Circumstances in which Fiduciary Duties arise

In what circumstances do fiduciary duty arise?

Fiduciary duties and related terms are often used incorrectly. The idea that fiduciary duties should be imposed on parties in certain types of relationship is sourced in late medieval and early modern legal rules that constrained co-owners from dealing with the shared property without due consideration of one another’s interests, prevented the exploitation of wards by their guardians, required bailees and agents to prioritise their principals’ interests when dealing with third parties on their principals’ behalf, and regulated the activities of office-holders. …between a solicitor and a client, between a principal and an agent, between partners, between a company promoter and the company, and between a company director and the company. These fiduciary relationships are status-based: they arise as a matter of law as a result of the parties’ relationship and the fiduciary nature of the relationship does not depend on the facts of the case. Underhill and Hayton, Law of Trusts and Trustees [27.12],

There are also fact-based fiduciary relationships where fiduciary duties are imposed on an ad hoc basis according to the circumstances of a case Underhill and Haytons [27.13]. See Bailey v Barclays Bank 2014] EWHC 2882 (QB). In that case, Judge Keyser QC said: [87] The present state of the law regarding the circumstances when fiduciary duties arise may conveniently be taken from an extended passage in the Law Commission’s recent report, Fiduciary Duties of Investment Intermediaries (Law Com No 350); for reasons of space and ease of exposition, I omit the footnotes and references contained in the report: 3.14 . . . What is relatively clear is that fiduciary relationships arise in two main circumstances: (1) Status-based fiduciaries – where a relationship falls within a previously recognised category, such as a solicitor and client; and (2) Fact-based fiduciaries – where the particular facts and circumstances of a relationship justify the imposition of fiduciary duties. 3.15 Status-based fiduciary relationships are those that are recognised, by their very nature, as inherently fiduciary. They represent the settled categories of fiduciary relationship. They include the relationships between: trustee and beneficiary; principal and agent; mortgagee and mortgagor; solicitor and client; company directors and the company; partners and co-partners; and civil servants and the Crown.

3.16 The categories of fiduciary relationship are not closed. However, the difficulty lies in identifying the circumstances which justify the imposition of fiduciary duties. The courts have traditionally declined to provide a clear definition, preferring to preserve flexibility. The test is based on ‘discretion, power to act and vulnerability’, though different commentators have characterised the appropriate test in different ways.

In relation to fact based situations, in Reading v Attorney-General, Asquith LJ said that a fiduciary relationship exists:

(a) whenever the plaintiff entrusts to the defendant property … and relies on the defendant to deal with such property for the benefit of the plaintiff or for purposes authorised by him, and not otherwise … and

(b) whenever the plaintiff entrusts to the defendant a job to be performed … and relies on the defendant to procure for the plaintiff the best terms available


Corporate Governance is an umbrella term for the means of dealing with the issues faced by a board, committee or organisation for directing or controlling the activities of the organisation. Governance, as understood, and as taught by the Institute of Directors, has four main aspects: strategy (purpose), performance (culture), compliance (responsibility) and monitoring (holding to account).

Corporate Governance is a framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations, see HIH Royal Commission.

The 1992 UK Cadbury Report added that corporate governance is a framework that balances goals and aligns interests within an organisation.


Directors must consent to act and are treated as a type of trustee and agent of the company or body corporate they serve.

A company will either have a published constitution or the default rules of the law under which the body is incorporated and brought into legal existence. The constitution, articles of association or default law will set out the system by which directors must meet or exchange signatures to documents, exchange notices including agendas, formal requests for meetings, a minimum quorum of directors present at a meeting and whether the chairperson (if any) has a casting vote in the event of a tied vote.

Generally, in the event that a directors decision is not made following a proper meeting, it will not be legally valid and will be liable to be set aside or declared by a court to be invalid. However, to an outside third party without notice of the lack of proper procedure being followed, an invalid director decision may be relied on as having “ostensible authority”.

Being a species of trustee, directors owe a duty of undivided loyalty and have no right to payment for their services without the consent of the company or body.

The directors interest in receiving payment for services is a area of actual or potential conflict between the interests of the director and the interests of the company and its shareholders.

It is the directors themselves however who are responsible for the governance of their companies. The shareholders roles is limited to the appointment of the directors and auditors and to ensure that a governance structure is in place.

