Fiduciary Relationships
Associate Professor Cameron
Stewart
Fiduciary?
The word ‘fiduciary’ has its roots in the Latin
word fiducia, which means confidence. A
fiduciary relationship is thus a relationship of
confidence. The person in whom confidence is
reposed within that relationship is referred to as
the fiduciary. If a fiduciary abuses his or her
position to obtain an advantage or benefit at the
expense of the confiding party, the latter will be
able to seek relief from a court of equity to
prevent such advantage accruing to the
fiduciary.
Equity and fiduciaries
Equity intervenes ... not so much to recoup a
loss suffered by the plaintiff as to hold the
fiduciary to, and vindicate, the high duty owed to
the plaintiff ... [T]hose in a fiduciary position who
enter into transactions with those to whom they
owe fiduciary duties labour under a heavy duty
to show the righteousness of the transactions.
Maguire v Makaronis (1997) 188 CLR 449 at 465
Undivided Loyalty
The essence of fiduciary obligations is that
the fiduciary is precluded from acting in
any other way than in the interests of the
person to whom the duty to so act is owed.
In short, the fiduciary obligation is one of
‘undivided loyalty’: Beach Petroleum NL v
Kennedy (1999) 48 NSWLR 46–7.
The existence of a fiduciary
relationship
Breen v Williams at CLR 92; ALR 273,
Dawson and Toohey JJ observed that the
law has not formulated ‘any precise or
comprehensive definition of the
circumstances in which a person is
constituted a fiduciary in his or her
relations with another’
Presumed fiduciary relationships
A number of commercial and professional
relationships:
Trustee and beneficiary
director–company
legal practitioner–client
agent–principal
partner–partner
Fiduciary Relationships outside
of the presumed categories
Economic power/free hand of market
Equity’s intervention distorts economic
activity?
Should equity be reluctant to intervene?
United Dominions Corporation
Ltd v Brian Pty Ltd
Joint venture agreement for the development of
land between United Dominions Corporation
(UDC), Security Projects Ltd (SPL) and Brian
Pty Ltd (Brian).
Land owned by SPL
Financed by UDC on security raised from SPL
Profits made but UDC kept more than its share
by using a clause in the mortgage to SPL
Brian didn’t know about the clause and received
no profit
Did UDC owe Brian a fiduciary duty?
United Dominions Corporation
Ltd v Brian Pty Ltd
The High Court found in Brian’s favour. It held that SPL
and UDC owed fiduciary duties to Brian and that the
collateralisation clause in the mortgage was obtained in
breach of such duties. Dawson J at CLR 16; ALR 750–1
said:
[I]t is quite clear that a fiduciary relationship may arise
during negotiations for a partnership or, for that matter, a
joint venture, before any partnership or joint venture
agreement has been finally concluded if the parties have
acted upon the proposed agreement as they had in this
case. Whilst a concluded agreement may establish a
relationship of confidence, it is nevertheless the
relationship itself which gives rise to fiduciary obligations.
That relationship may arise from the circumstances
leading to the final agreement as much as from the fact
of the final agreement itself.
Hospital Products Ltd v United
States Surgical Corporation
Blackman had an exclusive distributorship
arrangement for products manufactured by
United States Surgical Corporation (USSC)
Blackman’s company, Hospital Products Ltd
(HPL), was soon after substituted as the
distributor.
HPL, using USSC products as models, began to
manufacture products that were essentially
identical to those manufactured by USSC > HPL
went into competition with USSC
Was HPL a fiduciary?
Hospital Products Ltd v United
States Surgical Corporation
By a bare majority the High Court held that there
was no fiduciary relation ship between the
parties and that USSC’s right to relief rested in a
claim for damages for breach of contract. The
majority considered that because the
relationship between the parties was a
commercial one entered into by equal parties at
arm’s length with the intention that both parties
would gain a profit, it was inappropriate to find a
fiduciary relationship between the parties
A vexed question….
Why was there a fiduciary relationship in
one and not the other?
Does Equity have any role in commercial
bargaining?
Are the economic costs of imposing
fiduciary relationships outweighed by
advantages?
Length of the Chancellor’s Foot?
The fiduciary obligation
Aberdeen Railway Co v Blaikie Brothers
[1854] 1 Macq 461 at 471
[A fiduciary will not be permitted] to enter
into engagements in which he has, or can
have, a personal interest conflicting, or
which possibly may conflict, with the
interests of those whom he is bound to
protect
The fiduciary obligation
The duty imposed upon a fiduciary
operates in circumstances where there is
a conflict between the fiduciary’s ‘duty’ and
his or her ‘interest’.
