Fraud Litigation:
Bribery: the civil law position
PCB Litigation has prosecuted and defended a number of cases involving allegations of bribery in relation to multi-million dollar international transactions.
The following focuses on the attitude of the civil courts in common law jurisdictions, which take a dim view of bribery.
In Attorney General for Hong Kong v Reid [1994] 1 AC 324, the Privy Council, heard an appeal from the New Zealand Court of Appeal in respect of bribes found to be have paid to the former Hong Kong Director of Public Prosecutions. Lord Templeman stated:
"Bribery is an evil practice which threatens the foundations of any civilised society."
Below is a summary of some of the principles set out in the case law, which demonstrate why bringing civil claims for bribery is an attractive option for claimants to consider.
The donor's motive in paying the bribe
Was the person bribed, influenced by the bribe?
Please contact us for more detailed, case-specific advice.
What is a bribe?
The word "bribe" has certain connotations, suggesting corrupt motive in order to influence the agent being bribed, causing loss to the principal. However, the civil courts do not require proof of corrupt motive, influence and loss: "the safety of mankind requires that no agent shall be able to put his principal to the danger of such an enquiry as that": Parker v McKenna (1874) LR 10 Ch. App 96.
The essential vice inherent in bribery is that it deprives the principal, without his knowledge or informed consent, of the disinterested advice which he is entitled to expect from his agent, free from the potentially corrupting influence of an interest of his own.
The civil courts therefore look to whether a payment was secret and has put the agent in a position of conflict in order to determine whether such payment was a bribe. There is no need to show some sort of dishonesty normally associated with the word "bribe".
- The case of Panama and South Pacific Telegraph Company v India Co., (1875) L.R. 10 Ch App. 515 establishes the basic principle that any surreptitious dealing between one principal to a contract and the agent of the other principal is a fraud in equity of which the court may take cognisance.
- Not only is it immaterial whether the parties thought that they were doing anything wrong, but money secretly paid to the agent of the other party is recoverable unless the other party is informed of the payment made (Shipway v Broadwood [1899] 1QB 369). According to Lord Chitty:
- According to Mr Justice Slade in Industries & General Mortgage Co Ltd v Lewis [1949] 2 All ER 573, for the purposes of the civil law a bribe means the payment of a secret commission, which only means
- that the person making the payment makes it to the agent of the other person with whom he is dealing;
- that he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and
- that he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person's agent.
- In Anangel v IHI [1990] 1 Lloyd's Law Reports 167, Mr Justice Leggatt stated that the key to the determination of the question of whether or not a payment or other inducement made to an agent constitutes a bribe is whether or not the making of it gives rise to a conflict of interest, that is to say, puts the agent into a position where his duty and his interest conflict.
- In Ross River Ltd v Cambridge City Football Club Ltd [2007] EWHC 2115 (Ch), Mr Justice Briggs found that it was in the highest degree improper for an agent to seek, let alone obtain, a payment from a third party with whom his principal was engaged in tough negotiations. The payment was structured as an advance of monies that would in due course have to be paid to the agent, which took place because of the agent's financial difficulties. The agent put himself into the third party's moral debt and plainly committed a breach of the fundamental obligation of a fiduciary not to place himself in a position of potential conflict between his duties and his interest.
- In Allwood v Clifford (2002) EMLR 3, Mr Justice Park went further, stating: "I do not accept that the Anangel case establishes that, as long as in practice no conflict arises between the agent's duty to his principal... and his interests under his relationship with the third party..., the agent is entitled to retain the payment from the third party."
"The real evil is not the payment of money, but the secrecy attending it."
The donor’s motive in paying the bribe
Whilst bribery is often associated with there being a corrupt motive on the part of the person paying the bribe, in civil proceedings, there is no need to prove such a corrupt motive.
- According to Lord Justice Romer, in Hovenden and Sons v Millhoff (1900) (83 LT 43), if a bribe be once established to the court's satisfaction, then the court will not inquire into the donor's motive in giving the bribe, nor allow evidence to be gone into as to the motive
- Mr Justice Slade in Industries & General Mortgage Co Ltd v Lewis held that proof of corruptness or corrupt motive is unnecessary in a civil action. He further held that the motive of the donor in making the payment to the agent or donee is conclusively presumed against the person who makes the payment.
- In Allwood v Clifford, Mr Justice Park said that it can happen under the law of agency that a payment received by an agent from a third party may be one which the agent is not allowed to keep for himself, notwithstanding that the agent had no consciously improper motive in accepting it, and notwithstanding that the agent may have believed - possibly correctly - that there would be no damage to the interests of his client from what he has agreed to do for the third party.
- In Daraydan Holdings Ltd v Solland International Ltd [2004] EWHC 622 (Ch), Mr Justice Collins stated that in proceedings against the payer of the bribe there is no need for the principal to prove that the payer of the bribe acted with a corrupt motive.
Was the person bribed, influenced by the bribe?
In civil proceedings, there is also no need to prove that the person bribed was influenced by the bribe.
