Examine the landmark decision in Boardman v. Phipps (1967), a fundamental case for law students interested in trust law and fiduciary duty, particularly regarding conflicts of interest and profit-making by trustees.

  • In the case of Boardman v Phipps [1967] 2 AC 46, where one is a trustee agent and extracts knowledge of the affairs of a company, they must account to the trust for any profit made out of this

Facts of the Case Boardman v Phipps

  • The appellants (As) had obtained information that the purchase of a company’s shares would be worth investing
  • The respondent (R) was a will beneficiary and inherited 8,000 £1 shares in a company (out of a total of 30,000 £1 shares in this company) after the testator passed away in 1944
  • The trustees, in this case, were the testator’s wife, a married daughter and his accountant
  • The remaining beneficial trusts of the testator were to be divided between his wife and his children, whom R was one of, so was entitled to 5/18 of the estate
  • One of the As acted as a solicitor for the trustees and his co-appellant, who was also a son of the testator
  • A and his co-appellant decided to obtain further shares in the company to gain control over it, of which they notified the other trustees
  • The widow died in 1958 and £14,567 worth of shares were transferred to As; later in the year As brought their shares with his co-appellant to £21,986
  • Due to the increased shares, As profited greatly

Issues in Boardman v Phipps [1967] 2 AC 46

  • As appealed, claiming that they held 5/18 of the trust shares and demanded an account of profits and an inquiry into what R should receive for their work and skill in obtaining the shares
  • It was not asserted that As had obtained the informed consent of R for their company share purchases

Held by the House of Lords

  • As were constructive trustees of R’s shares (R was a beneficiary of the shares as per the will)
  • Held – an inquiry was necessary to determine the exact sum allowed to the As for their work and skill in obtaining the shares

Viscount Dilhorne (dissenting)

Allowed the appeal as he did not consider that there was a breach of duty or impropriety of conduct on the part of the As

  • ‘In my opinion, there was no conflict between the interests and duties of the appellants or between the interests of the trust and the appellants at any time.’ [at p.736]
  • ‘I do not consider that it was ever necessary for the appellants to obtain the consent of their principals to their course of action for, in my opinion, that course of action did not involve any breach of the fiduciary duty which they owed in consequence of their employment as agents.’ [at p.737]
  • ‘I have not sought to distinguish between the position of the appellants, Mr Phipps and Mr Boardman. They acted together throughout the negotiations and litigation. I see no reason to distinguish between them. Nor have I drawn any distinction between the position of the trust and that of the respondent vis-à-vis the appellants.’ [at p.737]

Lord Cohen

Dismissed the appeal as he believed As acted with honesty and separated their positions (of a solicitor and an accountant) from their interest in the will

  • ‘In the present case much of the information came the appellants’ way when Mr Boardman was acting on behalf of the trustees on the instructions of Mr Fox, and the opportunity of bidding for the shares came because he purported for all purposes except for making the bid to be acting on behalf of the owner seems to me that the principle of the Regal case applies and that the courts below came to the right conclusion.’ [at p.773]
  • ‘That is enough to dispose of the case but I would add that an agent is, in my opinion, liable to account for profits which he makes out of the trust property if there is a possibility of conflict between his interest and his duty to his principal.’ [at p.773]
  • ‘In making these observations I have referred to the fact that Mr Boardman was the solicitor to the trust. Mr Tom Phipps was only a beneficiary and was not as such debarred from bidding for the shares, but no attempt was made in the courts below to differentiate between them.’ [at p.774]
  • ‘I desire to repeat that the integrity of the appellants is not in doubt. They acted with complete honesty throughout, and the respondent is a fortunate man in that the rigour of equity enables him to participate in the profits which have accrued as the result of the action taken by the appellants in March, 1959, in purchasing the shares at their own risk. [at p.774]

Lord Hodson

Dismissed the appeal as he found a conflict between the solicitor’s interest in the will and his profession

  • ‘The question whether or not there was a fiduciary relationship at the relevant time must be a question of law and the question of conflict of interest directly emerges from the facts pleaded, otherwise no question of entitlement to a profit would fall to be considered. No positive wrong-doing is proved or alleged against the appellants, but they cannot escape from the consequences of their acts involving liability to the respondent unless they can prove consent. This they endeavoured without success to do for, although they gave the respondent some information, that which they gave was held by the learned judge to be insufficient ([1964] 2 All ER at p 205) and there is no appeal against his decision on this point.’ [at p.749]
  • ‘I agree with the decision of the learned judge, and with that of the Court of Appeal which, in my opinion, involves a finding that there was a potential conflict between Mr Boardman’s position as solicitor to the trustees and his own interest in applying for the shares.’ [at p.749]

