(iii) The Categories of Fiduciary Relationship

There are three distinct categories of fiduciary relationship. Each one possesses different characteristics and attracts different kinds of fiduciary obligation.^[1]

(1) The Relationship of Trust and Confidence

The most important category of fiduciary relationship is the relationship of trust and confidence. The essence of this relationship is that the fiduciary has undertaken to act for or on behalf of somebody else in circumstances that give rise to a relationship of trust and confidence.^{[2] [3] [4]} In other words, the principal is entitled to the single-minded loyalty of the fiduciary.^{53 54}

The identification of this relationship of trust and confidence is illustrated by the decision of the Court of Appeal in Attorney-General v Blake.⁵⁴ Blake, who had been a member of the British Secret Intelligence Service and also an agent of the Soviet Union, published his autobiography which disclosed information about the secret service. This breached an agreement not to disclose information gained as a result of his employment by the Crown and it also constituted a breach of the Official Secrets Acts. The book was published in the United Kingdom without the permission of the Crown. The Attorney- General sued, on behalf of the Crown, to recover all the sums which had been received or were receivable by the publisher. One argument made by the Attorney-General was that, if Blake had received these profits, he would have been liable to account for them to the Crown because they were made in breach of fiduciary duty. The Court of Appeal accepted that there was a fiduciary relationship of trust and confidence between Blake and the Crown, because Blake was employed to act in the best interests of the Crown. But it also recognized that this duty only lasted as long as the relationship of trust and confidence continued and that such a relationship ended once the employee had ceased to be employed. Consequently, once Blake ceased to be employed by the Crown, he no longer owed a duty of loyalty to the Crown as a fiduciary. A duty of loyalty will subsist despite the termination of employment, if the employee has entered into a contractual undertaking not to damage the employer’s interests once the employee had left that employment. But, if such an agreement was breached, liability would be founded on breach of contract rather than breach of fiduciary duty. It was the breach of this agreement which founded the basis for the claim before the House of Lords.^[5]

Beneath the umbrella of the fiduciary’s obligation of loyalty are two basic duties, as recognized by Lord Herschell in Bray v Ford:^[6] ‘it is an inflexible rule of a court of equity that a person in a fiduciary position . . . is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict’.

These are the so-called ‘no profit’ and ‘no conflict’ duties. These duties are peculiar to fiduciaries^[7] and are preferably treated as distinct.^[8]

(a) The No-Conflict Duty

The no-conflict duty is engaged where a fiduciary finds him or herself in a position where the fiduciary’s personal interest conflicts with his or her duty to the principal, or may conflict in a real and sensible manner;^[9] the fiduciary must then prefer the duty to the principal to his or her personal interest,^[10] save where the principal has given free and fully informed consent to enable the fiduciary to prefer his or her interest. So, for example, a fiduciary is prohibited from competing with the principal’s business, for then the personal interests of the fiduciary will, or might, conflict with the interests of the principal that the fiduciary is bound to protect.^[11] The fiduciary is not permitted to adduce evidence to show that there was no actual conflict of personal interest and duty; liability is founded on the existence of potential, rather than actual, conflict.

Nolan^[12] has argued that, where the claimant seeks a restitutionary remedy from the fiduciary in respect of a benefit which was obtained in contravention of the ‘no-conflict’ duty, this restitutionary claim should be treated as founded on unjust enrichment rather than restitution for wrongs. So, for example, if the fiduciary purchases property from the principal at an undervalue, the defendant’s liability to make restitution will be founded on his or her unjust enrichment, since the defendant will have obtained a benefit at the claimant’s expense, as the benefit was subtracted from the claimant. Nolan failed to identify a recognized ground of restitution which would be applicable in such circumstances, but suggested that a ground should be recognized because the claimant’s consent to benefit the defendant can be considered to be impaired.^[13] Whilst this is a persuasive argument, particularly because it is consistent with a number of cases, its success depends on how the liability of a fiduciary is analysed, namely whether a fiduciary who infringes the no-conflict rule should be characterized as a wrongdoer? Since the liability of the defendant depends on the fact that he or she was a fiduciary, and failed to reach the high standards which are expected of a fiduciary, it is preferable to treat infringement of the noconflict duty as a form of wrongdoing, for which restitutionary relief is available. This is not, however, inconsistent with Nolan’s thesis, since the principal could still base a claim on the unjust enrichment principle by means of alternative analysis if a relevant ground of restitution could be identified.

(b) The No-Profit Duty

The no-profit duty prohibits fiduciaries from obtaining an advantage by virtue of their position as fiduciary, either for themselves or for a third party, save where the principal has given fully informed consent to the fiduciary obtaining the advantage following full and frank disclosure by the fiduciary,^[14] or the profit is otherwise authorized. So, for example, fiduciaries are prohibited from making a profit by using an opportunity or knowledge which they are able to use because of their position as a fiduciary. It is no defence that the fiduciary would have made the profit even if he or she had acted properly,^[15] nor that the fiduciary had acted honestly and in the principal’s best interests, nor that the principal actually benefited, nor that the principal could not have obtained the benefit for him or herself. The rationale behind this strict interpretation of the no-profit rule is that the fiduciary is precluded from using his or her position to advantage anybody’s interests other than those of the principal, this being a vital component of the fundamental obligation of loyalty. It does not follow that the fiduciary is prevented from obtaining any benefit at all whilst he or she acted as a fiduciary.^[16] Many fiduciaries are professionals who are legitimately paid for their work, including professional trustees. The real concern is to ensure that fiduciaries do not make an unauthorized or secret profit from their position.

