CH-2025-BRS-000001 - [2025] EWHC 2373 (Ch)

One of the criticisms of the judgment below advanced by Julian (in his skeleton argument in support of his application for permission to appeal) was that the district judge had “conflated the existence of a potential interest with an actual conflict, contrary to established case law”. In my judgment, this criticism misunderstands the law.

In Bray v Ford [1896] AC 44, Lord Herschell, in a famous passage, said (at 50-51):

“It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the respondent's, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule.”

In Boardman v Phipps [1967] 2 AC 46, HL, Lord Hodson, in the majority, said (at 105-106)

“There is no question of fraud in this case; it has never been suggested that the appellants acted in any other than an open and honourable manner.

If, however, they are in a fiduciary position they are as trustees bound by duty, succinctly stated by Lord Cranworth LC in Aberdeen Railway Co v Blaikie Brothers [(1854) 1 Macq 461, 471]:

‘And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect’.”

And later Lord Hodson said (at 111):

“Nevertheless, even if the possibility of conflict is present between personal interest and the fiduciary position the rule of equity must be applied. This appears from the observations of Lord Cranworth LC in Aberdeen Railway Co v Blaikie.”

He then went on to refer with approval to the passage from the speech of Lord Herschell in Bray v Ford, cited above.

Lord Upjohn (dissenting in the result) said the same thing in different words (at 123):

“The relevant rule for the decision of this case is the fundamental rule of equity that a person in a fiduciary capacity must not make a profit out of his trust which is part of the wider rule that a trustee must not place himself in a position where his duty and his interest may conflict.”

Then, after setting out the passage from Lord Herschell cited above, Lord Upjohn also set out the passage from the speech of Lord Cranworth LC referred to by Lord Hodson, though he then went on to say this (at 124):

“The phrase ‘possibly may conflict’ requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.”

The other member of the minority, Viscount Dilhorne, referred (at 94) to

“the principles so often and firmly laid down as to the liability of agents to account if there has been a conflict or possibility of conflict between their interests and duties, and in breach of their fiduciary duty they have made profits out of their agency without the knowledge and consent of their principals”.

Jumping forward a generation, in Bristol & West Building Society v Mothew [1998] Ch 1, CA, Millett LJ, with whom Otton LJ agreed (Staughton LJ not dissenting), said (at 18A-C):

“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. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of thefiduciary.”

And then, another generation on, in Rukhadze v Recovery Partmers GP Ltd [2025] 2 WLR 529, SC (decided since the decision of the judge below), Lord Briggs, with whom Lords Reed, Hodge and Richards agreed, said:

“16.

The essential purpose of the rule that a fiduciary must not without his principal’s consent keep for himself a profit from his position as such, and the related rule that a fiduciary must avoid placing himself in a position where his interest and his duty may conflict (usually called the conflict rule), is to protect or deter those who have undertaken an obligation of single-minded loyalty to someone else from being tempted by human frailty to fall short of that obligation …

17.

I have taken the phrase ‘single-minded loyalty’ as the hallmark of a fiduciary undertaking from Bristol and West Building Society v Mothew [1998] Ch 1, 18 per Millett LJ. It was a case in which claims for breach of duty of care and fiduciary duty were bundled together, so that it was a suitable platform for an explanation of what is special about a duty or relationship being fiduciary.”

Lord Briggs then set out the passage from Millett LJ’s judgment above, with evident approval. (Lord Leggatt, Lord Burrows and Lady Rose each gave a judgment concurring in the result, but disagreeing with some parts of Lord Briggs’ reasoning. Nevertheless, Lord Briggs’ judgment represents the majority view of four out of seven justices. I therefore take it as binding upon me.)

Across the generations, from Victorian times down to the twenty-first century, there are two connected rules laid down in these passages. The first is that a trustee or other fiduciary must not make an unauthorised profit from his fiduciary position. This is an aspect of the second, wider rule, that a trustee or other fiduciary must not put him- or herself in a position of conflict of interests. As to the first rule, it is clear, for example, that a trustee may benefit from the trust only to the extent that such benefits are authorised (either by the trust instrument, or by the beneficiaries, or, exceptionally, by the court). Thus, in the absence of such authorisation, a trustee must act gratuitously, and is not, for example, permitted to pay him- or herself for services rendered to the trust. (This last point is also an aspect of a third rule, applicable to trustees and personal representatives at least, against unauthorised so-called “self-dealing”. I will return to that.)

As to the second rule, it will be noted that in Boardman Lord Hodson refers to “the possibility of conflict”, Viscount Dilhorne refers to “a conflict or possibility of conflict between their interests and duties”, and Lord Upjohn says that “a trustee must not place himself in a position where his duty and his interest may conflict” (emphasis supplied). Lord Upjohn in his speech then goes on to consider what amounts to a potential conflict. In Mothew Millett LJ says that “A fiduciary … must not place himself in a position where his duty and his interest may conflict” (emphasis supplied). Lord Briggs in Rukhadze similarly says that “a fiduciary must avoid placing himself in a position where his interest and his duty may conflict” (emphasis supplied). It is clear from these citations that the law therefore is not simply that a fiduciary must avoid actual conflicts of interest (though he or she must do that too), but also that he or she must avoid putting him- or herself in a position of potential conflict.

