Chapter 9
Fiduciary Obligations
INTRODUCTION
9.1 The word ‘fiduciary’ has its roots in the Latin word fiducia, which means
confidence. A fiduciary relationship is therefore a relationship of confidence.
The person in whom confidence is reposed within that relationship is
referred to as the fiduciary. The person to whom fiduciary obligations are
owed is called the beneficiary (or principal). If a fiduciary abuses his or her
position to obtain an advantage or benefit at the expense of the beneficiary,
the latter will be able to seek relief from a court of equity to prevent such
advantage accruing to the fiduciary. The rationale for equity’s intervention
on behalf of the confiding party was set out by the High Court of Australia
in Maguire v Makaronis (1997) 188 CLR 449 at 465; 144 ALR 729 at 738
by Brennan CJ, Gaudron, McHugh, Gummow JJ, when they said:
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.
9.2 Unfortunately, there is no universally accepted definition of a fiduciary
relationship. Nor is there a universally acknowledged test for determining
when a fiduciary relationship exists.1 This has made the study and
development of fiduciary duties difficult. Sir Anthony Mason, speaking
extra-judicially, has said that fiduciary relationships are ‘a concept in search
of a principle’.2
9.3 Additionally, while judges and authors often describe relationships as
1
J Glover, Equity, Restitution and Fraud, LexisNexis Butterworths, Sydney,
2004, p 26; G E Dal Pont & D R C Chalmers, Equity and Trusts in Australia,
4th ed, Lawbook Co, Sydney, 2007, p 804.
2
A Mason, ‘Themes and Prospects’ in P D Finn (ed), Essays in Equity, Law
Book Co, Sydney, 1985, p 246.
being ‘fiduciary’, not all aspects of such a relationship will be governed by
fiduciary principles. In The Bell Group Ltd (in liq) v Westpac Banking
Corporation (No 9) (2009) 70 ACSR 1 at [4552], Owen J said:
In my view the state of the law is this. Where a person has undertaken to
act in the interests of another and where the nature of that relationship, its
surrounding circumstances and the obligations attaching to it so require, it
will be held to be fiduciary. But the fact that it is categorised as fiduciary
does not mean that all of the obligations arising from it are themselves
fiduciary. Unless there are some special circumstances in the relationship,
the duties that equity demands from the fiduciary will be limited to what I
have described as the core obligations: not to obtain any unauthorised
benefit from the relationship and not to be in a position of conflict. They
stem from the fundamental obligation of loyalty.
9.4 As shall be discussed below, equity uses the relationship to determine
whether any fiduciary duties have arisen, but equity will not usually override
any existing legal obligations that exist between the parties in tort and
contract. Fiduciary duties will then only arise in the parts of the relationship
which are not captured by contract and tort. As Dal Pont and Chalmers
explain, it is ‘better to speak of the relevant fiduciary duties to avoid
perpetuating the incorrect impression that a “fiduciary” relationship
encompasses every aspect of the parties’ relationship’.3
9.5 This chapter begins by examining the nature and character of fiduciary
duties, the relationships that are presumed to carry such duties, other
situations in which fiduciary duties may arise and the extent of fiduciary
obligations.
THE NATURE OF FIDUCIARY OBLIGATIONS
Strict horizontal and vertical duties
9.6 Fiduciary obligations are strict.4 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 2 at 46–7; Gibson Motorsport Merchandise Pty
Ltd v Forbes (2006) 149 FCR 569 at [107].
3
Dal Pont & Chalmers, Equity and Trusts in Australia, note 1 above, p 91.
R Flannigan, ‘The Strict Character of Fiduciary Liability’ (2006) New Zealand
Law Review 209.
4
9.7 The fact that there was no intent to defraud on the part of the fiduciary is
irrelevant: Nocton v Lord Ashburton [1919] AC 492. The liability of the
fiduciary does not depend on establishing that the person to whom fiduciary
duties are owed suffered loss or injury: Birtchnell v Equity Trustees,
Executors and Agency Co Ltd (1929) 42 CLR 384 at 408–9 per Dixon J. A
fiduciary’s liability arises even if the person to whom the duty is owed was
unlikely or even unable to have made a profit from an opportunity exploited
by the fiduciary: Warman International Ltd v Dwyer (1995) 182 CLR 544 at
558; 128 ALR 201 at 209. Nor will it matter that the beneficiary would have
consented to the fiduciary making a profit had the beneficiary been properly
informed, if informed consent was never obtained: Murad v Al-Saraj [2005]
EWCA Civ 959.
9.8 Glover has shown that fiduciary obligations can be owed in two ways:
horizontally and vertically.5 In a horizontal situation the duties are owed by
both parties to each other. Each is both a fiduciary for the other and both
benefit from the obligations; for example, in partnerships. Contrastingly, in
vertical situations the fiduciary duties are only owed by one party to the
other and this duy is not reciprocated. An example of such a vertical duty is
that between a guardian and ward. Horizontal and vertical duties will have a
differing emphasis on the characteristics of fiduciary duties.
Prohibitive (negative) duties rather than prescriptive (positive) duties
9.9 While fiduciary obligations are strict, it is important to appreciate that a
fiduciary’s obligation ‘does ... not impose positive legal duties on the
fiduciary to act in the interests of the person to whom the duty is owed’:
Breen v Williams (1996) 186 CLR 71 at 113; 138 ALR 259 at 289 per
Gaudron and McHugh JJ. Fiduciary obligations are therefore said to be
limited to negative or proscriptive duties, where fiduciaries are forbidden
from acting in ways that conflict with their duties: Wilden Pty Ltd v Green
[2009] WASCA 38. Fiduciary obligations tell fiduciaries ‘what not to do,
not what they have to do’.6 Equity does not require the fiduciaries to act
positively in the interests of their beneficiaries. It is said that such positive
duties are better regulated by contract, tort or other equitable doctrines:
Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at 198; 180 ALR 249
at 270–1. It is therefore still possible for fiduciaries to owe positive duties,
not pursuant to their fiduciary obligations, but under principles that include
breaches of contractual or tortious obligations.
5
J Glover, Equity, Restitution and Fraud, LexisNexis Butterworths, Sydney,
2004, pp 26–27.
6
G Dempsey & A Greinke, ‘Proscriptive fiduciary duties in Australia’ (2004)
Australian Bar Review 1, p 2.
9.10 The only exception to the negative nature of fiduciary duties is the duty
to disclose possible conflicts of interests and seek the informed consent of
the beneficiary of the relationship: see 9.103. In Fitzwood Pty Ltd v Unique
Goal Pty Ltd (in liq) (2001) 188 ALR 566 at 576, Finkelstein J refused to
describe the obligation to seek informed consent as a positive duty but
instead described it as a ‘means by which the fiduciary obtains the release or
forgiveness of a negative duty’.
9.11 These issues were illustrated by The Bell Group Ltd (in liq) v Westpac
Banking Corporation (No 9), where it was argued that the directors had
breached their duties to act in the best interests of their companies and to
exercise their powers properly, when they had authorised loans which where
in the overall interests of the corporate group, but not in the interests of some
of the individual companies within that group. Owen J found that the
directors’ duties to act in the companies’ best interests and to exercise
powers properly were fiduciary duties. In so finding, Owen J argued that
these duties were, in substance, negative or proscriptive duties. But, as
Lanford makes clear, there are problems with framing these duties as
negative.7 The duties require directors to take positive steps to investigate
and consider options as well as consider action to prevent transactions from
taking place. Owen J was clearly conscious of these difficulties, but
nevertheless felt, at 277, that ‘The integrity of the language emerges
relatively unscathed’.
9.12 With respect, there is a level of unreality in any dichotomy which rests
on acts and omissions. The distinction is a slippery one and it is arguably
dangerous for the limits of fiduciary principles to be based on such a
shifting principle. As The Bell Group Ltd (in liq) v Westpac Banking
Corporation (No 9) illustrates, there are many obligations owed by
fiduciaries which seem to be positive, or, at the very least, could be
constructed as positive.8 But surely, equity should not be based on such
flimsy semantic distinctions?. Equally difficult are attempts by some to
preclude positive duties on the basis that they are not ones which correspond
with the fiduciary’s obligation of loyalty.9 It is not clear why positive duties
R T Langford, ‘The fiduciary nature of the bona fide and proper purposes
duties of company directors: Bell Group Ltd (in liq) v Westpac Banking Corp
(No 9)’ (2009) 31 Australian Bar Review 326, pp 339–40.
8
J D Heydon, ‘Are the Duties of Company Directors to Exercise Skill and Care
Fiduciary?’ in S Degeling & J Edelman (eds), Equity In Commercial Law,
Lawbook Co, Sydney, 2005; P Parkinson, ‘Fiduciary Obligations’ in P
Parkinson (ed), The Principles of Equity, 2nd ed, Lawbook Co, Sydney, 2003, p
347.
9
Dempsey & Greinke, note 6 above, p 2.
7
would be unable to secure loyalty in the same manner as negative ones.
There may be good reasons for keeping tort and contract law claims separate
from fiduciary claims, but one should not need the artificiality of
positive/negative duties to maintain that separation.
9.13 Nevertheless, the notion of fiduciary duties being negative only is now
firmly entrenched in judicial minds in Australia, especially in the High
Court: Friend v Brooker (2009) 255 ALR 601 at [84]. In Pilmer v Duke
Group Ltd (in liq) (2001) 207 CLR 165 at 214; 180 ALR 249 at 284, Kirby J
(in dissent) questioned the viability of the distinction on the basis that
omissions frequently shade into commissions, but his Honour still felt bound
to accept the distinction.
Interests which are protected by fiduciary duties
9.14 Fiduciary duties are primarily used to protect economic and
proprietorial interests.10 Australian courts have been reluctant to expand
protected interests to include non-economic interests, for example, personal
injury damages and damages for mental distress, because of a fear that such
interests are better served by other areas of law, such as tort law. It has also
been said that equity would find it difficult to value such non-economic
interests, although in cases like Giller v Procopets [2008] VSCA 236,
Australian equity has begun to recognise damages for mental distress and
aggravated damages (at least in cases of breach of confidence).
