The Law Governing Fiduciaries - Case Law The 'No Conflict' Rule Boardman v Phipps (1967) • The Phipps family trust had a large holding in a private company. • There were three trustees of this trust and Boardman was one of their solicitors. • Tom Phipps was a beneficiary under the trust. He and Boardman believed that new management would spell great rewards for the shareholders of the company (and also naturally the beneficiaries). • Firstly, they unsuccessfully tried, with the informed consent of the trustees, to elect Phipps to the board. • Next (again, unsuccessfully), they tried to separate the Phipps shareholding from the rest of the company - an effort to rid themselves of the less efficient deadweight of the company. • Having tried the other routes, Boardman and Phipps bought a large number of shares at their own expensive. With the consent of the trustees, they used their majority shareholding to sell off certain assets of the company and consequently all the shareholders - including the beneficiaries - profited greatly. • One of the beneficiaries to the Phipps trust (John Phipps), unsatisfied with the great benefits Boardman and Tom Phipps generated for him, successfully sued the two for the profits they earned on the basis that they received them in breach of their fiduciary duties i.e. because they earned them in conflict of interest. Keech v Sandford (1726) • The trustee wanted to renew a lease he had for the beneficiary (a minor). • The lessor refused to renew it for the minor. • The lessor agreed to grant the trustee a lease to himself, however. • Held: the trustee was the only person in the world that was not allowed beneficial interest in the lease, and thus he held the lease on trust for the minor. This was held on the basis that to allow the trustee the lease would be to allow him to gain where there could have been a conflict of interest. • Although on the facts it was clear that there wasn't - the lessor categorically refused to lease to a minor - the possibility that there might have been a conflict of interest was enough to prevent the trustee. Consider a trustee that persuades a lessor to not lease to the beneficiary so that he can have the lease instead - this temptation is entirely eliminated by Keech. Protheroe v Protheroe (1968) • Held that the reasoning in Keech applied to a trustee buying the reversion upon a lease held by the trust. • The reversion was held on trust for the beneficiary. • Think about the consequences of not applying Keech. The trustee, having bought the reversion, would at the appropriate time become landlord of the property being leased out to the beneficiary. With regard to altering or renewing the beneficiary's lease, then, there would be a clear conflict of interest between gaining profits as a landlord and acting in the best interests of his beneficiary. Public Trustee v Cooper (2001) Hart J expounds the three ways that the problem of coming into a conflict of interest can be resolved. 1. The trustee resigns. Not viable where the trustee in question is very valuable to the trust estate. 2. Let the court decide. Where the conflict is extremely complicated and uncertain, the courts provide a sound unbiased solution. 3. Go ahead with the decision anyway. This is only ever on the basis that the decision is a good one regardless of the potential conflict of interest that one or more of the trustees have. This solution is better where the decision is given to the court for analysis/approval priorly.