27/09/2017

6FFLK003 Law of Trusts Lecture 3

INTRODUCTION
FIDUCIARIES 1

James Lee james.lee@kcl.ac.uk

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Introduction

TRUSTEES
 Equity recognises that particular relationships
(“fiduciary” relationships) give rise to certain negative
obligations – ie, things which the fiduciary is not
allowed to do.
 Fiduciary Duties apply to, but are not limited to
trustees. FIDUCIARIES
 The potential scope for a breach of fiduciary duty is
therefore wider than that for a breach of trust.

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Fiduciary Duties
ALL DUTIES
OWED BY
‘…The expression “fiduciary duty” is properly confined to FIDUCIARIES
those duties which are peculiar to fiduciaries and the
breach of which attracts legal consequences differing
from those consequent upon the breach of other duties.
Unless the expression is so limited it is lacking in practical
utility. In this sense it is obvious that not every breach of FIDUCIARY
duty by a fiduciary is a breach of fiduciary duty … It is … DUTIES
inappropriate to apply the expression to the obligation of
a trustee or other fiduciary to use proper skill and care in
the discharge of his duties...’

Millett LJ in Bristol and West at 16-18

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Examples of Fiduciary Relationships Not All Fiduciaries Owe the Same Duties

Necessarily Fiduciary Relationships (Fiduciary and ‘The phrase 'fiduciary duties' is a dangerous one, giving
Principal): rise to a mistaken assumption that all fiduciaries owe
the same duties in all circumstances. That is not the
 Trustee and Beneficiary
case. Although, so far as I am aware, every fiduciary is
 Guardian and Ward under a duty not to make a profit from his position
 Agent and Principal (unless such profit is authorised), the fiduciary duties
 Partner and Co-Partner owed, for example, by an express trustee are not the
same as those owed by an agent.’
 Solicitor and Client
 Director and Company Lord Browne-Wilkinson in Henderson v Merrett
 Government Employee and Crown
Syndicates at 206

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Proper Exercise of Discretion

 Must exercise discretion only for proper purposes

 There is no duty to give reasons
 Remove temptations for improper exercise

GENERAL RULE

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General Rule
General Rule Bray v Ford

Lord Herschell at 51-2:

A Fiduciary must not profit from her position or have ‘It is an inflexible rule of a Court of Equity that a person in
conflicting interests or duties a fiduciary position … is not, unless otherwise expressly
unless provided, entitled to make a profit; he is not allowed to put
The principal has given informed consent (or it is himself in a position where his interest and duty conflict. It
otherwise authorised, eg, by statute or the court). 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 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. It has, therefore, been deemed expedient
to lay down this positive rule.’
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Keech v Sandford
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Stevens v Premium Real Estate (NZ)
Blanchard, McGrath and Gault JJ at [71]:
‘if someone puts himself in a position of having two
irreconcilable duties, it is his own fault. He cannot
prefer one principal to another. The fact that he has
chosen to put himself in an impossible position does
not exonerate him from liability and he cannot use
his discomfiture as a reason why his duty to either
principal should be taken to have been modified’
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Strict Liability
P Birks, Introduction to the Law of Restitution at 332-3:
‘Equity adopts a prophylactic approach in relation to trustees
and others in a trustee-like position … A fiduciary will often
see an opportunity for personal profit arising in relation to the
beneficiary’s affairs. The mischief which equity seeks to avoid
is the sacrifice of the beneficiary’s interests which is likely to
happen if the fiduciary pursues an opportunity. It does not
wait for the beneficiary’s interest to be sacrificed. It creates a
duty in the fiduciary not to pursue his own interest if in doing
so he might be tempted to sacrifice the interests of the
beneficiary.’
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Keech v Sandford
King LC:
‘I do not say there is a fraud in this case, yet he should rather
have let it run out, than to have had the lease to himself. This
may seem hard, that the trustee was 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; for it is very obvious what would be the
consequences of letting trustees have the lease, on refusal to
renew to the [beneficiary].’
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Standard of Liability
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Strict Liability: Irrelevance of Fault
Regal (Hastings) Ltd v Gulliver, Lord Russell at 144-5:
‘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. The
profiteer, however honest and well-intentioned,
cannot escape the risk of being called upon to
account.’
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Remedies

 ‘Account of profits’
 Constructive Trust
 Rescission of Transaction
 Equitable Compensation
Remedies
 NB: such claims will have the advantage of the
avoidance of limitation periods.

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Arklow Investments Ltd v Maclean

Henry J
598: ‘the concept [of a duty loyalty] encaptures a
situation where one person is in a relationship with
another which gives rise to a legitimate expectation,
which equity will recognise, that the fiduciary will
not utilise his or her position in such a way which is
‘Trust and Confidence’ adverse to the interests of the principal. An example
of the obligation relevant to the present case is not
to exploit or take advantage of the position of
fiduciary at the expense of the principal. The
existence and extent of the duty will be governed by
the particular circumstances.’

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McWilliam v Norton Finance (UK) Ltd McWilliam v Norton Finance (UK) Ltd

 Cs were consumer clients looking for a loan of £25,000, Tomlinson LJ:

and engaged D, a credit broker, to arrange loan (and
insurance)
 Cs agreed to pay broker fee of £750 and a completion
fee of £500.
 D arranged the loan and the insurance.
 D also received commission of £2,675 from the lnder
and £1685 from the insurer.
 Cs entitled to account of profits.
[43] ‘To my mind the present is a paradigm
instance of a relationship of that description.
Norton should not have placed itself in a
position where its duty and its interest might
conflict, nor profit out of the trust reposed in
it to get the best possible deal, nor act for its
own benefit without the Claimants’ informed
consent.’

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Next Lecture
5 October 2017

FIDUCIARIES 2

LAW OF TRUSTS 25