Understanding Fiduciary Duties and Trust

Introduction

Fiduciary relationships are a special kind of relationship that are known to law. To be a fiduciary it means that one must act for the benefit of another person. Acting on behalf of another person for their good implies therefore that a fiduciary cannot just be an ordinary person. As such, a fiduciary must be a person who is trustworthy and should be able to meet the threshold of being a fiduciary. Trust comes in handy. Confidentiality is another aspect that is at the core of fiduciary relationships. Obedience is another aspect as well as loyalty. At the end, one must be satisfied that the person meets all the features above for them to be appointed to positions of fiduciary. As such, the issue of reliance comes in in the sense that one places reliance on another in the hope that they will act to their best interest.

Fiduciary relationships and related aspects

A fiduciary relationship is where one person is acting for the benefit or to best interests of another person. There are a number of aspects of fiduciary relationships and these includes; trust, confidence, loyalty, and obedience. These aspects are very important in achieving the goals of fiduciary relationships. A person must be trustworthy and this is the cardinal aspect of fiduciary relationships. Trusts connote situations where one is entrusted with a duty for the benefit of other persons. These include those appointed as trustees or guardians of minor children. The testator appoints a guardian in trust that once their children attain a certain age, the guardian would be able to transfer the property held by them as a guardian. A trustee is entrusted with a duty to use the trust property for the benefit of an organization or charity. Confidentiality is a very key aspect of fiduciary relationships. This relationship involves confiding in each other some sensitive information that are intended to benefit the person who confides in the other such information. A fiduciary is therefore expected as a matter of an obligation not to disclose such confidential information without the consent of the maker. This means that everything in fiduciary relationships are held in confidence and that a party should not leak or disclose such information to a third party who might use the same to the detriment of the beneficiary or the maker. Continue your journey with our comprehensive guide to The Legal Concept of Negligence.

Obedience is another aspect of fiduciary relationships. A party acting for the benefit of another must and should, as a matter of good practice, obey the rules or the order of that person with whom they are acting on their instructions for the benefit of another party. If a testator leaves part of his estate to a trust or charitable organization to be used in a particular manner, the trustee has no option but to use the bequeath in the manner and way specified by the testator. Loyalty is also one of the aspects of fiduciary relationships. Loyalty and obedience go hand in hand and as such, a fiduciary must be loyal. Loyalty means that one is expected to pledge allegiance to the appointing authority and act to their best interests. All these aspects revolve around the duty of care but in this case, there is a more duty of care than the ordinary duty of care. Persons in fiduciary relationships are held in a higher regard than persons in normal duty of care. Examples of fiduciary relationships include a director and a company; an attorney and a client; trustees; guardians et al. A director of a company is expected to put the interests of the corporation first. He has a duty of care to the corporation for the benefit of creditors, shareholders and other stakeholders. He or she is not expected to disclose information of the company to a third party and is also expected to avoid issues of conflict of interests. A director is further expected to disclose any other dealings he or she may have entered into in the course of his duties. All these are fiduciary duties, which are held in high regard than the ordinary duty of care. A director as such is liable personally in tort or criminally for any offense since they act in fiduciary capacity. A trustee is a person or an organization entrusted by another person or organization to manage a trust for the benefit of others. They must not profit from such foundation. Same to a guardian. A guardian is more of a trustee. They are expected to act or do particular things for the benefit of others. This is an example of fiduciary relationship and as such, should adhere to the rules of fiduciary.

Conclusion

Fiduciary relationships exist and as such, those acting in such capacity should adhere to the rules governing fiduciary relationships. The most important global economic bedrock, companies, are managed and run by directors who are acting on behalf of so many people and institutions. Without such rules, directors would take advantage and illegally benefit at the expense of creditors, shareholders and other investors. It is thus trite law that fiduciary relationships adhere to confidentiality, trust, obedience, and loyalty.

Question 2

The Rule in Milroy V Lord (1862) EWHC J78

That the above case of Milroy v Lord sets down an inflexible rule of equity from which no deviation is permitted and subsequent case law support this point is not only valid but also wrong in all aspects.

Introduction

This case is a result of the decision of the court of appeal in which the court held that an attempted transfer of shares to one Milroy failed and that trust cannot be used to perfect an imperfect gift. It was their decision that once a transfer failed, then everything about the transfer stopped and as such, trust should not be invoked to save a failed transfer of gift.

