fiduciary
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A fiduciary is a person who holds a
legal Law is a set of rules that are created and are law enforcement, enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. ...
or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other
asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that c ...

asset
s for another person. One party, for example, a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to another party, who, for example, has entrusted funds to the fiduciary for safekeeping or investment. Likewise,
financial adviser A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory ...
s,
financial planner A financial planner or personal financial planner is a qualified financial advisor. Practicing in full service personal finance, they advise clients on investments, insurance, tax, retirement and estate planning. As a general rule, a financial p ...
s, and asset managers, including managers of pension plans, endowments, and other tax-exempt assets, are considered fiduciaries under applicable statutes and laws. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence,
good faith In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
, reliance, and trust in another whose aid, advice, or protection is sought in some matter... In such a relation, good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts. Fiduciary duties in a financial sense exist to ensure that those who manage other people's money act in their beneficiaries' interests, rather than serving their own interests. A fiduciary duty is the highest
standard of care In tort law, the standard of care is the only degree of prudence and caution required of an individual who is under a duty of care. The requirements of the standard are closely dependent on circumstances. Whether the standard of care has been b ...
in equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the " principal") such that there must be no conflict of duty between fiduciary and principal, and the fiduciary must not profit from their position as a fiduciary. (unless the principal consents). The nature of fiduciary obligations differs among jurisdictions. In Australia, only proscriptive or negative fiduciary obligations are recognised, whereas in Canada, fiduciaries can come under both proscriptive (negative) and prescriptive (positive) fiduciary obligations.. In
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipres ...
, the fiduciary relation is an important concept within a part of the legal system known as equity. In the United Kingdom, the
Judicature Acts In History of the courts of England and Wales, the history of the courts of England and Wales, the Judicature Acts were a series of Act of Parliament, Acts of Parliament, beginning in the 1870s, which aimed to fuse the hitherto split system of ...
merged the courts of equity (historically based in England's
Court of Chancery The Court of Chancery was a court of equity in England and Wales England and Wales () is one of the three legal jurisdictions of the United Kingdom. It covers the constituent countries England and Wales and was formed by the Laws in Wa ...

Court of Chancery
) with the courts of common law, and as a result the concept of fiduciary duty also became applicable in
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipres ...
courts. When a fiduciary duty is imposed, equity requires a different, stricter standard of behavior than the comparable tortious
duty of care In tort law A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs t ...
in common law. The fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, not to be in a situation where their fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from their fiduciary position without knowledge and consent. A fiduciary ideally would not have a
conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple wikt:interest#Noun, interests, finance, financial or otherwise, and serving one interest could involve working against another. Typically, t ...
. It has been said that fiduciaries must conduct themselves "at a level higher than that trodden by the crowd"'' Meinhard v Salmon'' (1928) 164 NE 545 at 546. and that " e distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty".


In different jurisdictions

Different jurisdictions regard fiduciary duties in different lights.
Canadian law The legal system The contemporary national legal systems are generally based on one of four basic systems: civil law (legal system), civil law, common law, statutory law, religious law or combinations of these. However, the legal system of each ...
, for example, has developed a more expansive view of fiduciary obligation than
American law The law of the United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. ...
, while
Australian law The legal system of Australia Australia, officially the Commonwealth of Australia, is a sovereign country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , A ...
and British law have developed more conservative approaches than either the United States or
Canada Canada is a country in North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world ...
. In Australia, it has been found that there is no comprehensive list of criteria by which to establish a fiduciary relationship. Courts have so far refused to define the concept of a fiduciary, instead preferring to develop the law on a case-by-case basis and by way of analogy. Fiduciary relationships are of different types and carry different obligations so that a test appropriate to determine whether a fiduciary relationship exists for one purpose might be inappropriate for another: In 2014 the
Law Commission (England and Wales) In England and Wales the Law Commission ( cy, Comisiwn y Gyfraith) is an independent law commission set up by Parliament of the United Kingdom, Parliament by the Law Commissions Act 1965 to keep the English law, law of England and Wales under re ...
reviewed the fiduciary duties of investment intermediaries, looking particularly at the duties on pension trustees. They commented that the term "fiduciary" is used in many different ways. The question of who is a fiduciary is a "notoriously intractable" question and this was the first of many questions. In '' SEC v. Chenery Corporation'', Frankfurter J said, The law expressed here follows the general body of elementary fiduciary law found in most common law jurisdictions; for in-depth analysis of particular jurisdictional idiosyncrasies please consult primary authorities within the relevant jurisdiction. This is especially true in the area of Labor and Employment law. In
Canada Canada is a country in North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world ...
a fiduciary has obligations to the employer even after the employment relationship is terminated, whereas in the United States the employment and fiduciary relationships terminate together.


