What is a Fiduciary?
A fiduciary is defined as a person given the power and therefore entitled the fiduciary duty of performing certain key tasks on behalf of another individual. The principal is the individual who the fiduciary duty is owed by the fiduciary. The laws provide for ways to deal with an individual who violates the term and conditions of the relationship and certain circumstances, and it may result in the prosecution against the individual. In the event of entering into a fiduciary relationship, there are typically the implied and expressed terms by both the parties of the relationship. In the case of Hospital Products Ltd v.United States Surgical Corp(1984) 156 CLR 41,(1984) 55 ALR 417,there was the implied terms by the United States Surgical Corporation that the Hospital Product Ltd was to use their best efforts and resources towards the marketing and distribution of their products in Australia. Based on the case, it can be concluded that a fiduciary relationship existed such that the Hospital Product Ltd was to act in the best interest of the United States Surgical Corporation.
The use of the doctrines under the fiduciary duties has proven difficult, and this is in the context of a variety of judgements.The fiduciary duties have therefore become a matter which is very hard to clarify. This report aims at setting the critical elements of the laws which influence the fiduciary concept. It also attempts to highlight the key elements in equity which are typically a result of insurance. Some of the aspects may include, an experiment for the imposition of fiduciary duties in the rationally identified classifications.
A relationship of confidence which entails the imposition of duties by equity on another individual which prevents the person from abuse of such confidence often creates a fiduciary relationship. When a fiduciary accepts to act on behalf of and hence acts in the interest of another individual. Such an act has to be done through an exercise of power, and it has to influence the interests of the other individual in the legal perspective.(Hospital Products Ltd v.United States Surgical Corp(1984) 156 CLR 41,(1984) 55 ALR 417)There are certain problems often created due to the imposition of the fiduciary duties and this is seen in the case of.(Hospital Products Ltd v.United States Surgical Corp(1984) 156 CLR 41,(1984) 55 ALR 417) and the terms which were spoken by Mason in the Hospital Products. Such terms, however, were used the judge in the high court in the case of White City Tennis Club v.John Alexander’s Club.
The Fiduciary Duties
The fiduciary duties are generally categorized into two broad groups that are the duty of care and duty of loyalty. However such duties differ based on the varying relationships existing between the parties and the fiduciaries. For instance, the fiduciary duties have now been imposed on various individuals such as the clergymen, physicians, and the union officers. Further, the fiduciary relationships are based on a variety of legal aspects such as the elections wills, trusts, and contracts. The remedies of the fiduciary duties, however, are based on the same particular source that is equity. In the case where the instructors suffer certain damages the just fiduciary account for all the ill-gotten profits. There are also various features upon which the fiduciary relationship exists, and they entail,
According to Miller (2014 p 320), the fiduciary relationship being viewed as service relationships and hence they offer service which is acceptable by the public policy. Such service providers include the agents, lawyers, brokers, co-ventures, and partners. Additionally, all the fiduciaries must be given all the necessary powers to undertake their duties. However such powers vary depending on the terms of the agreements and the wishes of the parties. The other factors which determine the extent of power bestowed upon the fiduciaries are the freedom of the entrustors manipulate the activities through appointment and removal. The cost of the future actions of the fiduciaries is also a critical aspect which helps to determine the extent of the power bestowed upon them by the entrustors.
Law Commission (2014 p 2014), argues that the other key feature of the fiduciaries is the purpose of serving their entrustors solely. Such entrusted purposes only allow them to use their powers to carry out the sole activity of their entrustors as of required of them. In the event of a loss to the entrustors, a given percentage of the commission to be given to the fiduciaries are deducted to compensate for such a loss. In the fiduciary relationship, it is expected that there is likely to be high costs to be incurred and this is especially when monitoring the services being provided by the fiduciaries.
