Definition of a “Fiduciary”

The term “fiduciary” is not used in regular conversation, however the term has an important legal meaning.

A Trustee is the archetype “fiduciary“.

Lord Justice Millett provided the following definition of a “fiduciary” in Bristol & West Building Society v Motthew [1998] Ch 1 at 18:

“A Fiduciary (Trustee) is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The Principal (ie beneficiary) is entitled to the single-minded loyalty of his fiduciary. The core liability has several facets. A fiduciary must act in good faith; he most not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of the principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.

Mason J in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 stated at [68]:

“The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v. Boardman [1966] UKHL 2; (1967) 2 AC 46, at p 127), viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these 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 the interests of that other person in a legal or practical sense. 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.”

Broadly then, a fiduciary is one who owes legal duties of loyalty and utmost good faith in relation to another person.

Jacob’s Law of Trusts in Australia (Sixth Edition)) R.P Meagher, WMC Gummow (Butterworths 1997) at [1608] has this to say:

“It follows from what has been said, and from the very fact that trustees are fiduciaries, that all the powers of a trustee are fiduciary”.

In the case of a superannuation trust, the natural person Trustees or corporate Trustee owes legal duties of loyalty and utmost good faith in relation the members and beneficiaries of the fund.

A fiduciary duty is a legal obligation of one party to act in the best interest of another.

Lord Justice Millett also made an important ruling in that there is an “irreducible core of obligations” owed by by an express trustee to a beneficiary, one of which is to act honestly and in good faith {Armitage v Nurse [1998] Ch 241, 53-4}.

Corporate Trustees

Directors of companies owe fiduciary duties to the separate legal person – the company”.

A company has a distinct legal personality whereas a trust does not.

Directors of a corporate Trustee do not owe fiduciary duties directly to the beneficiaries; they owe duties to the company as such, and not to the company as trustee; and a corporate trustee’s claims against its Directors are held on the trusts it administers (or if it is in liquidation, by the liquidator on behalf of the creditors in the first instance.

“Dog Leg” Claims

The general ability of beneficiaries to make a claim against the Directors of a corporate Trustee for breach of fiduciary duty has been rejected by the courts1.

However Directors may be directly liable to the beneficiaries in special circumstances, of course. For example where they have ‘intermeddled’ within the scope of Barnes v Addy2 {Ref: Thomas on Powers (2nd Ed.) at 10.176}.

Directors of corporate Trustees of regulated superannuation funds are also subject to the provisions of the Superannuation Industry (Supervision) Act 1993 which allows a person who suffers a loss to seek recovery from both the corporate Trustee and its Directors3.

Directors of corporate Trustees must acquaint themselves with the terms of the trust and seek judicial advice, if necessary, if they are unsure as to how to interpret the terms of the trust4.

Notes

(1) Gregson v HAE Trustees Ltd [2008] EWHC 1006 (Ch); Bath v Standard Land Co Ltd [1911] 1 Ch 618, 625-26,627, 642; Young v Murphy [1996] VR 279; HR v JAPT [1997] OPLR 123

(2) Barnes v Addy (1874) 9 Ch Ap 244)

(3) ASIC v QLS Superannuation Pty Ltd [2003] FCA 262

(4) Arakella Pty Ltd v Paton (No.2) (2004) 49 ACSR 706; [2004] NSWSC 605.

 

Drummond J stated in ASIC v QLS Superannuation Pty Ltd [2003] FCA 262

at [6]:

“Pursuant to s 52(8) of that Act, each of the statutory covenants binding QLSS as trustee also operates as a covenant by each of the four defendants, as its directors, “to exercise a reasonable degree of care and diligence for the purpose of ensuring that the trustee carries out” those covenants. Contravention of such a covenant by the trustee and by a director entitles a person who suffers loss or damage resulting therefrom to recover the amount of that loss or damage by action against the trustee and the director involved in the contravention: see s 55(3).”

A transcript of this case can be found here.

Section 55(3) of the Superannuation Industry (Supervision) Act 1993 provides:

“Subject to subsection (4A), a person who suffers loss or damage as a result of conduct of another person that was engaged in in contravention of subsection (1) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.”

 
facebooktwittergoogle_plusredditpinterestlinkedinmailby feather

This tab updated on 2 June 2015