9.15 Joyce has argued that this fear of non-economic injuries is unfounded
and that non-economic interests should be protected by fiduciary duties
where a breach has occurred which embodies forms of exploitation and
betrayal.11 In such cases, Joyce argues, fiduciary principles can address
conflicts of interests in ways that tort law cannot. But the underlying
question should be: what does fiduciary duty add to the issue of how the
legal system responds to cases of non-economic loss. If tort law can deal
with abuses of trust and betrayal via the use of aggravated and exemplary
damages, what is it that equity can add? This is discussed further below in
the area of child abuse at 9.71.
The search for a unifying principle: loyalty, trust and confidence,
vulnerability or undertaking?
10
Dal Pont & Chalmers, Equity and Trusts in Australia, note 1 above, p 93.
R Joyce, ‘Fiduciary law and non-economic interests’ (2002) Monash Law
Review 239.
11
9.16 The lack of a uniform test for the existence of fiduciary duties has led
some to search for a unifying principle of fiduciary law. While loyalty is a
key touchstone of fiduciary duty, there are a number of other factors which
courts have drawn upon to determine the existence and content of fiduciary
obligations. In Breen v Williams at CLR 107; ALR 284, Gaudron and
McHugh JJ stated that other relevant factors include ‘the existence of a
relation of confidence; inequality of bargaining power; an undertaking by
one party to perform a task or fulfil a duty in the interests of another party;
the scope for one party to unilaterally exercise a discretion or power which
may affect the rights or interests of another; and a dependency or
vulnerability on the part of one party that causes that party to rely on
another’.
9.17 Trust and confidence are ordinarily features of fiduciary duties: LAC
Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574 at
597. But as Meagher, Heydon and Leeming suggest, actual trust and
confidence is not always needed to be shown, for example in cases of trusts
where a beneficiary has never met the trustee.12
9.18 Vulnerability may be another factor relevant to the imposition of
fiduciary duties, particularly vertical fiduciary duties. In Hospital Products
Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 142; 55
ALR 417 at 488, Dawson J thought it relevant to examine the ‘position of
disadvantage or vulnerability on the part of one of the parties which causes
him to place reliance upon the other and requires the protection of equity in
acting on the conscience of that other’. But the issue becomes whether
vulnerability is a characteristic or a consequence of the fiduciary obligation.
In the same case, at CLR 96–97; ALR 454, Mason J stated that ‘The
relationship between the parties is therefore one which gives the fiduciary a
special opportunity to exercise the power or discretion to the detriment of
that other person who is accordingly vulnerable to abuse by the fiduciary of
his position’. In C-Shirt Pty Ltd v Barnett Marketing and Management Pty
Ltd (1996) 37 IPR 315 at 316, Lehane J said:
I do not think that in Australian law ‘vulnerability’, though it may be a
characteristic of some of those to whom fiduciary duties are owed, is the
touchstone of fiduciary obligation: the fundamental question is for what
purpose, and for the promotion of whose interests, are powers held?
Kirby J also doubted the sufficiency of vulnerability in Pilmer v Duke Group
R Meagher, D Heydon & M Leeming, Meaher Gummow and Lehane’s
Equity: Doctrines and Remedies, 4th ed, LexisNexis Butterworths, Sydney,
2002, p 157.
12
Ltd (in liq) at CLR 217–18; ALR 286–7, and said that more was needed to
call up a fiduciary obligation.
9.19 It can also be relevant to ask whether one party has undertaken to act
for the other party’s interests, particularly in horizontal relationships, such as
in partnerships and joint ventures. In Hospital Products Ltd v United States
Surgical Corporation at CLR 96–7; ALR 454, Mason J argued that the
critical feature of a fiduciary relationship was:
… that the fiduciary undertakes or agrees to act for or on behalf of or in the
interests of another person in the exercise of a power or discretion which
will affect the interests of that person in a legal or practical sense.
9.20 Mason J’s theory of undertaking seems to presuppose some form of
agreement or contract. Oftentimes the existence of an agreement is central to
the finding of fiduciary duty (particularly in commercial relationships), but
there are many types of fiduciary obligations which do not arise out of
agreements, and the undertaking theory does not seem to provide a basis for
understanding these duties.
9.21 Professor Finn argued that all of these issues could be embodied in a
doctrine of ‘reasonable expectations’, where the imposition of a fiduciary
duty would be dependent on whether the principal had an objectively
reasonable expectation that the fiduciary would act in the beneficiary’s
interest to the exclusion of their own personal interests.13 This test has been
used in Australian cases: Hadid v Lenfest Communications Inc [1999] FCA
1798; Brunninghausen v Glavanics (1999) 46 NSWLR 538. But, as Glover
points out, the question of what is ‘reasonable’ just replaces the older
characteristics within an empty normative shell, which the judges will have
to fill in with the old characteristics and/or other values they hold dear. In
that sense reasonable expectations is a limitation device rather than a rational
test, much like ‘reasonable foreseeability’ in negligence.14
9.22 Each characteristic therefore is dominant in some forms of fiduciary
obligation, but none is sufficient on its own to describe the totality of
fiduciary experience.
THE CONTENT OF FIDUCIARY OBLIGATIONS
P D Finn, ‘The Fiduciary Principle’ in T G Youdan (ed), Equity, Fiduciaries
and Trusts, Carswell, Toronto, 1989.
14
Glover, Equity, Restitution and Fraud, note 4 above, pp 32–33. See also P
Parkinson, ‘Fiduciary Obligations’, note 8 above, p 391.
13
Conflicts between interest and duty
9.23 At its heart, the duty imposed upon a fiduciary operates in
circumstances where there is a conflict between the fiduciary’s ‘duty’ and
his or her ‘interest’. In Aberdeen Railway Co v Blaikie Brothers [1854] 1
Macq 461 at 471; [1843–60] All ER Rep 249 at 252, Lord Cranworth said:
[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.
9.24 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.
9.25 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 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.15
In Settlement Agents Supervisory Board v Property Settlement Services
Pty Ltd [2009] WASCA 143 at [72], McLure JA said:
Not all interests are within the conflict rule. The interest must give rise to a
conflict or a real or substantial possibility of a conflict: Hospital Products
(103) (Mason J). There are other formulations of the required connection such
as ‘a sensible, real or substantial possibility’ (Clay v Clay (2001) 202 CLR
410) and ‘a significant possibility’ (Chan v Zacharia (1983) 154 CLR 178 at
198). The extension to cover a real or substantial possibility of a conflict
serves at least two functions. First, it is intended to signify that not all personal
interests come within the conflict rule. An interest will not fall within the
conflict rule if it is too remote or insubstantial: Hospital Products (103)
(Mason J). Secondly, an anticipatory breach of the conflict rule can be
restrained: Re Thomson; Thomson v Allen [1930] 1 Ch 203.
9.26 The rationale of the rule against conflicts was stated in Bray v Ford
15
P D Finn, Fiduciary Obligations, Law Book Co, Sydney, 1977, p 204.
[1896] AC 55 at 51–2, where Lord Herschell said:
It does not appear to me that this rule is, as has been said, founded upon
principles of morality. I regard it rather as based upon the consideration that,
human nature being what it is, there is a 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.
9.27 This passage was cited with approval by Gaudron and McHugh JJ in
Breen v Williams at CLR 108; ALR 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 that the doctor’s
refusal to give such access did not amount to a breach of any fiduciary
obligation.
9.28 A fiduciary’s obligation not to allow his or her duty to conflict with his
or her interest can be examined under the following three headings:
1. unauthorised remuneration;
2. assuming a double character; and
3. benefits derived to the exclusion of the person to whom the fiduciary
obligation is owed.
Unauthorised remuneration
9.29 Cases within this category cover situations in which a fiduciary, in the
actual performance of his or her duties, obtains financial benefits beyond
those that are authorised. The purpose of the rule in these cases is not to
prevent a fiduciary obtaining fair remuneration for services performed, but
rather to prevent secret or unauthorised profits being made: Dale v IRC
[1954] AC 11 at 27; [1953] 2 All ER 671 at 674. Cases involving the
payment of bribes or secret commissions serve as typical examples.
9.30 In Reading v R [1949] 2 KB 232; [1949] 2 All ER 68 (Court of
Appeal); [1951] AC 507; [1951] 1 All ER 617 (House of Lords), 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.
9.31 The payment of tips or gratuities is another form of payment beyond
agreed remuneration. However, in this situation, if the payment is small and
made after the performance of services as an acknowledgment that they were
very well performed, the fiduciary is entitled to keep the payment: The
Parkdale [1897] P 53 at 58–9. On the other hand, if the payment is made
before or during the performance of services, the fiduciary will have to
account for it on the basis that it would be seen as a bribe. Similarly so, even
if the payment is ostensibly made for past services, if it can be shown that it
would likely influence future dealings. In such cases the size of the payment
will be indicative of the intent behind its payment.
Assuming a double character
9.32 Cases in this category involve transactions in which a fiduciary acts in
that capacity on the one hand and as an undisclosed principal on the other. In
Armstrong v Jackson [1917] 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. McCardie J, at 823–4, said:
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. As a
vendor it is to his interest to sell his shares at the highest price. As broker it is
his clear duty to the principal to buy at the lowest price and to give unbiased
and independent advice ... as to the time when and the price at which shares
shall be bought, or whether they shall be bought at all. The law has ever
required a high measure of good faith from an agent. He departs from good
faith when he secretly sells his own property to the principal ... It matters not
that the broker sells at the market price, or that he acts without intent to
defraud. The prohibition of the law is absolute. It will not allow an agent to
place himself in a situation which, under ordinary circumstances, would
tempt a man to do that which is not best for his principal. The Court will not
enter into discussion as to the propriety of the price charged by the broker,
nor is it material to inquire whether the principal has or has not suffered a
loss. If the breach of duty by the broker be shown, the Court will set aside the
transaction.
Benefits derived by fiduciary to the exclusion of the beneficiary
9.33 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. It is in this area that the
breaches of fiduciary duty cases most commonly arise. In the context of this
type of case, in Chan v Zacharia (1984) 154 CLR 178 at 199; 53 ALR 417
at 433, 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.
9.34 Deane J’s statement divides this category of case into two interlocking
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 subrule).
Each of the sub-rules will be analysed in turn.
