TRUSTS LAW TERM 2 WEEK 1

The Duties of Trustees

 Trust terms either come in (1) carefully drafted trust instrument and managed by professional trustees OR (2) informally created
trusts or trusts without carefully drafted trust instruments and no professional trust managers.
 Trustee cannot consider herself imbued with powers beyond what scope is written in trusts instrument, except to extent trust
instrument is silent about some power granted by TA 1925 or 2000 OR silent about how some duty imposed by statute or case law.

 Trust instrument  Defines the specific powers and duties of trustees. Trustees just need to act accordingly to trust terms,
administer trust properly– Re Brook’s ST

 Where court unable to interfere in selection of trustees, beneficiaries are similarly unable to act – Re Brockbank

 There is no central statement of duties owed by trustees in a statute or single case, but rather we have a sense of obligations
trustees should bear => trustees will bear those duties whenever conscience demands that they do – Westdeutsche

 No core trusteeship in this sense but each example of trusteeship to be interpreted in own terms. – Armitage v Nurse
 Manner trustees are OBLIGED to carry out their fiduciary duties is the CORE of trust.
 Trustees owe those duties to the beneficiaries in relation to the trust fund.
 Statute provides for limited situations trustees are incapable of performing their duties can be removed from office & other trustees
appointed in their place.

 Breach of duties  how trustees’ liabilities are like: Term 2 Week 3  include things like trustees giving beneficiaries account of
making good ang looses caused to trust.
 Trust suffers loss that has some causal connection with beach of trust committed by trustees, then trustees are obliged to restore
value lost to Trust (Target Holdings v Redferns)
 Precise nature of remedy owed by trustee in such breach is to (1) Recover property lost to trust by breach, OR (2) restore value of
trust fund in cash terms, OR (3) Pay equitable compensation for any loss suffered by trust)(Target Holdings v Redferns)

 Recurring theme: EQUITY ACTING ON CONSCIENCE OF LEGAL OWNER (TRUSTEE) OF PROPERTY

 Trustee is PERSONALLY LIABLE in conscience under trusts law. Now in statute, trustees can only delegate trustees’ powers in
limited circumstances.
General Duties of Trustees  Duty on acceptance of office relating to need to familarise oneself with the terms, conditions
and history of the management of the trust.

 Duty to obey terms of trust unless directed to do otherwise by court

 Duty to safeguard trust assets, including duties to maintain trust property + ensure it is
applied in accd with directions set out in the trust instrument

 Duty to act even-handedly between beneficiaries which means trustees are required to act
impartially between beneficiaries and avoid conflicts of interest. Act impartially and fairly,
doesn't mean act equally. Act fairly amongst different beneficiary classes.=> Meaning no
single beneficiary is to receive unjustified benefit at expense of other beneficiaries(Nestle v
NatWest Bank)

 Duty to act with reasonable care = duty to act as though prudent person of business acting
on behalf of someone for whom one feels morally bound to provide =>Being a prudent
person doesn't mean that that person takes NO RISK. So when trustee makes profit via
investment it must be BOUND by its trustee duty.

 Duties in relation to trust expenses

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Trustees’ Duty to Provide
Information & to Account to the
Beneficiaries
(A Reflection of BP)
Limitation of The Trustees’
Duties
Control of The Trustees
(Reflection of BP  extent
Beneficiaries can hold trustees
to account for any
shortcomings in management
of trust, how much info to
extract)
What courts can do when the
beneficiaries by means of
application to the court to
control trustees
 Duties of investment, needing prudence and acquisition of highes possible rate of return in
the context
 Duty to distribute trust property correctly (Clough v Bond). Failure to do so creates breach of
trust (Eaves v Hickson) although beneficiaries can only recover any property lost to trust fund
OR recover the value of any loss suffered due to breach of trust (Target Holdings v
Redferns).. Trustees should only make distributions to beneficiaries who are sui juris and can
give good receipt of property (obviously infants cannot)
 Duty to avoid conflict of interest, not to earn unauthorized profits from the fiduciary office
not to deal on one’s own behalf with trust property on pain of such transactions being
voidable + obligation to deal fairly with property
 Duty to preserve confidence of beneficiaries, esp in relation to Chinese Wall Arrangements
(Prince Jefri v KPMG)
 Duty to act gratuitously w/o any right to payment not permitted by trust instrument or by
general law  meaning trustee must accept office voluntarily. Rationale – commercial trusts
already provides for remuneration and reimbursement of expenses in general terms.
 Duty to account and to provide information
 Duty to take into account relevant considerations and overlook irrelevant considerations 
failure to do so may lead to court setting aside an exercise of trustees’ powers of they
committed breach of trust!
 Trustees’ obligation to give beneficiaries information in relation to ADMINSITRATION &
MANAGEMENT OF TRUST FUND AND IN RELATION ONLY TO THAT PART OF A STRUST FUND
IN WHICH THEY HAVE PROPRIETARY INTEREST
 What kind of information trustees must give is going to depend on particular nature of
trusttees’ duty to account to beneficiaries and type of information trustees must give to
certain beneficaries to account for management of trust
 How trustees should exercise their powers given by settlor, regarding their exercise of
fiduciary discretion, confidental matters….  not for beneficiaries to decide!
 The liabilties of trustees for breach of trust is going to be limited by Trust Instrument.
 STEPS: Trust Instrument, Trustee Act 2000, Case Law
 Under Trust Instrument  can put in exclusion clauses which can limit trustee’s liabilities,
can exclude liability for negligence and gross negligence BUT cannot remove liability for
dishonesty or fraud!
 Permissive approach to exclusion clauses VS Approach to limit them?
Extent of court’s control of trustees depend on precise nature of trust!
 Giving court directions
 Assuming administrative control
 Judicial Review (private law sense) of trustee’s actions
 Setting aside any decision of trustee made by accounting for irrelevant considerations OR
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(Way beneficiaries can control failing to take into account relevant consideration
and set aside trustee’s actions)  Court will not interfere in appointing new trustee – Tempest v Lord

Nature of Trusteeship = (Office of Trustee) + (General Obligations owed by Trustees) (Rights of

Beneficiaries)

Nature of Office of Trustee:

 Trustee accepts office of trustee, she is bound by ALL TRUST INSTRUMENT TERMS via trusts law.
That's it.
 Person can refuse to act as trustee and is OK to refuse entire office from outset, refuse to act in
1st place (Robinson v Pett)
 It is open for trustee to limit her liabilities as trustee (Armitage v Nurse)
 There’s a difference between “unfitness to act” (legally cannot act, for e.g. insolvent, bankrupt)
and “incapable of acting” (physically/mentally not able to carry out duties of truseeship)
 Complication: If somebody doesn't want to be trustee anymore must go and formally disclaim
office.
 Let’s say dead person passed X chattel to hold for Y’s benefit but X has no chance to refuse, then
law cannot force X to be a trustee BUT X should be treated as bare trustee of property until
somebody else can be found to act as trustee, or bailee of property.
 INEQUITABLE to hold person liable to perform ALL obligations of trusteeship because X didn't
want to be full trustee in 1st place.
 Express Trust – OK. RT? CT? RT CT from date of court order (?)
 Trust instrument is going to include all terms and framework of how trustee is to behave, powers
and how to appoint or remove trustees… Validity of provisiosn depend on public policy.
 If no such provisions are seen in Trusts Instrument  Reference made to Trustee Act 1925 and
settlor can choose whether to exclude TA 1925 wholly or in part. (TA 1925 s69)
 Appointment of new or extra trustees  TA 1925 s36
 Court can appoint new trustees under TA1925 s41
 If complex fund structure, TA 1925 s37 says can raise number of trustees (not exceeding4)
 Grounds must be known for vacancy amons trustees regarding trust of land  S38 TA 1925
 Manner in which property must be vested in new trustees  S40 TA 1925

S36 Power of appointing new or additional trustees.

(1)Where a trustee, either original or substituted, and whether appointed by a court or otherwise,
is dead, or remains out of the United Kingdom for more than twelve months, or desires to be
discharged from all or any of the trusts or powers reposed in or conferred on him, or refuses or is
unfit to act therein, or is incapable of acting therein, or is an infant, then, subject to the restrictions
imposed by this Act on the number of trustees,—

(a)the person or persons nominated for the purpose of appointing new trustees by the instrument,
if any, creating the trust; or

(b)if there is no such person, or no such person able and willing to act, then the surviving or
continuing trustees or trustee for the time being, or the personal representatives of the last
surviving or continuing trustee;

may, by writing, appoint one or more other persons (whether or not being the persons exercising
the power) to be a trustee or trustees in the place of the trustee so deceased remaining out of the
United Kingdom, desiring to be discharged, refusing, or being unfit or being incapable, or being an
infant, as aforesaid.

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(2)Where a trustee has been removed under a power contained in the instrument creating the
trust, a new trustee or new trustees may be appointed in the place of the trustee who is removed,
as if he were dead, or, in the case of a corporation, as if the corporation desired to be discharged
from the trust, and the provisions of this section shall apply accordingly, but subject to the
restrictions imposed by this Act on the number of trustees.

6A)A person who is either—

(a)both a trustee and attorney for the other trustee (if one other), or for both of the other trustees (if
two others), under a registered power; or

(b)attorney under a registered power for the trustee (if one) or for both or each of the trustees (if two
or three),

may, if subsection (6B) of this section is satisfied in relation to him, make an appointment under
subsection (6)(b) of this section on behalf of the trustee or trustees.

(6B)This subsection is satisfied in relation to an attorney under a registered power for one or more
trustees if (as attorney under the power)—

(a)he intends to exercise any function of the trustee or trustees by virtue of section 1(1) of the
Trustee Delegation Act 1999; or

(b)he intends to exercise any function of the trustee or trustees in relation to any land, capital
proceeds of a conveyance of land or income from land by virtue of its delegation to him under section
25 of this Act or the instrument (if any) creating the trust.

(6C) In subsections (6A) and (6B) of this section “ registered power ” means [F3 an enduring power of
attorney or lasting power of attorney registered under the Mental Capacity Act 2005]

(6D)Subsection (6A) of this section—

(a)applies only if and so far as a contrary intention is not expressed in the instrument creating the
power of attorney (or, where more than one, any of them) or the instrument (if any) creating the
trust; and

(b)has effect subject to the terms of those instruments.]

(7)Every new trustee appointed under this section as well before as after all the trust property
becomes by law, or by assurance, or otherwise, vested in him, shall have the same powers,
authorities, and discretions, and may in all respects act as if he had been originally appointed a
trustee by the instrument, if any, creating the trust.

(8)The provisions of this section relating to a trustee who is dead include the case of a person
nominated trustee in a will but dying before the testator, and those relative to a continuing trustee
include a refusing or retiring trustee, if willing to act in the execution of the provisions of this section.

[F4(9) Where a trustee [F5lacks capacity to exercise] his functions as trustee and is also entitled in
possession to some beneficial interest in the trust property, no appointment of a new trustee in his
place shall be made by virtue of paragraph ( b ) of subsection (1) of this section unless leave to
make the appointment has been given by [F6the Court of Protection ] . ]

** Manner in which Trustees are obliged to act in general terms:

 Trustees must act in good conscience (Westdeutsche), avoid conflicts of interest between
trustees’ personal interests and interests of beneficiaries.

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 RMB  No central statement governing this so each trustee’s obligation must be interpreted on
basis that trustee’s particular trust instrument OR on basis of circumstances in which each trust
was created (if no trust instrument OR if trust instrument silent on particular point)

 Trustee must act with prudence and care (Speight v Gaunt), (Learoyd v Whiteley) in general trusts
law. Now, this is adapted by statute into general duty of care.

 More specific trustee duties => Good management and Fair Dealing for operation of trusts

 When more than 1 trustee  ALL trustees are to act jointly and severally. I.e. LT of trust
property to be vested in all trustees’ names, all trustees to receive income form the property snd
etc.

 SO when there is a breach of trustee’s duty (by 1 trustee), beneficiaries will sue all trustees and
its for trustees to go and sort out and allocate liabilities themselves.. So for e.g. only 1 perso
breached, the other 3 or 4 trustees (who were innocent) can go and sue that one trustee for
damages.

What can Trustees are “entitled” to received / can receive:

 Right to remuneration for service to trust , regardless whether trustee is a professional or lay
person – TA 2000 s28()2)
 Professional Trustees (TA 2000 s28(2)(3)) and Delegates Trustee (TA 2000 S32) can get
remuneration in reasonable circs
 Provisions for remuneration only apply if not expressly excluded in Trusts Instrument (TA 2000
s28(1))
 Right to reimbursement for expenses included for conducting trust activities (carry out objectives
in trust fund – TA 2000 s31(1) so long as not contrary to trust terms TA 2000 s31(2)) and
indemnificaion against any liability suffered when conducting those same activities, i.e. entering
into a contract to deliver trust objectives.

