Equity and Trusts II

Defining Fiduciary relationships

Thomas Moore: “The things are to be kept in Conscience: Fraud, Accident, and Breach of
Confidence.” The core duties of the fiduciary are the duties of loyalty and good faith. There is a strict
definition of a fiduciary. However, Lord Millett in Bristol & West Building Society v Mothew 1, a
fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in
circumstances which give rise to a relationship of trust and confidence. Fiduciary law corrects that the
fiduciary has the discretion – though not unlimited – in someone else’s affairs and corrects the
necessary scope for abuse. This affords protection for the beneficiaries where the fiduciary law
emphasizes loyalty from the fiduciary and minimizing the risk of exploitation by abuse of power. It
also reduces or makes sure the fiduciary’s gain with the possibility of the principal’s expense does
not occur. Note that this is so even where there has been no loss to the principal. This must be
contrasted to where [trustees] breaches of duty of care occur.

This is mostly provided for in the case of Bray v Ford2:

“It does not appear to me that this rule is, as has been said, founded upon principles of
morality. I regard it rather as based on the consideration that, human nature being what it is,
there is a danger, in such circumstances, of the person holding a fiduciary position being
swayed by interest rather than by duty, and thus prejudicing those whom he was bound to
protect.”
The case established one major principle in fiduciary law: fiduciaries cannot put themselves in a
position in a position where their interest conflicts with their duty. The case essentially reminds us
that fiduciaries’ duty lies solely with the beneficiary, and personal gain cannot come before that
responsibility.

Central fiduciary obligations

In Bristol & Est Building Society v Mothew3, Millett LJ also said
“The principal [could be trustee] is entitled to the single-minded loyalty of his fiduciary. This
core liability has several facets. A fiduciary must act in good faith; he must not make a profit
out of his duty; he must not place himself in a position where his duty and his interest may
conflict [Bray v Ford]; he may not act for his own benefit or the benefit of a third person
without the informed consent of his principal…”

Summarily, the central fiduciary obligations include Loyalty and good faith. These two are usually
accompanied by the two other obligations:
o No possible conflict of duty and interest (see Companies Act for directors)
o No secret profits
- Other obligations include:
o Fair dealings
o Self-dealing

1
[1996] 4 All. E.R 698
2
[1896] A.C. 44
3
Supra at 1
These obligations are further pointed out in the case of Regal (Hastings) v Gulliver4 by Lord Russell,
who said:
“The rule of equity which insists on those, who by use of a fiduciary position make a profit, being
able to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such
questions… as whether the profit would or should otherwise have gone to the plaintiff… The
liability arises from the mere fact of a profit having, in the state circumstances, been made. The
profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to
account.

There are two types of fiduciary relationships; status-based fiduciaries and those without status.
1. Status-based fiduciaries
These are relationships that are recognized, by their very nature, by the courts and the legal
system, as inherently. Examples of such fiduciary relationships:
a. Trustee/beneficiary (par excellence)
b. Director/company
c. Legal practitioner/client
2. Non-status fiduciary relationships
These are decided on fact-to-fact basis and the courts infer the fiduciary duties basing on
how they operate. Examples include:
- Financial advisors and clients
- Joint Ventures where courts may recognize the fiduciary duty based on the collaboration and
the reliance between the parties.

Comparing the English and Australian Perspectives on Fiduciary Relationships

"The accepted fiduciary relationships are sometimes referred to as relationships of trust and
confidence or confidential relations... The critical feature of these relationships is that the
fiduciary undertakes or agrees to act on behalf of or in the interests of another person in the
exercise of a power or discretion which will affect the interests of that other person in a legal
or practical sense. The relationship between the parties is, therefore, one which gives the
fiduciary a special opportunity to exercise the power or discretion to the detriment of that
other person who is accordingly vulnerable to abuse by the fiduciary of his position... It is
partly because the fiduciary's exercise of the power or discretion can adversely affect the
interests of the person to whom the duty is owed and because the latter is at the mercy of
the former that the fiduciary comes under a duty to exercise his power or discretion in the
interests of the person to whom it is owed.-Mason Jin Hospital Products v USSC (1984) 156
CLR 4, 155 ALR 417
"The paradigm of the circumstances in which equity will find a fiduciary relationship is where
one party, A, has assumed to act in relation to the property or affairs of another, B.-Lord
Browne-Wilkinson in White v Jones (1995) 2 AC 207"

Extending the reach of fiduciary obligations? English Courts

4
[1967] 2 AC 134
 In English Law, the fiduciary duty does not extend to doctors and patients. In the case of
Sidaway v Board of Governors of the Bethlehem Royal Hospital5, Lord Browne-Wilkinson said:
"In my judgment, there is no ground in... law for extending this limited doctrine of informed
consent outside the field of property rights in which it is established. The doctrine is in each case
based on the principle that the person said to be in a fiduciary position may have abused his
position of trust to make a personal profit for himself. That principle has no application to the
present type of case where there is no suggestion that the doctor is abusing his position for the
purpose of making a personal profit.”

Lord Browne-Wilkinson went on to add that:

“Counsel for the appellant referred to Nocton v Lord Ashburton [1914] AC 932 in an attempt to
persuade your Lordships that the relationship between doctor and patient is of a fiduciary
character entitling a patient to equitable relief in the event of a breach of fiduciary duty by the
doctor. The attempt fails: there is no comparison to be made between the relationship of
doctor and patient with that of solicitor and client, trustee and cestui que trust or the other
relationships treated in equity as of a fiduciary character.”

