Breach of fiduciary duties, strict liability - EQUITY ESSAY
Where fiduciaries make unauthorised profits in breach of their fiduciary duty, the courts will not
enquire into the circumstances of the case. The trustees are strictly liable to account for their profits.
The trustee’s honesty and the fact that the trust has incurred no loss are immaterial. Also, it is no
defence to argue that the trust could not have gained the profit itself (Keech v Sandford) where the
landlord would not have granted a new lease to the beneficiary (Regal (Hastings) Ltd v Gulliver).
Boardman v Phipps was an example of the application of strict liability. The trust property included a
substantial shareholding in a private company. Mr Boardman (the trust’s solicitor) and his
co-defendant (a beneficiary) decided to investigate the affairs of a private company initially on behalf
of the trust. They attended shareholders’ meetings, gained information about the company and
negotiated to buy shares in the company by purporting to represent the trust.
Subsequently, with the knowledge of the active trustees, Mr Boardman and the codefendant
purchased shares in the company with their own funds on their own account. Through skilful
management they were able to reorganise the company and make large distributions to all
shareholders, including the trust.
By a bare majority, the House of Lords held that the defendants had to account to the trust for their
profits. The majority held that the defendants were liable because they had profited from
information which came to them in their fiduciary position.
A further ground for the decision was that, had Mr Boardman been asked to advise whether the
trustees should obtain a court order allowing them to buy the shares for the trust, he would have
had a conflict of interest. The slightest possibility of a conflict was sufficient to make the trustees
accountable; it did not matter that the possibility was extremely remote. The defendants had to
surrender their shares and profit after being reimbursed with the purchase price.
The decision in Boardman might be considered rather harsh. The defendants were not instructed to
obtain the benefit for the trust. The active trustee gave evidence that he would not have invested
trust money in additional shares. The trust suffered no loss and actually benefited from the
distributions which the company made as a result of the defendants’ reorganisation.
The majority accepted that the defendants were honest but held that their honesty was not a
defence. However, their honesty was not completely irrelevant; in Boardman, the majority ordered
that the defendants should be paid generous remuneration for their skill and hard work.
In his dissenting judgment in Boardman Lord Upjohn suggested that the defendants’ honesty and
integrity were not irrelevant considerations. Some would argue that honest trustees should not be
Where fiduciaries make unauthorised profits in breach of their fiduciary duty, the courts will not
enquire into the circumstances of the case. The trustees are strictly liable to account for their profits.
The trustee’s honesty and the fact that the trust has incurred no loss are immaterial. Also, it is no
defence to argue that the trust could not have gained the profit itself (Keech v Sandford) where the
landlord would not have granted a new lease to the beneficiary (Regal (Hastings) Ltd v Gulliver).
Boardman v Phipps was an example of the application of strict liability. The trust property included a
substantial shareholding in a private company. Mr Boardman (the trust’s solicitor) and his
co-defendant (a beneficiary) decided to investigate the affairs of a private company initially on behalf
of the trust. They attended shareholders’ meetings, gained information about the company and
negotiated to buy shares in the company by purporting to represent the trust.
Subsequently, with the knowledge of the active trustees, Mr Boardman and the codefendant
purchased shares in the company with their own funds on their own account. Through skilful
management they were able to reorganise the company and make large distributions to all
shareholders, including the trust.
By a bare majority, the House of Lords held that the defendants had to account to the trust for their
profits. The majority held that the defendants were liable because they had profited from
information which came to them in their fiduciary position.
A further ground for the decision was that, had Mr Boardman been asked to advise whether the
trustees should obtain a court order allowing them to buy the shares for the trust, he would have
had a conflict of interest. The slightest possibility of a conflict was sufficient to make the trustees
accountable; it did not matter that the possibility was extremely remote. The defendants had to
surrender their shares and profit after being reimbursed with the purchase price.
The decision in Boardman might be considered rather harsh. The defendants were not instructed to
obtain the benefit for the trust. The active trustee gave evidence that he would not have invested
trust money in additional shares. The trust suffered no loss and actually benefited from the
distributions which the company made as a result of the defendants’ reorganisation.
The majority accepted that the defendants were honest but held that their honesty was not a
defence. However, their honesty was not completely irrelevant; in Boardman, the majority ordered
that the defendants should be paid generous remuneration for their skill and hard work.
In his dissenting judgment in Boardman Lord Upjohn suggested that the defendants’ honesty and
integrity were not irrelevant considerations. Some would argue that honest trustees should not be
