The Economic Structure Of Trusts And Fiduciary Obligation Essay

The Economic Structure Of Trusts And Fiduciary Obligation - Essay Example The inflexibility of the no conflict rule and the no-profit rule seems hardly fair in the field where discretion requires the utmost flexibility in decision-making. The no-profit rule has also been segregated from the no conflict rule6 and the rationalization of the no-profit rule makes sense. In Swain v Law Society Oliver LJ stated that no profit rule is predicated on the distinct principle that obtaining a profit without authorization is a breach of fiduciary duties because the profit itself is actually trusted property.7 The no-profit rule is therefore not entirely inflexible as trustees may make a profit out of the trust with the proper authorization. 8 However, should a beneficiary complain of a breach of trust pursuant to the no-profit rule, it may be difficult for the trustee to claim that the profit was authorized.9 The no profit rule is intricately tied to the no conflict rule as the operation of the no conflict rule is often applied to the making of profits.10 For instance, in Industrial Development Consultants Ltd. v Cooley it was held that the trustee must account for profits made in his competing business.11 Although the ruling was obviously made pursuant to the no conflict rule, the case clearly related to making profits and thus the no-profit rule. It would, therefore, appear that the no-profit rule is ultimately unnecessary as any conduct amounting to the making of a profit can properly be dealt with under the no conflict rule. As for the no conflict rule, there is considerable debate over whether or not the rule should be stricter or more relaxed or constructed with greater flexibility.12 However, the House of Lords’ ruling in Boardman v Phipps makes it clear that the no conflict rule is strictly applied.