In late July 2014 the Supreme Court of England and Wales handed down a succinct judgment on a topic which, while narrow, is of considerable importance in its sphere. FHR European Ventures LLP v Cedar Capital Partners LLC concerned the enforcement rights which are available in the English courts to the principals of fiduciary agents where those agents have made unauthorised profits from secret commissions or bribes. The nature of the rights which arise in this situation is a subject with a considerable history of debate, both in the courts and in academia.

In essence, the issue is whether a bribe or secret commission paid to an agent is the property of that agent's principals, or whether it merely gives rise to a personal action against the agent in the amount of the bribe or secret commission. This is not merely an academic distinction; it is of considerable practical importance for practitioners acting in such a situation. This is because the existence of such property rights in the bribe or secret commission opens up the availability to claimants of powerful tracing and following remedies in English law, including potential rights against third parties to which the moneys have been paid over and potential rights in assets which have been purchased with the illicitly obtained funds.


In December 2004 the respondents (the claimants in the underlying action) purchased a long leasehold interest in the Monte Carlo Grand Hotel through their joint venture vehicle, FHR European Ventures LLP. Cedar Capital Partners LLP acted as the claimants' agent in negotiating the purchase. However, Cedar also entered into a brokerage agreement with the vendor, which provided that it would be paid a €10 million fee by the vendor on conclusion of a sale.

At first instance, it was held that Cedar had not made proper disclosure of the agreement that it had reached with the vendor. The fact that a fee would be paid had been mentioned to one of the claimants, but without specifying any amount, and the other claimants had not been told that any fee was payable. The first-instance judge held that Cedar had breached its fiduciary duties to the claimants in not properly disclosing the fee arrangements.

The claimants sought an order after judgment at first instance declaring that Cedar had received the €10 million as constructive trustees for the claimants. They did so because this that would mean the claimants had proprietary rights in those moneys. That would open up the powerful English law following and tracing remedies which are available only for proprietary claims. The defendants sought an order which limited the claimants' remedies to the personal remedies of an account of profits and equitable compensation.

The first-instance judge held that he could only make an order which availed the claimants of personal remedies, following a prior decision of the Court of Appeal in Sinclair v Versailles.(1) Sinclair in turn rested on a complex history of prior precedents, including some contradictory – or at best difficult to reconcile – judgments of the Privy Council, the House of Lords and the Court of Appeal.


Despite the historic complexity of the issue, the Supreme Court's judgment, handed down by Lord Neuberger, is admirably elegant and succinct, coming in at a mere 11 pages. It is difficult to improve on his summary of the core issue:

"at least in some cases where an agent acquires a benefit which came to his notice as a result of his fiduciary position, or pursuant to an opportunity which results from his fiduciary position, the equitable rule ("the Rule") is that he is to be treated as having acquired the benefit on behalf of his principal, so that it is beneficially owned by the principal. In such cases, the principal has a proprietary remedy in addition to his personal remedy against the agent, and the principal can elect between the two remedies...

The question on this appeal is not so much concerned with the application of the Rule, as with its limits or boundaries. Specifically, what is in dispute is the extent to which the Rule applies where the benefit is a bribe or secret commission obtained by an agent in breach of his fiduciary duty to his principal."

The judge had also delivered the Court of Appeal's judgment in Sinclair. In that judgment he had carefully dissected both the relevant case law and the various situations in which a proprietary remedy did and did not arise. In particular, he had to consider the 1994 Privy Council decision in Attorney-General for Hong Kong v Reid,(2) which in essence held that any bribe was the subject of a constructive trust such that proprietary remedies were available.

In his judgment in Sinclair the judge preferred an opposing strand of authority rooted in the 1862 House of Lords decision in Tyrrell v Bank of London(3) and five Court of Appeal cases, commencing with Metropolitan Bank v Heiron(4) and Lister & Co v Stubbs.(5) In light of these authorities, he had found that Reid was arguably wrong and that he was not persuaded that the Supreme Court would follow it, and distilled from his preferred line of authority including Tyrell, Heiron and Lister the proposition that:

"a beneficiary of a fiduciary's duties cannot claim a proprietary interest, but is entitled to an equitable account, in respect of any money or asset acquired by a fiduciary in breach of his duties to the beneficiary, unless the asset or money is or has been beneficially the property of the beneficiary or the trustee acquired the asset or money by taking advantage of an opportunity or right which was properly that of the beneficiary."

The difficulty in the Sinclair decision for the claimants in FHR v Cedar was that there was no evidence that the €10 million paid to Cedar was paid directly from the funds which they had paid to the vendor for the hotel company. Nor was there any suggestion that the claimants would have had an opportunity to earn the brokerage fee from the vendor had Cedar been full and frank in its disclosures to them. They may well have sought to reduce the purchase price, but that was not the same opportunity which Cedar had exploited to obtain the not fully disclosed commission.


In its judgment the Supreme Court swept away the complexities in a manner which can be accomplished only by a court which is not bound to follow precedent, even its own. In discussing the state of the law on the issue, the judgment acknowledged that "it is not possible to identify any plainly right or plainly wrong answer to the issue of the extent of the Rule, as a matter of pure legal authority", and that "it would be unrealistic to expect complete consistency from the cases over the past 300 years".

Therefore, the Supreme Court drew heavily on arguments of fundamental principle and practical consequence, in particular the following:

  • It is consistent with an agent's fundamental duty of loyalty to his or her principals that those principals should be beneficially entitled to any unauthorised benefits accrued by the agent.
  • There are no clear reasons why an agent which has accepted a bribe or secret commission should face less effective remedies than it would in a case of some other type of unauthorised benefit.
  • A single rule which did not distinguish between types of unauthorised benefit would bring clarity and simplicity and avoid disputes about which side of the line a particular type of unauthorised benefit fell.
  • As a matter of public policy, the law should discourage bribery and similar behaviour.

The judge, handing down the unanimous joint decision of the Supreme Court, held that the House of Lords' decision in Tyrell was wrongly decided and that the line of authorities in the Court of Appeal beginning with Heiron and Lister and culminating in his own decision in Sinclair were all to be overruled.

Under English law, all unauthorised benefits earned by an agent are therefore the subject of a constructive trust, and the principals of agents who take bribes or secret commissions now have available to them the enforcement advantages which come from the powerful English law proprietary remedies.

For further information on this topic please contact Jake Hardy at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ( The RPC website can be accessed at


(1) Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347.

(2) [1994] 1 AC 324.

(3) (1862) 10 HL Cas 26

(4) (1880) 5 Ex D 319A

(5) (1890) LR 45 Ch D 1