Fiduciary focus: Supreme Court draws the line on loyalty

Introduction

The Supreme Court’s decision in Hopcraft and others v Close Brothers Limited and others¹ has brought a welcome dose of clarity to the world of fiduciary duties. While headlines have focused on its implications for the car finance and consumer credit industries, the Supreme Court’s clear message on fiduciary obligations has gone largely unreported: fiduciary obligations remain the exception, not the rule, in commercial contexts.

The Supreme Court has drawn a bright line between everyday arm’s-length deals and those rare relationships where “single-minded loyalty” is truly owed. For most commercial players there’s no need to fear that routine trust or reliance will suddenly land you in a fiduciary minefield. Generally, unless you’ve expressly or impliedly promised to put another’s interests ahead of your own, you’re free to pursue your commercial goals (commissions included) without the spectre of fiduciary-based restitution claims lurking in the background.

For those advising or acting as fiduciaries, the judgment provides a comprehensive and authoritative statement of the current law on fiduciary duties.

Key takeaways

• Fiduciary duties remain exceptional: Outside the traditional categories (trustee-beneficiary, director–company, solicitor–client, agent–principal) it will be “normally inappropriate” to expect a commercial party to subordinate its own interests to another’s.
• No more half-way house: The Court of Appeal’s notion of a free-standing “disinterested duty” short of full fiduciary status has been rejected. Strict fiduciary remedies - constructive trust, account of profits, rescission - are available only where there is a true undertaking of single-minded loyalty.
• Trust, reliance and advice are not enough: A party may influence decisions, provide recommendations, or be relied upon, without becoming a fiduciary. What matters is an objective undertaking to act solely for the other party.

The background

The appeals before the Supreme Court concerned whether car dealers, who arranged finance packages for customers and received commissions from lenders, owed fiduciary duties to those customers. The customers argued that the dealers were fiduciaries, and that undisclosed commissions were “secret profits” or bribes, giving rise to equitable remedies. The lenders and dealers denied any fiduciary relationship, arguing that the dealers were acting in their own commercial interests throughout.

The Court of Appeal had previously found that the dealers did owe fiduciary duties to customers in these circumstances. The Supreme Court, however, took the opportunity to clarify the law, drawing a clear boundary between commercial relationships and true fiduciary obligations². It found that:

• the dealers were acting as arm’s length commercial parties, pursuing their own interests;
• there was no express or implied undertaking of loyalty to the customer; and
• the mere fact that the dealer influenced the customer’s decision, or that the customer placed trust in the dealer, was not enough to create a fiduciary relationship.

In coming to its conclusions, the Supreme Court restated a number of established principles. However, the Court also clarified and, in some respects, developed the law.

Existing principles confirmed by the Supreme Court

The core of fiduciary duty: Loyalty, no profit, and no conflict

The Supreme Court restated that the defining feature of a fiduciary is the obligation of “single-minded loyalty”: acting for, and only for, the principal.

It also confirmed that at the heart of fiduciary law are two strict rules³:

• No profit rule: fiduciaries must not profit from their position without the fully informed consent of their principal. Any unauthorised profit is immediately held on constructive trust for the principal, giving the principal proprietary rights over the profit; and
• No conflict rule: fiduciaries must not place themselves in a position where their personal interests conflict, or may conflict, with their duties to their principal.

These rules are strictly enforced and designed to mitigate the risk that a fiduciary’s personal interests undermine their loyalty and performance of duty to their principal. The Court emphasised that the only defence to a claim for unauthorised profit is the principal’s fully informed consent.

In the car finance context, the Supreme Court found that the dealers’ receipt of commission was not, in itself, evidence of a fiduciary relationship. The dealers were acting as arm’s length sellers, not as trustees or agents with undivided loyalty to the customer.

Who is a fiduciary?

The Court also reviewed the classic categories of fiduciary relationship, confirming the well-established categories: trustee-beneficiary, director-company, solicitor-client, and agent-principal.⁴

However, the Court confirmed that fiduciary duties can arise outside these settled categories if, on the facts, a person undertakes to act for or on behalf of another in circumstances that give rise to a relationship of trust and confidence.

The critical feature is an undertaking (express or implied) to act in the interests of another, to the exclusion of personal interests⁵.

