Ramsay Mankarious facilitated, through Cedar Capital Partners, the acquisition of a hotel in Monte Carlo by a group of investors. What Mankarious did not fully disclose was the fact that he was also acting for the sellers of the hotel and received a payment of €10 million for brokering the sale (although he was contractually obliged to disclose this to the purchasers under his agreement with the sellers). The €10 million fee, because it had been insufficiently disclosed to Cedar Capital’s principals in the investor group (thus depriving them of the ability to acquire the hotel at a lower price), was therefore a secret commission.

The trial judge concluded that the investors could not (in light of Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd, [2011] EWCA Civ 347) pursue a proprietary remedy against Mankarious and Cedar Capital, and were entitled only to the personal remedy of an account in equity. To be able to establish that there is a proprietary remedy under Sinclair Investments, the asset or money acquired by the defaulting fiduciary must (a) be or have been beneficially the property of the beneficiary, or (b) have been acquired by the fiduciary by taking advantage of an opportunity or right which was properly that of the beneficiary. There are distinct advantages in establishing a proprietary right: if the fiduciary is insolvent, the improperly acquired profit may not be available to the fiduciary’s creditors; if the profit has been invested, the fiduciary may recover the increase in value as well; or, if the profit has been transferred to a third party, the beneficiary may recover it from that party. In short, the prospect of recovery is much better if the remedy is proprietary and not an account in equity.

The narrow question before the English Court of Appeal was the nature of the investors’ remedy: FHR European Ventures LLP v Mankarious, [2013] EWCA Civ 17. Lewison LJ acknowledged the controversy which Sinclair Investments has attracted; Sinclair and the cases it considered ‘are difficult to fit into a neat set of rules’. In his judgment, the cases do establish that a principal can acquire a proprietary interest in an asset acquired by an agent, even where the principal had no pre-existing proprietary interest, the agent acquired the asset with his own money or the agent was not specifically charged with acquiring a particular property. The cases also show that a fiduciary may be held to be a trustee of a profit made in breach of his duty, even where the principal did in fact acquire the target property. The profit earned by Mankarious in this case could be characterised as both a secret commission and as a lost opportunity for the investors, and on the latter account it qualified under exception (b) to the Sinclair Investments rule. Cedar Capital therefore held the benefit of its contract with the sellers on constructive trust for the investors – with the result that moneys paid under that contract to Mankarious could be followed and traced. Pill LJ expressed some reservations about the way in which Lewison LJ reached the conclusion that the investors’ remedy was proprietary and not personal, but thought as a matter of public policy that it ought to be. The Chancellor, also allowing the appeal, provides a general overview of the law of constructive trust, noting ‘the very considerable difficulties inherent in the analysis in Sinclair Investments’ and other cases, and the need for ‘an overhaul of this entire area of the law ... in order to provide a coherent and logical framework’ – something only Parliament or the UK Supreme Court can do. Perhaps when the UKSC gives judgment in the appeal of Sinclair Investments?

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