[RDG] FHR European Ventures LLP v Mankarious [2013] EWCA Civ 17
Putting aside the difficult question whether a constructive trust should always automatically arise in relation to the identifiable fruits of profiting from breach of fiduciary position, in my respectful
view the Court of Appeal in FHR has quite misunderstood the basis of the "business opportunity" constructive trust cases. It is also I believe not possible to reconcile on any rational ground the holding in this case with either Tyrrell v Bank of London or
Lister v Stubbs, by which authorities the Court expressly accepted it was bound.
The trust remedy in the business opportunity cases is in effect a supplement to specific performance and the cases turn on the subject matter of the trust having particular relevance to the principal's
business. This is also the explanation for many other species of constructive trust. Unless one adopts the view that one should get specific performance of even a money obligation (as Att-Gen for HK v Reid seemed to do), a mere side deal of the sort in FHR
could not qualify, especially when the side deal in that case did involve only money.
Tyrrell is almost on all fours with FHR. There was a business opportunity in that case in the form of a building, which the House of Lords held was held on trust for the principal (perhaps unnecessarily
because the plaintiff had before trial got ownership of the building). But there was also a side benefit, in that Tyrrell (solicitor to the promoters of the Bank) as part of the vendor's inducement to encourage the Bank to acquire the building was cut into
acquiring the land that was contiguous to the building and made a substantial gain by acquiring that interest. It was held, reversing Romilly MR, that there could be no trust of this contiguous land because the Bank had no interest in acquiring it. What is
less clear is whether the Court held Tyrrell accountable at all for the profit on this land. Having analysed (from the House of Lords' archives) the original pleadings and the case on appeal for both the appellant and the respondent, and all the evidence filed
with the appeal documents, it is clear enough that the Bank did claim that the side benefit was corruptly received, and that the House did award a form of account of profits in respect of it. I shall be presenting a detailed analysis of Tyrrell in a paper
to be given in February at the University of Nottingham. I hope to show that Lord Millett ([2012] CLJ 583) and P McGrath ([2012]LMCLQ 516) have not properly understood the case.
As for Lister, the only obvious point of difference seems to be that in FHR there was an express contract to pay the commission, whereas in Lister the secret commissions were
simply cash payments. This cannot be a sound point of distinction. It is possible to infer that Etherton C and Lewison LJ also thought that Lister was flawed since the “business opportunity” argument and case law had not been considered, but that requires
a finding that Lister was wrongly decided.
This is not to deny that there are other cases which might support a broader role for the constructive trust than Tyrrell and Lister.
Peter Watts
The University of Auckland
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