Fiduciary Duties and Liabilities

Fiduciary duties sit at the heart of many professional and commercial partnerships. Whether you are a company director, trustee, business partner, agent or senior employee, the law may impose strict duties of loyalty and good faith upon you; sometimes, even when you didn’t know such duties existed.

Understanding when a fiduciary relationship arises, what obligations it creates, and the consequences of a breach is essential for protecting you and your assets.

What Is a Fiduciary?

Certain categories of relationships give rise to what the law calls fiduciary duties; the types of

categories aren’t a closed list, and the courts have made clear that the law looks to the substance of the relationship to assess whether it is or has become fiduciary in nature. 

If the relationship is one which arises from trust and confidence, rooted in loyalty and fidelity, requiring person A to act in the best interest of person B, it might be a fiduciary relationship. The person who owes the fiduciary duty is known as the fiduciary, and the person to whom the duty is owed is known as the principal.

There are certain settled/status-based categories of fiduciary relationships, including between:

• Trustee and beneficiary
• Solicitor and client
• Principal and agent
• Company director and company
• Business partners
• Mortgage borrowers for mortgage lenders

There are other fact-based categories of fiduciary relationships which arise in the specific

circumstances where one party agrees to act for another in a way that establishes a relationship of trust and confidence. Such situations can include:

• Relationships between family members and elderly relatives
• Parties to a joint property venture
• Situations where one party has control over the assets of another
• Employees with a sufficiently high level of responsibility

The courts have preserved their ability to recognise further categories in the future, especially where a person has the power to bind another, and exercises a substantial degree of power over their decision-making and/or control over their property and/or finances.

Why Does Being a Fiduciary Matter

Being a fiduciary matters because you are undertaking or have undertaken (even if you don’t

realise it) certain important duties to the principal. These flow from an overall duty of loyalty to them, including a duty of utmost good faith, avoiding conflicts of interest, not profiting from the relationship without the informed consent of the principal (making a secret profit), acting in the best interest of the principal, and not fettering their discretion.

It isn’t difficult to find yourself in breach of those duties if you are not mindful of the fact that

you owe them.

What Can Happen if Fiduciary Duties are Breached?

Fiduciary duties are equitable duties. If the principal proves a breach, the remedies the court will impose can be Draconian. Remedies can include:

• The imposition of constructive trusts over property and money
• An account of profits
• Equitable compensation and damages
• Anticipatory injunctions, including freezing injunctions, to prevent a breach of duty or further breaches of duty
• Compounding interest on any judgment sum instead of the usual simple interest awarded by the court
• Indemnity cost orders

Dishonest Assistance & Knowing Receipt

Because fiduciary duties are based on a foundational duty of loyalty, any breach of fiduciary

duty is dishonest. If a third party assists in the commission of a breach of fiduciary duty, they are liable as a dishonest assistant and anyone who knowingly receives property or money held by the fiduciary on behalf of the principal is liable in knowing receipt.

Frequently Asked Questions

What Are the 5 Fiduciary Duties?

A fiduciary duty requires a person to act solely in another’s best interests within a relationship of trust, such as a solicitor and client or guardian and ward. It encompasses the duties of care, loyalty, good faith, confidentiality, prudence, and full disclosure. The duties are set out to avoid conflicts or acting for personal gain.

What Is a Fiduciary Duty in UK Law?

A fiduciary is subject to strict legal obligations, with the most important being a duty of unwavering loyalty to the person or entity to whom the duty is owed. This could, for example, include a trustee to their beneficiaries or a company director to their company.

Understanding Fiduciary Duties Reduces Legal and Financial Exposure

Fiduciary duties are incredibly serious. The court will not hesitate to impose Draconian

remedies on defaulting fiduciaries to preserve the assets of the principal and to force them to

account for secret profits. 

If you have been the victim of a breach of fiduciary duty, you are in a much more powerful position to protect your interests than if you had simply been the victim of a breach of contract or a tort. 
If you have found yourself in breach of your fiduciary duties, or might have helped someone else to do so, you should seek to rectify the situation as soon as possible and achieve a settlement to avoid court proceedings. In any event, you should take immediate advice from specialist commercial and property litigation solicitors. Contact Helix Law today.