Fiduciary Duties: When Can They Arise Outside The Established Categories Of Fiduciary Relationships?

• Published date: 26 September 2022
• Subject Matter: Corporate/Commercial Law, Criminal Law, M&A/Private Equity, Corporate and Company Law, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Herbert Smith Freehills
• Author: Ms Natty Sugarin, Annabel Davis and Jan O'Neill

A recent High Court decision has considered the principles the court will apply when deciding whether a party owed a fiduciary duty in circumstances outside of the established categories of fiduciary relationships and in the absence of an explicit undertaking. The judgment suggests that such cases will be exceptional or at least uncommon: Kelly & Anor v Baker & Anor [2022] EWHC 1879 (Comm).

The court considered that the hallmark of cases where a fiduciary duty has been recognised in the absence of an express undertaking is legitimate expectation. That could arise from the parties' historical relationship or from particular representations or dealings. In either case, the question is not whether a party did in fact repose the relevant level of trust in the other but whether they were objectively entitled to do so in all the circumstances.

The existence of a close, personal relationship, such as in small closely held companies, may make it more likely that such a legitimate expectation could arise, but that circumstance is not determinative and does not itself give rise to the duty.

In the present case, two individuals who had worked in and for a family business empire for many years were held to have not owed fiduciary duties to the family members when leading a management buyout of part of the business. A level of informality in the running of the business may have fed the claimant's subjective perception that there was a special relationship of trust and influence, but that was not the objective reality.

The decision illustrates that, while fiduciary duties can conceptually arise in any context where there is the necessary special relationship of trust and influence, claimants face a high bar in establishing the factual foundation for that.

Background

The dispute concerned the sale of part of a family business empire in demolition and related services. The first claimant, Mr Kelly, and his family...