Corruption in United Kingdom

General Information on Corruption

The Civil Law Consequences of Corruption

The civil consequences of corruption in international commercial contracts are poorly mapped under English private law, despite the economic importance of English law in governing international contracts. The starting point in English law for addressing corruption is the relationship between the principal and its agent. English courts have traditionally adopted a broad definition of fiduciary relationships. They try to ensure that the principal will not be deprived of the money that his contractor (the bribe-giver) was ready to invest in the commercial transaction when he transferred monies or economic profits to the bribe-taker, the agent of the principal. Courts therefore seek to balance protecting the main economic transaction (eg the main infrastructure project, the main provision of goods) benefitting the principal (eg a foreign public authority) with harsh treatment of the corrupting transaction itself, ie the transaction between the bribe-giver and the bribe-taker. The main economic transaction will thus remain unaffected. The financial adjustments are a sufficient punishment or deterrence against bribery. These will be prophylactic in discouraging practices that might put fiduciary relationships at risk and breach the trust that the principal puts in his agent. Finally, the dignity of the courts will be preserved in the sense that courts will not help to enforce an illegal contract.

In short, contracts tainted by corruption will only be given neutral enforcement: the economic part of the transaction, namely the main contract, is maintained and enforced if this will benefit the principal, while the “immoral” side of the operation (namely the bribe agreement) is neutralized to the principal’s benefit. Such an approach is shorthand for a field of law where confusion is rife. However, the inadequacy of this approach, namely a mix of high moral standards coupled with economic pragmatism, is under pressure due to two trends: internationalization of the legislative framework applicable to corruption and internationalization of disputes that the English courts have to decide on.

On the one hand, the international framework for fighting corruption has had tremendous influence on English criminal law, and especially the recent Bribery Act 2010. This Act moved away from addressing corruption through an agency relationship as it was too narrow to encapsulate all cases of corruption and bribery. On the other hand, courts have had to deal with a range of cases where corruption has tainted the contracts while parts of the transaction were strongly embedded in a foreign country. Sometimes courts have had to directly consider contractual enforcement. Sometimes they have had mainly to consider the enforcement of foreign arbitral awards. Courts then have had to address how these issues fall within their area of public policy, requiring them to leave the contracts unenforced.

The combination of these two trends calls for mutual reinforcement: how best could courts help to fight corrupt practices carried out in both England and abroad? How best could they deter or punish corruption without shattering their dignity? There are at least two possible answers. A first possible answer would be for courts to adopt a rigid, automatic sanction of refusing any enforcement of contractual operations tainted by corruption, despite occasional cases of unjust enrichment that this may cause. A second possible answer would be for courts to exercise discretion so that the balance between deterrence/punishment and a fair economic outcome for the transaction could be preserved. In 2014, the UK Supreme Court decided that clarity and simplicity should meet public considerations in order to signal unambiguously that corruption is a serious concern. It therefore opted for a far-reaching patrimonial sanction for the agent: any proceeds and benefits that he has acquired thanks to corruption are now held on trust for the principal and therefore should be returned to him.

This stringent position taken by the UK Supreme Court is even more noticeable in that the English Government has rejected legislative changes giving clearer direction to courts about their roles regarding contractual illegality as a priority. The concrete enforcement of the Bribery Act 2010 also seems difficult to ascertain so far, in both criminal proceedings and the consequences that criminal conviction may have for contractual relationships resulting from corrupt behaviour. This all makes it tremendously important for English courts to clearly state that the development of the international framework against corruption and its implementation through the Bribery Act 2010 mean that it is unequivocally against English public policy to enforce an international commercial contract tainted by corruption. This may be the most straightforward way to supplement criminal law and equity. Short of this, a more comprehensive reorganization of the civil law consequences of corruption for commercial contracts may be needed to give a fully concrete bite to the criminal law framework. This report aims to give an overview of the difficulties encountered by English courts in addressing the civil consequences of corruption in international commercial contracts.

Definition of Corruption as a Criminal Offence

The United Kingdom is party to several conventions on corruption: the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997 (OECD Anti-Bribery Convention), the Council of Europe Criminal Law Convention on Corruption of 19993 and the United Nations Convention against Corruption of 2003.4 In particular, the Bribery Act aimed to reform the English system so that it would implement in domestic law the international obligations contracted by the United Kingdom in signing the OECD Anti-Bribery Convention. Despite intense efforts being undertaken by the Law Commission from the end of the 1990s, the reform process had been delayed, mostly due to the BAE-Al Yamamah case, involving allegations of corruption in Saudi Arabia in the awarding of contracts to purchase military aircraft. This led the OECD Working Group on Anti-Bribery to issue negative reports in relation to the English system.

The Bribery Act 2010 defines four different offences:

• the paying of bribes (s 1)7
• the receiving of bribes (s 2)8
• the bribery of foreign public officials (s 6)
• the failure of commercial organizations to prevent bribery (s 7).

The Act does not distinguish between corruption happening in the public sector or in the private sector. However, the offence of failing to prevent bribery can only be committed by commercial organizations that are formed in the United Kingdom or which carry out business in the United Kingdom. The Act sets up a specific technique to protect these private corporations, however. Corporations may invoke a defence when they are suspected of corruption if they have set up procedures aiming to prevent corruption in their governance structures.

The Bribery Act thus moves strongly away from the key idea at the centre of the Corruption Bill proposed in 2003, when Lord Falconer announced the idea that “the essence of corruption is cheating on the person who trusts you or cheating on the public. That is why we have focused […] on the principal/agent or agent/public relationship”.12 Such a principal/agent relationship was too narrow to encompass the many forms of modern corruption. However, the idea that corruption is first and foremost a breach of a relationship of trust between two parties, ie the agent and his principal, remains prominent in the ways in which English law deals with the civil consequences of corruption. The articulation between a criminal offence of corruption and the legal consequences for the contracts obtained through corruption is left uncharted by the statutory provisions. Case law offers only partial and uncertain solutions here, as the remainder of this paper shows.

Source: Bonell M., Meyer O. (eds) The Impact of Corruption on International Commercial Contracts. Ius Comparatum – Global Studies in Comparative Law, vol 11. Springer, 2015

See bribery and corruptio