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Fiduciary Duties Notes

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Equity & Trusts : Fiduciary Duties
??? ?Complementary with trustee duties.
??? ?Trustee duties only bind trustees and beneficiaries.
??? ?Fiduciary duties--apply to a much broader range of relationships. Including trustees.

Trustee duties

?????Variety of trustee duties relating to their 2 roles: that of management/stewardship; and that of distribution. o On first being appointed, trustee must:
? (1) ascertain terms of trust & identify beneficiaries;
? (2) examine trust instrument and other documents (including notices, eg of assignments of beneficial interest); and, if it appears that a breach of trust has occurred, proceed against the trustee in breach;
? (3) find out what trust propertt consists of and ensure it is vested in his name or that of a custodian. o Trustees continuing duties including:
? To act unanimously;
? To keep accounts & records;
? To be even-handed/impartial.
? To invest
? To hand over trust funds to the right persons;
? Not to delegate
? To be adequately informed before exercising their powers: Pitt v Holt (2011), where the CA broadly meant all equitable duties of trustees and not the exclusively fiduciary duties discussed below identified by Millet LJ in Bristol & West v Mothew (1996).
?????In addition to above equitable trustee duties, a trustee has an overarching fiduciary duty to beneficiaries: which do not stem from the trust instrument itself, but from the special relationship of trust and loyalty entered into.

The Concept of a fiduciary

?????Someone who owes duties to another simply by virtue of the relationship they have.
?????Definition, Bristol & West Building Society v Mothew (1998), Millet LJ o 'A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the singleminded loyalty of his fiduciary.' (per Millett LJ)

1 o 'This core liability has several facets: a fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal . . .
[not an exhaustive list] . . . ' o So the 'loyalty' is the key thing--the principal is entitled to 'single-minded loyalty' of his fiduciary. So completely set aside your own interests. o In that case--Mothew was a solicitor, acting for the lender, the Building society.
?????So fiduciary duties are wide-ranging, and are essentially duties of god faith---fundamentally, there are two proscriptive principles: (1) a fiduciary may not personally profit from their position; (2) an overriding duty to avoid conflict of interest between own personal interests and the duties they owe to their principal. o I.E. So (1) no profit; (2) no conflict ? the fundamental two principles of fiduciary duties.
?????Examined by Conaglen in Fiduciary Loyalty (2010): fiduciary duties are the 'no profit; no conflict' rules.
?????Bray v Ford (1895) earlier case but often referred to, --an 'inflexible rule' o Lord Herschell: an 'inflexible rule of equity that a person in a fiduciary position' is not entitled to make a profit; or conflict of interest. o Courts don't leave much leeway in enforcing fiduciary (and trustee) duties--very harsh, the duties enforced strictly. o So you must act in interest of principal--or in breach.
?????If trustee makes a personal profit from their position as trustee, they must: o Account to the trust for that profit (i.e. pay it back); o OR hold it or assets bought with on constructive trust for the trust [[see remedies]]. o Exception---can keep a profit if authorized by the trust instrument, or if made with informed consent of all beneficiaries (must be sui juris). Why do we have fiduciary duties?
? Conaglen, Fiduciary Loyalty (2010): o Fiduciary duties are not there to provide punishment, but to act as a prophylactic--a preventative measure, to stop ppl acting in a particular way. o This means that fiduciary duties are meant to control how a fiduciary can act - they are there to ensure the fiduciary performs his/her other duties (e.g. trust investment) properly o To prevent bad conduct.

2 Trustee CF fiduciary duties
? So fiduciary duties are SEPERATE to and ADDITIONAL to a trustee's general duties regarding the trust!
? They are not interchangeable, they are different things.
? Moffat: 'All trustees are fiduciaries, but not all fiduciaries are trustees'.
? They are very flexible, no real guidance on when they can be imposed o Eg thieves & victims have been held to have fiduciary duties. o Used by courts sometimes to impose duties in order to get the result they feel is right.--Flexible.
? Some examples of the sort of relationships which always give rise to fid duties o Trustees. o Company directors to their company.
? Murad v Al Saraj--shows how flexible they are, Lord Wilberforce: if you are in a 'position of trust and confidence' ? fiduciary duties apply. When are fiduciary duties implicit in a relationship?
? No comprehensive list in English law of the types of relationships
? Some relationships give rise to fiduciary duties per se: eg trustee/beneficiary; solicitor/client; company director/company; business partner/co-partner; principal/agent; mortgagee/mortgagor; confidential employee/employer; gov employee/Crown.
? Equity can find a fiduciary duty in other circumstances: where a person has undertaken to act for/on behalf of another in a particular matter in circumstances which give rise to a relationship of trust & confidence---Bristol & West Building Society v Mothew.
? Eg, general rule (now statutory---Company Act 2006, s170(1)) that a director owes fiduciary duties to the company and not to individual shareholders; o but a director can be held to owe fiduciary duties to a shareholder where special reliance has been placed on the director: Peskin v Anderson (2001).
? Exact content of particular fiduciary relationships will vary: o Lord Woolf MR, AG v Blake (1998): 'there is more than one category of fiduciary relationship, and different categories possess different characteristics and attract different kinds of fiduciary obligations . . . .' Egs of situations where fiduciary duties exist
? Reading v AG (1951): a staff sergeant in British army?
fiduciary relationship to the Crown, thus liable to account for a bribe he made.

