A fiduciary is a person in whom another person has placed trust and confidence to act in his or her best interests. 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 interests of the beneficiary. An asset does not need to be a physical good.
What are Fiduciary Relationships?
Common examples of fiduciary relationships include those between:
- Directors and companies;
- Business partners;
- Lawyers and clients;
- Agents and principals; and
- Employees and employers.
For example, a company has fiduciary duties for their directors to act in the best interests of the company. The decisions of the directors, financial or otherwise, should be made to benefit the company. Interestingly, spousal or de-facto relationships are not fiduciary in nature, otherwise many acts of infidelity would give rise to a new cause of legal action!
In order to ensure that those who place their trust and confidence in others (who in turn assume that role) are adequately protected under the law, the law has developed several safeguards.
What are the Fiduciary Duties?
In general, it may be said that fiduciaries have the following duties to principals (i.e. those placing trust and confidence in them):
- to act in the interests of the principal in good faith; and
- not to enter into a position which may give rise to a conflict between the fiduciary’s personal interest and his/her responsibilities to the principal.
However, specific fiduciary duties may be implied in particular circumstances based on the nature of the relationship between the parties.
Where a fiduciary does not act in the best interest of the principal, this can be problematic. As a consequence of the duties bestowed, courts will enforce the following remedies against fiduciaries who breach them:
- A fiduciary who uses his/her position in order to make a personal gain (i.e. secret profit) may be required to account for and repay any such profits. This rule extends beyond mere personal use of assets held on trust, to the use of knowledge obtained in the course of one’s role as a fiduciary for personal gain.
- A court may declare that any asset acquired or obtained through a breach of a fiduciary duty is held on trust for a principal.
- A court may order that damages be paid to a principal for any loss suffered due to a breach of a fiduciary duty.
In order to avoid the prospect of being found to have breached a fiduciary duty, fiduciaries should consider obtaining the informed consent of the principal to any action that they intend to take which may not strictly be in the interests of the principal.
For advice on acting as a fiduciary/trustee or if you believe that you have been wronged by someone acting in that capacity, contact us on 1300 544 755 to speak with one of our litigation lawyers.