A Principal’s Proprietary Right Over Agent’s Bribe

Posted on: February 5th, 2013

At the end of January 2013, the Court of Appeal handed down a judgment with important implications in bribery cases. Recent case law had suggested that where an agent had received a bribe or secret commission, the principal could only assert ownership of that payment if it could be shown that it came from the principal’s own assets and at all times remained the principal’s property. However, the Court of Appeal examined numerous previous English cases and concluded the principal may be able to assert a proprietary claim without establishing that chain of ownership. A proprietary claim can be very important as it enables the principal to trace the payment into the hands of third parties or to recover the payment ahead of unsecured creditors where the agent is insolvent.

The ruling was made in the case of FHR European Ventures LLP & Others v Ramsey Neil Mankarious & Others [2013] EWCA Civ 17. Mr Mankarious had acted as the claimants’ agent in respect of the purchase of a hotel. However, unbeknown to the claimants, Mr Mankarious had also entered into an “Exclusive Brokerage Agreement” with the hotel’s vendor under which he would receive a fee of €10 million on completion of the sale to the claimants. The sale duly completed for around €210 million.

It was decided at trial that Mr Mankarious had breached his fiduciary duties owed to the claimants by making a secret profit. The question before the Court of Appeal was whether or not the claimants had a proprietary claim to the secret profit, or whether they could only claim a personal remedy of an account of the profit from Mr Mankarious.

The Court of Appeal unanimously decided that in the particular circumstances the claimants had a proprietary claim to the secret profit, however it was acknowledged that the law of constructive trusts is far from clear. In particular there is tension between certain recently decided cases, as noted by the Chancellor, who called for an overhaul of the law of constructive trusts to provide a coherent and logical legal framework.