Breach Of Fiduciary Duties In Singapore: What You Need To Know

Introduction

It is not uncommon to read of corporate directors (or others in positions of power) who violate their fiduciary duties by misusing their influence to earn personal gains.

Breach of fiduciary duty can result in financial losses for the organization, as well as a drop in the value of shareholders’ interests. In these situations, legal action to obtain remedies or damages from the fiduciaries may be explored.

What is a Fiduciary?

In general, a fiduciary is someone who has agreed to act for or on behalf of another in a specific situation under circumstances that create a trust and confidence relationship. More specifically, in the vast majority of cases:

1. The fiduciary has authority or discretion.
2. The fiduciary can use that authority or discretion unilaterally to harm the beneficiary’s legal or practical interests; and
3. The beneficiary is particularly vulnerable or reliant on the fiduciary.

Am I a Fiduciary?

In essence, a fiduciary is a person who has the authority to act on behalf of another person or entity (the principal).

It is vital to remember that a fiduciary is legally and ethically obligated to operate in the best interests of his or her principal.

The following list, which is not inclusive, depicts some types of fiduciaries and the people to whom they owe fiduciary duties:

1. Trustees (for the benefit of the recipient).
2. Directors (for the benefit of the firm).
3. Agents (for the principal).
4. Lawyers (for the benefit of the client).
5. Employees with a high level of responsibility (to the employer).

Sources of Law

Singapore has a legal system based on common law. The courts of Singapore produce case laws in the domain of fiduciaries, which means that the decisions of precedent cases in the superior courts are binding on the subordinate courts. Where applicable, Singapore courts adopt the decisions of other commonwealth nations, particularly the United Kingdom.

In addition to common law, special statutes (enacted by the Singapore Parliament) govern specific positions or relationships. In Singapore, for example, the Companies Act sets statutory duties on a company’s directors. As a result, corporate directors in Singapore are obliged by both fiduciary and statutory duties.

What is a Fiduciary Duty?

The duty to act in good faith towards the principal

This means that the fiduciary must always behave honestly and in the best interests of the principal.

All relationship-related information must be stated openly and explicitly. Furthermore, when making choices in the best interests of the principal, the fiduciary must always be fair, reasonable, and objective.

The duty to avoid a conflict of interest

This is a duty to avoid any potential conflict of interest between the fiduciary and the principal. This means that the fiduciary’s financial interests cannot be at odds with the principal’s.

Furthermore, the fiduciary cannot enter into other connections that might prohibit the fiduciary from remaining completely faithful to the principal. A lawyer, for example, cannot represent two clients whose interests conflict, such as two direct competitors.

The fiduciary’s personal interests cannot conflict with those of the beneficiary.

The duty to not profit from his or her position

Unless the principal consents, the fiduciary cannot profit from his position as a fiduciary. A director of a company, for example, may possibly be in breach of his duty if he seizes a business opportunity belonging to the company for himself, or accepts commissions or other unauthorised payments from third parties for services or other benefits provided where these are related to the fiduciary-principal relationship.

The principal may, however, waive the responsibility by agreeing to conduct what would otherwise be a breach of the fiduciary’s duty.

How does a Fiduciary Duty arise?

Fiduciary duties come from certain types of interactions between the fiduciary and the principal, such as when the fiduciary is entrusted with the principal’s property or permission to act on the principal’s behalf for his or her benefit.

Importantly, the fiduciary is bound by these obligations even if he or she was not aware that the relationship would give rise to fiduciary obligations.

Relationships between directors and their companies and shareholders, lawyers and their clients, and doctors and their patients frequently give rise to fiduciary duties.

A trust is another common arrangement that gives rise to a fiduciary duty: a legal relationship in which one party, the trustor, transfers property to a second party, the trustee, for the benefit of a third party, the beneficiary.

The trustee is the legal owner of the property in this case, whereas the recipient has no legal title to it. The trustee, on the other hand, is obligated by a fiduciary obligation to administer the property only for the advantage of the beneficiary and not for the trustee’s own gain. In this manner, the recipient can use the property while not legally owning it.

What happens when there is a Breach of Fiduciary Duties?

If a fiduciary responsibility is breached, the fiduciary may be sued by the principal.

In order to sue the fiduciary, the principal must demonstrate that the fiduciary responsibility existed, that it was breached, and that the breach resulted in the loss to the principal. Typically, the principal will seek monetary compensation for lost profits, income, or property as a result of the breach.

Remedies for the Breach of Fiduciary Duties

Damages are not the only remedy available from the Singapore Courts, as the following remedies are also available for breach of fiduciary duty:

1. Rescission of a contract which involves a breach of fiduciary duty;
2. Equitable compensation payable by the fiduciary to the beneficiary;
3. An account of profits payable by the fiduciary to the beneficiary;
4. Transferring title of the property from the fiduciary to the beneficiary;
5. Injunctions to prevent the fiduciary from committing a breach.

Conclusion

Cases involving the violation of fiduciary obligation necessitate a significant amount of time and legal expertise to prove. If your interests have been jeopardized but you are unsure whether to pursue legal action, seek the assistance of a legal advisor. They will be able to explain your legal options and how to preserve your reputation in the process.