No fiduciary duty: Overview, definition, and example
What is no fiduciary duty?
"No fiduciary duty" refers to a clause in a contract that explicitly states that one party does not owe the other party any fiduciary responsibilities. A fiduciary duty is a legal or ethical obligation to act in the best interest of another party, typically seen in relationships such as between a trustee and beneficiary or a corporate director and shareholders. When a contract includes a "no fiduciary duty" clause, it clarifies that one party is not required to act with the high level of loyalty, trust, or care that a fiduciary relationship would entail.
Why is no fiduciary duty important?
The "no fiduciary duty" clause is important because it helps define the scope of the relationship between the parties involved. By including this clause, the parties clarify that there is no expectation of the type of loyalty or care that a fiduciary relationship would require, allowing them to manage their own interests without being legally bound to prioritize the other party's interests above their own. This is especially useful in commercial transactions, where each party may have different objectives, and the relationship is more transactional than one involving trust or reliance on fiduciary duties.
Understanding no fiduciary duty through an example
Imagine two companies enter into a contract for the sale of goods, and one of the companies is providing certain services to the other, such as advice or expertise. A "no fiduciary duty" clause in the agreement specifies that the company providing services does not owe the purchasing company any fiduciary duty, meaning it is not obligated to act solely in the best interest of the purchasing company. Instead, the service provider may act in their own interest as long as they fulfill the terms of the contract. This clause ensures that both parties understand that the relationship is not one of trust or loyalty, but rather a commercial arrangement.
In another example, a business hires a consultant to provide strategic advice. The contract may include a "no fiduciary duty" clause to ensure the consultant is not held to the same standard of care or loyalty that a fiduciary would be. This protects the consultant from any legal obligations to prioritize the business’s interests above their own or to disclose potential conflicts of interest beyond what is required by the contract.
An example of a no fiduciary duty clause
Here’s how a no fiduciary duty clause might look in a contract:
“The parties agree that no fiduciary relationship exists between them under this Agreement. Neither party shall be obligated to act in the best interests of the other, except as expressly set forth in this Agreement.”
Conclusion
A "no fiduciary duty" clause is important for defining the scope of the relationship between parties, particularly in commercial contracts, where the expectation of trust and loyalty typically associated with fiduciary duties may not be appropriate. By clarifying that no fiduciary duties are owed, the parties ensure that they are free to act in their own best interests within the bounds of the contract, without the burden of fiduciary responsibilities. This clause provides clarity and helps avoid misunderstandings in business relationships.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.