Fiduciary Duties | EssayIvy.com

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Fiduciary Duties

The legal responsibility for ultimate faithfulness and loyalty amongst people or towards

one another is termed as fiduciary. It relates to the principle stating that fidelity and good faith are

the main duties every master deserves from their agents and servants. One owing to the duties

come out of a court of equity imposing obligations of fidelity and good faith as matters of

conscience, or from contractual laws

. Basically, the term fiduciary goes hand in hand with the

term trustee as one form of fiduciary relationship.

Powers belonging to a fiduciary also belong to another person. In order to profit from the

benefits of the beneficiary, the fiduciary has to exercise certain rights to the latter. He or she must

never let any personal conflict of interest to determine their decision making, relationships and

responsibilities to the beneficiaries and instead should practice high levels of goodwill and care in

promoting or protecting the interests of the other

. It is forbidden to practice many forms of

Westpac Banking Corporation v The Bell Group (In Liq) [No 3] [2012] WASCA 157 at [897]-[902], (WA, Australia)

[897]-[902], (WA, Australia).

Mein Salmon (1928) 164 NE 545 at 546.

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permissible behaviors when it comes to observing the ties pertaining to fiduciary. The fiduciary

duties are effective not to trustees for clients, and solicitor or agent and principal. In the past years,

the bone of contention to whether a specific relationship is subjected to fiduciary duties and

commitments can be handled by looking into the forms of relationships that had similar

scenarios

.The beneficiary might highly or uniquely be vulnerable or rather at the mercy of the

fiduciary having the control of the power and discretion, he can have the scope to excursing power

and the fiduciary can unilaterally use the discretion bestowed upon them to interfere with the

beneficiary’s practical or legal interests as evident in the fiduciary obligation

Fiduciary duties bestow the most responsibility to the parties that hold the duties. It also

acts altruistically in that, the main gain the beneficiary to the detriment of the fiduciary. Despite

the faults, the fiduciary obligations must always give some outcome to the vulnerable parties.

Guarantors are not fiduciaries because they never breach their duties by not obtaining the desired

outcomes for the beneficiary. Schism has been observed between Canada and Australia following

the fiduciary obligation that the both got divergent option or view on the matter. The courts in

Canada widely use the principle in allocating the liabilities in the parts that are traditionally deemed

as contract law and also the province of tort

. On the other hand, Australia handles less fiduciary

cases as the courts have been utilizing the doctrine of unconscionability and turning the provisions

of the Trade Practice Act. The doctrine of unconscionability and fiduciary principle gives

diverging sets of standards of protective liability

McInerney v MacDona, [1992] 2 SCR 138 supreme court Canada).

Ibid.

Fiduciary Duties of Investment Intermediaries Law Commission. Archived from the original on 2014-09-24.

Ibid.

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Union officials, physicians, psychiatrists and the majority of minority shareholders are the

additional fiduciary class of people in the United States. The same fiduciary principle is considered

proscriptive in Australia. Meaning that connotation of positive duties on the part of the beneficiary

and the fiduciary is not incorporated in the fiduciary principle

. The main concern is the

maintaining of loyalty which comes to play when fiduciaries sought after personals gains by

improperly taking advantage of the relationship. Loyalty and fiduciary have some close

relationships as identified by many commentators

. The concepts of unequal bargaining and undue

influence can be linked to the fiduciary principle because they are designed to protect vulnerable

parties while transacting with others who might take advantage of the relationship. On the other

hand, undue influence shades more light on unconscionability appearances and sufficiency of

consent. Basically, the fiduciary obligation helps in monitoring the wrong use of loyalty.

Equity subjects are centered on fiduciary principles because of the loyalty involved.

Fiduciary fights against improper gain and conflict of interest. When situations causing conflicts

between improper gain and that of personal interest are to be avoided, a duty is imposed on

fiduciaries thus reflecting the strictness of the rule in both cases as well as showing a possibility

of conflict that must be shunned. In spite of the indications that courts put to make these laws

flexible, the results of obtaining still give the notion that the transparency of the fiduciary is still

an incomplete defense. Where conflicts of personal interest exist, or there is a possibility of a

significant conflict with duty or loyalty that one has partaken, the fiduciary will be deemed liable

to account for the principal of gains or any benefits received or obtained. The jurisdictions by

which these rules are found and Lord Herschell states that it is very inflexible of Courts of Equity

Ibid.

Westpac Banking Corporation v The Bell Group (In Liq) [No 3] [2012] WASCA 157 at [897]-[902], (WA,

Australia) [897]-[902], (WA, Australia).

