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When can fiduciary duties arise between commercial parties?

Although it is unusual for fiduciary duties to arise in purely commercial relationships, the High Court has recently found that a fiduciary duty did exist between two businesses collaborating over a sales lead.

Fiduciary duties (or trustee-like duties) normally arise where one party (A) acts for, or on behalf of, another party (B) in circumstances which give rise to a relationship of trust and confidence. It is an established law that fiduciary relationships do not necessarily require an explicit undertaking and arise where A undertakes and is entrusted with authority to manage B’s affairs and has substantial power to make decisions on B’s behalf.

There are certain established categories of fiduciary relationship, such as those between a trustee and beneficiary and an agent and principal. It is unusual for fiduciary duties to arise in purely commercial relationships but in the recent case of Motoring Organisation Ltd v Spectrum Insurance Services Ltd [2024] EWHC 261 (Comm) (9 February 2024) the High Court found that the defendant owed the claimant a fiduciary duty.

As part of merger talks, the claimant (The Motoring Organisation Limited, a warranty and after-sales product provider) informed the defendant (Spectrum Insurance Services Limited, an insurance provider for the motor industry) of a business opportunity with an insurance customer. When the defendant tried to exploit the opportunity, the claimant argued that the lead belonged to the claimant and the defendant was only entitled to profit if a merger went ahead.

There were three different aspects to the claim.

Breach of contract

The claimant alleged that it had been agreed the defendant would only exploit the business opportunity if the merger proceeded and that the defendant’s actions were in breach of contract. The defendant tried to argue that as there was no written agreement between the parties, it could not be proved that such an agreement in fact existed.

The judge accepted that while the absence of a written agreement would usually be persuasive, it depends on the particular context. Here, many of the parties’ previous dealings were unwritten and although the claimant internal documents did not provide a direct record of the agreement, they were broadly consistent with the existence of an agreement and so concluded that there was an oral agreement between the parties.

Fiduciary duty

The judge noted that it is very unusual for fiduciary duties to arise in purely commercial relationships outside of recognised relations (such as those mentioned above). This is because a fiduciary relationship involves one party subordinating its interests in favour of those of another, which would not be normal in most commercial relationships. However, the court found that in light of the terms of the parties’ agreement in this case, the defendant was prevented from putting its own interests ahead of those of the claimant.

The judge referred to examples of fiduciary duties in joint ventures where one party has control of assets which are to be exploited for the benefit of both parties. The fact that in this case, practical control of the sales opportunity had been handed to the defendant to be exploited exclusively for the claimant’s benefit, was indicative of a fiduciary relationship existing. Parties can trust each other without there being any fiduciary relationship but here the claimant trusted the defendant to act exclusively in the claimant’s interests when exploiting the sales opportunity because of the oral agreement entered into between the parties. The long-standing nature of some of the relationships between the individuals in this case may also have played a part in the judge’s decision.

Breach of confidence

The judge rejected the defendant’s argument that the details of the sales opportunity were not confidential because they had been shared with other insurance warranty providers and that the claimant was simply a conduit for information to flow from the customer to the underwriter. In fact, the information had only been provided to pre-identified providers (and not more widely). The claimant had passed the information to the defendant for its own reasons, not as a mere conduit, and had sufficient interest in the information to prevent its unauthorised use.

Although the case turned on its particular facts, it highlights that in some commercial relationships – where a particular level of trust and confidence is involved – one party might owe a fiduciary duty to another. Parties who agree to collaborate in a close manner need to take particular care, particularly if one party plans to depart from the collaboration and act in a more unilateral way which is contrary to the interests of the other party.

If you have any questions arising from this article, please contact Petia Tzvetanova at [email protected].