FHR

There are a lot of remedies available in the court for breaches of fiduciary duty
and this is a source of relief for all those people who depend on equitable
interests. Several legal remedies are available in cases of breach of contract,
including injunctions, avoidance or circumvention of contractual terms,
compensation for losses incurred, as demonstrated in the case of United
Dominions Corporation Limited versus Brian Private Limited, and equitable
remedies such as those outlined in Nocton versus Lord Ashburton.
Additionally, individual liability for profits gained may also be pursued. One of
the most notable solutions in cases where a fiduciary has gained profits is to
establish their liability for such profits by means of a constructive trust. The
cases of Boardman V Phillips and Industrial Developments Corporation v
Cooley are of academic interest.

The remedy of equitable compensation has traditionally been available as a

means of redress for breaches of fiduciary duty, whereby the total value of
earnings obtained through such breaches may be forfeited. There exist two
distinct methods by which a fiduciary may acquire illicit gains. A breach of
fiduciary duty occurs when a fiduciary accepts a bribe, as established in the
legal case of Dale v IRC [1954], or when the fiduciary generates unauthorized
profits by utilizing confidential information. The topic of discussion is A.G V
Guardian Newspaper No 2 and Boardman v Phibbs [1967]. The breach of
fiduciary duty may transpire in instances of unauthorized profits, such as
when a trustee renews a lease for their personal gain, as exemplified in Keech v
Sanford [1726], or when a trustee purchases the freehold for their own benefit,
as demonstrated in Protheroe v Protheroe [1968]. The case of Regal v Gulliver
[1942] established that fiduciary company directors who obtain an
unauthorized profit as a result of their position will give rise to a constructive
trust. The act of utilizing an opportunity or information in a fiduciary capacity
for personal gain, as exemplified in the case of IDC v Cooley, constitutes a
violation.
The COA in Lister v Stubbs rendered a decision that invalidated the
establishment of a constructive trust in a scenario where a fiduciary had
accepted a bribe. This decision, which occurred a decade after Heiron,
determined that the fiduciary would only be held liable for the bribe itself, and
that the principal would be prevented from tracing the bribe to any assets
acquired through its use.

Heiron LJ attempted to distinguish between the scenario in which the funds

were withdrawn from the trust and the scenario in which they were obtained as
a form of commission, or bribe. Lister is credited with distinguishing between
cases where a fiduciary's position was abused and cases where property was
misused due to the fiduciary's position. According to LJ Lindsley, if the position
had been different, the principle would have been prioritized over all other
creditors of the fiduciary.
In AG Hongkong v Reid, the Privy Council declared that Lister was inconsistent
with the authorities of earlier cases. The Privy Council exhibited a predilection
towards and seemingly endorsed the viewpoints espoused by Lai Kew Chai J in
the case of Sumitomo Bank Ltd v Thahir, as well as the extra-judicial stance of
Lord Millet in his work titled "Bribes and Secret Commissions". The Privy
Council's methodology aligned with the act of accepting commissions in a
fiduciary capacity, thereby invoking the no hidden profits rule.

The legal precedent set by Lister v Stubbs rejected the notion of personal
liability and instead recognized the emergence of a constructive trust,
irrespective of whether the fiduciary obtained funds from the trust or through
bribes from a third party. In Sudan v Crosland, it was asserted by the court
that the principle was entitled to the profits obtained from the investment of
bribe money.

The approach adopted by Lord Templeman in Reid was founded upon a duo of
factors. The primary objective of the individual in question was to impose
penalties upon individuals who engaged in corrupt practices such as accepting
bribes and violating their fiduciary responsibilities. The individual expressed a
desire, based on ethical considerations, for the automatic establishment of a
constructive trust. According to Lord Templeman, bribery was deemed as a
morally reprehensible conduct.
Secondly, the individual aimed to advance the principle of equity, specifically
the maxim "as done that which ought to have been done." According to his
belief, the bribe and any associated profits were the rightful property of the
principal in terms of equity, immediately upon payment.

Despite Lord Templeman's attempt at justification, it was deemed inadequate

and nonsensical, as noted by Crilly in 1994. He was accused of lacking the
reasoning employed in the cases where the principles were originally
established. According to Swaddling, the payment of the bribe could originate
from any available financial resource.

