Analysis
The claimants, who were a group of companies engaged in the business of exploration and exploitation of gas reserves in Ukraine, brought claims against, inter alia, the fourth and fifth defendants (Vivcharyk defendants), respectively the former chief operating officer and the company controlled by him, in relation to alleged bribes or secret commissions which, directly or indirectly, they received in connection with commercial contracts for the supply or acquisition by the Cadogan Group of drilling equipment and services, two gas plants and a company. Proceedings were issued on 19 June 2009 and, on the same day, without notice worldwide freezing injunctions were granted against the Vivcharyk defendants. The relief sought included declarations that such bribes or secret commissions or their traceable proceeds were held on constructive trust for the claimants. The present applications included the question whether those proprietary claims should be disposed of summarily and related parts of the freezing injunctions deleted.
Held (granting the application):
The Court of Appeal decision in Sinclair Investments (UK) Ltd v Versailles Trade Finance Group plc [2011] WTLR 1043 rendered the proprietary claims advanced by the claimants unsustainable and, as a result, the Vivcharyk defendants were entitled to summary judgement in respect of those claims and the proprietary elements of the freezing injunctions deleted. The question for the court, where an agent or employee accepted a bribe or secret commission, was whether his principal or employer beneficially owned that bribe or secret commission. It had been previously held in the Court of Appeal in Lister & Co v Stubbs (1890) LR 45 Ch D 1 that bribes which an employee had taken from suppliers to his employers were not held on trust for the employers. However, the Privy Council had come to the opposite view in Attorney General for Hong Kong v Reid [1994] 1 AC 324 and concluded that properties brought with bribes which a prosecutor had accepted in breach of fiduciary duty were held on trust for the Crown. Lord Neuberger, MR (as he then was) considered that there was a real case for saying that the decision in Reid was unsound and that the court was bound to follow Lister & Co v Stubbs (1890) LR 45 Ch D 1. There was a fundamental distinction between (i) a fiduciary enriching himself by depriving a beneficiary of an asset and (ii) a fiduciary enriching himself by doing a wrong to the beneficiary. A beneficiary of a fiduciary’s duties cannot claim a proprietary interest (but was entitled to an equitable account) in respect of any money or asset acquired by the fiduciary in breach of his duties to the beneficiary, unless the asset or money is or has been beneficially the property of the beneficiary or the trustee acquired the asset or money by taking advantage of an opportunity or right which was properly that of the beneficiary. In general, bribes or secret commissions were not money which formed part of the assets subject to the fiduciary’s duties or were otherwise derived from such assets. Moreover, it could not be said that the bribes and secret commissions in this case were acquired by taking advantage of an opportunity or right which was properly that of the beneficiary. Instead, a bribe or secret commission should be seen as something the fiduciary obtained by doing a wrong rather than by depriving the beneficiary of an opportunity. Even it could be shown that the alleged bribe or secret commission was paid from funds which could be tracked back to money which had once belonged to the claimants, it would make no difference in this case because none of the contracts in question were rescinded and, in both circumstances, they could not assert any proprietary interest in the money which they paid pursuant to those contracts – it had become the payees’ rather than their money both at law and beneficially and, it followed, that any bribes or secret commissions paid from sums derived from those payments was not money belonging to the claimants. Accordingly, the claimants had no real prospect of success in their proprietary claim and, therefore, the Vivcharyk defendants were entitled to summary judgement and deletion of the proprietary elements of the freezing injunctions.
JUDGMENT NEWEY J: [1] A variety of applications came before me in July. Some of them have been adjourned or otherwise dealt with by agreement. The matters that remain to be decided at this stage can be summarised in broad terms as follows: i) Should certain proprietary claims made by the claimants be disposed of …Continue reading "Cadogan Petroleum plc & Ors v Mark Tolley & Ors [2011] EWHC 2286 (Ch)"