If you have been following the recent controversy surrounding the Aljunied-Hougang Town Council, you would have come across the term fiduciary duty.’
In particular, in a recent lawsuit, the Aljunied-Hougang Town Council alleged that several senior town councillors – including Workers’ Party head Low Thia Khiang and chairperson Sylvia Lim – breached their fiduciary duties by appointing a managing agent and permitting a “flawed system of governance” which led to improper payments.
The Council is now asking the two Workers’ Party MPs to repay money wrongfully paid and account for more than S$33,000,000 spent between July 2011 and July 2015.
As this case indicates, there are many circumstances in which a person will be found to be under a legal duty. Because you can be found liable for breach of such a duty even if you were unaware that the duty existed, it is important to know what your legal obligations are.
This guide attempts to contain all of the key information that you would need to know about fiduciaries and fiduciary duties.
In Singapore what is a fiduciary?
A fiduciary is an individual who owes a strict legal duty to another person (the principal) based on circumstances which give rise to a relationship of trust and confidence. In most cases, this relationship has the following features:
- the fiduciary possesses power or discretion.
- the fiduciary is able to exercise that power or discretion in a way that will affect the beneficiary’s legal or practical interests; and
- the beneficiary is vulnerable or dependent upon the fiduciary.
In Singapore what is a fiduciary duty?
A fiduciary duty represents one of the highest standards of care expected of a person by law.
The fiduciary is expected to be completely loyal to his or her principal and is bound by strict legal obligations on the fiduciary, including the following:
Duty to act in good faith towards the principal
This is a duty to behave honestly at all times towards the principal and includes an obligation to disclose all information on potential conflicts of interest or sources of profit.
Duty to avoid a conflict of interest
This is a duty to avoid any potential conflict of duty between the fiduciary and principal. This means that the fiduciary’s financial interests cannot be in conflict with those of the principal.Additionally, the fiduciary cannot enter into other relationships which may prevent the fiduciary from being absolutely loyal to the principal. For example, a lawyer cannot act for two clients whose interests conflict, such as the husband and wife in a divorce case.
Duty not to profit from his or her position
The fiduciary cannot profit from his position as a fiduciary unless the principal consents. For example, a director of a company may be in breach of his duty if he usurps a business opportunity belonging to the company for himself, or accept commissions or other unauthorized payments from third parties for services or other benefits provided where these are connected with the relationship between the fiduciary and principal. However, the principal may waive the duty buy consenting to actions that would otherwise be a breach of the fiduciary’s duty.
In Singapore how does a fiduciary duty arise?
Fiduciary duties arise out of certain classes of relationships between the fiduciary and the principal, for example, because the fiduciary has been entrusted with the principal’s property or authority to act on behalf of the principal for his or her benefit.
Importantly, the fiduciary is bound by these duties even if he or she was unaware that the relationship would give rise to fiduciary duties.
Fiduciary duties often arise from relationships between directors and their companies and shareholders, lawyers and their clients, and doctors and their patients.
Another common situation that gives rise to a fiduciary duty is a trust – a legal relationship in which one party, the trustor, transfers a property to a second party, the trustee, for the benefit of a third party, the beneficiary.
In this situation, the trustee is the legal owner of the property while the beneficiary has no legal title to it. However, the trustee is bound by a fiduciary duty to administer the property only for the benefit of the beneficiary and not for the trustee’s own benefit. In this way, the beneficiary is able to use the property without legally owning it.
What happens when a fiduciary duty is breached?
If a fiduciary duty is breached, then the fiduciary may face a lawsuit from the principal.
In filing a lawsuit against the fiduciary, the principal must prove that the fiduciary duty existed, that it was breached, and that this breach has caused loss to the principal. Typically, the principal will then claim damages for the breach in the form of money for lost profits, income, or property.
However, damages are not the only remedy available from the Singapore Courts, as the following remedies are also available for breach of fiduciary duty:
- Rescission of a contract which involves a breach of fiduciary duty;
- Equitable compensation payable by the fiduciary to the beneficiary;
- An account of profits payable by the fiduciary to the beneficiary;
- Transferring title of the property from the fiduciary to the beneficiary
- Injunctions to prevent the fiduciary from committing a breach.
How we can help
Should you find yourself in such a position, our team of experienced lawyers will be able to explain to you your various legal remedies and how to protect your reputation.
We strive to take care of our clients no matter the case. Your first consultation with us is usually free, and we wish to assist you. Please don’t hesitate to contact us at Hello@irblaw.com.sg or call at 6589 8913.