Fiduciary Duties in Equity and Trusts

EQUITY AND TRUSTS

Introduction
The term fiduciary duties derive its origin from Roman law and the “Contract of Fiducia”.
One of the best description of fiduciary obligation is the system comprised of rules and
causes of action that have been designed to establish or clear the rights of the beneficiary.
Fiduciary Duties is the complex set of the duties that are driven by the existence of the
fiduciary relationship and equitable obligation of confidence and trust between two parties.
The said set of duties prescribe and confine the behaviour of the fiduciaries, to avoid the
conflict of the interests in the relationship1. As per the pronouncement of Lord Millett, “the
distinguishing obligation of a fiduciary is the obligation of loyalty”. This leads to the belief to
be noted that fiduciary obligation which leads to the duties are regarded as compound
obligation and prescriptive. It was further endorsed by Lord Millett that approach that those
duties which arise out of the ethic of the fiduciary obligation for the objective of the guarding
of the relationship of trust and confidence, are those which are regarded as the fiduciary. The
following work is aimed at exploring the various aspects of the fiduciary relationship and the
fiduciary obligations and how these duties regulate the conduct of the corporate participants
in the business environment.
Background of the Fiduciary Relationships
It is significant to note that there are range of prescribed relationships which are regarded as
the fiduciary relationships, such as that of the partners, trustees, agents and company
directors, among others are bound by the fiduciary duties. The common feature of the said
relationships is that the same demand a certain standard behaviour in context of the use of the
powers by the virtue of the legal relationship shared. In context of English law, the pivotal
case of Bristol and West Building Society v Mothew2 had set the base for the fiduciary
obligation and the following imposition of fiduciary duties. The question of whether there
was an imposition of the duty of care and skill on company directors was addressed by Lord
Millett in this case, where the fiduciary duty was the solicitor. It was stated in the form of key
principle in this case that “The distinguishing obligation of a fiduciary is the obligation of
loyalty”. It was upheld in the case that the fact that a person is subjected to a particular rule
makes him a fiduciary and this fiduciary is for its purposes; rather than a person being
subjected to the rule owing to the reasons of being fiduciary. Thus, in simple terms it can be
stated that the duties define the position and not the position leads to the definition of duties.
1 Justia, Trustee Legal Duties and Liabilities [website], 2018,
https://www.justia.com/estate-planning/trusts/trustee-duties-and-liabilities/ (accessed 28 August 2019).
2 Bristol and West Building Society v Mothew, 1996, EWCA Civ 533

Thus, it would be right to state that obligation of loyalty leads to the relationship of trust and
confidence and the same is unique for every fiduciary relationship. The said trust is preserved
by the imposition of the ethics and the specific duties.
Trust and the Fiduciary Relationship
The Trust refers to a situation where there is separation of legal and beneficial interests in
property. Thus, in the said situation, the legal ownership of a property vests in one or more
persons or entities known as the trustees, as conferred upon by the settlor or the court for the
purpose of the benefit of or in trust for other persons known as the beneficiaries3. The
constitution of the trust can be for a range of purposes such as the involving the private or
family issues, and for the matters of protection of the investments, pensions and charities.
The relationship between the trustee and the beneficiaries is a fiduciary relationship, with a
legal obligation on the trustee’s part to carry out the duties owing to the trust relationship and
the placing of the interests of the beneficiaries above his own interests. In general terms trusts
can be of the following three types namely the statutory trusts, resulting trusts, and the
constructive trusts. In English law, the main types of trusts prescribed are the interest in
possession trusts, accumulation trusts, discretionary trusts, settlor-interested trusts, mixed
trusts and non-resident trusts4.
It is vital to note that in context of the equity and trusteeship, the fiduciary concepts have
been implicit to be that of quasi-moral in character. The role of the fiduciary duties in relation
to the trust is aimed at the promotion of the good character among the trustees throughout the
system of equity. The no conflict rule is the chief governing rule of the fiduciaries. The duties
that the equity confers upon the trust have been discussed in detail as follows. The duties of
the trustees is may vary on account of the nature of the trust itself, however, there are certain
kinds of duties that are applicable to all trustees, regardless of circumstances.
Duty of Care: It is the obligations on the part of the trustees to act upon the explicit
instructions of the trust instrument, if there have been specifically prescribed such set of
instructions. However, it must be noted in this regard that the duty of care arise out of the fact
that there is a dependency on the part of the beneficiaries on their fiduciaries. The primary
fiduciary duty of the trustees towards the beneficiary is the duty of care. This is the most
important duty in which the trustee is required to manage the assets of the trust with the
3 G. Watt, Trusts and Equity ,UK, Oxford University Press, 2018.
4 UK Government, Trusts and Taxes [website], 2019, https://www.gov.uk/trusts-taxes/types-of-trust (accessed
28 August 2019).