The breach of undertaking sub-rule
9.35 The purpose of this sub-rule is to prevent a fiduciary acting for his or
her own benefit in a transaction undertaken for the benefit of the person to
whom he or she stands in a fiduciary relationship. Critical to determining if
there has been a breach of fiduciary duties is the determination of the scope
of the fiduciary’s undertaking. The relationship between the parties must be
examined to ascertain the scope of the fiduciary’s duties before any question
of breaches of fiduciary duties can be entertained: Phipps v Boardman
[1967] 2 AC 46 at 127; [1966] 3 All ER 721 at 758 per Lord Upjohn;
Hospital Products Ltd v United States Surgical Corporation at CLR 102;
ALR 458. The existence of a fiduciary obligation does not determine the
scope of the fiduciary’s duties. That comes from the circumstances
surrounding the relationship: News Ltd v Australian Rugby Football League
Ltd (1996) 139 ALR 193 at 312. Whether or not what a fiduciary does is
within the scope of his or her undertaking is a question of fact in each case.
Conduct that may fall within the fiduciary component of a relationship in
one case may not do so in another case: Beach Petroleum NL v Kennedy at
45.
9.36 In Clark Boyce v Mouat [1994] 1 AC 428; [1994] 4 All ER 268,
solicitors acted for a woman who mortgaged her property to cover her son’s
debt to a finance company. The same solicitors acted for the son. The
solicitors had disclosed the potential conflict between their respective duties
to the woman and her son on a number of occasions. The solicitors’ advice
to the woman that she obtain independent legal advice was never acted upon
by the woman. The woman claimed a breach of fiduciary duties by the
solicitors, arguing that they should have advised her on the wisdom of the
transaction and investigated the son’s financial position before she executed
the mortgage. In the circumstances, the Privy Council rejected the woman’s
claim on the ground that the solicitors’ undertaking to the woman extended
only to giving legal advice.
9.37 If it is determined that a fiduciary’s actions are within the scope of his
or her undertaking, the fiduciary cannot enter into arrangements in which his
or her interests conflict, or possibly conflict, with the interests of those the
fiduciary is bound to protect. In Phipps v Boardman at AC 124; All ER 756,
Lord Upjohn was of the view that the possibility of conflict must be a ‘real
sensible possibility’ before the fiduciary will be held accountable. However,
in the same case, Lord Hodson, at AC 111; All ER 748, appears to be of the
view that even remote possibilities of conflict will result in a finding against
the fiduciary. The views of Lord Upjohn were endorsed by Gibbs J in
Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at
394; 5 ALR 231 at 248; Mason J in Hospital Products v USSC at CLR 103;
ALR 459; Deane J in Chan v Zacharia at CLR 198; ALR 433; Gummow J
in Breen v Williams at CLR 135; ALR 306–7; the Court of Appeal in New
South Wales in Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 at 89;
and the Court of Appeal in England in Bhullar v Bhullar [2003] 2 BCLC
241 at [30].
9.38 Once the scope of a fiduciary’s undertaking is defined and it is
established that an action on his or her part amounts to a conflict between his
or her interest and duty, the only way in which the fiduciary can escape
liability is by making a full and proper disclosure to the person whom he or
she is bound to protect and obtain that person’s consent to the action.
9.39 Similar considerations apply to cases in which a fiduciary has a conflict
of duty and duty. As with conflict of duty and interest cases, these also
involve ‘breach[es] of the same over-riding duty of undivided loyalty’:
Beach Petroleum v Kennedy at 46. An example would be a solicitor acting
for two clients in the same matter. In such cases ‘the fiduciary ... may be
unable to discharge adequately the one obligation without conflicting with
the requirement for observance of the other obligation’: Breen v Williams at
CLR 135; ALR 306.
9.40 A leading case illustrating the above principles is Phipps v Boardman
[1967] 2 AC 46; [1966] 3 All ER 721. In this case Boardman acted as a
solicitor for a trust. He attended the annual general meeting of Lester &
Harris Ltd, a company in which the trust had a substantial shareholding.
Boardman and Tom Phipps, one of the beneficiaries under the trust, were
unhappy with the state of the company. Together they planned to acquire
shares in the company to take it over. Boardman was able to assess the
viability of the takeover because of information about the company he
gained whilst acting as solicitor for the trust. Boardman advised the
beneficiaries of the trust of these plans and no objection was made by any of
them. He also had the consent of two of the three trustees; the third, being
senile, was not advised of these plans. The takeover was successful and
resulted in profits to the trust in relation to its shareholding in the company
as well as for Boardman and Tom Phipps in relation to the shares they had
personally acquired. John Phipps, one of the beneficiaries under the trust,
sought an account of the profits made by Boardman and Tom Phipps on the
grounds of breach of fiduciary duties.
9.41 By a bare majority the House of Lords held in favour of John Phipps.
An initial issue before the House of Lords was whether Tom Phipps could be
sued. This was not fully analysed because Tom Phipps chose to be treated
the same as Boardman. However, four Law Lords considered Tom Phipps
was properly sued: Lords Cohen at AC 104; All ER 744; Hodson at AC 106;
All ER 745; Guest at AC 114; All ER 750; Upjohn at AC 125; All ER 757.
The majority Law Lords (Lords Cohen at AC 100–3; All ER 741–3; Hodson
at AC 109–11; All ER 747–8; Guest at AC 114–17; All ER 750–2) all held
that the information obtained by Boardman was trust property and that it was
irrelevant that the trustees of the trust were in no position to acquire the
shares in the company for the trust. Because there was a conflict, or at least a
possibility of a conflict, between Boardman’s duty and interest, the informed
consent of the trustees was needed before the purchase of shares by
Boardman and Tom Phipps could be upheld. On the other hand, as Lord
Hodson noted, at AC 112; All ER 749, Boardman was entitled to ‘payment
... on a liberal scale in respect of the work and skill employed in obtaining
the shares and the profits therefrom’.
9.42 The minority Law Lords (Viscount Dilhorne at AC 912; All ER 735–6;
Lord Upjohn at AC 129–33; All ER 760–2) held that the information gained
by Boardman was of no use to the trustees because they could not make any
use of it to purchase the shares acquired by Boardman and Tom Phipps.
Both of their Lordships were of the view that had there been a breach of
fiduciary duties, on the facts of the case there had not been a consent
because the senile trustee had neither been informed, nor asked, about the
purchase of shares by Boardman and Tom Phipps.
Misuse of fiduciary position sub-rule
9.43 The purpose of this sub-rule is to prevent a fiduciary using his or her
position to secure or assist in exploiting a profit-making opportunity. If a
fiduciary acts in such a way he or she must account for any profit or benefit
derived as a result. In Cook v Deeks [1916] 1 AC 554, a construction
company had for some time gained contracts to lay tracks for the Canadian
Pacific Railway Co. Two of the construction company directors formed a
new private company of their own, which negotiated another contract with
Canadian Pacific Railway. The construction company argued that this
amounted to a breach of fiduciary duty on the part of the directors. The Privy
Council agreed, holding that the directors deliberately used their position to
exclude the construction company whose interest it was their duty to protect.
9.44 Perhaps the leading authority in this line of cases is Regal (Hastings)
Ltd v Gulliver [1967] 2 AC 134; [1942] 1 All ER 378. The directors of
Regal formed a subsidiary company with the intention that Regal own all the
shares in the subsidiary company. The directors sought a lease of two
cinemas for the subsidiary company. However, the landlord was not
prepared to grant the lease unless the subsidiary company had a paid-up
capital of £5000. Because Regal did not have the necessary capital to invest
£5000 in the subsidiary, the directors decided that Regal would invest £2000
and that they would invest the balance themselves. From the shares issued to
them in the subsidiary, the directors made a profit.
The House of Lords unanimously ruled that irrespective of whether or not
Regal could have purchased the shares, the directors were liable to Regal for
the profit they made. Lord Macmillan said at AC 153; All ER 391:
The sole ground on which it was sought to render them accountable was that,
being directors of the plaintiff company and therefore in a fiduciary relation
to it, they entered in the course of their management into a transaction in
which they utilised the position and knowledge possessed by them in virtue
of their office as directors, and that the transaction resulted in a profit to
themselves. The point was not whether the directors had a duty to acquire the
shares in question for the company and failed in that duty. They had no such
duty. We must take it that they entered into the transaction lawfully, in good
faith and indeed avowedly in the interests of the company. However, that
does not absolve them for accountability for any profit which they made, if it
was by reason and in virtue of their fiduciary office as directors that they
entered into the transaction.
9.45 In Phipps v Boardman at AC 124; All ER 757, Lord Upjohn
commented on Regal (Hastings) v Gulliver as follows:
That was an obvious case where the duty of the director and his interest
conflicted. The scheme had been that Regal would make a profit, in fact its
directors did.
Conflicts of duty and duty
9.46 Fiduciaries are also obliged to avoid conflicts of competing fiduciary
duties. A conflict will exist if the duties are inconsistent or irreconcilable:
Settlement Agents Supervisory Board v Property Settlement Services Pty Ltd at [76].
A classic example of such conflicts exists where lawyers act simultaneously
for two competing clients. It is not defence to an allegation of breach of
fiduciary duty in such circumstances for lawyers to argue that the breach of
duty was caused by their maintenance of duty to another client: Hilton v
Barker Booth & Eastwood (a firm) [2005] 1 WLR 567. However, in
Dominic v Riz [2009] NSWCA 216, a solicitor who acted for two clients on
a transaction was not found to have breach fiduciary duty when she advised
the client to seek separate and independent financial and legal advice.
9.47Another example is that of director who hold simultaneous directorships
in competing companies. There is a rule which allows such directors to hold
office in competing companies until a real conflict arises: London and
Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd
[1891] WN 165.
9.48 In Western Areas Exploration Pty Ltd v Streeter (No 3) [2009] WASC
213 at [48], E M Hennan J defined a ‘real conflict’ as follows:
Where the alleged breach of fiduciary duty entails a director of a company
diverting a commercial opportunity to some other vehicle, or placing himself in a
situation where there is a conflict between the performance of the director’s
duties to the primary company and the performance of his duties or the extent of
its interest in some other company or enterprise, a question arises as to whether or
not the fiduciary is entitled to compete for financial benefit with a company of
which he is a director. For there to be a breach of the conflict of duty or conflict
of interest rules it is necessary for the given conflict to be ‘real and sensible’ and
more than purely hypothetical…
E M Hennan J went on to find that the rule in London and Mashonaland
Exploration Co Ltd could not apply to a sitations where directors take
information from one company to promote the interests of another. That
was a clear breach of duty and duty which was actionable.
