FLK2 · Trusts

Fiduciary duties & liability

SQE1 revision notes — the key rules, leading cases and common traps for this topic, in plain English and current to 2026.

TR.10 — Fiduciary Duties & Liability

Who is a fiduciary? A person who undertakes to act for another in circumstances giving rise to a relationship of trust and confidence. Trustees are the classic example, but so are agents, partners, company directors, and solicitors. The relationship can also be ad hoc.

The core duty: undivided loyalty. A fiduciary must act in the principal's best interests. Bristol & West BS v Mothew [1998] is the key statement: the distinguishing obligation is loyalty, breach of which is not the same as negligence. The duty is proscriptive (a duty not to do certain things), not prescriptive.

Two limbs flow from loyalty:

  • No-conflict rule — a fiduciary must not place themselves in a position where duty and interest conflict (or duty conflicts with another duty).
  • No-profit rule — a fiduciary must not profit from the position without informed consent.

Leading cases (strict, no-fault liability):

  • Keech v Sandford (1726) — trustee renewed a lease for himself when the trust's was refused; held on constructive trust despite good faith.
  • Boardman v Phipps [1967] — agents made a profit using information/opportunity acquired qua fiduciary; liable to account even though the trust benefited and they acted honestly (a quantum meruit allowance was given for skill/effort).
  • Regal (Hastings) v Gulliver [1942] — directors liable to account; bona fides and benefit to the company are no defence.

Escaping liability — only by (i) informed consent of fully-informed beneficiaries, or (ii) authorisation in the trust instrument. Directors: see Companies Act 2006 ss.175–177.

Remedies: account of profits; equitable compensation; constructive trust over property/profits (giving a proprietary claim — survives insolvency, captures traceable proceeds and increases in value). FHR European Ventures v Cedar [2014] confirmed bribes and secret commissions are held on constructive trust (proprietary, not merely a personal account).

Common SQE traps:

  • Liability is strict — honesty, good faith, and benefit to the principal are irrelevant to the no-profit/no-conflict rules.
  • A breach of loyalty (fiduciary) is conceptually distinct from breach of the duty of care/skill (negligence) — don't conflate them (Mothew).
  • The duty is proscriptive; a fiduciary is not obliged to be selfless in all things, only to avoid unauthorised conflicts/profits.
  • Proprietary vs personal claim matters most on the fiduciary's insolvency and where the profit has grown — always reach for the constructive trust.
  • Trustee remuneration needs authority (trust instrument, court, or Trustee Act 2000 s.29 for trust corporations/professional trustees).

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A woman is the treasurer of a small amateur football club. Members pay £20 each month in cash, which the woman is instructed by the club's rules to bank into the club's dedicated account within seven days. One month she receives £200 in subscriptions but, being short of money, uses the cash to pay her own gas bill. She intends to replace the £200 from her wages before anyone notices, and she does in fact pay an equivalent £200 into the club account two weeks later. The woman is charged with theft of the £200. Which of the following is the strongest basis for finding the property belonged to another at the time she used it?

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More Trusts topics

See all topics in the FLK2 guide or the full SQE1 syllabus.

Independent SQE1 revision notes for study — not legal advice; check primary sources before relying on any point. Exam rules are set by the SRA; see the official SQE site.