Both the no-conflict and the no-profit duties are interpreted very strictly, so that fiduciaries are liable even though they were acting honestly and to the best of their ability, without fraud or bad faith.^[17] It follows that the highest standards of behaviour are expected from fiduciaries to avoid the imposition of liability. Various reasons have been suggested to justify such high standards including the need to control the exercise of discretionary powers;^[18] to ensure that the fiduciary resists the temptation to serve him or herself rather than the principal;^[19] to deter other fiduciaries from failing to comply with high standards of behaviour;^[20] or to ensure the proper performance of non-fiduciary duties,^[21] such as failing to comply with the reasonable standard of skill and care. It follows that fiduciary duties are prophylactic, which means that they exist to prevent a particular state of affairs from occurring. That state of affairs is that the fiduciary acts in such a way as to be disloyal to the principal and Equity seeks to prevent such disloyalty by imposing the most severe duty of loyalty.^[22] This might be criticized as being too strict, especially when the fiduciary’s actions benefit the principal, but it must not be forgotten that these duties are not absolute. Fiduciaries can immunize themselves against liability for breach of fiduciary duty by seeking the fully informed consent of the principal in advance of taking the action, or even by seeking the approval of the court. If such consent is not forthcoming, the fiduciary should not take the action.

A number of specific rules can be identified which are derived from the no-conflict and the no-profit duties.

(c) The Self-Dealing Rule

The self-dealing rule provides that a fiduciary is barred from dealing on behalf of him or herself and the principal in the same transaction.^[23] So, for example, trustees cannot sell trust property to themselves;^[24] neither can trustees sell their own property to the trust.^[25] Breach of this rule renders the transaction voidable,^[26] so that the principal can rescind it without needing to prove that the transaction is unfair.^[23] Once the transaction has been rescinded, the fiduciary is liable to account to the principal for any profits that were made from the transaction. The self-dealing rule can be excluded by the relevant instrument that governs the fiduciary relationship,^[28] and the transaction will not be voidable where the fiduciary had obtained the fully informed consent of the principal to the transaction.^[29] The reason why self-dealing transactions are voidable is because where, for example, a trustee is seeking to sell his or her own property to the trust, there is a real danger of conflict between the fiduciary’s personal interest in getting the highest price and his or her duty to the beneficiary of the trust to obtain the lowest price. This risk exists regardless of the fairness of the transaction.

(d) The Fair-Dealing Rule

The fair-dealing rule will be breached where a fiduciary enters into a transaction in a personal capacity with the principal. This will render the contract voidable, save where the fiduciary can show that he or she took no advantage of the fiduciary position, made full disclosure to the principal of all material facts, the transaction was fair^[30] and there had been full disclosure of everything which might be material to the principal’s decision to enter into the transaction.^[31] So, for example, if a trustee purchases a beneficiary’s interest in trust property, the contract can be set aside by the beneficiary unless the trustee can establish the fairness of the transaction and that he or she had not taken advantage of the principal.^[32] The rationale behind the rule is that any contract between the principal and fiduciary is suspect because of the conflict between the fiduciary’s personal interest and his or her duty to the principal.

(e) Acting for More Than One Principal

A fiduciary may also be liable for breaching the no-conflict duty even though there is no conflict between the fiduciary’s personal interest and duty, but instead, where the fiduciary acts for more than one principal, there is a conflict between the duty owed to both principals.^[33] A fiduciary is not prevented from acting for more than one principal, and professional fiduciaries such as solicitors and agents will often do so. Where, however, the interests of the two principals come into conflict, any transaction entered into by the fiduciary on behalf of one or both of the principals will be voidable and the fiduciary will be liable to account for any profit made as a result, save where the principals have given their fully informed consent to the fiduciary acting for the other. This consent may be express or it may be implied where the principal was aware that the fiduciary was acting for another principal. So, for example, where the fiduciary is a solicitor who was acting for both the mortgagor and the mortgagee, and both of the clients knew that the solicitor was acting for the other party, there will be no breach of the no-conflict rule.^[34]

The rationale behind this rule is that the conflict of duty and duty means that the fiduciary is unable to provide undivided loyalty to each principal. It is no defence that making full disclosure to one principal will involve breach of the duty owed to the other,^[35] since the fiduciary should not put him or herself in a position where the duties conflict.^[36] Liability for a conflict of duties owed to different principals can be avoided by an express or implied term in the contract of appointment which allows the fiduciary to act for other principals.^[37]

(f) Interference with the Principal’s Property

Probably the clearest case where gain-based remedies are available for breach of a fiduciary duty is where the fiduciary appropriates the principal’s property or obtains a benefit from its use without permission to do so.^[38] This is illustrated by Brown v IRC⁸⁹ where the defendant solicitor received clients’ money which he deposited in a bank account. The defendant then used the interest on this account for his own purposes. This constituted a breach of the no-profit duty because the defendant had used income which belonged to the clients for himself and without their authority. Although information has sometimes been characterized as property that can be misappropriated,⁹⁰ the better view is that information lacks the key hallmarks of property and so cannot be misappropriated,⁹ and so the fiduciary will consequently not be liable to account for profit obtained from the exploitation of such information.

