Contents
What Is A Fiduciary?
A fiduciary is someone who owes legally binding obligations to another party. Once a fiduciary relationship forms, the fiduciary is bound by a specific set of rules known as ‘fiduciary duties’. This legal concept was established to protect individuals in relationships where they are particularly vulnerable, ensuring that those in positions of trust remain accountable and act in the best interests of their principals. In today’s dynamic business environment, these duties remain just as critical in 2025 as they have been in the past.
It is essential to understand whether you owe fiduciary duties in your business and what these duties require, because these obligations are strictly enforced by law and the penalties for a breach are often severe.
For reference, the person who owes the fiduciary obligation is called the fiduciary and the person to whom the obligation is owed is called the principal.
What Are Fiduciary Duties?
Fiduciary duties are the obligations imposed on a fiduciary to act in the best interests of their principal. These duties are fundamentally proscriptive – they dictate what a fiduciary must not do rather than require positive actions.
Essentially, there are two primary duties that a fiduciary must observe: the rules of no‐profit and no‐conflict.
No-Profit
The no-profit rule means that the fiduciary cannot derive any personal benefit or profit from their relationship with the principal. For instance, a doctor may charge for their services, but cannot profit further from confidential information shared by the patient. (We’ve written more information to guide health service providers here.) This includes earning from the relationship itself, from knowledge acquired, or from opportunities that arise because of that relationship. Any such gain is strictly prohibited and remains unacceptable in 2025.
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Example Alice is on the board of directors for a company that is exploring the acquisition of a cinema to expand its operations. During negotiations for the cinema, Alice realises that her company lacks sufficient funds and decides to use her personal wealth to secure a majority share in the cinema, intending the company to purchase the remaining share later. This action results in Alice benefiting personally from an opportunity discovered in her capacity as a director. Such conduct is a clear breach of the no-profit duty, as it involves profiting from her fiduciary role. |
No-Conflict
The no-conflict rule requires that a fiduciary must not pursue any personal gain if doing so forces them to choose between their obligations to the principal and other interests. In essence, if there is any significant chance that personal interests could compromise their duty, then the fiduciary must refrain from engaging in such conduct.
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Example Paul is a director of a company and owes fiduciary obligations to its shareholders. One day, he becomes aware of a promising business opportunity and attempts to exploit it for his personal benefit, rather than for the company. In doing so, Paul deliberately conceals critical information about the opportunity and ongoing negotiations from the company. By acting on his personal interests at the expense of his duties as a director, Paul breaches the no-conflict rule. |
How Does A Fiduciary Relationship Occur?
Fiduciary relationships can arise through formal contracts or deeds, or simply by virtue of a specific role. For example, a company director automatically incurs fiduciary obligations to the company and its shareholders. Many relationships are also deemed fiduciary by law due to the inherent trust placed in one party by another. If you’re unsure about the nature of your obligations, our article on Sole Trader vs Company offers useful insights into how your business structure might affect your duties.
Am I In A Fiduciary Relationship?
A fiduciary relationship may be either presumed or established on an ad hoc basis.
The courts will presumptively recognise certain relationships as fiduciary unless the party in question can prove otherwise. Alternatively, a fiduciary relationship can be confirmed if one party expressly agrees to act in the best interests of another.
If you’re unsure whether you owe such duties, it might be helpful to review our guide on regulatory requirements for corporations to better understand your legal framework.
Presumed Fiduciary Relationships
The following relationships are typically presumed to involve a fiduciary duty. If you find yourself in one of these roles, it is important to be fully aware of the obligations you owe or that are owed to you:
- Trustee (fiduciary) and beneficiary (principal)
- Agent (fiduciary) and principal (principal)
- Solicitor (fiduciary) and client (principal)
- Director (fiduciary) and shareholders (principal)
- Partners (reciprocal obligations)
‘Ad hoc’ Fiduciary Relationships
Determining whether an ‘ad hoc’ fiduciary relationship exists is ultimately a decision for the courts to make based on the specific circumstances. The key question is whether the alleged fiduciary has undertaken or agreed to act for the benefit of the proposed principal. In establishing such a relationship, the following indicators are often considered:
- The relationship involves a significant degree of trust and confidence.
- The principal is at a disadvantage in the relationship.
- The principal is particularly vulnerable.
- There is an imbalance of bargaining power favouring the fiduciary.
Other relationships that may be determined to be ad hoc fiduciary relationships include those between a parent and child, priest and parishioner, doctor and patient, bank and client, financial advisor and client, partners in a joint venture, and even the Crown and indigenous Australians.
How Might I Breach My Fiduciary Obligations?
In order to establish whether a fiduciary has breached their obligation of no-profit or no-conflict, the courts will examine both the nature of the relationship and the specific responsibilities that were entrusted to the fiduciary. If a fiduciary’s conduct conflicts with these well-established duties, a breach is likely to be confirmed.
For example, if a fiduciary fails to maintain the required separation between personal interests and those of the principal, this misappropriation can be deemed a breach. To help mitigate risks, it is advisable to consult resources such as our Legal Advice Package, which guides you through maintaining proper governance standards.
What If I Have Breached My Fiduciary Duty?
There are three potential outcomes if a breach of fiduciary duty is determined:
- Successfully claiming one of the full defences against a breach of fiduciary duty;
- Successfully claiming a mitigating defence against the breach; or
- Being subject to the full penalty for the breach of fiduciary duty.
Absolute Defences Against A Breach of Fiduciary Duties
The only absolute defence available is when the fiduciary obtains the fully informed consent of the principal to proceed in a manner that would otherwise constitute a breach-allowing deviations from the no-profit or no-conflict rules. This means that the principal must be provided with all the relevant facts and must agree to the proposed course of action without any undue influence.
Mitigating Defences
If a fiduciary does derive a profit from a breach, the court may consider mitigating factors-particularly if the fiduciary’s specialised skill set was integral to securing that profit. In such cases, while all profits must typically be held in trust for the principal, the court might allow some remuneration for the fiduciary’s expertise.
Full Penalties For Breach
When imposing penalties, courts aim to deter breaches by ensuring that any personal gain is negated. Penalties depend on the extent of the breach, the nature of the fiduciary relationship, and the actual advantage gained. Remedies may involve disgorgement of profits and other measures designed to restore fairness.
For a more detailed discussion on protecting your business interests and ensuring compliance with fiduciary duties, our Contract Review and Redraft services can be invaluable.
In 2025, recent legislative updates and evolving case law have further refined how fiduciary duties are interpreted and enforced. With the increasing prevalence of digital and remote business operations, courts now also take into account modern communication methods and decision-making processes when assessing breaches. Staying abreast of these changes is crucial, and our range of resources-such as our Legal Advice Package-ensures you have the support needed to navigate this complex area.
Still Unsure?
Fiduciary relationships remain a complex area of law, with evolving standards that reflect the challenges of modern business. Determining whether you’re in a fiduciary relationship, understanding the duties you owe, and identifying any breaches can be confusing and overwhelming. The Lawyers at Sprintlaw have both the expertise and experience to guide you through these issues. For additional insights on protecting your business and understanding your legal obligations, you might also consider our resources on corporate governance and company set-up.
If you need further information or assistance, give us a call on 1800 730 617 or email us at team@sprintlaw.com.au for a free, no-obligations chat.
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