FHR European Ventures LLP v Mankarious [2014] UKSC 45

Facts

  • The dispute arose from a commercial property transaction in which FHR European Ventures LLP engaged Cedar Capital Partners LLC, controlled by Mr. Mankarious, to negotiate the purchase of a hotel.
  • Cedar Capital received a €10 million commission from the vendor without disclosing this to FHR.
  • Upon discovering the secret commission, FHR alleged that Cedar Capital had breached its fiduciary duty by accepting the undisclosed payment.
  • At trial, the High Court found Cedar Capital liable to account for the €10 million but rejected the claim that the sum was held on constructive trust for FHR.
  • The Court of Appeal upheld this decision.
  • FHR appealed to the Supreme Court, focusing on whether the secret commission was held on constructive trust or only subject to a personal remedy.

Issues

  1. Whether a fiduciary who receives a bribe or secret commission holds the profit on constructive trust for the principal or is merely personally liable to account for the sum received.
  2. Whether English law should treat secret commissions and bribes as giving rise to proprietary remedies or only personal claims by the principal.
  3. Whether previous distinctions drawn in case law, such as between bribes and secret commissions, remained applicable in light of equitable principles.

Decision

  • The Supreme Court unanimously allowed FHR's appeal, holding that Cedar Capital held the €10 million commission on constructive trust for FHR.
  • The Court confirmed that both bribes and secret commissions obtained by a fiduciary in breach of duty are held on trust for the principal.
  • Earlier authorities, including Lister & Co v Stubbs (1890), were overruled to the extent they denied proprietary claims over such benefits.
  • The Court clarified that the principal is entitled to a proprietary remedy, not just a personal remedy, against the fiduciary.
  • English law was aligned with other common law jurisdictions, such as Canada and Australia, treating secret commissions and bribes as subject to constructive trusts.

Legal Principles

  • A fiduciary owes duties to act in the principal's best interests, avoid conflicts of interest, and must not profit from their position without informed consent.
  • Acceptance of secret commissions or bribes by a fiduciary constitutes a breach of fiduciary duty.
  • Constructive trust is an equitable remedy to prevent unjust enrichment, ensuring wrongful gains are held for the rightful owner.
  • The rule imposing strict accountability for unauthorized profits is essential to deter breaches and uphold the integrity of fiduciary relationships.
  • Proprietary remedies enable principals to recover the proceeds themselves, offering greater protection than personal claims alone.

Conclusion

The Supreme Court's decision clarified that unauthorized profits obtained by fiduciaries, including secret commissions and bribes, are held on constructive trust for the principal. This ruling strengthens the remedies available to principals, harmonizes English law with other common law jurisdictions, and highlights the necessity for fiduciaries to act transparently and in the best interests of their principals.

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