The Rule

They relied on the maxim that Equity will not assist a volunteer. The facts of the case were so clear. Medley intended to transfer his fifty (50) shares from the bank to Lord to hold them in trust for his niece Milroy. Seemingly, the transfer did not take place. The court of appeal while deciding in favor of the appellant and overturning the decision of the trial court that had agreed with Milroy that in deed there was trust came up with three (3) rules; that to give away something, one must transfer the said title to the recipient; must transfer the subject title to a trustee or one must make a self-declaration of trust. According to them, none of the these was done and as such, they decided that equity cannot perfect an imperfect gift which is a subsidiary of equity will not assist a volunteer. Subsequently, courts departed from this decision almost immediately. Equity came in to mitigate the harshness of common law. In the case of Strong V Bird (1874) that was almost decided immediately after the Milroy case, there was a complete departure from the rule above. It was said that if an executor of estate is a debtor of the testator at the time of the appointment, intention of the testator was very important when it came to forgiving the debtor of his debts. He could only be forgiven his debts if the testator had that intention until the time of his demise. Re Rose (1952) EWCA Civ 4 for example, was a clear departure from the Milroy decision above. This case focused more on the intention of the donor. The transfer of gift would be effective if the donor did all that in his capacity to have the gift transferred. It came up with robust rules; if the donor did everything in his capacity necessary for the transfer of the title to the trustee but the same failed to happen without the fault of the donor, then the title will be valid as such will pass not in law but in equity. It invoked a countenance maxim to the Milroy above to the effect that Equity will treat as done that which ought to be done. In the above case of Milroy v Lord, the donor did everything in his capacity that was necessary for the transfer of his shares to the trustee but out of lack of goodwill by the trustee, the same did not happen. There was no fault on his side and this is where Re Rose above found the fault to perfect an imperfect gift by doing that which ought to be done.

In pennington v Waine (2002), the court sitting as a court of equity took the view that an imperfect gift could be perfected if the donor had the intention to have the same transferred. It the decision of the court that would be unconscionable to deny the gift if the same was clear from the donor. An almost similar decision was made in the case of Paul V Constance (1976) EWCA Civ 2 where an intention to create a trust was held to be valid and as such a gift would not fail.

Conclusion

This area of law has created a lot of uncertainty in law. In fact, to others, these cases have only succeeded in creating confusion in the legal arena. But it should be noted that all of them are cases of equity and as a rule, equity values intention.

Question 2

Charitable and non-charitable trusts

Charitable trusts are those trusts which are created for a particular purpose. They are futuristic and purposeful and as such, are capable of being in existence in perpetuity. They are intended to benefit a community and to a larger extent, their validity rest on this hinge of communal benefit. However, the law must recognize it as such, failure of which it might fail to be considered as charitable trust. An organization that supports education to a specific group or community is deemed as a charitable organization if that’s the purpose. If the group to benefit has a common bonding, then that would be charitable in sense. In charitable trusts, even in the absence of human beneficiaries, the Attorney General can enforce them subject to the perpetuity rule. Non-charitable trusts are set up for other purposes instead of benefiting human beings. Generally, there should be an object in every trust instrument in whose favor a court of law can make orders and decree. In non-charitable trusts, the Attorney General cannot enforce the rights of beneficiaries. Beneficiaries should be available to enforce their rights.

Judy’s Trust Fund

A trust created to provide a safe crossing for schoolchildren outside her house is a charitable trust within the meaning of charitable purpose trusts. A charitable trust is created for a particular purpose to benefit human beings. The beneficiary in a charitable trust must be human beings. The beneficiaries need not to enforce their rights alone. The Attorney General can enforce their rights on their behalf. In this case, the Attorney General has the obligation to ensure that the crossing for the schoolchildren is set up. This type of trust can exist in perpetuity and furthermore, the beneficiaries in this case, schoolchildren, have a common bond. This trust is intended to benefit them and as such, it is undoubtedly charitable. A trust to promote world peace is also charitable in the sense that the beneficiaries of a world peace are human beings. If the purpose of trust is to do a particular thing to benefit human beings, it remains charitable. The attorney General has a solemn duty to enforce such a trust for the benefit of a large group of persons. Such a trust to promote world peace is capable of being in existence in perpetuity. A trust created to build a new wing for her local horse hospital and to prevent cruelty to horses around the world is non-charitable trust. This is a trust created for other non-charitable purposes other than benefiting the human race. Horses are no humans. Preventing cruelty to them is charity but not within the meaning of charitable trust.

Conclusion

It is imperative that when creating a trust, one should be specific to avoid uncertainty associated with interpretation of trusts which in most cases sees these trusts invalidated.

Bibliography

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Nolan, R.C., 2010. The legal control of directors' conflicts of interest in the United Kingdom: non-executive directors following the Higgs Report. Theoretical Inq. L., 6, p.413.

Ollikainen-Read, A., 2018. Assignments of Equitable Interests and the Origins of Re Rose. Conveyancer and Property Lawyer, 82(1), pp.63-73.

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