Source: http://newsite.carlislam.co.uk/mental-capacity-law-practice
Timestamp: 2019-04-19 02:33:40+00:00

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Talk given by By Carl Islam, Barrister TEP, 1 Essex Court (www.ihtbar.com) at Guildford Country Club 12.11.2018.
I am arguing that a claim for fraudulent calumny can be brought on the grounds of breach of fiduciary duty where a fiduciary has been silent – which I call the ‘Quiet fiduciary thesis’.
In the article based upon this talk which is being published by Trusts & Trustees I go on to examine the operation of the fiduciary principle in the wider commercial and contractual context. The question then becomes ‘can a contract be rescinded on the grounds of breach of fiduciary duty, by reason of silence?’ I conclude that it can.
Whereas every breach of fiduciary duty is breach of trust, not every breach of trust is a breach of fiduciary duty. Breach by a fiduciary which is not a breach of fiduciary duty but breach of his duty of care, will be treated like a claim for damages.
A Leonard Rotman explains (and I quote), ‘Trust duties are… fiduciary duties, trust relationships are necessarily fiduciary relationships, and trustees are… fiduciaries. On the other hand, fiduciary duties may not be trust duties.… [Fiduciaries] are obliged, within the fiduciary elements of their interactions to focus their energies on serving their beneficiaries’ best interests. The definition of “best interests” is not entirely straightforward, though. Does it entail that fiduciaries have positive duties to foster or further their beneficiaries’ interests, such as taking positive steps to obtain the best possible price for a property? Alternatively… must fiduciaries only refrain from acting in ways that are detrimental to their beneficiaries’ interests, thereby entailing that their duties are negatively fashioned – for example, a duty not to engage in conflicts, whether of interest and duty or of duty and duty?… Whether or not the rules and obligations imposed upon fiduciaries are positive (you must do this) or negative (you may not do that), the fact is that the fiduciary concept prescribes such rules and obligations: these are positive, purposive inclusions designed to achieve particular results. As with the situation involving express trustees, once persons or things are described as fiduciaries, Equity intervenes and prescribes a standard of conduct to which they must adhere.’ It is therefore critical to work out the nature of the breach.
The duty owed by a fiduciary to exercise skill and care towards his principal is not a fiduciary duty.
Breach of the duty of care, is therefore not a breach of fiduciary duty, and will neither render void or voidable a transaction entered into by or at the instigation of the fiduciary, nor give rise to the restitutionary, restorative, or proprietary remedies available for breach of fiduciary duty.
(ii) a fiduciary may owe duties fiduciary duties in respect of some of their activities, but not all of them.
Not every breach of duty by a fiduciary is a breach of fiduciary duty, Hilton v Barker, Booth and Eastwood  UKHL 8,  1 WLR 567,  (Lord Walker). The fact that a professional person e.g. a solicitor/executor/trustee, is subject to fiduciary obligations, does not mean that all his duties to his client are fiduciary duties. His contractual and tortious duties are still owed in contract and tort.
They do not become fiduciary duties because he is a fiduciary. Nor is the scope of the contractual or tortious duties enlarged because the solicitor also owes fiduciary duties. The courts will therefore not impose fiduciary obligations to make good failure by a party to a contract to obtain adequate protection of his interests which could have been achieved by the inclusion of appropriate contractual provisions.
Nor will fiduciary duties be superimposed on common law duties simply to improve the nature and extent of the remedy.
Fiduciary duties provide the basis for a cause of action that is flexible in its application to a wide range of factual circumstances which are likely to be made out in a fraud case.
• the s.21(1) Limitation Act 1980 carve-out may apply on the facts. Because the six-year limitation period set out in s.21(3) of the Limitation Act 1980 is subject to a carve-out, set out in s.21(1), the effect of which is that, ‘if a beneficiary under a trust brings an action against a trustee of that trust; or (b) to recover from the trustee property or the proceeds of trust property, then no limitation period under the 1980 Act will apply,’ (Grant QC, Thomas, and David Mumford QC, paragraph 25-014). For a discussion of the implications of the decision of the Supreme Court in Burnden Holdings (UK) Limited v Fielding and another  UKSC 14, in which the Supreme Court unanimously held that for the purposes of s.21 a ‘director’ was a ‘trustee’ simply because directors owe fiduciary duties, see ‘The Scope of “Trustee” Under Section 21 Limitation Act 1980’ by Martin Kwan, Trusts & Trustees, Vol 24, No.5, June 2018, pp 452-455.