Duties on Acceptance of office  What Trustees should familiarise themselves with:

 Trust terms either come in (1) carefully drafted trust instrument and managed by professional
trustees OR (2) informally created trusts or trusts without carefully drafted trust instruments and
no professional trust managers.

 Trustee cannot consider herself imbued with powers beyond what scope is written in trusts
instrument, except to extent trust instrument is silent about some power granted by TA 1925 or
2000 OR silent about how some duty imposed by statute or case law.

 Trustee must know terms of trust, nature of property involved, range of objects within
contemplation of trust (Hallows v Lloyd), identity of other trustees (Nestle v National
Westminster Bank), consult all documents connected to trust (trust instrument, docs relating to
discretionary power, powers of appointment, trust accounts, scope of investments made by trust
 Nestle v NatWest, statements of investment criteria and etc etc.

 If trustee is not familiar with amnagement of trust, he must go and sek legal advice regarding
efficacy or legality of any action taken by trustee in relation to trust..

 What a trustee (whether a new trustee f an existing trust or trustee of new trust) CANNOT just sit
and do nothing w/o investigating nature and extent of her obligations as trustee…

 Trustee will liable for matters which he is expected to have knowledge of, trustee obliged to find
out info about trusteeship, not just fail to investigate matters over which she is expected to have
control!

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 These issues pop up (1) because of what a trust instrument specifically says, (2) context that has
arisen  nature property (AH Pg 314) Various contexts: Investment of shares, maintaining
buildings, collecting rent, selling property at reasonable times..

Duty to exercise reasonable care (applicable to Investment Chapter):

TA 2000 Provisions:

1 The duty of care.

(1)Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill
as is reasonable in the circumstances, having regard in particular—

(a)to any special knowledge or experience that he has or holds himself out as having, and

(b)if he acts as trustee in the course of a business or profession, to any special knowledge or
experience that it is reasonable to expect of a person acting in the course of that kind of business or
profession.

(2)In this Act the duty under subsection (1) is called “the duty of care”.

SCHEDULE 1 Application of duty of care

Investment

1The duty of care applies to a trustee—

(a)when exercising the general power of investment or any other power of investment, however
conferred;

(b)when carrying out a duty to which he is subject under section 4 or 5 (duties relating to the exercise
of a power of investment or to the review of investments).
Acquisition of land

2The duty of care applies to a trustee—

(a)when exercising the power under section 8 to acquire land;

(b)when exercising any other power to acquire land, however conferred;

(c)when exercising any power in relation to land acquired under a power mentioned in sub-paragraph
(a) or (b).
Agents, nominees and custodians

3(1)The duty of care applies to a trustee—

(a)when entering into arrangements under which a person is authorised under section 11 to exercise
functions as an agent;

(b)when entering into arrangements under which a person is appointed under section 16 to act as a
nominee;

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(c)when entering into arrangements under which a person is appointed under section 17 or 18 to act
as a custodian;

(d)when entering into arrangements under which, under any other power, however conferred, a
person is authorised to exercise functions as an agent or is appointed to act as a nominee or
custodian;

(e)when carrying out his duties under section 22 (review of agent, nominee or custodian, etc.).

(2)For the purposes of sub-paragraph (1), entering into arrangements under which a person is
authorised to exercise functions or is appointed to act as a nominee or custodian includes, in
particular—

(a)selecting the person who is to act,

(b)determining any terms on which he is to act, and

(c)if the person is being authorised to exercise asset management functions, the preparation of a
policy statement under section 15.
Compounding of liabilities

4The duty of care applies to a trustee—

(a)when exercising the power under section 15 of the Trustee Act 1925 to do any of the things
referred to in that section;

(b)when exercising any corresponding power, however conferred.

Insurance

5The duty of care applies to a trustee—

(a)when exercising the power under section 19 of the Trustee Act 1925 to insure property;

(b)when exercising any corresponding power, however conferred.

Reversionary interests, valuations and audit

6The duty of care applies to a trustee—

(a)when exercising the power under section 22(1) or (3) of the Trustee Act 1925 to do any of the
things referred to there;

(b)when exercising any corresponding power, however conferred.

Exclusion of duty of care

7The duty of care does not apply if or in so far as it appears from the trust instrument that the duty is
not meant to apply.

 Developed from old case law and now codified in S1 TA 2000.

 Case Law principles now displaced by S1 TA 2000.
 Focus of S1  trustee to be held to subjective standard of care commensurate with any
knowledge or experience which she already has (depending on context). Test is SUBJECTIVE,
based on trustee’s own knowledge and experience.
 This means standard of care reasonable for someone with that knowledge and experience.
 Trustee must be careful not to represent himself as having more knowledge than he should or
else he’s going to be held to that higher standard. (Foolish, indeed.)
 Nothing in TA 2000 that needs trustees to act in best interests of beneficiaries best possible.

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 Statutory duty of care only applies to 1. Investment, 2. Land acquisition, 2. Use of agents,
nominees & custodians, 4. Compounding of liabilities, 5. Insurance, 6. Dealing with reversionary
interests. – TA 2000 S2, Schedule 1

Old Case Law regarding Duty of Care

Learoyd v Whiteley (1887)  Trustee to act as a prudent person of business – act like that on behalf
of somebody whom he felt morally bound to provie for. Trustee must be a “businessman of ordinary
prudence”

Bartlett v Barclays Bank (1980) modified Learoyd approach by saying trustees are permitted to take
prudent degree of risk , but must avoid anything amounting to hazards.

Speight v Gaunt (1883)  “trustee ought to conduc business of a trust in same manner that of an
ordinary prudent man of business would conduct his own” so that there will be no breach…

BUT its hard for lay person to meet standard in Speight!

So, Cowan v Scargill (1985) said that it a trustee doesn't have any knowledge of subject matter
involved, he doesn't mean he can perform his duties properly. In fact, he must go and seek
professional advice and after receiving advice, act with prudence.

