An Introduction To Corporate
Regulation and Standardization

Show table of contentsGlossary

Breach of Fiduciary Duty

People in a position of trust or fiduciary relationship, such as officers, directors, high-level employees of a corporation or business, agents and brokers, owe certain duties to their principals or employers. Fiduciary relationships, which are by their very nature relationships of good faith, may involve a variety of obligations depending on the exact circumstances.

Fiduciary duties require that the fiduciary acts solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage. Thus, corporate directors, officers, and employees are barred from using corporate property or assets for their personal pursuits, or taking corporate opportunities for themselves. More traditional fraudulent conduct, such as thefts, acceptance of secret commissions, and conflicts of interest also violate the duty of loyalty, and may be prosecuted as such in addition to or instead of the underlying offence.

A breach of fiduciary duty is often easier to prove than fraud. The claimant does not need to prove criminal or fraudulent intent or the other elements of fraud. To prevail, the claimant must show only that the defendant occupied a position of trust or fiduciary relationship as described above and that the defendant breached that duty to benefit personally.

A breach of fiduciary duty claim is a civil action. The claimant may receive damages for lost profits and recover profits that the disloyal employee earned. In some instances, it may even be possible to recover the salary paid to the employee or agent during the period that the fiduciary was in breach of his duties. The claimant may recover profits earned by fiduciary even if the claimant did not suffer an actual loss.

Fiduciaries who act carelessly or recklessly are responsible for any resulting loss to the corporate shareholders or other principals. Damages may be recovered in a civil action for negligence. Corporate officers who carelessly fail to enforce controls, or to pursue recovery of losses might breach their duty of care.

Duty of Loyalty

The duty of loyalty requires that the employee/agent acts solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage. Thus, corporate directors, officers, and employees are barred from using corporate property or assets for their personal pursuits, or taking corporate opportunities for themselves. More traditional fraudulent conduct, such as thefts, acceptance of secret commissions, and conflicts of interest also violate the duty of loyalty, and may be prosecuted as such in addition to or instead of the underlying offence.

A breach of duty of loyalty is easier to prove than fraud. The claimant does not need to prove criminal or fraudulent intent or the other elements of fraud. To prevail, the claimant must show only that the defendant occupied a position of trust or fiduciary relationship as described above and that the defendant breached that duty to benefit personally.

A breach of fiduciary duty claim is a civil action. The claimant may receive damages for lost profits and recover profits that the disloyal employee earned-in some instances, even the salary paid to the employee or agent during the period of disloyalty. The claimant may recover profits earned by the disloyal agent even if the principal did not suffer an actual loss.

The claimant also may void any contracts entered into on its behalf that were the result of or were influenced by the employee's or agent's disloyalty.

Duty of Care

In English law one may refer to the duty of care concerning advising banks in documentary credit, architects, barristers, builders and contractors, dentists, employees in general etc.

The law lays down the general rules which determine the standard of care which has to be attained, and it is for the court to apply that legal standard of care to its findings of fact so as to decide whether the defendant has attained it. The legal standard is objective; it is not that of the defendant himself, but which might be expected from a person of ordinary prudence, or person of ordinary care and skill, engaged in the type of activity in which the defendant was engaged. The courts are prepared to recognise also the professional standard of that duty when dealing with the professional activities.

Fiduciaries who act carelessly or recklessly are responsible for any resulting loss to the corporate shareholders or other principals. Damages may be recovered in a civil action for negligence, mismanagement, or waste of corporate assets. Corporate officers breach their duty of loyalty if they accept secret commissions, engage in a conflict of interest, or otherwise are disloyal. Corporate officers who carelessly fail to prevent such conduct, or fail to enforce controls, or to pursue recovery of losses might breach their duty of care.



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An Introduction to Corporate Regulation and Standardization