UK: Supreme Court judgment in FHR - bribes are held on trust (and subject to a proprietary claim)

The Supreme Court gave judgment earlier today in FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45: see here (pdf). A summary of the court's decision is available here (pdf). A panel of seven justices heard the appeal; the court's judgment was delivered by the President, Lord Neuberger. The court unanimously held that bribes (or secret commissions) received by an agent are held on trust for the principal.

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.

UK: England and Wales: agents' fiduciary duties - a reminder from the Court of Appeal

In Boston Deep Sea Fishing v Ansell (1888) 39 Ch. D. 339, a company director secretly received commission from shipbuilders with whom an order had been placed on the company's behalf. The Court of Appeal found him in breach of fiduciary duty. More recently, in Imageview Management Ltd v Jack [2009] EWCA Civ 63, the Court of Appeal reiterated the strictness of the fiduciary duties to which agents are subject in a case concerning a football agent. The agent was liable for a payment he received from a football club. The payment was received without the knowledge of the agent's client (the footballer). One of the judges, Mummery LJ, expressed a regret (at para. [65]): 

... that it is still necessary, in the 21st century, to remind agents of what was said by the greatest of all the judges, Bowen LJ in Boston Deep Sea Fishing at pages 362-363, about conflicts of duty and interest and the necessity for transparency in the dealings of agents, if confidence in them is to continue. In our age it is more important than it ever was for the courts to hold the precise and firm line drawn between payments openly, and therefore honestly, received by agents, and undeclared payments received by agents secretly, and therefore justly liable to all the legal consequences flowing from breaches of an agent's fiduciary obligations".

Note: Section 176 of the Companies Act (2006) provides that a director must not accept a benefit from a third party conferred by reason of his being a director or his doing (or not doing) anything as a director. 

Update (17 February 2009): the case has been reported by the ICLR as part of its WLR(D) service: see here.