The Football World Cup as global drama seems, by dint of the sheer brilliance of the players, to have shaken off preoccupations about the beautiful game’s darker subplot – including the Qatari allegations of bribes and secret commissions. It is currently speculated that such payments, if proven could result in a re-run of the entire bidding process for the staging of the 2022 World Cup. The case of FHR Ventures LLP v Cedar Capital Partners (and Mr Mankarious) is more modest in remedial terms – the principal seeking to recover back the value received by the agent (the first measure of the agent’s enrichment), or the value surviving (the second measure of enrichment) or traceable in the hands of the agent or third parties (if a proprietary claim is for the first time recognised by the Supreme Court) in agency type cases.
Relevance of this bribery case to Universities:
All Government contracts contain provisions relating to the criminal law and the Bribery Act 2010, however any University would still have to fall back on the common law to seek the recovery of bribes and secret commissions in all their general contracts so this week’s appeal is highly relevant to our general contracting position and a useful reminder of the current state of the law.
The question before the UK Supreme Court this week does not perhaps include the category of corrupt payments in the form of a bribe, however it does include the remedial consequences of secret commissions, and bribes to agents, and whether the beneficiaries could seek recovery not merely as a personal claim but also upon a constructive trust, and allow recovery on a proprietary basis.
This is an age old problem – best illustrated by the nineteenth century case of Lister v Stubbs [1890] 45 Ch D 1 (the claim against an agent receiving a secret commission, the principal being confined to only a personal claim for value received by the agent) closing off any possibility of a proprietary claim by trust, constructive or otherwise. Lister was not followed in the later Privy Council decision (a bribe case involving a Government prosecuting official) in Hong Kong v Reid [1994] 1 AC 324.
The Supreme Court website has put the question on appeal as follows:
Does an agent who receives a secret commission hold the sum paid on constructive trust for his principal(s) giving rise to proprietary rights?
The facts
The applicants in the appeal are a company called Cedar Capital Partners (CCP/’Cedar’) who together with a Mr Mankarious entered into an agreement (an exclusive Brokerage Agreement) with the owners of a hotel in Monte Carlo, for Cedar to arrange for the sale of the hotel in exchange for a fee of €10m. Cedar subsequently acted as agent on behalf of the respondents in the appeal, who were a consortium who wished to purchase the hotel for €211.5m. The €10m fee was paid to Cedar in accordance with the Brokerage Agreement within 5 days of the owners of the hotel receiving the payment price for the hotel from the consortium. The €10m fee (paid by the vendor to the agent Cedar) was a payment unknown to the consortium (purchasers) on the facts.
When the consortium discovered the payment of the €10m to Cedar/Mr Mankarious, they sought recovery of the payment from Cedar/Mr Mankarious. They succeeded before Justice Simon in obtaining an account for the €10m, however the judge held that the claim was personal only (‘in personam’) and the money held by Mr Mankarious was not held on a proprietary basis, on a constructive trust or otherwise.
The Court of Appeal reversed this decision, and held that in receiving the secret commission, Cedar/Mr Mankarious had exploited an opportunity properly belonging to the consortium, and accordingly the €10m fee was to be held on a constructive trust, which was proprietary in nature, and therefore traceable as surviving enrichments in substitutions (eg. where the €10m was used to purchase property as a substitute for the original enrichment, or paid into or converted into property through other media such a bank account etc).
This proprietary quality in the enrichment is the subject of the appeal – a claim and legal right not previously recognised at the highest Court level in relation to agents receiving secret commissions or bribes.
The general concern has been to disallow a beneficiary principal gaining priority in an insolvency claim in the insolvent fraudster’s estate, but this legal policy might change next week.
There are seven Supreme Court Justices listed; and Lord Collins has been called back into the squad as an impact player for his understanding of Company law, insolvency and priority. It would be mixing metaphors to say he has come off the bench, in fact being called back ‘to’ the Bench!
Lord Collins appears to have been the first instance judge in Daraydan (etc) v Solland (etc) [2004] EWHC 622, involving the recovery of bribes and secret commissions charged in the refurbishment of luxury properties in London and – er Qatar. In the event that the current law of Equity undergoes a change this week, in recognising that the receipt of a secret commission or a bribe has proprietary consequences and that beneficiaries could indeed engage in the process of tracing, identify and follow substitutions made in the property to its ultimate surviving value or indeed into the hands of a third party, it will arguably add to the armoury of the victims on the margins of bribery and fraud. So as in the World Cup, there is still ‘everything to play for.’
First Instance decision of Simon J:
http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Ch/2011/2308.html&query=FHR&method=boolean
Court of Appeal decision of Lewison LJ:
http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2013/17.html&query=FHR&method=boolean
the decision of Lawrence Collins J in Daraydan (etc) v Solland (etc) [2004] EWHC 622:
http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Ch/2004/622.html&query=collins+and+qatar&method=boolean
