Welcome & Introduction Carly S Stratton MannBenham Advocates Head of Business & eGaming Director | Advocate
Agenda 9:00 Registration Tea and Coffee 9:30 Welcome and Introduction MannBenham Advocates - Carly Stratton 9:45 Fiduciary Responsibilities of Kings Chambers - Mark Harper QC Directors - 1931 and 2006 Acts 10:15 Corporate-Trust Fusion MannBenham Advocates - Paul Beckett 10:30 Fiduciary Responsibilities of Trustees Kings Chambers - Matthew Hall 11:15 Refreshments and Comfort Break Tea and Coffee 11:45 Ad-Hoc Fiduciary Duties arising Kings Chambers - Lesley Anderson QC under Commercial Arrangements 12:30 Regulatory Consequences MannBenham Advocates - Carly Stratton and Miles Benham 13:00 In Closing Financial Services Authority - Paul De Weerd 13:15 Lunch 14:30 Close
Fiduciary Responsibilities of Directors 1931 and 2006 Acts Mark H Harper Q QC Kings Chambers
What directors? De Jure De Facto Shadow Directors • Not all fiduciary duties will be applicable • Relief from liability – s99 2006 Act Nominee Director
Fiduciary Obligations Origins Company – legal person Owns property (widest sense) Conducts business Act through directors Akin to Trustees and Agents Property has to be applied properly Holding to account “Entrusted with the property of the company”
Ordinary Business Decisions Courts will not interfere with or try to second-guess business decisions taken in the ordinary course of business Fiduciary duties set the boundaries of what the ordinary course of business is
UK – Companies Act 2006 Chapter 2 Part 10 Non-exhaustive codification of the law on fiduciary duties vis a vis directors as it stood ”essence of the rules and principles which they replaced”
FSA v Irving Duties of directors under 1931 Act and 2006 Act ”largely mirror” these duties “Largely” – query will some of the nuances under the Act be applied
The Duties 1. Powers 2. Interests of what they, in good faith, consider to be in the interests of the company - Will the specific considerations set out in s172 be considered by an IOM Court? 3. Independent Judgment/No Fetter on Discretion 4. No Conflict – NB s175 “possibly may conflict” 5. Secret Profits
Key Considerations 1. Preparation to be a director 2. Good Corporate Governance 3. Apply mind 4. Absent Directors 5. Disclosure of Wrongdoing Who will challenge? • Office Holders • New Management • Shareholders
Ratification INFORMED CONSENT
Relief From Liability Section 99 2006 Act • Honesty • Reasonableness • Fairness Ought to be very limited in application
Remedies • Equitable Compensation – “but for” test • Account of Profits
Corporate-Trust Fusion Principle Paul Becke kett MannBenham Advocates Senior Counsel | Advocate Paul ul B Bec eckett Senior Counsel
The Principle The Corporate-Trust Fusion Principle The position of creditors in relation to assets owned by a company that is itself wholly owned by a trust is subject to the corporate- trust fusion principle Established on 19 September 2002 in Re Poyiadjis 2001-03 MLR 316.
Well, in principle… The Corporate-Trust Fusion Principle varies “Now, no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.” Macaura v Northern Assurs Co in which Lord Buckmaster stated ([1925] A.C. at 626-627):
A Conclusion Deemster Kerruish concluded: “Oracle and Olympus are each wholly owned by a trust, and there is no other shareholder. [...] The trustees, who are also the directors of both companies, have the wherewithal to control each company totally. […] Also, I have no doubt that the directors would be ever mindful in exercising their powers to manage the companies and their assets to ensure that they did not expose themselves to an allegation of breach of trust.”
A Conclusion cont’d “Whilst I accept that in law the bank accounts are corporate and not strictly trust assets, in the circumstances of this case, I find that the interposition of a limited company does not in any material way qualify the trustees’ interest in the relevant bank accounts. It does not make a difference to the duties and responsibilities of the trustees, including responsibilities to persons, who have or may have an interest in the trust assets, whether held directly by the trustees or through a company.”