PRESUMED RELATIONSHIPS THAT CARRY FIDUCIARY DUTIES
9.48 In 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’. Nevertheless, some relationships are
presumed to give rise to fiduciary obligations. In other cases the factual
circumstances of the relationship may give rise to a finding of a fiduciary
relationship. In this context a critical question that has confronted the courts
in recent times is the degree to which they will make findings that fiduciary
duties are owed in the context of commercial relationships.
Trustee–beneficiary
9.49 The quintessential fiduciary relationship is that between a trustee and
beneficiary. In relation to the trustee–beneficiary relationship, Dal Pont and
Chalmers state:
The scope of the fiduciary duty owed by a trustee to beneficiaries of the trust
is determined by: in the case of express trusts, the terms of the trust
instrument; in the case of resulting trusts, monetary contributions; and in the
case of constructive trusts, the gain which the court ascertains should be held
for the benefit of the beneficiaries.16
Director–company
9.508 Directors (and other corporate officers) are fiduciaries for their
companies and must avoid conflicts of interest and duty, as well as not use
information that they receive in their capacity as directors for personal gain:
Regal (Hastings) Ltd v Gulliver.17 In Consul Developments v DPC Estates at
CLR 394; ALR 249, Gibbs CJ stated:
It is well settled that a director stands in a fiduciary position in relation to
his company and in my judgment a person who though irregularly
appointed assumes the position of director and on behalf of the company
16
G E Dal Pont & D R C Chalmers, Equity and Trusts in Australia, 3rd ed,
Lawbook Co, Sydney, 2003, p 95.
17
J Svehla, ‘Director’s Fiduciary Duties’ (2006) 27 Australian Bar Review 192.
performs the tasks of finding, investigating and reporting upon properties
suitable for purchase by the company owes a fiduciary duty to the company
with which his private interests cannot be allowed to conflict.
9.51 These duties exist in parallel with directors’ statutory liabilities under
the Corporations Act 2001 (Cth). As Regal (Hastings) v Gulliver shows, the
obligations are strict, and the fact that the directors may be acting bona fides
and taking up investment opportunities which are also in the interests of the
company, is irrelevant to the question of breach. Informed consent is the
only option for directors seeking to take up corporate opportunities.
9.52 Directors also owe duties under statute, law and equity to act in the
company’s best interests and to properly exercise their powers. Questions
arise as to whether these duties are fiduciary in nature, as both duties are
arguably positive and therefore outside the fiduciary ambit. In The Bell
Group Ltd (in liq) v Westpac Banking Corporation (No 9), at [4574], Owen
J said:
In my view the duty to act in the interests of the company and the duty to
exercise powers properly stem from a fundamental requirement for loyalty.
Directors undertake to act on behalf of the company and to manage the
business of the company. A company does not exist other than by virtue of
a legal fiction. In this respect the company is in a similar position to a
beneficiary who is an infant or a person with a mental disability: it simply
cannot exercise its own powers and must do so through the good graces of
the persons who have undertaken to act on its behalf. All (or at least most)
of the classic indicia of the fiduciary relationship are present. The directors
act in a representative capacity. There is a dependency of the company on
its directors. And there is scope for the directors to exercise a discretion or
power that may affect the rights or interests of the company. If, as I believe
is the case, loyalty is the keystone of a fiduciary relationship, it applies in
abundance to the association between a director and the company.
9.53 On this issue of whether such duties were positive in nature Owen J
found that they were not, as they did not prescribe what a director should do
but rather forbade the director from acting otherwise than in the company’s
best interests, for proper purposes and in ways that avoided conflicts of
interest: The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9)
at [4578].
9.54 English courts have found that directors must disclose past wrongdoing
to their companies, even where that wrongdoing had no negative effect on
the company’s position: Item Software (UK) Ltd v Fassihi [2004] EWCA
1244. This argument was rejected in Australia in P & V Industries v Porto
[2006] VSC 131, by Hollingworth J, who found that such a duty was
prescriptive and outside fiduciary principles.
9.55 Directors do not ordinarily owe fiduciary duties to shareholders:
Joinery Products Pty Ltd v Imlach (2008) 67 ACSR 520. However, if ‘a
special factual relationship between the directors and the shareholders’
exists, the directors may also owe fiduciary duties to shareholders: Peskin v
Anderson [2001] 1 BCLC 372 at [33]; St George Soccer Football
Association Inc v Soccer NSW Ltd [2005] NSWSC 1288. Thus, where
directors conduct negotiations for a takeover or an acquisition of the
company’s business, they are obliged to loyally promote the interests of all
shareholders: Jones v Jones [2009] VSC 292 ; Silversides Superfunds Pty
Limited v Silverstate Developments Pty Limited [2008] NSWSC 904;
Brunninghausen v Glavanics.
9.56 Directors owe a fiduciary duty to shareholders to advise them fully and
frankly of relevant information necessary to make an informed decision at a
general meeting: Chequepoint Securities Ltd v Claremont Petroleum NL
(1986) 11 ACLR 94. This obligation to make full and fair disclosure does
not oblige the directors to give shareholders every piece of information that
might conceivably affect their voting. The adequacy of the information must
be assessed in a practical, realistic way, having regard to the complexity of
the proposal: ENT Pty Ltd v Sunraysia Television Ltd [2007] NSWSC 270.
9.57 In contrast to shareholders, there do not appear to be fiduciary
obligations owed by directors to creditors: R v Spies (2000) 201 CLR 603;
173 ALR 529. Fiduciary obligations may arise in cases where the company
has become insolvent, as the interests of the creditors begin to take over the
interests of the shareholders, as the assets of the company effectively
become the assets of the creditors as the company lurches into liquidation:
Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507; 215
ALR 110; The Bell Group Ltd (in liq) v Westpac Banking Corporation (No
9) at [4418], [4439].
Legal practitioner–client
9.58 Legal practitioners owe fiduciary duties to their clients when acting for
them in matters. A practitioner cannot make unauthorised profits, or act in a
way that puts their own interests, or those of others, into conflict with the
interests of their clients: Hilton v Barker Booth [2005] 1 All ER 561. This
rule forbids the lawyer from entering into dealings with their clients without
the clients’ fully informed consent: Maguire v Makaronis. It also prevents
the lawyer from acting for third parties, when the interests of those third
parties conflict with the clients’: see 9.46. Such conflicts can be avoided as
long as all parties know that the same practitioner is acting for different
parties to the transaction and no actual conflict of interest arises: Rigg v
Sheridan [2008] NSWCA 79.
9.59 There are differing views as to whether the fiduciary duties survive the
termination of the retainer.18 It is clear that duties of confidentiality will still
be owed to a client, even after the solicitor–client relationship has ended. In
Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 at 235; [1999] 1 All
ER 517 at 527, Lord Millet found that the duty of confidence survived the
end of retainer but the other fiduciary duties did not. Australian cases have
found similarly: PhotoCure ASA v Queen’s University at Kingston [2002]
FCA 905; Kallinicos v Hunt (2005) 64 NSWLR 561; Pacific
Telecommunications Ltd v Optus Networks Pty Ltd [2005] NSWSC 550.
9.60 Contrastingly, in Spincode Pty Ltd v Look Software Pty Ltd (2001) 4
VR 501, Brooking JA found that the duty of loyalty survived beyond the
retainer, and later Victorian cases have followed this trend: Sent v John
Fairfax Publication Pty Ltd and Hills [2002] VSC 429; Village Roadshow
Ltd v Blake Dawson Waldron [2003] VSC 505; Commonwealth Bank of
Australia v Kyriackou [2008] VSC 146; Connell v Pistorino [2009] VSC
289. There has also been recognition in Tasmania and Western Australia:
Gugiatti v City of Stirling (2002) 25 WAR 349 at [8]–[13]; Holborow v
Macdonald Rudder [2002] WASC 265 at [23], [25]; Wagdy Hanna &
Associates Pty Ltd v National Library of Australia (2004) 155 ACTR 39 at
[55].
9.61 In reality, whether the duty not to act against the interests of former
clients is fiduciary or not, will probably be of no moment. Even if there is no
fiduciary duty, duties of confidence and the court’s power to control the due
administration of justice, may fill in any apparent void left by fiduciary duty,
so that threatened breaches may be restrained: Ismail-Zai v the State of
Western Australia [2007] WASCA 150 at [24] In Kyriackou v
Commonwealth Bank of Australia [2009] VSCA 241 at [22] the Court of
Appeal of Victoria cited the trial judge with approval when he stated:
1. The Court will restrain a legal practitioner from continuing to act for a
party to litigation if a reasonable person informed of the facts might
reasonably anticipate danger of misuse of confidential information of a
former client, and that there is a real and sensible possibility that the
interest of the practitioner in advancing the case in litigation might conflict
M Bender, ‘Taking up the cudgels: will a notion of ongoing loyalty prevent a
lawyer from acting against a former client?’ (2006) 13 Murdoch University
Electronic Journal of Law.
18
with the practitioner’s duty to keep the information confidential and to
refrain from using that information to the detriment of the former client.
(2) The danger of misuse of confidential information is not the sole
touchstone for curial intervention where a solicitor acts against a former
client. There is also an independent equitable obligation of loyalty which
forbids a solicitor acting against a former client in the same or a closely
related matter. Intervention may also be justified on this ground in the
exercise of a Court’s supervisory jurisdiction over its own officers.
(3) There is an overriding jurisdiction to intervene so as to protect the due
administration of justice arising where a reasonable informed member of
the public would conclude that solicitors should be prevented from acting. .
