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Week 3 Fiduciary Obligations and Breach of Confidence - Coggle Diagram
Week 3 Fiduciary Obligations and Breach of Confidence
The existence of
fiduciary duties
provides a plaintiff with a cause of action and an avenue to remedies not available at common law.
A fiduciary obligation (or duty) is one of loyalty and confidence. More specifically, it requires ‘undivided loyalty’:
Beach Petroleum NL v Kennedy
(1999) 48 NSWLR 1, 46-7
obligations protect pecuniary and property interests
Fiduciary duties are strict; therefore:
● A lack of intention to defraud on the part of the fiduciary is not relevant to establishing a breach: Nocton v Lord Ashburton [1919] AC 492;
● The person to whom the breach relates does not have to have suffered injury or loss: Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384, 408-9;
● Whether the person owed the duty would have made a profit from the ‘the opportunity exploited by the fiduciary’ is irrelevant: Warman International Ltd v Dwyer (1995) 182 CLR 544; and
● It does not matter that the person owed the duty would have approved of the fiduciary making a profit had she been properly informed: Murad v Al-Saerij [2005] EWCA Civ 959.
Fiduciary duties are proscriptive in their nature; they concern what the fiduciary must not do rather than what must be done.
They are negative duties that aim to avoid conflicts of interest.
Underlying principles of fiduciary duties
The virtue of loyalty sits at the core of the fiduciary relationship
The duty of loyalty distinguishes the fiduciary duty from other legal duties: Moffat v Westein (1996) 135 DLR (4th) 298, 315
The ‘conflict of duty and duty’ and the ‘conflict of duty and interest’ rules are aspects of the overriding duty of undivided loyalty.
Trust and confidence are the two other attributes that enliven the fiduciary concept
Note: there are circumstances in which trust and confidence may not be necessary to demonstrate a breach of fiduciary duty.
Vulnerability
Vulnerability may be an indicator but is not the essence of the obligation: C-Shirt Pty Ltd v Barrett Marketing & Management Pty Ltd (1996) 37 IPR 315
‘relevant to the imposition of fiduciary duties’: Hospital Products Inc v United States Surgical Corporation (1984) 156 CLR 41 (Hospital Products).
Presumed fiduciary relationships
Trustee and beneficiary
Hospital Products
Gibbs J identified the trustee as the archetypal fiduciary. An executor of a will holding trust powers is also a fiduciary
Director and Company
Under the Corporations Act 2001 (Cth) ss 182, 183 directors owe duties to act in the company’s best interests and to properly exercise their powers
Consistent with the duty of loyalty, directors must avoid conflicts of interest and duty:
Regal (Hastings) Ltd v Gulliver
[1967] 2 AC 134 (Regal Hastings).
Lawyer and Client
a legal practitioner is bound by the rules of ‘conflict of duty and interest’, and of ‘duty and duty’ and cannot ‘make unauthorised profits’, or act in a way that puts her own interests, or those of others, into conflict with the interests of clients:
Hilton v Barker Booth
[2005] 1 All ER 651
Agent and Principal
‘Agents are obliged to communicate information they have in their possession to their principal’:
Premium Real Estate Ltd v Stevens
[2009] 2 NZLR 384, 398:
McKenzie v McDonald
[1927] VLR 134.
If the agency relationship is based on a contractual agreement, the scope of the fiduciary duties is determined by the contract See
Hospital Products
, Mason J at 97
Partner and Partner
The partnership relationship gives rise to presumed fiduciary duties: Barescape Pty Limited v Bacchus Holdings Pty Limited (No 9) [2012] NSWSC 94, [131].
Fiduciary Relationships outside Presumed Relationships
Commercial Relationships
Commercial relationships may give rise to fiduciary obligations:
News Ltd v Australian Rugby Football League Ltd
(1996) 139 ALR 193;
United Dominions Corporations v Brian Pty Ltd
(1985) 157 CLR 1 (United Dominions).
reasons why courts may be disinclined to identify fiduciary obligations
finding fiduciary obligation may undermine ‘the certainty and security of commercial transactions’:
Hospital Products
The e
xistence of a contract will be an important factor
in a court concluding that there is no fiduciary relationship between the parties:
Hospital Products
Employer–Employee
may arise ‘if the relationship requires a standard of behaviour higher than the contractual standard’:
Dal Pont
(2015).
