Boardman v Phipps [1967] 2 AC 46

Boardman v Phipps is a landmark case in English trusts law that addresses the scope of fiduciary duties, particularly the duty to avoid conflicts of interest and the duty of loyalty. The case established a strict standard of accountability for fiduciaries, emphasising that they must account for any profit made as a result of their fiduciary position, even if the trust has also benefited. The House of Lords ruled that fiduciaries are liable for gains derived from their position unless they have fully informed consent from all beneficiaries. This case has had a significant impact on the interpretation of fiduciary duties in subsequent trust and company law cases.

Boardman v Phipps Case Facts 

Boardman v Phipps case involved a family trust with a minority stake (27%) in a private textile company. The company was poorly managed and facing financial difficulties. Mr. Tom Boardman, the solicitor of the trust, and Mr. Tom Phipps, one of the trust’s beneficiaries, attended a shareholders’ meeting. They realised that with better management, the company could become profitable. However, to gain control and implement these improvements, a majority stake in the company was necessary.

Boardman and Phipps proposed the idea of acquiring a majority stake to one of the trustees, Mr. Fox, who immediately rejected the idea on behalf of the trustees. Since the trustees were unwilling to purchase the shares, Boardman and Phipps decided to acquire the shares themselves using their personal funds. They did so with the knowledge of the trustees but without obtaining the fully informed consent of all the trust’s beneficiaries.

As a result of the acquisition and their subsequent management decisions, the company’s profitability improved, leading to an increase in the value of both the trust’s shares and their personal investment. The trust benefited by £47,000, while Boardman and Phipps personally made £75,000 in profits. However, another beneficiary, John Phipps, later sued them, claiming that they had improperly profited from their fiduciary position.

Procedural History

  • The case was initially heard in the High Court, where Wilberforce J. ruled that the defendants had breached their fiduciary duties and must account for their profits. However, he allowed for generous remuneration to compensate them for their efforts in improving the company’s position.
  • The defendants appealed to the Court of Appeal, which upheld the High Court’s decision and dismissed the appeal.
  • The case was further appealed to the House of Lords, where the majority (3:2) ruled against Boardman and Phipps, confirming that they had breached their fiduciary obligations.

Legal Issues 

The Boardman v Phipps case raised several important legal issues:

  • Did Boardman and Phipps owe fiduciary duties to the trust?
  • Did their actions constitute a conflict of interest, despite benefiting the trust?
  • Could they retain their profits, or were they required to account for them to the trust?
  • Could information obtained in a fiduciary capacity be considered trust property?

House of Lords Judgment in Boardman v Phipps

The House of Lords ruled in a 3:2 majority that Boardman and Phipps had breached their fiduciary duties and were required to account for their profits. However, they were awarded remuneration for the work they had done to improve the company.

Majority Opinion (Lords Cohen, Guest, and Hodson)

  1. Existence of a Fiduciary Relationship: The majority held that both Boardman and Phipps were fiduciaries as they were acting in a representative capacity for the trust when attending the shareholders’ meeting. Although they were not trustees, they owed fiduciary obligations because they were dealing with matters related to trust property.
  2. Conflict of Interest: The majority found that there was a real possibility of conflict because Boardman had acquired information through his fiduciary position and could no longer provide impartial advice to the trust. Even though the trustees had rejected purchasing the shares, the mere possibility of conflict was sufficient to establish liability.
  3. Use of Trust Information: Lord Hodson and Lord Guest opined that information could constitute property in appropriate circumstances. Since Boardman and Phipps had obtained confidential financial information as part of their fiduciary relationship, they had used trust property to their advantage.
  4. Strict Liability for Fiduciaries: The majority held that fraud or dishonesty was not required for liability. Any profit made as a result of a fiduciary position must be accounted for, regardless of good faith or whether the trust also benefited. However, Boardman and Phipps were awarded generous remuneration to reflect their efforts in increasing the company’s value.

Dissenting Opinion (Lord Upjohn and Viscount Dilhorne)

  1. No Real Conflict of Interest: Lord Upjohn argued that there was no real or substantial possibility of conflict because the trust had no intention of purchasing the shares. He criticised the strict interpretation of “possible conflict” and stated that a reasonable person would not have seen an actual conflict in this case.
  2. Distinction from Regal (Hastings) v Gulliver: Lord Upjohn distinguished this case from Regal (Hastings) v Gulliver [1967] AC 134, where directors profited from corporate opportunities. In Regal Hastings, the company had considered purchasing the property, whereas in Boardman v Phipps, the trustees had already rejected the purchase.
  3. Information is Not Trust Property: Lord Upjohn disagreed with the majority on the treatment of information as trust property. He stated that information learned in the course of fiduciary duties does not automatically belong to the trust, unless it was obtained in breach of confidence.

Conclusion 

The ruling in Boardman v Phipps established an enduring principle in English law: fiduciaries must strictly avoid conflicts of interest and cannot profit from their position without full and informed consent. The case emphasised that fiduciary liability is not dependent on dishonesty or actual loss to the trust, but rather on maintaining the highest standards of loyalty and integrity. Despite the strictness of the ruling, the remuneration awarded to Boardman and Phipps acknowledged their valuable contributions. This case remains an essential authority on fiduciary obligations and conflicts of interest in trust and company law.

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