The high costs are also because certain of the services to be offered by the fiduciary often require expertise which the fiduciaries may not have. Also, the services can at time fail to meet the required standards, and such may lead to high cost. According to Aier et al. (2014 p 1000), the high costs lead to low benefits to the entrustors. Another essential characteristic of fiduciary duty is that the benefit of a particular fiduciary relationship may be reduced by the costs of monitoring. However, there are certain strategies which the entrustors can use to increase their benefits in such a relationship. For instance, he may use a third party and insurance guarantees, and this will only be applied in the vent that the costs are lowered.
Types of Fiduciaries
The other way to reduce the cost of monitoring could be the use of external controls such as the market controls. The courts in the past few years have acknowledged the existence of the new fiduciary relationships. The various laws on fiduciary provide the entrustors with certain ways of entering the fiduciary relationships. The laws help in reducing the costs and risks associated with the abuse of powers given to the fiduciary to carry out certain activities (Miller and Gold, 2015 p 513). The various techniques of the law, therefore, help to ensure that quality services are offered to the entrustors by the fiduciaries. The costs relating to the entrustors are therefore shifted to the tax payers through judicial enforcement by the judges in courts of law. Additionally, the freedoms of the fiduciaries are often limited by the law through the imposition of the fiduciary duties (Lydenberg, 2014 p 370). The marketability of the fiduciaries is however increased through a good reputation placed upon them for being honest. There are also a variety of differences and similarities which gives rise to the reasons why the fiduciaries are often regulated specifically in fiduciary relationships. Further, they also explain the reasons for the different regulations in various classes of fiduciaries.
Smith (2014 p 1783), argues that during the formation of a company, it is necessary to have the directors who will be in charge of the general administration and management of such a firm. The directors are often entrusted with certain fiduciary duties upon them. Such duties are however classified into two that, the duty of loyalty and duty of care.
Duty of Care
According to Allen and Kraakman (2016 p 450), all the directors with certain tasks which entail the control and coordination of the company. In the event of performing such tasks, the duty of care has been imposed on them to enable them to run the affairs of such a firm with reasonable care and diligence. In the company, they are all expected to attend the board meetings on a regular basis and also refrained from doing activities which are against the aims and objectives of the company.
The interest of the company must always come first, and that of the stockholders and this is under the duty of loyalty imposed on the directors. The various selfish acts and conflict of interests should be avoided at all cost by the directors while performing their key duties of administration (Fullarton, 2017 p 290). It is expected of the directors to act in an honest manner which prevents them from engaging in certain activities which are against the policies of the company.
Fiduciary Remedies
Apart from the duties mentioned above imposed on the directors, there is also the duty of disclosure. Under the duty of disclosure, the directors have a duty to disclose to the relevant stockholders’ relevant information relating to the affairs of the company (Levin, 2015 p 250). Such information may be concerning the statement of financial position of the company which can be used for comparison by the company with those of the other firms.
The Partnership Act (in an Australian State or Territory), stipulates the various fiduciary duties which have been imposed on the partners in a partnership business. Such fiduciary duties give the partners the powers to carry out and provide certain services on behalf of the enterprise. The fiduciary duties include,
Under the duty to notice to the firm, the partners are mandated to provide notice to the firm on cases of violation of the fiduciary duty which have been caused by them. The partners are however exempted from circumstances in which the breach of the fiduciary duty has been committed by one of them (Munro, 2017 p. 100). For instance, in the case which involved the Hospital Products v. United States Surgical Corporation, the Hospital Product Ltd had the duty to notify the United States Surgical Corporation about the failure to distribute the products as they required in various parts of Australia.
Langford (2016 p. 500), argues that the partners act as the agents of a particular partnership and hence they have a difficult task of binding the firm together. All their actions should not be those which may cause harm to the company. When they conduct activities which are against the objectives of the company, it results in a breach of duty which results in damages to the partnership business (Welch et al.2016 p. 390). Therefore all their actions should bind the firm since any damage to the business will be shared equally among them. Just like in the case, the actions of the Hospital Products Ltd should be at binding those of the United States Surgical Corporation.
