Substantial bribery cases often have international dimensions. Bribes may, for example, be agreed in one country, be paid by a foreign briber (located in a second country) to a nominee company incorporated in a third country, relate to a contract performed in a fourth country, but be subject to the law of a fifth jurisdiction.
This can create legal difficulties. What law applies to claims arising from the bribery? Which Court should hear those claims? The applicable law may have a pivotal impact on the outcome of a case, particularly where the choice is between common and civil law jurisdictions, as the treatment of a bribe can be very different indeed.
The issues are illustrated by the decision in late March 2013 of the English Court of Appeal in Fiona Trust and Holding Company v Skarga and others1. Here, English and Russian law were the competing candidates for the applicable law to claims made in relation to bribery.
The English and Russian laws of bribery
English law takes a broad view of what constitutes a bribe for the purposes of civil claims. Critically, dishonesty is not a necessary ingredient of civil bribery, although is often present. It is sufficient to prove an undisclosed payment, or some other advantage, to an agent. The defendant is liable even if he believed that he was doing nothing wrong.
A bribe (or “secret commission”) will have been paid where:
- the person making or promising the payment makes it to the agent of another person with whom he is dealing;
- he makes or promises it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and
- he fails to disclose to the other person with whom he is dealing that he has made or promised that payment to the person whom he knows to be the other person’s agent.”
Further, if a bribe is established, the Court will presume that any subsequent transaction between the principal and briber, and created by the bribed agent, was caused by the bribe.
English remedies for bribery are extensive. A principal (for example, a company or state) whose agent (for example, a director or public official) has been bribed can recover:
- the amount of the bribe from both the person bribed and the briber, regardless of whether any loss has been suffered as a result of the bribe;
- the amount of any loss following the bribe, it being (probably) presumed that loss has occurred in at least the amount of the bribe;
- the amount of any relevant profit made and received as a result of any such transaction following the bribery, causation from the bribery again being presumed.
The law of many civil law or similar jurisdictions is less severe, requiring proof of loss before damages are available. In Russia, for example, a principal can recover any loss caused to him by the bribe from either the briber or the person bribed. The bribe itself is not recoverable if no loss has been suffered. The principal does not appear to be entitled to recover the profits made from a transaction procured by bribery. It also may be a defence that the defendant did not act dishonestly.
Fiona Trust and Holding Company v Skarga and others
The allegations of bribery in the Fiona Trust case were a small part of a more substantial claim brought by Russian shipping companies against a number of companies with which they had entered into numerous shipping contracts, together with claims against the owner of those companies. The contracts were highly profitable for the defendant companies. Almost all of them were governed by English law and/or subject to the jurisdiction of the English Courts. The central claim was that the owner had dishonestly conspired with senior officials of the shipping companies to enrich themselves by entering into the contracts. In addition to the bribery claims, claims were made for conspiracy, knowing receipt of trust property, and dishonestly assisting with or procuring breaches of trust.
Those claims failed. The judge decided that there was no conspiracy or relevant dishonesty. He also decided that the shipping contracts were not procured by any relevant breach of duty by the claimant’s officials and were all entered into at prevailing market rates so that the shipping companies had, in the event, suffered no relevant loss.
However, the judge found bribes worth approximately US$350,000, consisting of “holidays in various countries other than either Russia or England, an educational visit to England for the children [of one of the officials of the shipping companies], payments to discharge a credit card account made in Switzerland and a payment said to relate to Russian land purchased by [another official], which was made into an account in Cyprus.”
Under English law principles, the shipping companies could have claimed the amount of these bribes. They did not do so. Instead, they claimed they had suffered loss and that the amount of the bribes was part of that loss. They also claimed that, by reason of the bribes, their former officials must account for all of the profit that the companies had made from the shipping contracts.
If English law applied there would be an irrebuttable presumption that the transactions were entered into as a result of the bribes and a further irrebuttable presumption that there was loss in, at least, the amount of the bribes. On the other hand, if Russian law was applicable, the bribery claims would inevitably fail on the factual findings of the Judge.
Determining applicable law for torts
Civil bribery claims are treated as claims in tort. The Private International Law (Miscellaneous Provisions) Act 1998 sets out the procedure for determining the applicable law when the elements of a tort occur in different countries. It is a two stage process:
- It is first necessary to determine the applicable law of “issues relating to tort”2. This requires the Court to decide in which country the events constituting the tort in question occurred. In a case other than that of personal injury or damage to property, this is to be the country in which the “most significant element or elements of the tort occurred”. The general rule is that the law of that country is to be the applicable law.
