Home Information Cases FHR European Ventures LLP v Ramsey Neil Mankarious, Cedar Capital Partners (2011)

Skip to content. | Skip to navigation

FHR European Ventures LLP v Ramsey Neil Mankarious, Cedar Capital Partners (2011)

Summary

The principals involved in a joint venture for the purchase of a major hotel were entitled to recover secret commission paid to agents who had been engaged in negotiating the purchase and price of the hotel. The agents had acted in breach of their fiduciary duty not to profit from their position and the principals had neither knowledge of the commission nor consented to its payment.

Facts

The claimant principals sought to recover €10 million as undisclosed commission received by the defendant agents (M and C). M and C counterclaimed for sums due in respect of work done on the claimants' behalf. M had established C to provide consultancy services to the hotel industry. The fourth and sixth claimants (F and B) were among C's clients. M had acted on behalf of F and B in negotiating a memorandum of understanding proposing terms by which a joint venture company would acquire a major hotel. The second claimant (K) also became an investor. Together with their subsidiaries, who were the third, fifth and seventh claimants, K, F and B formed the first claimant joint venture company (X). C was appointed as manager and investment adviser to X. The hotel was acquired for €211.5 million. C continued to work on other potential projects on behalf of X and its backers, and rendered invoices in respect of work done. K later discovered that C had been paid a fee by the vendors in relation to the hotel, which M revealed was €10 million. Thereafter, K and F declined to pay C's invoices. X complained to C about the fee and ended its business dealings with them. The claimants sought to recover the €10 million on the basis that it had been received by M and C in breach of their duty as fiduciary agents not to profit from their position or put themselves in a position where their interest and duty were in conflict. M and C submitted that they were entitled to retain the commission since its payment was known to the claimants, and they sought to recover sums due in respect of work done on that and another three hotel projects

Held

(1) The distinguishing obligation of a fiduciary was that of loyalty, Bristol & West Building Society v Mothew (t/a Stapley & Co) (1998) Ch 1 CA (Civ Div)followed. An agent might not put himself in a position or enter into a transaction in which his personal interest might conflict with his duty to his principal unless his principal, with full knowledge of all the material circumstances and the extent of the agent's interest, had given his consent, Hindmarsh v Brigham & Cowan Ltd (1943) 76 Ll L Rep 141 KBD and New Zealand Netherlands Society "Oranje" v Kuys (1973) 1 WLR 1126 PC (NZ) applied. An agent who relied on the exception of informed consent had to prove it, and whether there had been sufficient disclosure would depend on the facts of each case, Hurstanger Ltd v Wilson (2007) EWCA Civ 299, (2007) 1 WLR 2351 followed. The materiality of what had to be disclosed was to be assessed on the basis of whether it might have affected the principal's decision and not whether it would have done so, Andrews v Ramsay & Co (1903) 2 KB 635 KBD applied and Johnson v EBS Pensioner Trustees Ltd (2002) EWCA Civ 164, (2002) Lloyd's Rep PN 309followed. If the agent was in breach of fiduciary duty in relation to the receipt of commission he would be bound to account for such sum to the principal. Moreover, the principal was entitled to refuse to pay contractual commission in respect of the transaction as to which the agent was in breach, and could bring the contract of agency to an end summarily, Andrews applied (see paras 74-79, 85 of judgment). (2) C undoubtedly owed an agent's fiduciary duties to B and F in relation to the establishment of the joint venture and in negotiating the purchase and price of the hotel. Those duties continued until C's retainer was terminated, and were owed severally to each of the participants in the joint venture. There was no sufficient disclosure of the material circumstances as to the nature and extent of C's interest in the sale of the hotel to which B, F or K had consented. It was, therefore, appropriate for C to account to the claimants for the entire amount of the secret commission (paras 99-108). (3) C was not permitted to recover sums due under the contract in respect of which there had been a breach of fiduciary duty, Andrews applied. The claimants accepted, however, that C was entitled to be paid in relation to work done on the three other hotels, and the counterclaim succeeded to that extent (para.111).

Chancery Division
Simon J
Judgment date
5 September 2011
References

​LTL 15/9/2011 : [2011] EWHC 2308 (Ch)