The Supreme Court in FHR European Ventures LLP ("FHR") and others v Cedar Capital Partners LLC ("Cedar") (2014) considers some 200 years of inconsistent judicial decisions and academic controversy. It has ruled that a bribe or secret commission received by an agent is held by the agent on constructive trust for its principal. This will have a significant impact on cases relating to the insolvency of a defaulting fiduciary, because the principal will now have priority over unsecured creditors and will also be entitled to follow and trace the unauthorised benefits. Hogan Lovells acted for the successful party in this case.


Cedar, the Appellant, acted as agent for an investor group and its joint venture company, FHR, in the purchase of a hotel. Consequently, it owed fiduciary duties to FHR and its members. At the same time, Cedar also acted for the vendor under an exclusive brokerage agreement (the "EBA"). Under the terms of the EBA, Cedar received a secret commission of €10 million from the vendor in return for securing a sale of the hotel to the investor group. Despite the terms of the EBA, which required disclosure of the commission, Cedar proceeded without disclosure to FHR or its members and thereby failed to obtain their informed consent. Members of the investor group subsequently became aware of the secret commission and requested Cedar repay it to FHR.

Cedar refused to repay, so FHR and the investor group brought proceedings. They were successful at first instance on liability but the Court found that Cedar's obligation to repay was personal, rather than proprietary. This finding was important as Cedar was by then insolvent and, therefore, in order to receive the secret commission FHR required the right to trace it into other assets.

The distinction between personal and proprietary remedies is significant for the following two main reasons:

  1. if the agent becomes insolvent, a proprietary claim would effectively give the principal priority over the agent's unsecured creditors, whereas the principal would rank equally with other unsecured creditors if he only has a claim for compensation; and
  2. if the principal has a proprietary claim to the commission or bribe, he can trace and follow it in equity.

FHR appealed and won, with the Court of Appeal finding that Cedar held the secret commission on constructive trust for FHR and the investor group. Cedar subsequently appealed to the Supreme Court.

The central issue for the Supreme Court was the application and reach of the equitable rule that, where an agent acquires a benefit which came to his attention by virtue of his fiduciary position or pursuant to an opportunity which results from his fiduciary position, he is treated as having acquired that benefit on behalf of his principal, so that it is beneficially owned by his principal (the "Rule"). In such cases, the principal has a proprietary remedy in addition to his personal remedy against the agent. The question was therefore whether the Rule applied to secret commissions or bribes.  If it did then Cedar would hold the secret commission on trust for FHR, giving it a proprietary claim over the money; if it did not, then FHR merely had a personal claim against Cedar for equitable compensation.


The Supreme Court found that bribes and secret commissions fell within the ambit of the Rule.  In giving this judgment, which has provided clarity of the legal position, the Court disapproved of the House of Lords' decision in Tyrrell v Bank of London (1862) and overruled the decisions in Metropolitan Bank v Heiron (1880) and Lister & Co v Stubbs (1890) and any subsequent decisions, to the extent that they relied on these judgments (Sinclair Investments Limited v Versailles Trade Finance Limited (2012)) saying that the law had taken a "wrong turn".  The Court noted that previous decisions on this issue had led to confusion, given that some went one way, and some another.

This judgment turned on a number of factors, not least that there "is no plainly right answer" and that it is important to achieve certainty on this issue. The Court, therefore, opted for a simple approach to the application of the Rule. Further arguments favouring FHR included that secret commissions are objectionable as they undermine trust in the commercial world, and that it is possible that any bribe or secret commission will have disadvantaged the principal, rendering it correct to be able to trace the proceeds of such payments into other assets.


This is a significant judgment that clarifies and reinforces equitable principles. It provides a coherent and predictable way to deal with the remedial consequences of unlawful exploitation of business opportunities. Unsecured creditors of an agent should be aware that any proprietary claim by a principal will have effective priority in the event of an agent's insolvency. Furthermore, they should be aware that a proprietary claim gives the principal the right to trace the bribe or secret commission and follow it in equity. As principals now have a proprietary right to sue for any bribes or secret commissions, these rights are not subject to the Limitation Act 1980 (s. 21(1)(b)).

It is worth noting that the Court deemed it "highly desirable" for overseas jurisdictions to learn from each other in favour of harmonising the development of common law around the world on this issue. Indeed, this case followed the approach of Lord Millet and Finn J in Australia, writing both judicially and extra-judicially. Litigants should be aware that case law from other jurisdictions may provide a useful reference resource.