A particularly good example of profiting from appropriation of property is Keech v Sandford,⁹² which concerned a lease of the profits of Romford market in Essex. The lessee had devised his estate, including the lease, to a trustee to be held on trust for an infant. Before the lease was due to expire, the trustee applied to the lessor for its renewal for the benefit of the infant. The lessor refused because, being a lease of profits only, the remedy for recovery of rent could be enforced only under the covenant to pay, but this would not have bound the infant. The lessor was, however, willing to renew the lease for the trustee personally. The trustee took the renewed lease of the profits from the market and the infant then sought the lease to be assigned to him. He succeeded in doing so and also recovered the profits obtained by the trustee before the lease was assigned. Although the case is poorly reported, it is clear that the trustee’s liability was founded on his breach of duty since he obtained the opportunity to profit from the renewal of the lease in his capacity as trustee. King LC recognized that he should have let the lease expire rather than obtain it himself. In fact this is better analysed as a case in which the trustee appropriated trust property because the practice at the time was that the opportunity to renew a tenancy was recognized as a legal right, so that the trustee had acquired a trust asset by seizing for his own benefit an opportunity that was effectively owned by the trust.⁹³

(g) Exploitation of Opportunities

Where fiduciaries have obtained a benefit by exploiting an opportunity which arose from their position as fiduciary, this also constitutes the breach of a fiduciary duty because they profited from their position as fiduciary.⁹⁴ It has been suggested that, where the opportunity which has been exploited is a ‘maturing business opportunity’, in the sense of it being an opportunity which the principal was seeking to exploit, the exploitation by the fiduciary of the opportunity is like the appropriation of property from the claimant.⁹⁵ It is, however, doubtful whether such an opportunity can really be characterized as proprietary, since it lacks many of the characteristics of property. Further, liability can arise even if the principal was not actively pursuing the opportunity.

Typically, where a fiduciary has obtained a profit through the exploitation of an opportunity it will have been available by virtue of the fiduciary’s position. Controversially, liability for exploitation of an opportunity has also been imposed even where the opportunity came to the fiduciary in a different capacity. In Bhullar v Bhullar⁹⁶ a director of a company was held liable to the company for the profits he obtained from the acquisition of property which was located next to that of the company, even though the director discovered the property as a passer-by rather than as director. The director’s

Quarter Master UK Ltd v Pyke [2005] 1 BCLC 245, [71] (Paul Morgan QC).

• 91 Boardman v Phipps [1967] 2 AC 45.
• 92 (1726) Sel Cas 61, 25 ER 223. See A Hicks, ‘The Remedial Principle of Keech v Sandford Reconsidered’ (2010) CLJ 287; J Getzler, ‘Rumford Market and the Genesis of Fiduciary Obligations’ in AS Burrows and Lord Rodger (eds), Mapping the Law (Oxford: Oxford University Press, 2006), ch 31.
• 93 Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347, [2012] 1 AC 776, [58] (Lord Neuberger MR).
• 94 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n. For directors, see Companies Act 2006, s 175(2).
• 95 CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704, [96] (Lawrence Collins J).
• 96 [2003] EWCA Civ 424, [2003] 2 BCLC 241.

liability was founded on his failure to inform the company of the opportunity and his subsequent exploitation of it. The liability is, however, better justified as involving breach of the no-conflict duty on the ground that, since the property was physically proximate to that of the company, it would have been in the company’s best interests to purchase the property. Since the director was interested in purchasing the property for himself, it followed that his own interest conflicted with that of the company, so that there was a breach of fiduciary duty at the point at which he discovered the opportunity, regardless of the fact that he had profited from purchasing the property. If the case is analysed in this way, it follows that the crucial feature of the no-profit rule remains valid, namely that the opportunity that was exploited was available to the fiduciary only by virtue of his or her fiduciary position.

