This chapter looks at the duty of the trustee to show loyalty to their beneficiaries. The duty of loyalty is owed by most trustees, but a similar duty is also imposed upon others who hold certain positions of trust and confidence, such as agents and company directors. The duty requires the fiduciary to put the interests of the principal above their own, not to put themselves in a position of a potential conflict, nor to receive any secret payment, profit, or commission. There is a degree of circularity in identifying when fiduciary duties are owed. A fiduciary is a person who owes fiduciary duties to another, but whether they can be characterized as a fiduciary depends upon whether they owe fiduciary duties. The essence of fiduciary duties is that they are duties of loyalty.
Chapter
35. Fiduciary duties of trustees and other fiduciaries
Chapter
36. Limitation of action
This chapter considers the defence of limitation in regard to an action for compensation for breach of trust, which are governed by the Limitation Act 1980. Actions normally have to be brought within a six-year limitation period, though there are exceptions such as fraud, where no limitation period is imposed. The related doctrine of laches (unreasonable delay) is also explored. It also considers those provisions as they apply to actions against fiduciaries who have received an unauthorized profit, which has proved more difficult because the legislation does not make any express provision for such claims. A failed attempt at legislative reform of the operation of limitation periods by the Law Commission is also explored.
Chapter
5. Partners and Each Other
This chapter concerns the relationship between partners and the interface between the contractual and fiduciary duties implicit in such a relationship, including the internal management of the firm. It examines the impact of equity on contractual agreements, including the doctrine of forfeiture. The nebulous overriding duty of good faith is followed by the statutory duties of honesty, no conflict/no profit and no competition. The implied terms in relation to management (including access to partnership information) and control, financial affairs (detailing capital, capital profits and income profits) and the limits on change of partners are followed by a detailed consideration of the validity and exercise of expulsion clauses. Finally, the chapter details the limited effects of both voluntary and involuntary assignments of a partner's share.
Chapter
2. The banker–customer relationship
Iris Chiu and Joanna Wilson
This chapter discusses the relationship between a bank and its customer. The Bills of Exchange Act 1882 defines a banker to include ‘a body of persons whether incorporated or not who carry on the business of banking’. Meanwhile, upon the opening of an account, a person will be deemed to have become a customer of the bank and there is no requirement for a habitual course of dealings. Although the relationship between a bank and its customer is primarily governed by contract law, there may be circumstances in which the bank undertakes additional obligations, thereby taking the relationship beyond the remit of contract law such that the bank becomes subject to fiduciary duties of trust and loyalty. The chapter then considers the fiduciary nature of the banker–customer relationship as well as undue influence.
Chapter
6. Corporate governance—board structure and shareholder engagement
This chapter discusses the appointment and removal of directors. Directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company. The chapter considers three classes of directors: the de jure director, the de facto director, and the shadow director. It identifies the characteristics of each category and the liabilities which attach in the event that someone is classed as being a director. It also considers whether fiduciary duties are owed by shadow directors. The position of corporate directors is also considered. In addition, the remuneration of directors is addressed.
Chapter
7. Board composition—appointment and removal of directors
This chapter discusses the appointment and removal of directors. Directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company. This chapter considers three classes of directors: the de jure director, the de facto director, and the shadow director. It identifies the characteristics of each category and the liabilities which attach in the event that someone is classed as being a director. It also considers whether fiduciary duties are owed by shadow directors. The position of corporate directors is also considered. In addition, the remuneration of directors is addressed.
Chapter
6. Partnership Property
This chapter is concerned with the identification, nature and consequences of an item being regarded as partnership property. It sets out the situations where there is a need to distinguish between partnership property and the property of an individual partner(s), including insolvency and co-ownership issues, with special reference to farming partnerships. The nature of a partner's interest in such property is considered under English law together with the rights attached to it. The limits as to what may constitute such property are followed by the statutory and contractual rules for identification. Property bought out of partnership profits and the use of non-partnership land are considered. The chapter also covers the specific problems associated with two types of asset, the leases of business premises and the concept of the goodwill of a business.
