Fiduciary duties explained (Article 1 of our “Fiduciary Duties” Series)

The fiduciary relationship between a lawyer and their client is at the core of the English legal system. Regardless of its paramount importance to the proper functioning of the legal services industry, a degree of confusion remains around the particular duties owed by a fiduciary. For an explanation of the nature of fiduciary duties in England and the core duties encompassed under a fiduciary relationship please read the article below.

The Law Commission has characterised a fiduciary relationship, as one in which there is ‘discretion, power to act, and vulnerability’. Case law (Bristol v Mothew) identifies a fiduciary as ‘someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence’. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.

The following points provide additional information with regards to the different facets of a fiduciary duty, as discussed above. It should be noted that while these are considered to be the “core duties” of a fiduciary, the list is non-exhaustive.

 (a) The “no conflict” rule: Boardman v Phipps [1966] UKHL 2 (Followed in Chan v Zacharia) – “the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.”

(b) The “no profit” rule: Regal (Hastings) Ltd v Gulliver [1942] UKHL 1, Lord Russell of Killowen – “The rule of equity which insists on those who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon questions or considerations as whether the property would or should otherwise have gone to the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having in the stated circumstances been made.”

(c) The duty of “undivided loyalty”: see Bristol & West Building Society v Mothew [1998] explained above.

(d) The duty of confidentiality: A duty of confidence will arise “wherever a person receives information he knows or ought to know is fairly and reasonably to be regarded as confidential” Campbell v. MGN Limited [2004] 2 AC 457. Douglas v. Hello [2006] QB 125 – “information will be confidential if it is available to one person (or a group of people) and not generally available to others, provided that the person (or group) who possesses the information does not intend that it should become available to others”. “Confidential” in the phrase “Confidential Information” could also be substituted with “Private”.

Should you require any further advice or information on fiduciary duties, Cleveland & Co, your external in-house counsel, are here to help.

2 Comments
  1. Richard Ludwig 5 years ago

    any thought about fiduciary duties of crypto currency exchange operators

    • Victoria Smith 5 years ago

      Cryptocurrency exchanges are generally completely unregulated and it is the intention of cryptocurrency users for it to stay that way (the Bitcoin community for example has expressed this on a number of occasions). Cryptocurrency is also completely anonymous, therefore there is no transparency regarding making/receiving payments and this is why it is popular on places such as the dark web where it is often associated with buying guns, drugs, etc. Having said that, some countries treat Bitcoin as a financial product, for example for the purposes of the Corporations Act in Australia. Being treated as a financial product means that even though Bitcoin itself is not regulated, exchange operators of cryptocurrencies are performing a regulated financial service and should be under normal fiduciary duties, but this varies from jurisdiction to jurisdiction. In the UK, despite the popularity of cryptocurrencies and Bitcoin in particular, regulators have left this matter largely untouched and have issued a number of warnings to consumers, outlining the risks associated with investing in virtual currencies. Moreover, the European Banking Authority has also issued such a statement, highlighting that trading with an unregulated currency with a value based largely on speculation and buy/demand principles is a very high-risk activity. Whether a cryptocurrency exchange operator owes any fiduciary duties to investors is certainly a hot topic, but it is also one that is largely dependent on the regulatory developments in a given jurisdiction. Currently there is little light on this matter and based on the above discussion it would be safe to assume that no such duties are owed by cryptocurrency exchange operators in the UK. There have actually been instances where cryptocurrency exchanges, which have been registered with the FCA, have been asked to de-register. This further emphasizes the lack of regulation in the area and the hurdles the regulator is facing.

      One FCA initiative that might shed some light on this matter is their Project Innovate. Its aims are to smoothen the process of regulating innovative products and services. Bitcoin and cryptocurrencies have been discussed in the FCA reports and statements as a priority matter in relation to the project, so perhaps further guidance will come out of this initiative.

      We hope this helps!

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