The principal of the person who received it, according to a recent decision
of the UK Supreme Court.
FHR v Cedar1
In 2004, FHR purchased the shares of a corporation which held a leasehold
interest in the Monte Carlo Grand Hotel. FHR paid the vendor €211.5 million for
Cedar had acted as FHR’s agent in negotiating the purchase, but had also
entered into an agreement with the vendor. Following completion of the sale, the
vendor paid a €10 million fee to Cedar. The fee was not disclosed to
FHR sought to recover the fee from Cedar. By the time the case reached the
Supreme Court, the sole issue was whether FHR’s claim against Cedar was personal
(leading only to an award of equitable compensation) or proprietary (leading to
a constructive trust – a far more advantageous remedy).
In a single judgment, the seven judges of the Supreme Court ruled in favour
of FHR. Cedar had received the fee from the vendor on constructive trust for
FHR, and was obliged to pay it to FHR.
Implications for New Zealand businesses
The decision may not surprise New Zealand lawyers. A similar question was
answered more than 20 years ago in Attorney-General for Hong Kong v
Reid.2 There, a corrupt prosecutor had received
bribes in Hong Kong and invested them in real properties in New Zealand. The
Privy Council ruled that the properties were held on constructive trust for the
However, it is worth noting that FHR v Cedar arose in a commercial
context (rather than the shady criminal underworld). It contemplated the award
of far-reaching proprietary remedies in a range of situations involving secret
commissions or bribes, including:
the payment of a ‘brokerage fee’ by a vendor to an agent;
the grant of a ‘loan’ by a landlord to a lessee’s agent;
the transfer of shares by a vendor of land to individuals, to induce them to
become directors of a company and agree to the sale;
the transfer of shares by a vendor of a mine to the secretary of the
the payment of a sum to a trustee, to induce him to retire in favour of the
the payment of a commission by a stock-broker to a trustee, to induce him to
encourage his fellow trustees to use the stock-broker.
Whether the payment of a commission presents issues of this nature or, even
more problematically, the prospect of criminal liability for the parties
involved, depends on the particular circumstances. Even where payments are not
inherently unlawful, non-disclosure can create issues.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.