Kelly & Anor v Baker & Anor, the High Court considered when a fiduciary duty may be found in the absence of an explicit undertaking and circumstances outside of established categories of fiduciary relationships. On the facts of this case, no fiduciary relationship was established as there had been no pre-existing special relationship of trust and influence.
The Case
The case concerned the sale of two companies in a family business. The claimant, Mr Kelly, was a member of the family that formed the business, as well as a director and shareholder of the companies concerned. Mr Baker and Mr Braid, the defendants, were directors who had worked in the business empire for many years. Mr Kelly alleged that he was misled by the defendants as to the true nature of the sale, which was a management buy-out. He further claimed that as a result of the defendant’s interests in the buy-side, the companies were sold undervalue, and the defendants, whom he trusted implicitly because of the relationship between them, breached fiduciary duties to him and to the second claimant, a company that he owned and controlled.
The Missing Fiduciary Relationship
The High Court noted that a fiduciary duty may arise outside the established categories of fiduciary relationships where there is an explicit undertaking or where there is a pre-existing relationship, for example, where a shareholder can put their confidence and trust within a director. The Court said that though fiduciary relationships are most likely to exist in cases of small and closely held companies, where there is often a familial or other personal relationship between the parties, the existence of a close relationship was not the hallmark. The hallmark was the legitimate expectation arising from the nature of the relationship between the parties that one will act in the interest of another.
In this particular case, there had been no explicit undertaking by the directors to obtain the best price for Mr Kelly in the sale. Furthermore, while a level of informality in the running of the business may have led to Mr Kelly’s subjective perception that there was a special relationship of trust and influence, in reality, this was not the case. There was no evidence that the defendants had the degree of control and influence over the financial and business affairs concerning the claimants sufficient to give rise to a fiduciary relationship. Furthermore, Mr Kelly was actively involved in the transaction and did not rely on advice from the defendants in making the decision to sell the companies. Accordingly, the circumstances were not such as to exceptionally create a fiduciary relationship and the claim failed.
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