Fiduciary Duties - What They Are and Why They Matter

By Wilbur Lua

In the recent landmark decision of How Weng Fan and others v Sengkang Town Council and other appeals [2022] SGCA 72 (“AHTC Decision”), the Court of Appeal held that the town councillors of a town council do not owe fiduciary duties to their town council. As such, the High Court’s ruling that the Workers’ Party town councillors were liable to compensate the Aljunied-Hougang Town Council for breaches of fiduciary duties was overturned. 

In this article, we take a closer look at what fiduciary duties are, why they matter, and when a person may become a “fiduciary”.  

Who is a fiduciary and what do fiduciary duties entail? 

A fiduciary is someone who undertakes to act for or on behalf of another person (known as the principal or beneficiary) in circumstances which give rise to a relationship of trust and confidence. Two common examples of fiduciary relationships are that of the relationship between the director and his company and the relationship between a solicitor and his client. 

The core duty of a fiduciary is to act with undivided loyalty to his principal. This means that: 

(1) A fiduciary is not allowed to place himself in a position where his duty and his interest may conflict; and 

(2) A fiduciary is not allowed to act for his own benefit or the benefit of a third person without the informed consent of his principal. 

For example, if you are a director of a company and you happen to have a family business providing catering services, you should not be engaging your family’s catering services for your company’s corporate functions unless you have (a) disclosed your interest in the catering business to the shareholders of the company; and (b) obtained the shareholders’ consent to do so. If you fail to disclose your interest, you may find yourself in breach of your fiduciary duty to the company because you have placed yourself in a position where your duty to the company and your personal interest may conflict. This is so even if you hold a sincere belief that your family’s catering services are the best option out of the available options for the company. Disclosing your interest in the transaction and obtaining the company’s approval for the engagement is the only way you can “clear” the potential conflict of interest. 

When are fiduciary duties imposed? 

It is common to find fiduciary duties imposed on persons who hold a formal office or appointment, such as a director of a company or a solicitor who has been appointed to act for his client. However, the occupation of a formal office position does not, in and of itself, automatically result in fiduciary duties being owed. 

In the AHTC Decision, the High Court agreed with the Plaintiffs that the town councillors owed fiduciary duties to the Town Council by virtue of the office they held, and drew an analogy between their position and that of the directors of a company or the council members of a management corporation. 

However, the Court of Appeal disagreed with the High Court’s view. The Court of Appeal took the view that town councillors execute statutory duties under public law. As such, it would not be correct to “convert” these statutory duties existing under public law into fiduciary duties existing under private law. In reaching its decision, the Court of Appeal was also concerned by the fact that the imposition of fiduciary duties on town councillors would put the court in an untenable position of having to determine essentially were political or policy-laden questions regarding what would be in the “best interests” of a town council. 

On the other hand, a person can be subject to fiduciary duties even if he is not a formal office holder. For example, a person may be deemed to be a fiduciary simply by the fact that he has undertaken to manage monies or an investment on behalf of other persons. Such a person is known as an ad hoc fiduciary. The key question is whether the person has voluntarily placed himself in a position where the law can objectively impute an intention on his part to undertake fiduciary duties. Accordingly, the label of “fiduciary” is a conclusion that is reached only once it is determined that particular fiduciary duties are owed. 

Conclusion 

Fiduciary duties can be extremely onerous duties because of the strict obligation for fiduciaries to act with undivided loyalty to their principal or beneficiary. Unfortunately, they may not always be well understood. It is even possible for a person to be subject to fiduciary duties without necessarily being aware of it. 

If you have a question about fiduciary duties and how they may affect you, please feel free to approach our legal team for a consultation.