Marino v FM Capital Partners Ltd

A wrongdoer who receives a bribe is ordinarily liable to surrender that wrongful gain. The claimant’s recovery from another wrongdoer does not reduce this restitutionary liability where each defendant is liable for the amount which that defendant gained.

Where settlement receipts must instead be apportioned among compensatory claims, the approach is fact-sensitive. If the court cannot properly assess unresolved claims without effectively trying them, the claimant may allocate the receipt, subject to the allocation not being obviously unsustainable. This approach promotes settlement and respects case-management orders separating different phases of litigation.

A company obtained judgments against its former chief executive for breach of fiduciary duty, dishonest assistance and the receipt of secret commissions or bribes. The relevant remedies were restitution of bribes and an account of profits. The Commercial Court’s main judgment was [2018] EWHC 1768 (Comm), followed by a consequential judgment concerning recoveries, [2018] EWHC 2905 (Comm).

The company had separately settled all its claims against another former director. It allocated approximately 17% of that settlement to claims determined at the first trial and most of the balance to unresolved claims reserved for a second trial. The former chief executive contended that he should receive credit for all, or alternatively 80%, of the settlement. The central issue was whether the settlement reduced his restitutionary liability and whether the company could make the allocation unless it was obviously unsustainable.

1. Appeal dismissed unanimously. A claim requiring a defendant to restore bribes received, or to account for profits made through a civil wrong, is directed to stripping that defendant’s wrongful gain. It is not a claim measuring the claimant’s loss. Where different wrongdoers have received different gains, each is ordinarily liable in restitution for the amount which that wrongdoer gained. A payment by a settling wrongdoer therefore does not reduce the separate liability of another wrongdoer to surrender his own gain.

2. Restitution for wrongs differs from autonomous unjust enrichment. In the former, the tort or equitable wrong supplies the cause of action and restitution supplies the gain-based remedy. The claimant need not show a direct transfer of value to the defendant. A wrongdoer will also ordinarily be unable to retain the gain through a change-of-position defence. The principle against double recovery remains relevant where defendants are jointly and severally enriched, but it did not require crediting the appellant with the settlement payment in the circumstances of this case.

3. The conclusion on restitution was sufficient to dispose of the appeal. The court nevertheless considered the alternative approach governing recoveries against compensatory claims. That exercise is highly fact-sensitive. Earlier decisions requiring the claimant to establish and value separate claims arose where the trial judge had heard the relevant evidence and could assess the settled claims. They gave very limited guidance where unresolved claims had been excluded from the trial and could not be assessed without effectively conducting another trial.

4. In such circumstances, the judge could accept the claimant’s allocation unless it was obviously unsustainable. Requiring proof that the unresolved claims were likely to succeed would discourage settlement, promote satellite litigation and undermine the phased trial ordered under active case management. The unresolved claims were serious and extensive on their face, and the appellant had not demonstrated their obvious unsustainability. The judge therefore made no error in accepting the pro rata allocation.

1. Court of Appeal (Civil Division): By [2020] EWCA Civ 245, unanimously dismissed the former chief executive’s appeal concerning the allocation of settlement recoveries.

2. Commercial Court: In [2018] EWHC 2905 (Comm), accepted the company’s allocation of the settlement between completed and unresolved phases because the allocation was not obviously unsustainable.

3. Commercial Court: In [2018] EWHC 1768 (Comm), held the former chief executive and others liable for breach of fiduciary duty, dishonest assistance and secret commissions or bribes. The court ordered restitution and accounts of profits in the subsequent orders.