Fiduciary duties & liability

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).