Boardman v Phipps

Facts

Tom Boardman, a solicitor acting for the Phipps family trust, and Tom Phipps, one of the beneficiaries, used confidential information obtained in their capacity as agents of the trust to acquire a controlling shareholding in a company in which the trust also held shares. They then restructured the company at considerable profit to themselves. The trustees had not given fully informed consent to the acquisition.

Issues

1. Whether a fiduciary who acquires a personal profit using information or opportunities obtained in their fiduciary capacity is liable to account for that profit to the principal, even where the principal suffered no loss and the fiduciary acted honestly. 2. Whether fully informed consent of the principal can operate as a defence to a claim for account of profits.

Holding

The House of Lords held (by a majority of 3:2) that Boardman and Tom Phipps were liable to account to the trust for the profits they made, as those profits were obtained by use of their fiduciary position and of confidential information acquired in that capacity, without the fully informed consent of all the beneficiaries.

Ratio decidendi

A fiduciary must account for any profit made by reason of their fiduciary position or through use of information or opportunities acquired in that capacity, irrespective of whether the principal suffered loss or the fiduciary acted in good faith; the no-profit rule is strict and can only be displaced by fully informed consent of the principal.

Obiter dicta

The majority acknowledged that the precise boundaries of the rule could produce harsh results where the fiduciary had acted honestly and the principal had in fact benefited; Lords Cohen and Guest suggested an allowance for the skill and work of the fiduciary was appropriate in the circumstances, and the court noted obiter that not every agent dealing with information received in their principal's service is necessarily a fiduciary for all purposes.

Significance

Boardman v Phipps is a foundational authority in Australian equity for the strict no-profit and no-conflict rules governing fiduciaries, regularly applied by Australian courts including the High Court in cases such as Chan v Zacharia (1984) 154 CLR 178, and it confirms that a fiduciary's good faith and the absence of loss to the principal are irrelevant to liability to account.

Key authorities

• Keech v Sandford Keech v Sandford (1726) Sel Cas Ch 61applied
• Regal (Hastings) Ltd v Gulliver Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134applied
• In re Macadam In re Macadam [1946] Ch 73applied
• Aberdeen Railway Co v Blaikie Brothers Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461considered
• In re Thompson's Settlement In re Thompson's Settlement [1905] 1 Ch 229considered