A bribe or secret commission received by an agent in breach of his fiduciary duty to his principal is held on trust for his principal. The principal has a proprietary remedy in addition to his personal claim for equitable compensation.
The Respondents purchased the issued share capital of a Monegasque company which owned a leasehold interest in a Monte Carlo hotel. The Appellant acted as the Respondents’ agent in negotiating the purchase. The Appellant had also entered into an agreement with the vendor which provided for the payment to the Appellant of a €10 million fee following successful conclusion of the sale. The Respondents issued proceedings seeking recovery of the sum of €10 million.
At first instance the judge found that the Appellant had acted in breach of fiduciary duty and ordered it to pay the sum to the Respondents, but he refused to grant the Respondents a proprietary remedy in respect of the monies. The Court of Appeal allowed the Respondents’ appeal and made an order which included a declaration that the Appellant had received the fee on constructive trust for the Respondents absolutely. The Appellant appealed to the Supreme Court.
The Supreme Court dismissed the appeal, accepting the Respondents’ submission that a bribe or secret commission received by an agent is held on trust for his principal. The previous authorities taken as a whole and the practical and policy considerations supported this conclusion. The law had taken a wrong turn in Heiron ((1880) 5 Ex D 319) and Lister ((1890) 45 Ch D 1), and those decisions and any subsequent decisions (such asSinclair ( Ch 453) in so far as they relied on or followed Heiron and Lister, should be treated as overruled.
The supporting arguments based on principle and practicality included its consistency with the fundamental principles of agency, the merits of simplicity and intolerance of bribery and corruption, which outweighed concerns over potential prejudice to an agent’s unsecured creditors. This also aligned the English courts with the position taken in other common law jurisdictions, including Australia, where the Federal Court had previously declined to follow Sinclair (see Grimaldi (2012) 287 ALR 22).