The criminal sanctions for bribery and corruption are well known. So too is the fact that a principal may be liable for the payment of a bribe by one of its agents. What then happens when the bribe is paid by an intermediary who may have been acting for both parties? Further, what are the civil consequences of an intermediary’s bribe to close a deal?

These two questions came to the fore in the closely watched case of UBS AG (London Branch) & Anor v Kommunale Wasserwerke Leipzig GMBH [2014] EWHC 3615 (Comm) (UBS v. KWL).


In UBS v. KWL, KWL, the Leipzig municipal water company, sold credit protection to UBS and several other banks on several portfolios of investment grade bonds through a series of derivative products known as Single Tranche Collateralised Debt Obligations (STCDOs). The effect of the STCDOs was that if several entities in the portfolios defaulted during a certain period, KWL would be liable to pay hundreds of millions of dollars to UBS and the other banks.

The entering into of the STCDOs was brokered by a Swiss company known as Value Partners Group AG (VPG) who acted as financial adviser to KWL. The true purpose of the STCDOs was to raise financing for KWL. The complex series of transactions netted an upfront premium payable to KWL amounting to some US$28.1 million and €6.4 million. In reality however, KWL only received about US$6 million from the upfront premium. Over US$30 million was paid to VPG who subsequently paid a bribe of US$3 million to one of KWL’s managing directors.

KWL subsequently defaulted and became liable under the STCDOs to pay UBS.

In seeking to resist payment, KWL argued that the STCDOs were procured through a bribe paid by VPG to KWL’s managing director without KWL’s board’s knowledge. It became clear at trial that the bribe was paid to ensure that KWL entered into the STCDOs transaction but that UBS was unaware of the payment of the bribe.

Two key issues were raised by KWL in this regard: (i) whether VPG (who was the financial adviser for KWL) was in reality an agent for UBS; and (ii) whether the bribe could therefore be considered a payment of a bribe by UBS which permitted KWL to avoid the terms of the STCDOs in their entirety.

In evaluating KWL’s defence, the English High Court had to determine the true nature of VPG’s role as a financial adviser and intermediary to the transaction. Although it accepted that VPG was “undoubtedly” KWL’s agent, the Court continued to find that VPG was also acting as agent for UBS and therefore as agent for both parties. The Court made this ruling after considering VPG’s role in liaising with, working together to ensure the conclusion of the transaction and various other conduct which suggested that VPG considered UBS its client.

The Court also ruled that the payment of the bribe by VPG was within the scope of the agency. This was because VPG had paid the bribe in order to seal the deal with KWL. As a consequence, the Court accepted KWL’s submission that the STCDOs could be avoided due to the bribe paid by UBS’s intermediary, which was also acting as its agent.

This is the first reported decision from a Commonwealth jurisdiction that has found a party to be responsible and liable for the corrupt acts of an intermediary agent even if the intermediary agent may have been acting for both parties to a transaction.


There are three important takeaways from this case:

  1. In the modern world of corporate structuring and banking, brokers and intermediaries often act in a dual capacity as agents for both parties.
  2. A bribe paid by such an intermediary could be attributable to the party seeking to enforce the contractual provisions.
  3. The penalties for corruption and bribery are not just criminal in nature. UBS v. KWL is a reminder that a complex transaction providing for liability of up to several hundreds of millions of dollars may be avoided if a corrupt act was involved in its procurement.

Companies and their compliance officers should take heed of the exposure their companies may face due to the corrupt acts of intermediaries. There is a risk that such companies are potentially exposed to the consequences of bribes not even authorised by or entered into by their own employees.. It was an accepted fact in UBS v. KWL that nobody in UBS was unaware of nor did they authorise the payment of the bribe. Nevertheless, the Court did not find any difficulty in holding UBS liable for the acts of VPG and dismissing UBS’ claims. Accordingly, it is important to have strong compliance protocols which negate the risk of a company’s dealings with intermediaries.