Three Potential Consequences of Breach of Fiduciary Duty

Written and Fact Checked by The Law Dictionary Staff  

There is no legal standard of care higher than fiduciary duty. Fiduciary duty exists in many different contexts and situations, but it essentially refers to times when a special trust or confidence is placed in one party by another. For example, directors of corporations have a fiduciary duty to their shareholders, attorneys to their clients, and doctors to their patients. This high duty of care exists because in many of these cases the person who owes the fiduciary duty to another party is expected to use his or her knowledge or expertise in order to advance the interests of his or her client, shareholder, patient, etc. Because of this high duty of care, breaching fiduciary duty is considered very serious and can result in litigation. Here are just some of the potential consequences of breaching fiduciary duty.

Compensatory Damages

If an alleged breach of fiduciary duties leads to litigation then one of the most common outcomes is for the victim to receive compensatory damages. As their name suggests, compensatory damages are designed to compensate the victim for loss he or she has incurred as a result of the breach. For example, shareholders in a company may argue that a decision made by the director of the company was designed to profit the director at the expense of the shareholders. The shareholders would have to show the court that the director breached his or her fiduciary duty and also show that such a breach resulted in a loss for the shareholders. If such a breach were proven then the court could order the director to pay compensatory damages to the shareholders.

Punitive Damages

In some jurisdictions, violating fiduciary duty can also lead to punitive damages. Punitive damages go beyond compensatory damages and are designed to punish the party that violated the fiduciary duty in question. Such punitive damages not only discourage the defendant from committing the same breach of fiduciary duty in the future, but they also send a message to society at large that breaching fiduciary duty will result in consequences for offenders. Punitive damages are typically only awarded in cases involving fraud or malice.

Professional Consequences

Aside from the monetary damages incurred, professionals may also face other consequences that could significantly hamper their careers. A breach of fiduciary duty by an attorney, for example, could form the basis of a legal malpractice lawsuit. Depending on the specific claims made, such a breach could even result in an attorney eventually getting debarred. Additionally, a breach of fiduciary duty could result in the loss of a professional license or accreditation, such as in cases involving serious breaches of fiduciary duties by a doctor or an accountant. The loss of such licenses could potentially be worse than being ordered to pay financial damages and could lead to an inability to stay in one’s profession of choice.

A fiduciary duty is one of the highest duties of care that currently exist and breaching it is a serious offense. As the above article shows, failing to uphold one’s fiduciary duties could not only lead to major financial consequences, but could even spell the end of one’s career.

More On This Topic



Comments are closed.