On Wednesday 12 June 2013, Edwards Wildman attended an excellent talk by Charles Dougherty QC of 2 Temple Gardens. Charles gave a useful summary of the main causes of action in bribery claims and addressed the current sticking points in the law. We set out our summary below and provide a link to the slides, which Charles has kindly agreed to let us publish.
At the outset, Charles outlined two general points that are useful to bear in mind when dealing with a bribery claim: (1) there is a divide between those judges who are concerned with applying consistent legal principles and those who have in mind the broader public policy of seeking to deter bribery, and (2) there are many causes of action for bribery.
Causes of Action
To establish a claim in the tort of bribery, you must establish that there has been a secret commission; (1) paid to the agent of another party with whom he is dealing; (2) paid in the knowledge that the agent is acting for the other party; and (3) without disclosing the payment to the other party. The final criteria is that the inducement must give rise to a real (as opposed to fanciful) risk of conflict between the agent’s and the principal’s interests.
A claim in bribery is assisted by a number of presumptions that the courts automatically draw: there is no need to prove the intention of the bribe payer or to show that the payment influenced the agent. Nor is it necessary to prove the principal’s lack of knowledge of the bribe. The bribe need not have caused loss and it does not need to have been tied to a specific transaction. This allows the courts to cast a wide net and entertain claims relating to previous tainted transactions between their agent and the other party which poses a real risk that the current deal is also tainted (see Novoship v Mikhahylyuk). Until there is no risk of conflict, the bribe will continue to taint subsequent transactions.
Similarly, the courts have taken a broad view of what constitutes an inducement. Money is an obvious example, but it can include any kind of benefit, including future benefits, and those given to third parties (to the order of the agent). Loans, moonlighting and hospitality can also be caught so long as there is a real risk of conflict. Proportionality is a key test to apply in respect of hospitality.
The key defence is the fully informed consent of the principal. Other defences are that the agent was not involved (at all) in the relevant decision making; that the payment has been subsequently approved; or that the payer was not aware that the agent was the agent of the other party.
Remedies for tort of bribery
The bribe payer and the agent are jointly and severally liable for either the loss caused by the tainted agreement or the amount of the bribe. It is a peculiarity of this area of the law that it can result in the bribe payer effectively paying the bribe twice, but this is now settled. There has been a suggestion at first instance that an account of profits is available in tort of bribery claims, but this has not been addressed by any higher courts in respect of those claims.
Other causes of action
Bribery will often create room for other causes of action, including breach of contract, torts of deceit, conspiracy or inducing breach of contract and equitable claims of breach of fiduciary duty, breach of trust, dishonest assistance or knowing receipt. Remedies are varied and can include damages, equitable compensation, account of profits, or a proprietary claim to the bribe or its proceeds.
A further factor to consider is whether the employers of the bribe payer or agents are vicariously liable.
The payment of the bribe will have a significant impact on other related issues. The tainted contract may be rescinded or avoided. There is an automatic repudiatory breach of the agent’s contract and of the contract between the agent and the principal. The agent is not entitled to payment and there is no right of indemnity available. Third party victims may also bring claims, for example where a bribe has won a tender between competing firms.
The criteria for a claim in dishonest assistance are that the defendant has dishonestly procured or assisted a breach of trust. There is probably no need to show that the breach of duty involved property held on trust. The remedy for dishonest assistance is equitable compensation, and possibly an account of profits.
The availability of an account of profits is a controversial area that is likely to see significant development over the next 12-18 months. The difficulty is that the courts need to balance the unwarranted windfall that accrues to the claimant against the desire to strip the gain from the defendant. There are a number of first instance decisions that approve that interpretation. However, the issue is subject to appeal in the Novoship case. An account of profits requires the wrongdoer to account for any profits he made, whether the principal could have made them or not.
This is another area where developments are expected in the near future. A proprietary claim is only necessary where the assets are otherwise unavailable due to insolvency; where the proceeds must be traced; where the assets have increased in value; or to find and join third parties holding the assets.
There has been a significant dispute between the Privy Council and the Court of Appeal, which our Partner James Maton discusses here. At the heart of the dispute is an argument over whether the courts should consistently apply the law with due regard to the principles of property law or whether public policy requirements should be given extra weight. Thus, in Attorney General v Reid the Privy Council ruled that a bribe is the property of the principal and a proprietary claim can be founded. This stretched existing rules on property law to breaking point in the interests of assuring that the wrongdoer could not keep significant profits he had made from investing bribes. However, the recent decision of Sinclair v Versailles in the Court of Appeal declined to follow Reid, preferring older authority from the Court of Appeal. It ruled that while the defendant was liable to account personally for the amount of the bribe, the bribe did not become the property of the principal, so there was no proprietary claim.
However, Sinclair v Versailles has already come under attack. In an unusual step, the Court of Appeal found a way to circumvent its earlier decision in the recent case of FHR European Ventures LLP v Mankarious. The Court ruled that a proprietary claim can still be founded where (1) the money for the bribe is beneficially the principal’s and (2) the agent acquired the bribe by taking advantage of an opportunity belonging to the principal. In a further complication, the Court of Appeal in Jersey has followed Reid in Brazil v Durant. This is plainly an area of the law that needs some attention from the Supreme Court on Parliament.
The talk was an excellent refresher on bribery claims and Charles’ slides are available here.