It is not uncommon to read about corporate directors (or other persons in positions of authority) who violate their fiduciary duties, abusing their influence for personal gain by exploiting their principals.
A breach of a fiduciary duty can often lead to financial losses for the organization as well as a decline in the value of shareholders' assets. In most of these situations, appropriate legal action can be taken to obtain remedies or damages from the trustees.
Who is a fiduciary?
Generally speaking, a fiduciary is a person who has agreed to act on behalf of another person in a particular situation under circumstances that, in most cases, create a relationship of trust. More precisely, in a selected group of cases. This happens when:
- The Trustee has obtained authority or discretion;
- The trustee is free to exercise its power or discretion to harm the legal or factual interests of the beneficiary;
- The beneficiary is particularly vulnerable or dependent on the trustee due to the nature of their legal relationship
Am I a fiduciary?
From a formal and legal point of view, a trustee is a person who has the authority to act on behalf of another person or entity (principal).
Please note that in any case, the fiduciary has a legal and ethical obligation to act in the best interest of its principal.
The following list is not inclusive. However, it provides some examples of the types of trustees and who they owe fiduciary duties to:
Trustees (for the benefit of the recipient).
Directors (for the benefit of the company).
Agents (for the benefit of the principal).
Lawyers (in favor of the client's best interest).
Employees with a high level of responsibility (for the benefit of the employer).
Sources of law
Singapore's legal system is characterized by the fact that it is based on common law. The courts of Singapore create jurisprudence in the domain of the trustees. This means that rulings in precedent cases in superior courts are binding on lower courts. Where appropriate, the courts in Singapore accept the decisions of other Commonwealth countries, especially the United Kingdom.
In addition to common law, special statutes (enacted by the Parliament of Singapore) customarily regulate certain positions or relationships in legal transactions. For example, in Singapore, the Companies Act imposes statutory fiduciary duties on company directors. As a result of this legal and factual situation, corporate directors in Singapore are required to comply with both fiduciary and statutory obligations.
What is a fiduciary duty?
To put it simply, it is an obligation to act in good faith towards the principal. This means that the fiduciary must always behave honestly and in the best interest of the principal, taking care of his good reputation and economic success.
All information characterizing the subject of the relationship between the principal and the fiduciary must be provided in an open and clear manner. In addition, when making choices in the principal's best interests, a fiduciary must always be reasonable, objective, and fair to both the principal and its contractor.
Duty to avoid conflicts of interest
This is about the obligation to avoid a potential conflict of interest between the fiduciary and the principal. First of all, this means that the fiduciary's personal financial interests must never conflict with the principal's interests.
Under Singapore law, a fiduciary may not enter into other relationships that could in any way prevent it from being fully faithful to its principal. For example, a lawyer acting as a fiduciary in a transaction cannot represent two clients whose interests are clearly at odds with each other. The above statement extends also to a situation where the fiduciary's private interests would conflict with the interests of the beneficiary.
Prohibition of taking advantage
Without the consent of the principal, the fiduciary is not entitled to profit from its position. For example, a company director may be in breach of his fiduciary duties if he seizes a business opportunity belonging to the company for himself or accepts commissions or any other unauthorized payments from third parties for services or benefits if they are related to a fiduciary-principal relationship .
It is important, however, that the principal may release the fiduciary from liability if he expressly agrees to perform an act that would otherwise be in breach of the fiduciary's duties.
How does a fiduciary duty arise?
Fiduciary duties result from various types of interactions between the fiduciary and the principal. For example, there may be a case in which a fiduciary has been entrusted with the principal's assets or permission to act on behalf of the principal for his benefit.
Importantly, the fiduciary is bound by these obligations in every situation. This is the case even in the variant, if the fiduciary was not aware that such a legal relationship would generate fiduciary obligations.
Relationships between directors and their companies and shareholders, or lawyers and their clients, in a significant proportion of cases lead to fiduciary duties.
Trust is another type of joint agreement, which from a formal and legal point of view comes down to the emergence of a fiduciary obligation. It is a legal relationship characterized by one party, the trustee, transferring ownership to the other party, the next trustee, for the benefit of a third party, the beneficiary.
In this case, the trustee is the legal owner of the property, while the recipient has no legal title to it. The trustee, on the other hand, is obliged by fiduciary duty to manage the entrusted property solely for the benefit of the beneficiary, and not for his own profit. Based on this type of legal construction, the recipient can use the property without being its legal owner.
Breach of fiduciary duties
In the event of a breach of the fiduciary's liability, such a person may be sued by the principal for improper performance of the obligations arising from the Act (passed by the Parliament) and from the contract.
In order to effectively assert its rights in court, the principal must prove that the fiduciary's liability existed and that the fiduciary breached its obligations and that this breach caused damage to the principal's financial interests. In the vast majority of cases, the principal seeks financial compensation for lost profits, income or property as a result of the breach.
Remedies for breach of fiduciary duties
Damages is not the only remedy available in Singapore courts. In the event of a breach of fiduciary duty, Singapore's legal system also provides the following remedies:
- Rescission of a contract, which involves a breach of fiduciary duty;
- Equitable compensation payable by the fiduciary to the beneficiary;
- An account of profits payable by the fiduciary to the beneficiary;
- Transferring title of the property from fiduciary to beneficiary;
- Injunctions designed to prevent the fiduciary from committing an infringement.
Closing thoughts
Breach of fiduciary duty cases require a significant amount of work and advanced legal knowledge to be effectively and successfully concluded. If your interests in Singapore have been affected but you are unsure whether to take legal action, seek help from Eberhard Advisory's experts. We look forward to hearing from you.
