Under the 2010 Bribery Act, bribery is a criminal offence and companies are required to have in place adequate procedures in order to prevent those associated with them from undertaking bribery. Adequate procedures provide the company with a defence to the criminal offences set out in the Act. However, what is often overlooked is the ability of the company to pursue both the recipient of the bribe as well as the briber for its financial losses and, in some cases, damages for fraud.
The definition of a bribe under civil law was helpfully summarised by Mr Justice Steel in 2000, in the Petrotrade Inc v Smith case as "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."
If a secret payment has been made, from a legal perspective, it will not be necessary for the company to prove that the payment was made for a corrupt purpose or that the person who was bribed was influenced by the payment. These matters are presumed to be the case by the Court. Furthermore, it won't be necessary to establish that the company suffered a loss as a result of its agent being bribed.
The company's next course of action will depend on whether it is associated with the person bribed, or alternatively with the person who paid the bribe.
The agent who received the bribe
The company associated with the person who received the bribe may be entitled to pursue the bribed agent for:
- breach of fiduciary duty;
- unjust enrichment; and/or
- unlawful means conspiracy – that is, for conspiring with at least the person paying the bribe to damage the company.
If successful, the company may be awarded damages to the value of the bribe, as well as damages for fraud. Damages for fraud, over and above the value of the bribe, can be more difficult to quantify, as the company needs to be able to provide evidence of the loss caused. However, the costs of the company's internal investigations following the discovery of the bribe may be recovered, which in some cases can be a substantial claim.
In 2014, the Supreme Court ruled that the bribe received is also deemed to be held on constructive trust for the associated company. Monies received as the result of a bribe will be ring-fenced away from the agent's personal estate, meaning that in the case of bankruptcy the value of the bribe will be separated from the rest of the agent's estate. In scenarios like this, it is important to consider the solvency of the agent to ensure the company is able to recover its losses and enforce the amounts awarded to it.
This also means that if the agent purchases something - for example, a property - with the bribe monies and the value of that property increases, then the company would also be entitled to the increase in value. This is known as a proprietary claim. However, if the property decreases in value, the company can instead choose to seek damages to the value of the bribe rather than pursue a proprietary claim.
It is also worth noting that the agent will not be able to use the bribe monies to pay for legal fees to fight any claims made by the company. It is imperative that, if the allegations of the company are rejected by the agent and defended, the company raises this issue early in correspondence with solicitors acting on behalf of the agent. Once the agent's solicitors have been informed of the existence of a constructive trust, if they receive monies from their client (the agent) to pay for legal fees, the solicitors will be at risk of having the bribed monies traced into their account.
The agent who paid the bribe
Like the company associated with the person who received the bribe, the company associated with the briber can also bring claims for breach of fiduciary duty, unjust enrichment and unlawful means conspiracy against the briber, the person who received the bribe and potentially the company associated with the person who received the bribe. These can lead to damages for:
- the value of the bribe paid – on the basis that the agent caused the loss for this amount to the company; and
- damages for fraud. As with the company associated with the person receiving the bribe, the briber's company will be able to recover its losses if it can evidence them. In addition, the briber's company will also be able to recover the costs of its investigation from the briber.
As the bribe money was paid to the person bribed, no constructive trust exists against any of the briber's assets. Therefore, it is important than the company understands its agent's financial position before engaging in litigation.
Third party claims
In addition to claims against their agents, the companies can also bring claims against others for:
- dishonest assistance;
- knowing receipt of any monies paid to them as a result of the bribe; and
- unlawful means conspiracy.
Relevant third parties include those that may have been involved in the bribe or facilitated it. This can include third party companies, friends or partners of the agents.
Securing the bribe monies
Companies contemplating civil recovery of a bribe must act quickly if they want to maximise their chances of recovering assets, particularly when acting against individuals. Companies may be able to obtain search and seize orders, worldwide freezing orders and disclosure orders to maximise their chances of recovering the value of the bribe, the loss incurred or their costs.
These orders can all be used very effectively by civil fraud litigators without criminal proceedings needing to be initiated first. The company should think very carefully at this stage before reporting the bribe to an authority such as the police, given the authorities' weaknesses in responding to fraud and actually recovering assets on behalf of victims.
Search and seize orders
A search and seize order is the most powerful weapon a victim has, and can be obtained without notice to the perpetrator. The order allows the victim's legal team, usually accompanied by IT experts, to enter the perpetrator's home and office and take documentation and evidence.
These orders come with checks and balances, including the requirement for a 'supervising solicitor' to be present. This person effectively acts as the eyes of the court; making sure that the court order is followed completely and that the perpetrator's rights are protected. The supervising solicitor also takes a full note of what is said, and determines any issues that may arise.
These orders are really effective and can lead to quick settlements. The solicitors obtain the evidence immediately, placing the perpetrator in an extremely weak position.
Worldwide freezing orders
Worldwide freezing orders are also really effective, and can be obtained at the same time as a search and seize order. A freezing order stops the perpetrator from spending any money and stops any further dissipation of the perpetrator's assets.
The other benefit of a freezing order is that the perpetrator must also provide a full list of assets as part of their disclosure obligations which are obtained as part of the freezing order. This is really useful to determine how best to proceed with the litigation and in settlement negotiations as it allows the victim to start from a position of complete knowledge as to the perpetrator's asset position.
Disclosure orders are not as draconian as the other types of orders. However, they can be very effective in the right situation.
Disclosure orders are normally obtained against innocent third parties such as banks, accountants and money brokers who have been innocently mixed up in the wrongdoing. For example, a bank may be ordered to disclose the perpetrator's bank account statements, enabling the victim to follow its money.
Usually, a number of disclosure orders will be needed. This is because money normally travels between bank accounts quickly and across borders at the click of a button. The important provision to remember with these orders is to also seek gagging orders at the same time, preventing the subject of the disclosure order from telling the perpetrator or anyone else that they have been required to disclose information. This provides the victim and its legal team with the time that they need to build the case and locate the money. Once the money has been located, a freezing order can then be used to stop any further dissipation of assets.
Alan Sheeley is a civil fraud and asset recovery expert at Pinsent Masons, the law firm behind Out-Law.com.