Thursday, 31 January 2013

UK: England and Wales: fiduciaries, secret profits and the constructive trust

Earlier this week the Court of Appeal gave judgment in FHR European Ventures LLP v Mankarious & Ors [2013] EWCA Civ 17 and in doing so revisited its earlier (and controversial) decision in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347. A summary of the decision has been provided by the ICLR - see here - the headnote from which reads: "Where a fiduciary, having been involved in advising a purchaser as to the purchase of a hotel, was later found to have benefited by way of a secret commission, it was not necessary, in order to found a constructive trust by reference to the 'loss of opportunity' class of case, to identify some form of beneficial ownership of the opportunity itself."

This headnote does not, however, capture much of the controversy and debate that has arisen following Sinclair in England and elsewhere. The Chancellor (Lord Justice Etherton), in his judgment, stated that the facts of the case highlighted the difficulties with the analysis in Sinclair which had made the law more complex and uncertain. If Sinclair correctly represented the law, and greater coherency and simplicity were required, then in the Chancellor's view it was necessary to revisit many longstanding decisions and to provide an overhaul of the entire area of the law of constructive trusts. If that was a task for the courts (rather than Parliament) then it was one for the Supreme Court, which could consider, amongst other things, whether Sinclair was right to decide that Lister & Co v Stubbs (1890) 45 ChD 1 was to be preferred to AG for Hong Kong v Reid [1994] AC 324. In this regard the Chancellor identified several important questions of policy including the ability to strip the fiduciary of all benefits, the importance attached to the protection of those to whom fiduciary duties are owed, and the position of other creditors on the fiduciary's insolvency who may be prejudiced by a constructive trust or proprietary relief in favour of the fiduciary's principal.

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