12) Fiduciary Relationship Flashcards
(26 cards)
How can a trustee - beneficiary relationship be characterised?
- As fiduciary in nature
What is the distinguishing feature of fiduciary relationships?
- One party owes a duty of single-minded loyalty to the other.
- Often where there is an imbalance of power
Examples of fiduciary relationships
- Solicitor - client
- Company director-company
- Agent-principle
What are the key fiduciary duties and from where do they stem?
- No conflict
- No-profit
Stemming from the core obligation of the fiduciary being one of single-minded loyalty to their principal
No conflict
Fiduciary Duty
- A fiduciary must not put themselves in a pisition where their personal interests conflict with their duties to their principal
No-Profit
Fiduciary Duty
A fiduciary must not obtain an unauthorised benefit as a result of their position as a fiduciary either for themselves or for a third party.
Self dealing
Tito v Waddell (No2)
- Trustee pruchasing assets from trust, or selling to trust.
- Clear conflict
- Such transactions will be voidable, meaning the beneficiaries can seek to rescind
Can a trustee get around the self-dealing rule by incorporating a company and then selling trust property to that company?
Selfp-dealing
No,remains an obvious conflict.
Transaction will be voidable
Trustee buys from or sells to a company in which the trustee holds shares but is not sole shareholder?
Self dealing
- Nuanced and fact based.
- Likely to depend upon whether the trustee has a controlling shareholding in company.
- If a controlling shareholding may be treated as self-dealing.
- If not a controlling share, unlikely to be treated as self-dealing, but still involves a breach
Conflicting Duties
- No conflict extends to situations where fiduciary’s duties invovle a conflict between two principals.
- not single minded loyalty
- Not possibl to act in best interests of both principals where interests conflict.
Conflict: Fair dealing
Tito v Waddell (No2)
- Involves trustee directly transacting with the beneficiary to buy their beneficial interest under the trust.
Not as stringent rules - Trustee must be able to demonstrate the transaction was conducted fairly - full disclosure, acted honestly and fairly / did not take advantage/
Voidable otherwise
Indirect Profit
- Fiduciary must avoid making unauthroised personal profit from performance of role.
- Ie a trust hold shares in a company, and to better monitor company - trustee is appointed as director.
- Ie a trust hold shares in a company, and to better monitor company - trustee is appointed as director.
Indirect profit
- Directorship renumeration within capacity as trustee
- Renumeration to be paid to trust fund instead of being accepted personally.
- Does not apply if appointed as a director independently - before or without votes attached to trust shares
Re Macadam
Re Llewellin’s Will Trusts
Indirect Profit
- Rule re: renumeration of directors is subject to anything in the trust instrument which allows trustee to retain the renumeration.
- Could also seek fully informed consent from all the beneficiaries
Exploiting Opportunities
Keech v Sandford
- Fiduciary is not entitled to keep profit that they made as a result of an opportunity that comes to them in the course of performing their fiduciary duties
Keech v Sandford
Exploiting opportunities
- Trustee held a commercial lease on terms of a tesamentary trust for a minor beneficary.
- Renegotiated
- Wasnt able to negotiate for trustee, was granted the lease personally.
Trustee was the “one person in the whole of mankind” that was not entitled to the renwed lease
Had to assign the lease to the beneficiary and account for profits made
What is the only way to ensure a trustee does everythin in their power for their beneficiary?
To prohibit trustess from acting in their own interests
Boardman v Phipps
Exploiting Opportunities
- D in this case was solicitor to trustee & beneficiary
- Requested permission to take a personal interest in negotiations, believed he had obtained permission
- Did result in profit to trust, were acting in interest of trust
- still a breach of the no-profit rule and had to give up profits
- Boardman given an allowance that effectively renumerated his worl
Why is Boardman v Phipps significant?
- Demonstrates that fiduciary relationships are a matter of fact, arising in situations of trust and confidence.
- Require consent from beneficiaries not trustees.
- Must have been informed consent.
Bribes and secret commissions
- Egregious breach
- Fiduciary accepts money from a third party in return for performing their duty in a particular way.
- Profit will be stripped
- Likely to be an offence under Bribery Act 2010
- Extends to where a fiduciary receives a secret commission
AG for Hong Kong v Reid
FHR European Ventures LLP v Cedar Capital Partners LLC
Bribes and secret commissions
- D aced as claimant’s agent to purchase company shares;
- D secretly had existing contact and would be paid on completion of sale.
- Fiduciary receives a secret commission in the course of carrying out their role.
= susceptible to bribes
Breach of no profit rule
- Fiduciary will be stripped of their profits.
- Beneficiary may elect between certain remedies:
- Account of profits
- A constructive trust
FHR v Cedar Capital
An account of profits
Remedies for breach of no-profit rules
FHR v Cedar Capital
A personal claim which requires the trustee to pay the principal an amount equivalent to the profit they have made
A constructive trusts
Remedies for breach of no-profit rules
FHR v Cedar Capital
A principal may wish to argue that the profit made by the fiduciaryis held on a constructive trust for the principal.
May wih to have a proprietary claim
* A constructive trust provides protection against insolvency of the fiduciary. Principal is able to identify an asset over which they have rights which rank above creditors.
* A constructive trust also allows principal to trace any assets acquired with the profit.
