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  • Fiduciary Duties

Fiduciary Duties

Directors and Employees


Analyses the law relating to the fiduciary duties owed by directors and employees to companies

Fiduciary Duties: Directors and Employees draws together in one volume the law relating to fiduciary duties in this context and analyses both its historical origins and its modern application by the Courts. Fiduciary duties have historically defied easy characterisation. This area of law as it relates to directors and employees is developing and complex. Directors and employees of companies acting out of self-interest have generated an increasing number of claims alleging breach of fiduciary duty.

 This book discusses in detail the law relating to the fiduciary duties owed by directors and employees to companies which is complex and involves several overlapping areas of law. It is, however, a relatively commonplace cause of action; individuals in positions of trust within a company are often tempted to abuse their position in order to steal company secrets, set up in competition, and poach staff and customers.

 This new edition of Fiduciary Duties contains commentary on a number of new cases alongside further commentary and analysis on the developing jurisprudence in relation to the fiduciary duties of LLP members and joint ventures.

 In addition discussion is conducted regarding the Court of Appeal decisions relating to Bolkiah information barriers in an employment context, together with evaluation of the relevant Commonwealth jurisprudence as it bears upon issues also arising under English law. As a result this new edition of Fiduciary Duties: Directors and Employees is an essential research reference for anyone practicing in this area of the law.
  • Acknowledgments
  • Foreword to the First Edition
  • Preface to the First Edition
  • Preface to the Second Edition
  • Table of Cases
  • Table of Statutes
  • Table of Statutory Instruments
  • Introduction
  • Fiduciary Duties
  • Employees Owing Fiduciary Duties
  • Contractual Issues
  • Unlawful Competition
  • Bribes
  • Accessory Liability in Equity
  • Vicarious Liability, Attribution, Imputation of Knowledge
  • Proprietary and Personal Remedies
  • Limitation
  • Procedural Issues
  • Index
"excellent book ... provides authoritative guidance and advice"

Click here for the full review 
 Phillip Taylor and Elizabeth Taylor of Richmond Green Chambers

Reviews of the previous edition

"Chapter 2 (Fiduciary Duties) ought to be required reading for company lawyers; employment lawyers will devour Chapters 3 (Employees Owing Fiduciary Duties) and 4 (Contractual Issues); and both sets will benefit from Chapter 5 (Unlawful Competition) ... how rare it is to find commentary on the Companies Act 2006 that is almost pure analysis! The same rigour is evident in chapters dealing with bribes; dishonest assistance and knowing receipt; vicarious liability and the rules of attribution; the equitable remedies; the Limitation Act; and relevant Civil Procedure Rules ... stimulating and timely and merits the high praise it has received from Justice Paul Finn - who provides the foreword ... value for money"
Solicitors Journal

"Expansive and with frequent reference to relevant case law ... takes a reflective and incisive approach to this uncertain area of law"

 The In-House Lawyer
We wait decades for a House of Lords/Supreme Court decision in the field of fiduciary duties and, like buses, they all come at once. In the immediate aftermath of publication of the first edition of this work, there was little significant development in English fiduciary law relating to directors and employees. However, with the passing of the ‘noughties’ a wave of important appellate law has swept in. There is no chapter of this book whose subject matter has not been the subject of extended treatment by the Supreme Court or Court of Appeal. This has led to a substantial rewriting of many parts of the text.

Publication of the first edition coincided with the coming into force of the directors’ duties under the Companies Act 2006. However, in the interim Australian law has seen more controversy concerning the nature and ambit of directors’ duties than English law.

The Western Australia Court of Appeal’s monumental decision arising out of the liquidation of the Bell Group (Bell Group (in liquidation) v Westpac Banking Corp) has generated a detailed and sustained treatment of the nature and function of directors’ duties, holding that in Australian law, directors’ fiduciary duties are not limited to negative, proscriptive duties contrary to the case advanced by the defendant banks in reliance on the well-known Australian High Court decision in Breen v Williams.

In another notable and already frequently cited Australian decision of Finn J in the Federal Court, Grimaldi v Chameleon Mining Corp & Others, a helpful distinction has been drawn between two strands of fiduciary law – the law concerning fiduciary loyalty on the one hand and the law governing exercise of discretionary powers by fiduciaries on the other.