Trustees to focus on management, protection and maintenance of trust fund, while letting it grow
steadily – Nestle v NatWest

CONTRAST  Armitage v Nurse: Millet J never considered there was general duty of trustees to act
with skill and care. Millet J meant that he rejected a notion which implies that trustees coud not
exclude liabilities as there is some kind of minimal notional level of obligations that all trustees must
bear if there is to be a valid trust…

Qn in Armitage was whether an exclusion clause in trust instrument that purorted to exclude trustee’s
liability for breach of trust could be relied on or not. HELD (CA): Yes, it could be. The exclusion clause
was valid, not void.

Q: What’s the effect of TA 2000 on case law’s standard of prudence?

 SHIFT from prudence to reasonableness. (Act prudently   Act reasonably)

 Prudence means act cautiously, consider risks involved. Not being prudent is not the same as
being dishonest. Doesn't mean every time person doesn't act carefully he is dishonest.
 Test of reasonableness may require some trustes to behave prudently if context requires but
also liberates other trustees to act more progressively on behalf of beneficiaries w/o being
too preoccupied with litigation.
 For E.g Investments. Taking investments definitely require risks but so long as there risks are
not hazardous  OK.
 TA 2000 VS Common Law (Old Case Law)  TA 2000 won’t affect most cases : Reflects signal
to judges culture trustees operate in will be more liberal, so act within confines of trust
instrument obligations instead of being overtly cautious!
 Practical world is trustees will ensure settlor’s limit trustee liabilities in trust instrument,
make some provisions in trust instrument that some or all of TA will not apply, so that
trustees can act liberally…
 However, there is something special about fiduciary obligations of trustees .. So removing
many irreducible core of obligations on them, such as duty to act with appropriate care and
skill before “trust” => then “trusts” will become (more) “meaningless”  ordinary common
law obligations of contract

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Duty to Invest in trust property: RMB too for (Term 2 Week 2 Notes)

 TENSION between (1) Obligation on trustees to secure best performing investments accd
with trust’s terms (Cowan v Scargill), while balancing (2) Quest for high return with general
obligation to act prudently (Speight v Gaunt)
 TENSION between taking care & seeking highest available return  explanation for modern
requirement for Trustees to MAINTAIN PORTFOLIO OF INVESTMENTS WHEREBY BREADTH OF
IVNESTMENTS WILL BALANCE OUT RISKS ASSOCIATED WITH ANY INDIVIDUAL INVESTMENT
GENERATING LOSS.
 Enactment TA 2000  ange of powers and duties and powers for trustees when investing in
trust property in the event trust instument has no specific investment powers, trustees have
investment powers of ansolute owner of trust property (TA 2000 s6(1))
 Trustees must follow the STANDARD INVESTMENT CRITERIA laid doen in TA 2000 s4(1)
 In making investment decisions, trustees are OBLIGED to take professional advice TA 2000
s5(1)
 When making investment decisions, again trustees still governed by general statutory duty of
care (TA 2000 Sch 1 Para 1b)

Duty to Avoid Conflicts of Interest

 Duty to avoid conflict of interest, not to earn unauthorized profits from the fiduciary office
not to deal on one’s own behalf with trust property on pain of such transactions being
voidable + obligation to deal fairly with property.
 Trustee has obligation not to allow conflicts of interest between 2 competing fiduciary duties
OR between trustee’s personal interests and beneficiaries’ interests. (Tito v Waddell; Prince
Jefri v KPMG)
 No action can be taken because of conflict of interests (Clarke Boyce v Mouat)
 Standard here is very high, we don't even want ANY POSSIBILITY of conflict of interest
(Boardman v Phipps). Needless to say about actual conflict of interests
 2 rules  (1) NO CONFLICT RULE – prohibits fiduciaries from allowing any conflict of
personal interests and fiduciary duties , (2) NO PROFIT RULE – prohibits fiduciaries from
profiting from fiduciary duties.  Don King Productions v Warren

Ways for Trustee to be (possibly) “protected” under conflict of interest:

 Trustee shows she was AUTHORISED to act in manner she did (Authorisation  Type of
DEFENCE)
 When trustee cannot transact in a way that will directly benefit herself she may possibly sell
trust property to a company in which she is a mere shareholder  can preclude liability
under conflict of interest but if trustee seeks to get personal gain as company substantially in
control or transaction lack probity  that’s it.

Trustee making unauthorized profit from trust

 When trustee makes profit that she is not authorized to do so under trust, the court and the
law will regard it that whatever profits made were held on CT for the beneficiares in accd to
whatever terms there are in trust  Boardman v Philpps, AG HONG KONG v Reid

 Trustee deals with trust property and makes loss the trustee must make good the property
and compensate loss to trust fund AG HK v Reid

 Origin of Rule  VERY STRICT  Keech v Sandford: Renewal of lease involving infant
beneficiary. The trustee went to renew lease under his own name since infant beneficiary
couldn't do so. HELD: Lease should be held on CT for infant beneficiary not because of fraud

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 or unconscionable behaviour of trustee, it is just that court felt so long as you are trustee 
you just cannot even have possibility of enjoying unconscionable benefit.

 When trustees act by making profits for themselves when beneficiaries themselves cannot
do so at all, law takes this every seriously  Boardman v Phipps

Facts: Mr Boardman was a solicitor advising the Phipps Family trust. Trustee Mr Fox took
advice from Mr Boarsman and tended to do whatever Boardman suggested. So, Boardman
was held by the court as a fiduciary. Mr Boardman was not explicitly named as a trustee,
BUT because Mr Boardman was advising trustees, it was held that he was acting in a
fiduciary r/s.

*This tells us categories of what you can be as fiduciary can be quite fluid.

Facts: Mr Boardman got involved in trust realized the principal property of the trust was
invested in a private limited company. Private limited company – hard to get information
about it in public. As Mr Boardman was advising trust, trust had huge shareholding in
company, so as a result Boardman had to attend all the private limited company
shareholder meetings. During these meetings, Mr Boardman learnt that the company was
actually a very profitable business. If company realized what he was doing in Australia –
very profitable.

Boardman and Fox had a plan. Buy up all shares in company then under company law,
change directors, appoint new directors, make business profitable… Trust monies used to
buy shares. Fox used own money to buy shares. Together = Majority shareholding.
Boardman also put in own money. Now, this was not explained to other trustees. SO
Boardman was right, reorganized company, shares paid up. Shareholding – beneficial for
trust = INCREASED VALUE.

