FHR European Ventures Llp & Ors v Mankarious & Ors

A fiduciary’s receipt of money in breach of duty ordinarily gives rise to a personal equitable claim and an account, rather than a proprietary claim. A proprietary claim arises only where the money was, or had been, beneficially the claimant’s property, or where the fiduciary acquired it by taking advantage of an opportunity properly belonging to the claimant. A secret commission is not ordinarily an asset of the beneficiary, and an opportunity to obtain a reduced purchase price is not, without more, a relevant proprietary opportunity.

Following judgment on liability, the parties agreed the form of order except for costs and the wording of the declaration. The claimants alleged that Cedar Capital Partners had received a €10 million secret commission in connection with the sale of a hotel, in breach of fiduciary duties owed to them.

The court had to decide whether all three defendants should be jointly and severally liable for costs and whether the declaration should state that Cedar had received the commission on constructive trust for the claimants, or should instead require an equitable account without determining a proprietary interest.

1. Costs. The claim and counterclaim had been conducted on the basis that there was no material distinction between the defendants. All three defendants were therefore jointly and severally liable for the claimants’ costs. The parties had agreed that the claimants should recover 90% of their costs.
2. Proprietary relief. The court followed the approach in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347. A beneficiary’s primary claim against a fiduciary who has acquired money in breach of duty is personal and is pursued through an equitable account. A proprietary claim is available only if the money was or had been beneficially the beneficiary’s property, or if it was acquired through an opportunity or right properly belonging to the beneficiary.
3. The claimants had not established either exception. Whether the €10 million derived from their property had not been decided, and the court considered that a secret and unauthorised commission should not presently be characterised as an asset of the beneficiaries. Nor was it appropriate to describe the brokerage agreement as Cedar’s exploitation of an opportunity belonging to the claimants to buy the hotel at a lower price. The reasoning in Cadogan Petroleum plc v Tolley [2011] EWHC 2286 (Ch) supported that conclusion.
4. The earlier reference to a constructive trust in paragraph 103 of the judgment was imprecise and potentially misleading, in the sense identified by Millet LJ in Paragon Finance Plc v DB Thakerar & Co [1999] 1 All ER 400. The appropriate formulation was that Cedar was accountable in equity. The declaration was made in the defendants’ shorter form, with liberty to apply for further equitable relief.