The application of this exploitation of opportunity principle is more complicated where the defendant has exploited an opportunity after having resigned from his or her fiduciary position. The courts adopt a pragmatic and flexible approach to liability in such circumstances that is based on common sense and the merits of the case.^[39] It is clear that if the defendant resigns in order to exploit the opportunity he or she will be liable for breach of fiduciary duty;^[40] there must be a connection between the resignation and the exploitation of the opportunity.^{[41] [42]} Where, however, the fiduciary resigns for legitimate reasons, for example because of dissatisfaction with the principal, and subsequently obtains the opportunity to compete with the principal, which he or she exploits, there will be no breach of fiduciary duty, because there is no evidence of any disloyalty. ⁰ Similarly, where the fiduciary relationship has broken down, but the fiduciary has not resigned, the fiduciary will be able to exploit any opportunity and engage in competing business because he or she is no longer in a fiduciary relationship.^[43]

The defendant will be liable to disgorge to the claimant any profits obtained by exploitation of the opportunity in breach of duty, regardless of the fact that the defendant acted reasonably and in good faith. It is also irrelevant that the principal would not have been able to exploit the opportunity him or herself.^[44] The strictness of this rule is based on public policy.^[45] This is particularly well illustrated by the decision of the House of Lords in Boardman v Phipps.^[46] One of the defendants, a solicitor to a trust, realized that a company in which the trust held a minority of the shares was badly managed. Since the trust did not have sufficient capital to take over the company and reconstruct it, as two of the three trustees had confirmed (the third being senile and lacking capacity to agree^[47]), the solicitor used his own money to buy shares himself. One of the beneficiaries of the trust also contributed his own money to buy shares. Through the exercise of his own skill, but also by means of information which he had obtained in his capacity as a fiduciary, the solicitor turned the company into a highly profitable organization. It was held by a majority that both the solicitor and the beneficiary had breached their fiduciary duty to the trust, the former as solicitor and the latter because he had been acting as though he was a trustee. They had breached their fiduciary duty because their personal interests conflicted with their duty to the trust and they had profited from their position as fiduciaries by exploiting information that they had obtained whilst acting as fiduciaries, without gaining the fully informed consent of the trustees for their plans. Consequently they were held liable to account to the trust for the profits they had made, this profit being held on constructive trust, although the solicitor was awarded an allowance which was assessed by reference to the value of his services to the trust.

Boardman v Phipps is a difficult case to justify. It was accepted by the majority that the defendants had not interfered with the claimant’s property, since the information which they had obtained in their capacity as fiduciaries could not be treated as trust property.¹⁰⁶ Neither were the defendants acting in bad faith, as was reflected by the fact that the solicitor was awarded an allowance for the work which he had done.¹⁰⁷ Consequently, the imposition of a liability to disgorge their profits can only be justified by the policy of deterring fiduciaries from making a profit from their position as fiduciaries. It is important to remember that a fiduciary will not have breached the no-conflict and no-profit duties if they have obtained the fully informed consent of their principal. In Boardman v Phipps it appears that the relevant consent was that of the beneficiaries of the trust to whom the fiduciaries owed their duties. The consent of the beneficiaries was not considered to be fully informed.^{1 8} The strictness of the result in Boardman v Phipps was further mitigated by the fact that the solicitor was awarded an equitable allowance to reflect the value of his services in managing the company to make it profitable.¹⁰⁹

But, despite this, was there really anything wrong with what the defendants did? There was nothing to suggest that they had abused their relationship of trust and confidence. They had acted honestly and reasonably and took the risk with their own money that they would be able to improve the company’s fortunes, but were still liable to account to the trust for the profit that they had obtained and even thought the trust had not been in a position to buy more shares, because this was not authorized by the investment clause in the will and there was no trust money available to buy shares, so there was no possibility of the fiduciaries competing with the trust. The imposition of liability hardly seems fair. Whether the decision should be considered to be correct depends on the message we think we should be giving to fiduciaries. If we wish to make it clear that fiduciaries should be expected to give their full attention to the person to whom they owe their duties, and that they should never place themselves in a position where they might be tempted to act disloyally, the decision in Boardman v Phipps must be correct. Alternatively, where there is no hint of fraud in the conduct of the defendant, surely it is much more realistic and just to commend the defendant for what he or she had done, rather than to hold the defendant liable to make restitution to the claimant. This was the view of the minority in the case, who held that the defendants should not be liable to account for the profits they had made because they had been acting in good faith and because the beneficiaries had made it clear that they were not interested in a scheme to obtain the majority of the company’s shares.

The strict interpretation of liability for exploiting an opportunity in breach of fiduciary duty was, however, affirmed by the Court of Appeal in Murad v Al-Saraj, ⁰ for two reasons.¹¹¹ First, in the interests of efficiency, because the principal might not be able to monitor easily the fiduciary’s actions on a daily basis. Secondly, to provide an incentive to ^{[48] [49]}

all fiduciaries to resist temptation to conduct themselves improperly; the policy of deterrence underlies the strictness of this form of liability. In Murad the defendant was held liable for breach of the no-profit duty when he had profited from participation in a joint venture by failing to disclose that his contribution to the purchase of a hotel was made by offsetting unenforceable obligations that were owed to him by the vendor, including commission for his introduction of the claimants to the vendor. Arden LJ acknowledged^[50] that the application of the no-profit rule was strict, so that the defendant was liable for breach of fiduciary duty even though, if he had made full disclosure of the nature of his financial contribution, the claimants would still have proceeded with the joint venture, although they would have demanded a greater share of the profit. The Court acknowledged that the time may have come to revisit the inflexibility of these fiduciary duties, especially where the fiduciary has acted in good faith and the principal would not have wanted to exploit the opportunity him or herself,^[51] however such a review could now only be undertaken by the Supreme Court.

