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12 March 2019
The Court of Appeal has held that a seller paying 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.
The dispute related to the failure to complete a house purchase in North London in August 2015. Prince Arthur Ikpechukwu Eze (the appellant) was the buyer and Mr and Ms Conway (the respondents) were the sellers.(1)
Eze had been assisted in the transaction by a property developer and acquisition agent – Mr Obahor. Obahor visited the property in April 2015 when it was 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). Obahor agreed a price of £5 million with the sellers. During his first visit, Obahor said (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.
Obahor then approached Eze, with whom he had had no prior dealings, regarding the property. He stated that he had negotiated a price of £5 million and that this was a good deal. Eze made it clear that he wanted to proceed with the transaction and agreed to pay Obahor a fee of 3% of the purchase price (£150,000). Eze instructed Obahor to liaise with his private wealth adviser, Mr Richard Howarth, whom Eze already knew well and trusted to monitor what was happening and be honest.
The negotiations for the acquisition were complex and drawn out. Obahor acted as a go-between by passing information between the sellers and Eze (or Howarth on his behalf). Obahor was also authorised to act on behalf of 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. However, shortly after exchange Eze's attitude towards the property cooled. The sellers served notices to complete on Eze but the sale was never completed.
The sellers commenced proceedings against Eze for damages for breach of contract.
The finder's fee (payable by the sellers to one of Obahor's companies) had not been disclosed to Eze until after initiation of these proceedings. 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 Eze's agent, Obahor, which Eze contended rendered the contract void or at least voidable and unenforceable by them.
The judge found that the relationship between Obahor and 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". Obahor had contacted Eze with a pre-packaged deal relating to the property which, if taken up, would require a 3% commission. Obahor had not acted as an agent but in substance had been a sales person acting on his own behalf and for his own commercial interest. The judge referred to Obahor as providing a 'ministerial' service in progressing matters relating to the transaction, rather than a trusted adviser to Eze. Obahor had been told by Eze to contact Howarth in order to progress matters; therefore, he was not found to be an agent in any significant sense of the word.
Eze appealed the decision on the basis that:
The appeal was unanimously dismissed. In her decision, Lady Justice Arden cited the judgment of Justice Christopher Clarke (as he was then) in Novoship (UK) Limited v Mikhaylyuk,(2) 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).(3) The authorities explain the importance of an agency relationship between the recipient of the bribe and his principal in order to engage these principles (ie, 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). Clarke 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".
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 their interests and duties. Although the relationship between an agent and principal is a fiduciary one, 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 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 saw 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 Eze had not regarded Obahor as a trusted adviser, that he had not been an agent "in any significant sense of the word" and that the relationship had not matured in that way.
This judgment sets the bar high for parties to prove that a sufficient relationship of trust and confidence exists in order to engage the law on bribery and secret commissions. Notably, 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.
For further information on this topic please contact Charlotte Henschen or Jonathan Cary at RPC by telephone (+44 20 3060 6000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
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