Equity and Trust: Exploring Fiduciary Duties and Obligations

This essay provides a comprehensive overview of fiduciary relationships within the context of equity and trust law. It defines fiduciary relationships, emphasizing the duty to act in the best interests of another party and the importance of trust and confidence. The essay explores various aspects, including the establishment of fiduciary duties, such as those between trustees and beneficiaries, and the fiduciary obligations of directors within companies. It also details the breaches of fiduciary duties, including conflicts of interest and misuse of information, and the remedies available, such as constructive trusts and account of profits. Furthermore, the essay distinguishes fiduciary duties from common law duties of care and contractual obligations. The relevance of fiduciary relationships to contemporary commercial law is examined, illustrated by case law examples like Breen v Williams and Regal Limited v Gulliver, highlighting the ongoing importance of these principles in various professional and commercial contexts.

Running head: EQUITY AND TRUST
Equity and Trust
Name of the Student
Name of the University
Author note

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Essence and purpose of a fiduciary relationship is to serve exclusively the interests of
another person or group of persons
When there is a situation of ethical or legal relationship, the probability of fiduciary
duty arises that is based on the trust. Fiduciary duty exists when a management of money
arises between two or more parties. Such kind of a relationship is created based on trust and
confidence. The term fiduciary refers to a situation when one party acts on behalf of the
other1. As per law, the theory of fiduciary monitors and examines the standard of care while
executing in what he is associated. For instance, a fiduciary relationship defines a situation
when the shareholders play the role of the principals. Therefore, shareholders are both the
fiduciary as well as principals. Fiduciary relationship is a concept where one of the parties is
not in a strong position and hence reposes in good faith, confidence, advice and trust when
required. Generally, the fiduciary to act and carry out the duties is beneficial for the principal.
Fiduciary duties usually require stricter and higher code of behavior as per the duty of
care as mentioned under the law of torts. The purpose of the fiduciary is to supervise the
exclusive loyalty to the existing principal and not place him in a position where there is a
kind of personal conflict of interest happens with the principal. A party needs to prove the
fiduciary that must not expose the liability of his in the court of law2. It has been observed in
the matter of Youyang Pty Ltd v Minter Ellison Morris Fletcher, the statement of the judge
explained that a man being fiduciary is not enough to deduce the liability in case of fault.
Instead, an individual has to prove all the existing obligations as a fiduciary to whom he is
obligated and to the extent of facing the consequences for the failure. Every relationship does
not give rise to the fiduciary duties. The most common kind of fiduciary relationship is that
one which exists between a trustee and a beneficiary. In this kind of relationship, a legal
1 Frazer, Andrew. "The employee's contractual duty of fidelity." (2015): 53.
2 Degeling, Simone, and Michael Legg. "Fiduciary obligations of lawyers in Australian class actions: Conflicts
between duties." UNSWLJ 37 (2014): 914.

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relationship rests with the trustee of the property that is entrusted to him by the trustee3. In
spite of such situations, the trustee is generally compelled under the equity to subordinate his
own benefit to the trustees. The purpose is to monitor the entrusted estate to the basic
advantage of the beneficiary. This theory makes sure that the beneficiary gets the share of
returns for the property in spite of not having a regular control over it. Fiduciary obligations
of the shareholders are usually invested in the directors of a company. For instance, fiduciary
duty vests on the directors of the bank for protecting the respective deposits of their clients.
Fiduciary obligations are contractual and therefore it can be stated that fiduciary duties can be
distinguished from the common law. However, there are other relationships that consists of
the fiduciary duties. The company and the liquidators, lawyers and clients and heirs and
administrators are few of the examples of this theory.
In case of a partnership business, the partners involved owe fiduciary duties to each
other. Such a scenario is not usually observed in joint stock companies because fiduciary
duties do not arise. However, in case of joint ventures are carried out as partnership, the
courts have the authority and power to establish grounds based on fiduciary obligations
amongst the partners of the joint venture. Arklow vs. MacLean Privy Council (1999), the
judgment of this case stated that a partner of a joint venture generally has a few fiduciary
duties for the purpose to withhold the private information and not to put it to use according to
merits and demerits. However, a fiduciary is usually held liable if evidence have been
provided stating that the person had a profit from the relationships formed. If there has been
any conflict of the fiduciary duties and the personal interests. Secondly, if there is any kind of
conflict of the fiduciary duty that is owed to two individuals by obtaining benefit from it.
These are the three main provisions based on, which the fiduciary is obligated to ignore such
3 Campbell, Joseph. "Fiduciary Relationships in a Commercial Context." (2014).