However, Mr Phipps, one of beneficiaries found out about this that mr Boardman was
making profits for (himself?) so Mr Phipps brought an action to recover the profits made by
Boardman.

HELD 3:2 Majority  Phipps was entitled to a CT that profits were held for HIM. It did not
matter that solicitor actually put in his own money to business plan such as getting
acquisition of majority shareholding in private company and even though he did not act in
bad faith.

What is the purpose of having this rule? HOL said it was to prevent any conflict of interest.
So basically there cannot be a conflict between the personal interests of the trustee AND
the fiduciary duties of the trustee.Therefore, must hold profits on CT.

Exploring ruling further 

VS..: Agree cannot have conflict of interest

Dissenting minority said Mr Boardman did not act in bad faith so cannot impose CT on
him…

But you see information of private limited company is CONFIDENTIAL INFORMATION…

Although Boardman did not act in bad faith, Boardman did benefit by using such
confidential information  SOCIAL PRINCIPLE.  VERY STRICT RULE!

We just CANNOT ALLOW POSSIBILITY OF CONFLICT OF INTEREST – WE DO NOT EVEN HAVE

TO PROVE THERE WAS ACTUALLY AN ACTUAL CONFLICT OF INTEREST.

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  Good to have this presumption. Any situation which fiduciary earns profit is going to be a
CT.

 The only possible defence that a fiduciary has to this CT principle is that he / she was
actually AUTHORISED to do what he did.

 Because fiduciary likely to held in conflict of interest situation that there as CT  the
AUTHORISATION idea is super important……

Introduction to Authorisation Defence:

 Absence of any proof of fraud or unconscionable behaviour, trustee will be liable to hold
such profits on CT for beneficiaries  Boardman v Phipps & this rule must be strictly applied
 Keech v Sandford
 Fiduciary may be let off if the type of profits is made is provided for in trusts instrument OR
authorization to make profirt as been sough (Prince Jefri v KPMG) OR person involed not
fiduciary at all.
 Not clear with authorization will always generate permission to make profits or protection
for liability for making such unauthorized profits (Industrial Development v Cooley)
 LIMITATION OF THIS DEFENCE: AUTHORISATION MUST BE SOUGHT FROM OTHER TRUSTEES
AND THE BENEFICIARIES  Regal v Gulliver. When the Beneficiaries grant such permission,
later on they cannot use the Self-Dealing rule.

*There is a difference between “self-dealing” and “fair-dealing”

Principle Against Self-Dealing Transactions

Self-dealing Principle  stricter than fair dealing principle:

 Trustee NOT ENTITLED TO enter any transaction that will benefit himself in a trust.

 For E.g. Trustees purport to deal with beneficiaries of fiduciary power as 3 rd party, for e.g.
when seeking to buy property from trust = Trustee acting on behalf of trust and for herself. It
doesn't matter the price trustee actually pays (at market price, undervalue…) In Wright v
Morgan, a transaction of legatee transferring property to his co-trustee was held to be VOID
even though independent price valuation was sought for property, trustee could have
delayed sale such that the price no longer at market value.

 So any such transaction will be VOIDABLE. Beneficiaries can decide for that transaction work
if they want. But if they do not want – they do not want.

 Same principle will concern trustees… => This principle in Boardman v Phipps is a STRICT
PRINCIPLE – built on good faith….. STRICTNESS of upholding this principle is a matter of
POLICY

 Exceptionally, some flexibility permitted in Holder v Holder, CA decided if it was possible for
court to inquire into trustee’s knowledge and intentions and decide on that basis it was
permissible for transactions in good faith to be affirmed by court instead of being deemed
voidable. If transaction acquiresces, beneficiary is precluded from setting aside transaction
enxt time (Holder v Holder)

Fair Dealing Principle  less strict than self-dealing principle:

 Where trustee deals with BI of beneficiary in trust OR acquires BI, there is obligation on
trustee to show fair dealing  Tito v Waddell

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  If a trustee purchases BI from beneficiary – transaction is not voidable… but can be set aside
unless trustee can show he had not taken advantage of his position and that that transaction
was done under fair dealing.

 Possible when you are dealing if you can demonstrate you acted in good faith, fairly and
appropriately – then it is OK. In effect if you are a fiduciary you want to make yourself
beneficiary – need authorization… CT. You need to get PERMISSION FROM BENEFICIARIES to
authorize what you are going to do.

CT  - present purposes and duty harsh reality..

TRUSTEE : Duty in general to exercise powers in the best interests of present and future beneficiaries
for trust, act impartially…

Classic circumstance in which this is valid  family trust in which… lifetime and beneficiary made
after lifetime of…. => Meaning you are entitled to…

Remaining beneficiary  CAPITAL held tied…. Much of it still together so when you die all capital lies
in there. Once lifetime stops, take it, INVEST  make a lot of income now… Prudently, carefully… 
Very difficult for trustee, hold the scale (?) IMPARTIALLY. NOT OBLIGATION TO TREAT EVERYONE
EQUALLY BUT OBLIGATION TO ACT IMPARTIALLY… THING WE ARE TRYING TO AVOID IS BIAS. YOU
MUST BE ABLE TO JUSTIFY AS TRUSTEE WHY YOU MAKE DECISIONS AND JUSTIFY THEM.

Discretionary trust  discretion needs to be exercised.

In this whole situation – whole point of being trustee is not to act as the same but rather trustees
acted impartially NOT in biased manner. Trustee acts fairly in making investment –big difference.

Trustees wide discretion… Life as person known to settlor…

FAIRNESS … * IMPT CONCEPT.

Mechanical rule  Approach – circumstances.

Entitled to take into account trustee  whatever is taken into account. You have an overriding
responsibility…

Life Tenant  principal intention = money used primarily.. trustee to take risks

Duty of trustee to act for future and present beneficiaries’ interest…

E.g. Classic example : Family Trust and Life Tenant in their lifetime…..  Income beneficiary and
Lifetime, capital beneficiary… Concern of capital beneficiary is capital together so when XYZ dies –
there is capital.. CONFLICT THERE. Once life tenant take risks and invest, at position of beneficiary

Hold scales… States and obligations – function.

You need to be able to justify there is a trustee and trustee has role..

Discretionary Trustee  trustee in relation to powers of Investment.

Trustee must act fairly because of beneficiaries.

Trustees  Must be ACCOUNTABLE for capital..

