The status of trustees - Case Study Example

"Government is a trust, and the officers of the government are trustees; and both the trust and the trustees are created for the benefit of the people." -Henry Clay, American Statesman Such is the status a trustee has. In fact, a trustee is someone who is looked upon as the keeper of something very significant, maintaining and sustaining the virtues of faith. In legal terminology a trustee is referred to as a fiduciary, which has a pertinent etymology. The word fiduciary comes from the Latin word 'fides' meaning faith. A beneficiary puts his entire trust on a fiduciary, who in turn has to keep his self interests at bay and must not profit from the benefits of the position he holds. A fiduciary or trustee and beneficiary or principal share a relationship that falls in the ambit of legal implications. In case there is a breach of trust on the part of the fiduciary, the beneficiary can move the court and claim damages. Another interesting concept that introduces itself when a case is filed is that of 'equity'. A lawsuit might entail just monetary claims as a part of the verdict. However, equity as a set of legal principles restrains or orders the execution of a certain action. Calling it a course of natural justice would not be an exaggeration. Many case histories citing breach of trust in fiduciary-beneficiary relationship abound the legal corridors. What is important to understand in this context is the way legal implications were enforced. There are examples that hold a fiduciary's position as such that he is liable to be punished, whatever may be intentions. There are some other cases where the fiduciary was exempted. The basis of each case of course was the peculiar circumstances as well as the moral and legal guidelines that influenced it. Boardman v Phipps [1967] 2 AC 46, House of Lords To understand the statement in question, the aforementioned case is a classic example. Before delving into the verdict and its implications, here is a brief history of the case. 'Boardman was solicitor to a trust, which owned 8,000 of 30,000 shares in a private textile company, with whose performance Boardman was dissatisfied. The trust had no wish to buy the remaining shares, and in any case was unable to buy them, although it could have applied to court for power to do so. Boardman decided to purchase them himself, undoubtedly benefiting from information he had received as in his fiduciary capacity (in knowing what price to offer), and did not obtain the consent of all beneficiaries. The shares later increased in value (partly perhaps because of Boardman's management in selling off some of the assets of the newly acquired company), so Boardman made a large profit for himself. Additionally, however, because the trust still had a large share in the same company, his activities also resulted in a large profit for the trust. There was no claim of bad faith, nor any obvious conflict of interest, since the trust did not have the power to purchase the shares itself, and in any case, the trust had positively benefited from Boardman's intervention. In negotiating for the majority shareholding Boardman had, in good faith, obtained information in his capacity as solicitor to the trust, which he would not otherwise have obtained. Phipps,a beneficiary under the trust, sued for an account of profits.' 1 As per the specifications of the legal framework, if a fiduciary performs an action, which is injurious to the interests of the beneficiary and profits a rival in the process, the fiduciary ought to reimburse the losses. However, in this particular case, Boardman had bought the shares in a personal capacity and in no way incurred any kind of loss to the beneficiaries. An increase in the value of shares implied profit for the trust. A pro-fiduciary perspective would view this action as a case of constructive trust 2 . However the court stretched it too far taking into consideration the viewpoint of the beneficiary, who put a question mark on Boardman's role s the beneficiary. The pertinent argument here was since the beneficiary has neither gained nor lost anything out of the fiduciary's action, he should not be reimbursed any claims, whatsoever. But the court ruled out this perspective and gave an exactly opposite verdict. Critique The aforementioned case is an interesting study to analyze the gamut of fiduciary-beneficiary relationship. It is also one of its kinds because the verdict confronts the concepts 1 of good faith and constructive trust. 'A constructive trust is imposed by the law as an "equitable remedy." This generally occurs due to some wrongdoing, where the wrongdoer has acquired legal title to some property and cannot in good conscience be allowed to benefit from it. A constructive trust is, essentially, a legal fiction. For example, a court of equity recognizing a plaintiff's request for the equitable remedy of a constructive trust may decide that a constructive trust has been "raised" and simply order the person holding the assets to the person who rightfully should have them.'3 The defendant's contention that his actions did not incur any damages to the beneficiaries was appropriate. It also passed the test of legal norms, which demand that the fiduciary in no way should use any confidential information. Confidential information is another 'uncertain' term. The legal terminology defines it as any information that could benefit the rivals and harm the beneficiary. In this case, no rivals profited. Though the fiduciary under scan made profits (he had access to all the classified information in his official capacity); yet his action in no way harmed his beneficiaries. But the beneficiary's claim was that the fiduciary's feat was via his access to all the information one could have to make profit. It is also the violation of the concept of constructive trust that entails the fiduciary's efforts to make larger gains for the entire structure. In fact if the judgment were seen in an unbiased light, it would reveal a shocking outcome. It would convey a scenario where the entire legal context would be the representative of blurring lines between legal guidelines and practical ambiguities. This case is an example of one of the notions that plagues the English Common Law. 'The effect of jurisdictional juxtaposition or contrast leaves a strict, certain impression of English Law that brushes over its flexible tensions and ambiguities.'4 Bibliography 1. Wikipedia-The Free Encylopedia (Accessed on June 5, 2006) 2. Wikipedia-The Free Encylopedia (Accessed on June7 2006) 3. Wikipedia-The Free Encylopedia < http://en.wikipedia.org/wiki/Trust_law> (Accessed on June 7,2006) 4. Lost in Translation: Corporate Opportunities in Comparative Perspective David Kershaw* School of Law, University of Warwick, Oxford Journal of Legal Studies Read More