Trustees: the fiduciary relationship

Question 1

What is the distinguishing feature of fiduciary relationships?

Answer 1

The distinguishing feature of such relationships is that they involve one party owing a duty of single-minded loyalty to the other.

Question 2

What are the two main types of duties trustees have?

Answer 2

Question 3

Explain the no-conflict rule

Answer 3

Question 4

What are the consequences of breaching the conflict rule?

Answer 4

Consequences depend on the nature of the breach:

• If the breach causes a loss to the P, they can sue the fiduciary personally for breach of fiduciary duty. The F would be liable to compensate the P.
• Breach of the self-dealing rule and fair-dealing rules result in the transaction being voidable. The beneficiaries may seek recission.
• If the breach results in a profit to the P, they may not require a remedy although they may wish to end the fiduciary relationship. If it also results in a profit to the fiduciary, the P can recover the profit from the fiduciary.

Question 5

Is it possible for beneficiaries to consent to breach of conflict rule?

Answer 5

• The fiduciaries can proceed if the transaction is authorized by the trust instrument.
• If the conflict is unauthorized, the fiduciary must obtain fully informed consent of their principals.
• Without authorization or consent, the fiduciaries will commit a breach of fiduciary duty.

Question 6

What are the ways in which a trustee could breach the no profit rule?

Answer 6

Question 7

Provide an example of a trustee making an indirect profit

Answer 7

An example is where a trust holds share in a company and in order to better monitor the company, a trustee is appointed as director. In such cases, the directorship may come with entitlement to remuneration. Because the trustee takes on the director role in their capacity as trustee, they receive remuneration in this capacity and therefore must pay it into the trust fund rather than keep it personally.

Question 8

Explain exploiting opportunities

Answer 8

A fiduciary is not entitled to keep a profit that they made as a result of an opportunity that comes to them in the course of performing their fiduciary duties.

Question 9

Explain bribes and secret commissions

Answer 9

Fiduciary accepts money from a third party in return for performing their fiduciary role in a particular way. This principle has been extended to cases where a fiduciary receives a secret commission in the course of carrying out their role.

Question 10

Explain the remedies for breach of no-profit rule?

Answer 10