Welcome & Introduction Carly S Stratton MannBenham Advocates - - PowerPoint PPT Presentation

Welcome & Introduction

Carly S Stratton

MannBenham Advocates

Head of Business & eGaming Director | Advocate

Agenda

9:00 Registration Tea and Coffee 9:30 Welcome and Introduction MannBenham Advocates - Carly Stratton 9:45 Fiduciary Responsibilities of Directors - 1931 and 2006 Acts Kings Chambers - Mark Harper QC 10:15 Corporate-Trust Fusion MannBenham Advocates - Paul Beckett 10:30 Fiduciary Responsibilities of Trustees Kings Chambers - Matthew Hall 11:15 Refreshments and Comfort Break Tea and Coffee 11:45 Ad-Hoc Fiduciary Duties arising under Commercial Arrangements Kings Chambers - Lesley Anderson QC 12:30 Regulatory Consequences MannBenham Advocates - Carly Stratton and Miles Benham 13:00 In Closing Financial Services Authority - Paul De Weerd 13:15 Lunch 14:30 Close

Fiduciary Responsibilities

• f Directors

1931 and 2006 Acts

Mark H Harper Q QC

Kings Chambers

What directors?

De Jure De Facto Shadow Directors

• Not all fiduciary duties will be applicable
• Relief from liability – s99 2006 Act

Nominee Director

Fiduciary Obligations Origins

Company – legal person Owns property (widest sense) Conducts business Act through directors Akin to Trustees and Agents Property has to be applied properly Holding to account “Entrusted with the property of the company”

Ordinary Business Decisions

Courts will not interfere with or try to second-guess business decisions taken in the ordinary course of business Fiduciary duties set the boundaries of what the ordinary course of business is

UK – Companies Act 2006 Chapter 2 Part 10

Non-exhaustive codification of the law on fiduciary duties vis a vis directors as it stood ”essence of the rules and principles which they replaced”

FSA v Irving

Duties of directors under 1931 Act and 2006 Act ”largely mirror” these duties “Largely” – query will some of the nuances under the Act be applied

The Duties

• 1. Powers
• 2. Interests of what they, in good faith, consider to

be in the interests of the company - Will the specific considerations set out in s172 be considered by an IOM Court?

• 3. Independent Judgment/No Fetter on Discretion
• 4. No Conflict – NB s175 “possibly may conflict”
• 5. Secret Profits

Key Considerations

• 1. Preparation to be a director
• 2. Good Corporate Governance
• 3. Apply mind
• 4. Absent Directors
• 5. Disclosure of Wrongdoing

Who will challenge?

• Office Holders
• New Management
• Shareholders

Ratification

INFORMED CONSENT

Relief From Liability

Section 99 2006 Act

• Honesty
• Reasonableness
• Fairness

Ought to be very limited in application

Remedies

• Equitable Compensation –

“but for” test

• Account of Profits

Paul Becke kett

MannBenham Advocates

Senior Counsel | Advocate

Corporate-Trust Fusion Principle

Paul ul B Bec eckett

Senior Counsel

The Principle

The Corporate-Trust Fusion Principle

The position of creditors in relation to assets

• wned by a company that is itself wholly
• wned by a trust is subject to the corporate-

trust fusion principle

Established on 19 September 2002 in Re Poyiadjis 2001-03 MLR 316.

Well, in principle…

The Corporate-Trust Fusion Principle varies

“Now, no shareholder has any right to any item of property

• wned by the company, for he has no legal or equitable

interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.”

Macaura v Northern Assurs Co in which Lord Buckmaster stated ([1925] A.C. at 626-627):

A Conclusion

Deemster Kerruish concluded: “Oracle and Olympus are each wholly owned by a trust, and there is no other shareholder. [...] The trustees, who are also the directors of both companies, have the wherewithal to control each company totally. […] Also, I have no doubt that the directors would be ever mindful in exercising their powers to manage the companies and their assets to ensure that they did not expose themselves to an allegation of breach of trust.”

A Conclusion cont’d

“Whilst I accept that in law the bank accounts are corporate and not strictly trust assets, in the circumstances of this case, I find that the interposition of a limited company does not in any material way qualify the trustees’ interest in the relevant bank accounts. It does not make a difference to the duties and responsibilities of the trustees, including responsibilities to persons, who have or may have an interest in the trust assets, whether held directly by the trustees or through a company.”

A Conclusion cont’d

“Further in the circumstances of this case, the directors, when exercising their powers [...] cannot divest themselves of the knowledge and information obtained in their capacities as trustees, and therefore must act at all times mindful of their duties and responsibilities to persons, who have or may have an interest in the trust assets.”

A Conclusion cont’d

“I therefore consider that to treat the companies as bodies independent of the trustees qua trustees, and to treat the latter as shareholders, would be to ignore the reality of the situation.”

