Fiduciaries - Lecture 11 - Property Law II

What did Millett LJ in Bristol & West Building Soc v Mothew say about fiduciaries and their duties? What is a fiduciary as per this case law and Millett LJ’s opinions?

• A fiduciary is someone who has undertaken to act for/on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence

• Obligation of loyalty

• Must act in good faith

• Must not make profit out of his trust

• Must not put himself in a position of conflict between his duty and interests

• Must not act for his own benefit or the benefit of a third person without the informed consent of the principal

What are settled categories - and how do they relate to when fiduciary duties arise?

These are settled categories, which explicitly outlines which individuals are subject to a fiduciary duty as listed in the cases below.

Aberdeen Town Council v Aberdeen University established a settled category, when do fiduciary duties arise?

Fiduciary duties arise between express trustee and beneficiary.

Aas v Benham established a settled category, when do fiduciary duties arise?

Fiduciary duties arise between partners.

Regal (Hastings) Ltd v Gulliver established a settled category, when do fiduciary duties arise?

Fiduciary duties arise between director and companies.

Hilton v Barker Booth Eastwood established a settled category, when do fiduciary duties arise?

Fiduciary duties arise between solicitors and clients.

What are Ad Hoc Fiduciuary relationships? And why is there uncertainty in relation to when fiduciary duties arise in Ad Hoc Fiduciary relationships? (in relation to when fiduciary duties arise)

There are Ad Hoc relationships which arise where someone undertakes to act on behalf of another, when they are expected to be loyal.

There is uncertainty as to when fidiciary relationships arise, however it is understood if they have discretion/power conferred to them in a trust, in these circumstances, the more vulnerable party might not be reasonably expected to take measures to protect their own interests and the other party needs to act in their best interests in order to be loyal/act loyally.

Tulip Trading Ltd v Bitcoin Association for BSV established a Ad Hoc category, when do fiduciary duties arise?

CA outlined that developers looking after cryptocurrency may owe fiduciary duties to the owners of the crypto. (This isnt a settled categories, but there could be some duties towards owners).

Johnson v FirstRand Bank Ltd established a Ad Hoc category, when do fiduciary duties arise? What is the context, issue and outcome?

Context → Car dealers selling cars to individual customers and these customers needed finance to purchase the cars, the dealers arranged finance on behalf of the lenders/banks.

Issue → The issue was whether the financing arrangments of the dealers owe fiduciary duty to the customers for arranging the following? In relation to the sale of the car by dealers, there is NO fiduciary duty, but what about arranging finance which are offers/best deals depending on the dealer's research and these dealers took massive commissions not fully disclosing commissions to customers?

Outcome → The Supreme Court concluded that the car dealers when acting as intermediates during the transactions were acting as fiduciaries, and the lenders/banks were liable in dishonest assistance in equity, or in bribery (dishonest taught later in module). There is a recognition in novel situations, fiduciary relationships might arise as the car dealers are not acting as the agents of the customers, but agents of the lenders

Mitchell v Al Jaber established a Ad Hoc category, when do fiduciary duties arise? What is the context, issue and outcome?

Context → It relates to equitable compensation for breach of fiduciary duty in regards to a defaulting director’s liability to pay equitable compensation for disposing of company property in breach of trust.

Issue → The first issue was whether the Sheikh was in breach of fiduciary duty in effecting the 2016 Share Transfers. The second was whether the Company had suffered no loss because it acquired the 891K shares subject to unpaid vendor’s liens exceeding their value.

Outcome → Where a fiduciary has misappropriated property, the principal suffers an immediate loss, and if the fiduciary wishes to rely on subsequent “supervening” events to reduce that loss, the burden is firmly on the fiduciary to prove those events and to provide a clear and convincing innocent explanation for any involvement.

What does Lord Browne-Wilkinson in Henderson v Merrett Syndicates Ltd regarding scopes of duties and the contractual setting - how this relates to fiduciary duties?

