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Home / What Is Fiduciary Duty?

What Is Fiduciary Duty?

  • Commercial Law
  • John
  • 12 April 23
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fiduciary duty

Fiduciary duty is a legal and ethical obligation that one party has to act in the best interests of another party rather than their own. The party who owes the duty is known as the “fiduciary,” and the party who benefits from the duty is known as the “beneficiary” or “principal.”

Moreover, a fiduciary duty typically arises in commercial and corporate law matters when one party has a position of trust and confidence with respect to the other party. Some examples of a fiduciary relationship include:

  • Lawyer and client
  • Company and the company director
  • Trustee and beneficiary
  • Partners
  • Broker and client
  • Agent and principal
  • Joint-venturers
  • Employer and the employee

A fiduciary duty prioritises the beneficiary’s interests ahead of their own interests and acts with the utmost loyalty, honesty, due diligence, and good faith. This legal responsibility also includes disclosing all material information that may affect the beneficiary’s interests to avoid any conflicts of interest. Read on to know more about fiduciary duty and its purpose to beneficiaries.

Relationships That May Not Constitute Fiduciary Duty

Here are some relationships that may not constitute a fiduciary duty. These include:

1. Buyer-Seller Relationship: In a buyer-seller relationship, the seller does not owe a fiduciary duty to the buyer. Instead, the seller is required to provide accurate information about the product or service being sold and to fulfil any contractual obligations.

2. Landlord-Tenant Relationship: In a landlord-tenant relationship, the landlord does not owe a fiduciary duty to the tenant. Instead, the landlord is required to provide habitable housing, make necessary repairs, and respect the tenant’s privacy.

3. Lender-Borrower Relationship: In a lender-borrower relationship, the lender does not owe a fiduciary capacity to the borrower. Instead, the lender is required to provide accurate information about the terms of the loan and to comply with all relevant lending laws.

Key Takeaways to Identify Fiduciary Duty

Whether or not someone has a fiduciary duty will depend on the certain circumstances of their relationship with another party. Generally, a fiduciary duty arises when one party has a position of trust and confidence with respect to the other party. For example, let’s consider a financial advisor, attorney, or trustee.

1. Financial Advisors: Financial advisors have a duty to their clients to provide advice and make recommendations that are in the best interests of their clients. This means they must disclose any potential conflicts of interest, such as receiving commissions or fees for recommending specific investments or financial products.

2. Lawyers: Lawyers have a duty to their clients to provide competent and diligent representation. This includes keeping their client’s information confidential, advocating for their principal’s interests, and providing honest and accurate legal advice about the fiduciary rule.

3. Trustees: Trustees have a duty to manage trust assets and affairs in the best interests of the beneficiaries. This includes managing investments prudently, avoiding conflicts of interest, and making distributions in accordance with the terms of the trust.

In some cases, fiduciary duties may also arise by virtue of a contract or agreement between the parties. We can use two parties who enter into a partnership agreement that requires each partner to act solely in the best interests of the partnership as an example. If this is the case, then each partner will have a fiduciary duty to the other. 

fiduciary duty

What Are Ad Hoc Fiduciary Relationships?

An ad hoc fiduciary duty is a fiduciary duty that arises in specific circumstances or situations. Furthermore, it is a duty that is not necessarily inherent in a pre-existing relationship but arises as a result of a particular transaction or situation. Here are some examples of ad hoc fiduciary relationships:

  • Parent and child 
  • Priest and parishioner 
  • Doctor and patient 
  • Bank and patient 
  • Financial advisor and client 
  • Partners in a joint venture
  • Crown and Indigenous Australians 

Breach of Fiduciary Obligations

Fiduciaries may or may not intend to breach their fiduciary obligation to their beneficiaries over the course of their relationship. This can include acts of dishonesty, conflicts of interest, self-dealing, or other actions that put the fiduciary’s interests ahead of the beneficiary. This may include:

  • Trustees who use trust assets for their own personal gain or personal benefit
  • Corporate directors who approve a business transaction that benefit themselves rather than the shareholders
  • Financial advisors who recommend unsuitable investments to a client
  • Lawyers who fail to lodge important legal documents in a timely manner
  • Fiduciaries who fail to diversify investment, account assets and transactions

These are just a few examples of a fiduciary duty breach, and the specific circumstances of each case will vary. Additionally, it is important for fiduciaries to understand their obligations and to act with the utmost care and loyalty towards their beneficiaries. The consequences of a breach of fiduciary duty can be significant, depending on the circumstances.

In general, the person who has breached their fiduciary duty may be held liable for any damages that result from their actions and may be required to compensate the affected party. In fact, Section 1317E of the Corporations Act 2001 states that parties may claim damage compensation for contravening a fiduciary duty.  

Application for Fiduciary Breaches

The Australian Securities and Investments Commission (ASIC) may be able to provide assistance in cases involving breaches of fiduciary duty. They can make an application to the appropriate court (civil or supreme court) for a declaration of violation of a civil penalty provision. The ASIC may either seek to lodge a:

  1. Pecuniary Penalty Order – This is an order that compels an offender to pay monetary fines which are collected by civil courts. 
  2. Disqualification Order – This is an order that disqualifies a person from managing corporations if they are convicted of certain offences. 

fiduciary duty

Our Fiduciary Duty to Our Clients

It’s always important for a person to seek legal advice from lawyers if they have a fiduciary duty or not. Breaches of this legal obligation can result in serious consequences which include financial losses, reputational damage, and legal penalties. Lawyers can help clients assess whether a breach of fiduciary duty has occurred and advise them on the best course of action. 

We at JB Solicitors have lawyers who can aid in commercial and corporate law matters. Our team can help clients understand the legal system and provide various remedies for breach of fiduciary duty. As lawyers, we have a fiduciary duty to protect the best interest of our clients and see the strength and weaknesses of their cases. 

Contact us today for all of your legal matters. 

澳洲离婚步骤

About the author

John Bui

John has over a decade of experience in family law and commercial litigation which often sees John being called to provide expertise in matters that have an international element involving complex company, trust, partnership and valuation issues. He also advises and appears in matters involving the Hague Convention both at first instance and on appeal.

About the author

William Wang

William is a seasoned litigation lawyer with over 15 years of experience. With his extensive knowledge in litigation across various platforms, including appellant, family litigation, commercial litigation, and judicial review at the migration tribunals and federal courts, William has become a trusted expert in his field.

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