In determining whether a person is a fiduciary, it is first necessary to consider whether that person is in a relationship with another that falls within one of the recognised categories of fiduciary relationships.
If it does not, it is then necessary to examine the factual circumstances of the relationship to determine there are sufficient hallmarks of a fiduciary relationship to enable the court to conclude that the relationship is indeed fiduciary.
Once it has been recognised that the defendant is a fiduciary in a fiduciary relationship, it is necessary to consider the nature and ambit of the fiduciary duties to which he is subject.
Outside of the paradigm settled cases, the content of fiduciary duties is flexible and fact-sensitive.
In that context, it is therefore necessary to examine with some care what is the precise content of the particular fiduciary obligations arising in the specific circumstances of the individual case.
For a fiduciary to be liable for breach of fiduciary duty, he must have breached the duty by an intentional act. Unconscious omission is not sufficient.
• it is not necessary to demonstrate that the fiduciary acted in bad faith, or dishonestly.
A fiduciary will therefore be held liable even if he did not act fraudulently or in bad faith, and even where he honestly believed that he was acting in good faith, Murad v Al-Saraj  EWCA Civ 969, WTLR 1573,  (Arden L.J.).
Liability for breach of fiduciary duty is strict.
In other words, it is not necessary for the principal to prove that they have suffered harm as result of the breach of duty, or that any profit obtained by the fiduciary can be attributed to the breach.
Because there is considerable uncertainty as to what is and is not truly a ‘fiduciary duty’, practitioners must proceed with caution.
Not least, because not all of the duties owed by a person who occupies a fiduciary position viz-a-viz another will be fiduciary duties at all; and not all of those which can appropriately be described as being fiduciary will be so in the same sense or attract the same remedial consequences.
(iv) to what aspects of the relationship they pertain.
‘a number of authorities on the question whether a fiduciary duty is owed by one person to another’.
‘(1) There are a number of settled categories of fiduciary relationship. The paradigm example is that of trustee and beneficiary; other well-settled examples are solicitor and client, agent and principal, director and company (subject to the impact of the Companies Act 2006), and the relationship between partners: Snell’s Equity (33rd edn, 2015) at §7 004.
(2) Outside these settled categories, fiduciary duties may be held to arise if the particular facts warrant it. Identifying the circumstances that justify the imposition of fiduciary duties has been said to be difficult because the courts have consistently declined to provide a definition, or even a uniform description, of a fiduciary relationship.
It is also necessary to identify more precisely the nature of the trust and confidence which is a feature of a fiduciary relationship.
Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution.
‘Courts have frequently observed that “the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case” Thus “to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? Statements emphasising the “the obligation imposed may vary in its specific substance depending upon the relationship” can be read as suggesting that courts possess discretion to craft and apply fiduciary duties as they see fit. It is important, however, to recognise that the moulding of fiduciary duties to the circumstances of the case is not an unprincipled exercise in judicial discretion. Understanding fiduciary duties as protective of non-fiduciary duties provides a solid theoretical underpinning for this important tenet of fiduciary doctrine. Because fiduciary duties are designed to protect non-fiduciary duties, by removing temptations and incentives that are inconsistent with proper performance of those duties, fiduciary doctrine’s response to a particular factual situation must, as a matter of logical necessity, take account of the non-fiduciary duties which are owed in that situation.’ Conlagen, page 177.
‘[It] is a rule of universal application that no one having [fiduciary] duties to discharge shall be allowed to enter into agreements in which he has or can have personal interest conflicting or which possibly may conflict with the interest of those whom he is bound to protect.’ Aberdeen Railway Co v Blaikie Brothers [1843-60] All E.R. Rep 249, per Lord Carnworth LC at 252.
