Breach Of Trust: Harsh Decision Or Just Desserts?

Year Published: 2016

It is an established law that if a fiduciary (a person in a position of trust) breaches that trust e.g. by taking a bribe or making a secret profit, they must not only account for any gains they receive as a result of that breach of trust, but also forfeit the remuneration they were entitled to for the services rendered.

Some may say that is harsh as this is effectively punishing the fiduciary, because the victim is being compensated and the fiduciary is not being paid for the services rendered. Although the reasoning given in case law is that it is designed to deter people from breaching their position of trust.

Generally speaking this has related to people acting as agents. However on 5 October 2016 the judgment of Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch) was handed down in relation to the position between partners and Limited Liability Partners.

What happened during this breach of trust case?

This case related to the appeal of an arbitration where Mr Hosking was not only ordered to pay £1.38 million to his partners for breach of trust but also to forfeit his profit share of £10,389,957.50.

You are probably asking at this point, “Well what did he do?”

He was retiring as a partner and had attempted to recruit four employees of the partnership to set up a new business. There could be no doubt he was in breach of trust.

It is also fair to say that this was an expensive conversation.

Mr Hosking appealed on the grounds that the share of profits in a partnership was not subject to the rule of forfeiture for breach of fiduciary duty. The primary argument being that the rule related to remuneration for services rather than profit share.

The Court of Appeal disagreed.

Accordingly this is potentially a game changer for partnership disputes and partners who act in breach of their fiduciary duties and potentially fall foul of the forfeiture rules on equitable grounds.

For more information on breach of trust matters or any other dispute resolution enquiries, please contact our Dispute Resolution team on 0161 475 7676.

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