Fiduciary Duties. Flashcards
What is the definition of someone who is under a fiduciary duty?
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.
What must the fiduciary (trustee) do to safeguard against preferring their own interests?
1) Put themselves in a position where their own interests conflict with the interests of their principal;
2) make an unauthorised personal profit from their position or use their principals property to make such a profit.
List the ways a trustee may breach their fiduciary duty but preferring their own interests.
1) They own a house they can’t sell and purchase it with trust money for an inflated price;
2) Pay themselves large amount of trust funds in remuneration for the work they are doing;
3) Get investment tips from trust’s advisers they decide to use for themselves rather than passing them onto the trust.
Does the trustee have to be dishonest to breach their fiduciary duty?
No.
Liability is applied strictly.
When can a trustee keep/ make a personal profit?
1) If authorised by the declaration of trust;
2) If all beneficiaries are 18+ know of the full facts ad consent.
3) It is authorised by a court order or statuary provision.
Explain how a trustee may breach their fiduciary duty by self-dealing.
This involves the trustee selling property to, or purchasing property from the trust.
if trustees are involved in such an action, the beneficiaries can set aside the transaction at a later date.
The transaction therefore is automatically void, as the beneficiaries may decide the transaction was a good deal for the trust.
This is applied strictly - courts do not consider dishonesty or whether the price was fair, but only that the trustee was self -dealing.
If a trustee retires from a trust and then purchases trust property, are they liable for self-dealing?
Yes they will be liable if they retired in order to carry out the purchase.
Explain how a turtle may breach their fiduciary duty by competition with the trust.
Where the trust includes a business, the trustee cannot set up their own business in competition.
If they so, they’re able to account for the profits made by their competing business.
What should the beneficiaries do if they believe the trustee is going to set up a competing business to the one owned by the trust?
They can apply to the court for an injunction to prevent the trustee form doing so.
What is the general rule in relation to the remuneration of the trustees?
Trustees cannot demand payment for their services from trust funds.
List the exceptions to the rule that a trustee can demand remuneration for their services from trust funds.
1) Express provision in the turns deed.
2) Beneficiaries consent (must all consent and they must all be 18+). If they consent but trustee does not disclose all facts, beneficiaries can set aside their consent at future date.
3) Court order (court would order it if in best interests of beneficiaries and the skill of the trustee for the asked amount is good in comparison to other professionals).
4) Where the trustee is a trust corporation or professional trustee (and there is no express provision in the trust deed preventing such remuneration). The remuneration must be reasonable, and what is reasonable depends on the nature of the trust and the services being provided.
Explain the fiduciary duty on trustees not to retain incidental commission.
This is receipt of monies from third parties.
Trustees cannot make unauthorised profits ‘on the side’.
An example would be a payment of commission received by the trustee. This would have to be accounted to the trust.
Explain the fiduciary duty on trustees not to retain incidental profits in the form of a salary.
Trust may include substantial shareholding in a company.
Trustee may be appointed t the board of directors of that company.
Unless the beneficiaries, court, or trust deed authorise otherwise, trustee must surrender their salary to the trust if they acquired the directorship by virtue of being a trustee.
If they were a director of the company before being a trustee of the trust, they may keep their salary - as they would then not have become a director by virtue of the trust.
Explain how the trustee could breach their fiduciary duty through using information or opportunity.
Trustee is liable to account for profits received from exploiting an opportunity that belonged to the trust. The same applies to confidential info.
This applies regardless of whether the trust could have taken advantage of the opportunity or was interested in the info.
The beneficiaries can authorise this provided they know of all of the facts and are of age and capacity.
What is a personal claim?
Where the trustee must surrender their personal profit to the trust.
The trust does not have to have suffered loss.
the trustee must therefore surrender any unauthorised personal profits they have received by virtue other positions regardless of whether the trust has suffered loss as a result.
