What Are Fiduciary Obligations?

A fiduciary relationship covers many relationships, broadly speaking it is a relationship of obligation to act in another’s best interests.

If someone is in a fiduciary relationship, their fiduciary obligations mean they cannot use their position for personal gain or profit, and must avoid conflict with the ‘beneficiary’ (the party they are subordinating their personal interests to).

Examples of Fiduciary Relationships

Common examples of fiduciary relationships are the relationships between a doctor and a patient, an agent and their principal, or a trustee to a beneficiary.

In the commercial law context, some common fiduciary relationships are between a company director and their shareholders, between a company director and their company, a lawyer to their client, or partners to other partners in a partnership structure.

How Does A Fiduciary Relationship Occur?

Obligations can come about because of a contract or deed, or exist because of a certain role. For example, a director would have fiduciary obligations towards their company and their shareholders.  

What Is A Breach Of A Fiduciary Duty?

An example of a breach of fiduciary obligations for a director to their company would therefore be any action the director takes that is not acting in the company’s best interests, any decision which places the director in conflict with their duties to their company, or any action where the director uses their position as a director for personal gain or profit.

For instance, not using due diligence when making a financial decision for the company would be breaching the obligation to act in the company’s best interests, choosing a supplier for a company that is a friend or family member and paying above market price to this supplier would be breaching the duty to avoid conflict, and the obligation to act in the company’s best interests, while using confidential information as a director to make personal business decisions would be breaching the duty not to use their position as director for personal profit.