According to the Partnership Act, the partners have a fiduciary duty to use the property of the company properly, and the violation of such an act will lead to the suspension from the partnership deal. In the case, the Hospital Product Ltd had the duty to use the products given to them by the United States Surgical Corporation. However, they failed and had to be prosecuted in a court of law (Gover, 2016 p. 339). The partners of a company may at times misuse the property in the custody of a firm in the following situations; if an individual partner misuses a property received on behalf of the partnership business from a third party. The other situation occurs when a property in the custody of a firm has been used inappropriately by a particular partner.
Features of Fiduciary Duty
The partners act as agents of the partnership business. The credits of the firm should not be used for other uses which are not for the benefit of the firm (Finn, 2016 p. 50). Under the duty, all the partners are obliged nit to use the good name and reputation of the company to benefit themselves, but instead, they should be applied for the benefit of the firm. The Partnership Act provides the rules to penalize all the partners to have breached such a fiduciary duty which may result in damages to the principal.
According to Bottomley (2016 p. 90), the fiduciary duties imposed on the directors is a display of confidence and trust placed upon the directors. The Corporations Act 2001 has constituted a variety of fiduciary duties. Such fiduciary duties, however, place a legal relationship to exist between the company and the director. Also, the fiduciary duties are in relation to the good faith and trust, and this puts the director at a position which restricts them from making certain decisions which are against the interests of any particular company (Hayne, 2014 p. 795). The duties therefore imposed on the directors include;
- Duty not to disclose confidential information to the third party
- A duty of care and diligence
- Duty to avoid conflicts of interest
- Duty to act in the interest of that particular company
- Duty to retain discretion
- Duty not to act for an improper purpose
The critical example of the duty not to disclose confidential information is the insider trading and the directors of any particular company typically have a variety of knowledge of the firm, and this is due to their position of power (Ghahramani, 2015 p. 237). Under the duty of care and diligence, all the information provided to the directors should be verified to ensure that they are accurate and clear. Any particular information made available to the directors by any specialist in a particular field should not be merely relied upon the director.
Nosworthy (2016 p. 1389), argues that the Corporation Act has also established other fiduciary duties, for instance, section 285 to 318, has placed a financial obligation which is associated with the directors’ duty to use their powers due diligence and care. Further section 588 has developed the duty of the directors not to run the company while it is insolvent. When such a provision has been violated, the directors will be held liable for the all the debts which will exist in the event of an insolvency of a company. Additionally, section 191 to 195 of the Act, provides the duty of the directors to disclose all their material personal interest. Section 184 of the Corporation Act, stipulates the directors who are intentionally dishonest and hence violates the directors’ duty will be treated as criminal offenders.
Fiduciary Relationship in Company Law
In the case of Hospital Products v. United States Surgical Corporation, it was found that the Hospital Product Ltd had violated section 181 of the Corporation Act by contravening their duty to act in good faith for the best interest of the United States Surgical Corporation. Additionally, they failed to act with due diligence and care, and this was considered as a breach of the fiduciary duty (Smith and Lee, 2014 p. 609). The Hospital Product Ltd instead of distributing the products on behalf of the company in Australia, it acted for their interest. All the directors are expected to act in the best interest of a company and also in good faith for a proper purpose. In the case, the director of the Hospital Product Ltd were expected to pay for all the damages they had caused to the United States Surgical Corporation.
Conclusion
In summary, a fiduciary is defined as a person given the power and therefore entitled the fiduciary duty of performing certain key tasks on behalf of another individual. It is a relationship of confidence which entails the imposition of duties by equity on another individual which prevents the person from abuse of such confidence often creates a fiduciary relationship. Fiduciary duties are typically imposed during the formation of companies on the directors. Such duties include, duty of care and duty of diligence. The Corporations Act 2001 has also provided certain key fiduciary duties which include, duty not to disclose confidential information to the third party, duty of care and diligence, duty to avoid conflicts of interest, duty to act in the interest of that particular company, duty to retain discretion and duty not to act for an improper purpose. The Partnership Act (in an Australian State or Territory), stipulates the various fiduciary duties which have been imposed on the partners in a partnership business such as duty to bind firm, duty to notice to firm and duty to proper use of property in custody of the firm among others.
References
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