‘[It] is an inflexible rule of a court of equity that a person in a fiduciary position … is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict.’ Lord Herschell in Bray v Ford  AC 44,50.
‘These are uncontroversially and quintessentially fiduciary duties: they are peculiar to fiduciaries, and they serve the same underlying prophylactic purpose of ensuring that the fiduciary does not allow his performance of his primary obligations to his principal to be influenced by considerations of self-interest. Both duties are also proscriptive: they do not tell the fiduciary what he should do for his principal; they tell him what he should avoid doing, in order that there is no sensible risk of him acting other than in the best interests of his principal and in accordance with other (non-fiduciary) duties … If the fiduciary breaches these proscriptive duties by allowing other interests (even potentially) to intrude, he is treated as if he had acted for his principal. As a result, these duties attract peculiar remedial consequences: they give rise to equitable remedies that are “primarily restitutionary or restorative rather than compensatory, including in particular rescission (the right at the principal’s election to set the relevant transaction aside), the obligation to account for and disgorge unauthorised profit, and proprietary remedies based on constructive trust.’ Grant QC, Thomas, and David Mumford QC, paragraphs 11-076 and 11-077.
The nature of the remedy sought will depend on the consequences of the breach. The remedy may be proprietary, in the sense that the claimant might seek to recover property from the defendant or to obtain a security interest in the defendant’s property … Where the defendant no longer has property belonging to the claimant or where the breach did not involve the defendant receiving any property, the remedy sought will be personal, in the sense that the claimant seeks to obtain a money remedy from the defendant representing the value of the claim … The key advantages of proprietary remedies are that the claimant will have priority over other creditors of the defendant, which will be significant where the defendant is insolvent. Another advantage of proprietary remedies where the claimant seeks to recover particular property retained by the defendant is that the claimant will gain the benefit of any increase in the value of that property. Of course, if the property has fallen in value, the claimant will bear the loss, which would make a personal remedy more attractive. Where, however, the defendant is not insolvent or facing insolvency, and where the property retained by the defendant has neither increased nor fallen in value, there may be little to choose between proprietary and personal remedies. A final advantage of proprietary remedies is that they can be obtained from a third party recipient of the property even if they were unaware that the claimant had any proprietary rights to the property, save if the third party had also provided some value for the property. Where a trustee has misappropriated trust property and used it to acquire other property, the beneficiaries can elect whether to seek a personal remedy to recover the value of the property which has been misappropriated or, instead, adopt the substitute property as part of the trust fund. The beneficiaries will, of course, prefer to recover the substitute property if its value is greater than the value of the property which was misappropriated.’ Virgo, paragraphs 15.1.5 and 18.1.1.
To determine whether the claimant has an interest in identifiable property, i.e. a ‘proprietary base’, in relation to an equitable proprietary claim, the property interest must be an equitable one. A proprietary base can be established either by showing that a new proprietary interest has been created, or that an existing proprietary interest has been retained by the claimant, notwithstanding the transfer of property. Equitable proprietary interests can be created by express intention in the form of an express trust or can be imposed by operation of law in the form of the constructive trust. In either case, legal title to the property will vest in the trustee, and the beneficiaries will possess an equitable interest. Where a principal transferred property to a fiduciary, he will be able to bring an equitable proprietary claim against the fiduciary or a third party, where the property has been misappropriated, Re Hallett’s Estate  13 Ch D 696, 709 (Sir George Jessel MR).
‘Once an equitable proprietary interest has been identified, the claimant will then need to show that this interest can be identified in the property that has been received by the defendant. To do this, the claimant will need to rely on the following and tracing rules. The essence of following is that the claimant is able to show that the property in which they have a proprietary interest has been received by the defendant. If the identity of the claimant’s property has been lost or the property has been destroyed, they will no longer be able to follow it. Where the claimant’s property is transferred directly to the defendant, there is no difficulty in following the property. Where, however, the property is received indirectly by the defendant, the question of following may be more difficult to establish on the facts. Where the original property cannot be followed (because, for example, it has been dissipated or has lost its identity in a mixture), it is necessary for the claimant to show that the value of the property in which they originally had a proprietary interest can be identified in substitute property that has been received by the defendant. Whether the claimant can establish this depends on the application of the tracing rules, which are evidential rules and presumptions that enable the claimant to prove that value in the original property is represented in the substitute property.’ Virgo, paragraph 19.3.1. The main advantage of tracing in equity is that it will not be defeated by the irretrievable mixing of property, Agip (Africa) Ltd v Jackson  Ch 417. The orthodox requirement for tracing in equity is that it is necessary to show that the property in which the claimant had an equitable proprietary interest passed to the defendant through the hands of a fiduciary in breach of duty. In other words, there must have been an unauthorised disposition of property, Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd  1 WLR 1072.