This flexible approach to the finding of liability has been recognized by the Supreme Court of Canada^[52] and by the Privy Council^[53] where, in the context of directors exploiting corporate opportunities which had been declined by their companies and where there had been full and frank disclosure of their desire to take the opportunity, directors were not held liable to account for their profits. There is no reason why such a flexible rule should not be recognized in English law. Indeed, it has been recognized that a profit can be retained where the consent of the principal has been obtained following full and frank disclosure of all relevant matters.^[54] Where this has occurred and the principal has declined the opportunity there is no legitimate reason why the fiduciary should be prevented from retaining the profit made from the exploitation of the opportunity. It follows that the restrictions imposed on fiduciaries by virtue of the no-profit duty, and the no-conflict duty as well,^[55] can be mitigated if fiduciaries obtain prior authorization for what they wish to do. This is consistent with the fundamental obligation of loyalty, since loyal fiduciaries will reveal their intentions about the exploitation of opportunities to the principal.

(h) Receipt of a Bribe or Secret Commission

Where a fiduciary has received a bribe or secret commission to induce him or her to act against the interests of the principal, this is one of the clearest cases where the fiduciary should be considered to have broken his or her fiduciary duty, by contravening both the no-conflict and the no-profit duties. Gain-based relief in such cases is justified simply on the ground that fiduciaries should be deterred from accepting bribes which will influence them to act against the best interests of their principal. One of the best ways of deterring such conduct is by depriving the defendant of the bribe which he or she received. This is illustrated by Reading v Attorney-General^[56] where the defendant was a sergeant in the British army serving in Egypt. He was bribed to sit on lorries whilst wearing military uniform so that alcohol could be illegally transported without being stopped by the police.

The defendant was convicted of a crime. Most of the bribes which he had received were seized by the Crown and he sought to recover them. His action failed because he had been acting in breach of his fiduciary duty and so he would have been liable to account for the bribes to the Crown.¹¹⁹

This liability has been extended to include the receipt of a secret commission. In Daraydan Holdings Ltd v Solland International Ltd¹²⁰ the defendant agent received a secret commission of 10 per cent of the contract price in return for him exerting his influence to obtain contracts between a third party and his principal. This secret commission was held to be a secret profit which could be recovered by the principal. It was held to be irrelevant whether the agent had solicited the secret commission or had been offered it by the third party.¹²¹

Where a principal is induced to enter into a contract with a third party as a result of the fiduciary being bribed by the third party, the contract is voidable.¹²² In such circumstances the contract could be rescinded at Common Law for fraud,¹²³ or in Equity by virtue of breach of the no-conflict duty,¹²⁴ there being an irrebuttable presumption that the agent was influenced by the bribe.¹²⁵ Where the principal rescinds the transaction tainted by a bribe, he or she does not have to give credit for the amount of the bribe as part of the obligation to make restitution of benefits received under the contract, even where the principal has already recovered the bribe from the fiduciary.¹²⁶

(2) The Relationship of Confidentiality

The fiduciary relationship of confidentiality will arise where information is imparted by the principal to a fiduciary in confidence.¹²⁷ Although such a relationship of confidentiality may arise when one person is employed by another, the relationship does not depend on employment. Consequently, this fiduciary relationship will continue even where the employee is no longer employed by the employer. This was recognized by the Court of Appeal in Attorney-General v Blake¹²⁸ where the Court of Appeal, relying on an earlier decision of the House of Lords,¹²⁹ recognized that members of the Secret Intelligence Service, such as Blake, owe a life-long duty of confidence to the Crown. This means that if the fiduciary breaks the confidence he or she will be considered to have breached a fiduciary duty.

The essential obligation arising from the relationship of confidentiality is that the fiduciary must maintain the confidentiality of the information which he or she possesses. But this obligation only lasts as long as the information itself remains confidential. This was recognized by the Court of Appeal in Blake. Since the information which Blake had published in his autobiography was no longer confidential, it followed that he had not breached his fiduciary duty of confidence by disclosing this information.

Liability for abusing a fiduciary relationship of confidentiality is different from liability for the action for breach of confidence,¹³⁰ as was recognized by the Court of Appeal in

The controversial question of the nature of the remedy which should be awarded where the fiduciary has received a bribe is examined at p 510, below.

• 120 [2004] EWHC 622 (Ch), [2005] Ch 119. ¹²¹ Ibid, [60].
• 122 Logicrose Ltd v Southend United Football Club Ltd [1988] 1 WLR 1256.
• 123 Mahesan v Malaysia Government Officers’ Co-operative Housing Society Ltd [1979] AC 374, 383; Petrotrade Inc v Smith [2000] 1 Lloyd’s Rep 486, 490. See p 23, above.
• 124 Logicrose Ltd v Southend United Football Club Ltd [1998] 1 WLR 1256.
• 125 Hovenden and Sons v Mitthof (1900) 83 LT 41, 43.
• 126 Logicrose Ltd v Southend United Football Club Ltd [1988] 1 WLR 1256.
• 127 Attorney-General v Blake [1998] Ch 439, 454 (Lord Woolf MR). ¹²⁸ Ibid.
• 129 Attorney-General v Guardian Newspapers Ltd (No 3) [1990] 1 AC 109. ¹³⁰ See p 514, below.

