MLL406 Lecture Notes - Lecture 3: Conclusive Presumption, Rugby Football League, Harry Gibbs
1 Jul 2018
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Topic 3: Fiduciary Relationships
Fiduciary and the Fiduciary relationship:
•FIDUCIARY (Fiducia (L.) ‘confidence’)
•The Fiduciary relationship – on in which confidence is invested
•The Fiduciary – one in whom confidence is reposed
•Owes ‘undivided loyalty’ (Beach Petroleum NL v Kennedy (1999) 48 NSWLR 46)
•‘Equity intervenes … not so much to recoup a loss suffered by the plaintiff as to hold
the fiduciary to, and vindicate, the high duty owed to the plaintiff … [T]hose in a
fiduciary position who enter into transactions with those whom they owe fiduciary
duties are under a heavy duty to show the righteousness of the transactions.’
(Maguire v Makaronis (1997) 188 CLR 449 at 465).
•Policy not compensatory
•While the nature is conceptually uncertain - the essence (per Mason, J in Hospital
Products, at 96-97) is:
–Undertaking to act on behalf of another
–Relationship of trust and confidence
–Fiduciary represents and exercises power or discretion affecting the interests
of the principal/beneficiary
–Principal/beneficiary is especially vulnerable to abuse by the fiduciary of his
position
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Three Questions for determining relief:
•1: Is the relationship fiduciary? There are well-established categories of fiduciary
relationships, frequent categories of fiduciary relationships and circumstantial
categories of fiduciary relationships (ie relationships which are proven to be fiduciary
in the specific circumstances).
•2: What are the nature and scope of the fiduciary duties and have those duties been
breached on the facts? The established fiduciary duties are proscriptive in nature and
are twofold involving (1) a duty to avoid a conflict of interest and (2) Duty to Account
for any profit.
•3: What is the appropriate relief for the breach? Fiduciary remedies (discussed in
topic 4 include: an Account of Profit; Equitable Compensation; and, a Constructive
Trust where the property can be Traced.
Recognised (established) categories of fiduciary relationships:
–“Beyond those recognised categories, fiduciary duties may be found in to the
relationships not normally considered to be fiduciary, but only if there are
special circumstances warranting such a finding.”
–Trustee/beneficiary
–Director/company
–Agent/principal (generally)
–Solicitor/client
–Partner/partner (can be applied to joint venturers)
When will a fiduciary relationship arise?
•No Comprehensive definition.
•Operates as a Protective Shield
•Supervises against the exploitation of vulnerable parties within a commercial/personal
relationship
•The relationships are generally distinguished by the following features:
–vulnerability arising through trust, loyalty and confidentiality between the
parties – the ‘golden thread’
–The fiduciary has undertaken to act in a representative capacity
–The fiduciary has unilateral power to affect the weaker party
–The weaker party legitimately expects that the stronger party will look after
their legal/financial interests.
•It is possible for a fiduciary relationship to arise between parties who have not
reached, and who may never reach, agreement on the consensual terms which are to
govern the arrangement between them: United Dominions Corporation Ltd v Brian
Pty Ltd (1985) 157 CLR 1 at 11-12.
•In ABN AMRO Bank NV v Bathurst Regional Council (2014) 309 ALR 445 at 6667,
the Full Court identified the features of a fiduciary relationship as follows:
•The “critical feature” is that the fiduciary undertakes or agrees to act for or on behalf
of or in the interests of another person”
•It is the element of undertaking (from the point of view of the fiduciary) or obligation
(for and on behalf of the beneficiary) that has the consequence that equity insists that
the principal must act in the “interests of” or “for the benefit of” the beneficiary rather
than in the principal’s own interests ...
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•Whether a fiduciary relationship exists in a particular case, and if so, the scope of that
fiduciary relationship, are matters which depend critically upon the particular
circumstances of the case ...
•The characteristics which define a fiduciary relationship cannot be exhaustively
defined. It is inappropriate to treat the existence of a fiduciary obligation as being
dependent upon whether the principal and beneficiary fall into a particular status
relationship…
–Potential to evolve
•What matters is whether there is a relationship involving the requisite undertaking,
determined as a matter of objective characterization, rather than by having regard to
the subjective expectations of the parties.
Commerciality of the Transaction: Hospital Products Ltd v USSC
Hospital Products Ltd v United States Surgical Corp :
•In many situations, it is inappropriate to impose a fiduciary relationship upon a standard,
arms length commercial relationship.
•Facts: HPI was the sole distributor for USSC products in Australia and, in breach of its
distribution agreement, it proceeded to reverse engineer products so that it could make
and sell them under its own name – thereby making a large profit. When USSC
discovered this they brought an action arguing breach of contract and breach of
fiduciary duty.
•Held: The High Court unanimously held that there was a breach of contract but – by a
majority, rejected the argument that the relationship was fiduciary.
•Parties were at arm’s length
•USSC in a position to protect itself – large corporation
•USSC not powerless or vulnerable when negotiating initial distributor contract
•Breach of contract available
•Strong bias against the importation of equitable standards into commercial transactions
•Each party has a profit motive
•In absence of the contract – then you will rely on equity (fiduciary protections) – not a
given, but may be able to rely on it
•Indicators
•Relationship of trust and confidence
•Confidential relations
•Vulnerability of one party to power or discretion of another
•Gibbs CJ
•Beneficiary may not know trustee
•Defrauding vendor not a fiduciary by trust
•Vulnerability also indicates contractual relationship
Relevance of Confidential Relationship:
•LAC Minerals Ltd v International Corona Resources Ltd
•Facts: ICR gratuitously revealed exploratory mining information to LAC
•ICR unable to obtain mining rights LAC acted on confidential information
•Industry practice went against LAC minerals utilising such information however ICR
had not protected itself.
•Important – it was pre-contractual
•Held (Maj):
•Confidential relationship had been breached but no fiduciary relationship existed.
•Relationship was commercial in nature
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Document Summary
Policy not compensatory: while the nature is conceptually uncertain - the essence (per mason, j in hospital. Undertaking to act on behalf of another. Fiduciary represents and exercises power or discretion affecting the interests of the principal/beneficiary. Principal/beneficiary is especially vulnerable to abuse by the fiduciary of his position. There are well-established categories of fiduciary relationships, frequent categories of fiduciary relationships and circumstantial categories of fiduciary relationships (ie relationships which are proven to be fiduciary in the specific circumstances). The established fiduciary duties are proscriptive in nature and are twofold involving (1) a duty to avoid a conflict of interest and (2) duty to account for any profit. Fiduciary remedies (discussed in topic 4 include: an account of profit; equitable compensation; and, a constructive. Beyond those recognised categories, fiduciary duties may be found in to the relationships not normally considered to be fiduciary, but only if there are special circumstances warranting such a finding.