- Lord Justice Romer, in Hovenden and Sons v Millhoff, held that the court will presume in favour of the principal, and as against the briber and the agent bribed, that the agent was influenced by the bribe; and this presumption is irrebuttable.
- Mr Justice Slade in Industries & General Mortgage Co Ltd v Lewis, said that once the bribe is established, there is an irrebuttable presumption that it was given with an intention to induce the agent to act favourably to the payer and. thereafter, unfavourably to the principal and that it is conclusively proved against the person making the payment that the donee is affected and influenced by the payment.
- In Daraydan Holdings Ltd v Solland International Ltd, Mr Justice Collins stated that in proceedings against the payer of the bribe there is no need for the principal to prove that the agent’s mind was actually affected by the bribe.
The consequences of the bribe
Whether or not a payment should be classified a bribe does not depend upon the consequences of the payment.
- The Court has never permitted a finding that the agent acted in the best interests of his principal, notwithstanding the receipt of secret commission, to avail either the agent or the third party when sued in respect of it by the principal (Anangel v IHI).
- In Petrotrade v Smith, Mr Justice Steel stated:
- Neither common sense nor authority supports the proposition that the payment must induce a contract between the principal of the recipient of the payment and the donor. The secret payment is just as corrupt in the absence of an agreement (though often enough the payment will be intended to achieve such a purpose). In its ordinary meaning, the word bribe includes any reward given with a view to perverting the judgment or conduct of the recipient.
- There is no requirement for a contract between the parties to be thereby induced. Indeed to focus on the possible outcome of the payment is to misapprehend the key distinguishing feature of a corrupt payment, namely that the making of it gives rise to a conflict of interest on the part of the agent.
- In Daraydan Holdings Ltd v Solland International Ltd, Mr Justice Collins stated that in proceedings against the payer of the bribe there is no need for the principal to prove that the principal suffered any loss or that the transaction was in some way unfair or that the bribe was given specifically in connection with a particular contract, since a bribe may also be given to an agent to influence his mind in favour of the payer generally (eg in connection with the granting of future contracts).
Damages that can be recovered
The damages that can be recovered against both the person bribed and the briber can be the damages actually suffered as a consequence of the bribe. Alternatively, the claimant can seek to make a proprietary claim to the bribe, so that, for example, if the bribes have been used to purchase land and the land has gone up in value, the claimant can claim the land and take the benefit of the increase in value. In addition, a contract entered into as a consequence of a bribe may be rescinded.
- In Hovenden and Sons v Millhoff, Lord Justice Romer held that if the agent be a confidential buyer of goods for his principal from the briber, the court will assume as against the briber that the true price of the goods as between him and the purchaser must be taken to be less than the price paid to, or charged by, the vendor by, at any rate, the amount or value of the bribe.
- In Daraydan Holdings Ltd v Solland International Ltd, Mr Jusitice Lawrence Collins said that it will be assumed that the true price of any goods bought by the principal was increased by at least the amount of the bribe, but any loss beyond the amount of the bribe itself must be proved. He went on to say that the agent and the third party are jointly and severally liable to account for the bribe, and each may also be liable in damages to the principal for fraud or deceit or conspiracy to injure by unlawful means. Consequently, the agent and the maker of the payment are jointly and severally liable to the principal (1) to account for the amount of the bribe as money had and received and (2) for damages for any actual loss.
- In Attorney General for Hong Kong v Reid, it was held that when a fiduciary accepted a bribe as an inducement to betray his trust he held the bribe in trust for the person to whom he owed the duty as fiduciary; and, if property representing the bribe increased in value, the fiduciary was not entitled to retain any surplus in excess of the initial value fo the bribe because he was not allowed by any means to make a profit out of a breach of duty.
- In Logicrose Ltd v Southend United Football Club [1988] 1 WLR 1256, Mr Justice Millett said that the principal, having been deprived by the other party to the transaction of the disinterested advice of his agent, is entitled to a further opportunity to consider whether it is in his interests to affirm it.
- In Ross River Ltd v Cambridge City Football Club Ltd, Mr Justice Briggs stated that where a contract ensues following a secret payment received by a party's agent, the principal is entitled to rescission if he neither knew nor consented to the payment. If he knew of it, but did not give his informed consent, the court may award rescission as a discretionary remedy, if it is just and proportionate to do so.
Conclusion
The cases show that the civil courts will strive to provide effective remedies in bribery cases, both as against the person bribed and the person paying the bribe. It should also be noted that in appropriate cases the civil courts can make powerful interim orders to enable the claimant to:
- trace the identities of the wrongdoers and what has become of the bribes;
- search the premises of wrongdoers and seize evidence; and
- freeze assets to ensure any judgment will ultimately be satisfied.
Disclaimer
The information given above is provided as a service to its readers and does not constitute legal advice. Whilst attempts are made to provide quality information, no claims, promises or guarantees are made about the accuracy, completeness or adequacy of the information contained herein. As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing herein should be used as a substitute for the advice of a specialist in the area.
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