Fiduciary duties under Delaware corporate law

The corporate law of Delaware is the most influential in the United States, as more than 50% of publicly traded companies in the United States, including 64% of the Fortune 500, have chosen to incorporate in that State. Under Delaware law, officers, directors and other control persons of corporations and other entities owe three primary fiduciary duties, (1) the
duty of care In tort law A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs t ...
, (2) the
duty of loyalty The duty of loyalty is often called the cardinal principal of Fiduciary, fiduciary relationships, but is particularly strict in the law of Equity (law), trusts. In that context, the term refers to a trustee's duty to administer the Trust law, trust ...
and (3) the duty of good faith. The duty of care requires control persons to act on an informed basis after due consideration of all information. The duty includes a requirement that such persons reasonably inform themselves of alternatives. In doing so, they may rely on employees and other advisers so long as they do so with a critical eye and do not unquestionably accept the information and conclusions provided to them. Under normal circumstances, their actions are accorded the protection of the business judgment rule, which presumes that control persons acted properly, provided that they act on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. The duty of loyalty requires control persons to look to the interests of the company and its other owners and not to their personal interests. In general, they cannot use their positions of trust, confidence and inside knowledge to further their own private interests or approve an action that will provide them with a personal benefit (such as continued employment) that does not primarily benefit the company or its other owners. The duty of good faith requires control persons to exercise care and prudence in making business decisions—that is, the care that a reasonably prudent person in a similar position would use under similar circumstances. Control persons fail to act in good faith, even if their actions are not illegal, when they take actions for improper purposes or, in certain circumstances, when their actions have grossly inequitable results. The duty to act in good faith is an obligation not only to make decisions free from self-interest, but also free of any interest that diverts the control persons from acting in the best interest of the company. The duty to act in good faith may be measured by an individual's particular knowledge and expertise. The higher the level of expertise, the more accountable that person will be (''e.g.'', a finance expert may be held to a more exacting standard than others in accepting a third party valuation). At one time, courts seemed to view the duty of good faith as an independent obligation. However, more recently, courts have treated the duty of good faith as a component of the duty of loyalty.


Fiduciary duty in Canadian corporate law

In Canada, directors of corporations owe a fiduciary duty. A debate exists as to the nature and extent of this duty following a controversial landmark judgment from the
Supreme Court of Canada The Supreme Court of Canada (SCC; french: Cour suprême du Canada, CSC) is the Supreme court, highest court in the Court system of Canada, judicial system of Canada. It comprises List of Justices of the Supreme Court of Canada, nine justices, wh ...
in '' BCE Inc. v. 1976 Debentureholders''. Scholarly literature has defined this as a "tripartite fiduciary duty", composed of (1) an overarching duty to the corporation, which contains two component duties — (2) a duty to protect shareholder interests from harm, and (3) a procedural duty of "fair treatment" for relevant stakeholder interests. This tripartite structure encapsulates the duty of directors to act in the "best interests of the corporation, viewed as a good corporate citizen".


