Fiduciary Duties Flashcards
What is a fiduciary?
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’
List of people and professions that fall within the definition of fiduciaries?
Trustees, who owe fiduciary duties to beneficiaries;
Company directors, who owe fiduciary duties to their company;
Business partners, who owe fiduciary duties to each other;
Agents, who owe fiduciary duties to their principal;
Senior employees with access to confidential information, who owe fiduciary duties to their employer; and
Solicitors, who owe fiduciary duties to their client.
What is the ‘no conflict’ rule?
A fiduciary must not put themselves in a position where their own interests conflict with the interests of their principal,
What is the ‘no profit’ rule?
A fiduciary must not make an unauthorised personal profit from their position or use their principal’s property to make such a profit.
When can a trustee act for their own benefit?
By obtaining the informed consent of his principal.
What happens if a trustee acts for their own benefit rather than the trust’s and makes a personal profit?
The trustee will be obliged to account for that profit by paying it over to the trust.
How is liability applied for a breach of fiduciary duty?
It is applied strictly, so as long as there is a breach, the court will not enquire into the merits of the case.
When can trustees make a personal profit?
If it is authorised by the declaration of trust;
If all the beneficiaries are aged 18 years or over, know the full facts, and consents; or
If it is authorised by a court order or by statutory provision.
What is the self-dealing rule?
If a trustee is involved in a transaction where he sells property to, or purchases property from the trust, the beneficiaries can set aside the transactions within a reasonable time.
How is the self-dealing rule applied?
It is applied strictly, so the courts do not consider whether or not the trustee has paid fair value for the property or whether the trustee was acting honestly.
How does retirement impact the self-dealing rule?
If the trustee has retired with the object of purchasing trust property, then they will still be caught by the rule and the beneficiaries will still be able to set the transaction aside.
What happens if a trustee sets up their business in competition with the trust?
They will be liable to account for any profits made by their competing business.
If the beneficiaries become aware that the trustee is planning to set up a competing business, they can obtain an injunction to prevent this from happening.
When can trustees demand remuneration for their services from trust funds?
Trustees can charge fees if there is a charging clause.
If the beneficiaries are all 18 years or above, they can agree to pay the trustees remuneration. However, the agreement must be fair and the trustees must make full disclosure of all relevant facts.
The court should order remuneration if it is in the interests of the beneficiaries because, for instance, the trust needs the skill of the trustee in question and their fees are not excessive compared with those of other professionals.
Under TA 2000, a trust corporation or a trustee who acts in a professional capacity and who is not a sole trustee, and where the other trustees have agreed in writing, are entitled to receive reasonable remuneration.
When does a trustee act in a professional capacity?
If they act in the course of a profession or business that consists of or includes the provision of services in connection with the management or administration of trusts.
How does one determine what is reasonable for trustees to charge?
This will depend on the nature of the services to be provided, the size of the trust and the attributes of the trustee who is seeking to charge.