Duty
The word ‘duty’ in this context does not
have a technical meaning. It does not refer
to legally imposed obligations. Rather, it
refers to the actions undertaken by a
fiduciary on behalf of another person.
These actions are not confined to those
undertaken in the performance of a
fiduciary’s mandatory or discretionary
functions. These actions also include
voluntary acts.
Interest
The word ‘interest’, in this context, signifies the
presence of some personal concern on the part
of a fiduciary or of possible significant pecuniary
value in a decision to be taken by the fiduciary.
Finn (1977) at 204 notes:
The pecuniary dimension of the fiduciary’s concern
may take the form of an actual, prospective, or
possible profit to be made in, or as a result of, the
decision he takes or the transaction he effects. Or it
may take the form of an actual, prospective, or
possible saving, or a diminution of a personal liability
Informed consent
The duty imposed upon the fiduciary is
strict. The only way a fiduciary is able to
escape liability for conduct that amounts to
a breach of fiduciary duty is if the conduct
was undertaken with the fully informed
consent of the person to whom the
fiduciary obligations are owed. The
disclosure must be of all material facts and
information that could affect the decision
to give the consent
Examples of informed consent
In Phipps v Boardman [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
Examples of informed consent
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
Queensland Mines Ltd v Hudson (1978) 18 ALR
1, the Privy Council upheld the validity of the
consent of a company given by its board of
directors
Unauthorised remuneration
Reading v R [1951] AC 507
Reading was a sergeant in the English army
stationed in Egypt. He accompanied civilian
trucks through security checkpoints in order to
assist them in transporting contraband goods. In
return he was paid for his assistance. The court
ruled that Reading owed fiduciary duties to the
Crown and the amount recoverable by the
Crown was the full amount that Reading had
received for his services.
Assuming a double character
In Armstrong v Jackson [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
A broker who is employed to buy shares cannot sell
his own shares unless he makes a full disclosure of
the fact to his principal, and the principal, with a full
knowledge, gives his assent to the changed position
of the broker ... [A] broker who secretly sells his own
shares is in a wholly false position
Benefits derived by fiduciary to
the exclusion of another
Cases in this category involve a fiduciary,
acting within the scope of his or her
undertaking, deriving a profit or benefit
that should have gone to the person to
whom the fiduciary duties were owed
Benefits derived by fiduciary to
the exclusion of another
Chan v Zacharia (1984) 154 CLR 178 at 199; Deane J
said:
Stated comprehensively in terms of the liability to
account, the principle of equity is that a person who is
under a fiduciary obligation must account to the person
to whom the obligation is owed for any benefit or gain (i)
which has been obtained or received in circumstances
where a conflict or significant possibility of conflict
existed between his fiduciary duty and his personal
interest in the pursuit or possible receipt of such a
benefit or gain or (ii) which was obtained or received by
use or by reason of his fiduciary position or of
opportunity or knowledge resulting from it.
Benefits derived by fiduciary to
the exclusion of another
Two sub-rules, namely:
1. cases in which a fiduciary is not to derive a
profit or benefit that should have gone to the
person to whom fiduciary duties are owed (the
breach of undertaking sub-rule); and
2. cases in which a fiduciary is not to gain a
profit or benefit through the misuse of his or her
position as a fiduciary (the misuse of position
sub-rule).
The breach of undertaking subrule
When do the duties end?
Generally they will cease when the
relationship has been terminated.
However, in certain situations fiduciary
obligations are owed after the relationship
has ended. Thus, in Chan v Zacharia
(1984) 154 CLR 178; 53 ALR 417,
although a partnership had been
dissolved, the partners still owed fiduciary
obligations to each other until the
partnership had been formally wound up.
Doctors and patients
Breen v Williams (1996) 186 CLR 71 at
108; 138 ALR 259 at 285. In that case the
High Court held that it was impossible to
establish any conflict of interest and duty,
unauthorised profit or loss in relation to a
doctor denying a patient access to the
doctor’s medical records. Accordingly, the
court held the doctor’s refusal to give such
access did not amount to breach of any
fiduciary obligation.
Crown and Indigenous Peoples
Parents/Guardians and Children in
situations of abuse?