Relationships

The most common circumstance where a fiduciary duty will arise is between a
trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...
, whether real or juristic, and a
beneficiary A beneficiary (also, in trust law, ''cestui que use'') in the broadest sense is a natural person or other legal entity who receives money or other employee benefit, benefits from a benefactor (law), benefactor. For example, the beneficiary of a lif ...
. The trustee to whom property is legally committed is the legal—i.e., common law—owner of all such property. The beneficiary, at law, has no legal title to the trust; however, the trustee is bound by equity to suppress their own interests and administer the property only for the benefit of the beneficiary. In this way, the beneficiary obtains the use of property without being its technical owner. Others, such as corporate directors, may be held to a fiduciary duty similar in some respects to that of a trustee. This happens when, for example, the directors of a bank are trustees for the depositors, the directors of a corporation are trustees for the stockholders or a guardian is trustee of their ward's property. A person in a sensitive position sometimes protects themselves from possible conflict of interest charges by setting up a ''
blind trust A blind trust is a trust in which the trust beneficiaries have no knowledge of the holdings of the trust, and no right to intervene in their handling. In a blind trust, the trustee Trustee (or the holding of a trusteeship) is a legal term wh ...
'', placing their financial affairs in the hands of a fiduciary and giving up all right to know about or intervene in their handling. The fiduciary functions of trusts and agencies are commonly performed by a
trust company A trust company is a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born ...
, such as a
commercial bank A commercial bank is a financial institution which accepts deposit (finance), deposits from the public and gives loans for the purposes of consumption and investment to make profit (economics), profit. It can also refer to a bank, or a division ...
, organized for that purpose. In the United States, the Office of the Comptroller of the Currency (OCC), an agency of the
United States Department of the Treasury The Department of the Treasury (USDT) is the Treasury, national treasury and finance department of the federal government of the United States, where it serves as an United States federal executive departments, executive department. The departme ...
, is the primary regulator of the fiduciary activities of federal savings associations. When a court desires to hold the offending party to a transaction responsible so as to prevent unjust enrichment, the judge can declare that a fiduciary relation exists between the parties, as though the offender were in fact a trustee for the partner. Relationships which routinely attract by law a fiduciary duty between certain classes of persons include these: *
Trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...
/
beneficiary A beneficiary (also, in trust law, ''cestui que use'') in the broadest sense is a natural person or other legal entity who receives money or other employee benefit, benefits from a benefactor (law), benefactor. For example, the beneficiary of a lif ...
;. * Conservators and
legal guardian A legal guardian is a person who has been appointed by a court or otherwise has the legal authority (and the corresponding duty) to make decisions relevant to the personal and property interests of another person who is deemed incompetent, calle ...
s / wards *
Agent Agent may refer to: Espionage, investigation, and law *, spies or intelligence officers * Law of agency, laws involving a person authorized to act on behalf of another ** Agent of record, a person with a contractual agreement with an insuranc ...
s, attorney in fact usually from written grant of authority by principal,
broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a :wikt:princip ...
s and
factor Factor, a Latin word meaning "who/which acts", may refer to: Commerce * Factor (agent), a person who acts for, notably a mercantile and colonial agent * Factor (Scotland), a person or firm managing a Scottish estate * Factors of production, suc ...
s / principals;:. * Buyer agent (
real estate broker A real estate agent or real estate broker is a person who represents sellers or buyers of real estate or real property. While a broker may work independently, an agent usually works under a licensed broker to represent clients. Brokers and agen ...
) / buyer client * Confidential advisor including
financial adviser A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory ...
and investment advisor / advisee or client;.. *
Lawyer A lawyer is a person who practices law. The role of a lawyer varies greatly across different legal jurisdictions. A lawyer can be classified as an advocate, attorney, barrister A barrister is a type of lawyer in common law jurisdiction ( ...
/client; A solicitor is presumed to have a fiduciary duty. *
Executor An executor is someone who is responsible for executing, or following through on, an assigned task or duty. The feminine form, executrix, may sometimes be used. Overview An executor is a legal term referring to a person named by the maker of a ...
s and administrators /
legatee A legatee, in the law of will (law), wills, is any individual or organization bequeathed any portion of a testator's estate. Usage Depending upon local custom, legatees may be called "devisees". Traditionally, "legatees" took personal property u ...
s and
heir Inheritance is the practice of receiving private property, Title (property), titles, debts, entitlements, Privilege (law), privileges, rights, and Law of obligations, obligations upon the death of an individual. The rules of inheritance differ ...
s; * Corporate partners,
joint venture A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and economic risk, risks, and shared governance. Companies typically pursue joint ventures for one of four rea ...
rs, directors and officers / company and
stockholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a Trust law, trust or partnership) that is registered by the corporation as the ...
s;. *
Board of directors A board of directors (commonly referred simply as the board) is an Committee#Executive committee, executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such a ...
/
company A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...
; * Partner/partner;. * Senior employee / company; *
Retirement Retirement is the withdrawal from one's position or occupation or from one's active working life. A person may also semi-retire by reducing work hours or workload. Many people choose to retire when they are elderly or incapable of doing their j ...
plan administrators (including
401(k) In the United States, a 401(k) plan is an employer-sponsored, defined contribution, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodical employee contributions come ...
plans) / retirees and workers; * Retirement account advisors; * Promoters / company and related subscribers; * Liquidator/company; * Mutual savings banks and investment corporations / their depositors and
investor An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some specie ...
s; * Receivers, trustees in bankruptcy and assignees in
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a Natural person, person or company (debtor), at Maturity (finance), maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: Cash flow ...
/
creditor A creditor or lender is a Party (law), party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided s ...
s * Governments /
indigenous peoples Indigenous peoples are culturally distinct ethnic groups whose members are directly descended from the earliest known inhabitants of a particular geographic region and, to some extent, maintain the language and culture of those original people ...
; '' Seminole Nation v. United States'' *
Doctor Doctor or The Doctor may refer to: Personal titles * Doctor (title), the holder of an accredited academic degree * A medical practitioner, including: ** Physician ** Surgeon ** Dentist ** Veterinary physician ** Optometrist *Other roles ** ...
/
patient A patient is any recipient of health care services that are performed by Health professional, healthcare professionals. The patient is most often Disease, ill or Major trauma, injured and in need of therapy, treatment by a physician, nurse, opto ...
- in Canada, not in Australia; *
Guardian Guardian usually refers to: * Legal guardian, a person with the authority and duty to care for the interests of another * ''The Guardian'', a British daily newspaper (The) Guardian(s) may also refer to: Places * Guardian, West Virginia, Unite ...
/ ward;. *
Teacher A teacher, also called a schoolteacher or formally an educator, is a person who helps students to acquire knowledge, competence, or virtue, via the practice of teaching. ''Informally'' the role of teacher may be taken on by anyone (e.g. whe ...
/
student A student is a person enrolled in a school or other educational institution. In the United Kingdom and most The Commonwealth, commonwealth countries, a "student" attends a secondary school or higher (e.g., college or university); those in pri ...
; *
Priest A priest is a religious leader authorized to perform the sacred rituals of a religion, especially as a mediatory agent between humans and one or more deity, deities. They also have the authority or power to administer religious rites; in p ...
/
parish A parish is a territorial entity in many Christian denominations, constituting a division within a diocese In Ecclesiastical polity, church governance, a diocese or bishopric is the ecclesiastical district under the jurisdiction of a bisho ...
ioner seeking
counseling Counseling is the professional guidance of the individual by utilizing psychological methods especially in collecting case history data, using various techniques of the personal interview, and testing interests and aptitudes. This is a list of co ...
; In Australia, the categories of fiduciary relationships are not closed. Roman and civil law recognized a type of contract called ''fiducia'' (also ''contractus fiduciae'' or fiduciary contract), involving essentially a sale to a person coupled with an agreement that the purchaser should sell the property back upon the fulfillment of certain conditions. Such contracts were used in the emancipation of children, in connection with testamentary gifts and in pledges. Under Roman law a woman could arrange a fictitious sale called a ''fiduciary coemption'' in order to change her guardian or gain legal capacity to make a will. In Roman Dutch law, a ''fiduciary heir'' may receive property subject to passing it to another on fulfilment of certain conditions; the gift is called a ''fideicommissum''. The fiduciary of a fideicommissum is a ''fideicommissioner'' and one that receives property from a fiduciary heir is a ''fideicommissary heir''. Fiduciary principles may be applied in a variety of legal contexts.


