A fiduciary relationship is a relationship of trust and confidence in which one party (the fiduciary) undertakes to act for or on behalf of another (the principal or beneficiary) in matters that give rise to obligations of loyalty, good faith, and the avoidance of conflicts of interest. The fiduciary must put the interests of the principal above their own. This is a fundamental concept in equity and underpins many areas of law including trusts, company law, and professional regulation.
Millett LJ gave the leading modern definition of a fiduciary: "A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence." This definition has three key elements: (1) the fiduciary has undertaken to act for another, (2) the relationship arises in a particular matter, and (3) circumstances give rise to trust and confidence. The definition is intentionally broad — it captures the essence of fiduciary obligations without being limited to specific categories of relationship.
Certain relationships are recognised as fiduciary as a matter of law. These include: trustee and beneficiary (the paradigm fiduciary relationship), solicitor and client, director and company, agent and principal, and partner and partnership. In each case, the fiduciary exercises discretion or control over the principal's affairs, creating the trust and confidence necessary to found a fiduciary relationship. The recognition of these relationships as fiduciary reflects the inherent imbalance of power and information between the parties.
A common exam pitfall is assuming that every professional relationship is fiduciary. The relationship must involve trust, confidence, and an obligation of loyalty. For example, a doctor-patient relationship or an accountant-client relationship is not automatically fiduciary — it depends on whether the professional has assumed responsibility to act on the client's behalf in a way that gives rise to trust and confidence. In Bristol and West v Mothew, Millett LJ emphasised that not every breach of duty by a professional amounts to a breach of fiduciary duty — many breaches are simply breaches of the duty of care.
When asked whether a relationship is fiduciary, apply the Mothew test. Ask: (1) has the person undertaken to act for another? (2) does the relationship involve particular matters? (3) do circumstances give rise to trust and confidence? If yes, fiduciary duties arise. Remember that the court determines the nature of the relationship from the facts — it is not determined by the label the parties give it.
The fundamental rule is that a fiduciary must not make any unauthorised profit from their fiduciary position. This is one of the strictest rules in equity. It applies regardless of whether the fiduciary acted in good faith, whether the profit was small, whether the principal could have obtained the profit themselves, or whether the principal also benefited from the transaction. The rationale is to deter abuse of the fiduciary position and to ensure the fiduciary's undivided loyalty. The fiduciary may only profit if they have the fully informed consent of the principal.
This is the leading case establishing the strictness of the no-profit rule. The defendant was a trustee of a leasehold property. When the lease expired, the landlord refused to renew it for the trust (because the beneficiaries were infants), but agreed to renew it for the trustee personally. The trustee took the renewal for himself and offered to hold it on trust for the beneficiaries. The Court of Chancery held that the trustee must hold the new lease on constructive trust for the beneficiaries, even though: (1) he had acted honestly and in good faith, (2) the beneficiaries could not have obtained the renewal themselves, and (3) he had not deprived the beneficiaries of any actual benefit.
The defendant was a solicitor who represented a trust that held shares in a private company. Using knowledge and information gained in his capacity as solicitor for the trust, he acquired more shares in the company, some for himself and some for the trust. The trust benefited significantly from the acquisition, but the House of Lords held that the solicitor had to account for all personal profit he made. Lord Hodson stated that it was irrelevant that the trust also benefited — the fiduciary was not entitled to any personal profit without full disclosure and informed consent.
Students frequently argue that a fiduciary who acted honestly should not have to account for profits. This is wrong. Keech v Sandford is clear: the strictness of the rule is the price paid for the privilege of being a fiduciary. Even where the fiduciary's actions were entirely proper and the principal was not harmed, the fiduciary must still account for any profit made. The only exception is where the principal, with full knowledge of all material facts, gives genuine and informed consent.
A fiduciary is absolutely prohibited from purchasing trust property from the trust. This applies equally to a trustee purchasing trust property, a solicitor purchasing a client's property, or a director purchasing company property. The prohibition applies even if the purchase is at full market value and even if the transaction is entirely fair to the principal. The rationale is that a fiduciary should not be placed in a position where their personal interest and fiduciary duty might conflict — the very act of purchasing creates a potential conflict.