See
Victoria University of Technology v Wilson
[2004] VSC 33;
University of Western Australia v Gray
(2009) 179 FCR 346, and
Lonmar Global Risks Ltd v West
[2010] EWHC 2878 (QB).
Fiduciary duties that may arise on the facts will cease with the termination of employment:
Hodgson v Amcor Ltd
[2012] VSC 94, [1343
However, note that other duties such as the duty of confidence may continue.
Financial adviser–client
Patrick Partners owed a fiduciary duty to Mr Daly, because the firm held itself out as an adviser on investment matters and did advise him. The firm subsequently failed to disclose important information to Mr Daly and thereby breached its duty.
Daly v The Sydney Stock Exchange Ltd
(1986) 160 CLR 371
Bank–customer
relationship between a bank and its customers is regulated by contract and torts
courts have shown a reluctance to impose fiduciary duties
Nonetheless, in some situations, for example, if the bank adopts a role of financial adviser and the client relies on the advice, fiduciary duties may arise:
Commonwealth Bank v Smith
(1993) 42 FCR 390, 391.
Doctor–patient
client argued that a doctor owed her a fiduciary duty to provide her with her medical records.
The Court decided there was no fiduciary duty on the facts.
Breen v Williams
(1996) 186 CLR 71 (Breen v Williams)
Justice Dawson, Toohey, Gaudron and McHugh all recognised the possibility that a doctor may owe a fiduciary duty to a patient
Gummow J found that the relationship was fiduciary in nature.
Conflicts between duty and interest
The most basic obligation of a fiduciary is to avoid a conflict of interest between her duty and her interest:
Aberdeen Railway Co v Blaikie Bros
[1843-60] All ER Rep 249, 252
word ‘
interest
’ in the phrase
‘conflict of interest
’ refers to ‘some personal concern of possible pecuniary value in a decision taken, or a transaction effected, within the scope of a fiduciary’s duties’:
Grimaldi v Chameleon Mining Pty Ltd (No 2)
(2012) 200 FCR 296, 346
To amount to a conflict there must be a ‘real, sensible possibility’ of a conflict:
Phipps v Boardman
[1967] 2 AC 46, 142 (Upjohn).
Under the duty to avoid conflicts between duty and interest, a fiduciary must not:
(1)
take unauthorised remuneration;
Fiduciaries are not prevented from receiving fair payment for their services. However, they are obliged to obtain the authorisation of the beneficiary/principal:
Dale v IRC
[1954] AC 11, 27
(2) undertake a transaction with a double character; and
A transaction of double character refers to a situation in which a fiduciary simultaneously acts for a principal/beneficiary and for herself: Armstrong v Jackson [1917] 2 KB 822 9
(3) benefit from a transaction for the beneficiary/principal to the exclusion of that beneficiary.
fiduciary takes a benefit that ‘should have gone to the person to whom the fiduciary duties were owed’. This is the most common form of fiduciary breach:
Chan v Zacharia
(1984) 154 CLR 178, 199 (Chan v Zacharia).
two sub-rules
(1)
breach of an undertaking: and
A fiduciary should not take a direct benefit from a transaction in which they also act for a beneficiary:
Phipps v Boardman
[1967] 2 AC 46
To demonstrate a breach of undertaking there must be and
2 more items...
(2)
misuse of a fiduciary position
misuse of position rule
refers to situations in which a fiduciary uses her position as fiduciary to obtain a benefit for herself. If a fiduciary obtains a benefit from her position she will be required to account for any profit or benefit back
As for the application of this rule in the context of a director’s duties to a company, see
Howard v Commissioner of Taxation
(2014) 253 CLR 83, 108
1 more item...
Conflict of duty and duty
In general, the rule would be breached in situations where a lawyer represents more than one party in the same transaction:
Settlement Agents Supervisory Board v Property Settlement Services
Pty Ltd [2009] WASCA 143, [70]-[76].
