Fiduciary Duties

Question 1

What is a fiduciary?

Answer 1

Someone who has undertaken to act for or on behalf of another…in circumstances which give rise to a relationship of trust and confidence

Question 2

A fiduciary has voluntarily assumed…

Answer 2

the responsibility to act on another behalf with some real control of that other’s affairs

Question 3

What is the difference between a trustee and a fiduciary?

Answer 3

• A trustee is a specific role within a trust arrangement, while a fiduciary is a broader term for anyone with a legal duty to act in the best interests of another.
• All trustees are fiduciaries, meaning they have a fiduciary duty to the beneficiaries of the trust, but not all fiduciaries are trustees; the term “fiduciary” applies to a wider range of roles

Question 4

Company directors…

Answer 4

have fiduciary duty to their company

Question 5

What do fiduciaries have to ensure?

Answer 5

that there isn’t a potential conflict of interest

Question 6

Bristol & West Building Society v Mothew facts

Answer 6

-Solicitor acted for both the building society and the borrower in a mortgage transaction. He negligently misrepresented to the building society that the balance of the purchase price would be provided by the borrower, rather than by a second mortgage, when he knew of a second mortgage arrangement.
- The borrower subsequently defaulted, and the building society suffered a loss. The building society sued Mr. Mothew, claiming breach of contract, negligence, and breach of fiduciary duty.

Question 7

Bristol & West Building Society v Mothew judgement

Answer 7

The court held that while the building society had relied on Mr. Mothew’s report, proving the causal link, it still had to establish what loss was attributable to the solicitor’s negligence, which was not definitively proven.

Question 8

Trustee as a purchaser: Renewal of a lease

Answer 8

Keech v Sandford, Re Biss

Question 9

Keech v Sandford facts

Answer 9

• Trustee manages the affairs of a minor, one of the things they managed was the benefit of a lease. (Children can’t own land because they’re useless)
• Landlord refused to renew the lease for the benefit of the child. Trustee tried again but the landlord again said no. Instead asked for renewing it for the trustee and the landlord said yes
• Child then sued the trustee for breach of fiduciary duty

Question 10

Keech v Sandford judgement

Answer 10

Court ruled that the only person who couldn’t take a renewal of this lease was the trustee

Question 11

Re Biss facts

Answer 11

→ Man had a boarding house he rented. He died and his estate was controlled by his widow and one of his children. They sought to renew the lease. Stepson from previous marriage got the lease. Breach of fiduciary duty to be under a constructed trust as a family.

Question 12

Re Biss judgement

Answer 12

→ Court said no as he did not have a fiduciary duty

Question 13

Trustee as a purchaser: Purchase of trust property

Answer 13

Tito v Waddell, Ex p. Lacey, Holder v Holder

Question 14

Tito v Waddell facts

Answer 14

The Banabans argued that the Crown was acting as a fiduciary and had breached its duties by not providing them with adequate information and fair compensation for the land.

Question 15

Tito v Waddell judgement

Answer 15

the Crown did not owe any enforceable trust or fiduciary obligations to the Banaban landowners

Question 16

Ex p. Lacey facts

Answer 16

assignee of a bankrupt estate who was also purchasing dividends from creditors and acquiring part of the bankrupt’s property

Question 17

Ex p. Lacey judgement

Answer 17

→ Clear self dealing rule
→ Fiduciaries cannot buy and sell trust assets across the fiduciary relationship
→ Can’t negotiate the best price as sell dealing
→ Wherever there has been self dealing, then it is basically void. Trustee cannot negotiate trust assets because they don’t know if a good deal has be mad

Question 18

Holder v Holder facts

Answer 18

→ Man died who owned lots of different farms and was successful. One of the tenant farmers was his son
→ When the dad died, certain members of the family were executors (including the son) of the estate and decided they wanted to sell off the farm assets. Son realised he couldn’t acquire his farm as an executor
→ He bought at auction of the farm he was tenant of but he was technically still an executor

Question 19

Holder v Holder judgement

Answer 19

→ Court said under the circumstances, his knowledge of the value of the farm came from his position of the tenant farmer and not the executor, and bought it in a public auctions Delay defeats equity

Question 20

Trustee as a vendor

Answer 20

Bentley v Craven, Cavendish Bentick v Fenn

Question 21

Bentley v Craven facts

Answer 21

→ Sugar dealers. There was a partnership between men in business together dealing in sugar
→ One of the members found a really good source of sugar and bought it for himself personally and then later resold it to his partners at a profit
→ When they found out, they sued him for a breach of his fiduciary duty to partnershi

Question 22

Bentley v Craven judgement

Answer 22

• the personal profit he made by selling the sugar that he bought cheaply onto the partnership for a profit was caught by constructive trust
• When he sold it to them, he made a profit that he knew didn’t belong to him

