Fully Explain the Principle That a Person Managing Property in a Fiduciary Capacity Is Prohibited From Obtaining Any Personal Benefit From That Position

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FULLY EXPLAIN THE PRINCIPLE THAT A PERSON MANAGING PROPERTY IN A FIDUCIARY CAPACITY IS PROHIBITED FROM OBTAINING ANY PERSONAL BENEFIT FROM THAT POSITION, ILLUSTRATING YOUR EXPLANATION WITH PARTICULAR REFERENCE TO ‘Crown Dilmun v Sutton [2004] 1 BCLC 468’

Introduction
A fiduciary is someone who has fiduciary obligations; the obligation to act loyally to the principal to whom one is a fiduciary. The rule is applied strictly and is incontestable but questions arise concerning the various nuances of behaviour of fiduciaries.

Practicalities of the principle as discussed in Crown Dilmun v Sutton [2004].
In Crown Dilmun v Sutton [2004] Mr Justice Peter Smith described the responsibilities of a fiduciary: “not to make any decision to take opportunities which came his way whilst [in a fiduciary position]” and “not to take opportunities which arose that might put him in conflict with his duties to the [principal]” and “a duty to exploit every opportunity that he became aware of for the [principal’s] benefit”. He noted “the only exception is if they permit him to take such opportunities after…….full and frank disclosure and they have given….. consent.”

Lord Upjohn in Boardman v Phipps [1967] describes “the fundamental rule of equity that a person in a fiduciary capacity must not make a profit out of his trust” and “not place himself in a position where his interest and duty may conflict.”

Acceptance of fiduciary responsibility goes back to: Keech v Sandford [1726] where a trustee, unable to renew a lease on an infant’s behalf, took the lease out himself. Lord King L.C. said he “should rather have let it run out, than to have had the lease to himself…………the trustee is the only person of all mankind who might not have the lease….[the] rule should be strictly pursued”.

Inflexibility of the rule
The rule has always been rigidly applied; James LJ said in Parker v MacKenna (1874) “no agent…… in the matter of his agency, can be allowed to make any profit without the knowledge and consent of his principal;….. inflexible rule”. Mr Justice Peter Smith in Crown Dilmun v Sutton [2004] referred to text by Goff and Jones, “Law of Restitution” “Boardman v Phipps is an important illustration of how rigorously English courts interpret the “scope and ambit” of a fiduciary’s duty of loyalty…… Guinness v Saunders [[1990] demonstrates there is little evidence that the courts are ready to treat more kindly the honest fiduciary.”

However some consider they may be some flexibility: Lord Herschell said in Bray v. Ford [1896] “I am satisfied that it might be departed from in many cases, without any breach of morality, without any wrong being inflicted.”

In IDC v Cooley [1972] Roskill J applied Keech v Sandford and Boardman v Phipps . The case facts were that the gas board declined to do business with the defendant’s company for whom as managing director he was a fiduciary. The company would have liked to do business with the board. The board invited the defendant independently to do business with them. He prepared work then extricated himself from his company. It was unsuccessfully argued that the offer was not available to his company and he had been invited independently and therefore had no fiduciary duties. In support of this argument Lord Blanesburgh in Bell v. Lever Brothers Ltd. [1932] was quoted “the company has no concern in his profit…….unless….. he has made use [of company property of information]”.

Cohen J said in Re Macadam Dallow and Moscrop v Codd [1945] where the duty and interest of the fiduciary conflict and the fiduciary makes a profit “I do not think the liability to account for a profit can be confined to cases where the profit is derived directly from the trust estate.”

The “Cooley principles”
In Cooley Roskill J quoted four principles of Lord Upjohn (dissenting) in Boardman v Phipps v. [1967] ;
1. ” The facts and circumstances must be carefully examined to see whether [there is] a fiduciary relationship.
2. Once [the relationship] is established [it] must be examined to [assess duties scope and ambit].
3. Having defined the scope……. one must see whether he has committed some breach thereof and by placing himself within the scope and ambit of those duties in a position where his duty and interest may possibly conflict. It is only at this stage that any question of accountability arises.
4. Finally, having established accountability it only goes so far as to render the agent accountable for profits made within the scope and ambit of his duty.”

