OS: the law of FR is concerned with certain sorts ... | Lecture notes Law

OS:$the$law$of$FR$is$concerned$with$certain$sorts$of$relationships$and$obligations$that$arise$from$those$relationships.$Equity$

protects$the$integrity$of$these$relationships.$It$must$be$established$whether$P$may$sue$D$for$breach$of$fiduciary$duty$in$relation$

to$[facts].$

Step%1:%Is%there%a%FR?%

Accepted%categories;%OR%

- Trustee/beneficiary%–%Keech%v%Sandford%–%Trustee%cannot%take%up%opportunities%for%self,%even%if%trust%cannot%%%

RULE:$A$trustee$is$prevented$from$retaining$the$benefit$of$a$lease$that$is$renewed$in$his$own$name,$the$lease$having$previously$

been$held$on$trust.$If$a$trustee$does$renew$for$his$own$benefit$a$lease$that$was$previously$the$subject$matter$of$the$trust,$even$

in$circumstances$where$there$is$no$desire$for$or$prospect$of$the$lease$being$renewed$for$the$benefit$of$the$trust,$the$trustee$will$

be$irrebuttably$presumed$to$be$a$constructive$trustee$for$those$who$were$beneficially$interested$in$the$original$lease.$

- Agent/principal%–%McKenzie%v%McDonald%–%agent%can%only%buy%at%arm’s%length%%

RULE:$$Did$amount$to$a$FD.$The$agent$assumed$the$function$of$advising$and$assisting$the$women$in$the$acquisition$and$sale$of$

the$property.$The$agent$had$specialised$knowledge$of$the$market$and$her$position.$He$undertook$the$sale$of$the$farm$and$acted$

as$her$agent.$

- Employee/employer%–%Warman%v%Dwyer%–%even%where%business%is%poorly%run,%senior%ee’s%may%be%liable%for%breach%if%

taking%assets/knowledge%from%business%

RULE:$Breach$of$FD.$Dwyer$had$used$his$knowledge$and$his$position$as$a$senior$executive$officer$of$Warman$to$advance$his$own$

interests$and$those$of$the$other$D’s$to$Warman’s$disadvantage,$by$reducing$Bonfiglioli’s$confidence$in$Warman$and$offering$

himself$and$the$agency$staff$as$an$attractive$competitor$for$Bonfiglioli’s$business.$

- Director/company%–%Regal%Hastings%–%cannot%take%opportunity%and/or%special%knowledge%obtained%as%directors%in%their%

capacity%as%fiduciary’s%without%consent%

RULE:$In$the$circumstances,$the$directors,$other$than$the$chairman,$were$in$a$FR$to$the$appellant$company$and$liable,$therefore$

to$repay$to$it$the$profit$they$had$made$on$the$sale$of$the$shares.$

- Solicitor/client%–%Nocton%v%Lord%Ashburton%–%must%not%advise%client%if%it%gives%you%a%personal%advantage%%

RULE:$N$had$security$over$the$same$asset$that$he$advised$A$to$release.$There$was$a$factual$conflict,$even$though$N$may$not$be$

aware$or$did$not$act$dishonestly.$

- Partner/partner%–%Chan%v%Zacharia%–%partner%cannot%directly/indirectly%use%partnership%assets%for%gain%%

RULE:$$

(i)$C$was$in$breach$of$his$FD$as$partner$to$the$other$partner$

(ii)$he$was$a$constructive$trustee$for$himself$and$the$other$partner$of$the$interest$which$he$obtained$under$the$agreement$for$

lease$$

(iii)$Deane$and$Dawson$JJ:$the$former$partners$occupied$two$related$and$overlapping$roles$as$regards$legal$rights$under$the$

lease,$the$first$as$trustee$of$those$legal$rights$and$the$second$as$a$member$of$the$former$partnership$of$which$the$beneficial$

interest$in$those$rights$was$an$asset$and$that$there$was$an$irrebuttable$presumption$that$any$rights$in$respect$of$the$new$lease$

were$obtained$by$C$by$use$of$his$position$as$trustee$of$the$previous$tenancy$and$there$was$a$rebuttable$presumption$of$fact$

