Introduction: can a company sue a bribing competitor?
Company A and B are competing to win a contract from a customer. Company A pays a bribe to win the contract. Does company B have a claim against company A in English law? That has been considered in the case of Jalal Bezee Mejel Al-Gaood v Innospec Ltd. The Court effectively confirmed that such a claim was viable, but the case failed because the claimants could not show that their product would have been purchased “but for” the bribery. Here, critically, that exercise required the Claimant to demonstrate that its product met the required technical specification, which it could not do. And it is worth noting that the claim failed in fertile circumstances. The defendant, Innospec, had admitted corruption in criminal proceedings in England and the US, and had already settled a civil claim made against it by a manufacturer who supplied the competing chemicals for sale by the claimants.
The claim was brought as “unlawful means conspiracy”. That requires injury to the claimant as a result of an unlawful act or acts where two or more people have combined to cause the injury. The elements of a successful claim are:
- an agreement (formal or informal) between two or more individuals or entities to use unlawful means and the execution of that agreement;
- an intention to injure the claimant in doing so; and
- loss and damage to the claimant.
In relation to intention, it could be argued that a defendant's objective in paying a bribe is to enrich itself, not injure its competitor. In a leading conspiracy case, Lonrho plc v Fayed , it was held that where it is foreseeable that the defendant's actions could cause damage to the claimant, but there is no intent to injure, a claim will fail. However, and critically, it was also stated that it is not a defence for the defendant to show that its primary purpose was to further or protect its own interests.
However, it can clearly be argued with force that a briber necessarily intends to injure corruptly excluded competitors. Support for this can be found in Kuwait Oil Tanker Co. SAK v Al Bader, albeit the case involved a conspiracy to misappropriate the claimants' assets. The English Court of Appeal held that intention to injure the claimant did not have to be the defendants' predominant purpose or intention and was something that could be inferred from the facts. In many cases, it was said, it will be clear from the acts of the conspirators that they must have intended to injure the claimant, adding that "in the case of a conspiracy to defraud by wholesale misappropriation it would be absurd to argue that the conspirators did not intend just that". The Court concluded that the Defendants' principal purpose was no doubt to line their own pockets, but they cannot be heard to say that they did not intend to injure the Claimants or that their acts were not aimed at the Claimants.
In Grupo Torras v Al Sabbah the Judge went further and indicated that it may be enough to show that it was reasonably foreseeable that the claimant would suffer loss as a result of the act which the defendants were conspiring to carry out: "if it suffices that a conspiracy is aimed or directed at the plaintiff, in circumstances where it can only be said that it can be reasonably foreseen that it may injure him, then rigorous insistence on a need for specific intent to injure the particular plaintiff seems unjustified".
In addition to unlawful means conspiracy, there are other claims that could be made, for example, where a formal tender process is adopted, a tortious claim for wrongfully procuring a breach of an implied term confirming tenders will be considered honestly, impartially and on their merits, or a contractual claim for breach of an implied agreement between A and B that each would tender on an honest basis. Competition claims might also be available.
Summary of the claim
The claimant companies were suppliers of chemicals such as lubricant additives and fuel additives to the oil refining industry. The defendants were subsidiary companies of Innospec and manufactured and sold chemicals including a lead based fuel additive called tetraethyl lead ("TEL"). The use of TEL was widely used throughout the world between about 1925 and 1990. However, it had been phased out world-wide because of the well-known and widely reported detrimental effects of lead on people and the environment. In 2000, Iraq, and a small number of other countries, continued to use it. The additive sold by the claimant companies was called methylcyclopentadienyl manganese tricarbonyl or "MMT", a less toxic substitute for TEL.
The claimants’ case was that during the period 2003 to 2008, Innospec conspired to injure them by engaging in corrupt practices, in particular the bribery of officials within the Iraqi Ministry of Oil with the intention of inducing its refineries to buy TEL rather than MMT manufactured by the Ethyl Corporation and sold by the claimants. The claimants claimed damages for the alleged losses they suffered as a consequence of the conspiracy on the basis that, but for the bribery and corruption, the MOO would have started to purchase MMT for its annual additive requirements and phased out TEL use from late 2003/early 2004 onwards.
The political and economic situation in Iraq
After the invasion of Kuwait by Iraq in 1990, the United Nations Security Council imposed far-reaching economic sanctions against Iraq. They prohibited UN members from transacting business with Iraq except for the purchase and sale of humanitarian supplies. However, the UN subsequently passed Security Council Resolution 986 which permitted Iraq to sell its oil and to use the proceeds of sale to purchase humanitarian supplies for the Iraqi people, including food and equipment to maintain and service Iraq's oil sector. This limited exception to the sanctions regime was known as the Oil for Food Program ("OFFP"). The rules of the OFFP required the proceeds from all sales to be deposited into a UN-controlled escrow account from which the purchase of humanitarian goods would be made. The first Iraqi oil exports under the OFFP began in December 1996.
However, by allowing the government to choose with whom it contracted with, Saddam Hussein’s regime (the “Hussein Regime”) was able to make numerous convert arrangements to divert the money intended for the Iraqi people. The Hussein Regime demanded that suppliers of humanitarian goods pay a "kickback" to the Iraqi government (usually 10% of the contract price) in order to be awarded a contract by the government. These kickbacks (known as after sales service fees or ASSFs) violated UN OFFP regulations and UN sanctions. Typically the ASSFs were included in the contract price submitted by the supplier to the UN without disclosing that the contract price included an extra 10% to be "kicked back" to the Iraqi government. The effect was to cause the UN unwittingly to pay the 10% kickback to the Hussein Regime from the proceeds of sales of oil held by the UN.
