Breach of Fiduciary Duty

A fiduciary is somebody who has a relationship of duty and trust with another person. It is a relationship of power, and because of this, some strict duties and responsibilities accompany it.

The person to whom the fiduciary owes a duty is usually dependent and/or vulnerable. Consequently, there are stated and implied laws which protect this relationship from exploitation or abuse.

If a fiduciary duty is breached, remedies are available for any loss or to stop someone from continuing to breach their duty. The breach of certain fiduciary relationships may result in the crime of criminal breach of trust (CBT). The offence attracts penalties including a prison sentence or a fine.

What is a fiduciary?

A fiduciary is defined in law as someone who owes a strict legal duty to another person, also known as ‘the beneficiary’ or ‘the principal’. The circumstances dictate the exact nature of their relationship of trust and confidence.

The fiduciary usually possesses power or discretion, and the fiduciary can exercise their discretion in a manner that impacts the principal’s interests.

For a fiduciary relationship to exist, there must also be dependency by the beneficiary or principal upon the fiduciary. With dependence comes vulnerability, and because of this, a fiduciary duty represents the highest standard of care in law, requiring complete loyalty and adherence to strict legal obligations and responsibilities.

Fiduciary relationships

Fiduciary relationships can be between people, or an individual and an organisation.

Many fiduciary relationships are apparent such as those between directors, their companies and shareholders, doctors and patients, lawyers, and the people they act for, and senior employees with their employers.

Trustees have a fiduciary relationship if they are given property by the trustor – the person bestowing property – for the benefit of a third party, the beneficiary. The trustee must administer the property for the benefit of the beneficiary.

These relationships create duties that the fiduciary must abide by, with some enshrined in statute, and others created by common law and developed by decisions made by the courts.

What duties does a fiduciary owe?

Fiduciaries have a relationship of trust and confidence with the person on whose behalf they are acting. They have various duties imposed on them to protect the principal’s interests.

A duty to act in good faith towards the principal

There is an enduring duty for a fiduciary to always act in good faith towards the principal. This includes identifying and disclosing all potential conflicts of interest or sources of profit.

A duty to avoid a conflict of interest

A fiduciary’s personal interests cannot be in direct conflict with those of the beneficiary.

Furthermore, if their role is in a professional capacity, like a lawyer or financial adviser, a fiduciary cannot act for two people with conflicting interests; their loyalty and duty to protect the interests of their principal alone are paramount. This is why before you engage a lawyer they will run conflict checks internally to ensure they can represent you without any conflict of interest potentially being present.

A duty not to personally profit from their position

A fiduciary cannot gain unauthorised profits from their position, for instance, by exploiting a business opportunity for personal gain, which they have access to in their professional role.

A simple example is a company director exploiting a business opportunity which belongs to the company for their own personal benefit.

However, there is one caveat to this: if the principal consents and waives the duty by allowing actions that would otherwise be a clear breach of fiduciary duty.

What are the implications of breaching a fiduciary duty?

The principal is entitled to act on a breach of fiduciary duty and will usually claim damages for the violation, which can be quantified financially for lost property, income, or profits.

There are potentially five categories of remedy available for breaching a fiduciary duty.

Rescinding a contract

Rescinding a contract for breach of fiduciary duty allows a principal to treat the contract as if it never existed. They are no longer bound by any of the terms, even those which may still be valid and not connected to the breach of fiduciary duty.

Injunctions or specific performance

An injunction can restrain someone from taking an action that constitutes a breach of fiduciary duty. Conversely, an action for a specific performance can compel that party to perform a duty or action which protects the fiduciary relationship.

Equitable compensation

Equitable compensation is a personal monetary remedy for loss resulting from a breach of fiduciary duty compensating the principal for their loss.

Equitable compensation, also known as equitable damages, is a discretionary award which means the court can refuse it. An example is when the principal has waived the duty and endorsed specific actions which would otherwise amount to a breach.

An account of profits

An account of profits is a mechanism whereby a fiduciary is divested of any unauthorised gains. This sounds straightforward, but in reality, it can be a complex and tricky exercise based on the particular relationship’s subtleties and the way the fiduciary exploited their position.

Transferring the title of property from the fiduciary to the principal

This is otherwise known as restoration of property in a situation where the fiduciary relationship has provided for the transfer of property or assets to the fiduciary for them to carry out their role. 

When is a breach of fiduciary duty a criminal breach of trust?

Section 405 of Singapore’s Penal Code explains that a criminal breach of trust occurs when a person is entrusted with property and dishonestly misappropriates or converts it for their own use. This action will violate the law or an express or implied contract.

In 2020, the Parliament in Singapore introduced some fundamental changes to Section 409 of the Penal Code, which extended the definition of the term ‘professional agents’, thereby widening the liability of those entrusted with assets to a broader range of people.

Penalties for criminal breach of trust

The baseline penalty for committing CBT is a prison term of up to seven years and/or a fine. However, punishments are higher in certain circumstances and for defined categories of offenders:

• Those looking after property for storage, for rent, or transportation for hire can expect a prison term of up to fifteen years and/or a fine.
• For employees entrusted with property, the penalty is imprisonment for up to fifteen years and/or a fine.
• Those with a professional fiduciary duty, like partners, senior executives, bankers, agents, merchants, and public servants, face a potential jail term of up to twenty years and/or a fine.

Final thoughts on breach of fiduciary duty

A fiduciary has a responsibility to act both legally and ethically. The importance of the range of their duties is not always apparent in certain relationships, which may originate as something informal and unofficial.

A breach of fiduciary duty can be overt and easy to prove. However, a breach of fiduciary duty can also be complex, subtle, and difficult to extrapolate in certain circumstances.

Professional legal advice from an experienced lawyer is almost always essential to discern and prove a fiduciary relationship with subsequent loss. Equally, creating a relationship which puts one person or organisation in the position of a fiduciary requires careful consideration and management.

Being the legal guardian of a child is one example that does not immediately present as a situation where there is a fiduciary duty, but this can often involve decisions on the management of money, and there are many others.

Expert legal input from the outset can protect both parties with a coherent and formal arrangement that is alert to the scope of a fiduciary’s duty and the range of responsibilities and commitments.