Bribe and prejudice — Supreme Court decision on bribes or secret commissions received by fiduciaries

The Supreme Court’s recent judgment in FHR European Ventures LLP and others v Cedar Capital Partners LLC clarifies the treatment of bribes or secret commissions received by agents or those in fiduciary positions. The question before the court was whether a bribe or secret commission received by an agent was held by that agent on constructive trust for his principal or whether the principal’s remedy lay in a claim for equitable compensation for the value of the bribe or commission. In circumstances where a bribe or commission is held on trust, the principal’s claim is proprietary, whereas if the principal’s claim is for equitable compensation, his claim is not proprietary but rather a personal claim against the agent or fiduciary.

In the judgment of the court, delivered by Lord Neuberger, it was noted that the position was previously unclear, following more than 200 years of inconsistent judicial decisions on the issue. However, his Lordship concluded that, taken as a whole, the authorities (along with ‘arguments based on principle and practicality’) supported FHR’s case that bribes or secret commissions paid to fiduciaries were held on trust for the benefit of the principal. Furthermore, his Lordship made it clear that previous authorities often referred to in support of the contrary position (i.e. that bribes gave rise to a claim for equitable compensation only) should be treated as overruled. 

In December 2004, the respondent, FHR, purchased the issued share capital of a Monte Carlo hotel company for €211.5m (£168m). The appellant, Cedar, which provides consultancy services to the hotel industry, acted as FHR’s agent in negotiating the purchase, and thus owed fiduciary duties to FHR. Cedar had also entered into an exclusive brokerage agreement with the seller, pursuant to which the seller was to pay Cedar €10m following the sale of the hotel company. The €10m brokerage fee was paid to Cedar in January 2005…

Click on the link below to read the rest of the Dentons briefing. 

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