The fiduciary relationship Flashcards
What is a fiduciary?
A person who is required to act for the benefit of another person on all matters within the scope of their relationship; one who owes to another the duties of good faith, trust, confidence, and candor; one who must exercise a high standard of care in managing another’s money or property.
What are the no conflict and no profit rules fiduciaries must obey?
Fiduciaries must not put themselves in a position where their own interest conflict with the interests of the trust.
They must not make an unauthorised personal profit from the trust.
What happens if a trustee makes a personal profit?
They must account to the trust for the profit.
Note liability for breach of a fiduciary duty is strict - the intentions of the fiduciary are irrelevant.
When are trustees permitted to keep a personal profit?
When this is authorised by the declaration of trust;
all the beneficiaries are over 18, know the full facts and consent; or
The profit is authorised by a court order or statutory provision.
What is self-dealing? What are the remedies for self-dealing?
Where the trustee sells or purchases property to or from the trust.
The beneficiaries can set aside the transaction.
What will happen if a trustee sets up a business in competition with the business of the trust?
They will be liable to account to the trust for any profits made by their competing business.
When are trustees entitled to receive remuneration under the trust deed?
If there is an express provision in the trust deed.
If the beneficiaries consent (over 18 and in agreement)
If there is a relevant court order.
Under TA 2000 if the trustees are a trust corporation or a trustee acting in a professional capacity they are entitled to receive remuneration.
What is an incidental commission, are trustees permitted to retain these?
An example would be payment of commission - this must be accounted to the trust.
How should a trustee who is also a director of a company due to their position as trustee treat their director’s salary?
The trustee must surrender the salary to the trust.
If someone was a director of the company before they became a trustee they can keep the money as they didn’t obtain the money y virtue of their position as a trustee.
What remedies are available against fiduciaries for a breach of their duty?
A personal claim for the unauthorised profit.
A proprietary claim to recover property owned by the trustee that represents the personal profit they received.
When might a personal claim against a trustee not be appropriate?
If the trustee is insolvent.
If the trustee has used the trust property to buy an asset the beneficiary considers interesting (property that has increased in value)
The trustees wrongdoing happened a long time ago (claims can be statute barred to 6 years). There is no time limit for proprietary claims.
Are trustees jointly and severally liable for each other’s actions?
No, the trustee who has breached the trust must be named as the defendant for a personal claim. If more than one trustee has breached the trust then those in breach are joint and severally liable
What needs to be proved in relation to causation for a personal claim against a trustee?
That the breach caused the loss.
What is the value of a personal claim against a trustee?
Compensation equal to the loss to the trust plus interest from the date of the breach.
What defences are available to a personal claim?
Exemption clause in the trust deed.
Knowlege and consent of the beneficiaries
s61 TA 1925
Limitation and laches