that$nay$such$rights$were$obtained$by$use$of$his$position$as$a$partner$in$the$dissolved$partnership$whose$assets$were$under$

receivership$and$in$the$course$of$realisation.$$

Partnership%Act%%

§ s3:$definitions$-$business$

§ s4:$equity$preserved,$unless$inconsistent$with$express$term$of$Act$

§ s5(1):$partnership$is$the$relation$which$subsists$between$persons$carrying$on$a$business$in$common$with$a$view$of$

profits…$

§ s5(2):$companies$are$not$partnerships$

§ s6:$rules$for$determining$existence$of$partnerships$(basically$taking$a$share$of$profits)$

§ s8:$meaning$of$‘firm’$

§ ss9,$10:$each$partner$is$agent$of$firm$(the$partnership)$and$his$other$partners.$Partner’s$acts$bind$the$firm$and$other$

partners$

§ s13:$partners$jointly$liable$with$other$partners$for$debts/obligations$of$firm$

§ s14:$firm$liable$for$partner’s$wrongs$

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OS: the law of FR is concerned with certain sorts of relationships and obligations that arise from those relationships. Equity protects the integrity of these relationships. It must be established whether P may sue D for breach of fiduciary duty in relation to [facts]. Step 1: Is there a FR? Accepted categories; OR

Trustee/beneficiary – Keech v Sandford – Trustee cannot take up opportunities for self, even if trust cannot RULE: A trustee is prevented from retaining the benefit of a lease that is renewed in his own name, the lease having previously been held on trust. If a trustee does renew for his own benefit a lease that was previously the subject matter of the trust, even in circumstances where there is no desire for or prospect of the lease being renewed for the benefit of the trust, the trustee will be irrebuttably presumed to be a constructive trustee for those who were beneficially interested in the original lease.
Agent/principal – McKenzie v McDonald – agent can only buy at arm’s length RULE: Did amount to a FD. The agent assumed the function of advising and assisting the women in the acquisition and sale of the property. The agent had specialised knowledge of the market and her position. He undertook the sale of the farm and acted as her agent.
Employee/employer – Warman v Dwyer – even where business is poorly run, senior ee’s may be liable for breach if taking assets/knowledge from business RULE: Breach of FD. Dwyer had used his knowledge and his position as a senior executive officer of Warman to advance his own interests and those of the other D’s to Warman’s disadvantage, by reducing Bonfiglioli’s confidence in Warman and offering himself and the agency staff as an attractive competitor for Bonfiglioli’s business.
Director/company – Regal Hastings – cannot take opportunity and/or special knowledge obtained as directors in their capacity as fiduciary’s without consent RULE: In the circumstances, the directors, other than the chairman, were in a FR to the appellant company and liable, therefore to repay to it the profit they had made on the sale of the shares.
Solicitor/client – Nocton v Lord Ashburton – must not advise client if it gives you a personal advantage RULE: N had security over the same asset that he advised A to release. There was a factual conflict, even though N may not be aware or did not act dishonestly.
Partner/partner – Chan v Zacharia – partner cannot directly/indirectly use partnership assets for gain RULE: (i) C was in breach of his FD as partner to the other partner (ii) he was a constructive trustee for himself and the other partner of the interest which he obtained under the agreement for lease (iii) Deane and Dawson JJ: the former partners occupied two related and overlapping roles as regards legal rights under the lease, the first as trustee of those legal rights and the second as a member of the former partnership of which the beneficial interest in those rights was an asset and that there was an irrebuttable presumption that any rights in respect of the new lease were obtained by C by use of his position as trustee of the previous tenancy and there was a rebuttable presumption of fact that nay such rights were obtained by use of his position as a partner in the dissolved partnership whose assets were under receivership and in the course of realisation. Partnership Act § s3: definitions - business § s4: equity preserved, unless inconsistent with express term of Act § s5(1): partnership is the relation which subsists between persons carrying on a business in common with a view of profits… § s5(2): companies are not partnerships § s6: rules for determining existence of partnerships (basically taking a share of profits) § s8: meaning of ‘firm’ § ss9, 10: each partner is agent of firm (the partnership) and his other partners. Partner’s acts bind the firm and other partners § s13: partners jointly liable with other partners for debts/obligations of firm § s14: firm liable for partner’s wrongs