Finding fiduciary relationships on the facts

Regard should be hard to the recently decided case of Secretariat Consulting PTE Vs a Company 6
which discussed whether expert witnesses could hold fiduciary duties in law. In that case,
Coulson J said it is 'exceptional’ for fiduciary duties to arise other than for trustees, solicitors and
agents. He went on to cite Leggatt LJ in Sheikh Al Nehayan v Kent [2018] EWHC 333 (Comm) who
said:
“Fiduciary duties typically arise where one person undertakes and is entrusted with the
authority to manage the property or affairs of another and to make discretionary decisions
on behalf of that person.”

It was further argued in the Secretariat that “a high degree of mutual trust and confidence
between the parties” is required – but following Sheikh, “the exercise of trust and confidence is
not sufficient by itself to give rise to fiduciary obligations.” Fiduciary obligations assumed not to
arise in this case (became unnecessary to the appeal) however, because the expert/client hasn't
hitherto been received as fiduciary doesn't mean that it's impossible.

In the case of Breen v Williams7, Dawson J and Toohey J colluded to say that:
“The concern of the law in a fiduciary relationship is not negligence or breach of contract. Yet, it
is the law of negligence and contract which governs the duty of a doctor towards a patient. This
leaves no need or even room for the imposition of fiduciary obligations.”

5
[1984] CA
6
[2021] EWCA Civ 6
7
[1996] HCA 57
Central Concept of “loyalty”
The central fiduciary duty and what distinguishes it from other legal duties is a duty of loyalty. See NZ
Netherlands Society v Kuys [1973] 2 All E.R. 1222 per Lord Wilberforce. “A person in his position may
be in a fiduciary position quoad a part of his activities and not quoad other parts: each transaction, or
group of transactions, must be looked at.” That is, to determine whether one was in a fiduciary
relationship, all their transactions or functions must be looked at. Other parts of his or her
transactions should not be disregarded while scrutinizing.

In Keech v Sandford8, the defendants held a lease of a shop in a market on trust for an infant, the
claimant. The defendant failed to negotiate a new lease on behalf of the claimant because the
landlord was unsatisfied that the claimant as an infant could provide sufficient security for the lease.
The defendant, however, negotiated a lease for himself. When the Claimant grew, he sued the
defendant for the lease and profits obtained from the shop
It was held by the Court of Exchequer that the defendant was an assignment of the new lease and
an account of the profits made in the meantime. Lord King LC said:
“Though I do not say there is a fraud in this case, yet [the trustee] should rather have let it 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…”
Fiduciary duties often co-exist with contractual, tortious or even statutory duties that govern the
parties’ relationship such that there is no need for fiduciary law to replicate these other duties ,
which often focus on competence. For example, although the general law imposes upon directors,
trustees, lawyers and other professionals a duty to exercise reasonable care and skill, this duty is not
fiduciary.
The absence of an element of loyalty, where a breach of a duty occurs, will be actionable through the
primary bodies of law that govern the incidents of the relationship in question.

Common Feature of Fiduciary Relationships: Loyalty

This is well seen in three decisions. Firstly, in Bristol & West Building Society v Mothew 9, Millet LJ said
that, “the distinguishing obligation of a fiduciary is the obligation of loyalty.” Secondly, in the case of
Software (UK) Ltd v Fassihi, 10 Arden LJ said that the duty of loyalty is “the fundamental duty to which
a director is subject.” Finally, in Hilton v Barker Booth & Eastwood,11 Lord Walker in unison with other
judges stated that “the solicitor’s duty of single-minded loyalty to his client’s interest” is the reason for
the rule against conflicts of duty and duty.

Contents of the Duty of Loyalty

What then are the actual insides of the duty of loyalty? It is a requirement , therefore, that governs
the exercise of judgment of a person who makes a choice among a range of authorized options. Of
that person, we can rightly ask whether they acted loyally or disloyally in making that choice. This,
therefore, suggests a reason why it is inaccurate to say that a fiduciary has a duty to act in the best
interests of the beneficiary. The very existence of a duty to act would be inconsistent with the

8
[1726]
9
Supra at 1
10
[2004] EWCA Civ 1244 at 41
11
[2005] UKHL 8; [2005] 1 WLR 567 at 31
fundamentally discretionary nature of fiduciary decision-making which leaves the decision whether
and how to act to the fiduciary.

The idea of loyalty, now, is fundamental to fiduciary law, but at the same time, there is no agreement
as to what it means in law. It is not surprising that the field is characterized by controversy and
disagreement. Recall that fiduciary relationships are characterized by the holding of discretionary
power by the fiduciary. Hence, a requirement of loyalty is juridically relevant where there is authority
for some choice to made, among a range of authorized options.

Proscriptive nature of fiduciary duties.

In a bid to distinguish fiduciary duties from other duties, the Australian High Court in Breen v
Williams12 emphasized that duties are proscriptive (prohibitive), not prescriptive in nature. Its
concern was that, if the law were to impose “fiduciary” duties of a prescriptive nature – e.g., a
positive duty to act in the interests of the person to whom the duty is owed – fiduciary law would
encroach upon the legitimate domain of contract and tort.