When do fiduciary duties arise?

The Court confirmed that the existence of fiduciary duties is not always clear-cut as the law has not created a precise definition of when a person undertakes, or is treated as having undertaken, fiduciary duties.

The Court cited Millett LJ’s classic formulation in Mothew⁶:

“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary.”

The Court restated that fiduciary duties may arise by express or implied undertaking, and that the test is objective.

“There must be the assumption of responsibility by the fiduciary to act exclusively on behalf of the other in the conduct of the other’s affairs. This can arise where the fiduciary has expressly undertaken to exclude his or her own interest and those of third parties when so acting. … It can also arise where the objectively assessed circumstances enable equity to identify such an undertaking in the acts of the fiduciary.”⁷

Role of contract and commercial context

The Court reaffirmed that the terms of any contract and the wider commercial context are crucial in determining the existence and scope of any fiduciary obligations.

“It is important not to distort the commercial bargain between the parties to a contract by too readily implying fiduciary obligations into the commercial relationship. … The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.”⁸

How the Supreme Court clarified/developed the law

Commercial parties rarely owe fiduciary duties

The Supreme Court made a clear pronouncement that, outside established categories, it is “normally inappropriate” to expect a commercial party to subordinate its own interests to another’s.

“As a general rule, outside well-established fiduciary relationships, such as company director, partner, or agent, in a commercial context ‘it is normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party.”⁹

Trust, confidence and reliance are not enough

The Supreme Court also made clear that the provision of advice, recommendations, or assistance - even when trusted or relied upon - also does not itself create a fiduciary relationship. The Supreme Court used the examples of a plumber, sales assistant and wine waiter to illustrate the limits of fiduciary obligations in commercial contexts.

“We are not concerned here with one person’s subjective trust and confidence in another in the other’s performance of a contractual obligation; one may trust a plumber to do a job properly without the plumber becoming a fiduciary. The sales assistant in advising a customer on the attractiveness of a garment, or the wine waiter in advising the diner on the suitability of a wine with a meal, addresses the interests of the customer or diner without taking on a duty to act exclusively in the other’s interests. He or she provides a commercial service in the interests of his or her employer, who may thereby come under contractual obligations and may incur vicarious liability for its employee’s tortious acts. No obligation of loyalty, of which Millett LJ spoke in Mothew, arises. Such a commercial transaction or arrangement, in which one party has a personal financial interest, known or apparent to the other party, in bringing the transaction into fruition, is not one in which an undertaking of undivided loyalty and altruism can readily be implied into a contract or such a duty recognised by equity.”¹⁰

Fiduciary duties arise only where there is an express or implied undertaking to act solely in another’s interests, and the context, including contractual terms and commercial realities, must support this.

Neutrality of an intermediary role

The Court clarified that merely acting as an intermediary or broker does not, by itself, create a fiduciary duty.

“The assumption by the dealer of the position of intermediary or broker between the customer and the lender is, of itself, neutral as to whether an obligation of undivided loyalty is being undertaken by the dealer.”¹¹

Rejection of “disinterested duty” as a separate basis for equitable relief

The Supreme Court explicitly rejected the Court of Appeal’s approach, which had recognised a “disinterested duty” (short of a full fiduciary duty) as sufficient to ground equitable relief.

The Supreme Court held that only a true fiduciary duty, characterised by an undertaking of single-minded loyalty, can give rise to the strict remedies associated with breach of fiduciary duty.¹²

“We have concluded, contrary to the Court of Appeal’s analysis, that the tort of bribery is not engaged by anything other than the receipt of a benefit by a person who is subject to a fiduciary duty to which the beneficiary of that duty has not given fully informed consent.”¹³

Conclusion

The Supreme Court’s judgment provides authoritative guidance on the boundaries of fiduciary law in commercial contexts. The judgment provides clarity and certainty for commercial parties: fiduciary duties will not be lightly implied outside established categories or absent a clear undertaking of loyalty.

The decision draws a clear line between commercial advice and fiduciary obligation, reinforcing the importance of context, contract, and the parties’ intentions. It also makes clear that, outside established categories, fiduciary duties are exceptional and require a clear undertaking of loyalty. Trust, reliance, or advice alone, even when central to a transaction, are not enough.