In FHR European Ventures LLP v Mankarious [2013] EWCA Civ 17, [2013] 3 All ER 29 the Court of Appeal seems to have gone out of its way to distinguish its earlier, rather controversial, decision in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (In Administration)  [2011] EWCA Civ 347, [2011] 3 WLR 1153. Until the Supreme Court tackles the issue, who knows what the law really is?

Agents – in the true sense of having authority contractually to bind their principals – owe duties to those principals not only positively to perform the contractual terms of the agency but also (generally negative) fiduciary duties. Breaches of those fiduciary duties

“attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory.”

(Per Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1).

Millett LJ went on to say that one of the aspects of the fiduciary’s “obligation of loyalty” is that “he must not make a profit out of his trust”.

This prohibition on an agent making a profit prevents the agent’s receiving a bribe or secret commission.

What is a bribe?

In the civil law,

“a bribe means the payment of a secret commission, which only means (i) that the person making the payment makes it to the agent of the other person with whom he is dealing; (ii) that he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and (iii) that he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person's agent. Those three are the only elements necessary to constitute the payment of a secret commission or bribe for civil purposes.”

Per Slade J in Industries & General Mortgage Co Ltd v Lewis [1949] 2 All ER 573

The law irrebuttably presumes (see Hovenden & Sons v Millhof (1900) 83 LT 41) that

  1. the person making the payment acted corruptly,
  2. the agent has been influenced by the payment to the detriment of his principal,
  3. the principal has suffered damage at least to the amount of the bribe.

The briber and the agent are jointly and severally liable to the principal for the amount of the bribe.

The nature of the principal’s claim against its agent for the bribe is restitutionary but is it personal or proprietary?

In Att-Gen for Hong Kong v Reid [1994] AC 324 the Privy Council held that a prosecutor who had received corrupt payments held those bribes on trust for his employer, the Hong Kong government, which had the important consequence that property which had been acquired by the defendant in New Zealand with the bribes was itself held on trust.

This – not uncontroversial – recognition of a proprietary claim also meant that the principal could obtain priority over unsecured creditors in the event of the agent’s insolvency.

In Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (In Administration) [2011] EWCA Civ 347, [2011] 3 WLR 1153. Investors paid money to the claimant, Sinclair, so that it could make various investments. One of Sinclair’s directors had diverted that money to another company, Versailles, of which he was a shareholder and which was used for various fraudulent purposes. As a result, Versailles’ share price rose and the director sold his shares in it for £28.69 million.

The truth later became apparent and receivers were appointed over Versailles. Sinclair claimed, in reliance on A-G  v Reid, that it was entitled to assert a proprietary interest in the proceeds of the sale of the shares because they were an unauthorised gain by the director in breach of his fiduciary duty and therefore held on constructive trust. Sinclair also sought to maintain its claim against certain banks which had lent Versailles money and which they had been repaid.

The Court of Appeal held that it could not follow Reid (as a decision of the PC) where it conflicted with its own decisions unless they appeared to be wrong. Domestic authority, including Lister & Co v Stubbs (1890) L.R. 45 ChD 1 had consistently held that the beneficiary of a fiduciary's duties could not claim a proprietary interest, but was entitled (only) to an equitable account, in respect of any money or asset acquired by the fiduciary in breach of his duties to the beneficiary, unless

  • the asset or money was or had been beneficially the property of the beneficiary or
  • the trustee had acquired the asset or money by taking advantage of an opportunity or right which was properly that of the beneficiary.

On this basis the proprietary claim had to fail: Sinclair could not claim ownership of an asset purchased by the fiduciary with funds which – although they could not have been obtained if he had not enjoyed his fiduciary status – were not beneficially owned by it or derived from opportunities beneficially owned by it. Rather, the claimant had a personal claim in equity but this did not extend to the value of the shares. It was also held that if there had been a proprietary claim, the banks were bona fide purchasers for value without notice and therefore took free of it. Sinclair was followed by the High Court in Cadogan Petroleum Plc v Tolly [2011] EWHC 2286 (Ch).


The decision in Sinclair also has limitation consequences since for as long as the bribe or secret commission or other unauthorised profit was considered truly to be held on trust – in accordance with the decision in A-G v Reid – then a claim for its recovery fell within section 21(1)(b) of the Limitation Act 1980:

“(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—
(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.”

And was therefore subject to no statutory limitation period (although the equitable doctrine of laches was applicable).

In the light of Sinclair, such claims are personal restitutionary claims; there is therefore no true trustee or trust property and the claim is therefore subject to s 21(3) and thus a 6-year limitation period – see Page v Hewetts [2011] EWHC 2449 (Ch) [2012] 1 P & CR DG 3 where the claimants’ claim against their former solicitors in respect of an alleged secret profit made on the sale of a property at an undervalue was for this reason held to be statute-barred.

In FHR European Ventures LLP v Mankarious [2013] EWCA Civ 17, [2013] 3 All ER 29, the defendant was retained to advise the claimant on its proposed purchase of a hotel in Monte Carlo. The defendant also secretly contracted with the sellers of the hotel to receive a commission of €10 million for securing a purchaser for the hotel. The sale was concluded at a price of €211.5 and the commission was paid. It was found to be a secret profit.

On the face of it, the claimant was entitled to an account in equity in relation to that profit – ie a personal remedy – as a result of the decision in Sinclair v Versailles but the claimant argued that it was entitled to a proprietary remedy because

  • the secret commission had been paid out of the sale price which at least had been the claimant’s money; or
  • the defendant had a duty as its agent to negotiate the lowest price and, in accepting the commission the defendant had effectively diverted the opportunity to acquire the hotel at a lower price.

The first, rather ambitious, argument failed because by paying the purchase price it obviously became beneficially owned by the purchaser; none of it remained the claimant’s property.

On the second argument, the question was whether the agent’s exploitation of the opportunity attracted the application of the rule that the fiduciary would hold the profit on trust for the principal.

The Court of Appeal decided that

  • In reality the claimant’s money funded the commission and the sellers were prepared to receive only €201.5 million from the sale (sale price less secret commission) but the claimant had not known this.
  • If it had known, then it might have deferred contracting to purchase the hotel until the commission agreement had lapsed or the agent could have reduced its fee to the claimant and thus its cost of purchase.
  • The agent had diverted from the claimant the opportunity to purchase the hotel at a lower price and held the commission on constructive trust.

Is this the Court of Appeal straining to find some way of not applying its previous decision in Sinclair v Versailles? It rather looks like it. There are respectable arguments for and against the decision in Sinclair but this further uncertainty about its status is not conducive to clarity or justice.