FHR European Ventures LLP and others v Cedar Capital Partners LLC

An agent holds on trust for the principal any benefit acquired as a result of the agency and in breach of fiduciary duty. This rule includes bribes and secret commissions. It applies even where the principal had no pre-existing proprietary interest in the benefit and could not have acquired it.

The principal therefore has both a personal claim for an account and a proprietary claim. The proprietary claim permits tracing and following in equity and gives priority over the agent’s unsecured creditors if the agent becomes insolvent. Earlier authorities denying proprietary relief for bribes and secret commissions no longer represent English law.

FHR European Ventures LLP and others v Cedar Capital Partners LLC arose from the purchase of the company owning the Monte Carlo Grand Hotel. Cedar acted as the purchasers’ agent but also received a €10m fee from the vendor under an undisclosed brokerage agreement.

Simon J found that Cedar had failed to obtain the purchasers’ fully informed consent. He declared Cedar liable for breach of fiduciary duty and ordered payment of the €10m, but refused a proprietary remedy: [2012] 2 BCLC 39 and [2013] 2 BCLC 1. The Court of Appeal allowed the purchasers’ appeal and declared that Cedar had received the fee on constructive trust: [2013] EWCA Civ 17, reported at [2014] Ch 1. Cedar appealed on the sole question whether a bribe or secret commission received by an agent is held on trust for the principal.

1. The appeal was dismissed unanimously. The Court of Appeal had correctly declared that Cedar received the €10m secret commission on constructive trust for the purchasers.

2. An agent must not profit from the agency or place personal interests in conflict with the duty owed to the principal. A benefit acquired as a result of the agency and in breach of that fiduciary duty is held on trust for the principal. The rule applies to every such unauthorised benefit, including a bribe or secret commission.

3. The principal need not show a pre-existing beneficial interest in the benefit or the opportunity from which it arose. Nor does it matter that the principal could not properly have obtained the benefit. Equity treats the agent as having acquired it for the principal and does not permit the agent to rely upon the agent’s own breach of duty.

4. The principal has a personal claim requiring the agent to account for the value of the benefit. The trust also supplies a proprietary remedy, between which remedies the principal may elect. Proprietary relief enables the principal to trace and follow the benefit in equity and gives priority if the agent becomes insolvent.

5. The broader rule was supported by principle, simplicity and consistency between the duty to account and beneficial ownership. It also avoided artificial distinctions between money, shares and other benefits. The potential disadvantage to unsecured creditors was outweighed by the impropriety of including a bribe or secret commission in the agent’s estate and by the principal’s justified ability to trace its proceeds. The reasoning of Attorney General for Hong Kong v Reid [1994] 1 AC 324 was preferred.

6. Metropolitan Bank v Heiron and Lister & Co v Stubbs represented a wrong turn and were overruled. Powell & Thomas v Evan Jones & Co, Attorney General’s Reference (No 1 of 1985) and Sinclair Investments Ltd v Versailles Trade Finance Ltd were also overruled so far as they relied upon or followed those decisions. Tyrrell v Bank of London was disapproved and did not prevent adoption of the broader rule.

• United Kingdom Supreme Court: Cedar’s appeal was dismissed unanimously, and the proprietary declaration was upheld: [2014] UKSC 45.
• Court of Appeal: The purchasers’ appeal was allowed. The court declared that Cedar received the €10m on constructive trust for them absolutely: [2013] EWCA Civ 17, reported at [2014] Ch 1.
• High Court (Simon J): Cedar was found liable for breach of fiduciary duty and ordered to pay the €10m, but a proprietary remedy was refused: [2012] 2 BCLC 39 and [2013] 2 BCLC 1.