The Fiduciary Relationship and its Obligations Flashcards
(16 cards)
Which pairing best describes a classic fiduciary relationship?
A. Solicitor and client
B. Landlord and tenant
C. Vendor and purchaser
D. Neighbour and neighbour
A. Solicitor and client.
Explanation: Fiduciaries (e.g. solicitors, trustees, directors) owe duties of loyalty and good faith to principals/clients
Which statement captures the “no-profit” rule?
A. A fiduciary must not make a profit from information or position, even if acting in good faith
B. A fiduciary may keep any commissions so long as losses are covered
C. A fiduciary can invest for personal gain if the trust deed permits
D. A fiduciary may only profit if the beneficiary is insolvent
B. A fiduciary may keep any commissions so long as losses are covered.
Explanation: Incorrect – fiduciaries cannot profit (no commissions) unless the deed authorises it or beneficiaries give fully informed consent
When is a fiduciary allowed to accept remuneration?
A. When the trust instrument expressly permits a salary or fee
B. Whenever acting in the trustee’s own interest
C. Only if the fiduciary is also a beneficiary
D. Never under any circumstances
C. Only if the fiduciary is also a beneficiary.
Explanation: Incorrect – fiduciaries need express authorisation in the trust deed or fully informed consent of all beneficiaries; being a beneficiary alone is not enough
What is the effect of a fiduciary purchasing trust property without consent?
A. The transaction is voidable and can be rescinded; fiduciary must account for profits
B. The fiduciary automatically gains legal and equitable title
C. The trustee can offset purchase price against future distributions
D. The trust terminates by operation of law
D. The trust terminates by operation of law.
Explanation: Incorrect – self-dealing is voidable (rescission) and fiduciary must account for any profit; the trust itself does not automatically terminate
Which scenario would be permissible self-dealing?
A. Selling trust land to himself with full disclosure and beneficiary consent
B. Purchasing trust assets clandestinely at belowmarket value
C. Taking a commission from a third party for introducing business without disclosure
D. Holding shares in a company into which trust funds are invested, without consent
A. Selling trust land to himself with full disclosure and beneficiary consent.
Explanation: Fiduciaries may transact with trust property only if fully informed, consensual, and fair, or where the trust deed permits
Which illustrates the “no-conflict” rule for fiduciaries?
A. A director must avoid any situation where personal interest might conflict with company duties
B. A trustee may invest trust funds in any personal venture
C. A solicitor can represent both sides of a transaction without warning
D. A partner may compete against the firm in unrelated business
D. A partner may compete against the firm in unrelated business.
Explanation: Incorrect – fiduciaries must avoid conflicts; partners competing against the firm violate their duty; directors likewise must avoid conflicting interests under CA 2006 s 175
Oliver, a trustee, uses confidential trust information to start a rival business, making substantial profit. Which duty did he breach?
A. Duty not to profit from fiduciary position
B. Duty to invest prudently
C. Duty to keep trust assets separate
D. Duty to account only to beneficiaries
A. Duty not to profit from fiduciary position.
Explanation: Exploiting information for personal gain breaches the no-profit rule
Sophia, a trustee, sells a trust house to herself at market value after full disclosure and all beneficiaries consent. Is this valid?
A. Yes—consent cures self-dealing if informed and unanimous
B. No—trustees can never purchase
C. Yes—so long as the trustee is over 18
D. No—only the court can authorise such a sale
B. No—trustees can never purchase.
Explanation: Even with consent, trustees must not purchase trust property; transactions are voidable and require strict beneficiary consent plus, in practice, court oversight
A director holds shares in a supplier company while negotiating contracts for the principal company. Which rule is engaged?
A. No-conflict rule
B. No-profit rule
C. Duty of care
D. Duty to account for profits
C. Duty of care.
Explanation: Incorrect – this is a conflict of interest scenario engaging the no-conflict rule, not the duty of care
Tina, a trustee, takes a commission from a real-estate agent for referring trust business without telling beneficiaries. What remedy is available?
A. Account of profits—Tina must disgorge the commission
B. Specific performance—ordering Tina to perform her duties
C. Injunction—preventing Tina from future referrals
D. Resulting trust—returning property to Adele
D. Resulting trust—returning property to Adele.
Explanation: Incorrect—the remedy is an account of profits to recover the commission; no resulting trust arises
Which act codifies the no-conflict rule for company directors?
A. Trustee Act 2000 s 61
B. Law of Property Act 1925 s 53
C. Limitation Act 1980 s 21
D. Companies Act 2006 s 175
D. Companies Act 2006 s 175.
Explanation: Directors must avoid conflicts under CA 2006 s 175; other statutes govern trustees separately
Which condition must be met for a trustee to validly benefit from a transaction involving trust assets?
A. Trust deed must expressly permit the benefit or all beneficiaries must give fully informed consent
B. Trustee must be a beneficiary
C. Trustee must pay twice the market value
D. Trustee must obtain a court injunction first
A. Trust deed must expressly permit the benefit or all beneficiaries must give fully informed consent.
Explanation: Only express authorisation in the deed or unanimous, informed beneficiary consent legitimises trustee profits
When a trustee and beneficiary are the same person, what restriction still applies?
A. No restriction—trustee can act freely
B. The no-profit and no-conflict rules still bind
C. The trustee cannot invest for the beneficiary
D. The trustee must appoint an independent trustee
B. The no-profit and no-conflict rules still bind.
Explanation: Fiduciary duties cannot be excluded by status; self-dealing remains impermissible without consent
Which remedy compels a trustee to reverse a self-dealing sale?
A. Rescission (setting aside the transaction)
B. Specific performance
C. Constructive trust declaration
D. Statutory indemnity
C. Constructive trust declaration.
Explanation: Incorrect—the remedy is rescission of the sale and an account of profits; constructive trust may follow but is not primary
Which duty obliges a trustee to avoid any situation where personal interests might conflict with trust duties?
A. Duty to not put himself in a position of conflict
B. Duty to invest prudently
C. Duty to account for profits
D. Duty to insure trust property
A. Duty to not put himself in a position of conflict.
Explanation: The overarching no-conflict rule prohibits fiduciaries from placing personal interests in competition with trust obligations .
Under the “corporate opportunity” doctrine, a fiduciary must refrain from:
A. Usurping a business opportunity that rightfully belongs to the principal
B. Holding any private investments whatsoever
C. Charging the trust a management fee
D. Disclosing information to beneficiaries
A. Usurping a business opportunity that rightfully belongs to the principal.
Explanation: Fiduciaries must not exploit opportunities discovered in their role for personal benefit; they must first offer them to the principal
