Unit 6

Question 1

What are fiduciary duties?

Answer 1

The fiduciary relationship is where a fiduciary has undertaken an act for or on behalf of another individual in circumstances that give rise to a relationship of trust and confidence.

Prevents trustees exploiting their position to make personal profits for themselves.

Express trusts are considered to be a fiduciary relationship of trust and confidence with their beneficiaries – they owe additional F duties to the B’s.

Question 2

Who are fiduciaries?

Answer 2

Someone undertaking an act for / on behalf of another in a particular matter in circumstances giving rise to a relationship of trust + confidence - Bristol and West Building Society v Mothew.

Question 3

Give examples of fiduciaries

Answer 3

Trustees

Company directors (avoid conflicts of interest - s175, not accept benefits - s176).

Business partners (to one another - s30 PA 1890).

Agents on behalf of their principal(s)

Senior employees with confidential info

Solicitors

Situations with X has undertaken to act for Y and Y reasonably believes X will act exclusively for Y’s own interests / in their joint interests (LAC Miners v International Corona Resources).

Question 4

What are the core fiduciary duties?

Answer 4

A person in a F position is not entitled to make a personal profit.

Strict liability.

Question 5

Elaborate ‘a person in a fiduciary position is not entitled to make a personal profit’.

Answer 5

Rationale - cannot use position to advantage anyone else’s interests other than the principal / beneficiary. Fundamental obligation of loyalty.

Ways they could profit:
Information.
Selling property to the trust at an inflated price.
Purchasing property from the trust at a discounted price.
Paying themselves a significant salary.

The fiduciary must not put themselves in a position where their personal interest + their F duty conflict - Aberdeen Railway Co v Blaikie Bros.

Question 6

Elaborate further on ‘strict liability’

Answer 6

Fiduciaries may be liable even where they were acting honestly and to the best of their ability without fraud / acting in bad faith. F is also liable despite their actions benefitting the trust – fiduciaries are expected to act to the highest levels of behaviour.

Courts will not inquire into the circumstances of the case.

Does not matter if the trust has not suffered a loss nor even benefitted.

Question 7

What are the exceptions / defences that can enable trustees to make a profit?

Answer 7

Authorised by settlor (Ultraframe (UK) v Fielding).

All Bs are sui juris (<18 + mental capacity), know full facts and consent (Gwembe Valley Development v Koshy (No 2)).

Authorised by court order (Ultraframe (UK) v Fielding).

Question 8

Why is self-dealing (1) a breach of F duties?

Answer 8

T’s not permitted to sell / purchase trust property for themselves (Armstrong v Jackson).

Such a transaction is voidable (Ex p Lacey).

B’s can seek recission (getting out of the contract due to misrep) without need to demonstrate the contract was unfair (Tito v Waddell (No 2)).

Question 9

Why is competition with trust fund businesses (2) a breach of F duties?

Answer 9

Trust funds can include businesses - T’s must no compete with businesses within the fund -> leads to detriment / acting against trust (Re Thomson).

Question 10

Why is remuneration of trustees (3) a breach of F duties?

Answer 10

Trustees can recover out of pocket expenses from trust fund (s31(1)(a) TA 2000).
Cannot recover remuneration, unless:
- is authorised by trust instrument (charging clause)
- B’s all consent
- T’s obtain court order
- s29 TA 2000 applies (implied professional charging clause).

Question 11

Why are incidental profits (4) a breach of F duties?

Answer 11

‘profits on the side’
third party giving money / benefit to Ts - not come from trust itself - OUTSIDE the trust.

Examples:
Commission (Williams v Barton).
Director salary (Re Macadam).
Renewal of trust lease (Keech v Sandford).
Use of information + opportunities arising in the course of F’s office (Boardman v Phipps).

Question 12

What are the remedies for breach of F duties?

Answer 12

Personal claim
Obliges T to give the profits they have acquired.

Proprietary claim
(often used where proceeds of profit are no longer available).
Action to recover property.

Question 13

What are the Trustee Investment powers and duties under Trustee Act 2000 (TA 2000)?

Answer 13

T’s must invest trust fund (active).

General powers of investment (s3(1))

Standard investment criteria and review (s4)

Obtain advice (s5)

Duty of care (s1)

Purchases of land (s8)

Question 14

What are the general power of investment?

Answer 14

s3(1) TA 2000 provides a trustee can make any investment they could make if they were absolutely entitled to the assets of the trust.

Trustees cannot invest in land other than through loans secured on land - s3(3).

Question 15

What is the Standard Investment Criteria and review?

Answer 15

s4 TA 2000

review investment from time to time (s4(2)).

must consider suitability of investment (considering size, length of trust and risk of investment) (s4(3)(a)).

must also diversify the investment (s4(3)(b)).

Question 16

What is the duty to obtain advice?

Answer 16

s5 TA 2000

Seeking professional advice before making investments (if lacks financial expertise).

Unnecessary / inappropriate to obtain advice (e.g. small trust fund with little funds to pay the expense of a professional adviser OR where the trustee is an investment expert).

Question 17

What is the duty of care?

Answer 17

s1 TA 2000

Reasonable care and skill when investing the trust fund (remember - this fund is owned by the Bs).

Higher standard for professional trustees (s1(1)(b)).

Re Whiteley - Trustees should be the ordinary prudent businessman taking care when investing for someone else (i.e. Bs).

Question 18

What are the other investment duties (not TA 2000)?

Answer 18

(1) Duty to act in the beneficiaries’ best financial interests (Cowman v Scargill)
Considerations of SEPM (social, environmental, political, moral) factors are not appropriate (Cowman v Scargill) as T’s must act in B’s best interests.
BUT Harries v Church of England Commissioners states that SEMP may be appropriate for charity trusts provided T’s have a range of investment options.

(2) Duty to act impartially between beneficiaries
Successive interest trusts - cannot produce just income or capital - must be both.

(3) Duties when the trust investments include a controlling shareholding in a private company
Private companies do not publish accounts etc - must actively obtain this relevant info from the compay itself (Bartlett v Barclays Bank Trust).
Bartlett further elaborates saying T’s must take steps to protect investment through getting reports from directors re company performance or through becoming a director altogether.

(4) Express powers and duties in the trust instrument
May restrict how the trust property is invested
may enable certain investments (e.g. purchasing property anywhere worldwide - overriding s8 TA 2000).