Fiduciary duty in asset management transactions

With the rising number of disputes from asset management transactions in recent years, dealing with such disputes properly is worth discussion. The legal relationship between a client and a manager in asset management transactions – commonly referred to as the fiduciary relationship – should be dealt with under the analytical framework of the fiduciary duty.

Notably, although the process of sale is within the contract negotiation stage, the ultimate goal of the parties is to establish a relationship under the asset management contract. As such, a manager who fails to undertake explanations or clarifications regarding the asset management contract, does not disclose risks, fails to fulfil investor review obligations, or does not arrange a return visit by an individual outside of the promotional team after the expiration of the cooling-off period, can be perceived as harbouring other faults in conclusion of the contract. Each of these situations may constitute a ground for the client to cancel the contract, or claim for the invalidity of the contract, or even constitute a ground for tort, which allows the client to be rid of the contractual relationship.

The asset management contract should be carried out under the framework of the fiduciary duty. Under Chinese law, this fiduciary duty is an abstraction and generalisation of the legal relationship between a client and a manager and is comprised of two types of duties: the duty of loyalty; and the duty of care.

Xu Defeng is an arbitrator with Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC), and a professor at Peking University’s Law School. Catherine Zhou, from the University of Melbourne, also contributed to this article.