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when one in a fiduciary relationship takes advantage of a situation by positioning their interests

first and making profits for themselves

. The rule never appears to him to be founded upon the

societal principle of morality and therefore regards the rules to be suited for the human nature that

can change from time to time. It is dangerous when a person in a fiduciary position gets moves to

satisfy their own interest thus ending up prejudicing the persons that they ought to be protecting

The fiduciary duty is binding on actions done in the interest of the beneficiaries and that

explains the main juxtaposing characteristics of the fiduciary relationship, that is, complete loyalty

to securing the beneficiaries’ interest other than that of the fiduciary; thus when a conflict of

interest comes up, it is an ultimate breach of fiduciary duties

. The purpose of a fiduciary in a

relationship is securing only the interests of the beneficiary but not their own. The fiduciary

principle when used or demonstrated to maintain the integrity, utility, and credibility of the persons

in the relationship hence protecting the interest of the society

. The valuable societal personal and

economic interests are protected by this law. In order to maintain utility and integrity of the

relationships which the roles of a patty is somehow perceived to be I the service of the other then

we have to insist upon a fine loyalty in that particular service

The distinguishing factor of loyalty can be discerned in the case where a relationship is

considered to be fiduciary in nature and the placing interests of the loyalty of the fiduciary can be

ensured. There is no doubt that in Australian as well as Canada, loyalty and its associated notions

BLB Corp of Australia Establishment v Jacobsen (1974) 4 AJBT 372 High Court (Australia). LawCite Records.

Ibid.

Rojas, Claudio R. (2014). "An Indeterminate Theory of Canadian Corporate Law”. University of British Columbia

Law Review. 47 (1): 59–128. SSRN 2391775

above note.

Ibid.

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of confidence and trust are the foundations of fiduciary principle. Another foundation that informs

the principle currently appears to mark differently in each of the jurisdictions

. We are left

wondering where, how and why the Courts in each jurisdiction became divergent.

Unlike in the United States and Canada, in the recent years, Australia has encountered

burgeoning of fiduciary cases. The courts, in general, have shown no obvious inclination to

broaden the fiduciary principle and obligation. It has appeared to notable decrease in the number

of cases whereby a breach of fiduciary obligation has been handled outside the stipulated

categories

. To be specific, since 1990 there has been no successful cases of fiduciary duty breach.

And the cases in which fiduciary principle relies on the Australian courts always indicated a

reluctance to widen the traditional stipulated fiduciary obligations

. Moreover, any reliance on

vulnerability as a key indication if fiduciaries are lacking in Australian case law. The imposition

of a duty of ultimate good faith has been by the Court as clearly inappropriate in light with the

earlier cases that a doctor is in a duty of care of treating his or her patients with reasonable integrity

and skills. The Court denies that the fiduciary obligation should be applied in an expensive way

so that it can act as a supplement tort law and aid in providing a basis for creating the new forms

of civil wrongs. In accord, all the members of the Courts reiterated that fiduciary principle in

Australia is only but deemed proscriptive. The High Court seemed so determined in maintaining a

sharp distinction between fiduciary law and tort law whereby an abuse of loyalty is not as an issue

Official Website of the State of Delaware. Retrieved August 28, 2015.

Above note.

Fiduciary Duties of Investment intermediaries Law commission. Archived from the original on 2014-09-24.

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and no conflict has occurred, in any action that must be necessary founded in breach of contract or

in negligence.

The Courts in analyzing the doctrine of Unconscionability have increasingly been in

reliance in the last decades rather than increasing in the actions based on breach of fiduciary duty.

As Mason CJ recently noted, the imposition of remedial constructive trust is available for actions

for both breach of unconscionable conduct and breach of confidence taking pressure off the

fiduciary relationship as the [passport to the propriety relief and therefore having a focused

attention on other equitable doctrines. Also, the enacted Trade Practices Act got amended by

inserting the IVA, entitled with the Unconscionable Conduct Section 51A which essentials codifies

the common law while in the other hand Section 51AB extends the common law notion of

unconscionability though it is limited in context to the supply of good and services. Of most

importance is the effect of Section 52 of the Trade Practices Act and arguably it becoming the

most rapidly persuasive law in Australia

. The core center of attraction of using g the Trade

Practices Act, rather than equitable actions or common law, for instance, that of breach of the law

of fiduciary duty that lies in the wide array of available remedies. The Trade act is used mostly in

circumstances that are in the misinterpretation thereby providing a concise route to finding

liabilities than arguing that the bank is standing as fiduciary to the customers. Additionally, in

Australia, the actions based on negligence of misstatements can be available.