Ok so life tenant case  leasehold…

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Beneficiaries  successfully sitting on this type of trust?

People against the ritual?

Now if you give relevant consideration – you cannot be liable for breach of trust. All you need to
consider is whether somebody has given proper consideration or not?!!

Duty of confidence and duties in relation to Chinese walls.

 Meaning of “Chinese Walls”  attempt by firms to segregate employees who are advising 1
client from those employees who are advising other client.

 Successful Chinese wall strategy will prevent employing company or firm from being
attributed with any knowledge acquired by employees, otherwise if an employee of a firm
had a requisite form of knowledge of confidential client information, then that knowledge
would ordinarily be attributed to the employer, thus making employer liable for any breach
of duty.

 Obligations of good faith, loyalty & confidence  Bristol & West Building Society v Mothew

 LINK: obvious cannot have conflict of interest because duty of loyalty is CENTRAL to duty of a
fiduciary.

 How confidential information is being dealt with is crucial. Information in itself has VALUE.

 Any misuse of confidential property by fiduciary can lead to breach of trust & for any secret
profits made by the fiduciary to be held on CT (Boardman v Phipps)

 Information might not be IP or what but this sort of info being used is STILL CONSIDERED AS
A BREACH OF DUTY.

 Whatever profits gained from such information misuse to be held on CT for the beneficiaries
(REPEATED CONCEPT) – Prince Jefri v KPMG

 Contexts in which this issue may arise and cause difficulties for fiduciaries Litigation or
advice by professional advice from law firms, accountancy firms… WHY? Because
comparatively few of these firms exist to provide the services which large commercial clients
need.

 Approach for English litigation  Very real possibility of conflict of interest OR transmission
of info when employees of same law firm are advising both parties to litigation, prospects of
success, businesses, tactics…. For e.g. If same law firm act for C and D, it is not in itself
objectionable by English courts as long as both C and D give consent.

Prince Jefri Bolkiah v KPMG:

Facts: C, the Prince was finance minister to Brunei and part of Brunei royal family but fell in fafour and
sought advice from D accountancy firm. Then a Brunei State owned entity BIA commenced litigation
on C and BIA retained D accountancy firm to advise on litigation.

KPMG did put in place Chinese Wall arrangement considered but there were problems with how
KPMG did it.

(1) Those arrangements were D’s usual, nothing special or designed specifically in circumstances
of this particular litigation => Court not convinced that KPMG did everything necessary to
ensure no transmission of confidential info within firm.

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 (2) Those arrangements failed in practice as there were ,pvements of staff between 2
departments such that e,ployees in 1 department who knew information not segregated
with other department => Transmission of confidential info as to C’s personal affairs with
firm , esp structure of personal holdings.
HELD: KPMG’s argument failed. It is not about KPMG doing all that was reasonable to preserve
confidentiality of info of C. D’s obligation not just mere obligation to do everything reasonable but
ABSOLUTE DUTY TO ENSURE NO BREACH OF CONFIDENCE. => so, no Defence for D.

In relation to solicitors  Not just don't communicate info to 3rd part  it’s about duty not to misuse
info, w/o consent of former client…

Similar case – Marks & Spencer v Freshfields

Audit VS Legal Services

Solicitor:

 Acts throughout duration of retainer in fiduciary capacity for client, but that obligation ends
when r/s ceases, so solicitor may thereafter act against former client.

 However, in relation specifically to info relation to when solicitor was acting for client,
solicitor remains fiduciary r/s forever or else client have no practical protection against
solicitor’s breach of duty.

Auditor:

 Accountancy services to people who may be in conflict in future or at time of providing

services

 Fiduciary duty is really need to avoid ANY CONFLICT OF INTEREST between fiduciary’s
personal capacities and obligations owed to beneficiary!

Limitations of Trustees’ Duties:

Limitation of liability VS Exclusion of liability => HUGE DIFFERENCE.

 The liabilities of trustees for breach of trust is going to be limited by Trust Instrument, either
excluded completely OR limited by express provision to that effect in trust instrument. –
Armitage v Nurse

 Such exclusion are EQUITABLE not contractual provisions  Re Duke of Norfolk ST

 STEPS: Trust Instrument, Trustee Act 2000, Case Law

 Under Trust Instrument  can put in exclusion clauses that can limit trustee’s liabilities, can
exclude liability for negligence and gross negligence BUT cannot remove liability for
dishonesty or fraud!

 Reality – Although in theory it appears that beneficiaries are being protected by TA 2000,
exclusion of liability clauses can be added so easily!! Then what’s the point of TA 2000?
Reality is that professionals drafting the trust instruments are LAWYERS, so they obviously
will draft instrument in a way that will exclude liability for particular circumstances. So while
settlor technically grant immunity from liability for breach of trust to trustees, in practice its
trustees themselves dictating the exclusion terms and making sure THEY are THEMSELVES
protected!

Decision in Armitage v Nurse  leading case for exclusion clauses:

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  In Armitage v Nurse , an exclusion clause that excluded trustee from liability for loss to trust
fund due to the trustee’s own negligence, even his own gross negligence was valid.BUT, no
clause can ever exclude a trustee from DISHONESTY or trustee’s own fraud!

 In Armitage v Nurse , the value of farmed land fell due to bad management, losses were
caused to trust fund. The exclusion clause was drafted that trustee was not liable unless it
was caused by any of trustees’ “own actual fraud” (meaning dishonesty). 

 Exclusion clause will be effective for matters that exclude trustee liability for breach of trust
matters, “no matter how indolent, imprudent, lacking in diligence, negligent or willful he may
have been, so long as he had not acted dishonestly.”

Interpretation of Trust Instrument:

 Before Armitage v Nurse, older case Wilkins v Hogg said settlor able to limit trustees’
liabilities if she so wished provided such an intention to exclude trustee’s liabilities was set
out in trust instrument. (Armitage v Nurse)

 The exclusion clause will be interpreted by court to give it NATURAL MEANING => i.e.
settlor’s intention to give trustee that exclusion clause is MADE KNOWN.

 Court will give effect to exclusion clauses.

Dishonesty:

 What do we mean by dishonest? Walker v Stones (CA) Q: Whether solicitor could be
dishonest if he did not subjectively appreciate he was being dishonest as he believed he was
acting in best interests of trust.

HELD (CA): Solicitor could not escape finding of dishonesty in this way if no reasonable
solicitor acting as trustee would have considered it to be dishonest to act in that way.