Notwithstanding the aforementioned criticisms, it is imperative to acknowledge

the advantages of the principle established in Reid, which entails the
prohibition of unjust enrichment obtained through the investment of bribes
and the consequential profits. Individuals in a fiduciary position ought not to
be permitted to derive benefits from profits obtained through the violation of
their fiduciary obligations.

Reid was believed to have eliminated the personal liability approach of Lister,
but the rule resurfaced in Sinclair Investments Ltd v Versailles Trade like a
resurrected mummy. In the case of Sinclair, Lord Neuberger rendered a
decision to misapply Reid and to reapply Lister, affirming its binding nature.
The concerns articulated by LJ Lindsley in Lister were echoed by him.
Lord Neuberger distinguishes between the constructive trust that arises from
the abuse of a trust property and the debt claim that arises from the abuse of
the fiduciary office, as seen in the Lister case. The speaker posited that the
acceptance of a bribe by the recipient, resulting in the misuse of the trust's
assets, would give rise to the establishment of a constructive trust. This
rationale was implemented with the aim of ensuring equitable treatment of all
creditors, rather than favoring a particular subset of creditors.
The outcomes emanating from this methodology were both lauded and
scrutinized. In the aftermath of the situation, Professor Goode underscored the
significance of ensuring a just and equitable handling of insolvencies, which
precludes the separation of assets that hold significant value. Hayton J
contested the approach, arguing that Lord Neuberger's distinction could
potentially pose challenges in identifying cases. Lord Millet advocated for the
establishment of a constructive trust in cases where a bribe had been received,
based on a moral perspective.

The UK Supreme Court in the case of European Ventures LLP v Cedar Capital
Partners LLC, has overturned the decision made in Sinclair Investments Ltd v
Versailles Trade, marking a significant development in the legal landscape. The
issue that was to be adjudicated by the seven law lords pertained to the
determination of whether a fiduciary's receipt of a bribe should be subject to a
constructive trust, even in the event of a personal remedy. The judgement
rendered by Lord Neuberger established that a benefit obtained through the
misuse of a fiduciary position must be held by the principal as if they were the
beneficial owner, in a surprising turn of events. The rationale behind this
regulation is that the principle of fairness prohibits a fiduciary from relying on
their mistake.

The judgement in the case tells us that reasoning given is not right and the
language used also tells us that there is a notable absence of conviction. The
SC has adopted a perfectionist stance with respect to fiduciary duties and this
appears to be justifiable foundation when it is being compared to the potential
drawbacks which can arise in these sort of relationships. Lord neubergers
statement tells us that the decision takes into account is grounded in both
principle and in practicality. The primary argument against the formation of a
constructive trust was rooted in the rejection of prioritizing the claimant above
other unsecured creditors. The primary contention supporting the formation of
a constructive trust is that a fiduciary must refrain from accepting any form of
bribe as doing so would inevitably result in a conflict between the fiduciary's
obligations and their personal interests. Lord Neuberger highlighted that the
fiduciary's acceptance of a bribe would result in a disadvantage for the
principal, as the payer would likely have an ulterior motive against the
principal or be required to pay an excessive amount to them.
The financial rationale presented by Lord Neuberger appears to be deficient due
to insufficient elucidation regarding the absence of a constructive trust and its
implications on the fiduciary benefit derived from corruption. The act of bribery
not only violates ethical principles but also has negative consequences for the
broader community. The acknowledgement of bribery as a societal and moral
wrongdoing, as articulated by Lord Templeman in Reid, can facilitate
comprehension of the significance of constructive trusts. The establishment of
a constructive right at the onset of bribery would preclude the fiduciary from
appropriating any advantages accruing from the bribe for personal gain.

The traditional methodology that has been dismissed by FHR is incongruous

with contemporary justice systems, which have witnessed a growing
clampdown on corrupt practices in business transactions. Adhering to such an
approach would jeopardize the reputation and trustworthiness of the English
Legal system. According to Lord Herschel’s statement in the legal case of Bray
vs Ford, it is an unyielding principle of fairness that no individual in a position
of trust should be permitted to keep any profits resulting from a bribe.

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