Where the fiduciary has profited from the breach of fiduciary duty, they will be liable to disgorge the profit to the principal, Nocton v Lord Ashburton  AC 932, 956-7 (Viscount Haldane VC). Where the principal has been remunerated for work done in breach of fiduciary duty those payment can be forfeited to the principal, Hosking v Marathon Management LLP  EWHC 2418 (Ch). Where the principal has suffered loss as a result of the breach of fiduciary duty, they may seek equitable compensation from the fiduciary, Bristol and West Building Society v Mothew  Ch1. These are alternative remedies and the principal will need to choose between them to avoid double recovery. Where there are separate causes of actions, both of which are based upon breach of fiduciary duty, e.g: (i) claiming rescission for self-dealing in relation to property assets; and (ii) equitable compensation for selling trust investments at a loss, they may and should be included in the same claim form. Whilst ‘failure to specify a particular remedy will not limit any power of the court to grant such a remedy if the claimant is entitled to it (r.16.2(5)) … the best practice is to set out all the remedies that are being claimed against the defendant, and there may be costs penalties if this is not done.’ Kay, The Rt Hon Sir Maurice, Stuart Sime, and Derek French, paragraph 23.7. The Court of Appeal held in FHR European Ventures LLP v Cedar Capital Partners LLC  UKSC 45, that when a fiduciary is liable to account for profits made as a result of a breach of fiduciary duty, the profits will be held on an institutional constructive trust for the principal. Therefore, whenever a fiduciary receives a bribe or secret commission in breach of fiduciary duty, it will be held on constructive trust. The underlying rationale being that the principal has an equitable proprietary interest in the bribe/secret commission because the fiduciary is treated as though he had acquired the bribe/secret commission on behalf of the principal. The rationale ensures fiduciary fidelity.
These remedies operate against the person of the defendant wrongdoer irrespective of whether or not he retains property that may have been the subject of the claim, i.e. they are not proprietary. Proprietary liability is independent of fault. It therefore only lies where the recipient still has the property received or its traceable proceeds.
• mental incapacity (at common law and in equity).
Where a ground is recognised both at common law and in equity, the court can intervene and make an order for rescission ion equity where the common law right that might otherwise exist is unavailable. The right to rescind will be lost if the wronged party affirms the transaction. An election to affirm is final, Peyman v Lanjani  Ch.457. However, there can be no such affirmation without full knowledge of the facts that give rise to, and the existence of the right, and the party affirming must be free from the relevant vitiating factor. Therefore, the victim of a deceit must know the true facts.
Rescission produces two main effects. First, it cancels all future obligations. Secondly, it nullifies the transaction ab initio. In relation to a contract, it is avoided from the beginning. Therefore, all of the effects of the contract, from the moment of rescission going back to the date of creation of the contract are reversed.
‘The position is very different in equity. In those cases where the vitiating factor as one for which the common law gave no relief, such as undue influence or breach of fiduciary duty, equity did not accept the common law’s view that rescission was the act of the innocent party. Equity could not adopt that view because a transaction which is not voidable at law could not be nullified other than by a judicial act. Since rescission of a transaction which was impeachable only in equity required judicial intervention, the innocent party seeking rescission had to go to the court of equity for its active intervention to give him the relief. If granted, the rescission was effective from the date of judgment. Rescission in such a case was the act of the court, not that of the plaintiff. If the court found that the ground for rescission was made out, it proceeded to set aside the agreement. And it is still the position today that rescission on the ground of equitable vitiating factors of undue influence, abuse of confidence and unconscionable dealing continues to be the act of the court rather than that of the innocent party. Thus, is Midland Bank Plc v Greene, a case concerned with undue influence, it was stated that “the right to avoid a voidable transaction is a right to apply to the court to exercise its equitable jurisdiction.”’ Enonchong, paragraph 28-005.
