The Fiduciary Relationship Flashcards
Who is a fiduciary?
Mothew: Someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence
What is expected of a fiduciary?
Act in a disinterested way, not out of their own personal interest.
Mothew - Distinguishing obligation is the obligation of loyalty. Breach of fiduciary obligation therefore connotes disloyalty. Incompetence is not enough.
The core duty: Mothew
- Act in good faith
- Not make profit out of his trust
- Not place himself in a position of conflicting interests
- Must not act for his own benefit/others’ benefit without informed consent of the principal
No conflict rule: Keech v Sandford
T holds lease for minor beneficiary, landlord refuses to renew lease for minor, so T renews it for himself.
Held: T breached his duty, therefore holds it on trust for the minor. The trustee is the only person of all mankind who may not have the lease - no conflict rule.
Exception: Principal can authorise any transaction that involves a conflict of interest
Remedy for no-conflict rule: F stripped of any gains accrued from position of conflict - this is not punitive - it is an expression of the duty to only benefit the principal, and acts as a deterrent.
Boardman v Phipps
Solicitor tried to get the trustees (his clients) to buy more shares in a struggling company to which it had already invested. They refuse, he buys them himself.
Held: He must account for his profits, despite good intentions. No-conflict rule has strict liability.
Reasons for no conflict rule and strict liability
- Deterrence - Temptation to embark in matters which may cause a profit or conflict will be reduced if he knows he will be stripped of them.
- Evidentiary complexity - If principal had to prove actual harm, courts would need to consider what would have happened but for the breach. This puts principals on an unfair burden to prove that the conflict caused them harm.
Recovery Partners GP Ltd v Rukhadze
Principals were companies established to provide ‘recovery’ services to family of a deceased billionaire.
Fiduciaries are ex-directors of the companies who resigned and provided the same services to the family.
Ds worked alongside family of Georgian billionaire to recover his assets, then later resigned from the principal companies and pursued opportunity by themselves.
Held: Acted in breach of their fiduciary duties owed to the claimants, profits must be paid back - as they wrongfully appropriated a business opportunity.
Important deterrent effect of no-conflict and no-profit rules. No room for but for causation, but duty must be linked to the profit.
FHR European Ventures LLP v Mankarious
A bribe or secret commission accepted by an agent in breach of fiduciary duty is held on trust for his principal. It is a proprietary right (overturning Lister)
This promotes clarity and simplicity in the law, and the principal should be entitled to such money since the bribe or commission would probably have reduced the benefit received by the principal, and so should form part of his property. It does not prejudice the agent’s unsecured creditors, since bribes and secret commissions should not be considered part of the agent’s estate anyway.
Wider policy considerations support this judgement, since bribes and secret commissions undermine trust in the commercial world, and so the law should be particularly stringent for these.
AG v Ried - Similar proposition - attorney took bribes - held he holds them on constructive trust and the bribe money can be traced into any property brought
Bray v Ford
No-conflict rule is a stringent, inflexible rule however may be departed from where there is no breach of morality or wrongdoing.
Regal Hastings v Gulliver
Same principle as Boardman - directors only made their profit through their position, so liable to account for profits
McWilliam v Norton Finance (UK) Ltd
Credit broker owed a fiduciary duty due to relationship of trust and confidence, hence liable for to account for secret commission received.
CPS v Aquila
CPS’ Proceeds of Crime claims do not override proprietary claims. Unlawful acts of a director cannot be attributed to the company to establish an illegality defence.
Company able to claim for the profits stemming from the breach over CPS.
Samet article - Guarding the fiduciary’s conscience
- Relaxing the strict application of no-conflict rule is problematic, as fiduciaries will always be tempted to exploit their position, and they have wide scope for discretion.
- These factors increase chances of self-deception (fiduciaries convincing themselves they are acting well), producing uncharacteristic dishonesty. No checks and balances make this worse. The only way to eliminate this is to leave no room to even consider conflicts in the first place.
- Powerful temptation operates on mind of fiduciary, due to ease by which they can escape exposure, the vulnerability of the principal and potential for substantial profits.
Counter: Some argue that the current law unnecessarily restricts fiduciary’s discretion, preventing decisions being made which benefit both principal and fiduciary.
- Samet counters, as the fiduciary can get consent of the principal, and only in circumstances where a fiduciary cannot get consent must they decline the transaction.