Possible relationships

Joint ventures A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and economic risk, risks, and shared governance. Companies typically pursue joint ventures for one of four rea ...
, as opposed to business
partnerships A partnership is an arrangement where parties, known as business partner A business partner is a commercial entity with which another commercial entity has some form of Business alliance, alliance. This relationship may be a contractual, excl ...
, are not ''presumed'' to carry a fiduciary duty; however, this is a matter of degree. If a joint venture is conducted at commercial arm's length and both parties are on an equal footing then the
courts A court is any person or institution, often as a government institution, with the authority to Adjudication, adjudicate legal disputes between Party (law), parties and carry out the administration of justice in Civil law (common law), civil, C ...
will be reluctant to find a fiduciary duty, but if the joint venture is carried out more in the manner of a partnership then fiduciary relationships can and often will arise.. Husbands and wives are not ''presumed'' to be in a fiduciary relationship; however, this may be easily established. Similarly, ordinary commercial transactions in themselves are not ''presumed'' to but can give rise to fiduciary duties, should the appropriate circumstances arise. These are usually circumstances where the contract specifies a degree of trust and loyalty or it can be inferred by the court. Australian courts also do not recognise parents and their children to be in fiduciary relationships. In contrast, the Supreme Court of Canada allowed a child to sue her father for damages for breach of his fiduciary duties, opening the door in Canada for allowing fiduciary obligations between parent and child to be recognised. Australian courts have also not accepted doctor-patient relationships as fiduciary in nature. In ''Breen v Williams'', the High Court viewed the doctor's responsibilities over their patients as lacking the representative capacity of the trustee in fiduciary relationships. Moreover, the existence of remedies in contract and tort made the Court reluctant in recognising the fiduciary relationship. In 2011, in an insider trading case, the U.S. Securities and Exchange Commission brought charges against a boyfriend of a Disney intern, alleging he had a fiduciary duty to his girlfriend and breached it. The boyfriend, Toby Scammell, allegedly received and used insider information on Disney's takeover of Marvel Comics. Generally, the employment relationship is not regarded as fiduciary, but may be so if
... within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes these rigorous duties in addition to the contractual obligations. Although terminologies like duty of good faith, or loyalty, or the mutual duty of trust and confidence are frequently used to describe employment relationships, such concepts usually denote situations where "a party merely has to take into consideration the interests of another, but does not have to act in the interests of that other.
If fiduciary relationships are to arise between employers and employees, it is necessary to ascertain that the employee has placed himself in a position where he must act solely in the interests of his employer. In the case of '' Canadian Aero Service Ltd v O'Malley'', it was held that a senior employee is much more likely to be found to owe fiduciary duties towards his employer. A protector of a trust may owe fiduciary duties to the
beneficiaries A beneficiary (also, in trust law, ''cestui que use'') in the broadest sense is a natural person or other legal entity who receives money or other employee benefit, benefits from a benefactor (law), benefactor. For example, the beneficiary of a lif ...
, although there is no
case law Case law, also used interchangeably with common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in writt ...
establishing this to be the case. In 2015, the
United States Department of Labor The United States Department of Labor (DOL) is one of the United States federal executive departments, executive departments of the federal government of the United States, U.S. federal government. It is responsible for the administration of fede ...
issued a proposed rule that if finalized would extend the fiduciary duty relationship to investment advisors and some brokers including insurance brokers. In 2017, the
Trump Administration Donald Trump's tenure as the List of presidents of the United States, 45th president of the United States began with Inauguration of Donald Trump, his inauguration on January 20, 2017, and ended on January 20, 2021. Trump, a Republican Party ...
planned to order a 180-delay of implementation of the rule, sometimes known as the 'fiduciary rule'. The rule would require "brokers offering retirement investment advice to put their clients' interest first". The Trump Administration later rescinded the fiduciary rule on July 20, 2018. Prior to its repeal, the rule was also dealt blows by the US Fifth Circuit Court of Appeals in March and June 2018.


