The Fiduciary Relationship and its Obligations

Introduction

A **fiduciary** is someone who has undertaken to act for or on behalf of another in a matter in circumstances which give rise to a **relationship of trust and confidence** (Bristol and West Building Society v Mothew [1998] Ch 1). **Trustees** are the classic example, but the category also includes **company directors, solicitors, agents and partners**. This chapter explains the **distinguishing obligation of a fiduciary** — the duty of **single-minded loyalty** — and the two principal rules that flow from it: the **no-conflict rule** and the **no-profit rule**. It also covers the **self-dealing and fair-dealing rules**, the **statutory right of professional trustees to remuneration** under the **Trustee Act 2000**, the consequences of a breach of fiduciary duty, and how all of this is tested in SQE1-style single best answer questions.

Assessment focus

For SQE1 FLK1 (Trusts) you must be able to **identify a fiduciary relationship** and **apply the no-conflict and no-profit rules** to a client scenario. Questions typically present a trustee or director who has obtained a benefit — a commission, a directorship, a business opportunity or trust property purchased for themselves — and ask which duty has been breached or what remedy is available. You must know that liability is **strict**: good faith and the fairness of the transaction are **no defence** (Keech v Sandford; Boardman v Phipps; Regal (Hastings) Ltd v Gulliver). You must also know the **exceptions** that authorise an otherwise prohibited profit or self-dealing (express clause, beneficiary consent, court order, statute), and that the principal remedies are an **account of profits** and a **constructive trust** over property obtained in breach. This is a closed-book assessment — learn the core rules, cases and exceptions from memory.

Study tips

1) Learn the **definition** of a fiduciary from **Bristol and West Building Society v Mothew [1998] Ch 1** — the distinguishing duty is **loyalty**. 2) Memorise the **two core rules**: the **no-conflict rule** (no actual or potential conflict between duty and interest — Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n) and the **no-profit rule** (no unauthorised profit from the position — Boardman v Phipps [1967] 2 AC 46). 3) Remember liability is **strict**: honesty and fairness are **irrelevant** (Keech v Sandford (1726) Sel Cas Ch 61). 4) Distinguish the **self-dealing rule** (sale to the trustee is **voidable** by any beneficiary however fair — Tito v Waddell (No 2) [1977] Ch 106) from the **fair-dealing rule** (purchase of a beneficiary's interest — valid only if fair and fully informed). 5) Professional trustees of non-charitable trusts have a **statutory right to reasonable remuneration** under **s 29 Trustee Act 2000** (Part 5) where there is no remuneration clause and the other trustees agree in writing. 6) Key remedies for breach: **account of profits** (personal) and **constructive trust** (proprietary); a beneficiary may also have an **equitable compensation** claim.