The facts of Keech v Sandford also illustrate the no-purchase rule. The trustee's attempt to renew the lease for himself was, in substance, a purchase of trust property (the renewal opportunity). The court treated the renewal as trust property that the trustee had no right to appropriate for himself. The case establishes that a fiduciary cannot take advantage of an opportunity that properly belongs to the trust or the principal, even where the principal is unable to take advantage of that opportunity themselves.
The only exception to the no-purchase rule is where the principal gives fully informed consent to the transaction. This means the principal must know all material facts — including the fiduciary's position, the nature of the property, and any other relevant circumstances — and must freely agree to the purchase. The burden of proving informed consent rests on the fiduciary. In practice, this requires clear evidence that the principal understood what they were agreeing to and was not under any pressure from the fiduciary.
In an SQE1 question, if a fiduciary has purchased property from the trust or from their principal, the starting point is that the transaction is voidable at the principal's option. Look for whether the principal gave fully informed consent. If not, the principal can rescind the transaction or claim any profit made. Remember: fair price is irrelevant — the rule is concerned with the possibility of conflict, not with whether the transaction was actually unfair.
The no-conflict rule provides that a fiduciary must not put themselves in a position where their personal interest conflicts, or may possibly conflict, with their duty to the principal. Crucially, this rule is concerned with the possibility of conflict, not with actual conflict or actual dishonesty. It is a prophylactic rule designed to prevent situations in which a fiduciary might be tempted to act against the principal's interests. The rule applies even if the fiduciary acted entirely properly and the principal suffered no loss.
This is the leading case on the no-conflict rule. A director of the Aberdeen Railway Company was also a partner in Blaikie Bros, an engineering firm. The railway company entered into a contract with Blaikie Bros for the supply of ironwork. The House of Lords held that the contract was voidable, even though: (1) the contract was at fair market price, (2) the director had not acted dishonestly, and (3) the company had suffered no loss. Lord Cranworth LC stated: "No one acting on behalf of another can be allowed to be in a position where his interest and duty are in any way at variance."
The no-conflict rule is strict in the sense that it is not necessary to show that the fiduciary actually acted improperly, or that the principal suffered any actual loss. The mere possibility of conflict is sufficient to breach the rule. In Boardman v Phipps [1967], Lord Upjohn described the rule as "a strict rule of equity that a person in a fiduciary position... is not allowed to enter into engagements in which he has, or can have, a personal interest conflicting... with the interests of those whom he is bound to protect." This strictness reflects the importance the law places on maintaining the integrity of fiduciary relationships.
A common mistake in exams is to argue that there was no breach because the fiduciary did not actually act improperly, or because no actual conflict arose. This misses the point. The no-conflict rule is triggered by the possibility of conflict, not by actual conflict. Even if the fiduciary acted perfectly honestly and the transaction was beneficial to the principal, the rule is still breached if a reasonable person would conclude that a conflict could arise.
Equity provides a powerful range of remedies for breach of fiduciary duty. These can be divided into personal remedies (against the fiduciary personally) and proprietary remedies (against property acquired through the breach). The choice of remedy depends on the nature of the breach, the type of loss or gain, and what the principal seeks to achieve. Unlike common law damages, equitable remedies are discretionary — the court will consider all the circumstances before granting relief.
An account of profits is the primary remedy where a fiduciary has made an unauthorised profit. The fiduciary must disgorge all profits gained from the breach, regardless of whether the principal suffered any loss. The purpose is to strip the fiduciary of gains improperly made, not to compensate the principal. In Boardman v Phipps, the solicitor had to account for all personal profit from the share acquisition. The account is calculated on a "but for" basis — the fiduciary must account for all profits attributable to the breach.
Equitable compensation is available where the principal has suffered a loss as a result of the fiduciary's breach of duty. Unlike an account of profits (which focuses on the fiduciary's gain), equitable compensation focuses on the principal's loss. The measure of compensation is the amount needed to put the principal in the position they would have been in had the breach not occurred. In Target Holdings v Redferns [1996], the House of Lords held that equitable compensation for breach of fiduciary duty should be measured by the loss actually flowing from the breach, not by assuming the fiduciary would have performed their duty perfectly.