Example

For example, two members, ''X'' and ''Y'', of a band currently under contract with one another (or with some other tangible, existing relationship that creates a legal duty) record songs together. Let us imagine it is a serious, successful band and that a court would declare that the two members are equal partners in a business. One day, ''X'' takes some demos made cooperatively by the duo to a recording label, where an executive expresses interest. ''X'' pretends it is all his work and receives an exclusive
contract A contract is a legally enforceable agreement between two or more Party (law), parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, Service (economics), ser ...
and $50,000. ''Y'' is unaware of the encounter until reading it in the paper the next week. This situation represents a conflict of interest and duty. Both ''X ''and ''Y'' hold fiduciary duties to each other, which means they must subdue their own interests in favor of the duo's collective interest. By signing an individual contract and taking all the money, ''X'' has put personal interest above the fiduciary duty. Therefore, a court will find that ''X'' has breached his fiduciary duty. The judicial remedy here will be that ''X'' holds both the contract and the money in a
constructive trust A constructive trust is an equitable remedy imposed by a court to benefit a party that has been wrongfully deprived of its rights due to either a person obtaining or holding a legal property right which they should not possess due to unjust enri ...
for the duo. Note, ''X'' will not be punished or totally denied of the benefit; both ''X'' and ''Y'' will receive a half share in the contract and the money.


Elements of duty

A fiduciary, such as the administrator,
executor An executor is someone who is responsible for executing, or following through on, an assigned task or duty. The feminine form, executrix, may sometimes be used. Overview An executor is a legal term referring to a person named by the maker of a ...
or guardian of an estate, may be legally required to file with a probate court or judge a
surety bond In finance, a surety , surety bond or guaranty involves a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. Usually, a surety bond or surety is a promise by a surety or guarantor to pay ...
, called a fiduciary bond or probate bond, to guarantee faithful performance of his duties. One of those duties may be to prepare, generally under oath, an ''inventory'' of the tangible or intangible property of the estate, describing the items or classes of property and usually placing a valuation on them. A bank or other fiduciary having legal title to a mortgage may sell fractional shares to investors, thereby creating a '' participating mortgage''.


Accountability

A fiduciary will be liable to account if proven to have acquired a profit, benefit or gain from the relationship by one of three means: * In circumstances of conflict of duty and interest; * In circumstances of conflict of duty to one person and duty to another person; * By taking advantage of the fiduciary position. Therefore, it is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and not to profit from his fiduciary position without express knowledge and consent. A fiduciary cannot have a
conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple wikt:interest#Noun, interests, finance, financial or otherwise, and serving one interest could involve working against another. Typically, t ...
. The state of Texas in the United States sets out the duties of a fiduciary in its Estates Code, chapter 751, as follows (the bracketed references to TPC refer to the Texas Probate Code superseded by the Estates Code, effective January 1, 2014): ;Sec. 751.101. Fiduciary Duties. PC §489B(a):An attorney in fact or agent is a fiduciary and has a duty to inform and to account for actions taken under the power of attorney. ;Sec. 751.102. Duty to Timely Inform Principal. PC §489B(b):(a) The attorney in fact or agent shall timely inform the principal of each action taken under the power of attorney. :(b) Failure of an attorney in fact or agent to timely inform, as to third parties, does not invalidate any action of the attorney in fact or agent. ;Sec. 751.103. Maintenance of Records. PC §489B(c), (f):(a) The attorney in fact or agent shall maintain records of each action taken or decision made by the attorney in fact or agent. :(b) The attorney in fact or agent shall maintain all records until delivered to the principal, released by the principal, or discharged by a court. ;Sec. 751.104. Accounting. PC §489B(d), (e):(a) The principal may demand an accounting by the attorney in fact or agent. :(b) Unless otherwise directed by the principal, an accounting under Subsection (a) must include: ::(1) the property belonging to the principal that has come to the attorney in fact’s or agent’s knowledge or into the attorney in fact’s or agent’s possession; ::(2) each action taken or decision made by the attorney in fact or agent; ::(3) a complete account of receipts, disbursements, and other actions of the attorney in fact or agent that includes the source and nature of each receipt, disbursement, or action, with receipts of principal and income shown separately; ::(4) a listing of all property over which the attorney in fact or agent has exercised control that includes: :::(A) an adequate description of each asset; and :::(B) the asset’s current value, if the value is known to the attorney in fact or agent; ::(5) the cash balance on hand and the name and location of the depository at which the cash balance is kept; ::(6) each known liability; and ::(7) any other information and facts known to the attorney in fact or agent as necessary for a full and definite understanding of the exact condition of the property belonging to the principal. :(c) Unless directed otherwise by the principal, the attorney in fact or agent shall also provide to the principal all documentation regarding the principal’s property.


