Also known as: FHR European Ventures LLP v Mankarious
Court: Supreme Court
Judgment Date: 16 July 2014
Where Reported: [2014] UKSC 45; [2015] A.C. 250
Legal Issues in FHR European Ventures LLP v Cedar Capital Partners LLC
The legal issue in FHR European Ventures LLP v Cedar Capital Partners LLC pertains to the fiduciary duties of agents and the consequences of breach of such duties.
FHR European Ventures LLP v Cedar Capital Partners LLC questioned whether an agent, by receiving a secret commission in breach of fiduciary duty, holds the commission on a constructive trust for the principal, thereby entitling the principal to a proprietary claim over the commission, or whether the principal is limited to an equitable compensation claim.
The case also explored whether the principle established in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (2011), which denied a proprietary remedy as a matter of course in respect of a gain made in breach of fiduciary duty, was applicable​​.
Material Facts in FHR European Ventures LLP v Cedar Capital Partners LLC
FHR European Ventures LLP and others purchased the Monte Carlo Grand Hotel from Monte Carlo Grand Hotel Ltd for €211.5 million.
Cedar Capital Partners LLC provided consultancy services to FHR and was involved in negotiating the purchase, thereby owing fiduciary duties to FHR.
Concurrently, Cedar had an agreement with the vendor to receive a €10 million fee following the successful sale of the hotel, which it received after the transaction was completed.
FHR filed a legal action against Cedar, alleging insufficient disclosure of the exclusive brokerage agreement and the commission, which they claimed amounted to a secret profit received in breach of Cedar’s fiduciary duty.
Simon J found Cedar liable for breach of fiduciary duty for failing to obtain informed consent from FHR regarding the €10 million, but declined to grant a proprietary remedy over the money​​​​.
Judgment in FHR European Ventures LLP v Cedar Capital Partners LLC
The Court of Appeal, overturning Simon J’s decision, held that Cedar received the €10 million fee on a constructive trust for FHR, thus granting a proprietary remedy.
The judgment was based on the reasoning that Cedar, by not disclosing its receipt of the fee from the vendor, had breached its fiduciary duty to FHR.
The Court of Appeal concluded that this secret commission was held on constructive trust for FHR, entitling them to a proprietary interest in the commission.
Cedar appealed to the Supreme Court, challenging only the proprietary remedy aspect of the Court of Appeal’s decision​​.
The Reason for the Decision in FHR European Ventures LLP v Cedar Capital Partners LLC
The Supreme Court’s decision rested on the principles of fiduciary duty and the consequences of its breach – see Erlanger v New Sombrero Phosphate Co (1878).
The court emphasised that an agent owing fiduciary duty must not profit from their position or put themselves in a situation of conflict with their principal.
If an agent breaches this duty, they are required to account for any benefit received and pay equitable compensation.
Crucially, the court recognised that when an agent acquires a benefit due to their fiduciary position or from an opportunity resulting from that position, the equitable rule demands that the agent be treated as having acquired that benefit on behalf of the principal, thus giving the principal a proprietary interest in addition to a personal claim against the agent.
The court’s reasoning was influenced by past cases and legal principles where fiduciaries who obtained benefits in breach of their duties were treated as holding those benefits on trust for the principal.
This treatment of the benefits ensures that the fiduciary does not profit from their wrongful acts and maintains the integrity of the fiduciary relationship.
In the context of FHR’s case, the Supreme Court found that Cedar’s secret commission was obtained in breach of its fiduciary duty to FHR and should therefore be treated as held on constructive trust for FHR, giving them a proprietary claim over the commission.
This approach aligns with the fundamental legal principle that fiduciaries must act in the best interest of their principals and should not benefit from their position at the expense of the principal​​.
Legal Principles in FHR European Ventures LLP v Cedar Capital Partners LLC
FHR European Ventures LLP v Cedar Capital Partners LLC reinforces the principle that agents owe an undivided duty of loyalty to their principals and must not profit from their fiduciary position.
The case establishes that benefits obtained by an agent in breach of fiduciary duty, including secret commissions or bribes, are held on constructive trust for the principal.
This holding entitles the principal to a proprietary claim over such benefits, ensuring that the agent cannot retain any profit from their breach of duty.
The judgment in FHR European Ventures LLP v Cedar Capital Partners LLC underscores the importance of fiduciary relationships in commercial transactions and the need for agents to disclose any potential conflicts of interest or benefits received in connection with their role as fiduciaries.
This case has significant implications for the law of agency and the principles governing fiduciary duties, particularly in the context of secret profits and commissions