A fiduciary will not be liable if the principal knew that the solicitor was acting for the other principal:
Bristol and West Building Society v Mothew
[1998] Ch 1, 18-9. Note also, Dominic and Riz [2009] NSWCA 216
The exercise of the equitable jurisdiction to provide a remedy for a
breach of confidence
is not reliant on the information ‘being characterised as property’
Equity has always protected confidential information:
Commonwealth v John Fairfax & Sons Ltd (
1980) 147 CLR 39
‘the court of equity has an original, inherent and independent jurisdiction to prevent the violation of a confidence’:
Saltman Engineering Co Ltd v Campbell Engineering Co
(1948) 65 RPC 203: Dal Pont (2015) 167.
Courts recognise three types of confidential information, underpinned by specific forms of relationship:
(1) personal information;
(2) commercial confidences; and
(3) government secrets.
The Modern Equitable Doctrine of Breach of Confidence
it extends beyond ‘established relationships of trust’ to a range of situations in which the defendant has behaved unconscionably:
R v Department of Health; Ex Parte Source of Informatics
[2000] 1 All ER 786, 796.
The modern doctrine of breach of confidence was established in
Coco v A N Clarke (Engineers) Ltd
[1969] RPC 41, 47. Megarry J stated that the information must have:
(1) The necessary quality of confidence;
(2) Been imparted in circumstances importing an obligation of confidence; and
(3) Been used or threatened to be used in an unauthorised way.
In
Optus Networks Pty Ltd v Telstra Corp Ltd
(2010) 265 ALR 281 the court added to these elements:
(4) the information must be identified with specificity
Defences to Breach of Confidence
public interest defence
It provides that a person will be excused from a breach of the obligation of confidence if the relevant information was disclosed in the public interest.
an allegation relating to iniquity on the part of a public figure will not be sufficient without more:
Attorney-General v Guardian Newspapers Ltd
(No 2) [1990] 1 AC 109
To be of public interest the information must be more than that which catches one’s curiosity or merely raises the interest of gossip. It is ‘something which may be of real concern to the public’:
Attorney-General for the United Kingdom v Wellington Newspapers Ltd
[1988] 1 NZLR 129, 178 McMullin J.
The ‘respective public interest in keeping the information confidential or making it public are weighed’:
Prince of Wales v Associated Newspapers [2008] Ch 57, 124-5.
Defences To A Breach of Fiduciary Duty
Just Allowance
This was significant in
Phipps v Boardman
[1967] 2 AC 46, 128
Unclean Hands
equitable maxim ‘one who comes to equity must come with clean hands’
Contractual Exclusion
Laches (Delay)
equitable relief a plaintiff must act promptly and diligently’:
Smith v Clay
(1767) 27 ER 419, 420.
If a plaintiff delays commencing an action for an equitable remedy the court may deny the application:
Ead v Williams
(1854) 43 ER 671, 678
Laches is an equitable defence and does not apply to common law remedies.
Informed Consent
A fiduciary can reduce or avoid liability for breaching a fiduciary duty if she obtains consent for the conduct from the person to whom the duty is owed. It is for the fiduciary to demonstrate there was informed consent:
Maguire v Marakonis
(1997) 188 CLR 449.
If the principal provides consent it must be freely given, without inducement from the fiduciary:
Consul Development Pty Ltd v DPC Estates Pty Ltd
(1975) 132 CLR 373
Remedies: breach of fiduciary duties and breach of confidence
Remedies for Breach of Fiduciary Remedies
Equitable compensation
is a remedy that courts of equity can order for breaches of purely equitable obligations, such as a breach of trust, breach of confidence, or a breach of a fiduciary duty.
Courts of equity adopt the
constructive trust
to hold a party accountable in circumstances in which it would be unconscionable for that party to escape accountability
Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 the court imposed a constructive trust.
Phipps v Boardman [1967] 2 AC 46.
Breach of Confidence Remedies
Many of the remedies for breach of confidence are the same as for a breach of fiduciary duty
Constructive trusts are also a major remedy for breach of confidence