Who Owns A Bribe? UK Supreme Court Follows Where Jersey Leads

On 16th July 2014 the Supreme Court handed down its judgment in FHR European Ventures LLP and others v Cedar Capital Partners LLC [2014] UKSC 45. This decision settles a long-running argument in English law as to whether a principal has a proprietary or a merely personal claim against an agent who takes a bribe or secret commission.

The significance of the distinction between a person and proprietary remedy is twofold; if the wrongdoer becomes insolvent the person asserting a proprietary interest will maintain their priority over the wrongdoer's unsecured creditors to the extent of the particular property. Secondly a proprietary remedy permits the principal to trace the proceeds of the bribe or secret commission.

This issue was decided last year by the Jersey Royal Court, in Lloyds Trust Company (Channel Islands) Limited v Fragoso and Ors [2013] JRC 211. The proceeds of bribes were held to be subject to a proprietary rather than a personal claim. Federal Republic of Brazil v Durant International Corporation & Ors [2012] JCA 071 significantly restated Jersey's rules on equitable tracing. The combined effect of the Fragoso and Durant decisions is to better enable defrauded principals to recover assets through the Jersey courts.

Background to the Supreme Court's Decision

FHR European Ventures LLP ("FHR") purchased the share capital of Monte Carlo Grand Hotel SAM from Monte Carlo Grand Hotel Limited. Cedar Capital Partners LLC ("Cedar") acted as FHR's agent in negotiating the purchase. Unknown to FHR, Cedar had a contact with Monte Carlo Grand Hotel Limited under which Cedar would be paid a fee of €10m following the successful completion of the sale and of the share capital in Monte Carlo Grand Hotel SAM. FHR sought recovery of the €10m as an undisclosed secret commission contrary to Cedar's fiduciary duty as agent for FHR.

The Fiduciary Nature of Agency

As a matter of Jersey law, as in English law, an agent owes a fiduciary duty to his principal because he has undertaken to act on behalf of his principal in a particular matter in circumstances that give rise to a relationship of trust and confidence. An agent must not make a profit from his trust and must not place himself in a position in which his duty and interest conflict. A fiduciary who acts for two principals with actual or potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty. Informed consent can only be effective if the agent gives full disclosure to each principal. An agent who receives a benefit in breach of his fiduciary duty is obliged to account to the principal for such a benefit and to pay a...