Could you be mistaken in thinking that company directors owe fiduciary duties to shareholders?

What Is a Fiduciary Relationship?

A fiduciary relationship arises in circumstances where one party, due to the nature of its position, owes a duty of loyalty, honesty and trustworthiness to another party, usually because it has control over money and or property belonging to that party. The party owing the obligation is known as the "fiduciary", a term originating from the Latin word fiducia, meaning 'trust'.

You might then be mistaken for thinking that shareholders, as owners of a company, are owed fiduciary duties by directors, given that directors are entrusted by shareholders to run the day-to-day affairs of a company, and have wide discretion to control and direct its finances and assets. However, as a general rule of English common law, company directors do not, solely by virtue of their office, owe fiduciary duties to shareholders. The High Court revisited this notion whilst presiding over a recent case.

Misleading Shareholders

During the course of a management buy-out, members of the management team of Updata Infrastructure UK Ltd (U) purchased shares in U via a newly incorporated company (newco). The claimants in this case were shareholders of U prior to the sale in 2009. They claimed U's management had deliberately misled them about the company's value, causing them to sell their shares to newco at an unduly low price. They claimed the management had breached fiduciary duties owed to them by providing false information about U's financial position.


The court held there was 'no doubt' that the general common law position still applies, and that directors may only be deemed to owe fiduciary duties to shareholders where 'special circumstances' or 'special relationships' exist. Whilst the court did not provide an exhaustive list of when such exceptions to the rule might apply, it did provide some guidance on when fiduciary relationships might exist between directors and shareholders:

"The cases where such duty has been held to exist mostly concern companies which are small and closely held, where there is often a family or other personal relationship between the parties, and where, in almost all cases, there is a particular transaction involved in which directors are dealing with the shareholders".

The court was clear that:

  • the mere fact that a director is purchasing shares from a shareholder is not in itself sufficient to give rise to a fiduciary duty; and further
  • the mere fact that a director has more knowledge of the company's affairs, or that his or her actions have the potential to affect the shareholders, does not amount to 'special circumstances', or give rise to a 'special relationship' between directors and shareholders. Such features are usual, indeed inevitable, features of the relationship between directors and shareholders of a company.

The claimants in this instance were unable to satisfy the court that a 'special relationship' existed between the shareholders and directors of U, however the defendants were found liable in other causes of action for having provided false information to the selling shareholders.

What Can You Learn from This Case?

This recent case confirms that the threshold to establish a fiduciary relationship between shareholders and directors remains relatively high. However, each case will be determined on its own facts, and clearly if special circumstances or relationships do exist between the parties, directors may be found to have a further layer of accountability, beyond the usual statutory duties.