CCFiduciary relationships are common in day to day life and especially common in the world of business.  However, they are the result of a legal principal that is not well understood.

If you are an employer, a partner in business, a company director, a beneficiary under a trust, or someone that engages a real estate, property, insurance, finance or any other kind of agent, chances are that you have the benefit of a fiduciary relationship, without even knowing it.

A fiduciary relationship is a bond between parties which is imposed by the law of equity.  It does not require the parties to agree that such a relationship exists or for the parties to do anything at all.

Broadly, a fiduciary relationship is where one person, the principal, places the utmost faith and trust in another, the fiduciary, such that the fiduciary is to act, not for his own benefit, but for the benefit of the principal.

A fiduciary must not profit from his position as a fiduciary without obtaining the fully informed consent of the principal.  In the event that a fiduciary acts in such a way that they obtain a benefit at the expense of their principal, the principal is entitled to sue the fiduciary for the breach of the fiduciary duty.

If you have employed someone, and in that employment, you trust them with the information that is at the root of the goodwill of your business, for example, client lists, service schedules or trade secrets and that employee leaves you and then uses that information to their own benefit, you may have a right to redeem the employee’s profits, relying on the breach of a fiduciary relationship.

Another situation in which a fiduciary relationship will often exists is between business partners acting together.  In the event that they jointly formulate a business plan and then one partner abandons the other and uses the ‘partnership knowledge’ to their own exclusive benefit, usually by starting  their own business, then the abandoned partner is likely to have a right against the other for breach of the fiduciary relationship.

If you employ an agent to act on your behalf, in matters that require their specialized skill and expertise, and you subsequently find that they placed the interests of another person higher than your own interests, then it is likely that a fiduciary relationship has been breached.

Where two people come together, on equal footing, to reach a business agreement, that association will not normally cause a fiduciary relationship to arise.  What is generally required is some sense of vulnerability on behalf of the principal, such that the principal is relying on the skill of the fiduciary, or trusts the fiduciary to act for the principals benefit.

Mere commercial transactions such as those between a lessor & lessee, manufacturer & distributor, or banker & customer, will not normally cause a fiduciary relationship to arise because there is no special vulnerability of one party.

To discuss fiduciary relationships and their role in business further, please contact Everingham Solomons, because Helping You is Our Business.

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