Phipps v Boardman (Boardman v Phipps)

A person acting in a fiduciary capacity must account for a profit obtained by reason of that position, or through an opportunity or knowledge arising from it, unless the person to whom the duty is owed gave fully informed consent. Liability does not depend on fraud, bad faith, loss to the principal or the principal's ability to obtain the profit. A fiduciary cannot avoid accountability merely because the transaction was honest, beneficial or undertaken at personal risk. The court may, however, make a liberal allowance for the fiduciary's work and skill in producing the profit.

In Phipps v Boardman (Boardman v Phipps), a trust held 8,000 of the 30,000 shares in a private textile company. The appellants were a solicitor who acted for the trustees and one of the beneficiaries. While representing or purporting to represent the trust's substantial minority holding, they obtained extensive information about the company and an opportunity to purchase other shares.

The appellants bought 21,986 shares with their own funds, obtained control and produced substantial profits. The trust's holding also increased greatly in value. One beneficiary claimed that the appellants held his 5/18ths share of the acquired shares and profits as constructive trustees.

Wilberforce J upheld the claim and ordered an account, subject to an allowance for the appellants' work and skill. The Court of Appeal unanimously dismissed their appeal. The issue before the House was whether their fiduciary position required them to account despite their honesty, the trustees' unwillingness or inability to buy the shares, and the benefits produced for the trust.

1. Disposition. The appeal was dismissed by a majority of three to two. Lord Cohen, Lord Hodson and Lord Guest held the appellants accountable. Viscount Dilhorne and Lord Upjohn dissented. The order of the Court of Appeal was affirmed, with costs.
2. Fiduciary position. Lord Cohen expressly agreed in substance with Lord Hodson and Lord Guest. On the majority's reasoning, the appellants had placed themselves in a fiduciary position by acting or purporting to act for the trustees in negotiations concerning the trust's substantial shareholding. Through that position they obtained valuable information and the opportunity to acquire the remaining shares. The absence of a comprehensive contract of agency did not prevent the relationship from being fiduciary.
3. Accountability for profit. Per Lord Hodson and Lord Guest, applying Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, a fiduciary who obtains a profit by reason of the fiduciary position, opportunity or knowledge must account unless fully informed consent was obtained. Liability does not depend on fraud, bad faith, damage to the principal, or proof that the principal could have made the profit. Lord Cohen likewise held that the information and opportunity came to the appellants through their representation of the trustees and that the Regal principle applied.
4. Inability or unwillingness of the trust. Per Lord Hodson and Lord Guest, it was immaterial that the trustees lacked authority and funds to purchase the shares, that the active trustee opposed such a purchase, or that the appellants' acquisition benefited the trust. A fiduciary could not take an opportunity produced by the fiduciary position without fully informed consent. The partnership decision in Aas v Benham [1891] 2 Ch 244 was distinguishable because it concerned profits made outside a defined partnership business.
5. Consent and remedy. The necessary fully informed consent had not been obtained. The appellants therefore held the respondent's 5/18ths interest in the acquired shares as constructive trustees and were accountable for his share of the net profits. Lord Cohen and Lord Hodson agreed that a liberal allowance should be made for the appellants' work and skill.
6. Dissent. Viscount Dilhorne and Lord Upjohn considered that the purchase lay outside the scope of the appellants' limited duties and created no real possibility of conflict. Lord Upjohn would have required a real and sensible possibility of conflict, assessed in the circumstances, rather than a merely conceivable conflict.

1. House of Lords: By a majority of three to two, dismissed the appeal and affirmed the Court of Appeal's order: [1967] 2 AC 46.
2. Court of Appeal: Lord Denning MR, Pearson LJ and Russell LJ unanimously dismissed the appellants' appeal on 26 January 1965.
3. High Court: Wilberforce J declared that the appellants held the respondent's 5/18ths interest in the acquired shares as constructive trustees. He ordered an account of profits and an inquiry into a proper allowance for their work and skill.