Hogan Lovells Successfully Advises Investor Group in 'Proprietary v. Personal' Supreme Court Ruling
21 July 2014
21 July 2014, London – Hogan Lovells had an important win in the Supreme Court last week on behalf of FHR European Ventures LLP ("FHR"). The judgment, handed down on Wednesday 17 July, states that an agent who receives a bribe or secret commission in breach of his fiduciary duty to his principal holds that benefit on trust for his principal.
This decision means that a principal now has a greater chance of recovering such benefits from an insolvent agent.
Hogan Lovells partner Rod Baker led the team advising FHR European Ventures LLP. The team also included Cordelia Rayner.
Commenting on the judgment, Rod Baker said:
"This is a significant win for Hogan Lovells and our client, FHR European Ventures, and now sets a precedent for similar cases. Today's judgment by the Supreme Court ends a long running legal debate and provides clarity in an area of law where there have been inconsistent judgments for over 100 years. On behalf of our client, we are now able to trace the secret fee through an insolvent agent and seek to recover the funds for our client."In 2004, an individual and his US company (of which he was the 100% owner), acted as the agents of FHR in connection with its purchase of the luxury Monte Carlo Grand Hotel in Monaco. Without the knowledge of FHR, the US company received a €10 million commission from the sellers of the hotel. On discovery of this secret commission, FHR sued the agents for recovery of it contending that the receipt of the fee was a breach of fiduciary duty and caused FHR loss of an equivalent sum as the hotel seller would clearly have been willing to accept €10m less for the hotel had it not had to pay the commission.
The High Court found that the US company had failed to obtain the informed consent of FHR to the secret commission and therefore had breached its fiduciary duties to FHR. However, the Court also found the US company was only liable 'personally' to FHR to repay the secret commission, which critically impaired FHR's chances of recovering the funds, as the US company was by then insolvent and unable to repay its debts.
In 2013, the Court of Appeal declared that the US company in fact held the secret commission on trust for FHR and the US company appealed this finding. However, the Supreme Court has now dismissed that appeal and simplified the law, which means that FHR is entitled to a proprietary remedy that enables it to recover the secret commission by tracing or following it or its proceeds beyond the hands of the now insolvent US company.
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