Doctrine of Fiduciary Duty PDF

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Doctrine of Fiduciary Duty ISSUE: The issue is whether P has an action against Y for a breach of fiduciary duty. 1. Establishing a Fiduciary R/ship 1.1. Presumed Categories: ✓Here, when D was an (employee) of X, he clearly fell within a presumptive category of fiduciary duty. ✗Although D may not fall within a presumptive category of fiduciary duty, s/he may still have obligations as a factual fiduciary. 

Courts readily infer that the following r/ships are fiduciary: Company director/company – Hospital Products v USSC Solicitor/client – Bolkiah v KPMG Senior Employee/employer – Harris v Digital Pulse Promoter/Company (promoter must be promoting a corporation and be seeking funds from potential investors) – United Dominions Co v Brian Agent/Principal – Mckenzie v McDonald Partner/Fellow Partner – Birtchnell v Equity Investment advisor/Client – CBA v Smith Trustee/Beneficiary – Boardman v Phillips

1.2. Fact-based fiduciaries: (indicators) Trust and Confidence:  A fiduciary relationship may arise where a party reposes trust and confidence in another.  Here, P demonstrated that the r/ship involved an element of trust and confidence by …  Note: Spousal r/ship is a r/ship of trust and confidence but does not automatically attract fiduciary obligations. Undertaking:  An undertaking on the alleged fiduciary’s part to act for and on behalf of the interests of another may give rise to a fiduciary r/ship: Hospital Products v U.S Surgical Corporation  Did the fiduciary adopt a ‘representative character’ on behalf of P? 1.3. Contra-indicators (Commercial arrangements):  A purely commercial agreement conducted at arms length and on equal footing indicates no fiduciary duty (Hospital Products)  If the parties face the possibility of conflict between respective interests, then unless one party is to act solely in the interests of the other, there is no fiduciary duty (Hospital Products). 

Hospital Products – HP was the exclusive distributor of USSC’s product in Australia. Held that no fiduciary duty. Reasoning: arrangement was a commercial one entered into at arms length and on equal footing; and HP was entitled to make a profit on its own behalf. It had been contemplated that a conflict of interest might arise and there was no obligation on HP to resolve any such conflict arrangement in USSC’s favour.

✓On the facts, it appears likely/unlikely that a fiduciary r/ship existed between the parties during the relevant time. 2. Determining the Scope of the Fiduciary R/ship  To ascertain the scope of the fiduciary r/ship, the courts look to the conduct of the parties in full, with particular reference to their dealings concerning the relationship or transaction: Birtchnell v Equity Trustees  i.e. Was the fiduciary under an obligation to secure the opportunity for the principal? Consider things like:  Terms of contract: Birtchnell  Position of fiduciary (secretary v director)  Nature of the opportunity – directors owe a duty not usurp an opportunity that the company is pursuing for themselves.

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Rival business in the same field?

