1. Lecture 11
Fiduciary Duties

2. Fiduciaries Definition Scope of relationship Application to trustees
Remedies

3. Definition
“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to an obligation of loyalty.. A fiduciary must act in good faith; he must not make a profit of his trust; he must not place himself in a position where his duty and interest may conflict” Millet LJ in Bristol & West BS v Mothew [1998]

4. The Fiduciary Duty
To promote loyalty – the defining duty of trusteeship, “..trust, not self interest, at its core”, Norberg v Wynrib (1992)
Developed in Chancery to restrain the unconscionable abuse of legal power and position
A rule of public policy, strict application sets an example for all who hold positions of trust, Regal Hastings Ltd v Gulliver [1967]

5. Established fiduciary relationships:
Agent and principal
Company director and company
Partner and partner
Trustee and beneficiary
NB not exhaustive – look to definition and voluntary assumption of a personal responsibility and also any contract terms

6. Examples where fiduciary duties have been found
Reading v AG [1949]
Army sergeant, in uniform, sat in lorry being used by smugglers to get it through police checkpoints
HELD: He was in a fiduciary position with his employers, the MOD, and was in breach of that position

7. Examples where fiduciary dutes have been found (2)
English v Dedham Vale Properties [1978]
A buyer of land abused his position by pretending to have the seller’s permission to apply for and obtain planning permission
HELD: He was in a fiduciary position as a “self-appointed” agent and was obliged to account for any profit

8. Scope of fiduciary duties
In addition to any contractual or tortious obligation:
Duty of utmost good faith
Rule against self-dealing

9. 1. Utmost Good Faith
2 parts: - Duty to avoid potential conflict of interest Prohibition on “secret profits”
Prophylactic in nature – ie guards against, preventative in aim; “pour encourager les autres”, Voltaire
Constructive trust can be imposed re profits

10. Utmost Good Faith Bray v Ford [1986] per L Herschell
“It is an inflexible rule of the Court of Equity that a person in a fiduciary position … is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and his duty conflict…” No defence to say there will probably be no actual conflict or harm

11. Utmost Good Faith cont’d
“…this rule is …based on the consideration that human nature being what it is, there is a danger, in such circumstances, of the person holding the fiduciary interest being swayed by interest rather than duty, and thus prejudicing those he is bound to protect”

12. Duty to avoid conflict of interest
Rule breached only where Trustee puts himself in position of potential conflict: Sargeant v NatWest Bank (1990)
Testator appointed his children as trustees of the freehold title to land of which they were already tenants – held: a potential conflict of interests BUT no breach as they had not put themselves in that position NB If S does not know of the potential breach, the fiduciary/ trustee must decline the appointment

13. Conflict of interest cont’d
Keech v Sandford (1726)
Profits from Romford market paid under terms of a lease to a trust – the beneficiary of which was a child.
The lease came up for renewal and T applied for it for the benefit of the child. Landlord refused as he said the lease was a contract that could not be enforced against a child.

14. Keech v Sandford cont’d
So, T took lease for himself
Held: Leases to be held on constructive trust for the beneficiary and T to account for profits received by him

15. Conflict of interest cont’d
Re Thomson [1930]
The trust property was a yacht brokering business and the trustee (fiduciary) wanted to set himself up in a similar business in the same town, in competition.
Held: conflict of interest

16. Duty not to profit from position
Boardman v Phipps [1967]
Trust property = shares in a company. 1B and 1T, Mr Boardman, acting on information available to the trust, obtained control of the company for the trust and made huge profits. Mr B honestly but wrongly believed he had the full approval of all the Ts and Bs. Held: Fiduciary and thus liable to account for profits BUT court awards quantum meruit remuneration

17. Duty not to profit from position
There is an obligation to account for any unauthorised profit accruing to him by reason of his office or position of trust
Right to claim reimbursement of expenses properly incurred, s31(1) Trustee Act 2000
Professional trustee has right to reasonable remuneration if trust instrument is silent s29(5) TA 2000

18. Strict approach to good faith
No defence that fiduciary acted honestly or mistakenly, Re Thompson’s Settlement [1986]
No defence that profit would not have been available to the B, Keech v Sandford (1726) ONLY DEFENCE: The fiduciary made full & complete disclosure to the persons to whom he owed the duty and they, all being sui juris, consented or ratified the act. OR Re Drexel Burnham Lambert Pension [1995] – Fiduciary can apply to court for directions where there is a conflict

19. 2. Rule against self-dealing
Trustee cannot buy trust property
Trustee cannot sell his own property to the trust
Clear conflict of interest situation

20. Rule against self-dealing:
Holder v Holder [1968]
Testator appointed his son as trustee. Son was a tenant on farm forming part of the estate. He renounced his trusteeship after taking only a few small steps in dealing with the estate and then bought the farm at public auction. HELD: not to be set aside, insufficient causal link between his gain and position of trust

21. Fair-dealing Rule
T can buy a B’s interest if full disclosure and fair price to B:
Coles v Trescothick (1804) per L Eldon
“a trustee may buy from the cestui que trust, provided …there is not fraud, no concealment, no advantage taken, by the trustee…” NB Not self-dealing as T buying from B (not from himself as T)

22. Remedies
A constructive trust can be imposed – fiduciary holds for benefit of Bs. This would give rise to a:
Personal claim – Equitable account of profits and maybe also
Proprietary claim – FHR v Cedar Capital [2014] if profit is direct consequence of breach or exploitation of opportunity properly that of B