FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45 is a landmark decision of the United Kingdom Supreme Court which holds that a bribe or secret commission accepted by an agent is held on trust for his principal.

In so ruling, the Court partially overruled Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd[1] (a decision of the Court of Appeal of England and Wales) in favour of The Attorney General for Hong Kong v Reid (New Zealand) (UKPC),[2] a ruling from the Judicial Committee of the Privy Council on appeal from New Zealand.

Lewison LJ acknowledged that, as Sinclair had endorsed Metropolitan Bank v Heiron [9] and Lister & Co v Stubbs,[10][11] he was bound to follow them as well.

I do not consider that in paragraph 88 Lord Neuberger MR can have intended to create two mutually exclusive categories of cases in which a proprietary interest can arise.

It will then be possible to follow the asset held on constructive trust or to trace its value into identifiable substitutes.Etherton C also agreed that the appeal should be allowed, but emphasised that Boardman v Phipps[17] had received inadequate consideration in the reasoning underlying Sinclair.

The answer to this rather technical sounding question, which has produced inconsistent judicial decisions over the past 200 years, as well as a great deal of more recent academic controversy, is important in practical terms.

However, the centrally relevant point for present purposes is that, at least in some cases where an agent acquires a benefit which came to his notice as a result of his fiduciary position, or pursuant to an opportunity which results from his fiduciary position, the equitable rule (“the rule”) is that he is to be treated as having acquired the benefit on behalf of his principal, so that it is beneficially owned by the principal.

The respondents' formulation of the rule, namely that it applies to all benefits received by an agent in breach of his fiduciary duty to his principal, is explained on the basis that an agent ought to account in specie to his principal for any benefit he has obtained from his agency in breach of his fiduciary duty, as the benefit should be treated as the property of the principal, as supported by many judicial dicta including those in para 19 above, and can be seen to be reflected in Jonathan Parker LJ's observations in para 14 above.

[...] many of those cases contain observations which specifically support the contention that the rule applies to all benefits which are received by an agent in breach of his fiduciary duty.

The position adopted by the respondents, namely that the Rule applies to all unauthorised benefits which an agent receives, is consistent with the fundamental principles of the law of agency.

The respondents' formulation of the rule has the merit of simplicity: any benefit acquired by an agent as a result of his agency and in breach of his fiduciary duty is held on trust for the principal.

Wider policy considerations also support the respondents' case that bribes and secret commissions received by an agent should be treated as the property of his principal, rather than merely giving rise to a claim for equitable compensation.... one would expect the law to be particularly stringent in relation to a claim against an agent who has received a bribe or secret commission.

In the first place, the proceeds of a bribe or secret commission consists of property which should not be in the agent's estate at all, as Lawrence Collins J pointed out in Daraydan [2005] Ch 119, para 78 (although it is fair to add that insolvent estates not infrequently include assets which would not be there if the insolvent had honoured his obligations).

Secondly, as discussed in para 37 above, at any rate in many cases, the bribe or commission will very often have reduced the benefit from the relevant transaction which the principal will have obtained, and therefore can fairly be said to be his property.

Lindley LJ in Lister ... appears to have found it offensive that a principal should be entitled to trace a bribe, but he did not explain why, and we prefer the reaction of Lord Templeman in Reid, namely that a principal ought to have the right to trace and to follow a bribe or secret commission.The following general principles were summarized in Bristol and West Building Society v Mothew:[19] Where an agent receives a benefit in breach of his fiduciary duty, it is obliged to account to the principal for such a benefit, and to pay, in effect, a sum equal to the profit by way of equitable compensation.

However, in some cases where an agent acquires a benefit which came to his notice as a result of his fiduciary position, or pursuant to an opportunity which results from his fiduciary position, the equitable rule is that he is to be treated as having acquired the benefit on behalf of his principal, so that it is beneficially owned by the principal.

However, it seems to us highly desirable for all those jurisdictions to learn from each other, and at least to lean in favour of harmonising the development of the common law round the world.