A constructive trust may be imposed over property acquired by the fiduciary through their breach of duty. The fiduciary is treated as holding the property on trust for the principal. This is a proprietary remedy — it gives the principal an interest in the specific property, which can be particularly valuable where the property has appreciated in value or where the fiduciary is insolvent. In Boardman v Phipps, the House of Lords held that the solicitor held his shares on constructive trust for the trust (subject to a allowance for skill and effort).
Where a fiduciary has entered into a contract in breach of their duty, the principal may be entitled to rescind the contract. Rescission unwinds the transaction and restores the parties to their pre-contract positions. This remedy is discretionary and may be barred if the contract has been executed, if third-party rights have been acquired, or if restitution is impossible. In Aberdeen Railway v Blaikie, the company could have rescinded the contract with the firm in which the director had an interest.
| Remedy | Nature | Focus | Key Case |
|---|---|---|---|
| Account of profits | Personal | Fiduciary's gain — strips the fiduciary of all unauthorised profit | Boardman v Phipps [1967] |
| Equitable compensation | Personal | Principal's loss — compensates for loss caused by the breach | Target Holdings v Redferns [1996] |
| Constructive trust | Proprietary | Interest in specific property acquired through the breach | Boardman v Phipps [1967] |
| Rescission | Both | Unwinds the transaction and restores pre-contract positions | Aberdeen Railway v Blaikie (1854) |
| Injunction | Personal | Restrains threatened or continuing breach of fiduciary duty | Boardman v Phipps [1967] |
It is important to distinguish between personal and proprietary remedies. Personal remedies (account of profits, equitable compensation) create a debt owed by the fiduciary to the principal — the principal is an unsecured creditor. Proprietary remedies (constructive trust) give the principal an interest in specific property — the principal has a beneficial interest that takes priority over the fiduciary's general creditors. This distinction is crucial in insolvency: if the fiduciary is bankrupt, a proprietary claim gives the principal a claim to the specific property, whereas a personal claim merely entitles the principal to prove in the bankruptcy alongside other creditors.
In an SQE1 question, identify first whether the fiduciary made a profit (account of profits) or caused a loss (equitable compensation). Where property was acquired through the breach, consider whether a constructive trust should be imposed. Remember that the principal may not double-recover — they cannot claim both an account of profits and equitable compensation for the same breach. The court will choose the remedy that best addresses the wrong committed.
Every trustee is a fiduciary — the trust relationship is the paradigm example of a fiduciary relationship. However, not every fiduciary is a trustee. A solicitor, director, or agent may owe fiduciary duties without holding property on trust for anyone. The key distinction is that trustees hold legal title to trust property and manage it for beneficiaries, whereas other fiduciaries may not hold property at all but still owe obligations of loyalty and good faith arising from their relationship.
In addition to their fiduciary duties, trustees owe specific statutory duties under the Trustee Act 2000. These include: the duty of care (s.1), the duty to invest (ss.3-4), the duty to review investments (s.4), the duty to obtain and consider proper advice (s.5), the duty of diversification (s.4), and the power to delegate (ss.11-25). These statutory duties are in addition to, not instead of, the fiduciary duties. A breach of a statutory duty may also constitute a breach of fiduciary duty where the breach involves disloyalty or conflict.
| Feature | Fiduciary Duties | Trustees' Statutory Duties |
|---|---|---|
| Source | Equity / common law | Trustee Act 2000 and other statutes |
| Who owes them? | All fiduciaries (trustees, solicitors, directors, agents) | Trustees only |
| Core obligations | Loyalty, good faith, no profit, no conflict | Care, investment, delegation, diversification |
| Standard of liability | Strict — no defence of good faith for profit/conflict | Usually duty of care (s.1 Trustee Act 2000) |
| Remedies | Account of profits, constructive trust, equitable compensation | Compensation for breach of statutory duty |
| Can be excluded? | Generally no — they are mandatory | Limited exclusion possible (s.27 Trustee Act 2000) |
The three core fiduciary duties — the duty not to profit, the duty not to conflict, and the duty of good faith — apply to all fiduciaries regardless of whether they are trustees. A solicitor who makes a secret profit from a client transaction, a director who diverts a corporate opportunity for personal gain, or an agent who accepts a bribe are all in breach of fiduciary duty. The remedies available (account of profits, constructive trust, equitable compensation) are the same regardless of the type of fiduciary relationship.
