Fiduciaries Summarised Notes for the Equity and Trusts Law module, LLB, at City, University of London (achieved a 1st class using these) - can of course be used for other universities as well! Should be used with the full bundle of notes!
What is a ‘FIDUCIARY?’
Persons in a fiduciary office that must act in good faith and, and must not make a profit out of
fiduciary position, if breach fiduciary duty= personal liability to accounts of profits
“Fiduciary is someone who acts for or on behalf of another in some particular matter or matters,
expected to act in the interest of the other –act selflessly and with undivided loyalty” – Finn
E.g. trustee + beneficiary – principle + agent – company + director – executor + claimant under
will – company + promoter of company categories not closed
*Personal account is starting point to primary liability, equity will make it proprietary to hold
property on constructive trust gives owner protection, then can trace + recover if breach
*If just profits, do not need protection for property, just for profits where liability to account
‘FIDUCIARY MAY NOT MAKE UNAUTHORISED PROFITS’
If fiduciary earns unauthorised personal profits from fiduciary office, then account for it
Constructive trust over profits, if profits cannot be identified= personal account to beneficiaries
To prevent conflict between personal and fiduciary interests but if there is authorisation
(express or implied) then personal profit allowed and no constructive trust nor duty to account
Can avoid constructive trust where demonstrate not hold fiduciary duty for trust property
Court prevents unconscionable act constructive imposed automatically, if fiduciary makes
investment to make secret profits also held on constructive trust
Fiduciary not allowed to ‘put himself in a position’ where personal interest + duty conflicts
Boardman v Phipps* (leading case): Boardman solicitor of ‘Phipps family trust’, trust fund included
shareholding in a company as largest shareholder, Boardman had access to large amounts of
confidential information of turnover of company’s various factories, advised to asset-strip to
increase value of shares for plan needed acquire majority shareholding, trust not able to acquire
all so Boardman and 1 trustee, Fox, acquired extra shares personally, Boardman informed trustees of
his intentions, but did not give enough information to rely on defence of consent made large profit
for Phipps family trust and Boardman held on constructive trust, as Boardman in fiduciary capacity
as a solicitor account for personal profits as insufficient authorisation but Boardman still entitled to
compensation (‘equitable accounting’) for his efforts despite constructive trust liability is strict,
automatically imposed not looking much at circumstances
Regal v Gulliver [1967]*: directors + solicitor invested in cinema, made personal profit held agents
of business liable for breaching fiduciary duty without consent constructive trust strict
Keech v Sandford [1726]: lease with rights to receive profits settled on trust for an infant, trustee
sought renew lease as infant could not renew, trustee sought to renew lease under own name with
intent benefit pass to infant held rule strict due to risk of fraud constructive as renewed lease
different from old one different property from originally held on trust
Re Biss [1903]*: son entitled to take possession of a renewed lease where, acting in good faith,
sought a renewal in his own name of a lease which had been formerly owned by his father’s business
after his father died intestate held not have fiduciary position in father’s business no
constructive trust over renewed lease in his own name profits not earned in fiduciary capacity D
must be in a fiduciary position
Bray v Ford: held person in fiduciary position not allowed where interest and duty conflict as
prejudicing those whom was bound to protect –strict rule
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, Avoidance of conflict of interests
Constructive trust to avoid conflict of interests
Constructive trust arises anyway due to unconscionable for fiduciary make unauthorised profits
No need to occupy traditional fiduciary duty – Cobbetts v Hodge
o Cobbetts v Hodge: ‘salaried partner’ within solicitor’s firm employee for LLP not himself a
partner, still owed fiduciary duties as a ‘senior lawyer’ as brought in investors + clientsliable to
hold any profits from authorised activity on constructive trust for firm
WHEN FIDUCIARY WILL HAVE ACQUIRED AUTHORISATION
Not liable to hold personal profits on constructive trust if establish authorisation
For problem Q: try show either authorisation set out clearly in document that establishes
fiduciary status or prove authorisation given where made full disclosure of intention for profits
See if had authorisation as defence to liability contrast Boardman v Phipps + Regal v Gulliver
(authorisation) with cases like Hudson + Umunna (no authorisation)
Issue of whether consent from 1 trustee sufficient, or all, or need from beneficiary?
Authorisation FOUND cases
Queensland Mines v Hudson [1977]*
D, Mr Hudson, managing director of plaintiff company (fiduciary relationship), D learned of
profitable mining contracts, presented to board of directors, declined, Hudson resigned +
pursued opportunities, large profit directors are commercial people able to make informed
decision + Hudson did not conceal opportunity implied authorisationno constructive trust
Hanson v Lorenz [1986]*: solicitor Lorenz normally charges hourly rate for conveyancing to his
client, joint venture where solicitor became partner, joint venture was a contractual relationship, it
was stated if client understands variation of contract, terms are fair allowed as client consented
Breach not found cases
Plus Group v Pyke [2002]: Mr Pyke director of a company, fallen out co-director and ‘excluded from
management’, Pyke set up a company while director, in his new firm entered into contracts with a
major customer of Plus Ltd held not breach of fiduciary duties as did not use any confidential
information from Plus Ltd + Pyke excluded from management
Foster v Byrant [2007]: D director forced to resign by his co-director, D was excluded from operation
of the business, one client wanted retain service of directors held as D resigned and excluded from
business + acted honestly in role as director not required to account for profits
Authorisation NOT FOUND cases + Boardman v Phipps + Regal v Gulliver
IDC v Cooley [1972]*
Managing director of architectural practice offered contract by third party, offer on basis third
party deal only with managing director, without disclosing this + claimed ill, left employment +
entered contract within week of resignation held fiduciary, disclose all info constructive
Mr Cooley misled employer as to reason for leaving + not give FULL disclosure
SELF-DEALING PRINCIPLE
Self-dealing principles= entitles beneficiary to avoid any such transaction on basis that even fraud
or bad faith by trustee is to be resisted e.g. trustee buys property for themselvesnot allowed
Rule fiduciary cannot enter engagements where personal conflicts with interest bound to protect
Trustee cannot avoid this by selling to a connect person or company e.g. trustee’s children
Would be sham transaction that is capable of being set aside or treated as fraud on power
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