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Resolving a dispute arising out of a breach of your fiduciary duties

Business partners

If you have been appointed as a company director, a commercial agent or a trustee, then as well as any contractual or statutory obligations you may have, you will also be obliged to act in accordance with a series of fiduciary duties aimed at ensuring you do not abuse the trust and confidence that has been placed in you.

Failure to comply with these duties could result in you being removed from your role, made subject to an injunction to control your future conduct, or sued in the civil courts for any financial losses you have caused or personal profits you have improperly gained.  Arrangements and transactions organised by you may also be set aside, and where you are accused of fraud there is the added risk of criminal charges.

Legal advice needs to be taken straight away, as Hannah Kennedy, commercial dispute resolution lawyer with Myers & Co Solicitors in Burslem, Stoke-on-Trent, explains:

‘As soon as a dispute arises it is important to establish three things as quickly as possible. First, the full extent of the obligations you are under and whether you have indeed breached your fiduciary duties. Second, the extent of the potential damage that may have been caused, and third the best and worst case scenario when it comes to possible action that could be taken against you.’

By determining these things from the outset, your solicitor can help you to devise a strategy designed to undo any harm as quickly and simply as possible if you are indeed at fault, and to ensure that you are not unduly punished for what may have been an innocent mistake or oversight.

Be clear on your duties

Although the essence of your fiduciary duties will be the same irrespective of whether you are a director, an agent or a trustee, how these duties play out in practice will be different.

For example, you will always be subject to duties to:

  • act in good faith in the interests of those you serve;
  • only act for proper purposes;
  • avoid conflicts of interest; and
  • not make a secret profit from the role you have assumed.

However, in the case of trustees this translates into obligations to act in good faith in the interests of the trust’s beneficiaries and in accordance with the terms of the trust deed, to protect trust assets, to keep up to date records and accounts, to make sound investment decisions, to avoid conflicts of interest, not to act on your own account or for the benefit of a third party without the beneficiaries’ express and informed consent, and not to make a profit from your position.

How the duties translate for directors and commercial agents is distinctly different and advice is therefore needed to determine exactly where you stand.

Be realistic about the potential consequences

A breach of your fiduciary duties can give rise to a range of potential consequences, from the very minor to the very serious.  Your lawyer can help you determine where on the spectrum you fall and therefore how seriously your breach will be viewed.

Where you have made an innocent mistake causing no financial loss or tangible damage, it may be possible to remedy your breach by convincing those you serve to approve your actions retrospectively.  In other cases, the aim will be to try to contain the harm and the severity of the sanction, for example by making a voluntary offer to pay an agreed sum of compensation rather than face the alternative of a civil claim for an amount yet to be determined and the registration of a judgment against you.

Push for a best case scenario outcome

Your lawyer will know what the likely outcome will be if the matter ends up in court.  Armed with this knowledge, they can help you to formulate proposals to try to resolve things amicably and on the best terms possible from your perspective.

Usually this will be done by trying to negotiate a resolution first and then, if this fails, by moving on to some form of alternative dispute resolution procedure.  For example, a mediation conducted by an independent facilitator may help you and your opponent thrash out an acceptable deal.

The advantage of keeping matters out of the court is that you retain some degree of control over the eventual outcome where a settlement can be agreed.  This control will inevitably be lost where a judge becomes involved, although we will deploy all efforts in these circumstances to ensure that you still achieve a favourable result.

If you require help resolving a fiduciary duty dispute, please contact Hannah Kennedy on 01782 525015 or hannah.kennedy@myerssolicitors.co.uk to find out how we can help.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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