X
    X
    X
    X

    UK: Principal’s Remedies for Secret Commission

    Publications

    The insurance industry employs many agents (for example, brokers, coverholders, underwriting agents) and inevitably there have been occasions when an agent has been in receipt of a secret commission (or bribe) in breach of the agent’s duties to its principal.

    In the recent case of FHR v Mankouris [2013] EWCA civ 17, the English Court of Appeal has again considered the question of whether the wronged principal has a proprietary right to trace the proceeds of the secret commission or is limited to an action for an account. The difference is important, and the tracing remedy more valuable, if the agent is insolvent or the secret commission has been used to invest in assets with a higher value. The Court openly invited the Supreme Court (or Parliament) to clarify the law in this area, but held that if it could be shown that the agent had obtained a benefit by taking advantage of an opportunity that was properly that of the principal, then the benefit was held on constructive trust for the principal, and was accordingly subject to a tracing remedy.

    On the facts in FHR v Mankouris, this meant that the buyers of a hotel were entitled to trace into a secret commission paid to its agent by the vendor since if the buyers had been aware of the commission, they would have had an opportunity to negotiate a lower price for the hotel. By analogy, a policyholder could trace into a secret commission paid to its broker by an insurer if it could be shown that the policyholder would have negotiated a lower premium if the commission had been disclosed.

    Explore Additional Topics

    Disclaimer

    Please understand that your communications with Locke Lord LLP through this website do not constitute or create an attorney-client relationship with Locke Lord LLP. Any information you send to Locke Lord LLP through this website is on a non-confidential and non-privileged basis. Therefore, do not send or include any information in your email that you consider to be confidential or privileged.