FHR European Ventures LLP v Mankarious & Cedar Capital (2016)


The court examined the principles of tracing and determined that where a fiduciary had paid trust money into one account and its own money into another account held at the same bank, the funds could not be said to have been mixed. In such circumstances, the principles of tracing established in Hallett's Estate, Re (1880) 13 Ch. D. 696 rather than those established in Oatway, Re [1903] 2 Ch. 356 applied.


The claimants applied for an account or inquiry in respect of the defendants dealings with monies deriving from commission paid following a share sale.

The claimants were share purchasers. The second defendant (D2) had brokered the deal and had received commission of £10 million from the seller. After receiving the commission, it transferred monies to the third defendant (D3), its wholly-owned subsidiary, and to the first defendant (D1), the moving force behind D2 and D3. Because D1 had also acted as the claimants' agent in relation to the deal, the claimants issued proceedings claiming that the defendants had breached their fiduciary duties towards them. They claimed that D2 held the commission payment on constructive trust for them and was liable to account to them for it. After obtaining judgment in their favour, they sought an account of D2's dealings with the commission together with consequential declarations and a monetary judgment. By the time of the instant hearing, the defendants had given extensive disclosure of their bank statements, thereby giving an account of the payments made using the commission. The claimants therefore did not pursue the application for an account, but maintained their application for declarations and a monetary judgment.

The issues were whether (1) D1 and D3 had breached their fiduciary duties; (2) the deposit for a property purchased in the joint names of D1 and his wife was wholly derived from the commission under the principle in Oatway, Re [1903] 2 Ch. 356, and whether incidental costs of the purchase were to be treated as part of the acquisition costs; (3) two life insurance policies held by D2 and payable on the death of D1 were held on trust for the claimants absolutely or in proportion to the extent to which the premiums had been paid with monies deriving from the commission;(4) the claimants were entitled to a monetary judgment against D1 or D3.


(1) The defendants admitted that they were fiduciaries and put forward nothing to suggest that their receipt of monies deriving from the commission did not put them in breach of their fiduciary duties. It was common ground that all three defendants were to be treated as having the same state of knowledge in relation to the material facts. D1 and D3 knew that the monies they received were derived from the commission, and that knowledge placed them in a position where their duty to the claimants conflicted with their own interests. They were thus in breach of their fiduciary duties (see paras 17, 19, 22-25 of judgment).

(2) D2 had paid the commission fee into a Jersey bank account held in euros. It paid its own money into a sterling account with the same bank, where it was mixed with £78,982 derived from the commission. The £180,000 deposit for the property was transferred to D1 from the sterling account. The applicable principle of tracing was that established in Hallett's Estate, Re (1880) 13 Ch. D. 696 rather than that established in Oatway. Oatway was not authority for the broad proposition that fiduciaries in the position of the defendants could not withdraw any sum from any account without having first restored the trust money to its rightful owner. It was concerned with a single account in which monies belonging to the trustee and the beneficiary were mixed. It did not apply to the facts of the instant case, in which the funds were not mixed, save to the extent of the £78,982, Oatway not applied. Tracing was a matter of hard-nosed property rights, and not whether it was fair, just or reasonable to treat the claimants as being entitled to the whole of the deposit. Therefore, only £78,982 of the deposit was to be treated as having derived from the commission (paras 32-43). In a property acquisition, incidental costs such as legal fees and stamp duty were not paid to the seller and were not part of the acquisition costs. To the extent that they had been regarded as such in domestic co-ownership cases such as Gissing v Gissing [1971] A.C. 886, that was because the courts had been straining to achieve an equitable result, Gissing considered. The instant case was to be approached on the basis of the fixed rules and settled principles of property rights. Any monies deriving from the commission and used towards incidental costs were not to be treated as augmenting the claimants' share in the property (paras 44-47).

(3) The first premium on each life insurance policy had been paid from monies derived from the commission. The remainder had been paid out of other funds. The claimants' entitlement to a beneficial interest in the policies was therefore commensurate with the proportion of the cost of the premium paid from the commission, Foskett v McKeown [2001] 1 A.C. 102 followed (paras 53-57).

(4) D1 and D3 were defaulting fiduciaries and each held sums derived from the commission on constructive trust for the claimants. They were also liable on the basis of knowing receipt. D1 had all the relevant knowledge which made it unconscionable for him and D3 to retain the benefit of the monies derived from the fee. The claimants were therefore entitled to monetary judgments against them, Hallett's Estate applied (paras 58-78).

Application granted