Court: House of Lords
Judgment Date: 3 November 1966
Where Reported: [1967] 2 A.C. 46; [1966] 3 W.L.R. 1009; [1966] 3 All E.R. 721
Legal Issues in Boardman v Phipps
The case of Boardman v Phipps focuses on the legal concept of constructive trusts and the fiduciary duties of trustees.
Key legal issues in Boardman v Phipps include the accountability of agents (in this case, a solicitor and a beneficiary) who, through their fiduciary role, gain valuable knowledge and opportunities.
The case questions the extent of this accountability, especially when profits are made from such knowledge, and whether these agents are entitled to remuneration for their efforts and skills used in profitable transactions involving trust property​​.
Material Facts in Boardman v Phipps
In Boardman v Phipps, the respondent, a beneficiary of a will trust, sought an account of profits from the purchase of shares in a company where the trust held a significant stake.
The purchasers, or defendants in the case, were Boardman, the solicitor to the trustees, and Tom Phipps, a beneficiary.
Initially, dissatisfaction with the company’s accounts led the defendants to attend the company’s general meeting as representatives of the trust.
Eventually, they decided to make a personal bid for outstanding shares in the company to gain control and liquidate assets for capital repayment to shareholders.
This decision was communicated to one of the trustees but not to all. The appellants used information gained in their capacity as representatives of the trustees during these negotiations.
By the end of 1959, they had acquired a substantial number of shares, and the transaction proved profitable​​.
Judgment in Boardman v Phipps
The initial judgment by Wilberforce J. found the appellants accountable for the profits related to the respondent’s share in the trust fund. This was minus their expenses and an allowance for their skills and work.
The appellants appealed, arguing that the judgment was incorrect in several aspects, including overestimating the scope of their agency, the ownership of the information they used, and the lack of adequate disclosure to the respondent.
The Court of Appeal upheld the decision, affirming the appellants’ liability to account for the profits​​.
The Reason for the Decision in Boardman v Phipps
Wilberforce J.’s decision was influenced by the principle that fiduciaries must not profit from their position without the informed consent of those to whom they owe duties.
In this case, the appellants, being in a fiduciary position, utilised information and opportunities arising from their roles to make personal profits.
The court found that they had not fully disclosed their intentions or the extent of the information they used to the respondent, thus breaching their duty of full disclosure.
The decision underscores the importance of fiduciaries acting in the best interest of beneficiaries and not for personal gain.
Moreover, it emphasises the necessity for complete and transparent communication from fiduciaries to beneficiaries regarding actions that might impact the trust, especially when those actions involve potential conflicts of interest​​.
Legal Principles in Boardman v Phipps
The legal principles established in Boardman v Phipps revolve around the fiduciary responsibilities of trustees and agents of trusts – see FHR European Ventures LLP v Cedar Capital Partners LLC (2015).
It reinforces the concept that individuals in such positions must avoid conflicts of interest and must not exploit opportunities or information they come across in their fiduciary capacity for personal gain.
Boardman v Phipps also establishes that fiduciaries are liable to account for any profits made from such exploitation, although they may be entitled to remuneration for their work and skill in certain circumstances.
These principles are crucial in maintaining the integrity of fiduciary relationships and ensuring that trust property is managed solely for the benefit of beneficiaries
