Out-Law / Your Daily Need-To-Know

Company entitled to damages despite affirming contract in bribery case

Out-Law News | 20 Jun 2018 | 11:26 am | 2 min. read

A company was entitled to bring a claim for damages against a contractor which had paid bribes to its former managing director, regardless of whether it had affirmed its commercial relationship with the briber after the bribery came to light.

In a previous ruling, the High Court had found that payments made by Motortrak Ltd to a company associated with the then-managing director of FCA Australia (FCAA) were, in effect, bribes intended to coerce FCAA into hiring Motortrak to provide online marketing services. The court was then asked to clarify the date on which FCAA affirmed the agreement between itself and Motortrak, and whether FCAA was still entitled to damages after that date.

Mrs Justice Moulder has now confirmed that FCAA's right to damages operates independently of whether or not it affirmed the contract. Affirmation of a contract does not necessarily lead to a break in the chain of causation and so, in the absence of evidence to the contrary, FCAA is entitled to claim damages for the actual loss it sustained as a result of Motortrak's bribery, the judge ruled.

The judgment "reinforces the importance of always considering civil remedies in instances of bribery and corruption", according to civil fraud and asset recovery expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com.

"Companies are normally concerned with the Bribery Act, and as a result often overlook their ability to pursue the real perpetrators of the bribery in the civil courts to recover their losses," he said. "Bribery is considered a separate tort in the eyes of the law and therefore companies should always try to recover the bribe directly from the 'bribee' or the 'briber'."

"Pursuing a civil claim when you have fallen victim to a bribe may offer better financial recovery, and should always be considered by companies," said Rachelle Issa of Pinsent Masons. "Civil fraud lawyers will provide advice as to the most appropriate claim, and the potential defendants, to pursue in the circumstances. Companies should always remember that, when contemplating civil recovery of a bribe, they must act quickly if they want to maximise their chances of recovering assets," she said.

The judgment arose out of a claim by Motortrak against FCAA for non-payment of its invoices under the marketing services agreement. The agreement was due to expire at the end of 2019, having been extended a number of times. In June 2016, FCAA notified Motortrak that it no longer required its services. It refused to pay invoices previously submitted by Motortrak covering the quarter beginning on 1 July 2016.

The court found that payments made to FCAA's then-managing director, Clyde Campbell, for 'consultancy services' via a company owned by Campbell's wife could not be explained under the terms of that agreement. The judge said that the "only conclusion open to the court on the evidence and on the balance of probabilities" was that the payments were bribes.

FCAA became aware of the payments in October 2015. However, it decided to carry on in "business as usual" with Motortrak until 30 June 2016. The judge found that, by doing so, FCAA had affirmed the contract, and that its decision to end the business relationship in June 2016 was therefore a repudiatory breach of contract. However, she rejected Motortrak's claim for loss of profits, by virtue of a limitation of liability clause in its agreement with FCAA.

There was no dispute that FCAA was able to recover the amount of the bribe regardless of whether it had affirmed the contract, as Motortrak had gained at least to the extent of the bribe. However, the judge was not convinced that FCAA was entitled to additional damages for the loss, as there was no evidence that it would not have entered into the agreement with Motortrak or that it would have entered into a different agreement had it not been for the bribe.

In the supplemental hearing, Motortrak attempted to argue that FCAA's affirmation of the contract was enough to break the chain of causation altogether, meaning that it was not entitled to damages at all. This argument was rejected by the judge, who confirmed that right to damages operated independently of whether the contract stood.

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