Agent–principal
9.62 Agents are presumed to be fiduciaries for their principals. Agency can
appear in many types of legal relationship, including real estate agency,
powers of attorney, and commercial agency. Agents are obliged to
communicate information they have in their possession to their principal:
Premium Real Estate Ltd v Stevens [2009] 2 NZLR 384. The failure to do
this will be a breach of fiduciary duty if non-disclosure amounts to a
preference in favour of the agent’s own interests: Chen v Marcolongo [2009]
NSWCA 326 at [171]. In McKenzie v McDonald [1927] VLR 134, a real
estate agent advised a woman to sell her farm and buy his property in the
city. The agent knowingly offered a lesser price for the farm than its market
value and inflated the price of his own property. The agent was found to owe
fiduciary duties which were breached by his dishonest conduct. In Pedersen
v Larcombe [2008] NSWSC 1362, a real estate agent bought the plaintiff’s
property in breach of fiduciary duty. The agent failed to seek the advice of
other agents as to the property’s market price, failed to advertise the
property, and failed to seek other prospective buyers.
9.63 If a principal appoints an agent knowing that the agent already works
for another principal, any potential conflict can be regarded as being of the
later principal’s own making, and the later principal will be unable to
complain: Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 33
ACSR 1. But even in such a situation the agent must act in good faith and
cannot deliberately prejudice the interests of one principal over another:
Bristol and West Building Society v Mothew [1998] Ch 1 at 19; [1996] 4 All
ER 698. If an actual conflict arises the agent should cease acting for one, or
both, of the principals. In McCourt v Cranston [2009] WASC 56, an agent
was found to have breached her fiduciary duties by acting for both the
vendor and the purchaser of land. The purchaser believed that the contract
was conditional on the sale of her home (which was also being sold by the
agent) but the vendor believed that the sale was unconditional. The agent
gave advice to the vendor that the sale should be treated as unconditional,
but failed to give such advice to the purchaser. The court found that the
agent had acted in breach of her fiduciary duty, and that, should the contract
be unconditional, the agent should indemnify the purchaser for any loss.
Partner–partner
9.64 Partnership also gives rise to presumed fiduciary duties. Partnership
exists when people work together in an enterprise for the purpose of making
a profit. In Re Agriculturist Cattle Insurance Co (1870) LR 5 Ch App 725 at
733, James LJ said:
Ordinary partnerships are by the law assumed and presumed to be based on
the mutual trust and confidence of each partner in the skill, knowledge and
integrity of the every other partner. As between the partners and the outside
world (whatever may be their private arrangements between themselves),
each partner is the unlimited agent of every other in every manner
connected with the partnership business, and not being in its nature beyond
the scope of the partnership.
9.65 There does not need to be a formal partnership for fiduciary obligations
to arise. In United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157
CLR 1 at 12; 60 ALR 741 at 747, Mason, Brennan and Deane JJ stated:
A fiduciary relationship can arise and fiduciary duties can exist between
parties who have not reached, and who may never reach, agreement upon
the consensual terms which are to govern the arrangement between them.
In particular, a fiduciary relationship with attendant fiduciary obligations
may, and ordinarily will, exist between prospective partners who have
embarked upon the conduct of the partnership business or venture before
the precise terms of any partnership agreement have been settled. Indeed,
in such circumstances, the mutual confidence and trust which underlie most
consensual fiduciary relationships are likely to be more readily apparent
than in the case where mutual rights and obligations have been expressly
defined in some formal agreement. Likewise, the relationship between
prospective partners or participants in a proposed partnership to carry out a
single joint undertaking or endeavour will ordinarily be fiduciary if the
prospective partners have reached an informal arrangement to assume such
a relationship and have proceeded to take steps involved in its
establishment or implementation.
9.66 Fiduciary duties can exist beyond the partnership, at least until the
assets of the partnership have been fully wound up. In Chan v Zacharia, the
partnership had been determined but it was still not open to one of the
partners to exercise an option to renew the business’s lease in his own name.
However, in Friend v Brooker (2009) 255 ALR 601, the High Court refused
to find that any fiduciary duties remained between individuals in a
partnership, after that partnership had been converted into a corporate
structure, leaving the previous partners as directors. As directors they owed
fiduciary duties to the company but not to each other.
Guardian–ward
9.67 Guardianship is another presumed category of fiduciary duty.
Guardians are appointed by courts or tribunals to care for adults who have
become incapable of making decisions for themselves. Guardians can also
be appointed for children, and parents are ordinarily the natural guardians of
children. The fact that a guardian has been appointed via a statutory
mechanism is no bar to the imposition of fiduciary duties: Trevorrow v State
of South Australia (No 5) (2007) 98 SASR 136 at 343.
9.68 A guardian must provide independent legal advice to a ward, if the
ward has a possible right of action and the ward’s interests conflict with
those of the guardian. In Bennett v Minister of Community Welfare (1992)
176 CLR 408, the High Court recognised that there was a fiduciary duty to
inform a ward that he may have a cause of action in personal injury, after
losing four fingers of his left hand when in the defendant’s care. In
Trevorrow v State of South Australia (No 5), the plaintiff was an Aboriginal
ward of the state and was illegally removed from his family. In addition to
common law claims, the court found, at 346, that the Aboriginal Protection
Board (APB) had breached a fiduciary duty to:
... take steps to see that the plaintiff was armed with all relevant
information concerning the circumstances of his removal, fostering and
return to his natural family, and in particular, a disclosure to him of the
APB’s view that it had knowingly acted without legal authority. The APB
also had a duty to see that the plaintiff obtained independent legal advice.
The APB breached these duties and as an emanation of the State, legal
responsibility falls on the State with respect to these breaches.
9.69 The duty to provide independent legal advice to the ward appears to be
a positive duty but perhaps can be explained as part of the general duty of
disclosure of conflicts.
9.70 Guardians, while owing fiduciary duties, are not trustees of the property
of their charges: Guardianship and Administration Tribunal v Perpetual
Trustees Qld Ltd [2008] QSC 49. In Countess of Bective v Federal
Commissioner of Taxation (1932) 47 CLR 417 at 420–21, Dixon J said:
It is a general rule that guardians of infants, committees of the person of
lunatics, and others who are entrusted with funds to be expended in the
maintenance and support of persons under their care are not liable to
account as trustees. They need not vouch the items of their expenditure,
and, if they fulfil the obligation of maintenance in a manner commensurate
with the income available to them for the purpose, an account will not be
taken. Often the person to be maintained is a member of a family enjoying
the advantages of a common establishment; always the end in view is to
supply the daily wants of an individual, to provide for his comfort,
edification and amusement, and to promote his happiness. It would defeat
the very purpose for which the fund is provided, if its administration were
hampered by the necessity of identifying, distinguishing, apportioning and
recording every item of expenditure and vindicating its propriety ... Courts
of equity have not disguised the fact that the general rule gives to a parent
or guardian dispensing the fund an opportunity of gaining incidental
benefits, but the nature and extent of the advantages permitted must depend
peculiarly upon the intention ascribed to the instrument.
9.71 In Clay v Clay (2001) 202 CLR 410; 178 ALR 193, a widow purchased
the house of her late husband for market value, even though she was
guardian of his children and that under his will the children had equal
beneficial interests in his estate when they reached the age of 25 years. The
High Court found that there was no breach of fiduciary duty as there was no
conflict between the widow’s interests and her duty as guardian of the
children. As stated above, guardians are not trustees and the widow had
purchased the property at market value. Moreover, the money went into the
fund to pay for the children’s maintenance and advancement. Nor did the
children have an immediate beneficial interest in the property at the time it
was sold.
9.72 Cases of breaches of fiduciary duty in guardianship often raise difficult
issues of lengthy delays in the bringing of claims. Claims often involve facts
that occurred decades before trial and may then run afoul of problems with
evidence and laches: The Salvation Army (South Australia Property Trust) v
Rundle [2008] NSWCA 347. For example, in Arthur v State of Qld [2004]
QSC 456, a woman claimed breach of fiduciary duty for being forced to
adopt out her child when she was 17 and a ward of the state. The child had
been born nearly 40 years before the trial, many of the key witnesses were
dead and the claim failed for lack of evidence. Even had the evidence
supported her claim (it did not) the judge believed that laches was an
appropriate defence.
9.73 One of the major issues that has arisen in relationship to guardianship
concerns cases of child abuse, where plaintiffs have claimed breach of
fiduciary duty for physical and sexual abuse. These developments were
encouraged by Canadian case law which recognises that parents, guardians
and priests owe fiduciary duties to children not to abuse them physically and
sexually: M(K) v M(H) [1992] 3 SCR 6; KLB v British Columbia (2001) 197
DLR (4th) 431; VB v Cairns (2003) 65 Ont R (3d) 343; Doe v O’Dell (2003)
230 DLR (4th) 383; Kraus v Joao 2008 CanLII 25057. The duty has even
been extended to the non-abusing parent who knowingly fails to step in and
prevent the abuse from occurring: J(LA) v J(H) (1993) 102 DLR (4th) 177.
Initially the duty was cast as a duty to act in the child’s best interests: M(M) v
F(R) (1997) 52 BCLR (3d) 127. But more recently the Supreme Court of
Canada has rejected the ‘best interests of the child’ as the basis for liability and
instead returned to breaches of trust and loyalty as the basis of the fiduciary
liability of those in the position of parental authority: KLB v British Columbia
[2003] 2 SCR 403; EDG v Hammer [2003] 2 SCR 459.
9.74 In contrast, Australian courts have consistently denied that a guardian’s
fiduciary duty includes a duty to take reasonable care for the ward’s physical
safety, on the basis that the interests protected are not economic or
proprietorial: Tusyn v State of Tasmania (2004) 13 Tas R 51. Initially,
actions were not struck out by judges on the grounds that fiduciary claims
could possibly succeed: Johnson v Department of Community Services
[1999] NSWSC 1156; Carter v Corporation of the Sisters of Mercy of the
Diocese of Rockhampton [2001] QCA 335. In Williams v Minister,
Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497 at 511, Kirby P
was prepared to recognise the possibility of fiduciary duties being used to
regulate want of proper care, but by the time of trial in the matter, Abadee J
refused to entertain the fiduciary claim on the grounds that the claim was
just being used to circumvent time limitations: Williams v Minister,
Aboriginal Land Rights Act 1983 (1999) 25 Fam LR 86. In Paramasivam v
Flynn (1998) 90 FCR 489, the Full Federal Court also refused to recognise a
breach of fiduciary claim. The duty to refrain from inflicting personal injury
was recognised but the court did not see why the duty should be described as
fiduciary. In Cubillo v Commonwealth (2001) 112 FCR 455 at 463–66, the
Full Court again found that the appropriate laws were that of tort and that
there was no room for the superimposition of fiduciary duties on common
law duties simply to improve the nature and extent of the remedies available
to an aggrieved party.
