Fiduciary duties Flashcards
What are the two types of duty imposed on trustees?
- Trustee duties - to comply with the terms of the trust
- Fiduciary duties - oweing singly minded loyalty to another
This duty ensures that trustees adhere to the specific instructions laid out in the trust document.
What is a fiduciary duty?
A duty of single-minded loyalty owed by one party to another
What are the three ways of breaching the no-conflict rule?
- Self-dealing
- Fair-dealing
- Conflict between principles
What is self-dealing in the context of trustees?
Self-dealing occurs when trustees buy assets from the trust or sell assets to the trust, making such transactions voidable.
Can trustees circumvent the No-Conflict Rule by using a company?
No, trustees cannot circumvent the No-Conflict Rule by incorporating a company and buying/selling to their wholly owned company.
What happens if a trustee buys/sells from a company where they hold shares?
If the trustee has a controlling share, the transaction will be voidable. If not, it breaches the no-conflict rule but is not voidable.
What is the Fair-Dealing principle?
Fair-Dealing requires trustees not to transact directly with beneficiaries to buy their beneficial interest in the trust.
What must a trustee demonstrate in a Fair-Dealing transaction to prevent it being voidable?
The trustee must demonstrate that the transaction was conducted fairly, with full disclosure, honesty, and fairness, without taking advantage of the beneficiary.
If they cannot, the transaction is voidable.
What is a conflict between principals?
A conflict between principals occurs when duties to one principal conflict with duties to another, making it impossible to act entirely in the interests of both.
What are the consequences of breaching the No-Conflict Rule?
If the breach causes a loss to the principal, they can sue the fiduciary for breach and losses.
What can a beneficiary seek if there is a breach of self-dealing or fair-dealing?
The beneficiary may seek rescission of the transaction.
What happens if a breach results in profit to the fiduciary?
The principal can recover the profit made by the fiduciary.
What may a principal wish to do if a breach results in profit to them?
The principal may not require a remedy but may wish to end the relationship.
What is the No Profit Rule?
The No Profit Rule prohibits fiduciaries from making unauthorized personal profits from their role.
- direct profit
- indirect profit
- exploiting opportunities
- bribes and secret commissions
What is Direct Profit in the context of the No Profit Rule?
Direct Profit refers to the obligation to avoid making an unauthorized personal profit arising from the performance of their role.
What is Indirect Profit in the context of the No Profit Rule?
Indirect Profit requires fiduciaries to avoid unauthorized personal profits arising from their role, such as becoming a director of a company in which the trust has shares.
What must a trustee do with any remuneration received as a result of their role as trustee?
The trustee must pay any remuneration directly into the trust fund.
This only applies if the trustee has obtained the position as director as a result of being a trustee, not if they are independently appointed director
Can a trustee be allowed to keep the remuneration they obtain after their appointment because of their role as trustee?
Yes if the trust instrument allows the trustee to retain the remuneration.
What is the rule against exploiting opportunities?
It establishes that a fiduciary cannot keep profits made from opportunities arising during their fiduciary duties, whether or not the prinicpal would or even could have used that opportunity themselves
What are bribes and secret commissions in relation to the No Profit Rule?
Bribes and secret commissions are clearly contrary to public policy and are not allowed
What claims can be made if there is a breach of the no-profit rules?
- An account of profits
- A constructive trust
What is a constructive trust?
A constructive trust provides protection against the insolvency of a fiduciary and allows the principal to trace into any subsequent profits made by the fiduciary.
What is an account for profits?
Personal claim which requires the trustee to pay the principal an amount equivalent to the amount of profit they made