The best practice for directors is beyond having technical skills and knowledge. It involves empathy and communication skills. Directors must enquire, speak up and exercise independent judgement to add value to a board.

Section 131(1) of the Companies Act 1993 (NZ) requires that a director, when exercising powers or performing duties, must act in good faith and in what the director believes to be the best interests of the company.

Best Interests

The director being a type of trustee and agent, owes duties to the company as a separate legal person with purposes with interests of its own.

A company’s best interests and long term maximisation of shareholder value are not met if directors do not adequately consider the interests of employees, contractual counterparties, customers and suppliers, consumers, the wider community and the national and social interests.

Good Faith

Good faith is the exclusion of instances of bad faith. Examples include; making spurious excuses for putting off meetings,  ignoring proposals made by the other party, adopting a negotiating position which is designed to frustrate prospect of reaching an agreement, using a trumped up reason for breaking off discussions and covertly holding parallel discussions with a third party.

Service outside the Jurisdiction

A statement of claim or counterclaim in proceedings filed in the High Court (together with the relevant notice of proceeding or third party notice) which cannot be served in New Zealand may be served out of New Zealand without first seeking the leave of the Court in the following cases:

High Court Rules, r 6.27

– where the proceeding is brought in the High Court for the execution of the trusts of any written instrument of which the person to be served is a trustee and which ought to be executed according to the law of New Zealand; r 6.27(2)(f).

– where any person out of New Zealand is a necessary or proper party to a proceeding properly brought against some other person duly served or to be served within New Zealand; r 6.27(2)(h).

The rule permits a person sued in New Zealand to serve a counterclaim on the plaintiff at an address for service in New Zealand and on any necessary or proper parties to the counterclaim as counterclaim defendants outside New Zealand.

Where overseas defendants joined enter a protest to jurisdiction, the plaintiff is required to show a good arguable case that the overseas defendants are “necessary or proper parties”.

A defendant who resides out of the jurisdiction will not be lightly subjected to a local jurisdiction. The burden on the plaintiff is light and lower than the tests for striking out and summary judgment because refusing to exercise jurisdiction might determine the matter.

[28] However, there is no doubt that Jacobsen FT, as one of the Jacobsen group of companies, holding 12 “A” units in the QPAM Trust, will be a party affected by any decisions relating to the trust, or indeed its sole trustee QPAM. If it is not a party to these proceedings, it will not be bound by any decision. Therefore, one important unit holder might remain immune to the outcome of the litigation. If it refused to be bound by any decision in the litigation, there would have to be a further proceeding covering the same ground to obtain the same declaration against Jacobsen FT.

The rules do not permit proceedings commenced by originating application to be served outside New Zealand without the leave of the Court.

HC r 6.27 When service is allowed without leave

(2) An originating document may be served out of New Zealand without leave in the following cases:

(h) when the person out of the jurisdiction is:

(i) a necessary or proper party to proceedings properly brought against another defendant served or to be served (whether within New Zealand or outside New Zealand under any other provision of these rules), and there is a real issue between the plaintiff and that defendant that the court ought to try: or

(ii) a defendant to a claim for contribution or indemnity in respect of a liability enforceable by proceedings in the court.

The plaintiff must have an arguable case which is pursued in good faith against the party served in New Zealand, and also against the person to be served outside New Zealand

A “good arguable case” is more than a serious question to be tried. The constituent elements of the test were stated as follows:

There are two stages in this inquiry. First, is there a serious or substantial legal question to be tried or argued on a particular cause or causes of action? Second, if so, has [the plaintiff] established a credible narrative or plausible factual basis for the legal question? At the second stage the touchstone is satisfaction that the claim is more than merely speculative ([Stone v Newman] at para 24). All relevant evidence and the pleadings are to be considered. If both questions are answered affirmatively, [the plaintiff’s] argument will be sufficiently strong to warrant the New Zealand Court accepting jurisdiction; its case will have a strong foundation. In that event, the Court’s inquiry should cease, and its scope should not widen into disputed questions of fact.

The question is whether, if a person had been within the jurisdiction, that person could have been properly sued together with the other defendant within the jurisdiction.