- The general rule is displaced, however, if it appears from a comparison of the significance of the factors connecting a tort with that country and the significance of any factors connecting the tort with another country that it is “substantially more appropriate” for the applicable law to be the law of that other country.
The principles to be applied when answering the first question were identified by the Court of Appeal in VTB Capital Plc v Nutritek International Corp.3
The Court must analyse all the elements of the events constituting the tort in question. The analysis requires examination of the "instrinsic nature" of the elements of the events constituting the tort. It does not, at this stage, involve an examination of the nature or closeness of any tie between the element and the country where that element was involved or took place. This latter exercise is only relevant if the second question is invoked.
Once the different elements of the events and the country in which they occurred have been identified, the court has to make a "value judgment" regarding the "significance" of each of those "elements" to the bribery.
The applicable law of the tort in question will be that of the country where the significance of one element or several elements of events outweighs or outweigh the significance of any element or elements found in any other country.
The applicable law to the bribery claim of the shipping companies
Here, the Court of Appeal agreed with the first instance Judge that it was clear that that the applicable law under the general rule was Russian. The arrangements for the bribes were all made in Russia. The bribes comprised holidays in various countries other than either Russia or England, an educational visit to England for the children of one of the bribed officials, payments made in Switzerland to discharge a credit card account and a payment said to relate to Russian land purchased by another official, which was made into an account in Cyprus.
Could Russia law be displaced?
The shipping companies argued that the law of Russia, if applicable, had been displaced. The law of England was said to be "substantially more appropriate".
The factors which may be taken into account when considering whether the general rule should be displaced are potentially much wider than the "elements of the events constituting the tort" which are taken into account when identifying the applicable law under the general rule. They can include, for example, factors such as the parties’ connections with another country; a pre-existing relationship of the parties, whether contractual or otherwise; any applicable law expressly or impliedly chosen by the parties to apply to that relationship; whether the pre-existing relationship is connected with the events which constitute the relevant tort, or; the connection with another country of any of the “circumstances or consequences of the events which constitute the tort”.
Here, the shipping companies focused on that latter factor, arguing:
- the bribery is presumed to have induced the contracts made between the shipping companies and the defendant companies;
- those contracts were thus the “consequence” of the bribes;
- almost all of those contracts were agreed to be subject to English law or English jurisdiction, or both;
- bribery, in any event, has an international aspect and gives rise to international concerns;
- the officials and the owner of the defendant companies, and therefore the latter’s companies, had deliberately avoided the application of Russian law to the shipping contracts; they had, indeed, ensured that the subsidiaries of the shipping companies making the contracts were Liberian or Cypriot while the defendant companies were incorporated in the British Virgin Islands;
- it was unjust for the defendants to avoid Russian law in the contracts made as a result of the bribery and yet to rely on Russian law to escape the consequences of the English law, which they had expressly chosen in those contracts;
- accordingly even if Russian law applied under the general rule, that law was displaced in favour of English law.
It has previously been decided that the law of a pre-existing contractual relationship can be a relevant factor in considering whether the general rule should be displaced. The arguments of the shipping companies sought to extend this principle, submitting that a contractual relationship, which came into existence after and as a result of the tort being committed, was a powerful factor tending to displace the law applicable under the general rule.4
The Court of Appeal refused to displace Russian law, upholding the decision of the first instance Judge who had decided that the terms of the contract were not sufficient to displace the general rule. Indeed, the lower Judge had noted that the defendants were entitled to point to “factors relating to the parties” in response, such as the fact that Sovcomflot was the parent company of a nationalised Russian group of strategic importance and that the defendants were, for the most part, Russian individuals or companies said to be owned or controlled by Russians. The Judge commented that if English law had been the governing law under the general rule, he would actually have been minded to decide that it was displaced by Russian law.
In reaching his decision, the Judge had acknowledged that the schemes said to have been devised by the conspirators were played out on the international stage, involving a number of different countries. For example, financial dealings had been conducted through Swiss banks, and much of the shipping business had been done through London through arrangements governed by English law. Ultimately, however, the focus of the alleged conspiracy remained Russian and was arranged in Russia. There was just no “clear preponderance of factors” pointing to English law sufficient to displace Russian law as the applicable law.
The case is a good example of the difficulties that can arise when deciding the applicable law of a bribery scheme that is arranged and implemented in several countries. Here, the Judges considering the issue were unanimous that on the facts of this case the applicable law was Russian. There will undoubtedly be harder cases, where the bribery scheme has strong connections to two or more jurisdictions, and where the law of the competing jurisdictions offers radically different outcomes to cases concerning bribery. This may well prove to be the case, for example, where the conflicting laws are from civil and common law traditions.