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Equity and Trusts > WS 6 - Fiduciary Duties > Flashcards

WS 6 - Fiduciary Duties Flashcards

1
Q

Define fiduciary duty

A

Bray v Ford [1896] - Lord Herschell: “He is not allowed to put himself in a position where his interest and duty conflict”

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2
Q

List the status based fiduciaries

A 
partners
agents
directors
senior employees
Personal representatives
trustee
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3
Q

Fact based fiduciary cases: LAC Minerals v International Corona Resources

A

LAC Minerals v International Corona Resources: Canadian authority: 2 mining firms, negotiating JV, one says to other it had discovered mineral deposits in adjacent land. Other company then purchased adjacent land and developed mine alone. HELD: FidRel did exist.

One had given confidential information in course of negotiations which they expected to be used for their joint benefit

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4
Q

Fact based fiduciary cases: Murad v Al Saraj [2004]

A

Where first instance judge decided there was a FidRel where the Cs reposed trust and confidence in the D to negotiate and instruct professionals for their joint-benefit in connection with their JV to buy hotels.

  1. X has undertaken to act for Y
  2. Y reasonably believes that X will act exclusively in Y’s interest/joint interests
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5
Q

Fact based fiduciary cases: English v Dedham Vale properties

A

Purchasers negotiating to buy land and purporting to act on behalf of the sellers, sought and obtained planning permission. It was held that as “self appointed agents” the purchasers had put themselves in a fiduciary position and they had to account to the sellers for the profit arising from the grant of planning permission.

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6
Q

Why is breach of fiduciary duty strict liability?

A
  1. Deterrent
  2. If the courts were required to consider the merits of the case, there would be evidential difficulties - How would prove the trustee had been honest? Or that trust would have done anyway?
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7
Q

What steps can a fiduciary take to authorise profit?

A

Obtain consent of all beneficiaries who are:

  • sui juris
  • fully informed consent
  • freely given consent
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8
Q

How, in brief, can a fiduciary duty be breached?

A
  1. The trustee as purchaser
  2. Competition with the trust
  3. Unauthorised remuneration of trustees
  4. Incidental profits
  5. Company directors
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9
Q

Where trustee purchases from himself/co-trustee

A

Self-dealing rule: strict liability, so fairness/context irrelevant. (Ex p Lacey (1802)]

Lord Eldon in Ex p James (1803): “the purchase is not permitted in any case however honest the circumstances; the general interests of justice requiring it to be destroyed.”

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10
Q

What can beneficiaries do about the self-dealing situation?

A

The sale is voidable by the Bs within a reasonable time. If they decide to void the sale, they must refund price and trustee’s expenses in return for land.

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11
Q

How not to get sale under self dealing set aside?

A

. Court order authorising the sale (costly)
. Tom should seek the consent of the beneficiaries (only if all Bs are sui juries)
. Bs would need to know all the relevant facts and that the transaction was fair in order to rebut the presumption of undue influence
. Retirement and then buy the land? exceptional, may be using info gained while trustee

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12
Q

Holder v Holder [1968]

A

Where a sale to a trustee was upheld. Exceptional case

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13
Q

What presumption is there when a trustee purchases the beneficial interest of a benef, and can it be rebutted?

A

. Presumption of undue influence
. Rebutted by the fair dealing rule:

  • Disclose all material facts
  • Transaction is fair and honest
  • No undue influence
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14
Q

Competition with the trust

A

a. Where the trust includes a business;and
b. A trustee sets up his own business in competition; then
c. The trustee is accountable for any profits
d. And possibly an injunction - Re Thomson: Injunction against setting up a yacht-broker, personal interest conflicted with trust duties

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15
Q

Unauthorised remuneration of trustees: under what circumstances can they demand payment for their services?

