In business, and in our personal lives, there are persons whom we entrust with our pecuniary interests and property. These persons are called fiduciaries. They have a fiduciary relationship with the person who has entrusted them with their property or money. There are duties placed on a fiduciary such as the duty of loyalty, duty to act in good faith, and duty not to exploit the position to make a personal profit.
The liability for breach of a fiduciary duty is strict for the protection of the person to whom the duty is owed. It does not matter whether or not the fiduciary acted mala fide (in bad faith), what matters is that there was a fiduciary relationship and the fiduciary was in breach of his fiduciary duty. Fiduciary relationships take different forms: company directors, agents, trustees, executors and administrators, and business partners, to mention a few. Set out below are a few cases illustrating different fiduciary relationships and the duty owed.
In Nasr & Anor v Rossek (1973) LPELR-1946 (SC), the courts considered an agent as a fiduciary and stated as follows: ‘…in all transactions with his principal, the agent must disclose every material fact which is known to him (the agent). If this is not done, the transaction is voidable at the principal’s option and the principal may obtain rescission of the transaction after it has been completely executed without the necessity of establishing fraud on the part of the agent, although the establishment of fraud, as had been done in the present case, makes the case for rescission much more irresistible and conclusive.’
In Tugbobo v Adelagun (1974) LPELR-3271(SC), the litigants were business partners and one of the partners had allegedly withheld the other partner’s share of proceeds from the partnership and carried on business in competition with the partnership firm. The court held ‘As a partner, the defendant is not allowed to derive any exclusive advantage by engaging in transactions in rivalry with the firm. To use the words of the learned editor of Lindley on Partnership, 11th Edition, at pp. 398-399, this is because:”A partner moreover, is not allowed in transacting the partnership affairs, to carry on for his own sole benefit any separate trade or business which were it not for his connection with the partnership, he would not have been in a position to carry on. Bound to do his best for the firm, he is not at liberty to labour for himself to their detriment; and if this connection with the firm enables him to acquire gain, he cannot appropriate that gain to himself on the pretence that it arose from a separate transaction with which the firm had nothing to do.”’
In Ibrahim v Osunde & Ors (2009) LPELR-1411(SC), where an executor disposed of property from the estate by his own will, the Supreme Court, again, considered the fiduciary relationship: ‘It is wrong, in law, for an administrator of an estate or anybody claiming through him, to assimilate that property to his own, Equity will not even permit that under any guise. To say the least, it is gross abuse of office. Administrators or executors are trustees of the property placed in their care, so to say, on trust to the beneficiaries.
A heavy duty is placed on those in whom trust and confidence are reposed to show the righteousness of their transactions with the property entrusted to them. No ownership known to law can ever be conferred on an administrator in respect of the property, subject-matter of that administration. Such an administrator, the like of S. E. Lawal, cannot have possession of such a property which will ever have any legal blessings. So S. E. Lawal cannot in the least, give out the possession of the property which never belonged to him, in law. The saying is that “No one gives what he does not have.” The Maxim is “NEMO DAT QOUD NON HABET” Indeed, he gives nothing who has nothing, again the Maxim is NEMO DAT QOUD NON HABET.’
Similarly, in Jolugbo & Anor v Aina & Anor(2016) LPELR-40352 (CA) about trustees, the Court of Appeal held that ‘… trustees are the legal owners of the trust property but they are obliged to hold the property for the benefit of one or more individuals or organisations, usually specified by the settlor. The trustees, therefore, owe a fiduciary duty to the beneficiaries, who are the “beneficial” owners of the trust property. The significant feature of the trust is its separation of the legal ownership of the trust property from its equitable or beneficial ownership.’
The Companies and Allied Matters Act gives direction on fiduciaries of a company. Not all officers of a company are in a fiduciary position, but the directors, the promoters and in some circumstances, the company secretary hold fiduciary positions to the company. Section 297 of the Act provides that: ‘A secretary shall not owe fiduciary duties to the company, but where he is acting as its agent he shall owe fiduciary duties to it, and as such shall be liable to the company where he makes secret profits or lets his duties conflict with his personal interests, or uses confidential information he obtained from the company for his own benefit.’
For every wrong, there must be a remedy. The two main remedies where there is a breach of fiduciary duty: rescission and constructive trust. The option of rescission is subject to the interests of innocent third parties. A rescission cancels any contract entered into by the fiduciary. For instance, if the fiduciary sells property subject to the fiduciary relationship, the sale is set aside, except where the purchaser is a purchaser for value, without notice (actual or implied), also known as equity’s darling, an innocent third party. The option of a constructive trust is to create an involuntary trust where the fiduciary holds any gains from the breach of duty on trust for the party owed the duty.