Winckworth Sherwood

UK 200 2013 position: 94

Secret commissions and bribes: recovering a bribe paid to an agent

Whether a bribe or secret commission obtained by an agent is held by the agent on trust for his principal, or whether the principal has only a right to equitable compensation in that amount, was recently considered by the Supreme Court in FHR European Ventures LLP v Cedar Capital Partners.

This question, which the judgment conceded was ‘rather technical sounding’, does have far-reaching consequences. If the agent’s bribe or commission is held on trust for his principal, then the principal has a proprietary right in it, and accordingly can trace in equity, allowing him to follow the money in a bid to reclaim it. In the event of the agent’s insolvency, the principal would also rank above the agent’s unsecured creditors.

By contrast, if the principal is entitled only to equitable compensation, then there is no proprietary interest, and the principal cannot trace the money in equity. Lord Neuberger, delivering the judgment of the court, notes that this is the case ‘unless we develop the law of equitable tracing beyond its current boundaries’, but this possibility was not considered any further. In the event of the agent’s insolvency, the principal would rank pari passu with the other unsecured creditors…

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