§ s15: where one partner misapplies money or property received from third party, firm liable to make good loss § s16: Liability for wrongs joint and several § s23: Mutual rights/duties of partners can be varied by consent – Birtchnell case § s24: partnership property treated as held on trust for all partners – important re remedies – chan case § s33: partners have to account to firm for benefits derived without consent from transactions concerning partnerships (restate profits rule) § s34: partners can’t compete with firm without consent - must account for profits made in competition § s42: continuing authority of partners for purposes of winding up partnership

Bankruptcy trustee/creditor – unlikely examinable Proven FR outside accepted Categories OS: for a FR to exist outside accepted categories it must be proven on a factual basis that a FR exists. This can be proven by analogising with characteristics from Hospital Product. ASK:
Was there an undertaking to act in interest of another?
A relationship of trust and confidence?
Power to affect the principal’s interests?
Vulnerability/disadvantage/reliance?
Holding of property (not strong indicator)? Partnership - UDC v Brian – JV to build shopping centre financed by UDC – HELD: Breach of FR – Mason, Brennan and Deane: depends on form of JV and content of obligations. Distinguish between continuing partnership and one JV. Doctor/patient - Breen v Williams – leaky breast implants and doctor – HELD: no F, conflicting obligations, the fiduciary will be brought to account for any benefit or gain which (1) has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between the fiduciary duty and personal interest in the pursuit or possible receipt of the benefit or gain or (2) was obtained or received by use or by reason of the fiduciary position or opportunity or knowledge resulting from it. Government v Citizen – Habib v Cth – detainment without charge OS, claim Cth had duty to intervene – HELD: role of legislature
equity will not fetter foreign policy – Cth would have had to disregard its own interest to act in the national interest. Step 2: Is the transaction within the scope of that relationship? OS: Even if a FR is established it does not necessarily follow that all actions of the fiduciary will attract fiduciary obligations (FO). Accordingly, its necessarily to analyse the nature of the relationship and function or responsibility assumed by fiduciary. Grimaldi v Chameleon Mining – nature of responsibility undertaken Director of company used company money to make profit for his own company and benefit HELD: If the directors dispose of corporate property in a dealing which is beyond their authority, whether actual, ostensible or usual, the dealing ordinarily is void and no interest passes to the third party done, purchaser etc. however if the dealing occurs in a transaction which is within the directors’ authority but which is not in the company’s interest or is otherwise in breach of fiduciary duty, the transaction will only be voidable. Hospital Products v USSC – consider that parties agreed to HELD: contractual and FR can co-exist. However, FR must accommodate itself to the terms of the contract. FR cannot superimpose the contract in such a way to alter the operation of the contract according to its intended true construction. Birtchnell v Equity Trustees – Written documentation wont determine issue if actual course of dealings between parties is inconsistent with written terms – ONLY UDE when had previous dealings Real estate partnership, one died, found out he had been developing prop with someone else for own profit HELD: look to written agreement and past dealings – FR existed, mutual confidence that partners only engage in a particular activity or transaction for joint advantage. Duty to avoid conflict – knowledge and consent Howard v Commissioner of Taxation – transaction outside scope JV HELD: French and Keane J:
- Must account for the nature and limits of the relationship Hayne and Crennan JJ:
- Must pay attention to the duties, interests and alleged manner of conflict that directors owe to FD’s.

