While advising F on the purchase of a hotel, C entered into an agreement with the sellers of the hotel under which C was to receive a fixed commission of €10 million for securing a purchaser. C failed to notify F of that agreement and received the commission when F bought the hotel. F sought to recover the €10 million from C. The issue was whether the money was held on trust for F, giving it a proprietary claim, or whether it only had a claim for equitable compensation.
The Supreme Court held that where an agent received a benefit in breach of his fiduciary duties, he was liable to account for it to his principal (as a personal remedy), but the principal also had a proprietary remedy and could elect between the two remedies. Bribes received by an agent should also be treated in the same way. That was consistent with a number of authorities; it was consistent with principle because accepting a bribe put the agent in conflict with his fiduciary duties to his principal.
The court considered the argument that allowing a proprietary claim would prejudice the agent’s unsecured creditors in the event of the agent’s insolvency, but rejected it because the proceeds of a bribe or secret commission should not be in the agent’s estate at all and because the bribe or commission would often have reduced the principal’s benefit from the relevant transaction and therefore could fairly be seen as his property.
The court also held that it was just to allow a principal to trace the proceeds of the bribe or commission into other assets and to follow them into the hands of knowing recipients. The Court overruled the old cases of Metropolitan Bank v Heiron and Lister v Stubbs and cases which followed them including Sinclair Investments Ltd v Versailles Trade Finance Ltd [2012] Ch 453.
This case simplifies the law on bribes and profits received by agents in breach of fiduciary duty. The Supreme Court was unwilling to let insolvency considerations distort the more general principles.