In Section 9 of the Corporations Act, 2001 means a person's validly appointed as the

director, a person even though not validly appointed and for simplicity purpose, a director will be

Ibid.

[1966] UKHL 2, [1967] 2 AC 46, House of Lords (UK).

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used. The Corporation Act 2001 specifies four main duties for directors

. Diligence and Care is

the first duty. The duty requires directors to act with high degrees of care and intelligence with a

reasonable person and the same is applied in common law

Insolvent trading stipulates that directors got the duty in ensuring that accompany does not

trade while insolvent or when suspected to be insolvent. Financial information, on the other hand,

gives the directors the mandate to take reasonable steps in ensuring compliance with the

obligations of Corporation Act 2001 which relates to keeping the recording of financial reports.

The Act encourages the disclosing of matters pertaining to the company affairs in which

they have a personal interest in. Further, it encourages the shareholder approval for relating party

transactions for public companies. Also, the director's market interest is disclosed. For the

companies listed there is a continuous disclosure to the market information which is available and

may affect the company’s share price value. A breach of duty comes out when a company enters

a risky transaction without a prospect of making a profit or when a manager does not inform the

board of the investments. The business judgment rule can aid in the safe harbor of the situation of

the directors in relation to claiming breach for diligence and care.

Good faith principle requires a director’s action in the best upholding of the companies’

interest and purpose. This includes reveling and managing the conflicts within thus ensuring g

transparency, fidelity, and trust commonly known as a fiduciary duty which is imposed by

common law and duty required by the Corporation Act 2001

Williams, C.A. and Conley, J.M., 2005. Is there an emerging fiduciary duty to consider human rights? U. Cin. L.

Rev., 74, p.75.

Ibid.

Note19.

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Breaching directors’ duties laws leads to numerous repercussions. First off, criminal

sanctions whereby there are extreme penalties for failure to comply with the duties and laws put

by the corporation acts and the other laws guiding the companies’ activities. For instance, in the

cartel conduct under the competition law can lead to 10 years imprisonment or high fines as well.

It is illegal for a corporation to indemnify its officers against all costs or any financial penalties.

This can be considered must be in line with the good faith duties and is deemed as dishonesty and

recklessness and thus can attract a 5-year imprisonment. Civil sanctions stipulate in the

Corporations Act that directors are liable to substantial fine. Shareholders, in turn, can take actions

against directors who fail to comply with duties. Australian Securities and Investments

Commission (ASIC) and courts have the power to disqualify directors for long periods of time for

failure to comply with their duties under Corporations Act.

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Bibliography

1. Westpac Banking Corporation v The Bell Group (In Liq) [No 3] [2012] WASCA 157 at

[897]-[902], (WA, Australia)[897]-[902],(WA, Australia).

2. McInerney v MacDona, [1992] 2 SCR 138 supreme court Canada).

3. BLB Corp of Australia Establishment v Jacobsen (1974) 4 AJBT 372 high court

(Australia). LawCite Records.

4. Mein Salmon (1928) 164 NE 545 at 546.

5. Australian Securities and Investments Commission v City group Global Markets Australia

Pty Limited (No. 4) [2007] FCA 963, [2007] 62 ACSR 427, federal court (Australia)

6. Rojas, Claudio R. (2014). "An Indeterminate Theory of Canadian Corporate Law".

University of British Columbia Law Review. 47 (1): 59–128. SSRN 2391775  .

7. Fiduciary Duties of Investment intermediaries Law commission. Archived from the

original on 2014-09-24.

8. The Official Website of the State of Delaware. Retrieved August 28, 2015.

9. Lopez, Erik (June 27, 2015). Rights”. The M&A Lawyer Blog. Jason Lopez PLLC.

Retrieved August 28, 2015.

10. Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362 (Del. 2006)

11. [1966] UKHL 2, [1967] 2 AC 46, House of Lords (UK).

12. McKenzie v McDonald [1927] VicLawRp 19, Supreme Court (Vic, Australia).

13. Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) [2012] FCA 1028,

14. Williams, C.A. and Conley, J.M., 2005. Is there an emerging fiduciary duty to consider

human rights. U. Cin. L. Rev., 74, p.75.

15. Commonwealth Bank of Australia v Smith [1991] FCA 73, Federal Court (Australia).

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