FHR European Ventures LLP v Cedar Capital Partners LLC

Abstract

The question for the United Kingdom Supreme Court was whether a bribe or secret commission received by an agent could be held by the agent on trust for his principle, or whether the principle merely had a claim in equitable compensation for a sum equal in value to the bribe or the commission. This was a very important decision, not least because it has given rise to a great deal of academic commentary and judicial inconsistency over the last 200 years. The decision is also important in practical terms. If the bribe/commission is held on trust for the principle, then the principle has a proprietary claim to it, whereas if the claim results merely in equitable compensation, then there is no proprietary claim. This difference is important because if the agent becomes insolvent, then the proprietary claim would give the principle priority over the agent’s unsecured creditors. Whereas if the claim were for equitable compensation, then the principle would rank equally with other unsecured creditors, or pari passu. Further, if there is a proprietary claim, then the principle may trace in equity, whereas an equitable compensatory claim will have no right to trace in equity.