What fiduciary duty means
A fiduciary duty is the highest standard of loyalty the law imposes on one person toward another.
Most commercial relationships are arm's length, where each side looks after itself. A fiduciary relationship is the opposite. The fiduciary must put the other party's interests ahead of their own, avoid conflicts, and not profit secretly from their position.
Directors owe it to their company. Trustees owe it to the trust and its beneficiaries. Agents owe it to their principal. Partners owe it to each other.
How it is used
It becomes visible when somebody in a position of trust takes an opportunity for themselves.
A director who learns of a contract through the company and quietly takes it through a business they own. A trustee who buys estate property at a favourable price. An agent who takes a commission from the other side without telling their principal.
What makes these different from ordinary bad behaviour is the remedy. A court can require the fiduciary to account for the profit they made, even where the company or beneficiary lost nothing at all.
Key features
- Requires loyalty, good faith and acting in the other party's interest
- Prohibits secret profits and undisclosed conflicts of interest
- Owed by directors, trustees, agents, partners and some professional advisers
- Breach can require the fiduciary to account for profits, not just compensate loss
- Can usually be managed by full disclosure and proper approval rather than avoidance
How this works in Nigeria
CAMA 2020 codified directors' duties, including the duty to act in good faith in the best interests of the company and to avoid conflicts of interest.
For incorporated trustees, meaning registered NGOs, churches and associations, the same principle governs trustees who hold assets for the organisation's objects rather than for themselves. This is where a great many Nigerian NGO disputes live, particularly where founders treat organisational funds as personal.
Fiduciary duty vs contractual duty
A contractual duty is whatever you promised. Perform it and you are finished, and you are entitled to look after your own interests throughout.
A fiduciary duty asks more. It is not enough to avoid breaking a promise. You must not put yourself in a position where your interest conflicts with the other party's, and you must not profit from the position without consent.
The remedies follow that difference. Breach of contract usually means paying for the loss caused. Breach of fiduciary duty can mean handing over the profit you made, which is often a much larger figure.
Limits and risks
The duty is not absolute. A conflict that is fully disclosed and properly approved, in the way the articles or the trust deed require, is generally permissible. The wrong is in the secrecy as much as in the conflict.
Proving breach also needs records. Board minutes, disclosures, approvals and correspondence are what turn a suspicion into a case, and organisations that documented nothing struggle even where the conduct was obvious.
Worth knowing
Disclose conflicts in writing and have them recorded in the minutes. A director who declares an interest and abstains is protected. One who says nothing is exposed even where the deal was fair.