Presentation on theme: "Fiduciary Relationships Associate Professor Cameron Stewart."— Presentation transcript:
Fiduciary Relationships Associate Professor Cameron Stewart
Fiduciary? The word ‘fiduciary’ has its roots in the Latin word fiducia, which means confidence. A fiduciary relationship is thus a relationship of confidence. The person in whom confidence is reposed within that relationship is referred to as the fiduciary. If a fiduciary abuses his or her position to obtain an advantage or benefit at the expense of the confiding party, the latter will be able to seek relief from a court of equity to prevent such advantage accruing to the fiduciary.
Equity and fiduciaries Equity intervenes... not so much to recoup a loss suffered by the plaintiff as to hold the fiduciary to, and vindicate, the high duty owed to the plaintiff... [T]hose in a fiduciary position who enter into transactions with those to whom they owe fiduciary duties labour under a heavy duty to show the righteousness of the transactions. Maguire v Makaronis (1997) 188 CLR 449 at 465
Undivided Loyalty The essence of fiduciary obligations is that the fiduciary is precluded from acting in any other way than in the interests of the person to whom the duty to so act is owed. In short, the fiduciary obligation is one of ‘undivided loyalty’: Beach Petroleum NL v Kennedy (1999) 48 NSWLR 46–7.
The existence of a fiduciary relationship Breen v Williams at CLR 92; ALR 273, Dawson and Toohey JJ observed that the law has not formulated ‘any precise or comprehensive definition of the circumstances in which a person is constituted a fiduciary in his or her relations with another’
Presumed fiduciary relationships A number of commercial and professional relationships: Trustee and beneficiary director–company legal practitioner–client agent–principalpartner–partner
Fiduciary Relationships outside of the presumed categories Economic power/free hand of market Equity’s intervention distorts economic activity? Should equity be reluctant to intervene?
United Dominions Corporation Ltd v Brian Pty Ltd Joint venture agreement for the development of land between United Dominions Corporation (UDC), Security Projects Ltd (SPL) and Brian Pty Ltd (Brian). Land owned by SPL Financed by UDC on security raised from SPL Profits made but UDC kept more than its share by using a clause in the mortgage to SPL Brian didn’t know about the clause and received no profit Did UDC owe Brian a fiduciary duty?
United Dominions Corporation Ltd v Brian Pty Ltd The High Court found in Brian’s favour. It held that SPL and UDC owed fiduciary duties to Brian and that the collateralisation clause in the mortgage was obtained in breach of such duties. Dawson J at CLR 16; ALR 750–1 said: [I]t is quite clear that a fiduciary relationship may arise during negotiations for a partnership or, for that matter, a joint venture, before any partnership or joint venture agreement has been finally concluded if the parties have acted upon the proposed agreement as they had in this case. Whilst a concluded agreement may establish a relationship of confidence, it is nevertheless the relationship itself which gives rise to fiduciary obligations. That relationship may arise from the circumstances leading to the final agreement as much as from the fact of the final agreement itself.
Hospital Products Ltd v United States Surgical Corporation Blackman had an exclusive distributorship arrangement for products manufactured by United States Surgical Corporation (USSC) Blackman’s company, Hospital Products Ltd (HPL), was soon after substituted as the distributor. HPL, using USSC products as models, began to manufacture products that were essentially identical to those manufactured by USSC > HPL went into competition with USSC Was HPL a fiduciary?
Hospital Products Ltd v United States Surgical Corporation By a bare majority the High Court held that there was no fiduciary relation ship between the parties and that USSC’s right to relief rested in a claim for damages for breach of contract. The majority considered that because the relationship between the parties was a commercial one entered into by equal parties at arm’s length with the intention that both parties would gain a profit, it was inappropriate to find a fiduciary relationship between the parties
A vexed question…. Why was there a fiduciary relationship in one and not the other? Does Equity have any role in commercial bargaining? Are the economic costs of imposing fiduciary relationships outweighed by advantages? Length of the Chancellor’s Foot?
The fiduciary obligation Aberdeen Railway Co v Blaikie Brothers  1 Macq 461 at 471 [A fiduciary will not be permitted] to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect
The fiduciary obligation The duty imposed upon a fiduciary operates in circumstances where there is a conflict between the fiduciary’s ‘duty’ and his or her ‘interest’.
