The Supreme Court’s judgment in FHR European Ventures LLP and others v Cedar Capital Partners LLC [2014] UKSC 45 has resolved the much debated question of whether a fiduciary holds a bribe or secret commission, received in breach of its fiduciary obligation, on trust for the beneficiary.

The facts

On 22 December 2004, FHR European Ventures LLP (FHR) and others purchased the issued share capital of Monte Carlo Grand Hotel SAM (MCGHS) from Monte Carlo Grand Hotel Ltd (MCGHL) for €211.5m. Cedar Capital Partners (Cedar) acted as the claimant’s agent in negotiating the purchase. On 24 September 2004, Cedar had entered into a secret agreement with MCGHL, providing for the payment of €10m to Cedar upon the successful completion of the sale (the completion fee). Cedar received this fee from MCGHL on 7 January 2005. In November 2009, upon discovery of this secret agreement, FHR commenced proceedings in the High Court seeking recovery of the full €10m completion fee.

Proceedings were commenced in the High Court before Mr Justice Simon who held that: (i) Cedar failed to make proper disclosure to FHR of the completion fee; (ii) Cedar was liable for breach of fiduciary duty; and thus (iii) Cedar should pay €10m to FHR. Mr Justice Simon, however, refused to go so far as to grant the claimant a proprietary remedy in respect of the monies, reasoning that he was bound by the Court of Appeal authority Sinclair Investments Ltd v Versailles Trade Finance Ltd [2012] Ch 453.

FHR appealed in relation to the refusal to grant a proprietary remedy. The Court of Appeal considered that Sinclair should be distinguished from the present case on its facts, and made an order which included a declaration that Cedar should receive the €10m completion fee on constructive trust for FHR.

Jan-Mar 2015 issue

Morgan Lewis