Fiduciary Duty & Conflict of interest

Question 1

Key duties/obligations of a fiduciary (Mothew)

Answer 1

Obligation of loyalty + duty of care (must act in good faith, must not make a profit out of the trust or put himself in a pos where duty and interest may conflict, must not act for his own benefit or for 3rd person without consent of principal)

Question 2

What is a Fiduciary? → Bristol and West Building Society v Mothew

Answer 2

Fiduciary is someone who has undertaken to act for/on behalf of another in a particular matter of circs which give rise to a relationship of trust and confidence

Question 3

‘A fiduciary must not make a profit’ → Why?

Answer 3

Breach of their fiduciary duty - abuse of position

→ Strict rule - Keech v Sandford

Question 4

Keech v Sandford

Answer 4

→ No defence to general rule against fiduciary profits that they were made without loss to the trust. Strict rule of Fid should not make a profit should be adhered to
→ Held: a trustee of a lease may not renew a lease for his own benefit but holds the renewed lease upon a constructive trust for the B the court forbade. Abuse of fid position.
→ Trustee taken advantage of opportunity to renew a lease in circs where was clear landlord would not have permitted the B to enjoy the same privilege

Question 5

Boardman v Phipps

Answer 5

→ Failed to relax strict rule - consent was not fully informed - strip solicitor of profit made → Trustees liability should be restricted where there was a ‘real and sensible poss of conflict’
Held: solicitor who had used info gained from his fid rule in relation to a trust, had to account for all profits he made for himself by virtue of fiduciary position → even though had been open and honest.
→ Even though breached rule - held he should be paid for work done on a liberal scale
→ A solicitor acting for a trust fund noticed a signif opportunity in accounts of company. He utilised opportunity with knowledge of some trustees, making a signif profit for both the trustees and himself. → Was solicitor liable for his personal profit? Yes, the solicitor had acted on info available to him only due to his agency relationship with trust fund. He used this or own personal profit which breached his fid obligation not to may any unauthorised profit. Not all trustees had consented

Question 6

FHR European Ventures LLP v Cedar Capital Partners LLC (2014)

Answer 6

FHR purchases a hotel company for €211.5mill. Cedar was FHR’s agent in the negotiation, but Cedar had secretly entered into a brokerage agreement with the vendor, received €10mill. FHR argued that any unauthorised benefits received by an agent by reason of his agency & breach of fid duty should be held on constructive trust for principal
Court held: Neuberger approved FHR’s argument and said for the ‘merit of simplicity’, money goes to the principle, even though the principle has no right to receive the money in the first place

Question 7

Principle of Prophylaxis

Answer 7

Should fiduciaries be held strictly to account to set an example to others? Jones said: Even if innocent fiduciary - must suffer. Policy may demand a public sacrifice of fid profit
→ Circumvent this by shouting the rule, whispering equity

Question 8

Shouting the rule, whispering equity

Answer 8

Rule: you breached your fid duty - not allowed to make a profit. But, you did work hard and everyone has benefitted so you deserve to be rewarded. Shout strict rule to encourage others, but want to be more equitable to encourage the parties
Boardman v Phipps → re-numerated for work done payment should be on a ‘liberal scale’

Question 9

Part V → Trustee Act 2000

Answer 9

Professional trustees are not entitled to renumeration unless trust instrument says so
→ if non-profit trustee wants renumeration, have to apply to court

Question 10

Dilmun v Sutton

Answer 10

Fid’s liability to account may be reduced where it would otherwise unjustly enrich his principal - but noted ‘the law favours conferring benefits on the wronged even thou that is at the expense of the wrongdoer’ - where fid acted dishonestly, no Q of reducing his liab to account

Question 11

Regal Hastings v Gulliver

Answer 11

Fid must not place themselves in pos where their duty and interest may conflict - even if there is no actual conflict

Question 12

Positional breach

Answer 12

When fiduciary puts himself in a position of potential conflict of interest and duty

Question 13

Transactional breach

Answer 13

When potential conflict is actualised by some transaction e.g. the purchase of trust prop from the trust → ‘actual conflict’ where you cant fulfil oblig

Question 14

‘No inhibition principle’

Answer 14

→ Bristol and West Building Society v Mothew
→The fid must not be inhibited by the existence of his other employment from serving the interests of his principal as faithfully and effectively as if he were the only employer.
→ Unless the fid is inhibited or believes he is in the performance of duties to one principal by reason of his employment by the other, his failure to act is not attributable to the double employment.
→ If you do an accidental thing which breaches one thing and benefits the other, that is not a fid duty. Assumption of complete honesty

Question 15

Tito v Waddell (No2) (1977)

Answer 15

The self-dealing and fair-dealing rule

Question 16

Self dealing rule

Answer 16

If a trustee purchases trust property from himself, any B may have the sale set aside, however fair the transaction. Trustees cannot self-deal.

Question 17

Fair dealing rule

Answer 17

If a trustee purchases his B’s beneficial interest, the B may have the sale set aside unless the trustee can establish the propriety of the transaction, showing that he had taken no advantage of his pos and that the B was fully informed and received full value
→ Self-dealing is in own capacity. Fair-dealing is buying one BI which is fine

Question 18

Re Thompson’s Settlement

Answer 18

Says the self-dealing rule is an application of the wider principle that a man must not put himself in a pos where duty and interest conflict or where his duty to one conflicts with his duty to another

Question 19

What is implied by a Chinese wall?

Answer 19

Can they take instructions when there is a potential conflict?
If Client B objects to the representation of client A by lawyer X and the firm, and a determination by the court is sought as to whether the firm should be injuncted from representing client A → Court will say only in special cases should a wall be created

Question 20

Jefri Bolkiah v KPMG

Answer 20

Sultan of Bolkiah and brother in conflict. KPMG was working for one party. Brother comes along and would like instruction too. Set up 2 offices, new building/staff/networks. Only people speaking to each other were partners of KPMG. Created a new company from scratch, so they could receive new instructions from one and still receive from the other.
→ Millett: an effective chinese wall needs to be an established part of organisational structure of firm, not created ad-hoc and dependent on acceptance of evidence sworn by members involved.
Courts AGREED cannot do what KPMG did and create a new office

Question 21

Rakusen v Ellis Munday & Clarke

Answer 21

Firm with separate branches, so separate that just at level of partnership that they shared profit → said these were brick walls already existing so didn’t matter they were conflicting

Question 22

Parker LJ on Chinese walls

Answer 22

Only in special cases should Chinese walls be created

Question 23

Sargeant v National Westminster Bank Plc

Answer 23

Testator left a no. of farms to children which they worked as a partnership. 1 child died (C)- others wanted to buy his share. Wanted to purchase a farm to which they were tenants to, and sell other freeholds. C’s administrator objected and said it was a breach of trust if they were to sell.
→ Trustees were tenants & B’s - in position of conflict w with role as tenant and trustee BUT had not put themselves in this role, therefore administrators cannot complain of trustees assertion
→ Trustees were able to exercise pre-existing right as tenants to purchase trust owned freehold for themselves.
→ No positional breach as long as got best price poss. No transactional breach