The phrase “fiduciary duties” is a dangerous one, giving rise to a mistaken assumption that all fiduciaries owe the same duties in all circumstances.

That is not the case […] the extent and nature of the fiduciary duties owed in any particular case fall to be determined by reference to any underlying contractual relationship between the parties.

• an example is that a solicitor may only be an agent under certain instances and not others, which some argue should be recognised in the law as a criticism

What is the prominent question when discussing fiduciary duty of undivided loyalty (no profit and no conflict rule)?

There is question as to whether the no profit and no conflict rule can operate individually, or whether you need both to fulfill a fiduciary relationship/duty (the cases are ambiguous on this).

• Rudkadze case is the most recent authority, but it remains unconclusive on the answer.

What does Conaglen say in relation to ‘duty of loyalty’ expected of fiduciaries? Why is this?

• If you impose fiduciary duties in certain circumstances, it increases the likeliness of them completing their non-fiduciary duties, by imposing these rules on these sorts of actors (such as solicitors), such as not being self-interested.

• We increase the likeliness of completing their other duties properly, avoiding temptations by implementing the no profit and no conflict rule (such as a solicitor advising you in your interest and benefit such as in relation to property and etc).

What does Penner say in relation to ‘duty of loyalty’ expected of fiduciaries? Why is this?

Penner argues that we dont discuss loyalty in the common sense, but loyalty in another sense - a fidiciary cannot take into account their own self-interests whatsoever, which is deliberative exclusivity and fiduciaries dont have to identify subjective with the principle's interests, but EXCLUSIVELY of their principal's interests!

What does Mitchell say in relation to ‘duty of good faith’ expected of fiduciaries? Why is this?

Mitchell argued that fiducaries should act in good faith. They are expected to act honestly and in good faith, not in exclusivity and solely of the principle's interests, but act in a moral, just manner.

What does Boardman v Phipps outline in regards to the ‘no conflict’ rule?

You must show there is a POTENTIAL for conflict, not that the conflict already exists as outlined in Boardman v Phipps.

• ‘there was a real sensible possibility of conflict’

• ‘not contemplated as real sensible possibilities' by any reasonable person’

Bristol & West Building Soc v Mothew on conflicts betwen duty and duty, what is outlined? And how does this apply to the context of Mothew case?

This conflict rule can manifest itself in different ways such as-

1. duty and duty (acting on different parties duties as a solicitor, such as the solicitor acting for the borrower and lender for efficiency and it requires FULLY informed consent of both parties for the solictor to act loyally and faithfully for both parties).

In the Mothew case, the solicitor acted for both parties, however there is no indiication of wrongdoing on the solicitors side, due to acting loyally for both parties.

Tito v Waddell on conflicts berween interest and duty, what was the two rules that it set up?

1. The self-dealing rule: if a trustee purchases trust property from himself, any beneficiary may have the sale set aside ex debito justitiae, however fair the transaction.

2. The fair-dealing rule: if a trustee purchases one of his beneficiary's beneficial interests, the beneficiary may have the sale set aside unless the trustee can establish the propriety of the transaction, showing that he had taken no advantage of his position and that the beneficiary was fully informed and received full value.

What does the self-dealing rule mean for trustees?

If the trustee does sell the trust property to himself, the transaction will be voidable, such as the beneficiary can set it aside, or they can void.

(it doesnt matter whether the payment to beneficiries for the property is high or not, that is not the focus, the beneficiary still have the power to void it + requires fully informed consent of the beneficiary)

What does the fair-dealing rule mean for trustees? And how does it contrast to the self-dealing rule in Tito v Waddell?

The fair-dealing rule means that the transaction isnt always voidable immediately from the outset - if the trustee acts fairly, it cannot be set aside by the beneficiary. (if the principal sells their interest to the trustee, they cannot rescind this)

The transaction of it being 'fair' is outlined by there being a fully informed consent of the principal who is selling their interest to the trustee, this requires evidence to prove this. You need the fully informed decision of the principal in order to obtain their consent.