So, in Australian law fiduciary duties prohibit a person owning those duties, that is the fiduciary, from
acting inconsistently with the interests of the person to whom the duties are owed, that is the
principal or the beneficiary [see Bray v Ford]. Though a similar notion may be reflected in some other
duties recognized by both law and equity, such as a duty not to act unconscionably, a duty to deal
fairly or duty to act in good faith, these fall short of the fiduciary standard of loyalty (and associated
selflessness).

The fiduciary standard is encapsulated in two principal duties: the “no-conflict” and “no-profit”
duties. “No-Conflict” duties prohibit a fiduciary, except with the informed consent of the principal,
from placing herself or himself in a position involving a real and sensible possibility of a conflict
between the duty as a fiduciary and her or his own interest (duty-interest conflict) or between the
duty as a fiduciary to two or more persons (duty-duty conflict).
“No-Profit” duties prohibits a fiduciary from making a profit or benefit, or exploiting an opportunity
arising position except with the principal’s informed consent.

Prescriptive Fiduciary Duties

Along the line of application, the strict proscriptive approach breaks down somewhat. This is
because, without the fiduciary’s full disclosure of the (proscriptive) conflict or profit, the principal
cannot give an informed consent to a dilution of fiduciary duty. Therefore, at the risk of being found
to be in breach of fiduciary duties, the law imposes on a fiduciary a positive duty to disclose fully the
nature and incidents of any conflict of interest or unauthorized profit arising during the course of
the relationship [See section 70 of the Trustees Act].
This duty extends to all material of which the fiduciary is aware or has deliberately refrained from
acquiring and the onus of proving the principal’s informed consent rests on the fiduciary [revisit NZ
Netherlands Society v Kuys].

The English Approach

12
[1996] 186 CLR 71
Contrasting from Australian Law, English Law in the Item Software (UK) v Fassihi13

Nature of Trusts and Equitable Interests

Illustration: the position where Trustee (T) holds a bank account now K100 000 in credit, on trust for
Beneficiary (B) can be contrasted in various ways with the position where D, having borrowed
money from P, now owes P K100 000. First, B is protected in the event of T’s insolvency: the bank
account as trust property, does not form part of the estate available for distribution to T’s creditors.
In contrast, P has no such protection, and, in D’s insolvency, will have to accept whatever reduces
sum is available as an unsecured creditor.

Second, if T makes an unauthorized transfer of the bank account or its proceeds to a third party, C,
then, if c still has that property

Nature of Trustee Liability

In Target Holdings v Redferns [1996] 1 AC 421, Lord Browne-Wilkinson…

Breach of trusts
Millett LJ observed in Armitage v Nurse [1997] 2 All ER 705 at 710

Relevant questions to ask include:

- What duties were the trustees required to perform;
- Did the trustees fail to perform any of those duties properly;
- Do the trustees have a defense to the liability ordinarily arising from that failure
- What effect did that failure have on the trust assets, beneficiaries, and trustees; and
- What can be done to correct the situation?

Breach of Trust: If a Beneficiary is involved?

Where a trustee commits a breach of trust are at the instigation or request of with the consent in
writing of a beneficiary, the Court may, if it thinks fit, and notwithstanding that the beneficiary may
be a married woman restraining from anticipation

Detour: Restraint on anticipation

The ‘restraint on anticipation’ was a device, imposed in a settlement on a married woman, which
ensured that she could not touch the capital property that had been settled on her or any future
income under the settlement. The purpose was to prevent her husband from forcing her to give it to
him.
By the mid-20th century…

Duty of Care for Trustees

Trustees were expected ‘to conduct the business of the trust in the same manner that an ordinary
man of business would conduct his own’ see Speight v Gaunt [1883] 22 Ch D 727. The traditional view
is that a common standard of skill and care is applied to all trustees …

13
Supra at 10
The Standard of Duty of Care for Trustees.
14
Brightman J, in Bartlett v Barclays Bank Trust Co Ltd at p. 152 explained the reason s for the
different standards in the following manner.

Fiduciary Duties : Breach of Duty

Defenses and Remedies for Breach

nditsala
Conflict of Interest and Improper Gain
The doctrine in Keech v. Sandford imposes a rigorous duty on fiduciaries to avoid situations of
possible conflict between interest and duty by making the fiduciary accountable for any benefit
acquired by virtue of his or her position, even though that benefit was not one which was necessarily
available to the principal. The rule is not without its difficulties and is confined in its operation to
cases involving leases as well.

Breach of Duty
Once the relationship of fiduciary and principal has been shown to exist and the scope of the duty
has been identified, the question as to whether the fiduciary is in breach of his or her duty can be
considered. Too often, some ‘gain’ has been found and then explained in terms of conflict between
interest and duty. In other circumstances, some element of personal interest has been held to
constitute a breach of duty without any precise delineation of the extent of that duty. The line
between duty and interest is well illustrated by what happened in Parker v Mckenna 15

In that case, Mckenna was one of four directors of the National Bank of Ireland. In 1864, a
resolution was passed to increase the Bank’s capital by issuing 20,000 £50 shares…
Breach of Conflict of Interest
In determining whether in any given case a person owing fiduciary duties has placed him or herself in
a position of conflict between interest and duty, the courts have applied a practical objective test,
requiring proof of an actual conflict or a real sensible, sometimes described as a real and substantial,
possibility of conflict. See Boardman v Phipps16.
In that case, Boardman were acting as solicitors to the trustees of a will trust, and therefore
were fiduciaries but not trustees. The trustees were minority shareholders in a private
company which was being inefficiently managed. Boardman and one of the beneficiaries
under the trust, in good faith, personally financed the purchase of a controlling interest in
the company, to reorganize it to the benefit of the trust holding. Both the personal and trust
holdings increased in value as a result of the reorganization; one of the other beneficiaries
therefore sought an account of the personal profits made by the defendants. Wilberforce J,
in the High Court, held that the defendants were liable to account for the profit only minus
the money spent. The defendants appealed in the Court of Appeal, who dismissed their
appeal; so, did the House of Lords. Lord Upjohn Said:

14
[1980] 1 All ER 139
15
[1874] LR 10 Ch App 96
16
[1967] 2 AC 46
 “The phrase ‘possibly may conflict’ requires consideration. In my view, it means that the
reasonable man looking at the relevant facts and circumstances of the particular case
would think that there was a real sensible possibility of conflict; not that you could
imagine some situation arising which might, in some conceivable possibility in events
not contemplated as real sensible possibilities by any reasonable person, result in a
conflict.”

The test is objective. It is not necessary to establish fraud, dishonesty or bad faith: Regal (Hastings)
Ltd v Gulliver17
In this case, four directors took shares in a subsidiary company when the Regal (Hastings)
could not afford to take more than £2000 out of £5000 to secure two cinema houses in
Sussex. The directors then made a profit when both the holding company and the subsidiary
were sold to a third-party purchaser. The company sued, alleging that the directors’ profit
was in breach of their fiduciary duty to the company and they had not fully obtained the
consent from the shareholders.
The House of Lords reversed the High Court and the Court of Appeal decisions holding that
the directors had made their profits “by reason of the fact that they were directors of Regal
and in the court of the execution of that office.” They, therefore, had to account for their
profits to the company

It must be noted that a fiduciary acting for two principals is not walking a tightrope. As Millett LJ put
it in Bristol West Building Society v Mothew, having said that breach of the so-called ‘double
employment rule’, acting for two principals with potentially conflicting interests, is automatically a
breach of fiduciary duty:
But this is not something of which the society can complain. It knew that the defendant was
acting for the purchasers when it instructed him… The potential conflict was of the society’s
own making… The society knew all the facts relevant to its choice of solicitor. Its decision to
forward the cheque for the mortgage advance to the defendant and to instruct him to
proceed was based on false information, but its earlier decision to employ the defendant
despite the potentially conflicting interests of his other clients was fully informed.
Even if a fiduciary is properly acting for two principals with potentially conflicting interests,
he must act in good faith in the interests of each and must not act with the intention of
furthering the interests of one principal to the prejudice of those of the other… I shall call
this a ‘duty of good faith.’ But it goes further than this: He must not allow the performance
of his obligations to one principal to be influenced by his relationship with the other. He must
serve each as faithfully and loyally as if he were his only principal.

Even if a fiduciary is properly acting for two principals with potentially conflicting interests,
he must act…

Improper Gain

17
[1967] 2 AC 134.
The question also arises, in light of Regal (Hastings) Ltd v Gulliver, whether a fiduciary who obtains
some benefit or gain through his or her fiduciary position is automatically liable to account to the
principal for that benefit, or whether it must also be shown that the profit or gain was made
‘improperly.’ On the authority of Regal (Hastings) Ltd v Gulliver and Boardman v Phipps, it is not
necessary to show lack of good faith; However, recall that some fiduciaries, such as solicitors, profit
from their office by charging fees, and yet do not have to account for those profits.

Directors will often be paid fees or a salary or bonuses in the form of shares and other benefits and it
could be said that in each of those cases, there was informed consent on the part of the client, but
that is a convoluted way of absolving something that never wrong in the first place. This, therefore,
should be used an exception to their fiduciary duty when such shares are bought with the duty of
interest owed to the company they work for.

Defences: The Duty of Disclosure and Informed Consent

The only way a fiduciary can enter into some engagement involving a conflict of interest and duty,
and retain some benefit or gain obtained by virtue of that fiduciary position is with the informed
consent of his or her principal. [see Section 70 of the Trustees Act]. This casts a duty on the fiduciary
to disclose to the principal all information pertinent to the transaction and, if need be, to provide
some adequate explanation of that information.

The extent of the disclosure required will depend on the facts and circumstances. For instance, in the
Australian case, as Brennan CJ, Gaudron, McHugh and Gummow JJ said in Maguire & Tansey v
Makaronis18:
“What is required for a fully informed consent is a question of fact in all the circumstances of
each case and there is no precise formula which will determine in all cases if fully informed
consent has been given.”

The nature and extent of the required disclosure will also depend at least in part, on the knowledge
and experience of the principal. Particularly on the question of whether some disclosure is enough
disclosure, see Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] 230 CLR 89.

A fiduciary’s duty to make full disclosure extends to all material information known to the fiduciary,
including any information the fiduciary has deliberately refrained from acquiring. The duty of
disclosure does not extend to other facts of which the fiduciary is unaware, even though prudent
inquiry would reveal their existence.