‘Although the remedy of rescission is usually relevant to set aside a contract, it is also relevant to setting aside other transactions, including wills [Re Edwards (deceased)  EWHC 1119], deeds of gift, and other voluntary settlements, such as a disposition to trusts [Pitt v Holt  UKSC 26]’, Virgo, paragraph 21.6.1.
‘Contracts or voluntary dispositions, including wills [Schrader v Schrader  EWHC 466 and Edwards v Edwards  WTLR 1387], can be set aside where they have been induced by undue influence. The rules in both instances are broadly the same. The essence of undue influence is that the party making the contract of disposition was dominated by the other so that he was not acting of his own free choice. Actual undue influence … may be through the exercise of conscious deception, although there will also be cases where a trusted advisor has broken his fiduciary duty of loyalty by preferring his own interests [Royal Bank of Scotland Plc v Chandra  EWCA Civ 192 at 26.].’ Pearce, Robert and Warren Barr, page 805.
Rescission will be barred where it is not possible to return the parties to their original position, i.e. if property has been transferred to a bona fide purchaser for value, if the principal has affirmed the transaction, or if too much time has elapsed before the principal has sought to rescind it.
In Canson Enterprises Ltd v Boughton and Co 85 DLR (4TH) 129, 163, McLachlin J, sitting in the Supreme Court of Canada, said that ‘compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate.’ This was approved by Lord Browne-Wilkinson in Target Holdings v Redferns  1 AC 421, 438.
Equitable compensation is not compensation for loss, it is restitution of the trust fund. If the defaulting trustee cannot restore the assets to the trust fund, then he must pay money into the trust instead. How much has to be paid into the trust fund is assessed by looking at the matter with hindsight to see what would be comprised in the trust fund but for the breach. There must be a causal link between the breach and the loss to the trust fund.
A claim for equitable compensation for breach of fiduciary duty is not limited by foreseeability, remoteness, and other considerations which affect the recovery of common law damages. So, the defendant will be liable to compensate for loss arising directly or indirectly as a result of the breach even if it was unforeseeable at the time of breach. In equity, the loss is assessed at the date of trial, with the benefit of hindsight. Furthermore, unless a contractual limitation and exclusion clause expressly contemplates and applies to a claim for an equitable remedy, it may not apply. A skilfully drafted full blown indemnity clause in a contract between businessmen almost certainly will. That, commercially, could prove catastrophic (a ‘double whammy’) for the party who is liable for the breach and default, because liability is unlimited, and pure economic losses (i.e. losses that are not the result of injury to person or tangible property) are recoverable under English law. See also, ‘Equitable Compensation arising out of sale of property ordered under section 14 TLATA’ by Carl Islam, Trusts & Trustees, Vol 23, No.10, December 2017, pp 990-995.
Where there has been a breach of trust or fiduciary duty, it does not follow that there is an automatic right to compensation, since no loss may have been suffered as a result of the breach. Whereas, ‘for breach of contract the principal remedy is damages to compensate for loss by putting the claimant in the position in which they would have been had there not been a breach of contract, where a breach of trust has occurred, Equity’s principal mechanism for providing relief is the taking of an account, which in form is not even remedy, but simply involves an assessment by the court of the state of the trust fund. Once the account has been taken, however, monetary relief may follow if the account reveals that a loss has been suffered by the trust or the defendant has made a gain. An account will also be available where a fiduciary who is not a trustee is responsible for managing the principal’s property as steward of it, such as where a fiduciary holds property as an executor or receiver; such a fiduciary will be accountable for the property.’ Virgo, paragraph 18.1.2.
An account of funds is a process by which the dealings by a trustee or fiduciary with the funds or property under his control are examined with a view to identifying and quantifying (among other things) the appropriate relief for any breaches of duty. It therefore does not depend of there having been a wrong. The right to an account follows from the existence of the relevant relationship and its availability is not dependent on the establishment of breach.
