Bribery and public policy in the English courts

Publication February 2017


Introduction

In National Iranian Oil Company v Crescent Petroleum [2016] EWHC 510 (Comm), the High Court held that the court would not, as a matter of English public policy, refuse to enforce a contract procured by bribery. The decision provides a reminder that notwithstanding the English courts’ apparent willingness to provide a remedy to victims of bribery and corruption, the courts will still operate in accordance with established legal principles.

The legal landscape

As Lord Neuberger stated in FHR v Cedar [2014] UKSC 45, "… concern about bribery and corruption generally has never been greater than it is now ... Accordingly, one would expect the law to be particularly stringent in relation to a claim against an agent who has received a bribe or secret commission." The case is one of several recent decisions in which the victim of bribery or corruption has sought a remedy in English civil proceedings.

In the FHR case, the Supreme Court confirmed that where an agent has received a bribe or secret commission in breach of its fiduciary duty, not only must the agent account to the principal for the secret commission, but the principal has a proprietary claim to it – thereby strengthening of the principal’s rights as against an agent in such circumstances.

National Iranian Oil Company v Crescent Petroleum

The proceedings in National Iranian Oil Company v Crescent Petroleum arose out of a long term gas supply contract. It was alleged by Crescent that NIOC had failed to deliver any gas in breach of the terms of the agreement. Crescent began arbitration proceedings and obtained an award. In the course of the arbitration it was argued by NIOC that the claim should not succeed because the underlying contract had been procured by corruption. However, after hearing the evidence, the tribunal ultimately rejected the corruption argument.

Subsequently, NIOC applied to set aside the arbitration award under section 68 of the Arbitration Act on the grounds of serious irregularity (specifically section 68(2)(g): "the award or the way in which it was procured being contrary to public policy"), again relying on the previous allegations of corruption.

The court’s decision

The application ultimately failed on the basis that, as the tribunal had previously found, the underlying contract had not been procured by corruption.

The court also rejected NIOC’s alternative submission that the agreement was nevertheless ‘tainted’ by corruption. In support of this argument, NIOC had contended that public policy and legislative approach had hardened had in recent years hardened against bribery and corruption such that a court would not now take the same view as suggested at first instance in Westacre Investments v Jugoimport-SPDR [1999] QB 740, namely that the public policy of sustaining international arbitration awards outweighed the public policy in discouraging international commercial corruption.

However, even if recent case law has marked a policy shift to act even more robustly against bribery and corruption, a mere suggestion that a contract has been ‘tainted’ without further evidence, cannot be enough. As Burton J concluded, to introduce a concept of tainting of an otherwise legal contract would create uncertainty, and would in any event wholly undermine party autonomy. There may be many contracts which have been preceded by undesirable conduct on one side or other or both, such as lies, fraud or threats. However, the Court will not interfere with such a contract unless: (i) the contract itself was illegal and unenforceable; or (ii) one or more of the acts induced the contract, in which case it might be voidable at the instance of an innocent party. The Judge went so far as to say that this would be the case even if one or more of those parties had committed criminal acts for which they could be prosecuted.

Of perhaps greater significance, the court held that even if a different conclusion had been reached on the facts, there is no English public policy that requires a court to refuse to enforce a contract procured by bribery. This fits with the principle that contracts procured by bribery are voidable rather than void and so a court might decide to enforce such a contract at the instance of one of the parties.

In reaching the above decision, Burton J set out various conclusions

  • "English public policy applies so as to lead a court to refuse to enforce an illegal contract, even if not illegal at relevant foreign law, such as a contract to pay a bribe." However, in the present case, the contract in question was not an illegal contract.
  • With regard to bribery, there "is no English public policy requiring a court to refuse to enforce a contract procured by bribery. A court might decide to enforce the contract at the instance of one of the parties. It is not that the contract is unenforceable by reason of public policy, but that the public policy impact would not relate to the contract but to the conduct of one party or the other."
  • In particular, there is "no English public policy to refuse to enforce a contract which has been preceded, and is unaffected, by a failed attempt to bribe, on the basis that such contract, or one or more of the parties to it, have allegedly been tainted by the precedent conduct."
  • In any event in the present case, the tribunal had concluded that the contract in question had not been procured by bribery after full consideration and evidence. The court should not interfere with the tribunal’s decision save where there is fresh evidence or in very exceptional circumstances – neither of which existed in the present case.

Commentary

As a matter of law, the decision must be correct insofar as it accords with the established principle that contracts procured by bribery are voidable rather than void. Nevertheless, insofar as recent cases had shown a trend to provide a remedy to victims of bribery where possible, this decision provides a sobering reminder that the courts will and must operate in accordance with established legal principles.


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