Fiduciary Duties

Matthe hew H Hall

Kings Chambers

“Fiduciar ary” – Roman an L Law aw O “Fi Fiducia” = tr trust o t or c confi fidence

What Is A Fiduciary?

Millett LJ Bristol & West v Mothew [1998] Ch 1

Fiduciary duties arise where “… someone … has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence”

Finn J

in Grimaldi Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC:

A fiduciary is someone who has: “….undertaken to perform such a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that he or she will act in that

• ther’s interest to the exclusion of his or

her own or a third party’s interest”

The Core Fiduciary Duties

a) Not to put oneself in a position of conflict without informed consent b) Not to make a profit from one’s position without informed consent c) To act in the best interests of the beneficiary d) To act in good faith

“If I Only Had the Nerve”

Charles Selwyn (Selwyn LJ) (pictured standing)

“The main duty of a trustee is to commit judicious breaches

• f trust”

“Authorisation” of breach

• With consent of all affected beneficiaries

(must be full age and have capacity)

• Court order extending administrative powers

(inherent emergency jurisdiction and s 57 TA 1925 where expedient)

Trustee Act 1925 s. 61

Power to relieve a trustee who has “… acted honestly and reasonably and

• ught fairly to be excused for the breach
• f trust and for omitting to obtain the

directions of the court in the matter in which he committed such breach”

“Judicious Breaches of Trust”

• A judicious breach is still a breach, even if the

trustees is relieved from liability

• The transaction might be challenged and set

aside and the trustee ordered to pay costs

… However

A “judicious breach of trust” if committed in the interests of the beneficiaries is not a breach of fiduciary duty

(Millett LJ in Armitage v Nurse [1998] Ch 241 at 251)

A Trustee Must Exercise Independent Judgment

(and stand up to the settlor if necessary)

Turner v Turner [1984] Ch 100

Settlor: “I did not discuss anything with [the trustees]. I considered myself captain of the ship” Appointments made by trustees set aside

Per Lord Walker

in Pitt v Holt [2013] 2 WLR 1200 at [66]

“…it may be that some offshore trustees come close to seeing their essential duty as unquestioning obedience to the settlor’s wishes”

“If I Only Had A Brain”

The Duty to Give Proper Consideration to the Exercise

• f Fiduciary Powers

Per Lord Walker

in Pitt v Holt [2013] 2 WLR 1200 at [70] confirms

Inadequate deliberation, where “sufficiently serious” will amount to a breach of fiduciary duty

Preliminaries to Proper Consideration

• 1. To understand the purposes of the trust
• 2. Periodically consider whether to exercise

the discretion

• 3. To make relevant enquiries and to

ascertain relevant issues

Proper Consideration

Trustees must:

• 1. act honestly and in good faith;
• 2. ask themselves the correct question;
• 3. reach a decision open to a reasonable

body of trustees; and

• 4. take into account relevant matters and
• nly those matters.

Per Templeman J

in Re Manisty’s Settlement [1974] Ch. 17 at 26

“… if they chose a beneficiary by height or complexion or by the irrelevant fact that he was a resident

• f Greater London”

The Standard is Not Perfection Enquiries need not be shown to be completely exhaustive A beneficial class must not be surveyed “from China to Peru”

The Decision is for the Trustees Not the Court

(per Lord Truro LC in Re Beloved Wilkes’s Charity (1851)”)

“… it is to the discretion of the trustees that the execution of the trust is confided…”

“If I Only Had a Heart”

How Much Must a Trustee Listen?

Robert Walker J

in Scott v National Trust [1988] 2 All ER 703

Trustees “… are not a court or tribunal. They are not under any general duty to give a hearing to both sides…” However, there may be a duty to allow representations to be made in some cases

R v Charity Commisioners ex p Baldwin (2000) 33 HLR 538

Ad-hoc Fiduciary Duties Under Commercial Arrangements

Lesley Ande nderson Q n QC

Kings Chambers Head of Business and Property

Bristol & West v Mothew [1998]

Ch 1 at 18 Millet LJ said:

“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and

• confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The

principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr. Finn pointed out in his classic work Fiduciary Obligations (1977 ed p. 2), he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary.”

Arklow Investments Ltd and Christopher Mark Wingate v ID Maclean and Ors [2000]

1 WLR 594 at 598G:

“one person is in a relationship with another which gives rise to a legitimate expectation, which equity will recognise, that the fiduciary will not utilise his

• r her position in such a way which is adverse to the

interests of the principal”

Paradigm or Settled Categories

• Trustee/beneficiary
• Including asset managers, pension plan managers and endowment

plans/beneficiary

• Agent/principal
• Directors (de jure, shadow or de facto)/company
• Partners/partnership
• Members of LLP
• Some categories of wrongdoer but cf. remedial constructive trust

Why does it matter?

