The Supreme Court has boosted the potential for investors to recover money taken in bribes and secret payments from insolvent agents who breached their client duties in a ruling handed down yesterday (16 July).
Hogan Lovells client FHR European Ventures LLC was handed the win when the court ruled that a €10m secret fee taken by its adviser, Cedar Capital, was the property of FHR. It means the investor is able to wrest the money from the now-defunct agent for breaching its fiduciary duty with FHR.
The ruling puts to bed a 200-year debate over whether investors have ownership rights or just the right to compensation for monies taken by agents in breach of contract. The precedent-setting ruling will force future insolvent agents to pay back money owed to those who employed them before other creditors, dramatically increasing their chances of recovering the cash.
FHR was represented by Maitland Chambers’ Christopher Pymont QC, who instructed Hogan Lovells partner Rod Baker. Its former agent Cedar Capital Partners turned to set mate Matthew Collins QC, instructed by Farrer & Co partner Jeremy Gordon.
The batle between the hotel investor and its former agent began when FHR Capital Partners hired Cedar, a new hotel consultancy, as its agent to buy the Monte Carlo Grand Hotel in 2004. Unknown to FHR, Cedar’s founder, Ramsey Mankarious, accepted a secret €10m agreement from the vendors to secure a buyer.
In December Cedar advised FHR in its €211.5m acquisition of the issued share capital of Monte Carlo Grand Hotel SAM, which owned the long leasehold on the hotel. When FHR found out about the secret fee it sued the agent to recover it.
In 2011 Mr Justice Simon in the High Court ruled that Cedar had breached its fiduciary duty for failing to obtain the claimants’ fully informed consent for the €10m fee and ordered Cedar to pay the sum to the claimants. However he refused to grant the claimants fiduciary duty in respect of the monies, finding that the agent was only liable personally to the Investor Group.
That decision was overturned in the Court of Appeal in 2013, which declared that the Investor Group was entitled to a proprietary remedy that would enable it to trace the proceeds of the Fee beyond the now insolvent agent.
Supreme Court president Lord Neuberger led a panel of seven to a unanimous decision in the landmark ruling, which both firms trawled through 200 years of case law to fight. The court agreed with Lord Justice Lewison in the Court of Appeal, that the €10m fee in question was a benefit “obtained by the fiduciary by taking an advantage of an opportunity which was properly that of the principal”.
The legal line-up
For the appellant, Cedar Capital Partners LLC
Maitland Chambers’ Matthew Collings QC leading Duncan McCombe instructed by Farrer & Co partner Jeremy Gordon
For the respondent, FHR European Ventures LLP
Maitland Chambers’ Christopher Pymont QC instructed by Hogan Lovells partner Rod Baker