New judgment: FHR European Ventures LLP & Ors v Cedar Capital Partners LLC  UKSC 45
16 Wednesday Jul 2014
On appeal from:  EWCA Civ 17
Cedar Capital Partners LLC brought an appeal against the CA’s declaration that it had received a €10m fee on constructive trust for the claimants while acting as their agent in providing consultancy services to the hotel industry. The question for the Supreme Court was whether a bribe or secret commission received by an agent is held by that agent on trust for its principal, or whether the principal merely has a claim for equitable compensation in a sum equal to the value of the bribe or commission. If it is the former, then the principal has a proprietary claim to the money. If it is the latter, then the claim is not proprietary. The distinction is important because if the principal has a proprietary claim to a bribe or commission, the principal will have priority over the agent’s unsecured creditors if the agent becomes insolvent. The principal will also be able to trace and follow the claim in equity.
In unanimously dismissing the appeal, the Supreme Court reiterated the general equitable rule that where an agent acquired a benefit which came to his notice as a result of his fiduciary position, or as the result of an opportunity which results from his fiduciary position, he should be treated as having acquired the benefit on behalf of his principal, so that the benefit is beneficially owned by the principal.
Here, the question was the extent to which that rule applies where the benefit is a bribe or secret commission which the agent obtained in breach of his fiduciary duty to his principal. The Supreme Court found that while it was not possible, as a matter of pure legal authority, to definitively determine the issue of the extent of the rule, consideration of practicality and principle support the case that a bribe or secret commission accepted by an agent is held on trust for his principal.
For judgment, please download:  UKSC 45
For court’s press summary, please download: Court’s Press Summary
For non-PDF version of the judgment, please visit: BAILII