11. Fiduciary Duties

Question 1

Who is a fiduciary

Answer 1

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’

Question 2

Core fiduciary Duties

Answer 2

1. No conflict rule: must not put themselves in a position where their own interests conflict with the interests of their
   principal
2. No profit Rule: must not make an unauthorised personal profit from their position or use their principal’s property to make such a profit

Question 3

Liability for breaching fiduciary Duties

Answer 3

Strict - if loss is caused to trust it does not matter if they were honest etc

Question 4

When can trustees make and keep a personal profit (and not be in breach of their duties)

Answer 4

(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.

Question 5

If a trustee buys trust property in circumvention of the self-dealing rule, but pays a fair market price - are they still in breach?

Answer 5

Yes, the courts apply the self- dealing rule strictly

Question 6

Fiduciary Duty: Competition with the trust

Answer 6

Where the trust includes a business, the trustee must not set up their own business in
competition.

Question 7

If a trustee competes with the business in the trust: Remedies

Answer 7

1. Account for profits made by competing
2. Beneficiaries can obtain an injunction to prevent it (if it hasn’t occurred yet)

Question 8

General Duty: Remuneration of Trustees

Answer 8

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

Question 9

When does the TA 2000 say about trusts which have no charging clause? Can remuneration still be demanded?

Answer 9

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

Question 10

If a trustee is not entitled to receive an income from the trust - are they out of pocket for trustee expenses?

Answer 10

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).

Question 11

Example of an incidental payment and the duty

Answer 11

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.

Question 12

Trust takes a substantial shareholding in a company and trustee becomes a director of the company: can they keep their salary?

Answer 12

If the trustee acquires the salary as a result of the trust they must account for it to the trust

Question 13

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?

Answer 13

• 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

Question 14

if a trust fund includes a large portion of shares, can a trustee use their shareholding to vote themselves into office as a director?

Answer 14

Yes they may - so long as they account to the trust for any salary received and vote in the interest of the trust/

Question 15

Fiduciary Duty: Use of informatino or opportunity

Answer 15

1. 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.
2. 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.

Question 16

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?

Answer 16

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

Question 17

Remedies for beneficiaries if a trustee has breached a the fiduciary duty of no ‘self dealing’

Answer 17

the beneficiaries can choose to set aside the transaction (so long as they do so within a reasonable time)