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Agency must hand over secret commission to parent company

Posted: 6th May 2015   In: Corporate Commercial

An agency that received a multi-million pound secret commission when helping in the purchase of a hotel has been told it must hand over the money to the parent company for which it was working during the transaction.

The issue arose after the agency was engaged by a company wishing to buy a hotel. During the ensuing negotiations, the agency was given a commission of £10m by the hotel seller for having found it a purchaser. The agency was therefore being paid by both the seller and the purchaser.

The agency did not inform the purchaser about the commission, which was kept a secret.

When the purchaser eventually found out, it considered that it was entitled to the £10m and took legal action to recover it.

The case then centred on the rule that where an agent acquired a benefit by breaching his duties, he was to be treated as having acquired that benefit on behalf of the company employing him. The question was whether that ruled applied to a bribe or a secret commission.

The agency argued that under the law it was entitled to keep the secret commission, but accepted that it had breached its duties and so therefore the purchaser might have a case for pursuing reasonable compensation.

The case went all the way to the Supreme Court, which ruled in favour of the purchaser. It held that it was well established that where an agent received a benefit by breaching its duties, it was obliged to hand over that benefit to the employer.

There was no compelling reason why this rule should not apply to bribes and secret commissions. The reason why the agency should not have accepted the commission was because it put it in conflict with its duty to the purchaser. There also had to be a strong possibility that the bribe had disadvantaged the purchaser.

Please contact Sing Li if you would like more information about the issues raised in this article.

Posted by: Sing Li
Corporate Commercial
Luton Office