The question of adequate disclosure was addressed at first instance in Phipps v Boardman [1964] 2
All ER 187 at 205, when Wilberforce J considered the letter sent by Mr Boardman to Anthony Phipps,
the plaintiff, detailing the deficiencies of that letter in the following terms:
“In my judgment, the letter… fell far short of what was required. In the first place, it gave no
idea of the lengthy and protracted struggle – with the directors to get the fullest possible
information about the company and its assets… secondly, it wholly failed to make available or
to indicate the existence of the mass of knowledge which Mr. Boardman had accumulated…
18
[1997] 188 CLR 449
 Thirdly, the letter [did not say] that Mr. Boardman and Mr. Tom Phipps were not committed to
the purchase until after they had satisfied themselves on the spot as to the value of the
Australian subsidiary, thus reducing appreciably the risk element. Fourthly, the letter did not
mention that Mr. Boardman had been in touch with a finance house which was willing to
provide the whole of the finance on terms which would strictly limit the risk to the purchasers
while leaving them with the greater part of any profit.”

Wilberforce went on to say of Boardman:

I acquit Mr. Boardman entirely of an intention to deceive or suppress material information;
but I think, having himself lived with the situation for eighteen months or so and become
soaked in its details, he failed to appreciate the degree of explanation and the quantity of
supporting documents which would be needed to enable someone coming fresh to it (as did
Anthony Phipps) to appraise it, or even to see that this was a matter which required careful
consideration and expert advice.

It should be noted that it is not a defence to show that the fiduciary has acted honestly or with good
faith in the transaction. The clearest authority for that is Boardman v Phipps in which their Lordships
were anxious to stress Boardman’s integrity. Lord Cohen said:
“I desire to repeat that the integrity of the Appellants is not in doubt. They acted with complete
honesty throughout and the Respondent is a fortunate man in that the rigour of equity enables
him to participate in the profits which have accrued as the result of the action taken by the
Appellant…”

Can a fiduciary Resign to Take an Opportunity?

A fiduciary cannot unilaterally absolve himself or herself of liability by resigning from his or her
fiduciary position to take the profit for which they would otherwise be accountable. See Ex Parte
James19. In that case, a solicitor for a trustee in bankruptcy purchased certain property of the
bankrupt’s estate. A question arose as to whether the solicitor could, by resigning from his position,
divest himself of any liability attaching as a consequence of his breach of fiduciary duty. Lord Eldon
considered this question and said:
“With respect to the question, now put, whether I will permit [the solicitor] to give up the office
of solicitor, and to bid, I cannot give that permission. If the principle is right, that the solicitor
cannot buy, it would lead to all the mischief of acting up to the point of sale, getting all the
information, that may be useful to him, then discharging himself from the character of solicitor,
and buying the property.

Remedies for Breach of Fiduciary Duty

In general terms, a fiduciary will be held to be accountable for any benefit or gain acquired through
the breach of his or her duty, but the nature of the remedy awarded will vary according to the
circumstances of the case. In some cases, it will be appropriate for the court to order that the
delinquent fiduciary holds his or her ill-gotten gains on constructive trust for the principal. The High

19
[1803] 32 ER 385
Court has said it is a remedy that should be granted only in the clearest of cases as in Bathurst City
Council v PWC Properties Pty Ltd20 .
The case involved Council-owned land that was being used as a public car park. The
respondent (PWC Properties Pty Ltd) sought to change the local planning controls governing
the car park to prohibit the council from further altering the use of the land to be anything
but a public car park. The respondent argued that because the car park was freely available
for use by members of the general public, the land was subject to a constructive trust for
charitable purposes. The court ruled in favor of the appellant (the council) citing
Commissioners for Special Purposes of Income Tax v Pemsel to support its judgment that the
imposition of a constructive trust over the land would not create a trust for charitable
purposes and that in this case there would be other and more immediate equitable remedies
available to the respondent. it was said that:
“In any event, before the court imposes a constructive trust as a remedy, it should first
decide whether, having regard to the issues in litigation, there are other means
available to quell the controversy. An equitable remedy which falls short of the
imposition of a trust may assist in avoiding a result whereby the plaintiff gains a
beneficial proprietary interest which gives an unfair priority over other equally
deserving creditors of the defendant.”
The courts may also award lesser relief such as an account of profits covering a certain period or
lump sum equitable compensation.

Remedies in Cases Involving Specific Assets

A distinction must be drawn between cases in which a specific asset is acquired and cases in which a
business is acquired and operated as described in Re Jarvis (deceased) [1958] 1 WLR 815 per Upjohn
J:
In the case of a business, it may well be inappropriate and inequitable to compel an errant
fiduciary to account for the whole of the profit of his conduct of the business or his
exploitation of the principal’s goodwill over an indefinite period of time. In such a case, it
may well be appropriate to allow the fiduciary a proportion of the profits depending upon
the particular circumstances. That may well be the case when it appears that a significant
proportion of an increase in profits has been generated by the skill, efforts, property and
resources of the fiduciary, the capital which he has introduced and the risks he has taken, so
long as they are not risks to which the principal’s property has been exposed.

Election equitable compensation or account for profits

Damages or equitable compensation can also be awarded for breach of fiduciary obligations.
Equitable compensation looks to the loss suffered by the claimant while an account or profits looks
to what the delinquent fiduciary has gained as does the remedy of constructive trust. A claimant
pursuing a fiduciary in breach of duty must, at some stage, make an election as to which remedy
he/she wants.

Any question of election as to whether a plaintiff seeks equitable compensation or account of profits
need only be made at the conclusion of a case, when the plaintiff must elect as to the form of the
20
[1998] 195 CLR 566
final orders or judgment it seeks. If a claim is brought against more than one defendant, the claimant
may be able to split his or her election, depending on the circumstances of the case, seeking an
account of profits against those who have received the benefit of profits and seeking equitable
compensations against those who have not.