‘The procedure for an account and inventory may be used … where … there is concern that the personal representatives are not acting in good faith and may be securing assets for their own benefit …’ Goodman, Dawn, Paul Hewitt, and Henrietta Mason, paragraph 13.11.
‘An action for an account … arises from the fiduciary relationship of the trustee and the beneficiary. A representative clearly has a similar duty to account in the course of administration. That duty is to keep the beneficiary informed and to render accounts… It is the duty of a representative to keep clear up to date and distinct accounts of the property that he is bound to administer … Where one or more breaches of trust are proved or admitted a general account on the footing of wilful account will be ordered if the past conduct of the trustees is such as to give rise to a reasonable inference that other breaches of trust not yet known to the claimant or the court have occurred.’ Learmonth, Alexander, Charlotte Ford, Julia Clark, and John Ross Martyn, paragraphs: 58-23 and 58-25. See also Islam, paragraph 2.4.7.
‘23.1 Proceedings under judgments and orders in the Chancery Division are regulated by PD 40A (Accounts, Inquiries etc.), PD 40B (Judgments and Orders), and PD 40D (Court’s Powers in relation to Land etc).
• directions as to disclosure.
If directions are not given in the judgment or order an application should be made to the assigned Master as soon as possible asking for such directions. The application notice should specify the directions sought. Before making the application, applicants should write to the other parties setting out the directions they seek and inviting their response within 14 days. The application to the court should not be made until after the expiry of that period unless there is some special urgency. The application must state that the other parties have been consulted and have attached to it copies of the applicant’s letter to the other parties and of any response from them. The Master will then consider what directions are appropriate. In complex cases the Master may direct a case management conference.
If any inquiry is estimated to last more than two days and involves very large sums of money or strongly contested issues of fact or difficult points of law, the Master may direct that it be heard by a Judge. The parties are under an obligation to consider whether in any particular case the inquiry is more suitable to be heard by a Judge and should assist the Master in this. Accounts, however long they are estimated to take, will normally be heard by the Master. The Master is likely to want to give detailed directions in connection with the account and the form of it.’ See also Kay, The Rt Hon Sir Maurice, Stuart Sime, and Derek French, paragraph 34.49.
Silence can amount to breach of fiduciary duty. In Androulla Marcou v Niki Christodoulides Niki Christodoulides v Androulla Marcou , at first instance, Mr Recorder Lawrence Cohen QC stated, ‘Silence will not do for a fiduciary.’ In other words, a fiduciary is under a duty to speak.
iv) In this context undue influence means influence exercised either by coercion, in the sense that the testator’s will must be overborne, or by fraud.
Therefore, a will may be set aside on the grounds of undue influence in the form of fraudulent calumny where a fiduciary (who is also a beneficiary under the will) withheld information from his principal (the deceased testator [‘T’]) for his own gain, which otherwise in all probability would have resulted, following disclosure, in T changing the scheme of gifting under his will by giving instructions for the drafting of a new will. In other words, the substantive validity of a will can be challenged on the grounds of undue influence in the form of fraudulent calumny manifest in silence by the fiduciary. Therefore, the theory is valid. Does it apply more widely?
‘The practical reality is that many fraud cases have at their heart the abuse of fiduciary relationships: a company director may divert a business opportunity to another vehicle in which he is interested rather than bringing it to fruition on his company’s behalf; a partner charged with managing a joint venture may account to his partners for only part of the profit made on a joint venture transaction and pocket the rest; an gent negotiating a deal on his principal’s behalf may be promised a secret commission by his principal’s counterparty; solicitor may use monies in his client account to support a business in which he is interested without informing his clients. In such cases, a claim for breach of fiduciary duty, or one against a third party predicated on a breach of fiduciary duty, is a powerful weapon in the fraud litigator’s armoury.’ Grant QC, Thomas, and David Mumford QC, Law, paragraphs 11-002 and 11-003.