Blake.^[57] The crucial distinction between these two forms of liability is that the former depends on there being a relationship between the parties which can be characterized as fiduciary in nature, whereas the action for breach of confidence simply depends on the defendant having confidential information in circumstances where there was a duty to protect the confidentiality. Also, whereas liability for abusing a fiduciary relationship of confidence is strict,^[58] liability in the action for breach of confidence depends on the defendant being at fault in some way.^[59]

(3) The Relationship of Influence

Another type of fiduciary relationship is that of influence.^[60] This will arise where the nature of the relationship between the parties is such that one party is so dependent on the other that the other party is in a position to exploit the former, who is peculiarly vulnerable to the exploitation. Any relationship can potentially be characterized as one of influence.^[61] Relationships which might particularly be characterized in this way include the relationship of solicitor and client,^[62] trustee and beneficiary, and agent and principal.

The crucial characteristic of a relationship of influence is that the principal is utterly dependent on the defendant. This is illustrated by Tate v Williamson^[63] where the deceased, who was in financial difficulties having ‘contracted habits of extravagance at University’, ^[64] sought the advice and assistance of his great-uncle, who deputed his nephew, the defendant, to help the deceased. The deceased offered to sell his reversionary interest to the defendant, who agreed to buy it for ?7,000. Before the agreement for purchase was signed the defendant received notification that the interest was valued at ?20,000, but he did not disclose this information to the deceased. It was held that the relationship between the parties was such that the defendant was under a duty to communicate to the deceased all the information he had which related to the value of the property. The defendant’s failure to inform the deceased of the valuation meant that the transaction was set aside. The relationship between the parties was characterized as fiduciary, because the defendant had placed himself in such a position of influence by undertaking to arrange the deceased’s debts, that he was under fiduciary duties which prevented him from purchasing the deceased’s property without making full disclosure. In a very important dictum Lord Chelmsford LC identified the essential features of this fiduciary relationship:

Wherever two persons stand in such a [fiduciary] relation that, while it continues, confidence is necessarily reposed by one, and the influence which necessarily grows out of that confidence is possessed by the other, and this confidence is abused, or the influence is exerted to obtain an advantage at the expense of the confiding party, the person so availing himself of his position will not be permitted to retain the advantage, although the transaction could not have been impeached if no such confidential relation had existed.¹³⁹

Where the principal enters into a transaction either with the fiduciary or a third party in circumstances where the fiduciary might have influenced the principal to enter into the transaction, it is presumed that the fiduciary exploited the principal, and so the burden is on the party who wishes to enforce the transaction to show that it was fair.^[65] This is illustrated by Demerara Bauxite Co Ltd v Hubbard^[66] where a solicitor purchased property from his former client, in circumstances where the antecedent relationship of influence between the parties continued. Lord Parmoor identified the crucial feature of this type of fiduciary relationship as follows:

in the absence of competent independent advice a transaction... between persons in the relationship of solicitor and client, or in a confidential relationship of a similar character, cannot be upheld, unless the person claiming to enforce the contract can prove, affirmatively, that the person standing in such a confidential position has disclosed, without reservation, all the information in his possession, and can further show that the transaction was, in itself, a fair one, having regard to all the circumstances.^[67]

The transaction will only be treated as valid, therefore, where there has been full disclosure of everything which is or may be material to the principal’s decision to enter into the transaction and where the other party can show that the transaction itself was fair, particularly that the transaction was not at an undervalue.^[68] Since the determination of whether the transaction was fair requires consideration of all the circumstances of the case, it follows that the question of fairness depends on whether the transaction was substantively fair, namely that the terms were fair, and procedurally fair, namely that the means which were used to induce the principal to enter into the transaction were fair. Consequently, whether the principal was advised to obtain independent and competent advice will be a particularly important consideration in determining whether the transaction was fair.

There is an obvious similarity between liability for undue influence^[69] and liability for abusing a fiduciary relationship of influence, since in both cases the defendant’s liability is founded on the actual or potential exploitation of the claimant. The boundary between the two forms of liability is uncertain,¹⁴⁵ particularly because where there is a relationship of influence there will also be the potential for undue influence. It has, however, been recognized that whilst the two forms of liability overlap, they do not coincide.¹ The crucial distinction between the two forms of liability is that a fiduciary relationship of influence will only be recognized where the principal is utterly dependent on the fiduciary.