Secret Commissions, Bribes and Equitable Debt

The 1890 English Court of Appeal decision in Lister & Co Ltd v Stubbs [1890] 45 Ch D 1 declared that
an agent who receives a profit in breach of fiduciary duty other than by use of the principal’s property
holds that profit as a debtor, not as a constructive trustee for the principal . It is premised on the view
that the principal lacks any proprietary interest in the gain made by an agent because it was never
the principal’s property. As general creditors have given value, it is reasoned, the principal should not
have a preferred position absent a claim with a proprietary base, and any policy against bribery can
be vindicated through a personal remedy.

In the case of Lister & Co v Stubbs, the defendant was bribed to place certain orders with
certain suppliers. The plaintiff (i.e. claimant) wanted to establish a proprietary claim to the
profitable investments the defendant made on the bribes by arguing there is a constructive
trust. The Court of Appeal held that to allow this would offend property rules and therefore
could not claim title to the property acquired by the bribes.

Not until 1994 did the matter receive further judicial treatment from high authority, when the Privy
Council in Attorney General (Hong Kong) v Reid [1994] 1 AC 324 characterized Lister v Stubbs as
inconsistent with the principle that a fiduciary must not be allowed to benefit from a breach of
fiduciary duty, Lister v Stubbs seemed consigned to history.
In that case, Mr Reid was New Zealand citizen employed as a Hong Kong deputy crown
prosecutor and the acting director of public prosecutions, thus in a fiduciary relationship with
the Hong Kong Government. He took bribes to obstruct the prosecution of some criminals,
and used the money to buy land in New Zealnd, some being kept by him and his wife and
some conveyed to his solicitor. The Hong Kong Government argued the land was held on
trust for them. The Privy Council advised that the bribe money received by Reid and the land
acquired after was held on constructive trust for the Hong Kong government. This meant
that the land bought by his wife was also held on trust and had to be transferred to the
claimants. This was necessary to ensure that people in power positions could in no way profit
from their wrongdoing. If the property was badly invested, the fiduciary in breach would still
be under a duty to make good the shortfall. Their lordship, after noting the ills of bribery,
gave the following conclusion:
“When a bribe is accepted by a fiduciary in breach of his duty, then he holds that bribe
in trust for the person to whom the duty is owed. If the property representing the bribe
decreased in value, the fiduciary must pay the difference between that value and the
initial amount of the bribe because he should not have accepted the bribe or incurred
the risk of loss. If the property increases in value, the fiduciary is not entitled to any
surplus in excess of the initial value of the bribe because he is not allowed by any means
to make a profit out of a breach of duty.”
The fact that was the fiduciary becomes insolvent, the property acquired in breach of fiduciary duty
(that is, ‘trust’ property) would be withdrawn from her or his creditors did not deter the court, which
reasoned that “the unsecured creditors cannot be in a better position than their debtor.”

This dictates that the bribe, and the property from time to time representing it, is held on
constructive trust for the person injured and that the agent remains personally liable for the amount
of the bribe if the value of the property, is then recovered by the injured person proves less than the
amount. To this end, A-G v Reid, it has been said, “promotes unity in the way equity allows recovery
of all secret benefits [and] scotches the charge that equity deals more leniently with the dishonest
fiduciary than it does with the honest.”
In what proved to a controversial decision – Sinclair Investments (UK) v Versailles Trade Finance…

Lord Millett J writing extra-judiciary, “Bribes and Secret Commissions Again” [2012] CLJ 583 opined
that Lister and Sinclar “leave this country in the uncomfortable position of being the only common
law jurisdiction where a dishonest fiduciary is allowed to retain a profit he has made by profitably
investing a bribe or otherwise exploiting the fiduciary relationships for his own benefit without the
fully informed consent of the principal.”)

The issue finally saw resolution in 2014 in FHR European Ventures LLP v Cedar Capital Partners LLC
[2015] AC 250, Lord Neuberger, who delivered the reasons of the Supreme Court, revied the case law
and found it…

One other case involving the receipt of secret commissions which has been the subject of some
controversy is Reading v Attorney General [1951] AC 507. Reading was a Sergeant in the British Army
in Egypt during WWII, and lent his assistance, by shepherding trucks through police checkpoints
under the protection of his uniform, to smugglers of illicit spirits. He received bribes of 20,000
pounds for his efforts. He was Court-martialed and sentenced, and some of his profits were
confiscated. After his release, he sought to recover the…

Confidential information
A person who receives information of a confidential nature, in circumstances of confidence, cannot
make unauthorized use of that information and equity will restrain any threatened misuse and
otherwise will hold the confidant accountable for any profits acquired by such improper use. The
source of the court’s jurisdiction in matters of confidence has been variously attributed to express
contractual terms (Exchange Telegraph Co Ltd v Gregory [1896] 1 QB 147); implied contractual terms
(Ansell Rubber Co Pty Ltd…

The learned authors of the 5 th edition of Meagher, Gummow & Lehane’s Equity Doctrines &
Remedies, prefer the statement of principle by Finn, Sundberg and Jacobson JJ in Optus Networks
Pty Ltd v Telstra Corporation Ltd (2010) 26 ALR 281, that there are four elements
- The information must be identified with specifity.
- It must have the necessary…
Government and Confidential Information
The government’s own confidential information is treated differently from that of private individuals.
As McHugh JA put it in Attorney General UK v Heinemann…