The fiduciary duties of company directors are provided for by the Companies Act 2006 (‘CA 2006’). Section 175 of the CA 2006 provides that director is subject to a duty to avoid a situation in which they have, or could have, a direct or indirect interest that conflicts, or may conflict, with the interests of the company, other than an interest that arises in relation to a transaction or arrangement with the company. The duty to avoid a conflict of interest is not infringed if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest, or if the matter has been authorised by the directors.
The possibility of identifying fiduciary relationships outside the established categories (i.e. directors and agents) is potentially very important as regards commercial transactions. The courts have generally refused to recognise that a commercial relationship that has been entered into at arm’s length and on an equal footing is a fiduciary relationship, because it lacks the hallmarks of trust and confidence. The identification of fiduciary duties in a commercial context can have profound consequences on the risks inherent in such relationships because the characterisation of the defendant as a fiduciary will often mean that they bear the risk of failure. Where the proper conclusion to draw from the terms and circumstances of the relationship is that each party could reasonably be expected not to have to subordinated his own interests to those of the other party, then necessarily the full-fledged fiduciary obligation of self-denying loyalty is not owed. It is nevertheless possible for fiduciary duties to be owed by directors to shareholders alongside the statutory duties they owe to the company. Such duties arise not from the relationship between the directors and the company, but from the existence of a separate and special factual relationship between the directors and the shareholders in the particular case. What is required is a particular dealing or communication between directors and shareholders, or a close personal relationship, and in almost all cases some transaction in which the directors and shareholders are involved. ‘A director of a company will similarly not normally owe fiduciary obligations to third parties who deal with the company, even where the company owes fiduciary obligations to them: the company and its management are, of course, distinct. However, in special circumstances such obligations can arise: for example, in a joint-venture relationship where there was a pre-existing relationship of trust and confidence with the director personally before he took office as such, or where the director personally assumed control of the joint venture’s affairs and was paid a fee that was deducted from the profits available for distribution.’ Grant QC, Thomas, and David Mumford QC, paragraph 11-038.
Mutual trust and confidence between parties dealing with one another can be of different kinds. At a basic level any contracting party is entitled to rely on the other party to perform its contractual obligations without having to monitor performance or even if (as in Re Goldcorp Exchange Ltd) it is unable to monitor performance. The kind of trust and confidence characteristic of a fiduciary relationship is different. As discussed above, it is founded on the acceptance by one party of a role which requires exercising judgment and making discretionary decisions on behalf of another and constitutes trust and confidence in the loyalty of the decision-maker to put aside his or her own interests and act solely in the interests of the principal.
It does not follow from the conclusion that he did not owe any fiduciary duties to Mr Kent that the Sheikh’s entitlement to pursue his own self-interest was untrammelled. I have previously suggested in Yam Seng Pte Ltd v International Trade Corp  EWHC 111 (QB), at para 142, that it is a mistake to draw a simple dichotomy between relationships which give rise to fiduciary duties and other contractual relationships and to treat the latter as all alike. In particular, I drew attention to a category of contract in which the parties are committed to collaborating with each other, typically on a long-term basis, in ways which respect the spirit and objectives of their venture but which they have not tried to specify, and which it may be impossible to specify, exhaustively in a written contract. Such ‘relational’ contracts involve trust and confidence but of a different kind from that involved in fiduciary relationships. The trust is not in the loyal subordination by one party of its own interests to those of another. It is trust that the other party will act with integrity and in a spirit of cooperation. The legitimate expectations which the law should protect in relationships of this kind are embodied in the normative standard of good faith.
Although the observations that I made in the Yam Seng case about the scope for implying duties of good faith in English contract law have provoked divergent reactions, there appears to be growing recognition that such a duty may readily be implied in a relational contract. For example, in Bristol Groundschool Ltd v Intelligent Data Capture Ltd  EWHC 2145 (Ch) the parties agreed to collaborate to produce training manuals for pilots. The claimant provided the content for the manuals and the defendant converted the content into an electronic application, which the parties jointly published and marketed. The parties fell out. Anticipating the end of their joint venture, the claimant secretly accessed the defendant’s database and downloaded material. After the contract was terminated, the claimant used the downloaded material to continue selling the electronic training manuals. One issue was whether the secret download was a breach of contract. There was no express term of the contract which prohibited it. But Mr Richard Spearman QC, sitting as a deputy High Court judge, characterised the joint venture agreement as a relational contract and held that there was an implied term of the contract requiring good faith in its performance. The defendant had breached that term by engaging in conduct that “would be regarded as commercially unacceptable by reasonable and honest people” (para 196).
