Fiduciary Duties Flashcards
What is a fiduciary and what is the main aim of fiduciary duties?
- Fiduciary duties prevent trustees doing things outside the trust, which may harm the trust’s interests
- A fiduciary is someone who has undertaken to act for, or on behalf of, another, in a particular matter that gives rise to a relationship of trust and confidence (solicitor and client; trustees to beneficiaries)
What are the main duties of a fiduciary?
- All fiduciaries have a core duty to not let their own interests come into conflict with those of their principal – duty to remain loyal to the principal (no conflict rule)
- They also must not make an unauthorised profit from their position or use the principal’s property to make such a profit (no profit rule)
Are fiduciary duties breached if there is no loss to the trust?
They are an example of strict liability
- If breached, trustee must account to the trust where they may a personal profit, even where the trust itself has suffered no loss
In overview, in what ways might the core duty (no-conflict rule) be breached?
- Purchase of trust property
- Remuneration
- Incidental profits
- Exploitation of trust opportunity/information
Is there ever a defence if a trustee makes a personal profit from their fiduciary position?
Yes, if the personal profits are authorised by:
- Trust deed; or
- Beneficiaries – where full disclosure is given to all Bs, who are adults and all consented; or
- Court order or statute authorised them to act
Where personal profits are not authorised, what claims might beneficiaries bring?
Beneficiaries can bring:
1) A personal claim for account of profits
2) A proprietary claim to recover replacement property
- Both remedies seek to strip trustee of personal profits, rather than seek damages to compensate for any loss
- Shows there is entitlement to remedy, even with no loss
There are various examples of fiduciary duties to the trust can be breached.
What is ‘self-dealing?’
1) Trustee sells or buys trust property from the trust
- They are on both sides of the deal, as seller and buyer – so creates a conflict of interest; as buyer, they want a low price; as seller, they want a high price
2) Beneficiaries can set aside a self-dealing transaction within a reasonable time
- Transaction is not automatically void
- What this means is a question of fact in each case – time doesn’t usually run on beneficiaries on remainder or until they turn 18
- Doesn’t matter if trustees acted honestly, got professional advice or if there is no loss etc
3) If a trustee retires to acquire trust property, they will be caught by the rules
There are various examples of fiduciary duties to the trust can be breached.
What is ‘competition with the trust?’
Trustee must not set up a business which conflicts with any business owned by the trust
- They must account to the trust for any personal profits if they do this
Can non-professional trustees be remunerated for their services?
Trustees can only be paid for their services, if authorised:
- Charging clause can allow for this in trust deed
- Beneficiaries, if all over 18, can consent to them receiving remuneration
- They can consent to non-professionals being paid
Non-professional trustees have no provision under statute for remuneration
- Even if they can’t get remuneration for service, they can be reimbursed for any properly incurred expenses
Can professional trustees be remunerated for their services?
TA provides that professional trustees can be paid reasonable remuneration for their services, if other trustees have agreed in writing
- Solicitors, accountants and financial advisers are an example
Sole professional trustees (where they are the one and only trustee) are not entitled to remuneration
- They could be if another non-professional consents
There are various examples of fiduciary duties to the trust can be breached.
What is the issue with trustees receiving commission?
Trustee who places trust business with a particular firm, cannot keep commission from the placement
- Commission must be paid to the trust
There are various examples of fiduciary duties to the trust can be breached.
What is the issue with trustees receiving a director’s salary?
A trustee who secures a paid directorship because of company shares owned by the trust, and where the trustee uses their shares to vote themselves into office (over 50% in favour) – they must pay salary over to the trust
- A has 35% of shares, but 90% vote to add A as director – A can keep salary
- A has 35% of shares, but 65% vote to add A as director – A only entered office through their votes, so must pay salary to trust
There are various examples of fiduciary duties to the trust can be breached.
What is the issue with trustees receiving use of information or opportunity?
Trustee may come across a valuable opportunity through their position as trustee, which should be passed along to the trust
- Even if trust unwilling or unable to take advantage of it, the trustee must not then take advantage of the opportunity themselves
- If the trustee does take advantage, they must account for any profits to the trust
Keeps trustees loyal to the trust
What is the key difference between fiduciary duty of a trustee to a trust and that of a director to a company?
Directors have a duty to avoid COI, but the duty is not infringed if the situation cannot reasonably be regarded as likely to give rise to COI
- No such exception for trustee – they will have breached fiduciary duty, even if COI was largely hypothetical