Criminal investigations and prosecution
The claim relied heavily on judgments and documents arising out of criminal and civil actions brought by US and UK prosecutors.
Innospec and its Iraqi agent had been charged with criminal offences in relation to bribery and corruption in Iraq and Indonesia. These offences were in relation to the payment of after sales service fees (or ASSFs) to the Hussein Regime, contrary to the terms of the Oil for Food Programme ("OFFP"); and the payment or promise of bribes to officials of the MOO and the Trade Bank of Iraq.
Both the second defendant and Innospec’s Iraqi agent admitted the commission of offences and entered into plea agreements with the United States authorities. In addition:
- Civil proceedings were also brought by the US Securities and Exchange Commission ("SEC") against the second defendant, Directors of the first defendant, and Mr Naaman.
- Criminal proceedings were also brought in England by the Serious Fraud Office ("SFO") against the first defendant and various company Directors. The first defendant pleaded guilty to the charges.
In addition, Ethyl, the claimants’ supplier, brought civil proceedings in the US against Innospec claiming damages for loss suffered as a consequence of corrupt practices by Innospec in Iraq and Indonesia. The claim was for US$123 million, of which US $102 million related to Iraq and the balance to Indonesia. The allegations made in those proceedings in relation to Innospec’s behaviour in Iraq were broadly similar to the allegations made by the claimants in the current proceedings. Those proceedings were settled in September 2011 by Innospec agreeing to pay Ethyl US$45 million.
The detail of the English claim
The claim put forward by the claimants was as follows:
- Iraq’s decision to continue using TEL rather than switching to MMT, and a long term purchase agreement in 2004 (“2004 LTPA”) between the MOO and the defendants, was induced by bribes or the promise of bribes to MOO officials in late 2003.
- Innospec was liable in tort for unlawful means conspiracy, as ‘but for’ the bribery and corruption, a decision to switch from TEL to MMT would have been implemented in late 2003. MMT would have been ordered thereafter as the primary additive with TEL only being used until stocks were exhausted.
- Additionally, the claimants assert that a field test carried out by the MOO during 2006 on MMT was unnecessary and in effect a charade. They stated that corrupt officials, whose services were procured by bribes, ensured that the test took a long time and that MMT failed the test.
Innospec’s case was that despite the admissions of corruption in the criminal proceedings, the bribes paid or promised did not lead to decisions different from those which would have been made in any event. They asserted that there was no admission in the criminal proceedings, and no other evidence, that the 2004 LTPA was procured by bribes or the promises of bribes, and that there was no evidence that, but for the promise of bribes, MMT would have been purchased by the MOO.
Mr Justice Flaux decided that the claimants had failed to establish:
- that there was a decision to switch from TEL to MMT in October or November 2003;
- that the 2004 LTPA was procured by bribery; and
- that, but for the bribes or the promise of bribes, the decision would have been implemented and the MOO would have replaced TEL with MMT from early 2004 onwards.
This was for the following reasons:
First, Mr Justice Flaux accepted the defendant’s technical expert’s opinion that MMT alone could not have provided the technical performance required by Iraq’s refineries. This was “wholly inconsistent” with the claimants’ case that ‘but for’ the bribes, a switch to MMT from TEL would have been made. Evidently, TEL would still have been required for the foreseeable future. He felt that this called into question whether the switch would ever have taken place, irrespective of any bribery, particularly since TEL was less expensive than MMT.
Secondly, the Judge did not accept the claimants’ argument that the decision to switch to MMT was made by the MOO by early November 2003, but corrupt officials brought about an abrupt change of position. The minutes of the relevant committee demonstrated that no decision had been made to switch from TEL to MMT.
Thirdly, Mr Justice Flaux rejected the suggestion made by the claimants that payment of kickbacks to the Hussein Regime evidenced a corrupt relationship between Innospec and officials in the MOO which persisted into the post-invasion period. Clearly, if this was true of Innospec, it would also have been true of the claimants, who had also paid kickbacks to the Hussein Regime.
Fourthly, he dismissed the claims regarding the field test as an ‘opportunistic construct’. He pointed to the admission from Innospec’s agent, the conduit of the bribes, that, whilst he had taken money from Innospec to pay bribes to officials to fail the field test, he had kept the money himself and not paid it over.
Fifthly, even if there has been a shift in position within the MOO, he considered that there was no evidence that the agent had to bribe officials to get them to agree in principle to an LTPA. The ultimate decision to enter into the LTPA rested with Mr Ghadban, the effective Minister of Oil. Mr Justice Flaux held there was no evidence that Mr Ghadban was corrupted by the defendants, therefore the fact that he approved and ordered the LTPA was a strong indication that the LTPA had not been procured by bribery.
In conclusion, the Judge decided that although there clearly was criminal wrongdoing by Innospec, that wrongdoing did not prevent sales of MMT and had not caused any loss to the Claimants.
This case demonstrates that claims against bribing competitors are available, but emphasises that an innocent claimant must be able to demonstrate that it would have sold its products or services “but for” its competitor’s bribery. In the right circumstances, a Court may well be convinced that this can be inferred from the circumstances. But the claimant preparing its case must identify and address any obstacles to its own success in fair competition.