9.75 Much also centres on the way that some of these claims are framed by
judges as involving prescriptive duties. Claims for breach of fiduciary duty
failed in Webber v State of New South Wales [2003] NSWSC 1263, SB v
State of New South Wales [2004] VSC 514, and TB v State of New South
Wales [2009] NSWSC 326, because the judges viewed the claims as alleging
the breach of positive duties rather than the traditional negative ones.
9.76 The reluctance of Australian judges to find a fiduciary duty not to
physically and sexually injure wards is therefore based on two objections:
first, a duty to refrain from physical and sexual abuse is a positive duty and
not fiduciary in nature; and second, such injuries are non-economic and nonrecoverable according to fiduciary doctrine. On examination of the first
objection, even if one accepts the general reduction of fiduciary duties to
proscriptive dimensions (as described by the Supreme Court of Canada in
KLB v British Columbia), it is hard to see how a duty not to physically and
sexually injure a ward could be framed as a positive duty. The earlier
Canadian cases which cast the duty as being to act in the ward’s best
interests approach do offend the rule against positive duties as they are too
prescriptive (and vague). However, if the duty is cast back to the negative
requirements of loyalty and fidelity, why should a duty to refrain from
sexual and physical abuse fall outside the guardian’s proscriptive duties?
9.77 The second objection is clearly stronger. Tort law obviously has a
better capacity to deal with such claims. If people are resorting to fiduciary
claims because the limitation periods for tortious claims are too harsh, the
better response would be a legislative one that recognises the unique
difficulties of claims for child abuse and which remedies the shortcoming of
the current limitation schemes.
9.78 Failing that, the question should be asked as to why fiduciary principles
should not accommodate non-economic loss, particularly in cases where the
tortious remdies are no longer available. Equity has begun to recognise noneconomic losses in cases of confidential information: Giller v Procopets. As
stated above, Joyce has argued that non-economic interests should be
protected by fiduciary duties where a breach has occurred which embodies
forms of exploitation and betrayal.19
9.79 Regardless of these arguments, the current Australian case law suggests
that fiduciary duties will remain unavailable for addressing claims of child
abuse. If we come to accept this point, perhaps it is time to stop saying that
equity is not beyond childbearing. She clearly is barren in this area. Equity
no longer appears to be concerned with not letting a wrong be without a
remedy: see 2.15-2.20.
19
R Joyce, ‘Fiduciary law and non-economic interests’, note 11, above.
FIDUCIARY DUTIES OUTSIDE OF THE PRESUMED RELATIONSHIPS
Commercial relationships
9.80 Outside of the presumed fiduciary relationships, the factual
circumstances of a particular case may give rise to a finding that a fiduciary
relationship exists. A critical area in which this question arises is in the
context of commercial relationships. The major arguments against equitable
intervention in commercial relations are based upon grounds of the certainty
and security of commercial transactions. Thus, in Hospital Products Ltd v
United States Surgical Corporation, at CLR 149; ALR 494, Dawson J said:
To invoke the equitable remedies sought in this case would, in my view, be
to distort the doctrine and weaken the [fiduciary] principle upon which those
remedies are based. It would be to introduce confusion and uncertainty into
the commercial dealings of those who occupy an equal bargaining position in
place of the clear obligations which the law now imposes upon them.
However, despite this oft expressed reluctance on the part of courts to
intrude into commercial matters by the imposition of equitable duties and
obligations, ‘business relationships ... clearly can attract fiduciary
obligations’: News Ltd v Australian Rugby Football League Ltd (1996) 139
ALR 193 at 311.
9.81 The High Court decision in United Dominions Corporation v Brian is a
case in which a fiduciary relationship was found to exist in a commercial
context. The facts concerned a joint venture agreement for the development
of land between United Dominions Corporation (UDC), Security Projects
Ltd (SPL) and Brian Pty Ltd (Brian). The land in question was owned by
SPL. The joint venture was largely financed by funds from UDC secured by
a mortgage signed by SPL. The joint venturers provided the balance of funds
for the development. The development realised a significant profit.
However, UDC retained the profit. No distribution of profit was made to
Brian. UDC’s claim to what would otherwise have been Brian’s share of
profits was based upon a provision in the mortgage to SPL, referred to as the
‘collateralisation clause’, to the effect that the mortgage was security for any
money that had been advanced to SPL. SPL was indebted to UDC in respect
of other projects apart from the joint venture. Brian was never informed of
the existence of the collateralisation clause. Brian claimed that the clause
breached fiduciary obligations owed to it by UDC and SPL.
9.82 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.
9.83 By way of contrast to United Dominions Corp v Brian one can examine
the High Court decision in Hospital Products Ltd v United States Surgical
Corporation. In this case, Blackman negotiated an exclusive distributorship
arrangement for Australia in relation to products manufactured by United
States Surgical Corporation (USSC). Blackman was to use his best efforts to
promote USSC products within Australia. Blackman’s company, Hospital
Products Ltd (HPL), was soon after substituted as the distributor.
Subsequently, HPL, using USSC products as models, began to manufacture
products that were essentially identical to those manufactured by USSC.
HPL then terminated its arrangement with USSC and began to sell its own
products to USSC customers. USSC argued that HPL owed it fiduciary
obligations and that HPL’s conduct amounted to a breach of fiduciary duties
owed to it.
9.84 By a bare majority the High Court held that there was no fiduciary
relationship 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. USSC had rights against HPL for breach of an implied
contractual term that the distributor would use its best efforts to promote
USSC products within Australia. In relation to USSC’s claim based upon
breach of fiduciary obligations, Gibbs CJ, at CLR 734; ALR 436, said:
What is attempted in this case is to visit a fraudulent course of conduct and
a gross breach of contract with equitable sanctions. It is not necessary to do
so in order to vindicate commercial morality, for the ordinary remedies for
damages for fraud and breach of contract were available to USSC.
9.85 It is clear that no express agreement is necessary in a commercial
relationship for a fiduciary duty to arise: United Dominions Corp v Brian. In
cases where fiduciary duties have arisen in such informality, the fiduciary
should be able to withdraw after giving appropriate notice. Notice will bring
the fiduciary duties to an end, but obligations of confidence may continue:
Chirnside v Fay [2007] 1 NZLR 433.
Employee–employer
9.86 Employees may be fiduciaries for their employers, depending on the
level of trust, confidence and vulnerability implicit in the employment
relationship: C & K A Flanagan Sailmakers Pty Ltd v Walker [2002]
NSWSC 1125. In Michael Wilson and Partners Ltd v Nicholls [2009]
NSWSC 1033 at [69], Einstein J said:
i. fiduciary duties arise not as result of the mere fact that there is an
employment relationship, but rather from the fact that within a particular
contractual relationship, there are specific contractual obligations which the
employee has undertaken which have placed him/her in a situation where
equity imposes fiduciary duties in addition to the contractual obligations;
ii. an implied contractual term is not to be equated with a fiduciary
obligation;
iii. the critical feature of fiduciary relationships is that the fiduciary
undertakes or agrees to act for or on behalf of or in the interests of another
person in the exercise of a power or discretion which will affect in a legal
or practical sense the interests of that other person…
iv. it is necessary to consider with precision the precise activity agreed to
be undertaken by a particular employee and to ask if that employee had
agreed to perform that activity solely in the interests of the employer to the
exclusion of his/her own interests.
9.87A fiduciary duty will arise if the relationship requires a standard of
behaviour higher than the contractual standard.20 In Victoria University of
Technology v Wilson [2004] VSC 33, academics working at a university
exploited for themselves an opportunity to develop certain computer
programs in circumstances where they were approached, by a former student
of the university, for help with such a project whilst employed by the
university. The court held that the academics breached fiduciary obligations
owed to the university in that they should not have exploited the opportunity
for themselves as the opportunity was one presented to the university which
the university would have exploited for itself. In contrast, in University of
Western Australia v Gray [2009] FCAFC 116, a university professor, who
had patented treatments for liver tumours in his own name, was not found to
20
Dal Pont & Chalmers, Equity and Trusts in Australia, note 1, p 130.
have breached fiduciary duties to his former university employer. The
professor had not exploited any ‘opportunity’ to the exclusion of his
employer, like the employees in Victoria University of Technology v Wilson.
Nor was there any implied duty to ‘invent’ in the employment contract
which gave property rights to the university over the professor’s inventions.
The duty of the professor was to research and the professor was free to
publish his findings, even though that might destroy patentability. On that
basis it was not a breach of fiduciary duty for the professor to later exploit
the research and take out intellectual property for himself.
Financial adviser–client
9.88 Financial and investment advisers may owe fiduciary duties: Calvo v
Sweeney [2009] NSWSC 719 at [219]; L T King v Besser (2002) 172 FLR
140. The key issue appears to be the nature of the adviser’s undertaking. In
Daly v Sydney Stock Exchange (1986) 160 CLR 371 at 377; 65 ALR 193 at
196, Gibbs CJ stated:
It was right to say that Patrick Partners owed a fiduciary duty to Dr Daly
and acted in breach of that duty. The firm, which held itself out as an
adviser on matters of investment, undertook to advise Dr Daly, and Dr
Daly relied on the advice which the firm gave him. In those circumstances
the firm had a duty to disclose to Dr Daly the information in its possession
which would have revealed that the transaction was likely to be a most
disadvantageous one from his point of view. Normally, the relation
between a stockbroker and his client will be one of a fiduciary nature and
such as to place on the broker an obligation to make to the client a full and
accurate disclosure of the broker’s own interest in the transaction.
