Most Read Contributor in New Zealand, September 2016
A recent UK Supreme Court judgment underscores the
rising judicial intolerance among Western jurisdictions of bribery
The decision resolves a question which has been
long-unsettled in UK law and brings the UK into line with New
In FHR European Ventures v Cedar Capital
Partners1, FHR had bought shares in a Monte Carlo
hotel company for €221.5m. Cedar, FHR's consultant and
agent negotiated the purchase. Cedar also had a secret exclusive
brokerage agreement with the vendor, which earned Cedar a €10m
The UK Supreme Court held unanimously that Cedar had breached
its fiduciary duty and the €10m was therefore held on trust
for FHR. For reasons of "practicality, policy and
principle" the Court decided that in the absence of an obvious
"right" answer from the centuries of case law, the
simplest and clearest approach was the best – the bribe and
any proceeds will be treated as the property of the principal.
A principal now has the right to point to the bribe or secret
commission received by an errant agent and say 'that is mine,
give it back'.
UK now in line with New Zealand position
The question has been settled in New Zealand since
19932, when a former New Zealand national and Hong Kong
official invested the proceeds of bribes in Tauranga real estate.
In this country, a bribe or secret commission received by an agent
is deemed held on trust for his or her principal.
But the position in the UK since 1862 has been that the
principal merely has a claim for compensation equal to the value of
the bribe or commission.
The key point is that, for an organisation, the legacy of a
bribery event can linger for a long time. Cedar, like
Reid before it, confirms that any bribe or secret
commission received by an organisation acting in a fiduciary
capacity will legally be the property of its principal and can be
traced by the principal into the organisation's assets. There
is also a cautionary tale here for unsecured creditors, who might
suddenly find their interests subordinated by a wronged principal.
It may also be possible to trace the bribe or secret commission
into the hands of third parties.
This will be so even in situations which might at first blush
seem more like sharp commerce than cloak-and-daggers bribery, as
with the exclusive brokerage agreement in the Cedar
The take-home message
In Cedar, Lord Neuberger commented
Concern for bribery and
corruption has never been greater than it is now... Accordingly,
one would expect the law to be particularly stringent.
This judicial attitude, found also in Reid, underscores
the strong international consensus against bribery and
Last year, the OECD recommended that New Zealand significantly
increase its efforts to investigate and prosecute foreign
bribery4. New Zealand responded by introducing the
Organised Crime and Anti-Corruption Bill into Parliament in June
2014. New changes soon to be part of New Zealand law will
expressly confirm that a corporation can commit a foreign bribery
Cedar is further evidence that domestic legal systems
are evolving strongly to condemn bribery and corruption. Even a
lengthy history of contrary caselaw and divided academic opinion is
not a decisive impediment. New Zealand businesses, especially those
operating in foreign markets, should be aware of the risks of being
associated with bribery and corruption, and how they are best
1FHR European Ventures v Cedar Capital
Partners  UKSC 45
2Attorney-General of Hong Kong v Reid
 1 NZLR 1 (Privy Council)
4OECD Working Group on Bribery "Phase 3
Report on Implementing the OECD Anti-Bribery Convention in New
Zealand" October 2013
5See cl 6(4) of the Bill, proposing a new s
105C(2A) to (2C)
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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