What Constitutes a Breach of Fiduciary Duty?
January 8, 2021

What is Fiduciary Duty?

Before discussing what constitutes a breach of fiduciary duty, it’s important to understand what fiduciary duty is. In a nutshell, fiduciary duty is when one person or party is obligated to act in the best interest of the other party.

For example, in an attorney/client relationship, the attorney holds the fiduciary responsibility to act in total fairness toward the client and cannot act for personal gain.

Common fiduciary relationships include:

Trustee/Beneficiary
Executor/Beneficiary
Guardian/Ward
Controlling Stockholder/Company
Liquidators/Companies
Principal/Agent.

A Breach of Fiduciary Duty exists when the fiduciary doesn’t fulfill their duties and performs actions not in the best interest of those they are obligated to act for. Fiduciary responsibility is a serious obligation – if the fiduciary relationship is compromised, the beneficiary could be entitled to compensation.

How Do Fiduciary Duties Work?

When it comes to keeping the best interest of the beneficiary, there are certain fiduciary responsibilities and duties. Depending on the industry, there are additional fiduciary duties to follow as well.

Duty of Care – The fiduciary must make informed decisions for their client after carefully reviewing all available information. This may require seeking consultation from other associates and advisors in order to consider all possible outcomes.
Duty of Loyalty – The fiduciary is to only act in the best interest of the client. This means information obtained throughout the duration of the fiduciary relationship cannot be used for personal benefit.

3 Elements of a Breach in Fiduciary Duty

In order to successfully prove a Breach in Fiduciary Duty, the following three elements must be established:

Duty: It must be clearly demonstrated that the fiduciary relationship existed.
Breach: There must be proof that fiduciary duties were breached. Examples include negligence, insider trading and abuse of power in the fiduciary role.
Damage: It must be proven that financial damages were directly caused by the breach.

While it can be difficult to determine the financial amount of damages caused by the breach, a successful Breach in Fiduciary Duty claim will often result in financial recovery for the plaintiff.