Boardman v Phipps

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Citation: Boardman v Phipps [1967] 2 AC 46

This information can be found in the Textbook: Evans, Equity and Trusts, 3rd edition, Lexis Nexis, 2012, pp. 138-9 [12.31]

Contents

Background Facts

  • The Defendant [Boardmen] was the solicitor of the Plaintiff [trustees of the will of Phipps]
  • The Plaintiff held shares in a company named L & H.
  • After visiting the general meeting, the Defendant and Tom Phipps (son of late Phipps, one of the beneficiaries of the will] gained insight into the financials of L & H, and determined to purchase the rest of the shares (with approval of only some of the Plaintiff, approval thus being ineffective).
  • The initial takeover offer was only partly successful. Then, claiming to represent the the Plaintiff, the Defendant along with Tom Phipps) offered to acquire a division of the shares. These negotiations also failed, but more was learnt about L & H’s financial position.
  • The Defendant (and T Phipps) then made another takeover offer for the balance of the shares (with consent from the Plaintiff after sending a letter explaining what he is going to do).
  • This offer was accepted. After obtaining a controlling interest, the Defendant and T Phipps liquidated the company and got capital dividends worth a lot of money (ie, they benefited themselves).
  • The Plaintiff brought proceedings against the Defendant, alleging that the Defendant held profits received on a return of capital on shares obtained in L & H as constructive trustees of the estate.

Legal issues

Judgment

  • The Defendant [and T Phipps] placed themselves in a fiduciary position in negotiating with the directors of L & H on behalf of the Plaintiff.
    • They thus acquired special knowledge of profit to be made.
    • The two had acted honestly, but they were both fiduciaries.
      • The Defendant because of his position as solicitor to the Plaintiff and his action in that capacity representing the Plaintiff; and
      • Phipps as agent for the Plaintiff, and because he didn’t seek to be treated differently to the Defendant.
  • The confidential information about L & H acquired by the Defendant became the property of the Plaintiff.
  • The Defendant's breach of fiduciary duty arose from a conflict of interest. He acquired the option to make a personal profit while in a fiduciary capacity. Thus, he could only escape his duty by informed consent from the principals.
    • Approval of two of three trustees was ineffective.
    • The letter from Boardman to the Defendant contained insufficient detail. It did not amount to adequate disclosure.
  • It was immaterial that (a) neither the trustees nor the beneficiaries (the Plaintiffs) could take advantage of the information about L & H; and (b) the Plaintiffs benefited from the actions.

References

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