It follows from the fact that, although liability for breach of a fiduciary relationship of influence is more restrictive than liability for undue influence, where the relevant fiduciary relationship can be identified the claimant who seeks restitution has two possible restitutionary claims. First, the claimant could bring a claim founded on the reversal of the defendant’s unjust enrichment, with the ground of restitution being undue influence.¹⁴⁷ Alternatively, the claimant could bring a claim against the fiduciary founded on the breach of fiduciary duty. Although the claimant has a choice as to which restitutionary route to adopt, a claim founded on abuse of a relationship of influence does have certain advantages over the doctrine of undue influence, namely that it is neither necessary to show that the principal was actually influenced by the defendant or that the transaction requires explanation before the presumption of influence is established. Once the relationship of influence has been identified, it is assumed that the transaction requires explanation and the burden is on the defendant to show that the transaction was not unfair to the claimant. The heavy burden of proving that the transaction is fair is shifted where there is a relationship of influence simply because of the potential for abuse of such relationships by the fiduciary.^[70]

• [1] [1990] 1 AC 109. 51 Millett, ‘Equity’s Place in the Law of Commerce’, 219.
• [2] Bristol and West Building Society v Mothew [1998] Ch 1, 18 (Millett LJ).
• [3] See S Worthington, ‘Fiduciaries: When is Self-Denial Obligatory?’ (1999) 58 CLJ 500; M Conaglen, ‘TheNature and Function of Fiduciary Loyalty’ (2005) 121 LQR 452.
• [4] [1998] Ch 439. This aspect of the decision was not considered by the House of Lords on appeal.
• [5] See p 473, above. 56 [1896] AC 44, 50.
• [6] 57 Bristol and West Building Society v Mothew [1998] Ch 1, 16 (MillettLJ).
• [7] 58 Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch), [2006] FSR 16, [1305] (Lewison J).
• [8] 59 Boardman v Phipps [1967] 2 AC 46, 124 (Lord Upjohn).
• [9] 60 Aberdeen Railway Company v Blaikie Bros (1854) 1 Macq 461, 471 (Lord Cranworth). As regards
• [10] fiduciary duties owed by directors to companies the no-conflict rule is enacted in the Companies Act 2006,
• [11] s 175 (1). 61 Re Thomson [1930] 1 Ch 203.
• [12] RC Nolan, ‘Conflicts of Interest, Unjust Enrichment and Wrongdoing’ in W Cornish, R Nolan,J O’Sullivan, and G Virgo (eds), Restitution: Past, Present and Future (Oxford: Hart Publishing, 1998), 99.See Tito v Waddell (No 2) [1977] Ch 106, 248 (Megarry V-C).
• [13] Nolan, ‘Conflicts of Interest, Unjust Enrichment and Wrongdoing’, 93.
• [14] Gwembe Valley Development Co Ltd v Koshy (No 3) [2003] EWCA Civ 6048, [2004] 1 BCLC 131; Muradv Al-Saraj [2005] EWCA Civ 959, [2005] WTLR 1573.
• [15] Murad v Al-Saraj [2005] EWCA Civ 959, [2005] WTLR 1573.
• [16] C Harpum, ‘Fiduciary Obligations and Fiduciary Powers—Where Are We Going?’ in PBH Birks (eds),Privacy and Loyalty (Oxford: Clarendon Press, 1997), 154.
• [17] Regal (Hastings) Ltd v Gulliver [1967] AC 134n, 386 (Lord Russell).
• [18] E Weinrib, ‘The Fiduciary Obligation’ (1975) 24 UTLJ 1, 9; I Samet, ‘Guarding the Fiduciary’s Conscience: A Justification of a Stringent Profit-Stripping Rule’ (2008) OJLS 763.
• [19] Worthington, ‘Fiduciaries: When is Self-Denial Obligatory?’, 506. See also R Flannigan, ‘The Adulteration of Fiduciary Doctrine in Corporate Law’ (2006) 122 LQR 449.
• [20] Murad v Al-Saraj [2005] EWCA Civ959, [2005] WTLR 1573, [74] (Arden LJ).
• [21] Conaglen, ‘The Nature and Function of Fiduciary Loyalty’, 453.
• [22] G Jones, ‘Unjust Enrichment and the Fiduciary’s Duty of Loyalty’ (1968) 84 LQR 472, 474.
• [23] Tito v Waddell (No 2) [1977] Ch 106, 241 (Sir Robert Megarry V-C).
• [24] Exp Lacey (1802) 6 Ves 625, 626 (Lord Eldon LC); exp James (1803) 8 Ves 337, 345 (Lord Eldon LC).
• [25] Armstrong v Jackson [1917] 2 KB 822, 824 (McCardie J).
• [26] Holder v Holder [1968] 1 Ch 353, 398.
• [27] Tito v Waddell (No 2) [1977] Ch 106, 241 (Sir Robert Megarry V-C).
• [28] Sargeant v National Westminster Bank plc (1990) 61 P & CR 518.
• [29] Exp James (1803) 8 Ves 337, 353 (Lord Eldon LC).