Brennan J stated, at CLR 385; ALR 202:
The duty of an investment adviser who is approached by a client for advice
and undertakes to give it, and who proposes to offer the client an
investment in which the adviser has a financial interest, is a heavy one. His
duty is to furnish the client with all the relevant knowledge which the
adviser possesses, concealing nothing that might reasonably be regarded as
relevant to the making of the investment decision including the identity of
the buyer or seller of the investment when that identity is relevant, to give
the best advice which the adviser could give if he did not have but a third
party did have a financial interest in the investment to be offered, to reveal
fully the adviser’s financial interest, and to obtain for the client the best
terms which the client would obtain from a third party if the adviser were
to exercise due diligence on behalf of his client in such a transaction.
9.89 In Aequitas Ltd v AEFC Ltd [2001] NSWSC 14 at [307], Austin J
stated:
The advisory fiduciary relationship may arise whether or not there is an
anterior fiduciary relationship between the parties, such as the relationship
of broker and client. The relationship can arise even where parties are
dealing with one another in a transaction in which the adviser has an
obvious commercial self-interest.
9.90 But the fiduciary duties will not arise purely because there was a
reliance on the skills of the defendant. In Pilmer v Duke Group Ltd (in liq)
(2001) 207 CLR 165; 180 ALR 249, a financial adviser had prepared a
valuation report which was then relied upon by the plaintiff. The plaintiff
invested in a company which the defendant had advised had a reasonable
and fair share price. After investing in the company the share price
dramatically fell. The plaintiff alleged breach of contract, negligence and
breach of fiduciary duty. The High Court found that there was no fiduciary
obligations owed by the defendant. The plaintiff had relied on the defendant
to competently value the shares but the defendant did not guide or influence
the plaintiff into investing.
Banks–customers
9.91 Banks are not ordinarily fiduciaries for their clients and their
relationships are determined by contract and tort law. However, a banker–
client relationship may become fiduciary if the bank takes on a role of
investment adviser, where the customer comes to rely on the impartial
advice of the bank: Commonwealth Bank v Smith (1993) 42 FCR 390 at 391;
Territory Sheet Metal Pty Ltd v Australia and New Zealand Banking Group
Ltd [2009] NTSC 31 at [1434]..21 Conversely, if the bank does not assume
the role of an adviser and no reliance is apparent there will be no fiduciary
duty: Commonwealth Bank v Finding [2001] 1 Qd R 168.
9.92 In the banking environment it is possible to exclude fiduciary duties by
express agreement in a contract. In Australian Securities and Investments
Commission v Citigroup Global Markets Australia Pty Limited (No. 4)
(2007) 160 FCR 35, Citigroup had been contracted to advise Toll Holdings
on a takeover bid for Patrick Corporation, but on the basis that the
relationship would not be fiduciary. Meanwhile, the investment arm of
Citigroup (which was separated from the advising section by a Chinese wall)
had bought a large number of shares in Patrick Corporation. When the
takeover bid was made public, the investment arm dumped the shares. ASIC
A Tuch, ‘Investment Banks as Fiduciaries: Implications for Conflicts of
Interest’ (2005) 29 Melbourne University Law Review 478.
21
argued that this amounted to a conflict of interest. Jacobsen J found that
there was no conflict because the parties had agreed that there would be no
fiduciary duty.
Doctor–patient
9.93 There is Canadian authority which recognises the existence of fiduciary
duties in the doctor–patient relationship: McInerney v MacDonald [1992] 2
SCR 138. In Norberg v Wynrib [1992] 2 SCR 226, the Canadian Supreme
Court found that a doctor breached his fiduciary obligations by pressuring
his drug-addicted patient to provide him with sexual favours in exchange for
drugs.
9.94 The High Court rejected these authorities in Breen v Williams. In this
case, a patient sought the medical records of her treating doctor, which she
believed may have been useful for her claim against a supplier of breast
implants. The doctor agreed to provide the records but on the basis that the
woman grant him an indemnity from any claims being made against him.
The woman refused and argued (amongst other things) that the doctor owed
her a fiduciary duty to provide her with the medical records. The High Court
refused to find that there was a fiduciary duty to provide medical records, as
this would have imposed a positive obligation. The relationship between
doctor and patient was said to be primarily contractual and there was no
express or implied term that the doctor would provide his medical records to
the patient.
9.95 Some have viewed Breen as denying the possibility of fiduciary duties
existing in doctor–patient relationships. However, Dawson, Toohey,
Gaudron and McHugh JJ, in their joint judgments, all saw the possibility of
fiduciary duties arising in some circumstances: CLR 92, 107. Gummow J
was of the belief that the relationship was fidiciary in character, because of
the reliance that patients place in their doctors’ level of skill. His Honour
stated, at CLR 134; ALR 297:
… the relationship between medical practitioner and patient who seeks
skilled and confidential advice and treatment is a fiduciary one. That will
be so regardless of whether it is because the relationship between the
parties is one which gives the medical practitioner a special opportunity to
affect the interests of the patient who is vulnerable to abuse by the
fiduciary of his position, or because the medical practitioner undertakes to
exercise professional skill for the benefit of the patient, and particular
reliance is placed upon the medical practitioner by the patient.
Advice given by the physician to the patient involves specialised
knowledge and matters of skill and judgment, which render the advice
difficult, if not impossible, of objective and unassisted assessment by the
patient. Hence the particular reliance placed upon the physician. In a real
sense, especially if invasive procedures upon the person of the patient are
involved, the patient has delegated control to the person providing health
care. Further, for the patient to obtain the benefit sought from the
relationship the patient often must reveal confidential and intimate
information of a personal nature to the medical practitioner. Finally, the
efforts of the medical practitioner may have a significant impact not merely
on the economic but upon the fundamental personal interests of the patient.
9.96 After Breen it has been said that the impact of fiduciary relationsips on
doctors is of limited possibility.22 The main areas of potential appear to be in
situations where the doctor is making secret profits from the treatment of the
patient, such as being paid for patient recruitment in clinical trials. There are
no Australian cases on this issue. In Bateley v Land [2001] NSWSC 64, an
interlocutory decision concerned with an amendment of a statement of
claim, the plaintiff wished to add a claim that a drug company had breached
a fiduciary duty to inform the plaintiff (who was a participant in the trial)
that another patient had experienced an adverse event from the drug. The
amendment was allowed. In the Californian case of Moore v Regents of the
University of California 793 P 2d 479 (1990), the Supreme Court of
California found a doctor had breached fiduciary duties by using the
patient’s excised tissue to develop an immortal cell line. The cell line was
patented and was being used to manufacture new proteins which had an
enormously profitable potential.
9.97 Another possible ground for breach of fiduciary duty is in the area of
open disclosure of medical error. Faunce and Bolsin have argued that there
is a fiduciary duty on doctors to disclose their medical errors to their
patients.23 There are two main problems with these arguments. First, both
tort and contract law have recognised similar duties, and it may prove
redundant to add fiduciary duties to the mix: Naylor v Preston Area Health
Authority [1987] 2 All ER 353; Wighton v Arnott [2005] NSWSC 637.24
Second, the duty to provide information appears to be a positive
requirement, which would fall foul of the rule requiring fiduciary duties to
be negative. Perhaps a possible way around this second problem is to view
T M Carlin, ‘Doctors as Fiduciaries — Revisiting the Past with an Eye on the
Future’(2001) 9(1) Journal of Law and Medicine 95, p 102.
23
T A Faunce & S N Bolsin, ‘Fiduciary Disclosure of Medical Mistakes: The
Duty to Promptly Notify Patients of Adverse Health Care Events’ (2005) 12
Journal of Law and Medicine 478.
24
B Madden & T Cockburn, ‘Bundaberg and beyond: Duty to disclose adverse
events to patients’ (2007) 14 Journal of Law and Medicine 501.
22
the admission of mistakes as part of the duty of disclosure of a possible
conflict. Again, there are no cases directly on point. In Kite v Malycha
(1998) 71 SASR 321, it was found that there was no fiduciary duty on the
part of the doctor to inform the patient that he had contacted his medical
indemnity provider, after suspecting that he may have been responsible for
worsening the patient’s condition. The judge found that the notification to
the insurer was in the patient’s best interests in any case.
Crown–indigenous peoples
9.98 Governments do not ordinarily owe fiduciary obligations to their
citizens, even when they are overseas and at risk of torture: Habib v
Commonwealth (No 2) (2009) 254 ALR 250. However, courts in a number
of jurisdictions have discussed the existence of fiduciary duties owed by the
Crown to indigenous peoples.25 The existence of such fiduciary duties stems
from the recognition that aboriginal peoples, as the original occupiers of
land, have special rights that are protected by the imposition of fiduciary
duties upon the Crown in the way government power affecting the interests
of aboriginal peoples is exercised. The notion of the Crown’s fiduciary
duties to its aboriginal peoples is most developed in Canada.
9.99 In Canada, aboriginal rights arose from the occupation of lands before
French and British colonisation.26 Following colonisation, special provisions
protecting aboriginal rights were found in various Canadian constitutional
documents starting with the Royal Proclamation of 1763 issued by King
George III and culminating in s 35(1) of the Constitution Act 1982 which
stipulates:
The existing aboriginal and treaty rights of the aboriginal peoples of Canada
are hereby recognized and affirmed.
9.100 In the Canadian Supreme Court decision of Guerin v R (1984) 13
DLR (4th) 321 at 334, Dickson J set out the essence of the Crown’s
fiduciary duties to Canada’s aboriginal peoples as follows:
[T]he nature of Indian title and the framework of the statutory scheme
established for disposing Indian land places upon the Crown an equitable
obligation, enforceable by the courts, to deal with the land for the benefit of
E Fox-Decent, ‘Fashioning Legal Authority from Power: The Crown–Native
Fiduciary Relationship’ (2006) 4 New Zealand Journal of Public International
Law 91.
26
J I Reynolds, A Breach of Duty: Fiduciary Obligations and Aboriginal
Peoples, Purich Publishers, Saskatoon, 2005.
25
the Indians ... [The obligation] is a fiduciary duty ... The fiduciary
relationship between the Crown and the Indians has its roots in the concept of
aboriginal, native or Indian title. The fact that Indian bands have a certain
interest in lands does not, however, in itself give rise to a fiduciary
relationship between the Indians and the Crown. The conclusion that the
Crown is a fiduciary depends upon the further proposition that the Indian
interest in the land is inalienable except upon surrender to the Crown. An
Indian band is prohibited from directly transferring its interest to a third
party. Any sale or lease of land can only be carried out after a surrender has
taken place, with the Crown acting on behalf of the band’s behalf. ... The
surrender requirement, and the responsibility it entails, are the source of a
distinct fiduciary obligation owed by the Crown to the Indians.
