FIDUCIARY RELATIONSHIPS Flashcards
Definition
A fiduciary relationship is a special relationship recognised in equity as imposing certain negative obligations (i.e. things which the fiduciary is not allowed to do)
Where you have a fiduciary relationships, the fiduciary has a duty of loyalty to their principal.
They cannot act solely in their own interests
They cannot make an unauthorised profit out of their position
Fiduciary duties apply to, but are not limited to, trustees
The potential scope for a breach of fiduciary duty is therefore wider than that for a breach of trust
Bristol & West Building Society v Mothew
Fiduciary duty
“The expression “fiduciary duty” is properly confined to those duties which are peculiar to fiduciaries and the breach of which attracts legal consequences differing from those consequent upon the breach of other duties. “ per Millet LJ
Fiduciary relationships impose specific obligations that may coincide and be concurrent with other duties, but the fiduciary duties are narrower and are linked to the specialness of the relationship
Staechelin v ACLBDD Holdings
FACTS
The agent selling a painting argued that he was entitled to a commission of $10m. The agent failed to pass on some information (not dishonestly) to the vendors and so they wanted to refuse to pay his commission. The CA said that the failure to disclose was not a breach of fiduciary duties because these obligations do not force the fiduciary to be right all the time. Because it was not dishonest, the court ruled that he should not be deprived of his commission
Staechelin v ACLBDD Holdings
HELD
The CA said that the failure to disclose was not a breach of fiduciary duties because these obligations do not force the fiduciary to be right all the time. Because it was not dishonest, the court ruled that he should not be deprived of his commission
Al Nehayan v Kent
When do fiduciary duties arise?
Fiduciary duties typically arise where one person undertakes and is entrusted with authority to manage the property or affairs of another and to make discretionary decisions on behalf of that person.
The essential idea is that a person in such a position is not permitted to use their position for their own private advantage but is required to act unselfishly in what they perceive to be the best interests of their principal
Why a fiduciary obligation can be imposed
Consent
Undertaking
Imposed by law
Status
Fusion
Why a fiduciary obligation can be imposed
Consent
If a solicitor choses to enter into this kind of relationship, they consent to the obligations
Why a fiduciary obligation can be imposed
Undertaking
A voluntary undertaking of obligations from the position you are accepting is a justification
Why a fiduciary obligation can be imposed
Status
Equity recognises the distinctiveness of certain offices which are fiduciary, and because of a variety of moral and legal considerations, we are justified in imposing these extra burdens on a fiduciary
Equity elevates certain relationships by regarding them as fiduciary and imposing this obligation to not act in your own self-interests and to instead act in the best interests of your principal
Why a fiduciary obligation can be imposed
Imposed by law
Because of the imbalance of power between a fiduciary and their principal results in the scope for taking advantage of the other party’s vulnerability becoming very wide
Cullen Investments v Brown
There was a break down in a business relationship
If there are 2 commercial actors engaging, it is much harder for commercial organisations to subordinate their own interests for those of another company, mainly because you do not have control over their affairs
If you are expecting someone to owe duty to you, this can be problematic: “it is normally inappropriate to expect a commercial party to subordinate their own interests to those of another commercial party”
Fiduciary duties in commercial situations
In most fiduciary relationships, there is an imbalance of power and expertise, so we place a responsibility on the party with more power to not act in their own interest
Dealing with two equally sophisticated actors means that this relationships is not the same.
If the circumstances suggest that the parties cannot subordinate their own best interests, it might suggest that fiduciary obligations are not owed on the facts
Basic standard of liability
Strict liability
There is no requirement of fault in the sense of moral blameworthiness - disregard the character of the fiduciary regarding fault
Why is it strict liability regarding the breach of fiduciary duties?
“Equity adopts a prophylactic approach in relation to trustees and others in a trustee-like position … A fiduciary will often see an opportunity for personal profit arising in relation to the beneficiary’s affairs” P Birks, Introduction to the Law of Restitution
Opportunities may arise that should be for the principal, and the risks of temptation is such that equity seeks to prevent you from being tempted and by taking this approach
Equity is concerned with temptation in relation to fiduciaries because the nature of these situations gives the opportunity to give into temptation
There is a duty not to pursue your own interests if in doing so you might be tempted to set aside the best interests of the
Royal Hastings v Gulliver
RATIO
“The liability arises from the mere fact of a profit having … been made. the profiteer … cannot escape the risk of being called upon to account”
It is enough that you had a duty to not make a profit and then made an unauthorised profit
Content of fiduciary duties and standard of liability
General rule
A fiduciary must not profit from their position or have conflicting interests or duties unless the principal has given informed consent (or it is otherwise authorised, e.g. by statute or the court)
The priority is to balance the imbalance of power in the relationship
An advantage of this strictness is certainty
Content of fiduciary duties and standard of liability
Bray v Ford
We are not concerned with the morality of the situation
Content of fiduciary duties and standard of liability
Stevens v Premium Real Estate
“If someone puts himself in a position of having two irreconcilable duties, it is his own fault”
Content of fiduciary duties and standard of liability
Keech v Sandford
The rule must be strictly pursued and not in the least relaxed. The risk of conflict justifies the strictness of the approach, even though in reality there is and will not be any conflict
Content of fiduciary duties and standard of liability
Loyalty
“The application of the rules governing fiduciaries is not about ensuring loyalty. The rule addresses the fact that where an exercise of a power is taken in cases where the trustee’s judgment is impaired, that exercise can be set aside” J Equity, James Penner
If you are in a position to act in a way that is not in the best interests of the principal, it is hard to not make an unbiased decision. This rule protects you from yourself
Positions of conflict do not depend on any fault, but rather from breaching a duty owed
Bristol & West Building Soc v Mothew
No breach of trust – authority to use money not revoked and not conditional on compliance with instructions
No breach of fiduciary trust – contract which ins in breach of this duty need not be dishonest but it must be intentional. An unconscious omission which happens to benefit one principal at the expense of the other does not constitute a breach of fiduciary duty, though it may constitute a breach of the duty of skill and care
Unauthorised profits
Fair dealing
Self-dealing
Boardman v Phipps
FACTS
A testamentary trust for widow and 3 children was set up
Boardman obtained approval from Fox and Noble for plan to buy shares personally, he did not seek approval from the widow
Boardman v Phipps
Breach of a fiduciary relationship
Acquired information as agents of the trustees
or
Used information to make profit for themselves
or
Acted honestly and in good faith for benefit of trust
But did not have consent of all three trustees
Boardman v Phipps
Relevance of motives
Your motives are irrelevant to whether it is a breach of fiduciary duty or not. It is enough that there is a mere possibility of conflict even if on the facts there was no possibility
“Even if the possibility of conflict is present between personal interest and the fiduciary position the rule of equity must be applied” Lord Hodson