Re Thompson’s Settlement elaborates on the self-dealing and fair-dealing rule within Tito v Waddell, what is the context and the development?

This is a case regarding the assignment of leases - the self-dealing rule applied, as the assignees were the trustees of the land and they were assigning the lease to themselves, which was a clear conflict of interest and duty.

(self-dealing rule doesnt only apply to transfer of property, but also ASSIGNING)

What is the no profit rule, and what does it entail?

Within the no profit rule, there is an emphasis on fully-informed consent of the beneficiaries, to sign that it is confirmed and that the beneficiaries is necessary - if consent is there, the no profit rule might bolster the idea as being distinct from the no conlfict rule

Keech v Sandford on the no profit rule, what is context and outcome?

Context → It was regarding the lessor of the Romford market and S was held on trustee for K's infant child. S applied to the lessor to extend the trust for the benefit of K's child and the lessor said no, because the lease was the profits of the market and not the land itself and if the rent was not paid, they would have no remedies other than forcing to sue on the contract which was difficult since K's child was not bound by the contract hence the lessor refused. S failed to renew the trust for the child, then he transferred the trust property of to himself and the court concluded that S succeeded, S was holding the profits made from the market on trust for K's infant child.

Outcome → The trustee/S is the only one who might not have the lease and cant do so, but it is strictly pursued, even if S tried to act in the best interests of K and even then S isnt allow to renew the lease for himself, hence he must allow the lease to run out and require some sacrificise, which cannot be exploited by solely S as the trustee. There might be a conflict between S's personal interests and acting in the best interests of K's infant child.

Boardman v Phipps on the no profit rule, what is context and outcome? uncertainties which arose?

Context → P is the father who died, he left shares in a company on trust for his widowed wife and after his death for his child. The trustees of the settlement was his widow, his daughter and a professional trustee/accountant. B enters the story as he is a solicitor advising the trust and realises the company isnt run very well, but had great potential. Together with one of the sons and B go to the company to advise on how to run the company, arguing to restructure and they refuse. The 2 trustees refused to buy anymore shares for the company, but the widow was senile which meant the court required her consent. B continued negotiating about the company, he believed it required investment and contacted the 4 children to get their consent (his self interest), he didnt obtain any response back and assumed that there was implicit consent. B and one of the sons acquired the control of the company, buying almost all the shares, restructured it and B obtained allowance/his own investments into the company too, so he should obtain an allowance of some form. More money was generated, but another son was unhappy since he didnt obtain B's profits and that B was a fiduciary, making a profit in the course of the fiducary relationship.

Outcome → HOL split 3-2 and the 2 dissenting judges got the outcome correct.The court looked at Keech v Sandford, they argued B had to account for the profits he made in relation to no profit rule, B lost irrespective due to this.

What were the uncertainties arising from the ruling of Boardman v Phipps in relation to the no profit rule? And explanations behind these circumstances?

• It wasnt clear what fiduciary relationships were owed in this case, such as B being a lawyer wasn't a reason and it was needed to show who he had a duty to? He was a lawyer advising on the trust, whilst one of the sons wasn't the one who he was advising. HOWEVER, the reason to make sense is that B negotiating with the company, he acted as agent for beneficiaries under the trust, therefore owed fiduciary responsibility to them too. Therefore an appointed sense of duty can be identified from this as in Boardman v Phipps where B owed a duty to the other son.

• If B is a fiduicary, why does he need to take account of his profit? = it is because he exploited the trust property and obtained a profit from the trust property + the relevant property was the information that B acquired through the negotiation with the board of trust and company (lord hodson and guest agreed with that reason), whilst the other judges state that information is not property in the sense, which is correct as information should be freely available to anyone and is not properiety unless it is confidential if it has duties attached to that, but it is NOT a breach of confidence case.