 In Armitage v Nurse, Millet J said require at minimum intention on trust’s part to pursue
particular course of action, either knowing it is CONTRARY to beneficiaries’ interests OR
being recklessly indifferent whether it is contrary to their interests or not.

 Ultimate concern is whether law takes a SUBJECTIVE (Twinsectra v Yardley) or OBJECTIVE

(Royal Brunei Airlines v Tan) approach towards dishonesty (& dishonest assistance too).

 Hudson’s suggestion is take the Walker v Stones approach.

 An intentional Breach of Trust is not necessarily a dishonest breach of trust; Willful default –
Armitage v Nurse

 Deliberate breach of trust  Dishonest, fraudulent breach of trust  Hudson thinks this
sounds weird. However, suggestion is that it must be shown trustee actually breached
LITERAL WORDS OF TRUSTS INSTRUMENT if obeying those terms would cause tax charge or
some other loss to fund……

 But much better idea would be to go and vary the trust.

 There’s another tricky issue  How to deal with recklessness?? Q: Whether or not a breach
of trust caused by trustee’s own recklessness (between gross negligence and dishonesty),
could be excluded by an exclusion of liability clause in trust instrument.

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Deeper theoretical concerns between Duties of Trustees & Dishonesty:

 Fiduciary => IRREDUCIBLE CORE OF OBLIGATIONS OWED BY TRUSTEES TO BENEFICIARIES &

ENFORCEABILITY OF THEM ARE IMPORTANT IN ORDER FOR A TRUST TO FUNCTION.

 Reliance on exclusion clause => Are we lowering standards? Then what does it really mean
then to be a trustee? What is the minimum content of being trustee? Armitage v Nurse
Millet J’s approach allows trustee to escape liability just by saying he saw nothing wrong with
what he did.  Why did Millet J do this?

 Make trusts law more commercially astute? Make trusts law more commercially attractive =>
most commercial aspects of financial law move in opposite direction?

 But public policy dictates  we MUST still keep all trustees in touch and ensure they act
most professionally a manner.

 But merely not being dishonest doesn't put lots of train on a person……

 Denying duty of care and skill doesn’t fit S1 TA 2000 notion (enacted after Armitage v Nurse)

 But we need exclusion clauses to give trustees protection or else next time people don't
want to act as professional trustees!

 How should we view exclusion clauses? If they are too extensive => Defeats notion of what it
means to be a trustee! But we can also say the very fact of exclusion clauses in existence
shows what it means to be trustee?

 PARADOX in exclusion clauses: More professional trustee, More likely she has exclusion
clause included in trust instrument … So more professional trustee would less likely be held
liable for breach of trust & the commoner who never held herself out as professional trustee
is more likely to be held liable….QUALIFIED & EXPERIENCED PROFESSIONAL TRUSTEE ESCAPE
LIABILITY , NON-QUALIFIED & INEXPERIENCED TRUSTEE BEARS FULL LIABILITY?!!!

 Mere guidance  Concrete legal obligation  whether it is set out in Trusts Instrument, TA
______________________________________ 2000 or case law

 No fixed conclusion to this debate. Trustees either escape liability or impose loss on
beneficiaries OR trustees are forced to bear liabilities that they have NOT agreed to bear…

Control of Trustees

By beneficiaries:

(RECAP  BP topic)

Jonathan Garton: Fiduciary Duties

A. Nature of the Fiduciary Duty

Keech v Sandford (1726) Sel Cas t King 61 per Lord King LC: ‘I do not say there is fraud in this
case, yet [the trustee] should rather have let [the lease] run out than to have had the lease
to himself. This may seem hard, that the trustee is the only person of all mankind who might
not have the lease; but it is very proper that the rule should be strictly pursued, and not in
the least relaxed’

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 Wright v Morgan [1926] AC 788
Re Gee [1948] Ch 284
Holder v Holder [1968] Ch 353

A-G v Blake [1998] 1 All ER 698, per Lord Woolf MR: “Equity does not demand a duty of
undivided loyalty from a former employee to his former employer. … It is trite law that an
employer who wishes to prevent his employee from damaging his legitimate commercial
interests after he has left his employment must obtain contractual undertakings from his
employee to this effect. He cannot achieve this object by invoking the fiduciary relationship
which formerly subsisted between them.”

Boardman v Phipps [1967] 2 AC 46 (extracted in worksheet below)

Regal Hastings v Gulliver [1942] 1 All ER 378, per Lord Killowen: “The rule of equity which
insists on those, who by use of a fiduciary position make a profit, being liable to account
for that profit, in no way depends on fraud, or absence of bona fides, or upon such
questions or considerations as whether the profit would or should otherwise have gone to
the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit
for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff,
or whether the plaintiff has in fact been damaged or benefited by his action. The liability
arises from the mere fact of a profit having, in the stated circumstances, been made.”

B. Variation of the Duty

Hilton v Barker Booth & Eastwood [2005] 1 WLR 567
Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 (extract in worksheet below)

C. ‘Self Dealing’ and ‘Fair Dealing’

Tito v Waddell (No 2) [1977] 3 All ER 129, per Megarry V-C: “The self-dealing rule is …. that if
a trustee sells the trust property to himself, the sale is voidable by any beneficiary ex debito
justitiae [as a debt of justice], however fair the transaction. The fair-dealing rule is …that if a
trustee purchases the beneficial interest of any of his beneficiaries, the transaction is not
voidable ex debito justitiae, but can be set aside by the beneficiary unless the trustee can
show that he has taken no advantage of his position and has made full disclosure to the
beneficiary, and that the transaction is fair and honest.”
Wright v Morgan [1926] AC 788
Holder v Holder [1968] Ch 353

D. Trustees may receive authorised remuneration

Re Duke of Norfolk's ST [1982] Ch 61
Trustee Act 2000, ss 28-33
Lord Hodgson, Trusted and Independent: Giving Charity back to Charities: Review of the
Charities Act 2006 (TSO 2012) (the ‘Hodgson Review’) ch 4, recommendations 10-11

E. Remedies
Lac Minerals v International Corona Resources [1989] 2 SCR 574

Lister v Stubbs (1890) 45 Ch D 1, per Lindley LJ: ‘… the relationship between them [L and S] is
that of debtor and creditor; it is not that of trustee and cestui que trust. We are asked to
hold that it is – which would involve consequences which, I confess, startle me. One
consequence, of course, would be that, if S were to become bankrupt, this property acquired
by him with the money paid to him by V would be withdrawn from the mass of creditors and
be handed over to L. … Another consequence would be that … L could compel S to account
to them, not only for the money with interest, but for all the profits which he might have

17
 made by embarking in trade with it. Can that be right? … I am satisfied that [this argument
is] … not sound – the unsoundness consisting in confusing ownership with obligation.’