• Breaches of duty:
• Leading to damage to or loss of the trust property
• Infidelity or dishonesty engaging conscience
• Lack of appropriate skill and care
• Remedies (personal and proprietary) against perpetrator
• Remedies (personal and proprietary) against third parties

and accessories

Joint Venturers

• Arklow
• Murad v Al Saraj [2004] EWHC 1235 (Ch)
• JD Wetherspoon plc v Van de Berg Co Ltd [2009] EWHC 639
• John v James [1991] FSR 397
• Ross River Ltd v Waverley Commercial Ltd and ors [2013]

EWCA Civ 910

• UDC v Brian (1985) CLR 1

But see…

• Hospital Products v USSC(1984) 156 CLR 1
• Miller and Domestic Fire Appliances Ltd v Stonier [2015]

EWHC 2796 (Ch)

• Glenn v Watson [2018] EWHC 2016 (Ch)

But see…

• Other commercial arrangements – eg distributorships
• Other professional relationships e.g. solicitors (see Mothew)
• Employer/employee
• Nottingham University v Fishel [2000] 1 IRLR 471 at 482-484
• Cobbetts Plc v Hodge [2009] EWHC 786 (Ch)
• AAH Pharmaceuticals v Birdi [2011] EWHC 1625 (QB) at [22] to [28]

But see…

• Consultants - Mental Health Care (UK) Ltd v Edward Lupen

Healthcare Ltd and Devan Moodley [2019] EWHC 1

• See also Trustees/sponsoring employer – Keymed (Medical &

Industrial Equipment) Ltd v Hillman [2019] EWHC 485 (Ch)

Some tentative conclusions?

Regulatory Consequences

• f a Breach of Fiduciary Duty

Carly S Stratton

MannBenham Advocates

Head of Business & eGaming Director | Advocate

Miles es B Ben enham

MannBenham Advocates

Managing Director | Advocate

Introduction

Fitness and Propriety Disciplinary Tools Points to Consider - Minimising your Risk

Fitness & Propriety

Guidance has been issued by the IOMFSA under the: Financial Services Act 2008

https://legislation.gov.im/cms/images/LEGISLATION/PRINCIPAL/2008/2008-0008/FinancialServicesAct2008_15.pdf

IOMFSA Licensing Policy (version 1 April 2019) (Licensing Policy)

https://www.iomfsa.im/regulated-sectors/regulated-sectors-general/licensing-policy/

Financial Services Rule Book 2016 (amended to 2018) (Rule Book)

https://www.iomfsa.im/media/2301/trackedchangesfrom2013to2016ru.pdf

Regulatory Guidance on Fitness and Propriety (1 August 2018) (Regulatory Guidance)

https://www.iomfsa.im/media/2464/regulatoryguidancefitnessandpropriety.pdf

Licensed Activities | Financial Services

Fitness & Propriety

What does it mean?

Licensed Activities | Financial Services

Components of Fitness & Propriety

As set out in Appendix 1 to the Regulatory Guidance, under the broad headings. In making an assessment of integrity as an element of fitness and propriety, all relevant circumstances, on a case-by-case basis, should be considered. Integrity is demonstrated through an individual’s personal behaviour and business conduct, and evidence regarding their character.

Integrity Financial Standing Competence Staff Development

Fitness & Propriety

Designated Business | Registration Policy

 Initial test (at licensing) and a continuing test (in the ongoing conduct

• f the regulated activities).

 It is for the applicant and relevant persons to satisfy the IOMFSA that they are fit and proper, rather than the IOMFSA to prove that the applicant and relevant persons are not fit and proper.

Fitness & Propriety

Designated Business | Registration Policy

Who does it apply to?

Controlled Functions Key Persons Directors Controllers

Sanctions which may be applied…

Financial Services www.iomfsa.im/enforcement/disciplinary-action

IOMFSA have certain disciplinary tools where lack of fitness and propriety is demonstrated

What action could be taken?

Financial Services

Not fit and Proper Directions

Section 10(1) and 10(2) FSA 08

Prohibitions

Section 10A FSA 08

Warning Notices

Section 11 FSA 08

Public Statement

Section 13 FSA 08

What action could be taken?

Financial Services

Directions

Section 14 FSA 08

Civil Penalties

Section 16 FSA 08, Financial Services (Civil Penalties) Regulations 2015

Revocation or Suspension of a Licence

Section 9 FSA 08

Disqualification Proceedings

Company Officers (Disqualification) Act 2009 The IOMFSA’s Guidance Note on Discretionary Civil Penalties Under the Financial Services Act 2008 (1 August 2015) provides further background.

Points to Consider | Minimising your Risk

Financial Services

Policies and Procedures  Are they up to date – changes in the law

• r guidance?

 Are they adequate for the business  Reflect what the business does in practice

Points to Consider | Minimising your Risk

Financial Services

Board Overview  Are regulatory matters regulatory considered at a board meeting?  Adequate staff training and level of support  Staff level appropriate for business needs  Staff appropriately qualified for the position held