Do not confuse a trustee's fiduciary duties with their statutory duties under the Trustee Act 2000. Failing to diversify investments is a breach of the statutory duty of care, not necessarily a breach of fiduciary duty (unless it involves disloyalty or conflict). Conversely, a trustee who profits from trust property is in breach of fiduciary duty, regardless of whether the Trustee Act 2000 is engaged. The two categories overlap but are distinct.
A solicitor owes fiduciary duties to their client. The core duty is one of undivided loyalty — the solicitor must act solely in the client's best interests and must not allow their own interests, or the interests of any other person, to conflict with the client's interests. Key applications include: the solicitor must not act for two clients whose interests conflict, must not use client information for personal gain, must not accept secret commissions from third parties, and must not acquire property adverse to the client. In Hilton v Barker Booth & Eastwood [2005], the Court of Appeal confirmed that solicitors owe fiduciary duties to their clients.
Directors owe fiduciary duties to their companies, now largely codified in the Companies Act 2006. The key statutory duties are: s.171 — duty to act within powers, s.172 — duty to promote the success of the company, s.173 — duty to exercise independent judgement, s.174 — duty to exercise reasonable care, skill and diligence, s.175 — duty to avoid conflicts of interest, s.176 — duty not to accept benefits from third parties, and s.177 — duty to declare interest in proposed transactions. These statutory duties reflect and codify the pre-existing equitable fiduciary duties but also introduce some modifications, such as the statutory ability of companies to authorise conflicts (s.175).
"A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. This applies in particular to the exploitation of any property, information or opportunity (irrespective of whether the company could take advantage of the property, information or opportunity)." This provision codifies the equitable no-conflict rule for directors and applies to all directors of UK companies.
An agent owes fiduciary duties to their principal. The core duties are: not to make unauthorised profit from the agency (e.g., secret commissions or kickbacks), not to misuse the principal's property or information, not to compete with the principal, and not to place themselves in a position of conflict. In Keech v Sandford, the trustee was in substance acting as an agent for the beneficiaries. In Boardman v Phipps, the solicitor was acting as an agent in acquiring the shares. The remedies are the same as for other fiduciary breaches.
Partners owe fiduciary duties to each other and to the partnership. Under the Partnership Act 1890 s.28, every partner is bound to account to the firm for any benefit derived by them from any partnership transaction without the consent of the other partners. Partners must not compete with the partnership, must not divert partnership opportunities, and must not use partnership property or information for personal gain. Breach of these duties entitles the partnership to an account of profits and equitable compensation. These duties apply even where the partnership agreement does not expressly mention them — they arise by operation of law.
Step 1: Has the person undertaken to act for or on behalf of another in a particular matter?
Step 2: Do the circumstances give rise to a relationship of trust and confidence?
Step 3: Does the person have discretion or control over the other's affairs?
Step 4: If yes to all three, fiduciary duties arise — no profit, no conflict, good faith
Step 5: If in doubt, consider whether the relationship falls within a recognised category (trustee, solicitor, director, agent, partner)
| Relationship | Source of Duties | Key Obligations | Key Statutory Provision |
|---|---|---|---|
| Trustee and beneficiary | Equity | No profit, no conflict, good faith, care, invest prudently | Trustee Act 2000 |
| Solicitor and client | Equity and SRA Code | Undivided loyalty, no secret profit, confidentiality | SRA Principles and Code |
| Director and company | Equity and statute | Act in best interests, no conflict, no secret profit | Companies Act 2006 ss.170-181 |
| Agent and principal | Equity | No unauthorised profit, no misuse of information | Common law and equity |
| Partner and partnership | Equity and statute | Account for benefits, no competition, no diversion | Partnership Act 1890 s.28 |
For SQE1, be prepared to identify fiduciary duties in various contexts. The core duties (no profit, no conflict, good faith) are the same regardless of the relationship — only the context changes. Know the statutory framework for directors (Companies Act 2006 ss.170-181) and trustees (Trustee Act 2000), and remember that solicitors, agents, and partners also owe fiduciary duties arising from equity. The test for whether a fiduciary relationship exists is always the same: has the person undertaken to act for another in circumstances giving rise to trust and confidence?