The High Court Rules,

r 6.27(2) 

(j) when the case “ arises under an enactment” and:

(iv) the enactment expressly confers jurisdiction on the court over persons outside New Zealand (in which case any requirements of the enactment relating to service must be complied with).

In Kuehne + Nagel International AG v Commerce Commission the Court held that, in relation to the first stage of the inquiry under r 6.29(1)(a) if there was a “good arguable case” that a claim fell wholly within r 6.27(2)(j)

6.28 When allowed with leave

(5) The court may grant an application for leave if the applicant establishes that—

(a) the claim has a real and substantial connection with New Zealand; and

(b) there is a serious issue to be tried on the merits; and

(c) New Zealand is the appropriate forum for the trial; and

(d) any other relevant circumstances support an assumption of jurisdiction.

A party served may enter an appearance limited to protesting the court’s jurisdiction. HC r 5.49 6.29 Court’s discretion whether to assume jurisdiction

(1) If service of process has been effected out of New Zealand without leave, and the court’s jurisdiction is protested under rule 5.49, the court must dismiss the proceeding unless the party effecting service establishes—

(a) that there is—

(i) a good arguable case that the claim falls wholly within 1 or more of the paragraphs of rule 6.27; and

(ii) the court should assume jurisdiction by reason of the matters set out in rule 6.28(5)(b) to (d); or

(b) that, had the party applied for leave under rule 6.28,—

(i) leave would have been granted; and (ii) it is in the interests of justice that the failure to apply for leave should be excused.

(2) If service of process has been effected out of New Zealand under rule 6.28, and the court’s jurisdiction is protested under rule 5.49, and it is claimed that leave was wrongly granted under rule 6.28, the court must dismiss the proceeding unless the party effecting service establishes that in the light of the evidence now before the court leave was correctly granted.

(3) When service of process has been validly effected within New Zealand, but New Zealand is not the appropriate forum for trial of the action, the defendant may apply for a stay, or for a dismissal of the proceeding under rule 15.1.

HC r 18.1 Types of proceedings This Part applies to the following types of proceedings:

(a) Equitable jurisdiction proceedings in which the relief claimed is wholly within the equitable jurisdiction of the court, such as—

(v) the giving of directions to persons in their capacity as executors, administrators, trustees, or beneficiaries to do or abstain from doing a particular act:

(ix) the determination of a question that arises in the administration of an estate or trust or whose determination is necessary or desirable to protect the executors, administrators, or trustees:

(b) Determinations by court under statutes proceedings in which the relief is claimed solely under the following enactments:

(xiii) the Trustee Act 1956:

An example of a proceeding solely under an Trustee Act 1956 (enactment) is s. 66 Right of trustee to apply to Court for directions

(1) Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of any such property, or respecting the exercise of any power of discretion vested in the trustee.

(2) Every such application shall be served upon, and the hearing may be attended by, all persons interested in the application or such of them as the Court thinks expedient.

HC r 18.4 Commencement of proceedings

(1) A proceeding under this Part must be—

(a) commenced by statement of claim; and

(b) [accompanied by an application for directions as to service and representation under rule 18.7.]

(2) The application of this Part to a proceeding does not prevent the commencement of that proceeding by originating application if it is eligible to be so commenced under Part 19, in which event this Part does not apply.

HC r 18.5 Naming of defendants in cases involving deceased estates or trusts (1)This rule applies to a proceeding that—

(a) involves a deceased estate or a trust; and

(b) is not commenced by the personal representative of the deceased person or the trustee of the trust.

(2) The only defendant that may be named in the statement of claim is the personal representative or the trustee.

If an application for directors was made under the Trustee Act 1956 section 66, this would be made by the trustee so the above HC rule 18.5 would not apply

HC r 19.5

(1) The court may, in the interests of justice, permit any proceeding not mentioned in rules 19.2 to 19.4 to be commenced by originating application. (2) The court’s permission may be sought without notice.

In summary, it appears that, in general, a New Zealand Court will permit matters concerning trusts made under New Zealand law to be commenced in New Zealand and they may be served on defendants outside the jurisdiction without first having obtained the leave of the court. The court will not entertain an action which involves the question of title to, or the right to possession of, foreign immovables. The courts apply the law of New Zealand to determine whether domestic law or that of a foreign jurisdiction is applicable.