In D&G Cars Ltd v Essex Police Authority  EWHC 226 (QB) a private contractor had agreed to dispose of cars for a police authority. The police authority gave instructions for one particular vehicle to be completely crushed; but they later found out that, instead of sending it to be crushed, the contractor had re-built the car, transferred the number plates from a different vehicle, and was using it in the contractor’s own fleet. Dove J described the contract as “a relational contract par excellence” and held that it was an implied term that the contractor would perform the contract in good faith or – as he preferred to put it – with honesty and integrity. The judge concluded that, even if the contractor had not been deliberately fraudulent, there had been a breach of the implied term which amounted to a repudiatory breach of the contract.
There are other cases in which the implication of a duty of good faith has been rejected on the ground that the contract in question was not a relational contract. For example, in National Private Air Transport Services Co v Windrose Aviation Co  EWHC 2144 (Comm), at paras 133-136, Blair J found (unsurprisingly) that an aircraft lease was not a relational contract and that no duty to act in good faith was to be implied into an obligation to redeliver the aircraft. But the judge also rejected an attempt to cast general doubt on the approach suggested in the Yam Seng case. Furthermore, in Globe Motors v TRW Lucas Varity Electric Steering Ltd  EWCA Civ 396,  1 CLC 712 at para 67, Beatson LJ in the Court of Appeal endorsed the view that, in certain categories of long-term contract of the kind mentioned in the Yam Seng case, courts may be more willing to imply a duty of good faith – which he characterised essentially as a duty to cooperate.
‘Although there is no duty on a contracting party to reveal all known facts, in the case of some contracts, known as contracts uberrimae fidei, there is such a duty. These include contracts for insurance and family settlements . The right to rescind a contract applies both where the misrepresentation is fraudulent (which means a false statement made knowingly, or without belief in its truth, or reckless whether it is true or not) and where the misrepresentation is innocent (where the party making the misrepresentation honestly believes it to be true).’ Pearce, Robert and Warren Barr, page 805.
Contracts can also be set aside where they have been induced by undue influence. Fraudulent calumny is a form of undue influence. The Quiet Fiduciary Thesis proves that the cause of action is available in relation to a contract where breach of fiduciary duty is manifest in silence. The thesis therefore applies more widely to contract and commercial claims.
Conlagen, Matthew (2010). Fiduciary Loyalty – Protecting the Due Performance of Non-Fiduciary Duties. Hart Publishing.
Enongchong, Nelson (2006). Duress Undue Influence And Unconscionable Dealing. Thomson Sweet & Maxwell.
Finn, Paul (2016). Fiduciary Obligations – 40th Anniversary Republication with Additional Essays. The Federation Press.
Goodman, Dawn, Paul Hewitt, and Henrietta Mason (2014). Probate Disputes And Remedies. 3rd edition. Jordans.
Grant QC, Thomas, and David Mumford QC (2018). Civil Fraud, Law, Practice & Procedure. Sweet & Maxwell.
Islam, Carl (2016), Contentious Probate Handbook. The Law Society.
Kay, The Rt Hon Sir Maurice, Stuart Sime, and Derek French (2018). Blackstone’s Civil Practice The Commentary. Oxford University Press.
Learmonth, Alexander, Charlotte Ford, Julia Clark, and John Ross Martyn (2018). Williams, Mortimer And Sunnucks – Executors, Administrators and Probate. 21st edition. Sweet & Maxwell.
Pearce, Robert and Warren Barr (2018). Pearce & Stevens’ Trusts and Equitable Obligations. 7th edition. Oxford University Press.
Rotman, Leonard (2005). Fiduciary Law. Thomson Carswell.
Virgo, Graham (2018). The Principles Of Equity & Trusts. 3rd edition. Oxford University Press.

References: UKHL 
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