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What constitutes a breach of fiduciary duty?

On Behalf of | May 19, 2021 | Business Litigation

“Fiduciary duty” refers to the obligation one party has to act in another’s interest. As examples, a trustee has a fiduciary duty to beneficiaries, and an attorney has a fiduciary duty to clients. In Texas and elsewhere, the fiduciary must also have no conflict of interest. A breach of fiduciary duty occurs if the fiduciary does not fulfill their duty to the other party, known as the principal.

Establishing fiduciary duty

If a breach occurs, it may be possible to take legal action against the party that failed to carry out this fiduciary duty. However, there are four elements that need to be in place for business litigation regarding a lapse of fiduciary duty to be successful. Fiduciary duty goes above and beyond the ethical duty a business has to its customers, and the first element involves establishing the existence of this fiduciary duty, ideally in writing.

Breach, damages and causation

Next, it is necessary to show what the breach was. It must be the fault of the fiduciary and not the principal. For example, if the principal provided the wrong information to the fiduciary, the fiduciary would not be held responsible. It is also necessary to show that there was financial harm as a result of the fiduciary’s actions. Finally, there must be a causative link between the damages and the actions of the fiduciary. This is not always straightforward. For example, there might be a dispute about how a trustee manages a trust and what is in the best interests of the beneficiary.

A fiduciary breach may happen in a number of different situations, such as between employee and employer, a director and company, or an accountant and client. If you believe that you have suffered damages from such a breach, you may want to contact an attorney to discuss your options and what you should do next.