Conflict of duties

A fiduciary's duty must not conflict with another fiduciary duty. Conflicts between one fiduciary duty and another fiduciary duty arise most often when a
lawyer A lawyer is a person who practices law. The role of a lawyer varies greatly across different legal jurisdictions. A lawyer can be classified as an advocate, attorney, barrister A barrister is a type of lawyer in common law jurisdiction ( ...
or an
agent Agent may refer to: Espionage, investigation, and law *, spies or intelligence officers * Law of agency, laws involving a person authorized to act on behalf of another ** Agent of record, a person with a contractual agreement with an insuranc ...
, such as a
real estate agent A real estate agent or real estate broker is a person who represents sellers or buyers of real estate or real property. While a broker may work independently, an agent usually works under a licensed broker to represent clients. Brokers and agen ...
, represent more than one client, and the interests of those clients conflict. This would occur when a lawyer attempts to represent both the
plaintiff A plaintiff (pi (letter), Π in List of legal abbreviations, legal shorthand) is the party who initiates a lawsuit (also known as an ''action'') before a court. By doing so, the plaintiff seeks a legal remedy. If this search is successful, the co ...
and the
defendant In court proceedings, a defendant is a Legal personality, person or object who is the Party (law), party either accused of committing a crime in Criminal procedure, criminal prosecution or against whom some type of civil relief is being sought in ...
in the same matter, for example. The rule comes from the
logical Logic is the study of correct reasoning. It includes both Mathematical logic, formal and informal logic. Formal logic is the science of Validity (logic), deductively valid inferences or of logical truths. It is a formal science investigating h ...
conclusion that a fiduciary cannot make the principal's interests a top priority if he has two principals and their interests are diametrically opposed; he must balance the interests, which is not acceptable to equity. Therefore, the conflict of duty and duty rule is really an extension of the conflict of interest and duty rules.


No-profit rule

A fiduciary must not profit from the fiduciary position. This includes any benefits or profits which, although unrelated to the fiduciary position, came about because of an opportunity that the fiduciary position afforded. It is unnecessary that the principal would have been unable to make the profit; if the fiduciary makes a profit, by virtue of his role as fiduciary for the principal, then the fiduciary must report the profit to the principal. If the principal provides fully
informed consent Informed consent is a principle in medical ethics and medical law, that a patient must have sufficient information and understanding before making decisions about their medical care. Pertinent information may include risks and benefits of treatme ...
, then the fiduciary may keep the benefit and be absolved of any liability for what would be a breach of fiduciary duty. If this requirement is not met then the property is deemed by the court to be held by the fiduciary on constructive trust for the principal. Secret commissions, or bribes, also come under the no profit rule. The bribe shall be held in constructive trust for the principal. The person who made the bribe cannot recover it, since he has committed a
crime In ordinary language, a crime is an unlawful act punishable by a state or other authority. The term ''crime'' does not, in modern criminal law, have any simple and universally accepted definition,Farmer, Lindsay: "Crime, definitions of", in C ...
. Similarly, the fiduciary, who received the bribe, has committed a crime. Fiduciary duties are an aspect of equity and, in accordance with the equitable principles, or maxims, equity serves those with clean hands. Therefore, the bribe is held on constructive trust for the principal, the only innocent party. Bribes were initially considered not to be held on constructive trust, but were considered to be held as a
debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The de ...
by the fiduciary to the principal. This approach has been overruled; the bribe is now classified as a constructive trust. The change is due to pragmatic reasons, especially in regard to a
bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...
fiduciary. If a fiduciary takes a bribe and that bribe is considered a debt then if the fiduciary goes bankrupt the debt will be left in his pool of assets to be paid to
creditors A creditor or lender is a party A party is a gathering of people who have been invited by a Hospitality, host for the purposes of socializing, conversation, recreation, or as part of a festival or other commemoration or celebration of a ...
and the principal may miss out on recovery because other creditors were more secured. If the bribe is treated as held on a constructive trust then it will remain in the possession of the fiduciary, despite bankruptcy, until such time as the principal recovers it.


Avoiding these accountabilities

The landmark Australian decision ''ASIC v Citigroup'' noted that the "informed consent" on behalf of the beneficiary to breaches of either the no-profit and no-conflict rule will allow the fiduciary to get around these rules. Furthermore, it highlighted that a contract may include a clause that allows individuals to avoid all fiduciary obligations within the course of dealings, and thereby continue to make a personal profit or deal with other parties- tasks that may otherwise have been in conflict with what would have been a fiduciary duty had it not been for this clause. In the Australian case of ''Farah Constructions Pty Ltd v Say-Dee Pty Ltd'', however, Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ observed that the sufficiency of disclosure may depend on the sophistication and intelligence of the persons to whom the disclosure must be made. However, in the English case of ''Armitage v Nurse'' an exception was noted to be the fiduciary's obligation of good faith; liability for breach of fiduciary duty by way of fraud or dishonesty cannot be avoided through an exclusion clause in a contract. The decision in ''Armitage v Nurse'' has been applied in Australian .