His Honour, at 343, further observed that ‘given the unique character of both
the Indians’ interest in land and of their historical relationship with the
Crown’, the Crown’s fiduciary relationship with aboriginal peoples is sui
generis.
9.101 The consequence of constitutionalising indigenous rights in s 35(1) of
the Constitution Act 1982 is that the exercise of government power over
aboriginal rights must be reconciled with the Crown’s fiduciary duties. In R
v Sparrow (1990) 70 DLR (4th) 385 at 409–10, the Supreme Court ruled that
such reconciliation requires the government to justify any regulation that
infringes or affects aboriginal rights, with the Supreme Court being the
ultimate arbiter of whether any such government action is justified. In
Delgamuukw v British Columbia (1997) 153 DLR (4th) 193 at 260–3, Lamer
CJ indicated that in justifying an infringement of aboriginal rights, the
Crown has to establish that the infringement is in furtherance of a legislative
objective that is compelling and substantial. Furthermore, the infringement
has to be assessed as being consistent with the special fiduciary relationship
between the Crown and aboriginal peoples. In this process of assessment the
Crown must take into account the existence and importance of aboriginal
rights.
9.102 In R v Marshall (1999) 177 DLR (4th) 513 Marshall, a Mi’kmaq
Indian was charged with violations of restrictive fishing legislation.
However, the Supreme Court of Canada found that, pursuant to Treaties of
1760–1761, the Mi’kmaq people were entitled to unqualified rights to fish
and trade for sustenance. The court ruled that, in the absence of any
justification of the legislation’s infringement of Marshall’s treaty rights to
fish, he was entitled to acquittals on all charges against him.
9.103 In Australia the development of the notion of the Crown having
fiduciary duties to aboriginal peoples has not attracted judicial support to the
same extent as in Canada. The most prominent judicial support for the
concept is found in the decision of Toohey J in Mabo v Queensland (No 2)
(1992) 175 CLR 1; 107 ALR 1. In that case the Meriam people of the
Murray Islands argued, inter alia, that the Crown owed them a fiduciary duty
to the extent of being required to protect their rights and interests in the
Murray Islands. Although the High Court ruled in favour of the Meriam
people, only Toohey J, at 199–205; ALR 156–61, was prepared to accept
that the Crown stood in a fiduciary relationship with the Meriam people.
However, his Honour observed that the existence of this fiduciary
relationship does not preclude the use of the legislative power of the Crown
to extinguish aboriginal rights, even though any such legislation would
constitute a breach of the Crown’s fiduciary duties.
9.104 Since Toohey J’s judgment in Mabo there has been little consideration
of fiduciary duties owed to aboriginal peoples in Australia. In Wik Peoples v
Queensland (1996) 187 CLR 1; 141 ALR 129, the matter was raised but not
dealt with by any of the majority judges. Brennan CJ, in dissent, found that
the Crown’s power to extinguish native title did not, by itself, give rise to
fiduciary duties. Brennan CJ believed that it was necessary for the exercise
of the Crown’s power to be for the benefit of aboriginal peoples before the
Crown could be found to owe fiduciary duties to them. In Thorpe v
Commonwealth (No 2) (1997) 144 ALR 677, Kirby J stated that the question
of whether the Crown owed fiduciary duties to aboriginal peoples in
Australia remained open. However, in Bodney v Westralia Airports
Corporation Pty Ltd (2000) 180 ALR 91 at 109–16, Lehane J rejected the
view that fiduciary duties were owed to aboriginal peoples. Professor
Bartlett has argued that, with the passage of the Native Title Act 1993 (Cth),
any possible fiduciary duties which may have existed were replaced by the
statutory schemes for surrender and extinguishment.27
9.105 Toohey J’s analysis of the Crown’s fiduciary duties to aboriginal
peoples in Mabo reflects the legal position in Canada before the introduction
of s 35(1) of the Constitution Act 1982. Prior to the introduction of s 35(1),
aboriginal rights in Canada could be extinguished by government legislation
under the doctrine of parliamentary supremacy. It was only with the
constitutional entrenchment of aboriginal rights that the situation changed
with the recognition that the Crown owed fiduciary duties to aboriginal
peoples in the context of legislation that infringed their rights. On the
Canadian experience, constitutional entrenchment of aboriginal rights by
Australia is necessary before these rights can be afforded meaningful legal
recognition and protection. In the meantime, aboriginal rights remain the
objects of political whim and opportunism.
27
R H Bartlett, Native Title in Australia, 2nd ed, LexisNexis Butterworths,
Sydney, 2004, p 598.
DEFENCES
Informed Consent
9.106 As stated above, the duty imposed upon the fiduciary is strict. The
primary 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: New Zealand Netherlands Society ‘Oranje’
Inc v Kuys [1973] 2 NZLR 163 at 166; [1973] 2 All ER 1222 at 1225 per
Lord Wilberforce. The disclosure requirement extends to facts known to the
fiduciary and to those that he or she has deliberately refrained from
acquiring. However, there is no requirement that the fiduciary disclose
things he or she is unaware of but which a prudent person would have
discovered as the result of making inquiries: BLB Corporation of Australia v
Jacobsen (1974) 48 ALJR 372 at 378.
9.107 In each case the issue of whether informed consent has been given is a
question of fact, there being no general formula as to what is required. In
some cases, it may be necessary that the person to whom fiduciary duties are
owed obtain independent skilled advice: Maguire v Makaronis (1997) 188
CLR 449 at 466–7; 144 ALR 729 at 739. It is no defence by a fiduciary to
show that, had there been a disclosure, it would have made no difference as
to how a client would have acted: Commonwealth Bank v Smith (1991) 102
ALR 453 at 479. In Consul Developments Pty Ltd v DPC Estates Pty Ltd
(1975) 132 CLR 373 at 399–400; 5 ALR 231 at 253, Gibbs J noted that the
fiduciary cannot in any way induce the decision to grant such consent. In a
number of areas the question of who has to give consent to an action that
would otherwise amount to a breach of fiduciary duty is the subject of some
controversy.
9.108 In Phipps v Boardman [1967] 2 AC 46; [1966] 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. Lord Hodson, at AC 112; All ER
749, implied the same when he observed that the solicitor in that case was in
a fiduciary position in relation to the trustees and through them in relation to
the beneficiaries. It is, however, suggested that these views are mistaken and
that a solicitor in such a case owes fiduciary duties to the trustees only. The
interests of the beneficiaries are adequately protected by the fiduciary duties
owed to them by the trustees of the trust.
9.109 In the context of the director–company relationship, the House of
Lords in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; [1942] 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. However, in 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. In Whitehouse v
Carlton Hotel Pty Ltd (1987) 162 CLR 285 at 295; 70 ALR 251 at 258, the
High Court stated that it may be that in some cases the directors only can
give the consent. On one level it can be argued that the Queensland Mines v
Hudson approach is correct given that a director usually stands in a fiduciary
relationship with the company and not its shareholders, and thus the consent
of the shareholders is unnecessary. However, the problem with this approach
is illustrated by the facts of Queensland Mines v Hudson itself. In that case,
the director of the company seeking the consent of the company participated
in the decision of the board of directors that granted the consent. Although
the director was only one of a number of directors, it is difficult to see how
the board’s decision can be said to have been in conformity with Gibbs J’s
dictum in Consul Developments v DPC Estates.
Contractual exclusion or variation of fiduciary duties
9.110 Because many of the relationships which contain fiduciary duties are
often sourced in contract, it is possible for contractual terms to impose or
vary fiduciary duties: Hospital Products; MacIntosh v Fortex Group Ltd
[1997] NZLR 711. The nature of the fiduciary duty is determined examining
the contract as a whole in the light of the surrounding circumstances known
to the parties and the purpose and object of the transaction: Pacific Carriers
Limited v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty
Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at [40].
9.111 It may also be possible to contract out of fiduciary duties altogether. In
Australian Securities and Investments Commission v Citigroup Global
Markets Australia Pty Limited (ACN 113 114 832) (No. 4) (2007) 160 FCR
35 at 77, Jacobson J said:
It may well be that a fiduciary cannot exclude liability for fraud or
deliberate dereliction of duty but beyond that there appears to be no
restriction in the law to prevent a fiduciary from contracting out of, or
modifying, his or her fiduciary duties, particularly where no prior fiduciary
relationship existed and the contract defines the rights and duties of the
parties.
Clean hands and illegality
9.112 In Caratinos v Magafas [2008] NSWCA 304, the New South Wales
Court of Appeal found that a clean hands defence could be applied to breach
of fiduciary duty. In the particular case, the defendant partner was accused
of breaching fiduciary duties on property developments but numerous false
statements had been lodged by the plaintiff to taxation authorities in relation
to the developments. The court found that this disentitling conduct should
have been taken into account by the trial judge when fashioning relief, and
that relief should only have been provided where the plaintiff was able to
demonstrate full and frank disclosure of the illegal and fraudulent conduct to
the relevant authorities. Additionally, the plaintiff should have made
arrangements to pay any additional tax and penalties that were owed.
REMEDIES
9.113 Typical remedies granted in cases involving breaches of fiduciary
duties include:
 an account for profits: Warman International Ltd v Dwyer;
 equitable compensation: O’Halloran v R T Thomas & Family Pty
Ltd (1998) 45 NSWLR 262;
 the imposition of a constructive trust: Chan v Zacharia; and
 rescission: Armstrong v Jackson.
9.114 In Pilmer v Duke Group Ltd (in liq) the High Court made it clear that
common law notions of contribution to loss or contributory negligence have
no place in the assessment of compensation for breach of fiduciary duty.28
The Supreme Court of New Zealand has found similarly: Amaltal
Corporation v Maruha Corporation [2007] 3 NZLR 192.
A Lynch, ‘Equitable compensation for breach of fiduciary duty: Causation
and contribution - The High Court dodges a fusion fallacy in Pilmer’ (2001) 21
Australian Bar Review 173.
28