Fiduciary Obligations

Fiduciary Obligations

1. Like a tort: Does not depend on the contract.

   • Equity: Concerned with what is fair and just

2. Main Obligations :1. Ensure fiduciary not abuse position for personal gain 2. Must serve the interest (act in other's interest before own) of others first. 3. Notion of self-denial- put aside personal interest E.g lawyer entitled to fee but cant enact w self interest, must act for person.

   • Obligation:Fiduciary acting with 1) loyalty:to the who thy own fiduciary duties to act for them, put aside personal. 2)Good faith: being fair and honest and open.
     • Note: Distinction b/w tort and fiduciary obligation. Careless financial advisor: negligence- standard of care, what reasonable advisor would do . Disloyal financial advisor= breach of fiduciary obligation
     • Loyalty: Cannot use position for private advantage. -Cannot enter into engagements: personal interest conflict with duty to the other person. May possible conflict w the duty to the other person. - Obligation will be tailored by circumstances of the specific relationship
       • Identifying fiduciary relationships: 1. One party is in a position of trust and confidence.2. One party has influence over someone in a vulnerable position. Acts in interst of another. INvolve loyalty and good faith.
         • Relationship Type: Status based (traditional). a. Trustee/beneficiary. b.Equity designated as being fiducary. (Partners/fellow partners, agents/principlas, Directors,promoters and liquidators/ company itself not shareholders. (Traditional)
           • Example of a: Keech v Sanford
           • Note: Other obligations can also exist: e.g contract, statutory, negligence
             • Example: lawyer owe contractual duties in torts - proper standard of care and owe fiduciary- loyalty
             • Example: bargaining power, little fiduciary duties bcos taken time to draft contract, law won't interfere.
           • Diretors to Shareholders:
         • Relationship Type:Fact based (outside traditional categories). There is a special relationship of condidence and trust, under taking to act in someone else's best interest and reliance on that. (Untraditional)
           • Akin of trust (obliged to act in another's interest and entrust w power to affect interests
           • Special opputinties of abuse of position exist
           • Example: Joint venture.
             • Case: Chirnside v Fay: relationship of mutual trust and confidence, obligation of good faith and loyalty. Mr Chrinside excluded Mr Fay. Breach of fiduciary duty.
           • Example: Directors to shareholders:
             • Exception: Colemen v Myers: Family BUS. Myers took shares of other fam members majority shareholders. Massively undervalue paid for shares. Told wen buying shares doing it for the interest of family, rlly not. Reasonable interest he would look after tthem, trust he paid fair price. There was trust, confidence and vulnerability.
           • Example: Mechanic owe fiduciary duties bcos. u dont knw abt cars (vulnerable), trust thy will fix cars and confidence will fix cars.
     • Only need to prove relationship fiduciary follows

3. Remedies: More powerful than common law: Unlike a contract, I do not have had to have suffered a loss. Strip fiduciary of wrongful profits (account for profits. Does not need to show fraud or dishonesty, or bad faith. E.g Keech vs Sanford

4. Arms Length: 2 commercial parties acting ni own interest, not rlly there to help each other, at a distance, most transactions are not fiduciary obligations. e.g Buy T.V no fiduciary obligation by owner.

5. Complying w fiduciary duties:

   • No Conflict: Avoid conflict of interest b/w own and fiduciary interests
     • Case: Aberdeen Railway Ltd v Blakie Brothers:B was a director of railway company and partner of the firmtht sold chairs to railway company. Thus B conflicting interest. B's duty to the comp: obligation to get cheap chairs. And personal interest to sell chairs
     • When can conflict arise (types of conflict):1. former clients: was adviser of A and now asked to be adviser for B who is competitor of A. 2. Seperate matter conflicts: firm dealing w comp A obtains info from b4 in which can help client B. 3. Same matter conflicts. 4. Fair dealing conflicts
       • 3.Same matter conflict: same person or people of firm act for both parties e.g law firm acts for venders and purchasers of BUS
         • Case: Clark Boyce v Mouat: Sloicter acts for elderly widow & son for mortgage over widow's home to secure loan for son. Solicitor advised widow to get independent legal advice. Solicitor disclosed conflict of interest and need for Independent advice. Ok bcos disposed conflict of interest but must treat parties separately
       • 4. Fair dealings conflict: Fiduciary has personal interest in the outcome of transaction involved in. (have to prove conflict of interest and fiduciary duties)
         • Case: Witten-Hannah v DavisLawyer in relationship w davis, had children, when born, not relationship, davis no place to live, moratge payments. Hannah was acting as solicitor and bus partener. Davis hired hitman to kill Hannah, Sold house at loss. Personal interest, need to informed client. Hannah should have disclosed, and told get third party. Remedies: loss on normal tort measure. Davis had interest in transaction, need to advise davis. Remedy not need to be accounting profit.
         • Case: Day v Mead: M acting for D and had BUS w them. Had to advise independent advise and say financial position. Make full disclosure and independent advise and to take part in disclosure.
     • How to avoid conflict: 1. Disclosure, 2. consent, 3. fair price.
       • 1. Disclosure: Must be sufficient:explain complex documents. and Must be timely: beneficary must have time to consider situation.
       • 2. Consent:Obtain full disclosure and consent to act. Fiduciary must ensure: principle aware of fiduciary interest in property and principal consented to it.
       • 3. Fair Price: price paid to principal is fair. Fiduciary should suggest to principal to obtain independent legal advice
         • Case Example: Solicitor must keep client fully informed act facts and implications for client. Sometimes independent advice essential
   • No profits: avoid making secret profit from position.
     • Case: Bentley v Craven: C by=uys sugar and sells to partnership at profit. Does not declare interest, account for profits ordered. Doesn't matter the partnership no longer paid for partnership.
     • Case: Accounting for secret profits: Reading v Attorney General: Soldier used army property to make profit. Profit went to army even though army could not have made profit.
   • No Competition: avoid competition w his/her principal.
     • To compete must be same line of BUS.
   • No Misuse of principals's property: making profits by principal's property

6. Confidentiality: another obligation

   • Example: former client, or seperate matter conflict or advisor acts for client A and later asked to act for client B over matter the involves A
   • 1. Minimise risk: Chinese wall:
     • Case: Russel McVeagh Mckenzie Bartleet & Co v Tower Corp: P1 of firm: taxation advice to tower. P2 of firm: asked by Guiness Peat Group to advise on takeover of tower. P1 no longer acting for tower. Tower sought injunction.
   • 2. Effectiveness of walls: Chinese walls attempt to prevent confidential information flowing from one part of the org to another (internal control measure). Client's interests protected. Fiduciary liable if Independent advice against transaction
     • Case: Russel McVeagh: Info on seperate servers under secure instructions + confidentiality undertaking. thus court of appeal: no injunction
   • Chinese walls:does firm have confidential information? From objective point of view, is there real risk of disclosing confidential information? If yes both court has discretion to prevent firm from acting.