Factual and Procedural Background
Company A purchased the issued share capital of Company B (the owner of a hotel in The City) for €211.5 million on 22 December 2004. The purchase was arranged through a joint-venture vehicle (the “Plaintiffs”). Defendant, an investment consultancy firm, acted as the Plaintiffs’ agent in negotiating the acquisition and therefore owed them fiduciary duties.
Unbeknown to the Plaintiffs, Defendant had entered into an “Exclusive Brokerage Agreement” with Company C (the vendor) entitling Defendant to a €10 million fee upon completion. Company C paid that fee on or about 7 January 2005.
On 23 November 2009 the Plaintiffs issued proceedings to recover the €10 million. After a trial, Judge Simon held that Defendant had breached its fiduciary duties by failing to obtain the Plaintiffs’ fully informed consent, declared Defendant liable in that sum, but refused a proprietary remedy. The Court of Appeal reversed that refusal and declared that Defendant held the €10 million on constructive trust for the Plaintiffs. Defendant appealed to the Supreme Court solely on the proprietary-remedy point.
Legal Issues Presented
- Does a bribe or secret commission received by an agent in breach of fiduciary duty constitute property held on constructive trust for the principal?
- Alternatively, is the principal limited to a personal claim for equitable compensation equal to the amount of the bribe or commission?
Arguments of the Parties
Appellant's Arguments (Defendant)
- The constructive-trust rule should not extend to bribes or secret commissions because such payments are not assets that can properly be said to belong to the principal.
- Equity should recognise only a personal claim for equitable compensation, thereby preventing unfair preference over unsecured creditors in an insolvency.
- Academic commentary (e.g., Professor Goode and Professor Worthington) supports limiting proprietary remedies to benefits derived from the principal’s own assets or authorised opportunities.
Respondents' Arguments (Plaintiffs)
- An agent who gains any unauthorised profit through breach of fiduciary duty is obliged to account in specie; therefore the benefit is held on constructive trust for the principal.
- Equity will not allow an agent to rely on his own wrongdoing to retain the profit; policy, practicality and precedent all favour a proprietary remedy.
- Absent a proprietary right, the principal cannot trace or follow the proceeds, undermining deterrence of bribery and secret commissions.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Bristol & West Building Society v Mothew [1998] Ch 1 |
Core fiduciary duties: no profit and no conflict. |
Cited as uncontested summary of fiduciary principles forming the backdrop to the dispute. |
| Regal (Hastings) Ltd v Gulliver [1942] 1 AC 134 |
Liability to account for profit arises from mere fact of profit, independent of fraud. |
Used to illustrate the breadth of the accounting obligation and to question limiting remedies to personal claims. |
| Keech v Sandford (1726) |
Strict application of fiduciary no-profit rule leading to constructive trust. |
Demonstrated that proprietary remedies can arise even where principal could not itself acquire the asset. |
| Boardman v Phipps [1967] 2 AC 46 |
Agents acquiring benefit through fiduciary position hold it on trust. |
Analogous support for extending constructive trust to secret commissions. |
| Tyrrell v Bank of London (1862) |
Authority historically limiting proprietary remedy. |
Court disapproved its reasoning and declined to follow it. |
| Metropolitan Bank v Heiron (1880) & Lister v Stubbs (1890) |
Earlier Court of Appeal view that bribes give rise only to a debt. |
Held to be “a wrong turn” and expressly overruled. |
| Attorney-General for Hong Kong v Reid [1994] 1 AC 324 (PC) |
Bribes held on constructive trust; tracing available. |
Endorsed as correctly stating the modern law. |
| Sinclair Investments v Versailles Trade Finance [2012] Ch 453 |
Followed Lister; denied proprietary remedy. |
Declared wrongly decided and overruled to the extent inconsistent with this judgment. |
Court's Reasoning and Analysis
The Supreme Court began by reaffirming basic fiduciary principles: an agent owes undivided loyalty and must not profit from conflicts of interest. It observed that longstanding 19th-century authority generally treated unauthorised profits—including bribes—as held on trust, with only a minority of later cases (notably Heiron and Lister) denying a proprietary remedy.
Examining those minority cases, the Court found that they were:
- Decided without reference to earlier contradictory authority;
- Inconsistent with the judges’ own prior decisions; and
- Influenced by notions akin to a remedial constructive trust that English law has since rejected.
The Court considered competing academic tests for when proprietary relief should arise, but prioritised clarity and policy. A simple rule—that any benefit obtained by an agent through breach of fiduciary duty is held on trust—avoids uncertainty and better deters corruption. Practical considerations also favoured the Plaintiffs: without a proprietary claim they could not trace or follow the €10 million; moreover, a bribe likely inflates the price paid by the principal, making it equitable that the amount be recoverable as property.
Policy arguments regarding prejudice to unsecured creditors were acknowledged but deemed weak, since bribe proceeds should never have formed part of the agent’s estate. The Court noted that other common-law jurisdictions (Australia, New Zealand, Singapore, Canada, United States) already apply the wider rule, and harmonisation is desirable.
Consequently, the Supreme Court overruled Tyrrell, Heiron, Lister and later cases relying on them, and endorsed the approach in Attorney-General v Reid. The €10 million was therefore impressed with a constructive trust in favour of the Plaintiffs.
Holding and Implications
Appeal DISMISSED.
The €10 million secret commission received by Defendant is held on constructive trust for the Plaintiffs, who may assert proprietary rights, trace the funds, and obtain priority over unsecured creditors in any insolvency.
Implications: The judgment definitively establishes that, under English law, bribes and secret commissions accepted by fiduciaries are held on trust for the principal. It overrules contrary precedent, aligns the United Kingdom with other common-law jurisdictions, and strengthens anti-corruption policy by enabling tracing and proprietary recovery.