Competition with the trust (Breaches of fiduciary duty- FS

Question 1

What is the fiduciary rule regarding competition with the trust?

Answer 1

A trustee must not set up a business in competition with a business owned by the trust, as this constitutes a conflict of interest and a breach of fiduciary duty.

Question 2

Why is setting up a competing business a breach of fiduciary duty?

Answer 2

Because it diverts opportunities and potential profits away from the trust and undermines the trustee’s obligation of loyalty to the beneficiaries.

Question 3

What legal remedy can beneficiaries pursue if a trustee competes with the trust?

Answer 3

Beneficiaries may apply to the court for an injunction to prevent the trustee from continuing the competing business.

Question 4

What happens to the profits made by a trustee in breach of this duty through competition?

Answer 4

The trustee must account to the trust for any profits made from the competing business, even if the competition did not directly harm the trust.

Question 5

Does the nature of the competing business affect whether there is a breach?

Answer 5

Yes, if the new business is sufficiently similar to the one held in trust and operates in the same market or location, it is more likely to be seen as direct competition.

Question 6

Is it relevant whether the trustee intended to harm the trust when setting up a competing business?

Answer 6

No—the breach is based on strict liability, so the trustee’s intention or good faith is not a defence.

Question 7

What is the underlying principle for prohibiting competition by trustees?

Answer 7

The rule exists to prevent any conflict of interest and to uphold the fiduciary’s duty of loyalty to act in the best interests of the trust and its beneficiaries.

Question 8

Can a trustee be excused from liability if beneficiaries consent to the competition?

Answer 8

Only if the beneficiaries provide fully informed consent, and they are of full age and capacity, may the trustee potentially avoid liability.