Breach of Fiduciary Duty: Everything You Need to Know
A breach of fiduciary duty happens if a fiduciary behaves in a manner that contradicts their duty, and there are serious legal implications.4 min read
Updated June 26, 2020:
What Is a Breach of Fiduciary Duty?
A breach of fiduciary duty happens if a fiduciary behaves in a manner that contradicts their duty, and there are serious legal implications. It is also easier to prove a breach of fiduciary duty as there is no need to prove fraudulent or criminal intent.
A breach of fiduciary duty is serious and complex. Knowing specifics and examples is imperative for better understanding.
Definition of Fiduciary Duty
It is important to understand what is meant by "fiduciary duty" and the legalities behind it.
A fiduciary duty is a duty or responsibility to act in the best interest of someone else. The person who is duty bound to another person, in a fiduciary relationship, is called a fiduciary.
The fiduciary is responsible for the management and protection of either money or property for another person or business. A board member's fiduciary duty to the company's shareholders, or a trustee's duty to the beneficiaries of the trust, or an attorney's fiduciary duty to their client, are all examples of fiduciary duty in action.
In order for a fiduciary duty to be legally binding, the agreement must be created under the law, by statute or contract, or by factual circumstances of the relationship, such as being based on case law.
A fiduciary duty is in place when a relationship with a client calls for unique trust, or dependability, on the fiduciary to be discrete when acting on behalf of said client. The fiduciary is obliged to act and has the power to act on behalf of, and for the benefit of, the client.
When there is an agreement between one person and another, in a fiduciary relationship, it is a breach of fiduciary duty for the fiduciary to behave in any manner that would be construed as against the best interests of the client. This includes behavior that would benefit the fiduciary with regards to the subject being dealt with. The fiduciary is further obliged to act, for the client, with their fullest capability and care.
A fiduciary is expected to behave with the highest standard of integrity and transparency and may not, in any way, benefit personally at the client's expense.
Examples of Fiduciary Relationships
There are many types of fiduciary relationships, such as between employer and employee or an accountant and a client. There are a number of common examples of fiduciary relationships:
- An attorney has a fiduciary duty to the client
- An accountant has a fiduciary duty to the client
- A principal has a fiduciary duty to the agent
- An executor has a fiduciary duty to the heir
- A guardian has a fiduciary duty to the ward
- A trustee has a fiduciary duty to the beneficiary
- A corporate officer has a fiduciary duty to the shareholder
- An employer has a fiduciary duty to the employee
What Construes as a Breach of Fiduciary Duty?
Knowing how to identify a breach of fiduciary duty allows a person to react quickly and prevent any further damage. It is legally permitted for the wronged individual to sue for and receive damages as well as any profits made by the fiduciary in breach of their fiduciary duty. Breaches of fiduciary duty can have significant consequences not only for the fiduciary's finances, but also on their reputation.
Ways to breach fiduciary duty:
- If a fiduciary relationship existed at time of dispute
- Breadth of relationship and fiduciary duties
- If any duties were breached within context of the relationship
Additionally, a breach of fiduciary duty can be any behavior that is not in the best interest of the client; any action that solely benefits the fiduciary; or any failure on part of the fiduciary to be completely transparent with important information.
If there is no statute that defines the fiduciary relationship, a contract can define the scope of the relationship and fiduciary duties. If you believe there may have been a breach of fiduciary duty, contact an attorney who can assist you to legally resolve the breach.
Winning a Breach of Fiduciary Duty Complaint
In order to win a breach of fiduciary duty complaint, an individual needs to ensure they have received damages due to the breach and be able to prove the breach.
To win a breach of fiduciary duty complaint the plaintiff must prove that the fiduciary (defendant) had duties such as acting good faith, being transparent with pertinent information, and being loyal to the plaintiff.
The plaintiff must prove that the defendant failed their duty by withholding pertinent information, by misappropriating funds, abusing their position of influence, failing in their responsibilities or misrepresenting the statement of fact.
The breach is only actionable if there is proof that the plaintiff suffered damages as a result of the breach.
Being diligent in keeping an ordered record of communication and of all relevant documentation will assist you in proving the breach of fiduciary complaint.
In regard to companies – keep a record (Board Resolutions) of important decisions made by the board of directors or shareholders on behalf of the company.
By ensuring a basic understanding of your fiduciary duty and what behavior is expected of you, you will be able to prevent any breaches of your duty. Remember to avoid transactions that would be in breach of your duty, such as transactions that benefit you personally.
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