A

Cannot unless authorised by:

a. Charging clause in trust instrument
b. Benficiaries’ consent - presumption of undue influence is rebutted by fair dealing rule and sui juris beneficiaries
Court order (Re Duke of Norfolk’s Settlement Trust)
d. Trustee Act 2000

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16
Q

Re Duke of Norfolk’s Settlement

A

court should order remuneration if it is in the interests of the beneficiaries. Trust may need skills of the trustee in question

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17
Q

s.28 Trustee Act 2000

A

Trustee’s entitlement to remuneration under the trust instrument

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18
Q

s.28(5) Trustee Act 2000

A

Trustee acts in a professional capacity if he acts in the course of a profession or business which consists of or includes the provision of services in connection with

  • management or administration of trusts
  • any particular aspect of the management or administration of trusts generally
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19
Q

s.29(1) TA 2000

A

A trust corporation can charge reasonable remuneration even though it is a sole trustee

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20
Q

s.29(2) TA 2000:

A

A trustee who is not a trust corporation can charge fees only if all the other trustees AGREE IN WRITING

21
Q

s.29(3) TA 2000

A

“reasonable remuneration” = nature of services and attributes of trustee

22
Q

s.29(5) TA 2000

A

Cannot use s.29 if “any provision about entitlement to remuneration has been made by the trust instrument”

23
Q

What if you are a sole trustee and want remuneration. Does the TA 2000 help?

A

No, need other Ts to agree to remuneration. Would need consent of beneficiary or court order

24
Q

Recover out of pocket expenses?

A

s.31(1)(a) TA 2000

25
Q

What are incidental profits?

A

Trustees have access to information. Must account for any personal profit they gain from the use of trust property or from exploiting information or opportunity that arose by virtue of trusteeship.

26
Q

Williams v Barton [1927]

A

Must account for remuneration from 3rd party by virtue of being trustee (stockbroker who was a trustee suggests trust should use his firm, he gets commission)

27
Q

What if trustee become director of a company in which the trust has a shareholding. Is this a conflict of interest?

A

Re Gee [1948] - Y became director due to 100% of shareholder votes. Y could keep his salary as he became director independent of the trust’s shareholding

Re Macadam [1946] - Where trustee become director by virtue of being a trustee and using trust property, he has breached is fiduciary duty and must account for salary to the trust

28
Q

What if Y was a director of company before becoming trustee of trust?

A

Can keep salary: Re Dover Coalfield Extension [1908]

29
Q

Keech v Sandford (1726)

A

Trustees held trust on lease for an infant. LL granted new lease to the trustee personally. HELD - trustee had to transfer the lease to the trust and account for profit. STRICT LIABILITY SO HONESTY IRRELEVANT

30
Q

Don King Productions v Warren [2000]: Facts

A

Entered into a partnership to promote boxing in Europe. Each held the benefit of any management or promotion agreement concluded previously, on trust for the partnership. Warren and King decided to end the partnership and it was duly dissolved, but it had not been wound up because the partnership assets had not bee dealt with. Who owned benefit of management and promotion contracts?

Contracts entered before dissolution were held on trust for the partnership. What about those which were renewed in favour of Mr Warren?

Lightman J: principle in Keech v Sandford would extend beyond the renewal of trust leases to cover the present case and renewals were held on trust for the partnership

Frank Warren had breach fiduciary duty: conflict of duties as partner to have beneficial winding up, with interests in setting up competing business and to obtain contracts for that business

31
Q

Boardman v Phipps [1967] - House of Lords: General rule it confirms:

A

Trustee is accountable for any personal profit he makes from information or opportunities that he receives by virtue of being a trustee.

32
Q

Boardman v Phipps: Facts:

A

Boardman (solicitor to trustees) and TP (son and beneficiary under the will) did not like the running of company in which Trust had shares. Went to AGM. Later bought the company, so to turn around and return capital to shareholders. During negotiations for purchase the referred to their representative capacity and made use of the info they had received at AGM as representativves of the trustees. Two active trustees gave their consent.