Both Grimaldi and Barnes were going to receive commissions if Iron Jacks was acquired.
Grimaldi and Barnes used Chameleon’s share capital to raise funds to acquire the tenements. Five million shares were issued to Murchison.
Murchison’s Chameleon shares were sold by Grimaldi to provide the funds that Murchison had committed to assist Winterfall’s purchase of Iron Jacks.
Barnes also drew cheques on Chameleon payable to Iron Jacks’ vendor. This also contributed to Murchison’s commitment to Winterfall.
This diversion of funds was dishonest; it was done for Murchison’s benefit and also for Grimaldi and Barnes’ personal gain.
The reverse takeover of Winterfall occurred; 10 million Murchison shares and 12 million options were also provided to Barnes and Grimaldi as their spotters’ fee. Iron Jacks was estimated to be worth $1 billion. Chameleon gained no benefit throughout this ordeal. HELD:
Grimaldi was held to be in a fiduciary relationship with Chameleon – he breached his fiduciary and Corporations Act statutory duties.
Grimaldi and Barnes acted together and misused their fiduciary positions to divert Chameleon’s funds.
Grimaldi and Barnes also had an undisclosed interest in the spotters’ fee in conflict with their fiduciary duties to Chameleon.
Grimaldi and Barnes’ conduct violated both the conflict of interest and secret profit duties.
They were jointly and severally liable with Barnes’s nominee for the spotter’s fee in the form of Winterfall shares and Murchison shares; they received these shares as a reward. This was a breach of the fiduciary relationship and occurred without Chameleon’s consent.
Grimaldi was also liable to account for Chameleon’s shares, issued without consent to Murchison. Conflicts rule – Duty and Duty
Farrington v Rowe - NZ Ct App o Giving financial advice to client was within the scope of obligations o Duty-duty breach – obligations to both clients o Held immediate conflict of interest in acting more in the interest for one client
Pilmer v Duke Group – HCt o No fiduciary relationship established o Company wanting accountants to value a target company – not a good valuation – over inflated significantly – retainer – company goes into liquidation -
Prince Bolkiah v KPMG – HL o No continuing fiduciary obligation to avoid a conflict of duties with former client – still BOC o KPMG did litigation work, found out a lot of confidential information, finished work with him, FR ended when the relationship ended. o No conflict in the case of a former client o But obligations to keep information confidential
Spincode - Victorian Court of Appeal o Adopted Bolkiah , but suggested (in obiter) additional grounds to restrain solicitors, beyond Bolkiah o Question: when does the FR end? o Ends when the retainer ends but confidential information remains indefinitely When do fiduciary obligations end?
Chan v Zacharia o Survives dissolution of partnership: s
Bolkiah v KPMG – UK HL o The fiduciary relationship ends with termination of the solicitor - client retainer o The duty to preserve confidential information is a continuing duty – covered by BOC claim
Spincode – Vic CA o Decided on same grounds as Bolkiah decision o Obiter comments re obligation of loyalty persists even when solicitor no longer acts for client & court’s inherent jurisdiction Profit OS: To be successful in a breach of the profits rule, it must be proven that the F made an unauthorised profit from his position by utilising information, knowledge or opportunity which has come to the F in the F’s capacity. To be successful X must show that the unauthorised profit was made within the scope of the FR. No element of intention is required. Examples

Chan v Zacharia – one partner’s diversion of business opportunity from another partner
UDC v Brian – a joint venturer’s acquisition of benefits not disclosed to another join venture
Regal (Hastings) or Boardman v Phipps – exploitation of knowledge gained in a fiduciary capacity
Attorney-General for Hong Kong v Reid or Grimaldi v Chameleon – bribes and secret commissions Attorney General for Hong Kong v Reid FACTS:
Mr Reid a fiduciary accepted bribes
Reid (Solicitor) joined the legal service of the Government of Hong Kong and eventually became acting DPP
R breached FD which he owed as a servant of the Crown – he accepted bribes as an inducement to him to exploit his official position by obstructing the prosecution of certain criminals
Sentenced to 8-years imprisonment and ordered to pay Crown HK12.4m
R had 3 asset properties in NZ HELD:
Fiduciary liable to account on basis of a CT
As long as there is no double recovery can hold on CT, if the property has increased in value, the F cannot retain the value of the increase
If there is a trust, then the unsecured creditor will be deprived of their rights to proceeds if the false F becomes insolvent. But unsecured creditors cannot be in a better position then their debtor. But if authorities show that property acquired by a trustee in breach of trust belongs to the trust and not the trustee personally whether he is solvent or insolvent. Grimaldi v Chameleon Mining HELD:
Not a bribe but an undisclosed personal interest
Secret commissions can take other forms such as shares. Don’t have to be just money

OS: the law of FR is concerned with certain sorts ..., Lecture notes of Law

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