Fiduciary duties Flashcards
Who can be a fiduciary?
A fiduciary is sb act for or on behalf of another that give rise to a relationship of trust and confidence including:
1. trustees
2. company directors: owe fiduciary duties to their company
3. business partner: owe fiduciary duties to each other
4. agent: owe to their principal
5. senior employees with access to confidential information: owe to employer
6. solicitors: to client
Core fiduciary duties
- No conflict rule: must not put themselves in position where their own interests conflict with interest of beneficiaries
- No profit rule: must not make an unauthorised personal profit from their position or use principal’s property to make such profit.
When trustees can make a personal profit?
- This is authorised by the declaration of trust
- all beneficiaries are adult, know of full facts and consent
- This is authorised by a court order or by statutory provision
Common types of breaches of fiduciary duty
- Self dealing
- Competition with the trust
- Remuneration of trustees
- Incidental profits: commission
- Incidental profitsL directors’s salary
- Use of information or opportunities
-
Self dealing rule
In case a trustee involves in selling/purchase of property from the trust. Beneficiaries can set aside the transaction for any reason within a **reasonable ** period of time. (fair value or good faith are irrelevant)
A trustee cannot get around self dealing rule by retiring from the trust before transaction.
Competition with the trust
Trustee must not set up their own business in competion with the trust. If they do, they will be liable to account for any profits made by the competing business.
Beneficiaries may obtain injunction to prevent this from happening.
Common breaches of fiduciary duties
- Self dealing
- Competition with the trust
- Remuneration of trustees
- Commission
- Director salary
- Use of information or opportunity
Self dealing rule
- Beneficiaries may side aside self dealing transaction for any reason within reasonable time period.
- Trustees may not get around by retiring from trust before transaction
When remuneration of trustees are permitted?
When authorised by:
1. Express provision of trust deed
2. Beneficiaries consenting: must be fair and on full disclosure or beneficiaries may set aside later
3. Court order
4. TA 2000 unless otherwise provided in trust deed:
(a) trust corporation or
(b) trustee acts in professional capacity and who is not sole trustee, and other trustees agreed in writing
Trustees are entitled to be reimbursed when acting on behalf of the trust (e.g. cost for travelling to trustee meetings)
Incidental profits
- Fiduciary duty prevents trustees from making incidental profits from 3rd party
- E.g. Commission or director salary. Trustee must surrender any commission or salary they receive by virtue of trust to the trust.
- Director may keep his salary if he was appointed before becoming trustee or the vote for his directorship was independent from the trust shareholding
Use of information or opportunity
Trustee is liable to account for any profits they receive where:
1. they received that profit by exploiting an opportunity belong to the trust.
2. they make use of confidential info for their own personal gain where they only aware of such infor due to trusteeship (e.g. Boardman v Phipps)
Remedies available to beneficiaries in case trustee breaches their fiduciary duties?
- Personal claim that trustee pays over their unauthorised profit to trust (note that this not for making good of any loss, the trust may have not suffered any loss).
- Proprietary claim seek to recover property owned by trustee that represents the personal profits they received (e.g trustee make 400k unauthorised profit and purchased shares, - require to convey shares)
