LAW 2502 Lecture Notes - Lecture 7: Financial Adviser, Contributory Negligence, Clean Hands
23 May 2018
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FIDUCIARY OBLIGATIONS at slide 79
PQ SUMMARY
Key facts to look for: bad advice from solicitor; agent not telling principal of circumstances boosting their bargaining
power; partner screwing over the other in a business deal/ signing lease in only their name
Issue: ‘can… bring an action against… for breach of a fiduciary duty?’
STEP 1: does a fiduciary relationship exist?
1. Beneficiary may be…. (the person to whom FOs are owned); fiduciary may be… (person in whom
confidence is reposed)
2. In the absence of a single test, courts use the following approach
a. Is the relationship one of the established (nonimate/ status based) categories?
i. Partners
ii. Employee and employer
iii. Agents and the principal
iv. Solicitors and their clients
v. Directors and their companies
vi. Wards and their guardians
vii. Promoters
viii. Trustees and beneficiaries - *first need to establish a trust*
ix. Financial advisers and clients
x. Brokers and clients
b. Can it be argued by analogy that it is similar enough to be an Ad Hoc or fact-based category?
i. Banker and customer
ii. Financial adviser and client
iii. Manufacturer and distributor
iv. Bailee and bailor
v. Doctors and patients
vi. Joint ventures
3. Identify the nature of the particular relationship to determine if a fiduciary relationship can arise by applying
the undertaking, trust and confidence and vulnerability theories. Also examine the commercial context.
4. Has there been an enforceable exclusion/ restriction of the obligation through contract or other area of law?
STEP 2: identify the precise obligations flowing from the relationship - did the fiduciary breach their fiduciary
duty? Conflict rule + Profit rule
STEP 3: breach?
STEP 4: any defences to breach?
1. Fully informed consent – yes
2. Honesty – no
3. Contractual clauses – not really
4. Impossibility of the beneficiary making a profit – no
5. Contributory negligence – no
6. B’s unclean hands/ laches - yes
STEP 5: remedies
1. Injunction
2. Equitable compensation
3. Account of profits – personal in nature. P in lower position than other creditors. Argue CT which is proprietary in
nature- property wont be part of D’s assets and P wont have competition from creditors
4. Constructive trust
5. Specific restitution of chattels
6. Rescission
7. Delivery up and cancellation of a document
find more resources at oneclass.com
find more resources at oneclass.com
8. Tracing
STEP 1: DOES A FR EXIST?
No comprehensive statement of the criteria by reference to which the existence of a FR may be established Hospital
Products
FIRST- is the relationship within an established ‘NOMINATE CATEGORIES’ first listed in Hospital Products;
Breen v Williams
Relationship
Characteristics
Justifications
Trustee and
beneficiary
(vertical)
T is original F. relationship between T and B clearest paradigm of FR
Hospital Products
T deals with B’s property
Undertaking
Trust and
confidence
Director and Co
(vertical)
Mostly covered by the director’s duties in the Corporations Act
Exception: when Director is negotiating for takeover, must place interests
of shareholders before the Co Coleman v Myers; Brunninghausen
Trust and
Confidenec
Solicitor and client
(vertical)
S owes FOs to Client Farrington v Rowe
Law clerk may be subject to same FOs where client has relied on them in
the same way as they would a solicitor Adurahman
Firm of accountants treated as lawyers because they did the same
functions Prince Jefri
AVOID CONFLICTS OF INTEREST- Solicitor as guarantor for client
Maguire v Makaronis
• S helped Client gain a loan necessary to complete a contract, became
both mortgagee and guarantor of that loan. If bank sought to enforce
guarantee, solicitor would enforce mortgage against their client
• Didn’t advise clients to obtain independent legal advice
• Mortgage set aside on condition that client repaid the borrowed
monies
Undertaking
Trust and
confidence
Agent and Principal
(vertical)
Relationship involves authority or capacity in one person (A) to create/
affect legal relationships between another person (P) and 3rd parties
International Harvester Co of Au
Agent owes FOs to P Hospital Products
FIRST – establish an agency agreement
• Express: direct verbal delegation/ contract (C* may exclude FOs)
• Implied: previous dealings, custom/ trade usage, anything necessary
or incidental to express authority
• Apparent/ ostensible: where principal’s words or conduct would lead a
reasonable person to believe that the agent was authorised to act on
the principles behalf (a holding out by the P)
Undertaking
Trust and
confidence
Partner and partner
(horizontal)
Ps owe FOs to one another Hospital Products; ss 28-29 PA 1891 (SA)
Strongest example of a FR Birtchnell;
Could also be considered agents for one another (in the accomplishment
of the common ends of the partnership)
FIRST - ESTABLISH A PARTNERSHIP
• s 1(1) Partnership Act: partnership defined as the relation which
subsists between persons carrying on a business in common with a
view of profit
• fact based enquiry – indicia
Undertaking
Trust and
confidence
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Key facts to look for: bad advice from solicitor; agent not telling principal of circumstances boosting their bargaining power; partner screwing over the other in a business deal/ signing lease in only their name. Issue: can bring an action against for breach of a fiduciary duty?". Step 4: any defences to breach: fully informed consent yes, honesty no, contractual clauses not really, impossibility of the beneficiary making a profit no, contributory negligence no, b"s unclean hands/ laches - yes. Step 5: remedies: injunction, equitable compensation, account of profits personal in nature. Argue ct which is proprietary in nature- property wont be part of d"s assets and p wont have competition from creditors: constructive trust, specific restitution of chattels, rescission, delivery up and cancellation of a document, tracing. No comprehensive statement of the criteria by reference to which the existence of a fr may be established hospital. First- is the relationship within an established nominate categories" first listed in hospital products;
