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Personal Liability and Fiduciary Obligations (Supervision Five)

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Personal Liability and Fiduciary Obligations (Supervision Five) Personal Liability and Fiduciary Obligations (Supervision Five) Personal Liability and Fiduciary Obligations (Supervision Five) Personal Liability and Fiduciary Obligations (Supervision Five) Personal Liability and Fiduciar...

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  • August 24, 2024
  • 14
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
  • Personal Liability and Fiduciary Obligations (Sup
  • Personal Liability and Fiduciary Obligations (Sup
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Personal Liability and Fiduciary
Obligations (Supervision Five)
Aberdeen Ry Co v Blaikie Bros (facts) - ANSWER Director of ARY; had made contract to buy
goods from BB (firm) - B was financially interested in it.

Aberdeen Ry Co v Blaikie Bros (judgment) - ANSWER B can have the contract set aside - on
the one side of the bargain, the contract was made through exercise of fiduciary powers and those
fiduciary powers exercised in conflict between self-interest + fiduciary duty.



Conflict between self-interest + fiduciary duties - fiduciary is on one side acting in personal capacity +
exercising fiduciary powers.

AIB Group v Mark Redler (facts) - ANSWER R is solicitors retained to act for S and AIB on re-
mortgage of S's family home. AIB advanced 3.3m to R for this purpose. Mortgage lender required
fully enforceable first charge over property + all existing charges redeemed before completion - R
must hold loan on trust for AIB until completion. S's property subject to charge in favour of BB -
secured borrowings of 1.5m. R paid BB only 1.2m - insufficient to redeem BB's charge. 300k
remained outstanding - BB wouldn't release charge until paid. Borrowers who received 3.3m didn't.
AIB's charge eventually registered as second charge. S's defaulted - property sold by BB for 1.2m
million; AIB got 870,000.



By paying 3.3m to borrowers w/o getting first legal charge over property - R was in breach. If
discharged the 300k security of BB as required - AIB would have got 1.2m instead. Claimed full 3.3m.

AIB Turner v Mark Redler (judgment) - ANSWER Any award of equitable compensation for
breach of trust should be based either on the loss caused or the profit gained by the wrongdoer; to
hold otherwise would be "penal". The beneficiary under a trust has the right to expect that the trust
is properly administered. Where there is a breach of trust, equity dictates that there is an obligation
to restore the trust fund to the position it would have been in but for the breach.



The purpose of a restitutionary order is to replace a loss to the trust fund which the trustee has
brought about. To say that there has been a loss to the trust fund in the present case of £2.5m by
reason of the solicitors' conduct, when most of that sum would have been lost if the solicitors had
applied the trust fund in the way that the bank had instructed them to do, is to adopt an artificial
and unrealistic view of the facts.



In the context of 'traditional' trusts, there can be no question of individual beneficiaries being
compensated in the event of the trustee misapplying trust property. In the commercial context,
where property is typically held on bare trust subject to a framework of contractual obligations, it
makes more sense to consider the effect the breach has had on the beneficiary himself.

Al Nehayan v Kent (judgment) - ANSWER Fiduciary duties arise where one person
undertakes and is entrusted with authority to manage the property or affairs of another and to make

, Personal Liability and Fiduciary
Obligations (Supervision Five)
discretionary decisions on behalf of that person or undertake to give advice - has substantial degree
of power.



Distinguishing feature of fiduciary is obligation to act unselfishly, best interests of P, not consider own
interests.

Auden McKenzie v Patel (facts) - ANSWER Director caused A to payout 13m+ for no value
for benefit of himself + sister. Were sole directors and controlled all shares - could have compelled A
to distribute those funds by legal means.

Auden McKenzie v Patel (judgment) - ANSWER This is clearly unauthorised disposition of
the trust property; the value difference between the actual flawed performance and the hypothetical
compliant performance indicates the quantum of equitable compensation.



Court considered what had actually been done wrongfully and compared that with what would have
obtained if the fiduciary had dealt with those assets precisely as his duty obliged him to do.



Patel's obligation required him not to pay out £13 million on sham invoices; it did not require him to
use that £13 million to deliver some end. The relevant hypothetical counterfactual is that if Patel had
complied with his duty, the £13 million would still have belonged to Auden at the time it was
wrongfully paid out, Not relevant that Patel, with his sister, controlled Auden's discretion, and so
could have acted without breach to ensure Auden paid out £13 million in some legal way - not a
defence.

Boardman v Phillips (facts) - ANSWER Trustees of estate - had shares in company. A
beneficiary + solicitor to trust dissatisfied with how company being run. Trust couldn't buy remaining
shares. Solicitor obtained valuable information he could exploit to make business more profitable -
asked four children for their permission to negotiate this own interest - assumed silence meant
consent given. Purchased all shares in company - re-organised business, performed better, and
benefitted solicitor + beneficiaries.

Boardman v Phipps (judgment) - ANSWER Reasonable man looking at the relevant facts
and circumstances of the particular case would think that there was a real sensible possibility of
conflict.



Given that only two judges in the House of Lords considered information to be trust property, this
should be rejected as the basis of the decision. Information is best protected by the equitable
doctrine of breach of a relationship of confidence.



Majority (Lord Hodson, Lord Guest, and Lord Coulson) explained best as strict application of principle
that F shouldn't profit from position. They relied heavily on Regal to get to this position. For Hodson,

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