.
If a trustee competes with the business in the trust: Remedies
- Account for profits made by competing
- Beneficiaries can obtain an injunction to prevent it (if it hasn’t occurred yet)
General Duty: Remuneration of Trustees
Trustees cannot demand payment for their services from trust funds unless authorised by:
a. Express provision in trust
b. beneficiaries consenting (18+, all agree, can change their minds)
c. Court order
d. TA 2000
When does the TA 2000 say about trusts which have no charging clause? Can remuneration still be demanded?
i. a trust corporation or
ii. a trustee in their professional capacity (who is not a sole trustee), where others have agreed in writing
- is entitled to receive reasonable remuneration
If a trustee is not entitled to receive an income from the trust - are they out of pocket for trustee expenses?
Whether or not a trustee is entitled to charge fees for their work, s 31 of the TA 2000 provides
that the trustee can be reimbursed from the trust fund for any expenses properly incurred
when acting on behalf of the trust (such as the cost of travelling to trustee meetings).
Example of an incidental payment and the duty
The fiduciary duty also prevents trustees from making incidental profits
(the receipt of money from third parties). Trustees must not make unauthorised profits ‘on
the side’. An example of an incidental profit is the payment of commission to a trustee when that trustee places trust business with a particular firm. The commission received by the trustee has to be
accounted to the trust.
Trust takes a substantial shareholding in a company and trustee becomes a director of the company: can they keep their salary?
If the trustee acquires the salary as a result of the trust they must account for it to the trust
Trust fund includes shares in a company: if the shares help the trustee become a director (because they use their voting rights to ‘vote themselves’ in) what additional duties must they be aware of?
- any salary they receive as a result of the directorship must be accounted for to the trust
- but this is only if these votes are the DECIDING votes
- If they aren’t, the trustee can keep the salary
if a trust fund includes a large portion of shares, can a trustee use their shareholding to vote themselves into office as a director?
Yes they may - so long as they account to the trust for any salary received and vote in the interest of the trust/
Fiduciary Duty: Use of informatino or opportunity
- A trustee is liable to account for any profits they receive where they received that profit by
exploiting an opportunity that belonged to the trust. - Likewise, a trustee who makes use of
confidential information for their own personal gain when they only became aware of the
information due to their trusteeship will have to account for any profits they receive.
If the trust is receives information which would help them make a profit in an investment, but ultimately pass on the opportunity - can a trustee use this information to make a profit for themselves (privately) AND the trust?
They would be in breach of their fiduciary duty - it does not matter that the trust was not interested
- They would need to account for their personal profit even though the trust did not suffer a loss
Remedies for beneficiaries if a trustee has breached a the fiduciary duty of no ‘self dealing’
the beneficiaries can choose to set aside the transaction (so long as they do so within a reasonable time)
Where a trustee makes an unauthorised profit from the trust - how does equity ensure that the beneficiaries are entitled to such profit?
The profits are held on a ‘constructive trust’ for the beneficiaries of the trust
Liability of trustees to the beneficiaries for breach of trust
The trustees are jointly and severally liable
When would it be appropriate for one trustee to claim a contribution (under statute) from their other trustees?
If they have been pursued as severally liable by the beneficiaries (for the whole amount) and wishes to get a contribution from others
- ie. loss due to a collective failure
When should a trustee claim an indemnity from another trustee following a claim for breach of trust?
If the trustee pursued is not the true guilty party - and they did not encourage this breach in any way, they can claim a full indemnity from the guilty party using the rule in Re Partington
When are trustees subject to the ELEVATED duty of care
- by virtue of their skills or experience
OR - because they are being paid by the trust
