Fiduciary Duty

A fiduciary relationship can be described as one where a person places complete confidence in another in regard to a particular transaction or one’s general affairs or business. The relationship can be one of moral or personal responsibility, due to the superior knowledge and training of the fiduciary as compared to the one whose affairs the fiduciary is handling. Those who occupy fiduciary positions can be distinguished from those who are merely bound by contractual obligations, due to the fact that those in the former category are obliged to act in a completely selfless manner. There are several examples of a fiduciary relationship, some of which will be dealt with in turn.

Doctor/Patient Relationship

A Doctor-Patient relationship is of a fiduciary nature. This comes down to the fact that the doctor is skilled, learned and experienced in matters of which the patient ordinarily knows very little about. Given that such matters are of the most vital importance to the patient, being their health and life, they must be able to place faith and confidence in the physician’s professionalism and capabilities. Physicians are also obliged to refrain from divulging confidential information. This duty is based on accepted codes of professional ethics, which recognize the special nature of physician-patient relationships. Therefore, in this fiduciary relationship, the patient should be confident in the knowledge that sensitive information that they disclose to their physician will not be further disseminated. The physician must always treat the patient’s interests as paramount, even if such are in conflict with their own interests at times.

In support of the relationship of mutual trust and confidence, it follows that a doctor must disclose all material risks associated with every procedure, to ensure that the patient can make an informed decision in relation to their treatment. Failure to do so may result in a breach of both the doctor’s fiduciary duty to their client, and a breach of the standard of care of which they owe their client. Failing to maintain an appropriate standard of care can result in negligence, opening up a physician to possible legal consequences for their actions.

Solicitor/Client Relationship

A solicitor should use skill and care in acting on behalf of his client, owing to the fact that a fiduciary relationship exists between the two parties. The standard of care required is that of a reasonably careful and prudent solicitor, who has the relevant expertise and qualifications. A solicitor should act at all times in the best interest of their client, while observing ethical and moral codes. They also owe their client the duty of keeping them informed of the progress of the matter, and to explain to their client the procedures to be followed and the length of time procedures are likely to take.

A solicitor has a special duty of care in respect of vulnerable clients and those who may lack mental capacity as a result of the fiduciary relationship existing between them.

Accordingly, a solicitor must be aware of any characteristics that make a client more vulnerable, such as youth, old age, lack of business acumen or education, or mental illness. Solicitors owe their client a duty of care to prevent them from being unduly influenced by an outside party to carry out legal transactions that are for the benefit of another.

A solicitor also owes a duty to their client to respect confidentiality and to avoid a conflict of interest between two clients. A conflict of interest may arise where a solicitor, acting with ordinary care, would give different advice to different clients regarding the same matter. This indicates a conflict of interest and accordingly the solicitor would be in breach of his duty by acting for both.

The duty of confidentiality applies to all communications passing between solicitor and client, and any matter relating to a client’s affairs can only be disclosed with the consent of the client or by order of the court.

This duty of confidentiality even stretches as far as overriding a solicitor’s inclination as a dutiful citizen to report any matters to An Garda Siochána against the best interest of the client. There are a few exceptions to the duty of confidentiality, mainly being such that are in the best interests of the client, such as risks of abuse, neglect or ill treatment of the client, risk of abuse to a third party, or cases involving abuse or neglect of children or the elderly.

Finally, similar to the position of trustee and beneficiary, a solicitor must not profit from any transaction carried out by their client, unless they have advised their client to consult another firm in the transaction. This often arises in instances where a client wishes to confer a bequest under their will to their solicitor, who is drafting the will or deed. In such cases, the solicitor is obliged to suggest independent legal advice before accepting the bequest. Similarly, a solicitor is not permitted to borrow money from a client unless the client is represented by another firm in the transaction. They are also prevented from mixing their client’s money with their own or mixing their client’s money with anyone else’s. The equitable remedy of “Tracing” is a process that is invoked by a person who has lost money as a result of a breach of fiduciary duty. The effect of this doctrine is to give the client a proprietary remedy and thus gives the client priority as against other potential claims to the money or asset in question. Solicitors who mix or borrow their client’s money without permission are subject to serious penalties under Law Society Regulations and it is considered an absolute breach of their fiduciary duty.

Trustee/ Beneficiary

A trust is an equitable obligation, binding a person (the trustee) to deal with property over which he has control (trust property) either for the benefit of persons (beneficiaries) or a for a charitable purpose.

A trustee is usually appointed pursuant to the exercise of a power of appointment in the trust instrument. Once appointed, a trustee has a number of duties and obligations towards the beneficiaries of the trust. This is due to the fiduciary position that they hold.