3 ???AG for Hong Kong v Reid (1994): the acting DPP for Hong Kong? fiduciary duty to the Crown, and so bribes he received were held on constructive trust for the Crown. AG for Guardian Newspapers (No 2) (1990): the Sunday Times liable to account to the Crown for profits made by publishing extracts from Spycatcher, a book written by a former member of the security services in breach of fiduciary duty to Crown and in breach of confidence. CF AG v Blake (2001): former member of security services, disclosed info in autobiography, did not owe a continuing fiduciary duty to the crown where the information was no longer confidential. Murad v Al-Saraj (2005), CA: fiduciary relationship between the Murad sisters and Mr Al-Saraj in relation to the joint venture between them. Judge first instance: 'the relationship between
[them] was a classic on in which [the Murads] reposed trust and confidence in Mr Al-Saraj . . . ' So, in above cases, a fiduciary duty imposed where there is a pre-arranged relationship of trust & confidence However, courts gone even further---have imposed fiduciary duty as an artificial remedial device to correct injustice: o Chase-Manhattan Bank NB v Israeli-British Bank (1981): o Plaintiff bank paid $1m to D bank by mistake. Held: simply by virtue of mistaken payment, Defendant bank had a fiduciary duty to Plaintiff bank and held the money on constructive trust for them. The plaintiff bank retained an equitable proprietary interest in the money and was entitled to trace it and make an equitable proprietary claim over it on D's insolvency. o However, correctness of reasoning of this doubted by Lord Browne-Wilkinson in Westdeutsche Landesbank v Islington LBC (1996): thought that money paid by mistake was not automatically held on constructive trust, but the recipient would become personally accountable as a constructive trustee once they became aware of the mistake, because only then would their conscience be affected.

Defining obligations of a fiduciary REMUNERATION [also see 'Trustee Duties']

?????NO, trustee may not profit from their trust---Barnett v Hartley (1866): trustees are taken to accept their office gratuitously and are not entitled to remuneration for their services. Rule applied rigorously---a trustee who ran a business on behalf of the trust was not entitled to remuneration for doing so (Barnett v Hartley, 1866).
?????This rule has been applied to solicitor-trustee employing his own firm to carry out the trust's legal work (Re Gates). 4

?????Note, this rule doesn't apply to reimbursement: so trustees are entitled to be reimbursed from the trust fund for expenses properly incurred when acting on behalf of a trust: Trustee Act 2000, s31(1) [[replacing Trustee Act 1925, s30(2), as s30 is repealed]].
?????The rule does not prevent unpaid trustees delegating trust business under the Trustee Act 2000, s11(1)
?????S32 Trustee Act 2000: makes provision for paying reasonable remuneration and proper expenses out of trust funds to an agent, nominee or custodian. EXCEPTIONS-- where remuneration is permitted:
?????(1) Beneficiaries consent: If all beneficiaries are sui juris, but must get consent from every beneficiary, otherwise won't have total immunity.
?????(2) Foreign property: o Where trust property is situated abroad and the foreign jurisdiction permits trustees to charge for the transaction in question, then the trustee may keep any payment he receives. o In Re Northcote (1949), English executors were entitled to retain a fee for taking out a grant of probate in New York in respect of American assets.
?????(3) Litigious work of solicitor-trustee o The rule in Cradock v Piper (1850) permits a solicitortrustee to be remunerated for court work undertaken for themselves (as trustee) and their co-trustees, as long as this does not increase their costs over and above the costs they would have charged if they had not been a trustee.
?????(4) a Charging clause inserted into the trust instrument, authorised by settlor; which can basically say anything. o Charging clauses have been strictly construed against trustees. o If contained in a will, a charging clause was treated as a legacy, which caused problems. o However, major changes have been made by Trustee Act