• [30] Moody v Cox and Hatt [1917] 2 Ch 71; Tito v Waddell (No 2) [1977] Ch 106, 241 (Megarry V-C).
• [31] Demerara Bauxite Co Ltd v Hubbard [1923] AC 673.
• [32] Thomson v Eastwood (1877) 2 App Cas 215, 236 (Lord Cairns LC). Conaglen has argued that fairnessshould simply be an evidential factor taken into account by the court in determining whether the principal gavehis or her fully informed consent to the transaction: M Conaglen, ‘A Re-appraisal of the Fiduciary Self-dealingand Fair-dealing Rules’ (2006) CLJ 366, 368.
• [33] Clarke Boyce v Mouat [1994] 1 AC 428; Marks and Spencer plc v Freshfields Bruckhaus Deringer (a firm)[2004] EWHC 1337 (Ch), [2004] 1 WLR 2331. Conaglen considers this to be a fiduciary principle that isdistinct from where there is a conflict between personal interest and duty, but which has the same prophylacticobjectives: ‘Fiduciary Regulation of Conflicts Between Duties’ (2009) LQR 111, 119.
• [34] Bristol and West Building Society v Mothew [1998] Ch 1, 19 (Millett LJ).
• [35] Moody v Cox and Hatt [1917] 2 Ch 71.
• [36] Hilton v Barker, Booth and Eastwood [2005] UKHL 8, [2005] 1 WLR 567, [44] (Lord Walker).
• [37] Kelly v Cooper [1993] AC 205 . 88 For directors see Companies Act 2006, s 175 (2).
• [38] 89 [1965] AC 244.
• [39] Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200, [2007] 2 BCLC 239.
• [40] Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; Canadian Aero Services Ltd vO’Malley (1973) 40 DLR (4th) 371; CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704.
• [41] CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704, [91].
• [42] Island Export Finance Ltd v Umunna [1986] BCLC 460; Ultraframe (UK) Ltd v Fielding [2005] EWHC1638 (Ch), [2006] FSR 16.
• [43] In Plus Group Ltd v Pyke [2002] EWCA Civ 370, [2002] 2 BCLC 201.
• [44] Keech v Sandford (1726) Sel Cas t King 61,25 ER 223; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n.
• [45] Quarter Master UK Ltd v Pyke [2005] 1 BCLC 245.
• [46] [1967] 2 AC 46. See also Cook v Deeks [1916] 1 AC 554; Regal (Hastings) Ltd v Gulliver [1967] 2 AC134n; Crown Dilmun v Sutton [2004] EWHC 52, [2004] 1 BCLC 468.
• [47] She died before the shares were purchased by the defendants.
• [48] See also Crown Dilmun v Sutton [2004] EWHC 52, [2004] 1 BCLC 468, [202] (Peter Smith J).
• [49] See further p 507, below. 108 Boardman v Phipps [1967] 2 AC 46, 104 (Lord Cohen). 109 See p 507, below. 110 [2005] EWCA Civ 959, [2005] WTLR 1573. 111 Ibid, [74] (Arden LJ).
• [50] Ibid, [82]. See also Jonathan Parker LJ [121] and Clarke LJ [158].
• [51] Ibid, [82] (Arden LJ), [121] (Jonathan Parker LJ).
• [52] Peso-Silver Mines Ltd v Cropper (1966) 58 DLR (2d) 1.
• [53] Queensland Mines Ltd v Hudson [1978] 52 ALJR 379 (PC).
• [54] Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch), [2006] FSR 16, [1318] (Lewison J). See MConaglen, ‘The Extent of Fiduciary Accounting and the Importance of Authorisation Mechanisms’(2011) CLJ 548.
• [55] As recognized in Bray v Ford [1896] AC 44, 51 (Lord Herschell).
• [56] [1951] AC 507. See also Attorney-General v Goddard (1929) 98 LJKB 743; Petrotrade Inc v Smith [2000]1 Lloyd’s Rep 486.
• [57] [1998] Ch 439, 453.
• [58] See, for example, Warman International Ltd v Dwyer (1995) 128 ALR 201. 133 See p 516, below.
• [59] 134 This has sometimes been described as a relationship of confidence, but such a description fails to
• [60] distinguish this relationship from the other two types of fiduciary relationship.
• [61] BCCI v Aboody [1990] QB 923, 964. 136 See Wright v Carter [1903] 1 Ch 27.
• [62] 137 (1866) LR 2 Ch App 55.
• [63] 138 The deceased died, at the age of 24, from his addiction to drink.
• [64] 139 Tate v Williamson (1866) LR 2 Ch App 55, 61.
• [65] Moody v Cox and Hatt [1917] 2 Ch 71. 141 [1923] AC 673. 142 Ibid, 681.
• [66] 143 Wright v Carter [1903] 1 Ch 27. 144 See Chapter11.
• [67] 145 CICB Mortgages plc v Pitt [1994] 1 AC 200, 209 (Lord Browne-Wilkinson).
• [68] 146 See Moody v Cox and Hatt [1917]2 Ch 71, 79 (Lord Cozens-HardyMR) and BCCI v Aboody [1990] QB
• [69] 923, 962. 147 See p 257, above.
• [70] BCCI v Aboody [1990] QB 923, 963 and CICB Mortgages plc v Pitt [1994] 1 AC 200, 209 (Lord Browne-