Limits to the use of confidential information obtained by government bodies

In Marcel v Commissioner of Police of the Metropolis [1991] 1 All ER 845, documents were seized by
the police in the investigation into an alleged conspiracy to defraud and were later disclosed to a
third party to enable him to launch a civil action for fraudulent misrepresentation. The disclosure of
this information…

Protective Trusts
Protective trusts protect the fund from wasteful behavior from a spendthrift beneficiary

Unincorporated associations

The difference of a beneficiary’s interest under the express and discretionary trust
Under a discretionary trust…

Read
1. Re Cooper [1939] Ch 811
2. Rowbotham v Dunnett [1878] 8 Ch D430
3. Re Williams [1933] Ch 244
4. Ottaway v Norman [1972] Ch 698

Discretionary Trusts
These are so called because of the discretion or power conferred on the trustee in dealing with or
distributing the beneficial interests in the trust estate. Those discretions will usually include:
- A discretion to select from the designated range of objects of the trust of income or who are
receive benefits of income…

The meaning of the expression ‘discretionary trust is merely a matter of usage and not doctrine. It is
used to indentify a species of express trust …

Fixed and Discretionary Trusts

In a fixed trust, the trust instrument sets out the share…

Discretionary Trusts and Beneficiaries

Protective Trusts
Protective trusts are a variety of discretionary trust used to “protect” property from dissipation by
an extravagant or spendthrift beneficiary. Under the typical protective trust, a beneficiary (the
“protected” beneficiary) receives a proprietary…
Protective trusts may be set out expressly, or the instrument may incorporate the statutory
provision in s 43 of the Trustee Act which take effect subject to an…

There is no reason why there should not be a series of two or more protective trusts in favor of the
same beneficiary; for example, the first trust…

From the earliest times, the policy of the law has been to promote the free alienability of property;
the law of trusts reflected this policy in prohibiting a settlor from transferring property absolutely
but subject to conditions restraining the transferee from transferring, mortgaging, selling, or
otherwise dealing with property

Secret Trusts
The law allows a settlor to execute a trust where it does not disclose the full particulars of
beneficiaries. Since “Equity will not allow the statute to be used as an instrument of fraud”, the
doctrine of secret trusts allows evidence to be admitted to prove a trust over property claimed by a
beneficiary not named in the will against a person (the trustee) denying the trust. Such a trust dehors
(is outside) the will and is not a testamentary disposition. It should be noted that the fraud does not
only refer to common law fraud – deliberate or conscious wrongdoing – but encompasses equitable
fraud which binds the conscience of the intended trustee to give effect to the testator’s intention.

Equity enforces the secret trust by imputing an obligation on the intended trustee to hold the
property according to the testator’s intention. In Blackwell v Blackwell 21, the testator instructed his
trustees in his will to invest his wealth at their discretion and pay the income to “persons indicated
by me.” The testator, before the will's execution, orally communicated to his trustees that the
money should go to his mistress and illegitimate son, leaving out his lawful widow and son who
challenged the validity of the trust while claiming the money. The House of Lords held that the trust
was valid. Viscount Sumner said:
The necessary elements on which the question turns are intention, communication, and
acquiescence [acceptance by trustee]. The testator intends his absolute gift to be employed
as he and not as the donee desires; he tells the proposed donee of this intention and, either
by express promise or by the tacit promise, which is satisfied by acquiescence, the proposed
donee encourages him to bequeath the money on the faith that his intention will be carried
out.

In secret trusts, the onus of establishing whether it exists or not is on the person alleging its
existence. The standard of proof is the ordinary balance of probabilities. See Re Snowden [1979] Ch
528

Elements of a Secret Trust

According to Viscount Sumner in Blackwell v Blackwell, there are three requirements on which proof
of Secret Trusts is premised:
- The testator’s intention that property be used per his/her specification;

21
[1929] AC 318
 - Communication by the testator to the intended trustee (s); and
- Acquiescence (acceptance) by the trustee (s)

Any changes in specifications by the testator regarding the secret trust must equally exhibit the
communication and acceptance requirements for them to be effective. The element of intention
finds its basis in the basic express trust requirement of certainty of intention. This means that the
court will not enforce a trust-like obligation unless satisfied that the person imposing the obligation
intended it to be one of trusteeship.

Acceptance can also be implied where it can be proven that the trustee had such knowledge existing
at the time of the communication. In Ottaway v Norman 22, Brightman J reiterated the elements by
voicing out that:
It will be convenient to call the person on whom such a trust is imposed the ‘primary donee’
and the beneficiary under that trust the ‘secondary donee’. The essential elements which
must be proved to exist are: (i) the intention of the testator to subject the primary donee to
an obligation in favour of the secondary donee; (ii) communication of that intention to the
primary donee; and (iii) the acceptance of that obligation by the primary donee either
expressly or by acquiescence. It is immaterial whether these elements precede or succeed
the will of the donor.

The principle, therefore, to be drawn from Ottaway v Norman is if any property is given to the
primary donee [Trustee] on the understanding that they will dispose by will of such assets left in
favour of the beneficiary, a valid trust is created in favour of the beneficiary.

Fully and Half Secret Trusts

Secret Trusts are demarcated into two: Fully Secret Trusts and Half Secret Trusts.
i. Full Secret Trusts
At times, a testator may leave the property – real or personal – “to X” after communicating
with X that he has to hold the property on trust. Where there is no indication in the terms of
the will that X is to hold as trustee for which beneficiary, the trust will be “fully secret.” The
onus of proving the requisite elements is placed on the persons claiming an equitable
interest in the property.