Example o So called ‘duty to disclose medical records’ does not fall within the scope of a doctors fiduciary duty to advise: Breen v Williams o Kuys was a fiduciary only to the extent of his role as a secretary: NZ Netherlands Society v Kuys 3. Has the fiduciary duty been breached?  Fiduciary obligations begin when the trust and confidence begins (which may be before the onset of contractual obligations): United Dominion Corp v Brian 3.1. CONFLICT OF INTEREST:  A fiduciary may not enter into a transaction if a conflict (or a significant possibility of conflict) exists between his fiduciary duty and his personal interest.  There must be a ‘real, sensible possibility of conflict’ rather than a merely hypothetical risk (reasonable person test): Boardman v Phillips o A fiduciary may not ‘serve two masters at the same time’: Farrington o A fiduciary may not do for his own benefit that which he ought to have done for his principal: Boardmand v Phillips o A fiduciary may not accept bribes, gifts or commissions from third parties in connection with his duties to the principal: Lister v Stubbs o Fiduciary may not purchase from or sell to the principle i.e. real estate: Mckenzie Mckenzie v Mcdonald (Realtor Case): Facts: Plaintiff (principal) appointed a realtor to sell her farm (agent). The agent convinced P to sell him the property at an undervalue, in part in exchange for his own property, which he overvalued. Held: Agents fiduciary obligation to the P was in conflict with his personal financial interest. Farrington v Rower Mcbride (2 masters case) Facts: Solicitors acted for the plaintiff in a personal injury claim. The plaintiff recovered damages and sought the firm’s advice on investment of the damages. The firm had a major corporate client which was in financial difficulties and the solicitor advising the plaintiff had a financial interest in the corporation; he persuaded the plaintiff to invest in the corporation. Two years later, the corporation went into liquidation. Issue: Conflict between fiduciary duties to two principals. Held: The New Zealand Court of Appeal held that the solicitors had placed themselves in a position of conflict and had therefore committed a breach of fiduciary obligation. The firm was ordered to compensate the plaintiff for his lost investment. 3.2. PROFIT RULE: The fiduciary may not obtain any profit or gain a benefit by reason of his position (or by reason of opportunity or knowledge arising from that position): Regal v Gulliver  The liability of fiduciaries does not depend on fraud or wrongdoing  Fiduciary may be in breach even if s/he acted in good faith. Boardman v Phillips (Trust Fund Solicitor Case) (profit arising from knowledge) Facts: A solicitor for a trust fund noticed a significant opportunity in the accounts of the company. He utilised this opportunity with the knowledge of some of the trustees, making a significant profit for both the trustees and himself Issue: Was the solicitor liable for his personal profit Held: Solicitor had personally profited by acting on information only available to him due to his agency r/ship with the trust fund, thus was found in breach of his fiduciary obligation not to make any unauthorised profit.  Note: The solicitor was able to keep a significant equitable allowance for his effort  Crucially, not all trustees consented to the profit.

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Fiduciary liability was not diminished by the fact that the breach did not cause the principal any loss Fiduciary may be in breach even if s/he acted in good faith.

Regal v Gulliver (Cinema case)(Profit arising from position) Facts: D’s were the directors of Regal, a company which operated a cinema. Regal created HAC, intended it to be a subsidiary, to acquire two cinemas. However, because of a lack of money, the directors and solicitors personally paid for 60% of the shares in HAC. HAC acquired the cinemas, and then both were sold off together to the P for a profit. P’s, as the new management of Regal, took proceedings against the former directors, seeking an account of profits made on the sale of their personal shares in HAC. Held: A fiduciary cannot have personal interests conflicting with the interests of those he is bound to protect. If he has any property acquired as a fiduciary, he must account it to his principal. Liability of fiduciary does not depend on fraud or bona fides; it arises from the mere fact of profit.

Personal interest v duty to company o If a fiduciary takes for himself a profit sought by the principal, it does not matter that this was not something that fell within the scope of the fiduciary’s duties: Green v Bestobell Industries  Not required to show that info/opportunity was used to acquire the profit; or that ‘but for’ the fiduciaries breach, the principal would have profited.  In Green v Bestobell, a Bestobell manager (Green) incorporated a company to obtain a contract that Bestobell was seeking. Thus, B was entitled to recover profits from Green. 4. Can the Fiduciary raise a defence?  If the fiduciary makes full disclosure and obtains the principal’s informed consent, the fiduciary avoids liability for breach of fiduciary duty. QLD Mines v Hudson  It must be shown on the BOP that (1) the fiduciary provided full disclosure of all material facts (2) before the breach occurred (3) received unanimous consent by all principals.  If P is a corp, then need shareholders’ consent: Regal Hastings – but in QLD Mines, consent from board members was sufficient.  The duty to make full disclosure does not extend to information of which the fiduciary was not aware, even if the prudent enquiry would have revealed its existence: BLB v Jacobsen 5. Remedies  Seek an injunction: Hospital Products  Equitable compensation: Mckenzie v McDonald  Account of profits: Regal v Gulliver  Constructive Trust: Chan v Zacharaia (leased building was held on trust) Chan v Zacharia (Doctor – joint ownership) Facts: Doctors, no longer in business together, partnership agreement terminated and in the process of being wound up. Partnership property included a lease and option to renew. C refused to corporate in exercising the option for the partnership and obtained a new lease for himself. Held: Breach of FD. Even if the only aspect of the fiduciary duty = joint ownership of the option. C held the new lease on constructive trust for the partnership.

6. Conclude...