Fiduciary Duties

Question 1

What is a fiduciary relationship?

Answer 1

A relationship of trust & confidence (eg. trustees, company directors, business partners, solicitors)

The fiduciary has an obligation of loyalty

Question 2

Are a trustees’ fiduciary duties about what happens in the trust or outside the trust?

Answer 2

Prevent trustees from doing anything outside the trust which might harm the interests of the trust

Question 3

What are the two core duties of a fiduciary?

Answer 3

‘No conflict’ rule: fiduciary must not put themselves in a position where their own interests conflict with the interests of their principal

‘No profit’ rule: fiduciary must mot make an unauthorised personal profit from their position or use their principal’s property to make such a profit

Question 4

What is the ‘no conflict’ rule?

Answer 4

Fiduciary must not put themselves in a position where their own interests conflict with the interests of the principal

→ Self-dealing rule

→ Fair-dealing rule

Question 5

What is self-dealing & what is the effect?

Answer 5

Self-dealing: if a trustee is on both sides of the deal (eg. sells a property to/buys property from trust)

→ Transaction is voidable (not automatically void)

• Beneficiaries can set aside a self-dealing transaction as of right within a reasonable time
• ‘Reasonable time’ will be q of fact - but time does not generally run against beneficiaries under 18 or beneficiaries whose interests are held in remainder

Question 6

What is fair-dealing & what is the effect?

Answer 6

Fair-dealing: trustee purchases the beneficial interest of any of their beneficiaries

→ Effect: transaction not voidable as of right but can be set aside - unless T can show:
1-Took no advantage of their position
2-Made full disclosure to beneficiary
3-Transaction fair & honest

Question 7

Is a breach of a fiduciary duty strict liability?

Answer 7

Yes, fiduciary duties are strict liability - irrelevant if trust has suffered loss or if trustee thought were doing right thing

Remedy = account of profits

Question 8

What is the remedy for a breach of a fiduciary duty?

Answer 8

Remedy for breach of fiduciary duty = account of profits

Question 9

What is the no-profit rule?

Answer 9

Fiduciary not profit from an opportunity that only comes their way way because of their fiduciary position

(regardless of whether the exploitation of the opportunity also benefits the principal)

Question 10

Are trustees’ entitled to remuneration?

Answer 10

No unless authorised by:

1-Express provision in trust deed (charging cluase)

2-Beneficiaries’ consent (so long as all 18 & above + agreement is fair & trustees make full disclosure of all relevant facts)

3-Court order (will do if in interests of trustees eg. because trust needs skill of the trustee & their fees are not excessive)

4-If trust instrument silent, under TA:
(i) A trust corporation or
(ii) Professional trustee who is not sole trustee & where other trustees have agreed in writing
are entitled to receive reasonable remuneration

Question 11

When will personal profit by a trustee be authorised?

Answer 11

Trustees will have a defence if personal profit is authorised by:

a. Trust deed

b. Beneficiaries

c. Court/Statute

Question 12

Where the trust includes a business, can a trustee set up their own business in competition?

Answer 12

No - breaches fiduciary duty of no conflict no profit → liable to account for any profits made by their competing business

Question 13

Can a trustee keep any commission received when placing the business of the trust with a particular firm?

Answer 13

No - must be paid over to the trust

Question 14

If a trustee secures a paid directorship because of the trust’s substantial shareholding in a company, can they keep their salary?

Answer 14

No - must surrender any salary they subsequently receive to the trust

Nb. if became director independently of the trust’s shareholding (50% vote in favour & trust only holds 10% ie. wouldve passed even if ‘trust shares’ voted against them) can keep salary

Question 15

What happens if a trustee acquires valuable information or an opportunity by virtue of their position as a trustee?

Answer 15

They must pass onto trust, even if the trust is unable or unwilling to take advantage

If take advantage themselves, must account any profit to the trust (profit = all the benefit fiduciary received during course of fiduciary relationship)

nb. trustee may be entitled to be paid for their skill & effort in achieving the profit, even if have breached their fiduciary duties - where eg. done honestly, invested lots of time, huge return etc.

Question 16

Boardman v Phipps: B was solicitor of trustees of family trust, which included big shareholding in company not doing well financially. In capacity as solicitor, B got valuable info about the company & advised trustees on how they could turn company around, which would require trust to purchase additional shares. Trust had no power to purchase additional shares, 2 of the 3 trustees (not all!) authorised B to buy the shares in his own name out of his own funds. B turned affairs around, making good profit for himself & the trust.

Answer 16

Held: B had to surrender his personal profit to the trust

• Had gained info by virtue of his fiduciary position about the company & opportunity
• Additionally, had placed himself in position of potential conflict (had trustees asked B whether they should apply to court ofr power to buy additional shares, he couldn’t have given impartial advice as was conflicted by his own plans to buy the shares for himself) - slightest possibility of conflict makes trustees liable
• Was given generous remuneration for his work: had acted with complete honesty, invested lots of time & skill in changing company fortunes, which had greatly benefited trust