Boardman v Phipps [1967] 2 AC 46 (HL)

Facts

• The case arose from a family trust created by the will of William Phipps, managed by his widow and two sons, including Tom Phipps.
• The trust held significant shares in Lester and Harris Ltd, a poorly performing textile company.
• The trustees chose not to act to improve the company's financial state.
• Boardman, the family solicitor, and Tom Phipps investigated the company, used information obtained as fiduciaries, and acquired additional shares, resulting in the company being restructured and increased profitability.
• Their actions increased the value of the trust’s shares, but they also made personal profits.
• Other trust beneficiaries argued that Boardman and Tom had breached their fiduciary duties by personally benefiting from information obtained through their fiduciary roles.

Issues

1. Whether Boardman and Tom Phipps, as fiduciaries, were liable to account for profits made through acquiring additional shares in Lester and Harris Ltd.
2. Whether the no-profit rule applied despite the trust benefitting and absence of a direct loss.
3. Whether beneficiaries’ consent or approval could absolve fiduciaries from liability.
4. Whether good faith and benefit to the trust mitigate the strictness of the fiduciary duty.

Decision

• The House of Lords held that Boardman and Tom Phipps breached their fiduciary duties by making profits arising from their fiduciary positions.
• It was found immaterial that the trust had benefited or that the fiduciaries acted in good faith.
• The court determined both had used confidential information and opportunities arising from their fiduciary capacities for personal profit.
• A constructive trust was imposed on the profits made, requiring Boardman and Tom Phipps to account to the trust.
• The no-profit rule was reaffirmed as absolute, regardless of principal loss or good faith.

Legal Principles

• Fiduciaries are bound by a strict duty of loyalty and must avoid conflicts of interest or situations where duty and personal interest may conflict.
• The no-profit rule strictly prevents fiduciaries from profiting due to their role or information derived from it.
• Constructive trusts are available as an equitable remedy for profits gained in breach of fiduciary duty, ensuring any unjust enrichment is returned to the trust.
• The principle is applied even where the principal or trust benefits and the fiduciary acts in good faith; mitigation by good faith is not permitted.

Conclusion

Boardman v Phipps [1967] 2 AC 46 (HL) is a foundational case on fiduciary obligations, firmly establishing the strictness of the no-profit rule and the requirement for fiduciaries to account for profits made by reason of their position, irrespective of good faith or benefit to the trust.