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situations between the personal interests and fiduciary duties4. When there is a situation of
conflict of the two fiduciary duties and it does not make any sort of unfair profit. Therefore,
in the occurrence of conflict between the duties when two contracts are formed, there might
be conflict in the interests. For example, a lawyer cannot represent both the plaintiff and the
defendant in one particular case. The reason behind this is that a lawyer cannot make his
principles for both the parties. However, a fiduciary should not make any kind of benefit or
profit from such position. If at all any kind of profit is made, he will be legally bound by law
and equity to inform the principal about such rate of profits.
Breaches of fiduciary duties
When a conduct of fiduciary is based on the acts and omissions, it will provide him an
unfair merit calls for redressing based on the grounds of the public policy. This sort of breach
can arise when a party related to this makes use of the material and other information attained
by virtue. Therefore, if the principal can provide evidence that a fiduciary duty was owed to
him5. The purpose of it was breached by the violation of the mentioned rules based on which
the Court can offer redress by returning the gain to the owner or the principal6. If the
fiduciary proves that, the person has made full disclosure of gain and the principal consented
to this kind of course of action. However, in case of breach of such fiduciary duties, there are
available remedies. Firstly, constructive trusts are a remedy that is applicable where an
unconscionable profit can be recognized easily. The court forms and imposes a duty upon the
fiduciary to hold profits in order to keep it safe for transferring to the principal. Secondly, the
remedy of account of profit is the situation where the breach is difficult to recognize.
Therefore, in such cases, all the profits must be realized and taken to the principal as they get
4 Gelter, Martin, and Geneviève Helleringer. "Fiduciary Principles in European Civil Law Systems." (2018).
5 Eggers, Peter MacDonald, and Simon Picken. "Other contracts of the utmost good faith." Good Faith and
Insurance Contracts. Informa Law from Routledge, 2017. 113-130.
6 Palmer, Jessica. "Understanding the Director's Fiduciary Obligation." (2016).

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affected because of him. Such scenario must be distinguished from the constructive trust. It is
difficult to separate the profits acquired by the virtue of the position. For example, if a
company is ran by an employee without making profit that will not be made in such a
position. It will treated to be difficult to divide the profits between the legitimately earned and
it was unfairly achieved out of the breach of the fiduciary position7. Thirdly, when it is
related to the accounts of profits, it is not possible to determine that the plaintiff can claim for
the damages from the same legislation of common law. The extension of the damages varies
on the amount and level of the breach depending on the situations related to this breach.
What distinguishes fiduciary duties from the common law duty of care and contractual
obligations
There are a few differences between fiduciary duties from the common law duty of
care and the necessary contractual obligations. The fiduciary duties of a director are different
as compared to the duty of care. The fiduciary duties lie with the directors of the company
whereas the common law duty of care must be associated with all the members of the
corporation. The obligation is however, imposed upon the circumstances where there is a
conflict between the duty and the interest. There are relevant examples of breach of fiduciary
duty by the directors. The object of the directors is to monitor and control the companies for
the advantage of the shareholders. Hence, the law can impose strict rules while carrying out
such duties. The rules can be applied on every director depending on the capacity and the
powers will be applicable to all the directors collectively8. A conflict of interest arises when
the director makes any kind of transaction while acting as the member of the board. This is
when the transaction is intended to make profit to him. This kind of conflict occurs during
that time when the interest makes profits from all the transactions at the time of his duty in
7 Lin, Philip T., Bin Li, and Danlu Bu. "The relationship between corporate governance and community
engagement: Evidence from the Australian mining companies." Resources Policy 43 (2015): 28-39.
8 Rotman, Leonard I. "Understanding Fiduciary Duties and Relationship Fiduciarity." McGill LJ 62 (2016): 975.

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the company. In such circumstances, the director should return all kinds of gain that occur
where a case of conflict of interest has been proven even if this conflict is hypothetical.
Generally the agents are obligated to monitor the rules of their fiduciary status with the
organization to which they thoroughly serve. These rules are applicable across the world that
no one with such fiduciary responsibilities and duties. They have a interest in conflict with
the ones who are bound to protect.
The concept of a fiduciary relationship still relevant to twenty-first century commercial
law
The fiduciary relationship has been relevant in the commercial law as it can be proved
with the help of Breen v Williams. As mentioned in the Corporations Act, 2001, it involves a
number of commercial and professional relationships. Such relationships included the
relationships of the director-company, agent-principal and the trustee-beneficiary. However,
the courts of equity have been hesitant to delimit the relationships that arises fiduciary duties.
There have been plenty of situations, where it has been argued that such kind of situations
occur where the duties arise and have a stable need to shield the interests of the beneficiaries9.
The Courts of Australia, have confidence on the process of expansion in the series of
situations where fiduciaries duties can arise. The concept of joint venture has been used all
across Australia and it will be continued therefore. There are a few categories of fiduciary
relationship10. These methods are used for establishing whether a fiduciary relationship exists
between two parties. Firstly, presumed categories refer to a situation or scenario where there
are determined circumstances in which the obligations of fiduciary are deemed to be owed11.
Secondly, factual fiduciaries define those circumstances where a fiduciary relationship arises
9 Gageler, Stephen. "The Equitable Duty of Loyalty in Public Office." Finn’s Law, An Australian Justice (2016):
130-131.
10 Gleeson, Justin. "Law, morality and the public trust." Ethos: Official Publication of the Law Society of the
Australian Capital Territory 244 (2017): 24.
11 Bryan, Michael, Vicki Vann, and Susan Barkehall Thomas. Equity and trusts in Australia. Cambridge
University Press, 2017.

