Fiduciary duties

A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties. The two key fiduciary duties an agent owes to its principal are as follows:

• it must not place itself in a position where its own interests conflict with those of the principal or whether there is a real possibility that will happen (the 'no conflict' rule);
• it must not profit from its position at the expense of the principal (the 'no profit' rule).

An agent may avoid breaching these duties if, before doing anything that would otherwise constitute a breach of duty, it obtains the informed consent of the principal. An agent in breach of a fiduciary duty may be liable to account to the principal for any profit made from the breach. Other equitable remedies may be available at the discretion of the court.

Hurstanger case

In a 2007 case the court decided that, when a third party makes a payment to an agent, there may be circumstances in which disclosing the payment to the agent's principal has been sufficient to negate secrecy and prevent the payment from being a bribe but not sufficient to amount to informed consent that will avoid a breach of the agent's fiduciary duty.

In such a 'halfway house' scenario the principal will only be entitled to the ordinary remedies available for breach of fiduciary duty but not to the additional remedies available in the case of bribery.

In this case the court found that there had been no 'secret' commission paid by the lender, Hurstanger Ltd, to the sub-prime mortgage broker acting for the principals as the broker had already disclosed that the commission might be paid to it. However, the court decided that because the amount of the commission was not disclosed the principals (the Wilsons) would have been unable to appreciate that a conflict of interest might exist. The court decided that the broker's commission should be refunded, but that the agency agreement could still exist.