A fiduciary is someone in whom another person has placed trust and confidence to act in their best interests and has the power and obligation to act for that person. The most obvious example of a fiduciary is a trustee who holds an asset on behalf of a beneficiary and is therefore required to deal with that asset in the beneficiary’s interests. An asset does not need to be a physical good. This article will explore what the fiduciary duty is, common fiduciary relationships and what you can expect from it.
What are Fiduciary Relationships?
Common examples of fiduciary relationships include those between:
- directors and companies;
- business partners;
- lawyers and clients;
- doctors and patients;
- trustee/beneficiary
- agents and principals; and
- employees and employers.
For example, a company has fiduciary duties for its directors to act in the best interests of the company. Therefore, the directors’ decisions must be for the company’s benefit. Interestingly, spousal or de-facto relationships are not fiduciary. Otherwise, many acts of infidelity would give rise to a new cause of legal action.
A fiduciary owes specific obligations under general principles of law (known as the ‘Fiduciary Duties’) in addition to obligations under legislation.
What are the Fiduciary Duties?
In general, fiduciaries have the fiduciary duties to principals, the individuals placing trust and confidence in them. Accordingly, the fiduciary must:
- act in the interests of the principal in good faith;
- not enter into a position that may give rise to a conflict between the fiduciary’s personal interest and their responsibilities to the principal;
- exercise their powers for a proper purpose; and
- not limit their decision-making improperly.
In addition, in certain circumstances, specific fiduciary duties may be implied based on the nature of the relationship between the parties. For example, a director must not use the company’s business to divert business opportunities to another source.
If a fiduciary breaches any of the fiduciary duties, the principal can:
- Bring a claim for compensation: A fiduciary who uses their position to make a personal gain may need to account for and repay any such profits. This rule extends beyond mere personal use of assets held on trust to using knowledge obtained as a fiduciary for personal gain.
- Seek an order for the property to be held on trust: A court may declare that any asset acquired or obtained through a breach of fiduciary duty is held on trust for a principal.
- Bring a claim for damages: A court may order that damages be paid to a principal for any loss due to a fiduciary duty breach.
- Grant an injunction to prevent the behaviour.
- Seek a recision (reversal) of a contract entered into in breach of the fiduciary duty.
- Seek a grant an entitlement of profits from the fiduciary.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
A fiduciary is a person in whom another person (the principal) has placed trust and confidence to act in his or her best interests and who has the power and obligation to act for that other person. As a result, the fiduciary has a legal responsibility to the principal. The fiduciary’s duties include acting in the principal’s best interest in good faith and not entering into a position that may create a conflict between the fiduciary’s personal interest and their responsibilities to the principal. However, specific fiduciary duties may be implied in particular circumstances based on the nature of the relationship between the parties.
Breaches of a fiduciary relationship are serious. If fiduciaries consider that their actions may conflict with their principal, they should consider obtaining their principal’s informed consent to mitigate the risk of breach.
If you need help complying with your fiduciary duties, our experienced litigation lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A fiduciary relationship can develop by agreement or because of a specific role or relationship that presumes a fiduciary duty
Fiduciary duties are not positive duties. This means that the duty of a fiduciary is not to do something to the principal. The two main duties are the duty of no conflict and no profit.
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