• Could it be explained as a conflict of interests? = not easy to see if there is a conflict, since B's interests are perfectly aligned with the beneficiaries, hence there is no real sense of conflict - the minority say the application of the test cannot be easily applied, the majority remains unclear regarding the application.

• If B was asked to give advice, upon aqcuiring interests as a shareholder, THEN there could be a conflict of interest, but it is too remote of a possibility and B could refuse to give advice and advise another party to get another solicitor if he is conflicted (a future potential conflict is NOT good enough to argue to fulfill the test)

• If Boardman case is rightly decided, an independent standing rule could be applied and B is disbaledx from maiing that profit as a fiduciary, her is not empowered or given the power to make decisions as a fiduciary. BUT the minority questioned the no profit rule if this is the case, if making a profit if beneficial and advantageous, but MAKING profit in these cirucmstances it is bad, but if there is NO conflict in these circumstances, then why is making profit bad in these circumstances? = it links back to the strict nature of the test as per historic case law.

Rukhadze v Recovery UKSC Partners GP Ltd on the no profit rule, what is the context and outcome?

Context → Defendants were working for the claimants and owed fiducary duties to the claimants, relating to asset recovery services. The claimant died, and his family were unaware his assets. Ds provided asset recovery task of discovering where C's assets were, and they resigned which C argued that D should be working for them. But diverting business opportunity away from your principle, itll be a breach of fiduciary duties. At first instance, the defendants had to account for all the profits they made from recovery services subject to an equitable allowance of 25% and D argued that this should be limited by the but for test of causation in their appeal incentivised by the Murad Case regarding remedy of the account of profits.

Outcome → The Supreme Court concluded that this wasnt correct on principle and in facts, it satisifed the but for test of causation. Boardman v Phipps + Sandston cases are STILL GOOD LAW.

How did Rukhadze v Recovery UKSC Partners GP Ltd generate more ambiguity in the debate regarding whether no profit and no interest rules were either independent standing tests, or necessary to be completed together to establish a fiduciary duty? (Judges’ speeches)

• Lord Briggs said both rules (no profit and interest) are connected, BUT he said both rules exist in their own right and standalone and that no interest rule is paramount, even if he argues that it deters conflicting activities of the fiduciaries which suggests that conflicting activity is the core of the 'no profit' rule.

• Another judge said no interest rule should be automatically involved/activated from the get-go.

• Lord Leggatt argued that the no profit rule is better expressed as a duty not to exploit information, which is another definition entirely.

What was said in Johnson v FirstRand Bank Ltd regarding the debate on whether no profit and no interest rules were either independent standing tests, or necessary to be completed together to establish a fiduciary duty?

No profit and no interest rules were ‘twin sisters’ - remains ambiguous as to whether they are -

• same (needed both ways to establish a duty)

• similar, but also have differences, or

• different (stand-alone tests, not reliant on one another to establish duty)

Item Software UK Ltd v Fassihi on whether the duties are beyond proscriptive duties, what does it outline?

Lady Arden believes that there is a positive duty to disclose information as per Item Software and Children's investment case.

Not every duty owed by a fiduciary is not a fiduciary duty - these can be seperate and a duty to disclose to a principal might be a common law duty.

Children’s Investment Fund Foundation (UK) v Attorney General on whether the duties are beyond proscriptive duties, what does it outline?

• Lady Arden believes that there is a positive duty to disclose information as per Item Software and Children's investment case.

• Fiduciary must act in the best interest of the principal as per Lady Arden in Children's investment

Byers v Chen on whether the duties are beyond proscriptive duties, what does it outline?

the fiduciary has to take reasonable steps to prevent payments for an improper purpose as per Byers v Chen as per Lord Briggs statement

there is uncertainty as to whether fiduciary duties impose positive obligations as outlined in byers v chen and others

How does breach of duty relate to fully informed consent?

Breach of duty might be authorised through fully informed consent, therefore it could be go past the no conflict rule - however if it is not authorised, then it cannot.