Chapter
15. Fiduciary Duties
This chapter examines the nature of fiduciary duties and how a fiduciary relationship can be identified. It emphasizes that trustees are fiduciaries, and so are subject to fiduciary duties, but also considers other fiduciary relationships. The chapter analyses the nature and function of fiduciary obligations. It examines in detail the two core fiduciary duties of ensuring that there is no conflict between a fiduciary’s personal interest and their duty to the principal and also that a fiduciary should not profit from their fiduciary position. The chapter discusses the consequences of a breach of fiduciary duty and the available remedies for such a breach. In particular, the chapter considers when and why profits obtained by a fiduciary in breach of a fiduciary duty should be held on constructive trust for the principal, with particular reference to the receipt of bribes and secret commissions.
Chapter
7. Relations between principal and agent
D Fox, RJC Munday, B Soyer, AM Tettenborn, and PG Turner
This chapter focuses on the rights and obligations of the principal and the agent between themselves, whether arising from a contract between them or from the fiduciary nature of their relationship. However, those rights and obligations may also derive from other sources, for example tort, statute, or the law of restitution. There is detailed consideration of the duties of the agent, such as the duty of care and skill and fiduciary duties, as well as the rights relating to remuneration, reimbursement and indemnity, and lien. The chapter also discusses the ways by which agency may be terminated.
Chapter
12. Duty to avoid a conflict of interest
This chapter discusses the director’s duty to avoid a situation in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect (the no-conflict rule); and the equally inflexible rule that, without consent, a person in a fiduciary position is not entitled to profit from that position (the no-profit rule or, more accurately no secret profit rule). These key obligations are discussed in detail, exploring the extent of the strict duty to avoid a conflict and the judicial attitude to breaches of duty. The need for disclosure and authorisation is discussed. Benefits from third parties and conflicts from proposed transactions with the company are also addressed.
Book
Gary Watt
This book provides a detailed and conceptual analysis of trusts and equity; concentrating on those areas of the subject that are most relevant in the contemporary arena, such as the commercial context. It utilizes expertise in teaching, writing, and researching to enliven the text with helpful analogies and memorable references to extra-legal sources such as history, literature, and film. In this way, the book also stimulates students to engage critically with concepts. This new edition also includes the latest legal developments, including on: the status of cryptocurrency as trust property; so-called ‘Red Cross’ or ‘Massively Discretionary Trusts’; the presumption of advancement in favour of an adult, financially independent child; virtual witnessing of wills in the period of the COVID-19 pandemic; charitable trusts that engage with controversial and decisive issues; resort to cy-près schemes where a charity’s funds are not fit for purpose; disclosure of trust documentation and the beneficiaries’ right to confidentiality; rescission of a trustee appointment and removal of trustees under the court’s inherent jurisdiction; investment by charities in products conflicting with their purposes; establishing a dishonest breach of trust by a professional trustee; backwards tracing and anticipatory substitution; knowing receipt claims against foreign banks; and, dishonesty as an ingredient of dishonest assistance by a professional agent.
Chapter
12. Duty to avoid a conflict of interest
This chapter discusses the director’s duty to avoid a situation in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect (the no-conflict rule); and the equally inflexible rule that, without consent, a person in a fiduciary position is not entitled to profit from that position (the no-profit rule or, more accurately no secret profit rule). These two rules, as the most important fiduciary obligations, are considered in detail alongside the extensive case law addressing these duties. Hence consideration is given to the scope of the no-conflict, no-profit obligation, the limitations on exploiting property, information, or opportunities, looked at from the company’s position and the position of the conflicted director. The position on resignation and the possibilities of authorisation are also considered. Benefits obtained from third parties as well as conflicted transactions with the company are also addressed
Chapter
4. Promoters and pre-incorporation contracts
Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter focuses on one area where the motives of ‘promoters’ (that is, those who form a company) are relevant to the legal aspects of certain activities carried out in the company’s name, especially when they enter into contracts for the company prior to its formal registration. After defining the term ‘promoter’, the chapter discusses the fiduciary duties of promoters and the range of remedies available to the company against a promoter who breaches his fiduciary duties. It then considers problems involving contracts entered into prior to incorporation and the common law position on such contracts. It also explains pre-incorporation contracts, deeds, and obligations under s 51 of the Companies Act 2006 before concluding with an analysis of the issue of Brexit and its impact on corporate mobility.
