UK: The DIFC Law Of Obligations: Fiduciary Duties

Last Updated: 26 February 2013
Article by Sara Khoja and Rachel Chadwick

In a previous legal update "The role of General Manager in the UAE: time for a fiduciary duty?" we examined the role of a "manager" within onshore companies in the UAE. In this legal update we examine the existence of fiduciary duties under Law No 5 of 2005 (DIFC Law of Obligations) and the potential scope of these provisions as applied to employees including managers.

What is a fiduciary relationship?

Part 8, section 158 (1) of the DIFC Law of Obligations states that: "a person is a fiduciary of another if he has undertaken (whether or not under contract) to act for or on behalf of another in a matter in circumstances which give rise to a relationship of trust and confidence."
Section 158(2) states that the following (amongst others) are presumed to be fiduciaries:

  • an employee as to his employer;
  • a director of a company, as to the company;
  • a partner of a partnership, as to the other partners; and
  • a member of a limited liability partnership, as to the limited liability partnership.

The law recognises that special obligations apply to an individual who is placed in a position of trust by virtue of the role he undertakes. An employee, director or manager will, in carrying out his duties or role, exercise a degree of discretion and need to apply his own judgment in doing so. This discretion and the decisions the employee, director or manager makes in performing his duties, has a direct effect on his employer's interests and that of the business generally. The scope of the duty owed must be assessed in the context of the commercial circumstances and the range of obligations undertaken.

What duties does a fiduciary owe?

The main obligation of a fiduciary is loyalty and this can be broken down further into the following duties (which are listed in schedule 3 of the DIFC Law of Obligations):

  • Good faith and loyalty: the fiduciary must act in good faith and in his principal's best interests without regard to his own interests; which means providing full disclosure of any information which may be relevant to the principal.
  • No conflict of interest: a fiduciary must not place himself in a position where his own interest conflicts with that of his principal or where there is a real possibility for such a conflict.
  • No secret profits: a fiduciary must not use the principal's property, information or opportunities for his own or anyone else's benefit unless the principal has granted prior consent or the use has been fully disclosed and the principal has approved it.
  • Confidentiality: a fiduciary must only use or disclose information obtained in confidence from a principal for the benefit of the principal.
  • Care, skill and diligence: in carrying out his duties. The fiduciary must do so with the care, skill and diligence to be reasonably expected of someone with his knowledge and experience.

What action may be taken for a breach of fiduciary duty?

  • Injunction: an injunction may be applied for from the DIFC Court to prevent the disclosure of confidential information or the fiduciary from taking certain action, for example, working for a competitor or misusing confidential information. If granted this injunction would need to be registered with the onshore UAE Courts for enforcement onshore, which could be problematic. The DIFC Court may also make a search order, or require the employee to deliver up, preserve, disclose or destroy the stolen documents or IT equipment containing the confidential information.
  • Setting aside: an agreement entered into by the fiduciary in breach of his duties could be set aside by the DIFC Court.
  • Account of benefit or profit: a claim may be brought against the fiduciary to account for any gain made as a result of the breach for example, diverting a business opportunity to his own business.
  • Damages: the fiduciary could be sued for the loss suffered as a result of his breach.
  • Regulatory sanction: depending on the sector in which the fiduciary operates, he may face sanction by a regulator such as The Dubai Financial Services Authority. Depending on the seriousness of the breach, criminal action may also be taken (the UAE Penal Code being applicable within the DIFC).
  • Dismissal or removal from office: depending on the level of breach, a director may be removed from office without compensation. A manager, employee or director may be summarily dismissed without notice or end of service gratuity.

Examples from UK Case law

The Law of Obligations is based on English case law and legislation; as such it is useful to see how the English courts have interpreted the duties of a fiduciary to see how a DIFC Court may apply the provisions of the Law of Obligations to employees, managers or directors.
In the UK, certain fiduciary duties owed by directors have been codified by the Companies Act 2006 and include duties to act within its powers, to promote the success of the company, to exercise independent judgment, to avoid conflicts of interest, not to accept the benefits of third parties and to declare an interest in a proposed transaction or arrangement.

English case law has distinguished between the level of duty owed by an employee, a senior employee and a director or manager. An employee is bound by a "duty of fidelity" requiring him to serve his employer with good faith and fidelity, not to make a secret profit or place himself in a position where his duty and his interest may conflict (for example, by working for another employer) and not to act for his own benefit or the benefit of a third party without informed consent of his employer. However, the duty of fidelity does not require the employee to put his employer's interests entirely before his own interests at all times and in all circumstances.

In contrast, a director or a senior employee in a fiduciary relationship with his employer is required to have "single minded, undivided loyalty"; being expected to report the misuse of confidential information by a fellow employee or even his own, be expected to pass on the benefit of every opportunity falling within the scope of the employer's business and report all competitor activity and opportunities within the fiduciary's knowledge.

With regard to directors it is worth noting that the following principles have been developed:

  • the duty is subjective; provided the director has exercised his powers diligently and in good faith, it is irrelevant that his conclusion as to what was in the best interests of the company differs from what a court could conclude;
  • the duty to account for any benefit or unauthorised profit is strict and does not depend on fraud, lack of good faith or the company suffering any loss; and
  • certain aspects of the duty to avoid conflicts of interest (for example, with regards to property, information or opportunities of which he became aware during the tenure of directorship) and not to accept benefits from third parties (regarding actions done or omitted before he ceased being a director) continue after the directorship ends.

Emirate of Dubai Law No 16 of 2011 - choice of jurisdiction in the UAE for resolving disputes

The DIFC is a separate jurisdiction within which the UAE civil and commercial laws do not apply. Before October 2011, for the DIFC laws to apply there had to be a nexus between the DIFC and the agreement; for example one or all the parties was based in the DIFC, or the contract was performed in the DIFC.

Following the introduction of Dubai Law No 16 of 2011, it is open to the parties of an agreement to choose the DIFC law and the DIFC Courts as the governing law and jurisdiction for any disputes arising out of the agreement. It is therefore possible for an employer and employee or director and a company based outside the DIFC, to agree that DIFC law will govern an agreement and that the DIFC Court will have jurisdiction.

However, the scope of this option is limited in the employment context given the onshore application of the UAE Federal Labor Law, the requirement to register prescribed form employment contracts with the applicable free zone or the Ministry of Labour. Very often, the lack of a duty of loyalty is highlighted in the onshore regulatory framework when an employee or manager is discovered to have put himself in a position of conflict with an employer and, yet the Federal Labour Law does not permit termination without notice or payment of end of service gratuity.

For very senior managers and employees, putting in place a separate agreement regarding fiduciary duties governed by DIFC law and subject to DIFC Court jurisdiction, may be an additional framework to govern expectations and the relationship. The employer and employee would agree as a matter of contractual agreement that each would be bound by the Law of Obligations.

Click here to view the legal update "The role of General Manager in the UAE: time for a fiduciary duty?".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Sara Khoja
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.