Question 23

Cavendish Bentick v Fenn importance

Answer 23

→ When selling a personal asset, but are now a fiduciary, the fiduciary owed colours the was that they are able to sell their own stuff. Extends to being under some sort of obligation to offer it to their principle at a fair market price before selling it on the open market
→ If they want to sell, they can, but owe an obligation to their principle to offer it to them at a fair market price

Question 24

Self-dealing rule

Answer 24

• Prevents trustees or executors from engaging in transactions where their personal interests conflict with their fiduciary duty to act in the best interests of the trust or estate beneficiaries.
• They cannot buy property from the trust or sell their own property to the trust.
• If a trustee self-deals, the transaction is typically voidable by a beneficiary.

Question 25

The self dealing rule will not apply...

Answer 25

if the trust instrument expressly or by necessary implication, authorises a sale to the trustee personally

Question 26

Company directors

Answer 26

IDC v Cooley

Question 27

IDC v Cooley facts

Answer 27

→ Cooley, a director of the company, resigned his position as a director and secretly went and set out his own take of an opportunity that the company did not wish to pursue → He made a load of money, he became aware of the opportunity in his position as fiduciary

Question 28

IDC v Cooley judgement

Answer 28

→ Court found that what he had done was dishonest → All the profit he made ought to be caught by constructive trust

Question 29

If a fiduciary takes advantage of their position...

Answer 29

the court will allow that transaction to be set aside

Question 30

What might the court allow if a fiduciary takes advantage of their position?

Answer 30

allow for any profit or gain made by the fiduciary to be caught by constructive trust

Question 31

Problem with company directors

Answer 31

problem for the courts because one of the things about trustees is that they're normally not allowed to benefit from their position

Question 32

Re Gee judgement

Answer 32

○ Court ruled that if you can demonstrate as a trustee that you were either a director of the company before you became a trustee, so you can demonstrate you didn't use the trust assets to apply for the directorship, or that the trust shares were voted against you in an election onto the board of the company ○ You can demonstrate that you've got no value in them, then you get to keep the remuneration you paid as director of the company

Question 33

Re Dover Coalfield facts

Answer 33

○ The company directors of company A were expected to use the voting rights of company B, which they owned, in order to acquire a directorship of company B to make sure company B was being run property and profitably so that company A would benefit from increased revenu

Question 34

Re Dover Coalfield judgement

Answer 34

The courts held that common sense would dictate whether it is authorised or expected or required that the fiduciary will use the assets that they hold in this way. It is fine for them to then be remunerated

Question 35

Re Macadam

Answer 35

○ If a trustee uses trust assets like the voting right on shares to acquire benefit of remunerated paid position as a director of the company using the trust shares, then the profit that they make and the money that they are paid is caught by a constructive trust ○ When it's paid to them, it is paid to them as a trustee. They own the legal title, but of the benefit they hold for the trust, they've got to act solely in the best interest of the beneficiaries

Question 36

Where a fiduciary duties for company directors codified?

Answer 36

Companies Act 2006

Question 37

What sections of the Companies Act 2006?

Answer 37

s.172, s.174 and s.175

Question 38

Profits and bribes

Answer 38

Reading v A-G, Lister v Stubbs, A-G for Hong Kong v Reid, Sinclair Investments (UK) Ltd v Versailles Trade Finance, FHR European Ventures LLP v Cedar Capital Partners LLC

Question 39

Reading v A-G facts

Answer 39

○ Sergeant in the British army who was paid by smugglers who wanted to get passed the British Army checkpoints, to sit on the back of the truck to help avoid detection ○ They got caught, and then the crown realised how much this sergeant was making

Question 40

Reading v A-G judgement

Answer 40

○ Held that the sergeant had a fiduciary duty to the crown

Question 41

Lister v Stubbs

Answer 41

○ The old rule for constructive trust ○ The amount that you could tie to the wrongdoing was caught by constructive trust ○ Rule was solid for 100 years or so

Question 42

A-G for Hong Kong v Reid facts

Answer 42

○ A local government official in HK took a large amount of money over a number of years to put certain contracts the way certain businesses that were bidding for government contracts. He was taking bribes ○ He took income and bought developing properties ○ Local HK government sued him the same way you take the prize on constructive trust

Question 43

A-G for Hong Kong v Reid judgement

Answer 43

○ Changed the rule in Lister v Stubbs because under it he would have just had to pay back his ill-gotten gains ○ They then said that everything that naturally flowed from the illicit money was caught by constrictive trust

Question 44

FHR European Ventures LLP v Cedar Capital Partners LLC

Answer 44

○ Overruled Lister v Stubbs and decided that every case under Lister v Stubbs was no longer good law