Can fiduciary duties be waived by a contractual term?

The question was considered in Floreat Investment Management Limited v Churchill and Others [2022] EWHC 357 (Comm) in a three week fraud trial in the Commercial Court concerning the financing of Reading Football Club.

This was a complex case in which the court made over 100 factual findings. The background to all of those findings is not relevant for the purpose of this article.

Summary of relevant background

In 2017, The Reading Football Club Limited (‘Reading FC’) raised finance of approx. $22.3m from Global Fixed Income Fund 1 Limited (‘the Fund’).

The claimant, Floreat Investment Management Limited (‘FIML’) was appointed by the Fund as its investment manager pursuant to an investment management agreement dated 20 August 2015. (‘the Investment Management Agreement’).

The Fund assigned the claims to FIML.

The first three defendants were directors of the Fund and shareholders in the fourth defendant.  The fifth defendant was the wife of the second defendant.

FIML sought findings from the court in relation to the early repayment of the financing by Reading FC and whether or not the first three defendants were responsible for payments not being received by the Fund.

The (attempted) waiver

Clause 13 of the Investment Management Agreement set out:-

“Waiver of Fiduciary Duties

The Fund hereby agrees that, although [FIML] will take investment decisions and may act as the Fund's agent hereunder, the only duties or obligations [FIML] owes to the Fund are those set out in this Agreement or arising under any applicable statute, law or regulation to which it is subject and that [FIML] does not owe the Fund any other or further duties or obligations (whether arising from the fact that [FIML] is acting as the Fund's fiduciary or otherwise). The Fund hereby also agrees that any consent or waiver given by the Fund in this Agreement (including the schedules) in relation to any duty or obligation [FIML] might otherwise owe to the Fund, as applicable, shall be valid, effective and comprehensive even though the consent (or the disclosure to which it relates) is general only and not specific to the particular transaction concerned.”

It was held that despite its attempt, this clause would still permit a finding that the first three defendants owed fiduciary duties to the Fund as it related to FIML’s obligations and duties and not of the first three defendants, personally. The clause would also still permit a finding that FIML is acting as fiduciary for the Fund – it only limits the obligations and duties owed by FIML to the Fund (the court accepted that the clause itself referred to FIML being a fiduciary of the Fund).

It was held therefore that the clause did not operate as argued, and that the first three defendants owed fiduciary duties to the Fund. This judge’s decision was aided by the dishonesty on the part of the first three defendants.

FIML was also found to be the Fund’s fiduciary and its duties were not waived by the clause.

The decision

It was held by Mr Justice Knowles that:-

  • the first three defendants had diverted and misappropriated part of the fees that were due to the Fund. Those defendants were liable for breach of fiduciary duty, conspiracy and dishonest assistance;
  • the first four defendants were liable for knowing receipt; and
  • the defendants held sums or their traceable proceeds as constructive trustees.

In short, this particular contractual term, in the circumstances, could not be construed as waiving a fiduciary’s duties.

The decision further shows the court’s proclivity towards stopping fraudulent individuals hiding behind the corporate veil.

This article is provided for information purposes only and should not be construed as legal advice. Each set of circumstances should be assessed on its own facts and relevant contractual documentation. If you would like to discuss issues relating to fiduciary duties, please contact Saunders Law on 020 7315 4812 or [email protected].

For specialist sports related enquiries, please contact [email protected].


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