33
Q

Decision in Boardman and Phipps and justification

A

3:2 majority. Had placed themselves in a position where their interest might conflict with their duty. Slightest possibility of conflict makes trustees accountable for their profit. Boardman could not have given impartial advice.

Where trustees obtain a profit from the use of the information or opportunity that comes to them only because they are trustees, they are accountable for the profit.

Purported to be representatives of the company.

34
Q

In Boardman v Phipps how can they ensure they are able to retain profit?

A

Should seek fully informed consent of their principal. Benefs must be sui juris. in this case, HoL said that trustees had not authorised the profit in this way because the Bs were not full informed, and one of them was incapable of giving consent.

35
Q

What happened to D’s share of profit in Boardman v Phipps?

A

Ds accounted to trust for share of profit. Yet, awarded generous remuneration because they had been honest and great deal of time and skill to improve company’s fortunes.

36
Q

Guiness v Saunders [1990]

A

Lord Goff said the court’s jurisdiction to award remuneration should be limited to cases where it cannot have effect of encouraging trustees to place themselves in a position of conflict of interest.

37
Q

Strict Liability for breach of FidRel: pros and cons

A

Pros:

  • Prophylactic approach: deterrent
  • overcomes evidential problems of proving the trustee was dishonest

Cons:

  • Does not distinguish between honest and dishonest trustees
  • Harsh rules may discourage people from taking up trusteeships
38
Q

Regal (Hastings) v Gulliver [1942]

A

Regal owned cinema. A subsidiary, A, was formed to obtain two leases for other cinemas. LL said would grant if the company’s share cap fully paid up. Regal had insufficient money to buy shares, so directors bought them for co, with own capital. shares sold for profit. HELD - directors accountable, didnt matter they were honest

39
Q

Industrial Development Consultants v Cooley [1972]

A

MD of IDC. Negotiated with Gas Board to obtain a contract for IDC, but the negotiations were unsuccessful. Later he was told that IDC wouldnt get work, but he could if he tendered personally. He then resigned and entered into contract with Gas Board. HELD - Cooley had to account to IDC for the profit he made, even though IDC had little chance of getting the contract.

40
Q

s.175(1) Companies Act 2006

A

A director must avoid a situation which he has, or may have, a direct or indirect interest that conflict, or possibly may conflict with the interests of the company

41
Q

s.175(2) CA 2006

A

In particular, the exploitation of property, information or opportunity whether or not the Co.could take advantage of it

42
Q

s.175(4) CA 2006

A

a) the duty will not be breached if the situation cannot be reasonably regarded as likely to give rise to a conflict;
b) If Co. is incorporated before 1/10/08, such a conflict can be authorised by directors

43
Q

s.176 CA 2006

A

Prevents directors accepting benefits from 3rd parties unless authorised by shareholders

44
Q

s.177 CA 2006

A

If directors negotiate contracts between themselves and company, they should disclose interest to other directors

45
Q

What happens in personal remedy?

A

Stripping fiduciaries of any gain they make from a conflict situation i.e. ‘disgorgement’

46
Q

What happens in proprietary claim?

A

A claim to the property derived from the profit (Williams v Barton)

a. A proprietary remedy is preferable if (1) the fiduciary is bankrupt; (2) an asset has gone up in value
b. Sinclair Investments v Versailles Trade Finance: A proprietary claim is available only where the profit was gained out of use fo the trust property or an opportunity belonging to the trust.

47
Q

What happens in personal remedy?

A

Stripping fiduciaries of any gain they make from a conflict situation i.e. ‘disgorgement’

48
Q

What happens in proprietary claim?

A

A claim to the property derived from the profit (Williams v Barton)

a. A proprietary remedy is preferable if (1) the fiduciary is bankrupt; (2) an asset has gone up in value
b. Sinclair Investments v Versailles Trade Finance: A proprietary claim is available only where the profit was gained out of use fo the trust property or an opportunity belonging to the trust.

Equity and Trusts (13 decks)

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