EQ - Fiduciary Relations and Duties PDF
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This document covers fiduciary relations and duties, including case studies and legal principles. It discusses why this relationship is important, different types of relationships, the onus of proof, and characteristics of fiduciary relationships.
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EQ - FIDUCIARY RELATIONS AND DUTIES Part A Introducing fiduciary relations; why this relationship is important - Reasons for seeking to establish fiduciary duty - ‘Equity recognises that in certain relationships, it is necessary to impose duties in addition to those already prescribed by the co...
EQ - FIDUCIARY RELATIONS AND DUTIES Part A Introducing fiduciary relations; why this relationship is important - Reasons for seeking to establish fiduciary duty - ‘Equity recognises that in certain relationships, it is necessary to impose duties in addition to those already prescribed by the common law… - Dal Pont, Commentary and Materials (2023) 93. - The central fiduciary duty, and what distinguishes it from other legal duties, is a duty of loyalty “unequalled elsewhere in the law”. - Dal Pont, Equity and Trusts (2023) 97. - Two types of fiduciary relationships - onus of proof - ‘Accepted’ fiduciary relationships - Party who alleges no fiduciary duty carries onus of proof. - Fiduciary relationship arising in a particular case - No presumed fiduciary relationship. - Categories of fiduciary relationship are not closed: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 68 (Gibbs CJ) (Hospital Products v USSC) - Party who alleges fiduciary relationship and duties exist, carries onus of proof. - - Difficult to define fiduciary relationships - Attempts to define those whom the law classifies as fiduciaries have not so far succeeded in producing a simple criterion for identifying them.’ - Justice McPherson, ‘Fiduciaries: Who are they?’ (1998) 72 Australian Law Journal 288, 288. - … most commentators and judges are in agreement on one matter: the quest to define fiduciary relationships “continues without evident sign of success”. - James Edelman, ‘When Do Fiduciary Duties Arise?’ (2010) 126 Law Quarterly Review 302, 305. Characteristics of fiduciary relationships - Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 - In the USA: - USSC was a manufacturer - Hospital Products (HP) was a dealer - Product was patented - HP came to Australia - HP persuaded USSC to appoint them as exclusive dealer - Product not patented - HP manufacturer products - Applied for patents - Cancelled dealership / distributorship with the USSC - Started selling its own product - USSC found out, and claimed account of profits - - No fiduciary relationship found (3:2) - Majority (Gibbs CJ, Wilson and Dawson JJ); dissent (Mason and Deane JJ) - Categories of fiduciary relationship are not closed (Gibbs CJ and Mason J) - Gibbs CJ - not much weight on trust and confidence, inequality in bargaining power or undertaking - Purely commercial arrangement, arms’ length transaction and on equal footing – indicative of no fiduciary relations - - at 96-97 (Mason J) - Critical feature of fiduciary relationship - “that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense” - See John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at. - Can’t exclude all commercial transactions - Co-existence of fiduciary and contractual relationship - Contract provides the foundation of FR - FR accommodates to the terms of the contract to remain consistent; cannot alter contractual terms - HP was entrusted with the goodwill of USSC’s products - Closer to bailor and bailee relationship; accepted relationship - HP could act to the detriment of USSC; vulnerability of USSC The fiduciary obligations: - Co-existence with other duties - Contractual or tortious liability - Fiduciary duties lay down an additional layer of protection - - Scope of duties - Subject-matter over which FDs extend - FDs do not arise in respect of the entirety of the relationship - E.g., Hospital products – FR arose only in respect of the goodwill or reputation of the manufacturer - If FR arises from contract, terms of the contract play an important role to determine the scope of FD - Parties may be able to modify FD through the terms of the contract; but not always decisive - Courts look at the circumstances and parties’ conduct - - Breen v Williams (1996) 186 CLR 71 - Doctor and patient relationship. - Not a presumed fiduciary relationship in Australia. - Australian approach is different from that of Canada and the USA - Imbalance in the bargaining power or patient’s vulnerability – insufficient in Australia - Personal vs financial or proprietary interests? - Judiciary in the USA and Canada recognise personal and non-commercial relationship as fiduciary, - Judiciary in Australia less likely to find FR and FD in respect of personal rights - Australia less likely to find FR and FD in the absence of financial or proprietary rights - - Importance of defining the scope of the duty: subject- matter over which it extends - Brennan J, Gaudron and McHugh JJ: Fiduciary relationship in respect of diagnosis and treatment; not in respect of delivering medical records maintained by doctors - Focused on the nature of duty: Breen was asking for a positive duty; fiduciary duties are proscriptive (prohibitory - - Boardman v Phipps 2 AC 46 (House of Lords) - Strictness of the fiduciary duties: - Honesty of fiduciary, no detriment to beneficiary and opportunity not open to the Trust - Confirms two fiduciary duties: No-conflict rule and no- profit rule; separate existence of no-profit rule - Lord Upjohn (dissenting judge): The test is whether a reasonable person, looking at the relevant facts and circumstances of the particular case, considers that there is a ‘real and sensible possibility’ of conflict - Illustrates informed consent requirement. Part B: Examining some categories of fiduciary relationships Trustee and beneficiary - ‘Classic’ fiduciary relationship. - Keech v Sandford (1726) 25 ER 223 – ‘a trustee must not use his position as a trustee to make a gain for himself’. - - Jaken Properties Australia Pty Ltd v Naaman NSWCA 214 (8 September 2023) (Note: The HCA granted a leave to appeal on 8 February 2024) - Two trustees – former trustee (JPG; Naaman is a judgment creditor of JPG) and successor trustee (Jaken) - Whether a successor trustee owes a fiduciary obligation to a former trustee not to deal with trust property ‘so as to destroy, diminish or jeopardise the former trustee’s entitlement to be indemnified’ from those properties for cost incurred - NSW Court of Appeal - Bell CJ - successor trustee owed fiduciary duty and breached that duty; agreed with the primary judge - Leeming and Kirk JJA – successor trustee did not owe fiduciary duty; the duty is not fiduciary Directors and company - Corporate business opportunities: - - Regal (Hastings) Ltd v Gulliver 2 AC 134 - - The court said yes, Lord Russell said that: - ‘the directors standing in a fiduciary relationship to [Regal] in regard to the exercise of their powers as directors, and having obtained those shares by reason and only by reason of the fact that they were directors of [Regal] and in the course of the execution of that office, are accountable for the profits which have been made out of them.’ - Strict legal duties of the directors when taking up business opportunities of the company - - Post Directorship – - Directors resign and then take the corporate business opportunities - Depends on sufficient temporal and causal connection between fiduciary obligation and opportunities - Whether resignation is prompted by the desire to take business opportunities - Foster Bryant Surveying v Bryant EWCA Civ 200. - Informed Consent – - Where the company consents to the director taking up the business opportunity - Queensland Mines Ltd v Hudson (1978) 18 ALR 1 - Howard v Federal Commissioner of Taxation (2014) 253 CLR 83 (see in particular -, - - Held: reasoning is incorrect - Three important points: - cautioned against the ‘overbroad assertion of fiduciary duties’ ; must look at scope of the duties - whether a conflict has arisen between the interests of the fiduciary and the beneficiary - Equity will not be used as ‘an instrument of hardship and injustice’ - Duty to shareholders? - Glavanics v Brunninghausen (1996) 19 ACSR 204 - Family company - Breach of fiduciary duty between director and shareholder - Director was dealing with shareholder personally - Only two directors and shareholders; in close relationship - Upheld on appeal – Brunninghausen v Glavanics (1999) 46 NSWLR 538 Lawyer-client - Lawyer-client conflict - Law Society of New South Wales v Harvey 2 NSWLR 154 (see, in particular, 170-171) - The “duty of a solicitor to his client is paramount”. - Where conflict arises, full disclosure of the interest is required. - Usually, will be improper to continue to act. - Must advise clients to take independent legal advice. - Take all reasonable steps to avoid dealing with clients - Informed consent might itself not be sufficient, must advise clients to take independent legal advice - we will revisit this later in the unit – ‘non-disclosure of material facts’ clients - - Client-client conflict - Farrington v Rowe McBride & Partners 1 NZLR 83 (NZ Court of Appeal) - “A solicitor’s loyalty to his client must be undivided”. - - Where conflict: - Full disclosure of material facts to both clients and informed consent; - But, sometimes, may be impossible even with disclosure. - - Successive client-client conflict - Prince Jefrie Bolkiah v KPMG (a firm) 2 AC 222 - Fiduciary duties end on termination of retainer. - Cf Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 - Lawyers’ fiduciary duties may continue after the termination of the relationship. (Brooking J) Partnerships - The law imposes fiduciary duties by reason of the mutual confidence that the partners will engage in a particular kind of activity or transaction for joint advantage only. - Helmore v Smith (1887) 35 Ch D 436 - - Partners - prior agreement duties - Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd 1 Qd R 1 (SC) - No partnership agreement = no contractual duty. - Fiduciary duty recognised - Negotiation for partnership - New lease and assets were to be held by both parties on trust for the benefit of partnership - - Partners – post-dissolution duties - Key Case - Chan v Zacharia (1984) 154 CLR 178 - Partnership dissolved - Majority – agreement for the new lease to be held on constructive trust - Leading judgment delivered by Deane J - “The relationship between the partners was curtailed and altered by the dissolution of the partnership. It did not however cease.” (at 197). Principal and agent Joint ventures - United Dominions Corporation Ltd v Brian Pty Ltd (1984) 154 CLR 178 - United Dominions Corporation (UDC) - - Security Projects Ltd (SPL) - Brian Pty Ltd (Brian) - SPL owned land on which shopping centre was built - Shares: UDC (10%); SPL (58.4%); Brian (9.2%); others (22.4%) - Brian did not know about a mortgage by SPL to UDC - Brian was not paid anything; SPL defaulted and was wound up; Brian sued UDC - HCA held: Fiduciary relationship existed between UDC and Brian as joint venturers; UDC could not rely on the mortgage to deny Brian’s entitlement - - 10-11 (Mason, Brennan and Deane JJ) - “The term ‘joint venture’ is not a technical one with a settled common law meaning”. - The relationship between the participants in the joint venture under the agreement exhibited the indicia of a partnership. - Fiduciary relation depends on the form that the joint venture takes and the obligations undertaken - The court will look at the substance of the relationship between the parties - - Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 - Court of Appeal: - 1. F obtained knowledge and critical information from council to enable parties to achieve potential of development - 2. S reposed trust and confidence in F to do so for the benefit of their joint interests. - 3. F acquired a special opportunity. S depended on F to get knowledge and information. - High Court: - F made sufficient disclosure. Commercial transactions Governments and the Indigenous people - Fiduciary obligations owed by governments to Indigenous persons?: Land Rights - But see: - Wik Peoples v Queensland (1996) 187 CLR 1 - Brennan J - Fiduciary duty has no role to play - No reasonable expectation of Indigenous people - Government’s power to alienate land is inconsistent with the recognition of fiduciary duty - - Fiduciary obligations owed by governments to indigenous persons? – non-proprietary rights - Whether government has fiduciary rights to Indigenous children - Australian approach reflected in Breen v Williams (1996) 186 CLR 71 - Non-financial relationships are not good candidates - Proscriptive obligations: no-conflict and no-profit rule - Torts and contracts are adequate for positive duties -