Breaches of duty and remedies

Conduct by a fiduciary may be deemed '' constructive fraud'' when it is based on acts, omissions or concealments considered fraudulent and that gives one an advantage against the other because such conduct—though not actually fraudulent, dishonest or deceitful—demands redress for reasons of public policy. Breach of fiduciary duty may occur in
insider trading Insider trading is the trading of a public company's stock or other security (finance), securities (such as bond (finance), bonds or Option (finance), stock options) based on material, nonpublic information about the company. In various countries ...
, when an insider or a related party makes trades in a corporation's securities based on material non-public information obtained during the performance of the insider's duties at the corporation. Breach of fiduciary duty by a lawyer with regard to a client, if negligent, may be a form of legal malpractice; if intentional, it may be remedied in equity. Where a principal can establish both a fiduciary duty and a breach of that duty, through violation of the above rules, the court will find that the benefit gained by the fiduciary should be returned to the principal because it would be unconscionable to allow the fiduciary to retain the benefit by employing his strict common law legal
rights Rights are law, legal, social, or ethics, ethical principles of Liberty, freedom or entitlement; that is, rights are the fundamental normative rules about what is allowed of people or owed to people according to some legal system, social convent ...
. This will be the case, unless the fiduciary can show there was full disclosure of the conflict of interest or profit and that the principal fully accepted and freely consented to the fiduciary's course of action. Remedies will differ according to the type of damage or benefit. They are usually distinguished between proprietary remedies, dealing with property, and personal remedies, dealing with pecuniary (monetary) compensation. Where concurrent contractual and fiduciary relationships exist, remedies available to the plaintiff beneficiary is dependent upon the duty of care owed by the defendant and the specific breach of duty allowing for remedy/damages. The courts will clearly distinguish the relationship and determine the nature in which the breach occurred.


Constructive trusts

Where the unconscionable gain by the fiduciary is in an easily identifiable form, such as the recording contract discussed above, the usual remedy will be the already discussed constructive trust. Constructive trusts pop up in many aspects of equity, not just in a remedial sense, but, in this sense, what is meant by a constructive trust is that the court has created and imposed a duty on the fiduciary to hold the money in safekeeping until it can be rightfully transferred to the principal.


Account of profits

An account of profits is another potential remedy. It is usually used where the breach of duty was ongoing or when the gain is hard to identify. The idea of an account of profits is that the fiduciary profited unconscionably by virtue of the fiduciary position, so any profit made should be transferred to the principal. It may sound like a constructive trust at first, but it is not. An account of profits is the appropriate remedy when, for example, a senior
employee Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract A contract is a legally enforceable agreement between two or more Party (law), parties that creates, define ...
has taken advantage of his fiduciary position by conducting his own
company A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...
on the side and has run up quite a lot of profits over a period of time, profits which he wouldn't have been able to make otherwise. The fiduciary in breach may however receive an allowance for effort and ingenuity expended in making the profit.


Compensatory damages

Compensatory damages At common law, damages are a legal remedy, remedy in the form of a money, monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. ...
are also available. Accounts of profits can be hard remedies to establish, therefore, a plaintiff will often seek compensation (damages) instead. Courts of equity initially had no power to award compensatory damages, which traditionally were a remedy at common law, but legislation and case law has changed the situation so compensatory damages may now be awarded for a purely equitable action.


Fiduciary duty and pension governance

Some experts have argued that, in the context of pension governance,
trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...
s have started to reassert their fiduciary prerogatives more strongly after 2008 – notably following the heavy losses or reduced returns incurred by many retirement schemes in the wake of the
Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At t ...
and the progression of ESG and Responsible Investment ideas: "Clearly, there is a mounting demand for CEOs (equity issuers) and governments (sovereign bond issuers) to be more 'accountable' ... No longer ‘
absentee landlord In economics, an absentee landlord is a person who owns and renting, rents out a profit (economics), profit-earning property, but does not live within the property's local economic region. The term "absentee ownership" was popularised by economist ...
s', trustees have started to exercise more forcefully their governance prerogatives across the boardrooms of Britain, Benelux and America: coming together through the establishment of engaged pressure groups." However, in the United States, there are questions whether a pension's decision to consider factors such as how investments impact contributors' continued employment violate a fiduciary duty to maximize the retirement fund's returns.
Pension fund A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides pension, retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed a ...
s and other large
institutional investor An institutional investor is an entity which pools money to purchase Security (finance), securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, ...
s are increasingly making their voices heard to call out irresponsible practices in the businesses in which they invest The Fiduciary Duty in the 21st Century Programme, led by the United Nations Environment Programme Finance Initiative, the Principles for Responsible Investment, and the Generation Foundation, aims to end the debate on whether fiduciary duty is a legitimate barrier to the integration of environmental, social and governance (ESG) issues in investment practice and decision-making.PRI, UNEP FI, & The Generation Foundation
Fiduciary Duty in the 21st Century
2018
This followed the 2015 publication of "Fiduciary Duty in the 21st Century" which concluded that "failing to consider all long-term investment value drivers, including ESG issues, is a failure of fiduciary duty". Founded on the realization that there is a general lack of legal clarity globally about the relationship between sustainability and investors’ fiduciary duty, the programme engaged with and interviewed over 400 policymakers and investors to raise awareness of the importance of ESG issues to the fiduciary duties of investors. The programme also published roadmaps which set out recommendations to fully embed the consideration of ESG factors in the fiduciary duties of investors across more than eight capital markets. Drawing upon findings from Fiduciary Duty in the 21st Century, the European Commission High-Level Expert Group (HLEG) recommended in its 2018 final report that the EU Commission clarify investor duties to better embrace long-term horizon and sustainability preferences."Final Report 2018 by the High-Level Expert Group on Sustainable Finance"
(PDF). 31 January 2018.