These decisions serve to confirm that, notwithstanding the developments in the law in recent years, it remains critical to determine the context in which, and the purpose for which, one is seeking to determine whether a ‘fiduciary’ duty exists. Notwithstanding continued widespread support of the decision of Millett LJ in Bristol & West Building Society v Mothew there remains controversy over the content of fiduciary obligation.

The approach and methodology by which employees are held to owe fiduciary duties has received considerable and broadly consistent illustration at first instance applying the approach in Nottingham University v Fishel. The importance of establishing an employee’s role, function and tasks in this regard can be seen to be critical.

While the content of fiduciary obligation imposed on employees is not settled, happily, with the Court of Appeal decision in Ranson v Customer Systems plc, a line has been drawn in the sand clarifying that merely to hold an employee to be a fiduciary does not automatically subject him or her to the full range of directors’ duties.

The Supreme Court in Revenue and Customs Commissioners v Holland has reviewed the law on de facto directors in the context of corporate directors, an area which we consider in Chapter 2.

Uncertainties as to the meaning of ‘trust’ and ‘trust property’ in s 21 of the Limitation Act have also been resolved by the Supreme Court in Williams v Central Bank of Nigeria such that the law of limitation in this field has now been settled.

In Vestergaard Frandsen v Bestnet the Supreme Court considered the scope of the equitable duty of confidence and proof of the mental requirement to establish a breach of such duty.

Attribution of knowledge, and, in particular, the ‘fraud exception’ or ‘Hampshire Land’ principle has also been under the lens of both the House of Lords in the difficult decision in Stone & Rolls Ltd (in Liquidation) v Moore Stephens (A Firm) and the Court of Appeal (considering its application) in Bilta (UK) Ltd v Nazir.

The law of bribery has seen sustained treatment in a number of substantial commercial fraud actions at first instance, and the principles have been extensively reviewed.

However, it is in the areas of remedy that there has been the greatest development in the law since the first edition.

The Supreme Court decisions in VTB Capital plc v Nutritek International Corp and Prest v Petrodel Resources Ltd have particular application in the case of defaulting fiduciaries in clarifying the principles concerning ‘piercing the corporate veil’. Prest provides a luminous explanation of the ‘evasion’ and ‘concealment’ principles. It is a welcome addition to the fraud lawyer’s toolkit, stripping away unclarity concerning the meaning or application of concepts such as ‘alter ego’, ‘sham’ and ‘façade’ companies when considering the role or liability of wrongdoers and their associated corporate entities.

The decision in Grimaldi contains a comprehensive and pellucid statement of the relevant principles underlying many aspects of modern fiduciary law as applicable to directors and employees. It is particularly instructive in its treatment of the difficult (and much under-explored) area of accounting for ‘business’ profits where there are mixed sources of profit and difficulties of attribution.

The case of Sinclair v Versailles and its treatment of the remedies available in respect of bribes and secret commissions – and in particular two irreconcilable lines of authority: Lister v Stubbs (debt) and Attorney-General v Reid (constructive trust) – has provoked heated and stimulating controversy and debate in case-law and among practitioners and academics. The Supreme Court in FHR European Ventures LLP v Cedar Capital Partners LLC has finally resolved this debate. The decision has the great advantage of being ‘right because it is final [as] there is precious little prospect of agreement on a judgment that is final because it is right’. The decision has established that unauthorised profits held by a fiduciary will be held on constructive trust. It is to be welcomed as much for its result as for the manner of its communication
– short, unanimous and unequivocal.

The net effect of the above developments mean that even if the expression ‘constructive trust’ still carries decades of historical baggage there is a now a much clearer body of law explaining what should be understood by the term in different contexts and what rights and limitations apply.

The compensatory regime (albeit in the context of a commercial trust involving solicitors) has also been considered in detail by the Supreme Court in AIB Group (UK) Plc v Mark Redler & Co Solicitors. The decision follows and clarifies the decision of the House of Lords in Target Holdings Ltd v Redferns. It is likely that this decision will be no less controversial than that in Target Holdings, in affirming the potential relevance of causation even in cases where trust property has been misapplied and where restoration of the property or ‘restitutive’ compensation has traditionally been considered to be the primary remedy.