The essential, as earlier indicated, essential factors of communication of the intention of the
testator and the express or implied acceptance to carry out the testator’s intention must be
present to raise a Trust. It is on such an acceptance that the testator either makes a
disposition favouring the trustee or leaves a pre-existing one unchanged. It is also important
to note that the communication – which may be through an authorized agent – must take
place during the testator’s lifetime although it matters less whether that was before, at or
after the date of the will. This means that if the trustee only learns of the intentions after the
death of the testator, the trust will be ineffective.

22
[1972] Ch 698
 It is not sufficient to communicate merely the fact of the trust to the secret trustee. All the
details of the trust must also be communicated to and accepted by him.

ii. Half Secret Trusts

Unlike in a fully secret trust, the will does not express that the property is given to X on trust
but that there had been a communication to X from the testator during his lifetime of the
intended trust. In short, a half-secret trust arises where the testator leaves property to a
person who is expressed in the will to be a trustee, so that person cannot take the
property absolutely.

One key difference between fully secret and half-secret trusts on the requirement of
communication. The trusts arising under a fully secret trust may be communicated to the
trustees any time before the property vests in them, i.e., at any time before the death of
the testator. However, in the case of half-secret trust the communication must be before
or at the same time as the will is made.

Implied trusts
These can also be called trusts arising from operation of facts.

Resulting Trusts
Resulting trusts arise where property is disposed of in circumstances in which a provider does not
intend to confer a beneficial interest on the recipient. The recipient holds the property on trust for
the provider. The property is said to ‘result back’ to the provider. Resulting trusts differ from express
trusts that an express trusts gives effect to the settlor’s positive intention to benefit another by way
of trust, whereas a resulting trusts give effect to the provider’s negative intention – an intention not
to make the recipient the beneficial owner of that property. The resulting trust resembles a
constructive trust in that it arises by operation of law but differs in tha its imposition can be rebutted
by evidence that the provider intended to confer a beneficial title to the property on the recipient.

Automatic Resulting Trusts and Presumed Resulting Trusts

Resulting trusts are said to be either presumed or automatic.

Presumed resulting trusts can be rebutted by evidence that the provider of the property intended to
make a gift to the recipient. There are two types of presumed trusts: Re Vandervell’s Trusts (No 2)
[1974] Ch 269.
- A ‘purchase money’ resulting trust. If P purchases
- A ‘voluntary transfer’ resulting trust.

Automatic resulting trusts

Automatic resulting trusts arise upon failurenof an express trust. The trustee holds the property on
resulting for the settlor. Failure occurs not only if an express trust fails to comply with legal
requirements, such as the rules relating to certainty of objects or the perpetuity rule, but also where
the reason for creating the trust no longer exisrs, for example…
Although the resulting trust is ‘automatic’, in the sense that it cannot be rebutted, it will still be
necessary for the court to determine whether the express trust has in fact failed. If the trust
instrument expressly or by implication provides for the destination of the trust property in the event
of the failure of an interest under the trust, effect eill be given to that provisiom.

Even an automatic resulting trust depends in the final analysis on the ascertainment of the settlor’s
intentions. This is the basis of the rule in Lassence v Tierney [1849] 1 Mac & G 551; 41 ER 1379, which
provides that where trusts are engrafted onto an absolute disposition of property, and the trusts fail,
the absolute gift takes effect and there is no resulting trusts.

Why does equity recognize resulting trusts?

The resulting trust is most puzzling of the three main categories of trusts: the express trust is an
established equitable structure for managing wealth…

Failure to dispose of the equitable interest

Equity abhors a beneficial vacuum. Accordingly, where a settlor conveys or transfers property to
trustees…

Where the expressed trusts are in part valid, but do not exhaust the beneficial interest, there will be
a resulting trust whether the expressed trusts are of non-charitable or charitable nature, unless the
terms of the trust expressly or tacitly exclude a resulting, or, in the case of a charitable trusts, the cy-
pres doctrine.

Example 1
A case involving a non-charitable trust was Re the Trusts of the Abbott Fund…

Example 2
In Re Gillingham Bus Disaster Fund [1958] 1 All ER 37; following an accident in which a number of
cadets were killed and injured, a fund was raised by subscription for the benefit of the victims and
then to other worthy causes in memory of the boys who were killed. The trust for worthy causes was
void for uncertainty of objects. Consequently, ut was held that the balance of the fund not applied
for the benefit of the victims was hled on a resulting trust for the subscribers.

Resulting Trusts
Another type of case in which there may be a resulting trust is that in which the provisions of a
settlement fail to cover the events that in fact happen…

Transfer into and purchase in the name of another, and related cases
Whenever someone buys either real or personal property and has it conveyed or registered or
otherwise…

The Presumption of Advancement

In addition to rebutting the presumption of a resulting trust by evidence as to the true intention, the
existence of certain special relationships between the preson who provides the purchase money or
who transfers the property and the person into whose name the property is conveyed or
transferred, either alone or jointly, gives rise to a presumption of advancement which displaces…

Father and Child

Perhaps the primary relationship that has consistently been held to give rise a presumption of
advancement is that of father and child. There have been…

Comperative Case Law

In the supreme court of Canada decision pecore v pecore [2007] SCC 17 a father paid over one million
dollars into…