See also

*
Trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...
*
Directors' duties Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance. Directors' ...
*
Compensatory damages At common law, damages are a legal remedy, remedy in the form of a money, monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. ...
*
Constructive trust A constructive trust is an equitable remedy imposed by a court to benefit a party that has been wrongfully deprived of its rights due to either a person obtaining or holding a legal property right which they should not possess due to unjust enri ...
* Corporate opportunity * Court of equity * Equitable remedies *
Escrow An escrow is a contractual arrangement in which a third party (the stakeholder or escrow agent) receives and disburses money or property for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacti ...
* Revlon Moment * Self-dealing *
Trust law A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...
* Uniform Prudent Investor Act *'' Attorney General v Blake'' [2000
UKHL 45
concerning the extension of fiduciary like remedies to a breach of contract context


References


Further reading

*P Birks, ‘The Content of Fiduciary Obligation’ (2000) 34 Israel Law Journal 3; (2002) 16 Trust Law International 34 *M Conaglen, ‘The Nature and Function of Fiduciary Loyalty’ (2005) 121 Law Quarterly Review 452–480. * JH Langbein ‘Questioning the Trust Law Duty of Loyalty’ (2005) 114 Yale Law Journal 929–990. *A Hicks, ‘The Trustee Act 2000 and the Modern Meaning of 'Investment''’ (2001) 15 (4) Trust Law International 203 *DA De Mott, 'Beyond Metaphor: An Analysis of Fiduciary Obligation' (1988) 5 Duke Law Journal 879. *PD Finn, 'The Fiduciary Principle' in TG Youdan (ed) 'Equity, Fiduciaries and Trusts' (1989) Carswell. *MN Firzli, ‘Beyond SDGs: Can Fiduciary Capitalism and Bolder, Better Boards Jumpstart Economic Growth?’ (2016) 61 Revue Analyse Financière 65–67. *T Frankel, 'Fiduciary Law' (1983) California Law Review 795. *DR Paling ‘Trustees Duties of Skill and Care’ (1973) 37 Conveyancer 48–59 *EJ Weinrib, ‘The Fiduciary Obligation’ (1975) 25(1) University of Toronto Law Journal 1–22 *LI Rotman "Fiduciary Law's 'Holy Grail': Reconciling Theory and Practice in Fiduciary Jurisprudence" (2011) 91 Boston University Law Review 921–971. *LI Rotman "Fiduciary Doctrine: A Concept in Need of Understanding" (1996) 34 Alberta Law Review 821–852. *Bryan, M.W and V.J Vann ''Equity & Trusts in Australia'' (Cambridge University Press, 2nd ed, 2013)ch 10. The following books cover the field in detail: *Chodos, Rafael, 'The Law of Fiduciary Duties' (2001) Blackthorne Legal Press *Finn, P.D., 'Fiduciary Obligations' (1977) The Law Book Co *Frankel, Tamar, 'Fiduciary Law' (2008) Fathom Publishing Company *Frankel, Tamar, 'Legal Duries of Fiduciaries' (2012) Fathom Publishing Company *Frankel, Tamar, 'Fiduciary Law' (2010) Oxford University Press . *Rotman, Leonard I., 'Fiduciary Law' (2005) Thomson/Carswell .


External links

*Iman Anabtawi and Lynn A. Stout
"Fiduciary Duties for Activist Shareholders". UCLA School of Law, Law-Econ Research Paper No. 08-02.
Social Science Research Network (SSRN) Electronic Library.

The U.S. Department of Labor: Employee Benefits Security Administration.

''The New Palgrave Dictionary of Economics and the Law'', Definition of "fiduciary duties", by Tamar Frankel; "Fiduciary Law", by Tamar Frankel, ''California Law Review'', May 1983, 71 Ca. L. Rev. 795; "Fiduciary Duties as Default Rules", by Tamar Frankel, ''Oregon Law Review'', Winter 1995, 74 Or. L. Rev. 1209; "Contract and Fiduciary Duty", by Frank H. Easterbrook and Daniel R. Fischel, ''The Journal of Law and Economics'', 1993, 36 J.L. & Econ. 425; etc. Berkman Center, Harvard Law School: Trust and Non-Trust in Law, Business, and Behavioral Science. *{{Cite EB1911, wstitle=Fiduciary Common law Equity (law) Legal professions