Duty to Properly exercise Discretion

The rule in Hastings Bass holds that where a trustee enjoys discretion in the performance of a duty of exercise of a power, he is duty-bound to exercise such discretion properly. In exercising discretion, the trustee must take all relevant considerations into account, and ignore all irrelevant considerations.

Duty not to make an Unauthorized Profit from the Trustee’s Fiduciary Position

A trustee may not make an unauthorized profit from his fiduciary position. If he does, he holds the profit on constructive trust for the beneficiary.

A trustee, therefore, may not purchase trust property. This is known as the “self-dealing rule”. If a trustee does purchase trust property, the transaction will be voidable at the instance of the beneficiary, as was established in the case of Kane v Radley-Kane [1999] where it was held that the appropriation of shares breached the self-dealing rule and that such shares ought to be held on constructive trust for the estate.

However, a less strict approach has been adopted to the purchase by a trustee of a beneficial interest in trust property. This can be illustrated by the case of Tito v Wadell, where it was held that if a trustee purchases the beneficial interest of any of his beneficiaries, the transaction will not be voidable if the trustee can show that he has taken no advantage of his position and has made full disclosure to the beneficiary. He must also show that the transaction was fair and honest.

A trustee also has a duty not to be in competition with the trust. One of the most common ways a trustee breaches this duty is by setting up a business that is in competition with the trust business. However, the case of Moore v McGlynn illustrates that a trustee shall not be guilty of a breach of trust in setting themselves up in a similar line of business, “provided that he does not resort to deception, or solicitation of custom from the person dealing in the old shop”.

Duty to Safeguard Assets of the Trust

A trustee has the obligation to ensure that the assets of the trust are maintained. In the case of Re Brogden it was held that failing to institute proceedings to recover a debt owed to the trust may constitute a breach of this duty. However, in Re Beddoe it was held that a trustee is not personally liable for a mere error of judgment, provided he had reasonable belief that litigation was necessary or unnecessary, it is advisable that trustees finding themselves in a position to make these decisions seek sanction from the court prior to initiating any proceedings on behalf of the trust.

Finally, trustees have a duty to invest and such is an example of the duty to safeguard the assets of the trust. In carrying out this duty, the trustee must invest with a view of both providing income for beneficiaries with a life interest in the trust, while ensuring capital appreciation for those who hold a remainder interest in the trust. The trustee must act impartially and for the benefit of all beneficiaries, however he is not obliged to consult with any beneficiary in the exercise of this power.

In carrying out the duty to invest, the trustee must exercise the care that an ordinary prudent man of business would exercise in making investments, not only on his own behalf, but also on behalf of those for whom he meant morally bound to provide. This test was established in the case of Leoroyd v Whiteley, and it supports the notion that the degree of care a trustee might exercise in relation to his own money may be insufficient; a greater standard of care is required.

However, as was established in Bartlett v Barclays Bank Trust, the trustee is not bound to avoid all risk, and the court will not fix liability upon a trustee who has committed no more than an error of judgment, from which no business man, however prudent, would be immune. Professional trustees however, being those with professional qualifications, may be held to a higher standard.

Director/ Company

The director of a company owes a fiduciary duty to the company owing to fact that they are agents of the company, and the relationship between principal and agent will always give rise to fiduciary duties.

s. 228 of the Companies Act 2014 details the principal fiduciary duties of directors. These are as follows;

• Duty to exercise due skill, care and diligence
• Duty to exercise their powers for the benefit of the company
• Duty not to benefit from their position, without disclosure of this fact to the company
• Duty to avoid conflicts between the interests of the company, and their own personal or business interests.

The principle of “separate legal identity” provides that directors owe their duties to the company itself, and not to the shareholders, creditors, or employees. However, a fiduciary duty to the shareholders of a company may arise in smaller companies, where shareholders are dependent upon information and advice, and where there exists a relationship of mutual trust and confidence between shareholder and director. Members of smaller companies are assumed to have a much closer relationship with that company and its directors, as opposed to shareholders of a large plc which may have thousands of members. It is in these smaller companies that directors may be assumed to owe a fiduciary duty to the company’s shareholders.

When a company becomes insolvent, the directors owe a fiduciary duty to the company creditors, as was held in the case of Jones v Gunn. Once a company has to be wound up, and its assets applied pro tanto in discharge of its liabilities, the directors of a company must preserve the assets of the company to enable this to be done, or at least to prevent same from being dissipated. In the case of Re Frederick’s Inns it was noted that where a director acts in breach of their duties to creditors of an insolvent company, their actions will be unlawful.

– Johanna Ryan, 2015