A Conclusion cont’d “Further in the circumstances of this case, the directors, when exercising their powers [...] cannot divest themselves of the knowledge and information obtained in their capacities as trustees, and therefore must act at all times mindful of their duties and responsibilities to persons, who have or may have an interest in the trust assets.”
A Conclusion cont’d “I therefore consider that to treat the companies as bodies independent of the trustees qua trustees, and to treat the latter as shareholders, would be to ignore the reality of the situation.”
Fiduciary Duties Matthe hew H Hall Kings Chambers
“Fiduciar ary” – Roman an L Law aw O “ Fi Fiducia” = tr trust o t or c confi fidence
What Is A Fiduciary? Millett LJ Bristol & West v Mothew [1998] Ch 1 Fiduciary duties arise where “… someone … has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence”
Finn J in Grimaldi Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC: A fiduciary is someone who has: “….undertaken to perform such a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that he or she will act in that other’s interest to the exclusion of his or her own or a third party’s interest”
The Core Fiduciary Duties a) Not to put oneself in a position of conflict without informed consent b) Not to make a profit from one’s position without informed consent c) To act in the best interests of the beneficiary d) To act in good faith
“If I Only Had the Nerve”
Charles Selwyn (Selwyn LJ) (pictured standing) “The main duty of a trustee is to commit judicious breaches of trust”
“Authorisation” of breach • With consent of all affected beneficiaries (must be full age and have capacity) • Court order extending administrative powers (inherent emergency jurisdiction and s 57 TA 1925 where expedient)
Trustee Act 1925 s. 61 Power to relieve a trustee who has “… acted honestly and reasonably and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach”
“Judicious Breaches of Trust” • A judicious breach is still a breach, even if the trustees is relieved from liability • The transaction might be challenged and set aside and the trustee ordered to pay costs
… However A “judicious breach of trust” if committed in the interests of the beneficiaries is not a breach of fiduciary duty (Millett LJ in Armitage v Nurse [1998] Ch 241 at 251)
A Trustee Must Exercise Independent Judgment (and stand up to the settlor if necessary)
Turner v Turner [1984] Ch 100 Settlor: “ I did not discuss anything with [the trustees]. I considered myself captain of the ship” Appointments made by trustees set aside
Per Lord Walker in Pitt v Holt [2013] 2 WLR 1200 at [66] “…it may be that some offshore trustees come close to seeing their essential duty as unquestioning obedience to the settlor’s wishes”
“If I Only Had A Brain”
The Duty to Give Proper Consideration to the Exercise of Fiduciary Powers
Per Lord Walker in Pitt v Holt [2013] 2 WLR 1200 at [70] confirms Inadequate deliberation, where “sufficiently serious” will amount to a breach of fiduciary duty
Preliminaries to Proper Consideration 1. To understand the purposes of the trust 2. Periodically consider whether to exercise the discretion 3. To make relevant enquiries and to ascertain relevant issues
Proper Consideration Trustees must: 1. act honestly and in good faith; 2. ask themselves the correct question; 3. reach a decision open to a reasonable body of trustees; and 4. take into account relevant matters and only those matters.
Per Templeman J in Re Manisty’s Settlement [1974] Ch. 17 at 26 “… if they chose a beneficiary by height or complexion or by the irrelevant fact that he was a resident of Greater London”
The Standard is Not Perfection Enquiries need not be shown to be completely exhaustive A beneficial class must not be surveyed “from China to Peru”
The Decision is for the Trustees Not the Court (per Lord Truro LC in Re Beloved Wilkes’s Charity (1851)” ) “… it is to the discretion of the trustees that the execution of the trust is confided…”
“If I Only Had a Heart”
How Much Must a Trustee Listen?
Recommend
More recommend
