Unauthorised Profits Made by Fiduciary - Essay Example

Un ised Profits Made by Fiduciary Prepared by Word Count 1206 words Introduction The equity and trust law deals with public benefitcharities like hospitals, schools and other trusts. This involves the equality law that deals with regulation of trustees, landlords and tenants. This explains the joint ownership of the property. This may deal with land, property law and trust law and serves the needs of joint ownership and guardian ship on any type of property. 1 2. Equity and Trust The concept of trusts arises from imparting rights to third parties on the lands of England landowners to be immune from creditors while having the benefits of ownership. This helped in taking shape of concept of trust in the time of nonexistence of feudal concerns and when there is a chance of having wealth in many other forms other than land. This is a right in property that is held in a fiduciary relationship by one party for the benefit of another. The person or the organization who/that holds the title to the trust property is trustee and the person who receives benefits is the beneficiary. The creation of trusts is generally a conjunction with a will and other elements of estate planning. There is a frame work for the validity and limitations of a trust. There is a code that governs the affairs of the estates of deceased owners and intestate properties. This even determines the place, the intestate properties have to go thus enabling the importance of trusts and making the limitations as guidelines. 2 3. Charity The concept of trust is widely used in charity purposes. According to Charity Act 2006 in UK, the charity organization is the one that is established for charitable purposes or the one which falls to be subject to the control of the high court in the exercise of jurisdiction with respect to charities. 3 According to public benefit test of the charities act 2006The concept of trust involves public benefit also. The charitable organisations need to be delivering public benefits. This should be according to the guidance of charity commission for England and persuaded by them. The public benefit nature of the trusts may result in the unauthorised benefits or profits for the fiduciary. 4 4. Fiduciary Duty Fiduciary duty contains obligations regarding loyalty and faithfulness. The execution of duties regarding loyalty and faithfulness may result in accruing unauthorised profits for fiduciary. As there is a chance of making unauthorised profit from the property, the fiduciary should be in a position to avoid potential conflict. To avoid unauthorised profits, the fiduciary duty should restrain unconscious abuse of legal power and position. This is due to the fact that the profits accrued by fiduciary by exploiting the legal power and position will erode the benefits of the beneficiaries. This concept makes a rule of public policy necessary that can be strictly applied against trustees to encourage good behaviour in them. According to James LJ in the case Parker v Mc Kenna in 1874 the strict enforcement of exemplary fiduciary propriety is required for the safety of mankind. 4.1 Commercial Use of Property: The commercial use of property by a fiduciary can be seen in large organisations and public companies. The companies that do business and mobilise capital from public come under fiduciary for the funds gathered from the public. The governance issue will be entwined in the commercial fiduciary. As the virtues regarding social welfare are minimised there is a chance of unauthorised profits for the commercial fiduciary in the absence of transparency and strict guidelines about the usage of property. Some experts opine that the shareholder supervision and control is necessary for good governance by a fiduciary. As there is a widespread view that there the execution of the work by a fiduciary cannot be judged by just shareholder value, the voting of the shareholder in company's general meetings is made compulsory for institutional investors. This makes the beneficiaries (shareholders) as the owners of the company up to the extent they invested. 5 4.2 Fiduciary Duty of a Solicitor: The fiduciary duty in case of solicitor is proscriptive and not prescriptive nature in UK tradition. That is, the law lays down the list of don'ts but not the list of compulsory doing. The positive aspects regarding the duties of a fiduciary depends on the loyalty and the absence of loyalty may lead a solicitor/fiduciary open to a profit not authorised but not cognisable according to law. As a result in UK and Australia the prescriptive duties of a fiduciary are being enforced by other branches of law like contract, trust and tort. As a result there is an opportunity for a fiduciary not to disclose the information that comes under positive duty. This loophole in the fiduciary duties demands to put the fiduciary obligations in prescriptive nature of the law to minimise the unauthorised profits of the fiduciaries. 6 4.3 Constructive Trusts: These are a difficult area of law that operate at all levels of their consideration. These trusts have several accounts of adaptability to meet different situations. The ever changing situations demand the concept of constructive trusts that include cohabitation of a family home to trust regarding a property.7 4.4 According to the case Carl Zeiss Stiftung v Herbert Smith (no.2) (1969)2 Ch. 276 the uncertainty in definition resulted in flexibility of constructive trusts. As this works irrespective of intention of the owner there again arises the chance of unauthorised profit to a fiduciary. The constructive trusts exist regarding cohabitation of family homes, creation of mutual wills, secret wills and killing ( in the context there is no benefit for successor due to the murder of the testator). In all the above cases the fiduciary cannot keep the property or use it for his purposes. The unauthorised profit to the fiduciary at the cost of benefits of a beneficiary is due to the liability of strangers to a trust. The consideration of the third party liability in constructive trust will also have chances for unauthorised profit for strangers who are appointed as trustees. 8 References: 1. Martin Dixon, Gerwyn Llh Griffiths, 2007, Contemporary Perspectives on Property, Equity and Trust Law, Oxford University Press, Volume 1, Retrieved on 28th February 2008 from http://www.oup.com/uk/catalogue/ci=9780199219841 2. Sarah Cochran., 2007, Estates and Trusts: An Overview. Cornell University Law School, Volume information not available, Retrieved on 28th February 2008 from http://www.law.cornell.edu/wex/index.php/Estates_and_Trusts#estates_and_trusts:_an_overview 3. Office of Public Sector Information, 2006, Meaning of Charity, UK Government, Volume information not available, Retrieved on 28th February 2008 from http://www.opsi.gov.uk/acts/acts2006/ukpga_20060050_en_2#pt1-l1g1 4. Office of Public Sector Information, 2006, Meaning of Charity, UK Government, Volume information not available, Retrieved on 28th February 2008 from http://www.opsi.gov.uk/acts/acts2006/ukpga_20060050_en_2#pt1-l1g3 5. Oup.com, 2007, Fiduciary Duty, Oup.com, Volume information not available, Retrieved on 28th February 2008 from http://www.oup.com/uk/orc/bin/9780199279821/ch10.pdf 6. Paddy Ireland, 1992, Company Law and the Myth of Shareholder Ownership, Blackwell Publishing, Volume 62, Retrieved on 28th February 2008 from http://links.jstor.org/sicisici=0026-7961%28199901%2962%3A1%3C32%3ACLATMO%3E2.0.CO%3B2-1&size=LARGE&origin=JSTOR-enlargePage 7. Vicki J Vann, 2006, SOLICITORS AND THE DUTY TO DISCLOSE: HILTON V BARKER BOOTH & EASTWOOD (A FIRM) [2005] UKHL 8; [2005] 1 WLR 56, tlc.une.edu.au, Volume information not available, Retrieved on 29th February 2008 from http://tlc.une.edu.au/lawjournal/pdf/4.%20V%20Vann.pdf 8. Oup.com, 2007, Introduction to resulting and constructive trusts, Oup.com, Volume information not available, Retrieved on 29th February 2008 from http://www.oup.com/uk/orc/bin/9780199276325/chap7.pdf Read More