Fiduciary relationship Flashcards
What are the two key fiduciary duties?
- no conflict
- no profit
What is self dealing?
- purchasing assets from trust
- selling assets to trust
What is the consequence of self dealing?
voidable (beneficiaries can rescind)
Will it be considered self dealing if a trustee holds shares of a company but is not a sole shareholder, and sells assets/buys assets of trust?
Depends if they have control of company
What is fair dealing?
Buying beneficial interest
What is the consequence of fair dealing?
Voidable unless full disclosure, acted honestly and fairly and didn’t take advantage of beneficiary
If the trust/fiduciary instrument does not authorise a no conflict transaction, how may the transaction still be allowed?
Obtain fully informed consent of principal
What is the consequence if a breach of fiduciary duty causes a loss to the principal?
Principal can sue and fiduciary liable to compensate
What is the consequence if a breach of fiduciary duty causes profit to the principal?
Principal may end relationship
What is the consequence if a breach of fiduciary duty causes profit to the principal and the fiduciary?
Principal can recover profit
What are the ways in which a trustee may breach the no profit rule?
- direct
- indirect
- exploiting opportunities
- bribes and secret commission
What is direct profit?
Directly using principal property eg income
What is indirect profit?
Unauthorised personal profit arising from performance of role
If a trust holds shares of a company and the trustee is appointed as a director in order to monitor the company, what must the trustee do with any remuneration?
Pay back into trust fund
If a trust holds shares of a company and a trustee is independently appointed as a director, will they have to pay their remuneration to the trust?
No
How may a trustee be allowed to keep their remuneration in the role of director of a company where they have been appointed to monitor the company due to the trust holding shares?
Obtian fully informed consent of beneficiaries
What is exploiting opportunities?
Making profit as a result of an opportunity that comes in the course of performing fiduciary duties
What is bribery?
Accepting money from third party to perform fiduciary role in a certain way
What are the two choices of remedies for the no profit rule?
- account of profits
- constructive trust
Why may a principal want a constructive trust as a remedy for breach of the no profit rule?
- Protects against insolvency of fiduciary
- Allows tracing of assets acquired with profit