2000. ?????(5) Professional trustees---ss28-29 Trustee Act 2000 o Part V of TA 200 contains new provisions re remuneration of professional trustees. o They relate to all services provided or expenses incurred after the Act came into force, irrespective of the date of creation of the trust (s33(1)). o S28, construction of express charging clause for professional trustees: o (could include solicitors, bankers, accountants etc). o s28(2): a professional trustee, who is entitled under the trust instrument to receive payment in respect of services, will be 5

so entitled even if they are services capable of being provided by a lay trustee.
? This reverse the rule that express charging clauses were strictly construed against a trustee, meaning previously no remuneration for services which a lay trustee could provide, unless explicitly allowed. o S28(4): payments for services are to be treated as remuneration and not as gifts for purposes of Wills Act 1837, s15 (relevant to charging clauses in wills).
? This change---will allow trustees to be paid for work done for a trust even where they witness the will under which the trust arises. o S29, reasonable remuneration for professional trustees where no express charging cause: o Even where no charging clause, certain trustees will be entitled to reasonable remuneration from trust funds for services provided on behalf of the trust, even if the services are capable of being provided by a lay trustee. o This section applies:
? (a) if the trustee is a trust corporation; OR
? (b) if the trustee acts in a professional capacity and is not a sole trustee, if each other trustee has agreed in writing that he may be remunerated.
?????(6) Court authorises---authorisation by the Court under its inherent jurisdiction: court gives express authorisation. o Re Duke of Norfolk's ST (1982): held that court has power to change/modify an existing charging clause; and to insert one, i.e. authorise remuneration, if it is not already present. But completely discretionary. o Fox LJ: 'the court has an inherent jurisdiction to authorise the payment of remuneration of trustees and . . . that jurisdiction extends to increasing remuneration authorised by the trust instrument . . . If therefore the court concludes . . . that it would be in the interests of the beneficiaries to increase the remuneration, then the court may properly do so'. o In that case, the trust already contained a remuneration clause but they argued it was no longer adequate, because of the increase in work for the trustees. o Doubts about Duke of Norfolk decision: whether it is justifiable
---remember that express trustees must accept their obligations before they may be bound; if the trust instrument contains no clause for remuneration then surely they have chosen to accept this bargain. Seems odds for court to allow a trustee to modify obligations that have been freely and knowingly accepted.
?????The court's inherent jurisdiction applies not only to express trustees but also to constructive trustees and other fiduciaries:

6 o Eg Boardman v Phipps (1967): court awarded fiduciary remuneration, 'on a liberal scale', for the work done in making a profit for the trust---despite the work being carried out in breach of a fiduciary duty, as it resulted in a personal profit for Boardman as well as the beneficiaries. o Eg O'Sullivan v Management Agency and Music (1985): a management company held to be in breach of fiduciary duty as a result of the undue influence they exercised over a musician. However, they were allowed to keep a small share of their profits as remuneration for their skill and labour.
?????But scope of court power to authorise remuneration restricted by HL in Guinness v Saunders (1990): o A director of Guinness received a fee for providing his services in connection with Guinness's take-over of another company. Held to be breach of fid duty; and HL refused to authorise remuneration. o Lord Goff: 'the exercise of the jurisdiction is limited to those cases where it cannot have the effect of encouraging trustees in any way to put themselves in a position where their interest conflicts with their duties as trustees'.
?????But more liberal approach, remuneration awarded in Murad v Al-Saraj (2005), CA: despite the dishonest actions of the fiduciary. See also Cobbetts LLP v Hodge (2009).
?????Nor can trustees take a commission -Williams v Barton o Eg a finder's fee or commission---this is treated as trust property.

The 'self-dealing' rule???NO conflict of interest---so fiduciary should not purchase property from their principal; neither may they become a tenant of such property. Strict rule---no matter how fair the price and other terms of the contract. Inherent conflict of interest if fiduciary is both buyer and seller Fiduciary cannot sell principal's property to themselves, whatever the price paid: Ex P James (1803); Ex P Lacey (1802). Tito v Waddell (No 2) Eg piece of land, part of trust fund, trustee wants to buy it for himself. Cannot do this---this is self-dealing.


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