- With the full knowledge of the trustees, Boardman and Phipps purchased a majority stake of the shares themselves. Boardman and Phipps did not obtain the fully informed consent of all the beneficiaries. - The company made a distribution of capital without reducing the values of the shares. The trust benefited by this distribution £47,000, while Boardman and Phipps made £75,000. - John Phipps and another beneficiary, sued for their profits, alleging a conflict of interest by Boardman and Phipps. - The issue was whether Boardman and Tom Phipps breached their duty to avoid a conflict of interest, even though the company had made a profit and they had obtained (some) consent from the beneficiaries?
- It was held that Boardman and Tom Phipps had breached their duties to avoid a conflict of interest. Lords Cohen, Guest and Hodson held that there was a possibility of a conflict of interest because the beneficiaries might have come to Boardman for advice as to the purchases of the shares. They owed fiduciary duties (to avoid any possibility of a conflict of interest) because they were negotiating over use of the trust’s shares. Boardman was speculating with trust property and should be liable. - The majority unanimously agreed that liability to account for the profits due to a fiduciary relationship is strict; it does not depend on fraud or an absence of bona fides. - Boardman and Phipps would have to account for their profits, despite the fact they had best intentions and made the Lexter & Harris a profit. Chan v Zacharia - The words of Deane J connote a wider application; ‘stated comprehensively in terms of liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain; (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit of possible receipt of such a benefit or gain, or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Soulos v Korkontzilas - McLachlin J stated the constructive trust imposed for breach of fiduciary relationship thus serves not only to do the justice between the parties that good conscience requires, but to hold fiduciaries and people in the positions of trust to the high standards of trust and probity that commercial and other social institutions require if they are to function effectively. =) Bribes - Decision of Privy Council in AG of Hong Kong v Reid is an authority for the following proposition: a constructive trust may be imposed on a trustee who has received bribes. In Lister & Co v Stubbs the English Court of Appeal had adopted the position that a fiduciary who had received a bribe was bound to pay it over to his principal, but he was not subject to a constructive trust.
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- Fall '14
- Test, Trust law