Lord Guest

Dismissed the appeal as he found the need for accountability

  • ‘Applying these principles to the present case I have no hesitation in coming to the conclusion that the appellants hold the Lester & Harris Ltd shares as constructive trustees and are bound to account to the respondent. It is irrelevant that the trustees themselves could not have profited by the transaction. It is also irrelevant that the appellants were not in competition with the trustees in relation to the shares in Lester & Harris, Ltd.’ [at p.752]

Lord Upjohn (dissenting)

Allowed the appeal as he believed that information was not property, hence required no accountability  

  • ‘In general, information is not property at all. It is normally open to all who have eyes to read and ears to hear. The true test is to determine in what circumstances the information has been acquired. If it has been acquired in such circumstances that it would be a breach of confidence to disclose it to another, then courts of equity will restrain the recipient from communicating it to another. In such cases such confidential information is often and for many years has been described as the property of the donor […]’ [at p.759]
  • ‘The real rule is, in my view, that knowledge learnt by a trustee in the course of his duties as such is not in the least property of the trust and in general may be used by him for his own benefit or for the benefit of other trusts unless it is confidential information which is given to him (i) in circumstances which, regardless of his position as a trustee, would make it a breach of confidence for him to communicate to anyone, for it has been given to him expressly or impliedly as confidential; or (ii) in a fiduciary capacity, and its use would place him in a position where his duty and his interest might possibly conflict.’ [at p.759]

Significance of Boardman v. Phipps

Boardman v. Phipps (1967) is a critical case in the realm of trust law, establishing key principles regarding the duties and responsibilities of trustees, especially concerning conflicts of interest and personal gain. The case has profoundly influenced subsequent legal developments in trust and fiduciary law:

  1. Regal (Hastings) Ltd v. Gulliver (1942): This earlier case laid the groundwork for understanding fiduciary obligations, particularly the rule against profiting from one’s position without the informed consent of all beneficiaries. Boardman v. Phipps built upon this principle by clarifying that even well-intentioned actions taken without full disclosure could breach fiduciary duties.
  2. FHR European Ventures LLP v. Cedar Capital Partners LLC (2014): This case extended the principles established in Boardman v. Phipps, reinforcing that profits derived from a position of trust must be accounted for to the beneficiaries. It affirmed that fiduciaries must act transparently and avoid conflicts of interest, echoing Boardman’s emphasis on the necessity of complete loyalty.
  3. Bristol and West Building Society v. Mothew (1998): In this case, the court further explored the concept of breach of fiduciary duty introduced in Boardman v. Phipps. It defined fiduciary duty more precisely, stressing the fiduciary’s obligation to act in good faith and not to profit from their position at the expense of those they owe a duty to.

Exam Questions and Answers

Below, you will find answers to the most commonly asked questions based on this case.

How has the ruling in Boardman v. Phipps been applied in cases involving corporate trustees?

The principles from Boardman v. Phipps have been applied stringently in cases involving corporate trustees, emphasizing the necessity for such trustees to avoid conflicts of interest and unauthorized profit-making. For example, in Cowen v. Scargill (1985), the court applied these principles to a dispute involving the investment policies of pension fund trustees, highlighting that corporate trustees must act solely in the interest of beneficiaries. The ruling reinforced that corporate trustees, similar to individual trustees, are bound by stringent duties of loyalty and must disclose any potential conflicts of interest, ensuring their actions benefit the trust beneficiaries without any self-serving motives.

What are the implications of Boardman v. Phipps for legal practices advising trustees on risk management?

Boardman v. Phipps has significant implications for legal practices advising trustees, particularly in emphasizing the need for stringent risk management strategies to handle conflicts of interest. Legal advisors must ensure that trustees are fully aware of the requirements for transparency and full disclosure and the consequences of breaching these duties. For example, in advising trustees, lawyers should stress the importance of obtaining consent from all beneficiaries before engaging in transactions that could potentially benefit the trustee personally, as demonstrated in Re Macadam (1946), a case that further expounded on fiduciary responsibilities in managing conflicts of interest.

Are there examples where Boardman v. Phipps has influenced international trust law, particularly in jurisdictions with similar legal frameworks?

Yes, the principles set out in Boardman v. Phipps have been influential in international trust law, particularly in common law jurisdictions. For instance, in Australia, the case of Chan v. Zacharia (1984) drew heavily on the principles from Boardman v. Phipps when discussing the duties and responsibilities of trustees. This case emphasized the fiduciary duty to avoid conflicts between personal interests and fiduciary duties, underscoring the global relevance of the principles established in Boardman v. Phipps. Such precedents are pivotal in shaping trust law beyond the UK, reinforcing universal fiduciary standards across common law jurisdictions.

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