This formulation of the rule also brings into relief a further point. This is that a trustee or executor may be put in a position of potential conflict by the settlor or testator appointing a beneficiary as such trustee or executor. This amounts to an implied authorisation by the creator of the fiduciary relationship to exercise fiduciary powers in his or her own favour. Thus, in Sargeant v National Westminster Bank plc (1990) 61 P&CR 518, CA, a testator had both (i) by his will appointed his three children as his executors and (ii) during his life let certain farms to them, which they farmed in partnership. After the testator's death, the children all became beneficially entitled to the capital of the estate under the will. Then, one of the children also died, and the surviving siblings exercised an option in the partnership deed to acquire that child’s share in the partnership. Thus, the surviving children became the only tenants of farms of which they were the sole surviving legal owners, but in which both they and their deceased sibling’s estate were beneficially interested. The surviving children now wished as legal owners to sell the farms, but it was argued on behalf of the deceased sibling’s estate that they were not entitled to do so subject to their tenancies, since their interests as tenants would conflict with their duties as trustees.

Nourse LJ, with whom Bingham LJ and Sir George Waller agreed, said (at 523):

“It cannot be doubted that the trustees have ever since been in a position where their interests as tenants may conflict with their duties as trustees to the estate of [the deceased sibling]. But the conclusive objection to the application of the absolute rule on which [counsel for the sibling’s estate] relies is that it is not they who have put themselves in that position. They have been put there mainly by the testator's grant of the tenancies and by the provisions of his will and partly by contractual arrangements to which [the sibling] himself was a party and of which his representatives cannot complain. The administrators cannot therefore complain of the trustees' continued assertion of their rights as tenants.”

The same point appears from the decision of the Court of Appeal in Edge v Pensions Ombudsman [2000] Ch 602, 631-33.

Of course, the trust instrument may go further, and expressly authorise the exercise of fiduciary powers in favour of the trustee or personal representative. In Re Beatty’s WT [1990] 1 WLR 1503, for example, Hoffmann J said (at 1506B-C),

“The rule that a trustee cannot profit from his trust would ordinarily exclude the trustees themselves from the ambit of the powers, but clause 12(c) of the will allows the trustees to exercise any power conferred by the will, notwithstanding that they may have a direct personal interest in the mode of its exercise. This arguably allows the trustees, subject to having proper regard to their overall fiduciary duties, to make gifts or payments to themselves” (emphasis supplied).

As shown by the last sentence of the quotation from Re Beatty, such an authorisation does not mean that the trustee or executor so authorised is able to behave unfairly, or indeed to make any decision that he or she likes. Thus, immediately following the passage set out in Sargeant, Nourse LJ said:

“Since the absolute rule on which [counsel] relies does not apply, there is no absolute requirement that the trustees should appoint a new trustee before making any sale subject to the tenancies. Nor is there any absolute bar to their selling to themselves so long as the tenancies subsist. On the other hand, they must continue to discharge their fiduciary duties to [the deceased sibling]’s estate in regard to the freeholds, in particular by obtaining the best price for them subject to the tenancies. In the end, the basis for [counsel]’s arguments was seen to be a fear or a suspicion that the trustees will not properly discharge that duty. But there is no evidence either that they have failed to discharge their duties in the past or that they will fail to do so in the future. Without such evidence, it is wholly inappropriate for the court to interfere.”

And, in Edge, Chadwick LJ, giving the judgment of the court, went on to say (at 633):

“Nevertheless, there is no doubt that the trustees' decision can be set aside if it can be shown that they failed to consider matters which were relevant, or took into account matters which were irrelevant.”

I referred above to a third rule, applicable to trustees and personal representatives at least, against unauthorised so-called “self-dealing”. There are both common law and equitable aspects to this rule. The common law aspect is that a trustee or executor cannot contract with himself or convey property to himself: Williams v Scott [1900] AC 499, 504, PC; Ellis v Kerr [1910] 1 Ch 529, 534; Holder v Holder [1968] Ch 353, 391D-E. The Law of Property Act 1925, s 72, and the Administration of Estates Act 1925, s 36, have made some inroads on the common law principle where conveyances and assents of land are concerned, and the Law of Property Act 1925, s 82, has done so where contracts between (i) A and (ii) A and B are concerned. But it remains the law, for instance, that a sole trustee or executor cannot contract with him- or herself alone.

The equitable aspect to this rule is that, even if the contract or conveyance is not void at common law, a sale of trust property to a trustee “is voidable by any beneficiary ex debito justitiae [‘as a debt of justice’: in effect, as of right], however fair the transaction”: Tito v Waddell (No 2) [1977] Ch 106, 225B. However, the trust instrument (Re Beatty’s WT [1990] 1 WLR 1503, 1506B-C), or the beneficiaries (Holder v Holder [1968] Ch 353, 399D, 405B), or indeed the court in appropriate circumstances (Holder v Holder, 402E-F)), may licence such a sale or other transaction. So far as I can see, neither of the wills (which are home-made) nor the 2008 trust (which is a tick-box document added to an investment insurance policy) contains such a provision.