Boardman v Phipps [1967] 2 AC 46

Bhullar v Bhullar [2003] 2 BCLC 241
A-G of Hong Kong v Reid [1993] AC 713
Daraydan Holdings Ltd v Solland International Ltd [2005] Ch 119
Sinclair Investments v Versailles Trade Finance Ltd [2012] Ch 453
FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45

F. Explaining the Duty

P Birks ‘The Content of Fiduciary Obligation’ (2002) 16 TLI 34
M Conaglen, ‘The Nature and Function of Fiduciary Loyalty’ (2005) 121 LQR 452 (extract
attached)

G. ‘Shouting the Rule; Whispering Equity’

Murad v Al-Saraj [2005] EWCA Civ 259
Warman International v Dwyer (1995) 182 CLR 544
C Mitchell, ‘Causation, Remoteness, and Fiduciary Gains’ (2006) 17 KCLJ 325
Boardman v Phipps [1967] 2 AC 46
O’Sullivan v Management Agency and Music Ltd [1985] 3 All ER 35
Badfinger Music v Evans (2001) 2 WTLR 1
Crown Dilmun v Sutton [2004] 1 BCLC 468, ChD

Term 2 Week 3 Seminar - Fiduciary Duty

Consider the following points:

 Boardman v Phipps was an equitable decision

 Conaglen is wrong to say that the fiduciary duty of loyalty protects a private duty of care – it
actually protects a public expectation of trust

 The strict rule of fiduciary propriety is an historic accident with no place in the modern world

 It is not possible for a solicitor to accept instructions from a new client where they conflict with
the interests of a former client

 On close examination the rule is really that “transactions and relationships are prohibited only
where there is a real risk of conflict”

1. ‘Honest Bob’ a second-hand car dealer sells a car to A

who knows nothing about cars. YES / NO

Just a contract. A fiduciary duty requires not taking advantage by making a profit from the
relationship. Has to give 100% loyalty to the principle. Over and beyond their own interests.
What is the seller of the care trying to do? Maximizing own interest by selling for as much
money as possible. Completely against what we know about commercial contract- fiduciary
duty.

Rule of fair dealing: the fiduciary needs to disclose all material facts. In the current case, should
Honest Bob have to disclose everything? No. the general rule is that there is no duty to
disclose in English law. In here there is no evidence that there is a fiduciary duty.

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2. G employs H as a solicitor to assist in the
administration of the estate of G's father who YES / NO
has recently died. After administration of the estate
is completed, X (G’s wife) asks H to act for her in
divorce proceedings against G.

The solicitor has a lot of information about what G inherited. The confidential information has
to be relevant. In divorce proceedings, the confidential information is relevant here so there is
fiduciary duty here and she can’t retain him as the solicitor.

Cannot put yourself in a situation where there is a potential conflict of interest.

Examples: Confidential information that X gives to the fiduciary can be used against X so the
fiduciary has to refuse representing Y.

Fiduciary relationship- when it ends- can I just reveal all confidential information? No, it is a
breach of fiduciary duty.

Potential v actual conflict of interest: how do we get around this? Needs to create a Chinese
wall.

Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831. : no chance of information being revealed as
the corporate structure of the company didn't allow it.
Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222, House of Lords (see materials accompanying
this worksheet)

regulatory authority wanted to find any information about the Prince. KPMG interviewed all of
the employees so that only people who have no confidential information will work on the
case… created a different internet server for them… destroyed all information regarding the
prince so they claimed that they have created a Chinese wall. Court disagreed. This was not
always there. They tried to create a Chinese wall which was not good enough.

3. I is employed by J plc a drugs company; I has

access to the latest information on J plc's YES / NO
research;

Does an employee owe a fiduciary duty to the firm especially after the contract ends? It is a
contract. So you need to put a confidentiality clause to protect yourself.

AG v Blake: double agent for Russia… was caught by MI6. Wrote a book- court found it to be a
breach of contract- national security- public policy decision which is completely different from
the current case.

4. K is a director of L Ltd; he personally enters into

a contract to provide a service which L YES / NO
Ltd is in the business of providing;

Does a director owe a fiduciary duty? Yes. Totally against the duty of loyalty. There is a conflict
of interest.

5. M is the trustee of a leasehold for N; the

landlord (L) offers M the right to renew in M's YES / NO
personal capacity;

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 Case: Keech v Sandford: solicitor gets the lease. There is no conflict of interest- but court said that
you used your position for your own benefit which is not allowed. Not just about actual conflict of
interest but potential conflict of interest.

6. O is a bank manager; she persuades P, a retired

colonel, to borrow heavily on a mortgage on the YES / NO
security of P's house.

Is the bank manager the fiduciary of a client/customer? Yes. They give advice on the basis of
fiduciary duty if the client is banking with them. If the colonel is banking with O’s bank, then
there is fiduciary duty. If not- there is no fiduciary duty.

7. S is a doctor; T is a patient being treated by

S. Through no fault of S, T dies in hospital, and in
his will leaves his whole estate to S. YES / NO

A doctor owes a fiduciary duty to the patients. The second you tell the doctor that you have
left the estate to them, there is a fiduciary duty. So the doctor needs to tell her to go to
another doctor because there is a conflict of interest otherwise. Court would say that it is a
conflict of interest.

Sergeant v Westminster bank: there is a potential conflict of interest. Settlor placed them in
the position of conflict of interest. The court therefore now cares about actual conflict, which
is a breach of fiduciary duty.

8. C plc (C) identifies land, next to property it

already owns, as potentially gold-bearing. C
discusses with L plc (L), a better-financed
mining company, a possible joint venture to YES / NO
purchase the land and exploit its mining
potential. C discloses important information
to L during the discussions. The discussions
breakdown and C discovers that L has acquired
the land for itself.

Commercial relationship: is there a fiduciary relationship?

Generally you would make a contract that would have a massive confidentiality agreement- to
protect yourself.

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