- Published on
Malaysian Banking Law – Difference Between Breach of Trust and Breach of Fiduciary Duty
No. Breach of trust and breach of fiduciary duty are closely related but they are not exactly the same. Both arise from equitable principles and involve duties of loyalty and honesty, but they occur in different legal relationships and involve different obligations.
1. Breach of Trust
Meaning
A breach of trust occurs when a trustee fails to carry out duties owed under a trust relationship.
A trustee holds property or money for the benefit of beneficiaries. The trustee must manage the trust property according to the terms of the trust and for the benefit of the beneficiaries.
If the trustee misuses the trust property, acts outside the trust powers, or fails to protect the trust property, there is a breach of trust.
Main Features of Breach of Trust
The relationship involves:
Examples of Breach of Trust
A trustee commits breach of trust where he:
Banking Example
A customer holds housing development funds in trust for purchasers. The customer wrongfully transfers the trust money into his personal account and spends it for private purposes.
This amounts to breach of trust because trust property was misused.
2. Breach of Fiduciary Duty
Meaning
A breach of fiduciary duty occurs when a fiduciary fails to act loyally, honestly, or in the best interests of another person.
A fiduciary relationship arises where:
Main Features of Breach of Fiduciary Duty
The relationship may involve:
Examples of Breach of Fiduciary Duty
A fiduciary breaches duty where he:
Banking Example
A bank investment adviser secretly receives commissions from promoting investment products without informing the customer.
This is breach of fiduciary duty because the adviser acted in conflict of interest and failed to act loyally toward the customer.
Main Difference Between the Two
Breach of Trust
Simple Comparison
Breach of Trust
Usually involves:
Breach of Fiduciary Duty
Usually involves:
Relationship Between the Two
A trustee is also a fiduciary.
Therefore:
Example Where Both Exist Together
A trustee secretly transfers trust funds into his own account and profits personally from the money.
This may involve:
Remedies
Remedies for Breach of Trust
Remedies for Breach of Fiduciary Duty
Banking Law Position
In banking law:
However, banks may become liable as constructive trustees if they knowingly assist misuse of trust property.
Conclusion
Breach of trust and breach of fiduciary duty are related but distinct concepts.
Breach of trust mainly concerns improper handling or misuse of trust property by a trustee. Breach of fiduciary duty mainly concerns disloyalty, conflicts of interest, dishonesty, or abuse of confidence by a fiduciary.
A trustee always owes fiduciary duties, so some breaches of trust may also amount to breaches of fiduciary duty. However, fiduciary duties may exist even where no trust relationship or trust property is involved.
No. Breach of trust and breach of fiduciary duty are closely related but they are not exactly the same. Both arise from equitable principles and involve duties of loyalty and honesty, but they occur in different legal relationships and involve different obligations.
1. Breach of Trust
Meaning
A breach of trust occurs when a trustee fails to carry out duties owed under a trust relationship.
A trustee holds property or money for the benefit of beneficiaries. The trustee must manage the trust property according to the terms of the trust and for the benefit of the beneficiaries.
If the trustee misuses the trust property, acts outside the trust powers, or fails to protect the trust property, there is a breach of trust.
Main Features of Breach of Trust
The relationship involves:
- trustee;
- trust property; and
- beneficiary.
Examples of Breach of Trust
A trustee commits breach of trust where he:
- uses trust money for personal purposes;
- transfers trust property without authority;
- misappropriates beneficiary funds;
- invests trust assets improperly; or
- fails to follow trust terms.
Banking Example
A customer holds housing development funds in trust for purchasers. The customer wrongfully transfers the trust money into his personal account and spends it for private purposes.
This amounts to breach of trust because trust property was misused.
2. Breach of Fiduciary Duty
Meaning
A breach of fiduciary duty occurs when a fiduciary fails to act loyally, honestly, or in the best interests of another person.
A fiduciary relationship arises where:
- trust;
- confidence; and
- reliance exist.
- avoid conflicts of interest;
- avoid secret profits;
- act in good faith; and
- prioritise the beneficiary’s interests.
Main Features of Breach of Fiduciary Duty
The relationship may involve:
- agent and principal;
- adviser and client;
- banker and customer in special situations;
- director and company; or
- solicitor and client.
Examples of Breach of Fiduciary Duty
A fiduciary breaches duty where he:
- acts in conflict of interest;
- earns secret commissions;
- abuses trust and confidence;
- acts dishonestly; or
- prioritises personal interests.
Banking Example
A bank investment adviser secretly receives commissions from promoting investment products without informing the customer.
This is breach of fiduciary duty because the adviser acted in conflict of interest and failed to act loyally toward the customer.
Main Difference Between the Two
Breach of Trust
- focuses on misuse of trust property.
- focuses on disloyal conduct and conflicts of interest.
Simple Comparison
Breach of Trust
Usually involves:
- trustee;
- trust property; and
- beneficiaries.
- improper handling of trust assets.
Breach of Fiduciary Duty
Usually involves:
- fiduciary relationship;
- loyalty obligations; and
- abuse of confidence.
- conflict of interest or disloyal conduct.
Relationship Between the Two
A trustee is also a fiduciary.
Therefore:
- every trustee owes fiduciary duties.
- a breach of trust may also involve breach of fiduciary duty.
- not every fiduciary relationship involves a trust.
- an investment adviser may owe fiduciary duties even though no trust property exists.
Example Where Both Exist Together
A trustee secretly transfers trust funds into his own account and profits personally from the money.
This may involve:
- breach of trust because trust property was misused; and
- breach of fiduciary duty because the trustee acted dishonestly and for personal benefit.
Remedies
Remedies for Breach of Trust
- restoration of trust property;
- compensation to beneficiaries;
- tracing;
- constructive trust; and
- account of trust property.
Remedies for Breach of Fiduciary Duty
- account of profits;
- equitable compensation;
- rescission;
- injunctions; and
- constructive trust.
Banking Law Position
In banking law:
- ordinary banker-customer relationships are usually contractual and debtor-creditor in nature.
- fiduciary duties may arise in advisory or agency situations;
- breach of trust issues may arise where trust funds are involved.
However, banks may become liable as constructive trustees if they knowingly assist misuse of trust property.
Conclusion
Breach of trust and breach of fiduciary duty are related but distinct concepts.
Breach of trust mainly concerns improper handling or misuse of trust property by a trustee. Breach of fiduciary duty mainly concerns disloyalty, conflicts of interest, dishonesty, or abuse of confidence by a fiduciary.
A trustee always owes fiduciary duties, so some breaches of trust may also amount to breaches of fiduciary duty. However, fiduciary duties may exist even where no trust relationship or trust property is involved.
0 Comments