There have been a number of helpful decisions clarifying the practical as well as jurisprudential distinctions between an account and an account of profits, as well as an illustration of the practical effect of what burdens will face directors required to account for their dealings with company property. Recent cases also point up the conceptual and practical distinctions between the (objective) ‘no conflict’ and ‘no profit’ duties and the (largely) subjective test to be applied when looking at the discretions fettering a director’s decision-making.

Forfeiture of fiduciary remuneration is an area which has had new life breathed into it following Imageview Management Ltd v Jack. Fiduciaries remain largely ignorant of the risk that, in respect of disloyal behaviour they may not only be required to account for profits made or to compensate loss sustained, but may additionally forfeit remuneration paid in respect of the transaction or conduct which has given rise to the disloyal conduct.

If the scope of the remedial regime in respect of accessories is still open to debate, the current direction of travel is clearer than it was as a result of the decision of the Court of Appeal in Novoship (UK) Ltd v Mikhaylyuk. This case is an off-shoot of the long-running Fiona Trust litigation – a gift to the legal profession which keeps on giving. The decision is likely to provoke controversy, not least for: its statement that there are different nexus/causation thresholds applicable to fiduciaries and (a more rigorous threshold) to accessories when assessing damages and an account of profits; its holding that an account of profits will not be available automatically against accessories (mirroring the approach in relation to those who misuse confidential information); the introduction of a remoteness test for the recovery of equitable compensation from accessories (arguably inconsistently with the discussion underpinning the subsequent decision of the Supreme Court in AIB). Against a judicial climate which has generally confirmed a continued hardening of attitudes against bribery and corrupt commercial conduct this decision blows a surprisingly warm wind over the treatment of third parties involved in such conduct.

In the first edition we raised the question of the application to directors and employees of the ‘Bolkiah’/‘Chinese Walls’ principle crystallised in the House of Lords decision in Prince Jefri Bolkiah v KPMG. The Court of Appeal roundly rejected application of the Bolkiah principle to employees in Caterpillar Logistics (Services) UK Limited v Huesca de Crean. It was also (though less roundly) rejected in the case of an employed patent attorney in Generics (UK) Ltd v Yeda Research and Development Co Ltd. The principles have not been tested in the context of directors, but it would appear unlikely that such an approach will find favour.

There have also been important incremental developments in the remedial regime for breach of contract, considered in Chapter 4. The (welcome) trend at first instance has been to adopt an increasingly broad approach to the availability of springboard injunctive relief to cancel out unlawful headstarts (however obtained) and ‘restitutionary’ or ‘hypothetical release’ damages following the Wrotham Park line of case-law. Such remedies have a particular resonance in cases of unlawful business competition where there have been breaches of duties of loyalty, misuse of confidential information or breach of post-termination restrictive covenants and where loss may be difficult to establish.

Since the first edition there has continued to be a large volume of stimulating and thought-provoking academic commentary published. It is daunting for practitioner authors to keep abreast of developments in thinking. We have sought, where possible, to reflect comment, and we express our debt to the writings which have helped to inform this work, in particular those of Matthew Conaglen, Richard Nolan, Charles Mitchell, Paul Davies, Lionel Smith and James Edelman.

We have endeavoured to state the law as at 31 December 2014.

Andrew Stafford QC
Stuart Ritchie QC
March 2015
Foreword by Justice Paul Finn



To say that a man is a fiduciary only begins the analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?

2.1 Directors undoubtedly owe fiduciary duties to the company in which they hold office. However, whilst this proposition is uncontroversial, across the common law world there have been divergent views as to what duties rank as fiduciary in their nature. The core directors’ duties have been codified in the Companies Act 2006. All but the duty of skill and care under s 174 are to be regarded as fiduciary duties.

2.2 In the context of employees the Court of Appeal decision in Customer Systems plc v Ranson3 has provided welcome clarification that, where allegations that an employee is a fiduciary are made, the nature and scope of his duties are not safely to be analysed by reference to directors’ duties.