Duty The word ‘duty’ in this context does not have a technical meaning. It does not refer to legally imposed obligations. Rather, it refers to the actions undertaken by a fiduciary on behalf of another person. These actions are not confined to those undertaken in the performance of a fiduciary’s mandatory or discretionary functions. These actions also include voluntary acts.
Interest The word ‘interest’, in this context, signifies the presence of some personal concern on the part of a fiduciary or of possible significant pecuniary value in a decision to be taken by the fiduciary. Finn (1977) at 204 notes: The pecuniary dimension of the fiduciary’s concern may take the form of an actual, prospective, or possible profit to be made in, or as a result of, the decision he takes or the transaction he effects. Or it may take the form of an actual, prospective, or possible saving, or a diminution of a personal liability
Informed consent The duty imposed upon the fiduciary is strict. The only way a fiduciary is able to escape liability for conduct that amounts to a breach of fiduciary duty is if the conduct was undertaken with the fully informed consent of the person to whom the fiduciary obligations are owed. The disclosure must be of all material facts and information that could affect the decision to give the consent
Examples of informed consent In Phipps v Boardman  2 AC 46;  3 All ER 721 the House of Lords made comments on the question of consent to a transaction involving a solicitor who owes fiduciary duties to clients who are trustees of a trust. In such cases there is no doubt that the unanimous consent of the trustees is necessary: Phipps v Boardman at AC 128; All ER 759, per Lord Upjohn. However, in that case, Viscount Dilhorne at AC 93; All ER 737 and Lord Cohen at AC 104; All ER 744 suggested that the consent of the beneficiaries to the trust is also necessary
Examples of informed consent Director–company relationship, the House of Lords in Regal (Hastings) Ltd v Gulliver  2 AC 134;  1 All ER 378 held that, for a director to escape liability for breach of fiduciary duties, the consent of the company through a resolution of shareholders at a general meeting of the company was required Queensland Mines Ltd v Hudson (1978) 18 ALR 1, the Privy Council upheld the validity of the consent of a company given by its board of directors
Unauthorised remuneration Reading v R  AC 507 Reading was a sergeant in the English army stationed in Egypt. He accompanied civilian trucks through security checkpoints in order to assist them in transporting contraband goods. In return he was paid for his assistance. The court ruled that Reading owed fiduciary duties to the Crown and the amount recoverable by the Crown was the full amount that Reading had received for his services.
Assuming a double character In Armstrong v Jackson  2 KB 822, Armstrong instructed Jackson, a stockbroker, to buy shares in a certain company. Jackson transferred his own shares in that company to Armstrong. The court ruled that Jackson had breached his fiduciary duties to Armstrong A broker who is employed to buy shares cannot sell his own shares unless he makes a full disclosure of the fact to his principal, and the principal, with a full knowledge, gives his assent to the changed position of the broker... [A] broker who secretly sells his own shares is in a wholly false position
Benefits derived by fiduciary to the exclusion of another Cases in this category involve a fiduciary, acting within the scope of his or her undertaking, deriving a profit or benefit that should have gone to the person to whom the fiduciary duties were owed
Benefits derived by fiduciary to the exclusion of another Chan v Zacharia (1984) 154 CLR 178 at 199; Deane J said: Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it.
Benefits derived by fiduciary to the exclusion of another Two sub-rules, namely: 1.cases in which a fiduciary is not to derive a profit or benefit that should have gone to the person to whom fiduciary duties are owed (the breach of undertaking sub-rule); and 2.cases in which a fiduciary is not to gain a profit or benefit through the misuse of his or her position as a fiduciary (the misuse of position sub-rule).
When do the duties end? Generally they will cease when the relationship has been terminated. However, in certain situations fiduciary obligations are owed after the relationship has ended. Thus, in Chan v Zacharia (1984) 154 CLR 178; 53 ALR 417, although a partnership had been dissolved, the partners still owed fiduciary obligations to each other until the partnership had been formally wound up.
Doctors and patients Breen v Williams (1996) 186 CLR 71 at 108; 138 ALR 259 at 285. In that case the High Court held that it was impossible to establish any conflict of interest and duty, unauthorised profit or loss in relation to a doctor denying a patient access to the doctor’s medical records. Accordingly, the court held the doctor’s refusal to give such access did not amount to breach of any fiduciary obligation.