"Agency" is not always enough to engage the law of bribery and secret commissions

13 March 2019. Published by Charlotte Henschen (née Ducker), Senior Associate and Jonathan Cary, Partner

The Court of Appeal has held that the payment by a seller of a fee to an acquisition agent without the buyer's knowledge does not render the contract for sale void or voidable. The decision turned on the nature of the relationship between the buyer and the acquisition agent; the Court found that because, on the facts, the agent's relationship with the buyer was not a fiduciary relationship of trust and confidence the law relating to bribes or secret commissions was not engaged.

Prince Arthur Ikpechukwu Eze v Conway and another [2019] EWCA Civ 88 

The dispute related to the failure to complete the purchase of a house in North London (the "Property") in August 2015. The Appellant, Prince Eze, was the buyer, and Mr and Mrs Conway (the Respondents) were the sellers.

Prince Eze had been assisted in the transaction by a property developer and acquisition agent - Mr Obahor. Mr Obahor visited the Property in April 2015.  The Property was then on the market for £5.495 million.  He informed the sellers that he was acting on behalf of an individual who would be interested in acquiring the Property (in fact at that time he had no interested client and was proceeding speculatively).  Mr Obahor agreed a price of £5 million with the sellers.  Mr Obahor said at that first visit (and subsequently repeated and recorded in a written agreement) that he wished to receive a "finder's fee" of 1.5% (£75,000) from the sellers (the "Finder's Fee").

Mr Obahor then approached Prince Eze, with whom he had had no prior dealings, in relation to the Property.  He stated that he had negotiated a price of £5 million and expressed the view that this constituted a "good deal".  Prince Eze made it clear that he wanted to proceed with the transaction and agreed to pay Mr Obahor a fee of 3% of the purchase price (£150,000).  Prince Eze instructed Mr Obahor to liaise with his private wealth adviser, Mr Richard Howarth, whom Prince Eze already knew well and trusted to monitor what was happening and "tell him the truth".

The negotiations for the acquisition were complex and drawn out.  Mr Obahor acted as a go-between in passing information between the sellers and Prince Eze (or Mr Howarth on his behalf).  Mr Obahor was also authorised to act on behalf of Prince Eze in relation to the transaction in the dealings with the sellers' solicitors.

The parties eventually exchanged contracts in August 2015 and completion was fixed for 30 November 2015.  Shortly after exchange, however, Prince Eze's attitude towards the Property cooled.  The sellers served notices to complete on Prince Eze, but the sale never completed.

The sellers commenced proceedings against Prince Eze for damages for breach of contract.

The finder's fee (payable by the sellers to one of Mr Obahor's companies) was not disclosed to Prince Eze until after initiation of these proceedings.  Prince Eze defended the claim on the principal basis that the contract had been concluded following the sellers' promise to pay a bribe or secret commission to Prince Eze's agent, Mr Obahor, which Prince Eze contended rendered the contract void or at least voidable and unenforceable by them.

The Decision at First Instance

The judge found that the relationship between Mr Obahor and Prince Eze was not such as to engage the law on bribes.  He concluded that the "starting point [was] initially that Mr Obahor was nobody's agent". Mr Obahor had contacted Prince Eze with a pre-packaged deal in relation to the Property which, if taken up, would require a 3% commission.  He was not acting as agent but was in substance a sales person acting on his own behalf and for his own commercial interest. The Judge referred to Mr Obahor as providing a "ministerial" service in progressing matters relating to the transaction, rather than a trusted adviser to Prince Eze.  Mr Obahor had been told by Prince Eze to contact Mr Howarth in order to progress matters; he was therefore not found to be an agent himself in any significant sense of the word.

The Decision on Appeal

Prince Eze appealed the decision on the basis that (i) the judge was wrong to decide that the promise of a secret payment to a person acting in a "ministerial role" does not engage the law of bribery and secret commissions, and (ii) in anyevent the judge was wrong to find that Mr Obahor's role was purely "ministerial".

The appeal was unanimously dismissed. In her decision, Lady Justice Arden cited the judgment of Christopher Clarke J (as he was then) in Novoship (UK) Limited v Mikhaylyuk, which considered the nature of a bribe and the circumstances in which the law on bribes and secret commissions is engaged (which in turn cites earlier authorities on the issue).  The authorities explain the importance of an agency relationship between the recipient of the bribe and his principal in order to engage these principles, i.e. the payment or inducement must give rise to a real prospect of a conflict between the agent's personal interest and that of his principal. Christopher Clarke J concluded his exposition of law in this area by noting that "the underlying rationale for the strict approach taken by the cases is that a principal is entitled to be confident that an agent will act wholly in his interests."

Lady Justice Asplin concluded that for the law of bribery and secret commissions to be engaged there must be a "relationship of trust and confidence" between the recipient of the benefit or promise and his principal, which puts the recipient in a real position of conflict between his interests and his duties.  Although the relationship of agent and principal is a fiduciary one, (i) not every person described as an "agent" is the subject of fiduciary duties and a person described as an agent might owe fiduciary duties in relation to some of his activities but not others, and (ii) a relationship of trust and confidence may arise where there is no agency at all.  It will therefore turn on the facts, and depend on the nature of the individual's duties.

As to the application of that principle in this case, the Court of Appeal also concluded that it could see no error in the way in which the judge had carried out his analysis of the facts, rather it seemed that he had legitimate and proper grounds for concluding that Prince Eze did not regard Mr Obahor as a trusted adviser, and he was not an agent "in any significant sense of the word", nor had the relationship matured in that way.

Commentary

This judgment sets the bar high for parties to prove that a sufficient relationship of trust and confidence exists so as to engage the law on bribery and secret commissions. An "agency" relationship, including where the principal has issued a letter granting the agent with authority to act on the former's behalf, will not necessarily be enough to evidence the requisite degree of fiduciary duty.