Breach of

Fiduciary Duty
Who is a fiduciary?

 Finn definition - someone who undertakes to act for or

on behalf of another in some particular matter or
matters.
 a fiduciary is expected to act in the interests of the
other party, to act selflessly and with undivided loyalty.
 Note the existence of ‘status based’ fiduciaries in
recognised categories, but –
 “I do not think that the categories of fiduciary
relationships…should be regarded as falling into a
limited number of straight-jackets or as being
necessarily closed. They are, after all, no more than
formulae for equitable relief.” English v Dedham Vale
Properties [1978], per Slade J
Who is a fiduciary? (cont.)

Typical characteristics (none of which are of universal

application):
 An undertaking by Fiduciary to Principal / beneficiary
 Reliance placed on Fiduciary by principal
 Fiduciary having control over Principal’s property
 Principal being vulnerable - Fiduciary having power which
could be used to affect Principal
 English v Dedham Vale Properties [1978]
 Reading v A.G. [1951]
 Murad v Al-Saraj [2005] – joint venture to
purchase hotel. Held to be a fiduciary relationship -
fiduciary had to give up his unauthorised gains
What are the duties of a
fiduciary?
 See Bray v Ford [1896] and Bristol & West BS v
Mothew [1996]. In the latter case the fundamental
duty was identified as loyalty, which includes:
 Duty to act in good faith
 Duty not to profit from the trust
 Duty not to place self in a position where duty and interest
conflict
 Duty not to act for own benefit without informed consent
 Sinclair Investments v Versailles Trade Finance Ltd
[2005] not a closed list
 Generally, if a beneficiary has suffered loss due to
the actions of a trustee or fiduciary, the beneficiary
has a personal claim against the trustee or fiduciary
Remedies for breach of duty
 Personal – compensation - equitable
compensation to put party back in the
position you would have been in had the loss
not taken place
 Proprietary – the constructive trust - this will
only work if the trustee had made a secret
profit. The remedy would basically attach to
the profit the fiduciary had received. The
fiduciary would become a constructive
trustee over the profit / property that they
received – much better for claimants as the
rights attach to that money / property
What is a constructive trust?

 Arises by operation of law – imposed by

the court
 Results from unconscionability on the part
of the trustee
 No clear and all embracing definition
Cases

 Unauthorised profits
 Self dealing
 Fair dealing
 Bribes
Illustrative cases: Unauthorised
Profits
 Remedy against a fiduciary is ‘account for profit’. This
enables the claimant to recover from the defendant the profits
taken as a result of the breach.
 Keech v Sandford [1726]
 Regal Hastings v Gulliver [1967]:
“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…the
liability arises from the mere fact of a profit having, in the stated
circumstances, been made.” Per Lord Russell
 IDC v Cooley [1972]
 Peso Silver Mines v Cropper [1966] – Canadian
 Boardman v Phipps [1966] – equitable allowance
 Sinclair Investments v Versailles Trade Finance Ltd [2005]
Further cases:

Will a fiduciary who profits be awarded an

allowance by the court for the work
involved in making the profit? See –
• Boardman v Phipps [1966]
• O’Sullivan v Management Agency & Music [1985]
• Guinness v Saunders [1990]
• (nb other sources – trust instrument or other
document, beneficiaries consent, s.29 TA 2000)
Murad v Al Saraj [2005]
 Al Saraj had therefore made a fraudulent misrepresentation to the
Murad sisters. A fiduciary relationship was established which he
had clearly breached, acting in bad faith.
 The appropriate remedy is therefore to order the fiduciary to
account for all profits. [84]
 They considered whether Al Saraj may be entitled to an equitable
allowance for his ‘services and disbursements’, eg his role in
managing the hotel. They held not in this case – distinguished
from Boardman

 ‘It is only actual consent which obviates the liability to account’:

[71]
 ‘in the interests of efficiency and to provide an incentive to
fiduciaries to resist the temptation to misconduct themselves, the
law imposes exacting standards on fiduciaries and an extensive
liability to account.’: [76]
Summary

 Is there a fiduciary relationship?

 If so, has the fiduciary made a profit from an arrangement?
 If so, was consent granted for the fiduciary to make the
profit?
 If not, fiduciary is liable to account for profits
 Only was fiduciary could keep some money is if they can
argue equitable allowance.
Self Dealing - Trusts
 Only applies to trusts
 Applies where Trustee purchases property from the Trust - Where
a trustee purchases trust property, this is called self-dealing. There
is a clear conflict with the trustee acting as both vendor and
purchaser.
 Such transactions are generally prohibited unless informed
consent of all beneficiaries is obtained, no matter how fair, open
or honest the transaction. This means that the beneficiary is
entitled to set aside the transaction and the trustee must return the
property.
 The beneficiary is also free to approve the transaction if they have
no objection to it.
 Tito v Waddell (No2) [1977]
 Wright v Morgan [1926]
 Holder v Holder [1968]
 Re Thompson’s Settlement [1986]
Fair Dealing - Trusts

 Where trustee is purchasing the beneficial

interest from one of the beneficiaries of
the trust.
 Tito v Waddell (No2) [1977]
 Must be a fair price and T must have
obtained the B’s fully informed consent.
Fair Dealing - Trusts

 Has a trustee purchased trust property from a beneficiary?

 If yes, need to consider if the beneficiary can set aside the
transaction
 Three conditions:
 The trustee did not take advantage of their position / price
must be fair.
 The trustee made full disclosure to the beneficiary and had
consent.
 The transaction was fair and honest.

 If all three are met then the transactions stands.

Bribes – unauthorised profits

Is a bribe held on constructive trust?

 Lister v Stubbs (1890)
 AG for Hong Kong v Reid [1994]:
“Equity considers as done what ought to be done. As soon as the bribe
was received…the false fiduciary held the bribe on constructive trust for
the person injured.” Per Lord Templeman.
 Sinclair Investments v Versailles Trade Finance
[2011]
 FHR European Ventures v Cedar Capital
Partners [2014]