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because of an undertaking by the fiduciary. It means there is an expression of confidence and
vulnerability of a party or a reasonable expectation related to it. As per the jurisdictional basis
it consists of available remedies and flexibility and discretion. In case of available remedies,
equity has exclusive jurisdiction to issue for the remedies for the breach of these fiduciary
duty. This refers to a situation where the remedies of common law do not provide awards to
the plaintiff who has alleged the breach of duty. Equitable remedies can only be made
available12. On the other hand, equitable remedies are known to be relatively flexible but can
only be exercised on a basis of discretion. Due to this the flexibility of remedy and judicial
discretion is frequently between sympathizing with the defendants.
In case of the Regal Limited V Gulliver, Regal was a cinema that was situated at
Hastings. It had formed a company with the help of obtaining leases of more than two
cinemas. Therefore, a good package of sale was created. In the process of ruling, the judge
stated that the directors must not use the assets of the company13. The opportunities and
information were used for their own benefit without the permission of the shareholders. The
House of Commons also stated that the directors of the company carried out the activities and
while applying the special knowledge as per the capacity of the directors14. Directors must
always act in utmost good faith while dealing with the affairs of the company. The directors
of the company should know about what skills can be applied in certain circumstances. A
director should have only those skills that can be found reasonably in such a person of
knowledge and experience.
12 Pollard, David. "Exercising Powers: Proper Purposes Rather than Best Interests: Fiduciaries and Eclairs."
(2016).
13 French, Robert. "Ethics and public office: Sir Zelman Cowen memorial oration." Judicial Review: Selected
Conference Papers: Journal of the Judicial Commission of New South Wales, The. Vol. 12. No. 4. Judicial
Commission of NSW, 2016.
14 Murray, Jill. "In whose interests? fiduciary obligations of union officials in bargaining." Sydney Law Review,
The 40.1 (2018): 123.

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In the case, Dorechester Finance the scenario that occurred against the non-executive
directors and the accountants for providing assent to the blank checks that renders the
company to be insolvent. On the grounds of this suit was founded showing the signatories
were non-executive directors and did not know the daily activities of the company. The court
thereafter stated that there was no such difference in the relationship of a non-director and the
director. The director of the company must have provided proper care, as that would have
done it on his own behalf. Therefore, as all other directors, he was also held liable. It can be
concluded stating that once the existence of a fiduciary duty is upon the participants of the
joint ventures, the duties cannot be breached15. The decision of the High Court of Australia
stated the approach and confirmed that the existence of fiduciary duties should be established
determined as per the rules.
15 Smith, D. Gordon. "Firms and Fiduciaries." (2016).

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References:
Bryan, Michael, Vicki Vann, and Susan Barkehall Thomas. Equity and trusts in Australia.
Cambridge University Press, 2017.
Campbell, Joseph. "Fiduciary Relationships in a Commercial Context." (2014).
Degeling, Simone, and Michael Legg. "Fiduciary obligations of lawyers in Australian class
actions: Conflicts between duties." UNSWLJ 37 (2014): 914.
Eggers, Peter MacDonald, and Simon Picken. "Other contracts of the utmost good
faith." Good Faith and Insurance Contracts. Informa Law from Routledge, 2017. 113-130.
Frazer, Andrew. "The employee's contractual duty of fidelity." (2015): 53.
French, Robert. "Ethics and public office: Sir Zelman Cowen memorial oration." Judicial
Review: Selected Conference Papers: Journal of the Judicial Commission of New South
Wales, The. Vol. 12. No. 4. Judicial Commission of NSW, 2016.
Gageler, Stephen. "The Equitable Duty of Loyalty in Public Office." Finn’s Law, An
Australian Justice (2016): 130-131.
Gelter, Martin, and Geneviève Helleringer. "Fiduciary Principles in European Civil Law
Systems." (2018).
Gleeson, Justin. "Law, morality and the public trust." Ethos: Official Publication of the Law
Society of the Australian Capital Territory 244 (2017): 24.
Lin, Philip T., Bin Li, and Danlu Bu. "The relationship between corporate governance and
community engagement: Evidence from the Australian mining companies." Resources
Policy 43 (2015): 28-39.

9EQUITY AND TRUST
Murray, Jill. "In whose interests? fiduciary obligations of union officials in
bargaining." Sydney Law Review, The 40.1 (2018): 123.
Palmer, Jessica. "Understanding the Director's Fiduciary Obligation." (2016).
Pollard, David. "Exercising Powers: Proper Purposes Rather than Best Interests: Fiduciaries
and Eclairs." (2016).
Rotman, Leonard I. "Understanding Fiduciary Duties and Relationship Fiduciarity." McGill
LJ 62 (2016): 975.
Smith, D. Gordon. "Firms and Fiduciaries." (2016).