In Fermoy Fish Limited v Canestar and Dan O'Regan  IESC 93 the Supreme Court held that the respondents, who had undertaken by contract to manage customer accounts for the appellant, had a fiduciary duty (in addition to a contractual obligation) to pass on all payments it received from customers on behalf of the appellant. However breach of that duty did not entitle the appellant to damages, as the appellant had not shown, in the High Court proceedings, that it had suffered any loss by not receiving the payments due. Nor did the respondents' breach of fiduciary duty entitle the appellant to withhold fees contractually due to the respondents for management services.
Fermoy Fish Limited (the appellant) supplied fish to Canstar, (the first respondent), which was in the business of packaging, distributing, and supplying fresh and frozen fish to customers. The first respondent got into financial difficulty and owed the appellant almost €900,000. The parties reached an agreement whereby the appellant would purchase the first respondent's assets and goodwill and pay it to manage its customer accounts for two years in return for a management fee plus bonus payments if they achieved set sales figures. To that end an asset sale agreement (ASA) together with a consultancy agreement were concluded by the parties. It later transpired that the first respondent used €484,896, received from the customers on behalf of the appellant, to discharge its own debts. As a result the appellant withheld payments contractually due to the first respondent under the contract.
The High Court granted an interlocutory injunction freezing the first respondent's bank account. The parties then exchanged pleadings, making claim and counterclaim for sums alleged to be due to each party. The High Court rejected the appellant's argument that the first respondent owed it a fiduciary duty and was in breach of trust by its non-payment of €484,896, and held the first respondent to be entitled to judgment for €420,682 after taking into account all sums due to the appellant.
The appellant appealed that decision to the Supreme Court.
Ms Justice Dunne (the other judges concurring) allowed the appeal by the appellant and varied the order of the trial judge.
Breach of fiduciary duty
The Supreme Court held that there was a breach of a fiduciary duty on the part of the respondents to the appellant. The Court noted that the trial judge had observed that there was a clear obligation on the respondents to ensure that monies would be lodged to the appellant's account, and the first respondent had wrongly converted monies due and owing to the appellant, for its own use, and the court could not condone the non-compliance with the agreement and the wrongful conversion of funds. The Court held that the trial judge, having made these observations, was mistaken in coming to the conclusion that there had not been a breach of fiduciary duty.
Ms Justice Dunne stated that she agreed with the views expressed by Feeney J. in Clements & Ors v Meagher & Ors  IEHC 258 as to the meaning of a fiduciary position and the nature of a fiduciary relationship. In that case, Feeney J stated that "Whilst there is no universal or uniform description of a fiduciary relationship, the approach adopted by Millett L.J. in Bristol and West Building Society v Mothew  Ch 1 at p.18, is apposite: - 'A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty… A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.' "
The Court found that by virtue of the agreements entered into between the parties, the first respondent was in a fiduciary relationship with the appellant and owed it a fiduciary duty.
Effect of the finding of breach of fiduciary duty
The appellant argued that a finding that there was a breach of fiduciary duty could give rise to three possible remedies:
- A claim for damages for breach of fiduciary duty.
- An entitlement on the part of the appellant to refuse to pay fees to the respondents under the consultancy agreement.
- A claim for interest at the Courts Act rate on the sum of €484,896 up to the date of judgment.
The Court held that it could not make an award of damages in respect of any loss which occurred due to the breach of fiduciary duty. This was due to the fact that the appellant, in the proceedings before the High Court, had not adduced any evidence of loss suffered by not receiving payments in the sum of €484,896 when due. As the matter was not addressed at first instance, there was no basis for remitting the question as to whether the appellant was entitled to damages for breach of fiduciary duty, and if so, the amount of such damages.
The Court also rejected the appellant's second argument that, due to the breach of fiduciary duty, it was entitled to refuse to pay fees due to the respondents pursuant to the consultancy agreement (under which the respondents had agreed to manage customer accounts on behalf of the appellant).
In regard to the claim for interest, the Court noted that there was no provision for interest in the ASA or the consultancy agreement, and accordingly the only basis upon which interest could be claimed was pursuant to the provisions of section 22 of the Courts Act 1981. The power to award interest under section 22 is a discretionary power. The Court held that the trial judge was entitled in his discretion to disallow the claim for interest, and that there was no basis for interfering with that discretion, as it was clear that the trial judge had taken into account the deliberate withholding of money due.
The Court was satisfied, however, that the trial judge had fallen into error when calculating the sums due to the respondents, and varied the order to take account of that.