2.3 What remains unsettled is the extent to which the principles underlying directors’ duties (albeit not the duties themselves) are to be applied to employees. Notwithstanding the volume of academic writing and judicial consideration of fiduciary duties, there remains no settled definition or test for a fiduciary and no universal guide as to which duties apply, or their content, even if the conclusion is reached that a person is in a fiduciary relationship. Summary of the current law concerning directors’ and employees’ fiduciary duties

2.4 We summarise the present state of English law on the nature and content
of directors’ and employees’ fiduciary duties in the following propositions.

(1) The word ‘fiduciary’ has been described as ‘manifestly unstable’. It is an
etymological chameleon, used in different ways in different contexts:

as a noun, to connote an individual whose status is regarded as ‘fiduciary’ because of the position he holds; the paradigm example is the express trustee; the company director is another. Agents are commonly described as ‘fiduciaries’;

as an adjective;

to describe different equitable relationships: influence, confidentiality and trust and confidence (of which the distinguishing feature is loyalty) have been identified as distinct fiduciary relationships. It is the relationship of trust and confidence which is the focus of this work. Certain relationships are universally regarded as falling within this category: trustee/beneficiary; director/company; partners; solicitor/client;

to describe the different duties owed by ‘fiduciaries’ within the various recognised relationships of trust and confidence eg trustees, directors, agents, partners, solicitors;

to describe the core directors duties codified at ss 171–173 and 175–177 of the Companies Act 2006;

in contradistinction to (ii) and (iii) above, to describe only those duties which exact undivided loyalty, which are peculiar to all fiduciaries and the breach of which attracts remedies peculiar to fiduciaries;

Used forensically (and wrongly), of contractual or other duties,
in the hope of elevating those duties to the status of fiduciary
duties so as to engage a more appealing remedial regime.

In response to a perceived lack of clarity of usage of the term ‘fiduciary duty’ the Court of Appeal in Bristol & West Building Society v Mothew emphasised the need to limit such use to those particular duties of loyalty which are peculiar to fiduciaries, and which attract peculiar (restorative and restitutionary) remedies. It made clear that the duty to exercise skill and care was not a peculiarly fiduciary duty, because the duty was not concerned with the concept of loyalty, but with competence. Mere incompetence did not connote disloyalty.

The decision in Bristol & West is widely cited as an authorative modern statement of the law. However, as regards the duties which are fiduciary it has not been consistently interpreted, whether by judges or academics.  The ambiguity has arisen from the statement that fiduciaries owe a ‘duty of good faith’. This statement has been interpreted:

restrictively, as being limited to the no conflict and no profit duties;

more broadly, as including a duty to act in good faith in the best
interests of the company and embracing positive action on its

It is settled that English law recognises the ‘no conflict’ and ‘no profit’
rules as fiduciary duties. Such duties are peculiar to fiduciaries. They are
codified in ss 175–176 of the Companies Act 2006. The law on directors’ duties has consistently recognised the ‘proper purposes’ duty and the duty to act in good faith in the best interests of the company as fiduciary duties.

The Companies Act 2006 has codified the general duties of directors which have effect in place of the common law rules and equitable principles upon which they are based. Sections 171, 172, 173, 175, 176 and 177 are regarded as fiduciary duties, although not each of those duties is ‘peculiarly fiduciary’as understood in Mothew.

Although employees owe contractual duties of fidelity, the relationship between employee and employer is not inherently fiduciary. Fiduciary relationships may arise within the employment relationship where the role performed by the employee or particular tasks undertaken by him results in the imposition of fiduciary obligations.

The nature and content of employees’ fiduciary obligations are not settled. Employees have not, traditionally, been regarded as owing a fiduciary duty in the terms of s 172 of the Companies Act 2006, and have never been held to owe a duty in the terms of s 171 of the Companies Act 2006 even where it has been held that they owe fiduciary duties. Fiduciary Duties 7

It is established that the duty of a director under s 172 CA 2006 may require him to disclose his own wrongdoing and information of interest to the company.Such an approach has also been adopted in the case of employees, with the effect that prescriptive duties are now being imposed on employees which are additional to the contractual obligations owed by them.

Fiduciary duties are not ‘one size fits all’. Different types of relationship
will apparently generate different duties with different content and application. It is dangerous to reason by analogy from cases about company directors to cases about employees.

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