The principal need not have wanted the opportunity
In Crown it was held that even though it might have been established that the principal to the fiduciary relationship might not have wanted the property still the fiduciary relationship is relevant.

The opportunity need not have been available to the principal
The fiduciary was still liable; IDC v Cooley [1972] .

The principal need not suffer loss
There can still be breach of fiduciary duty where the principal suffers no loss; Regal (Hastings) Ltd v Gulliver [1967] and even where the principal benefits; Boardman v Phipps [1967] .

The principal need not have failed to gain a benefit
Roskill J in Cooley explained: “whether or not the benefit would have been obtained but for the breach of trust has always been treated as irrelevant.”

Extent to which the duty is applied
Lord Cranworth LC in Aberdeen Railway v Blaikie (1854) , said: “no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of [the principal].” Lord Herschell in Bray v Ford [1896] considered the phrase “possibly may conflict” to mean “that the reasonable man looking at the relevant facts……. would think that there was a real sensible possibility of conflict” and not that you could imagine some “conceivable possibility…… in events not contemplated as real sensible possibilities by any reasonable person [that might] result in a conflict.”

Reason for the existence of the fiduciary duties
Lord Herschell in Bray v Ford [1896] described the prohibition on a fiduciary making a profit or placing himself where his interest and duty conflict as being “based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty….. prejudicing those whom he was bound to protect.” The rule against profiting personally from a trust was described in Costa Rica Ry v Forwood (1901) “in order to protect a trustee against the Infallibility of human nature.”

In Cooley Buckley on the Companies Acts, 13th ed. (1957) was quoted “It makes no difference that the profit [of the fiduciary] is one which the company itself could not have obtained, the question being not whether the company could have acquired it, but whether the director acquired it while acting for the company”, “The reason [being] that the company has a right to the services of its paid directors” the interest of a fiduciary benefiting “deprives the company of the benefit of his advice and assistance.”

The facts in Crown Dilmun
There was no arrangement between the principal and Mr Sutton (a director) which entitled him to consider bona fide whether or not to take the Opportunity. The Opportunity came his way as director and he was bound to exploit it for the principal’s benefit. There was no agreement whereby Mr Sutton was entitled to take the Opportunity and disclose it retrospectively. Mr Sutton could not have had a genuine bona fide belief that the principal would not have been interested in the Opportunity.
Mr Sutton decided to take the Opportunity for himself in breach of his fiduciary duties. The Opportunity was in part passed onto the Second Defendant whose director Ms Hamilton became aware (and was reckless regarding the fact) that Mr Sutton was in breach of fiduciary duty.

Mr Sutton, as managing director, acknowledged that he owed fiduciary duties “Cooley principle 1”. In his contract there was an obligation to keep information secret during and after his employment and to discuss opportunities that came his way (satisfying “Cooley principle” 2). “Cooley principle” 3 was satisfied by the finding that there was no disclosure to or acceptance by the principal. Principle 4 was satisfied by the decision in the case.

Information and property
In Crown Smith J looked at whether information is property since views conflict; Boardman v Phipps . He found that information was obtained in confidence and that information was used to enable the second defendant to acquire property. That property was the subsequent agreement.

Liability where profit is obtained by a third party
In Crown the Second Defendant was liable to account since knowledge of breach of fiduciary duty was imputed; El Ajou v Dollar land holdings [1994] but alone insufficient.

Conclusion
Lord Upjohn aptly stated in Boardman v Phipps [1967] ;
“Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case.”

Bibliography

Books:
Hayton DJ 2001Hayton and Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies 11th edition London Thomson Sweet and Maxwell
Moffat G 2004 Trusts Law Text and Materials 3rd edition Cambridge University Press