The law of New Zealand, in general, incorporates the doctrine of renvoi, meaning that where foreign courts have refused jurisdiction the courts of New Zealand will, in certain circumstances, accept a reference back. This rule (that the New Zealand court will not entertain questions concerning the above rights to foreign immovable) includes two exceptions:

I. the Court has jurisdiction in personam in cases involving foreign immovables against people subject to its jurisdiction when there exists between the parties a personal obligation or equity arising out of contract, or trust, or from fraud or other unconscionable conduct. Parker J in Deschamps v Miller explained this class of exceptions thus : . . . they all depend on the existence between the parties to the suit of some personal obligation arising out of contract or implied contract, fiduciary relationship or fraud, or other conduct which, in the view of a Court of Equity in this country, would be unconscionable, and do not depend for their existence on the law of the locus of the immovable property.

Requirements for enforcement of Foreign Judgements in New Zealand

A judgment in personam of a foreign Court will be enforced in New Zealand if all of the following three conditions are satisfied:

I. if the foreign Court’s jurisdiction over the judgment debtor is recognised by New Zealand law.

a. if the judgment debtor was a body corporate and resident in the country at the time proceedings were instituted, and if the debtor was an individual if he or she were present in the country at that time.

b. if the judgment debtor was the plaintiff, or counterclaimed in the proceedings in the foreign Court thereby submitting to the jurisdiction ;

c. if the judgment debtor submitted to the jurisdiction of the foreign Court by voluntarily appearing in the proceedings

d. if the judgment debtor had agreed before the commencement of the proceedings to submit to the jurisdiction of that Court, or of the Courts of that country, in respect of the subject-matter of the proceedings. Such agreement may be by letter, subsequent to the dispute arising and may be oral

II. if the judgment is for a debt or a definite sum of money. A foreign judgement must not have left any discretionary element in its order but must not be for a sum payable in respect of taxes, or other charges of that nature, or in respect of a fine or other penalty ;

III. if the judgment is final and conclusive. The foreign Court need not be a superior Court.

At common law, a foreign Court will not be treated as having jurisdiction only on the ground of the judgment debtors nationality; or is domiciled; or possession of property in the foreign country; or resident in the foreign country at the time the cause of action arose as opposed to present; or would under New Zealand law be subject to New Zealand jurisdiction in corresponding circumstances; or was personally served outside the foreign country with the process of the foreign Court in accordance with the law of that country. What amounts to presence within the jurisdiction is physical presence in a literal sense. For an individual residence is not necessary. For a corporation the test appears to be whether the corporation was active in the country of the court rendering judgement and in the case of a commercial enterprise whether it was doing business in that country. It is not enough in the case of a corporation that some individual with an official role or office in the corporation was present in the country. As an aside, a new Zealand court will provide international assistance to overseas courts under Section 192 of the Evidence Act 2006. Evidence may be taken in New Zealand for the purpose of a foreign court for the purpose of civil or criminal proceedings in a foreign court. If a foreign Court had jurisdiction to give judgment against the judgment debtor according to the relevant New Zealand conflict of laws rules, it appears that the judgment will not be unenforceable in New Zealand by reason only that the foreign Court lacked jurisdiction under the law of its own country.

Recognition of judgements in Rem

A judgment in rem of a foreign court will be recognised or enforced in New Zealand only if both of the following criteria are satisfied:

I. the judgment must be final and conclusive;

II. A foreign court will be treated as having had jurisdiction to grant the judgment in rem if the subject-matter of the proceedings in which the judgment was given was movable or immovable property situated in the country of the foreign Court at the time of the proceedings.

The recognition or enforcement of the foreign judgment may be opposed on the grounds that:

a. The judgement was obtained by fraud. Or

b. The Judgement was contrary to public policy. It is not contrary to public policy to enforce a judgment merely because the cause of action on which it was obtained is not known to New Zealand law nor because exemplary damages have been awarded in circumstances in which they would not be available under New Zealand law. 

c. The proceedings were contrary to natural justice. Objection taken by the defendant to proceedings in New Zealand was or could have been taken in the foreign country must be taken into account in determining whether there has been a substantial injustice, but is not of itself decisive. Or

d. The matter is res judicata or there is an issue estoppel. A foreign judgment will not be recognised if is irreconcilable with an earlier New Zealand judgment between the same parties.