Civil Law Forfeiture as Means to Restrict the Application of the In Pari Delicto-Principle and Other Private Law Consequences of Corruption Under Polish Law
© Springer International Publishing Switzerland 2015Michael Joachim Bonell and Olaf Meyer (eds.)The Impact of Corruption on International Commercial ContractsIus Comparatum – Global Studies in Comparative Law1110.1007/978-3-319-19054-9_11
11. Civil Law Forfeiture as Means to Restrict the Application of the In Pari Delicto-Principle and Other Private Law Consequences of Corruption Under Polish Law
Kozminski University Law School, Jagiellońska 57/59, 03-301 Warszawa, Poland
Poland, being a developing democracy and a rapidly growing economy, is exposed to various risks of both domestic and international corrupt practices. Although the measures to combat bribery were traditionally reserved for the domain of criminal law, in the recent years it has been more and more realized that private law also has an important role to play in that respect. Accordingly, the present article starts with a brief outline of the Polish criminal legislation relating to corruption and builds upon it in order to seek private law solutions with respect to bribery agreements and the contracts procured by corruption, in particular analysing under what circumstances – if under any – these contracts could stand valid.
The article focuses on the apparently specific Polish measure of a civil law forfeiture, which is used as means to restrict application of the in pari delicto principle. The measure precludes both the performing and the enriched party from keeping the benefit, which was given in exchange for a criminal act or in performance of an immoral contract. This solution is used to deprive both the bribe-giver and the bribe-taker of whatever was given by way of a bribe.
The article discusses also other issues of private law arising in relation to corruption in public and private sector. It deals with situations when an agent gives a bribe in the name of the principal. It likewise presents basic rules of Polish tort law, which could apply in order to remedy the damage caused by corrupt practices.
After 10 years of membership in the European Union,1 Poland might be pictured somewhere in between a modern democracy with a firmly established rule of law and a country struggling to shake off its authoritarian, socialistic past. Since the collapse of communism in 1989, in the course of last 25 years Poland has done a lot to adopt higher governance standards, including those related to combating corruption. This has occurred both as a result of intensive internal drive towards Westernisation of democratic values and norms, as well as an external pressure from the international community, in particular the European Union. In recent years Poland has adopted all of the important international conventions devoted to fight against corruption and for the most part has fully and adequately implemented requirements set therein.2 These efforts seem to bring about positive changes. According to the corruption indicators such as the World Bank’s Control of Corruption Indicator or Transparency International’s Corruption Perception Index Poland is the second least corrupt country in Central and Eastern Europe (after Estonia, which is ranked as the least corrupt in the CEE region).3 Still, Poland suffers from various systematic shortcomings, in particular at the level of practical enforcement of sanctions for corrupt practices.
Since 2000s Poland is among the fastest growing economies among the OECD states.4 From the beginning of the past decade Poland’s turnover in foreign trade has increased by almost ten times.5 This rapid economic growth provides increased funds to combat corruption. On the other hand however, the higher financial stakes present greater risks for various spheres of public governance and commerce to be tainted by attempts to illegally influence decision making.
With the above picture in mind, three general observations with respect to corruption in Poland may be made at this point. First, although much has improved during the last 25 years, there are continuous problems with bribery in the domestic settings. The traditionally vulnerable areas are public procurement, operation of the enforcement authorities, including in particular police, functioning of the local governments and medical assistance (in Poland largely provided by the public sector). Today, some more specific fields add upon that. These include in particular provision of IT equipment and services to public administration, spending of EU funds by the local authorities, and the sale of arms and weapons for the army.6
Second, Poland, still being a developing country, is often targeted by large foreign companies, who invest or otherwise enter the Polish market by providing services or selling products.7 The press occasionally reports about cases that became public as a result of the investigations carried out against foreign companies in other countries, particularly in the USA.8
Third, there is hardly any information as to whether Polish companies were up till now involved in bribery of officials in other countries. Whether such situations took place, they have either not led to any considerable number of investigations by Polish criminal authorities, or the information in that respect is not widely available. In 2012 OECD classified Poland as a country with no enforcement of the OECD Convention on Combating Bribery of Foreign Public Officials.9 The 2013 Phase 3 Report on Implementing the OECD Convention informs however that there were five allegations of bribery of foreign public officials involving Polish companies and/or nationals.10 A 2014 Report by the OECD informs that there was one case in which a foreign bribery scheme was sanctioned in Poland.11 Taking into account the increasing value of foreign trade in Poland and the growing expansion of Polish companies in the international markets, the OECD Working Group on Bribery is probably right to conclude that: “the risk of foreign bribery by Polish companies and nationals could increase in the medium to long term”.12
11.2 Corruption as a Criminal Offence in Poland
At the outset a general remark may be made that combating corruption in Poland in practice takes place predominantly through measures of criminal law. Of course, other fields of law might play an important role, too. This would include in particular rules on public procurement or various requirements of transparency in the functioning of public administration, including access to public documents. The civil law instruments, on the other hand, are hardly used to combat corruption. The exception is probably the “civil law forfeiture”, although its private law character might be questioned. It will be discussed in detail below. First, it seems appropriate to start with an outline of the Polish criminal legislation concerning corruption.13
11.2.1 Corruption in the Public Sector
The Penal Code of 6 June 1997 (hereafter: “k.k.”),14 already at the moment of its enactment, contained rules combating corruption in the public sector. Important changes and improvements were introduced on 13 June 2003, when further rules combating corruption were enacted (“the 2003 anti-corruption amendment”).15
The core provisions penalizing corruption are Arts 228 and 229 k.k.16 Art 228 k.k. provides criminal sanctions for the public official who accepts a bribe in connection with the performance of his or her public function (“passive bribery”),17 while Art 229 penalizes giving bribes to such officials (“active bribery”; “supply-side bribery”).18 A variation of the basic rules contained in Art 228§1 and 229§1 k.k. concern acts of “lesser significance” (Art 228§2 and 229§2 k.k., respectively),19 and cases when the offered bribe is of considerable value (Art 228§5 and 229§4 k.k., respectively). These variations can lead to less or more severe penalties. Moreover, higher penalties are provided for situations in which the perpetrator’s conduct not only infringes the exercise of his or her public function but also constitutes violation of law as such,20 or situations where an official a priori conditions the exercise of his official duties upon receiving a bribe (Art 228§3, §4, and 229§3 k.k., respectively).
For a person to commit the crime specified in Art 228 k.k. it is enough to accept a promise of the benefit. To accept a benefit does not have to occur in any specific form. Rather, it can be expressed by any means. The crime defined in Art 228§1 k.k. can only be committed intentionally.21
The acceptance of a material benefit under Art 228 k.k. encompasses various kinds of economic contributions, such as inter alia gifts, assignments of claims, remission of debts, or preferential loans.22 The benefit can be given to the perpetrator, a member of his or her family, or any other person indicated by the perpetrator. Both the promise of the benefit as well as its acceptance must be linked to performing the public function by the perpetrator.
The term “personal benefit” under Art 228 k.k. is defined broadly. It includes various benefits of non-economic value, important for the person receiving it, such as improving his or her situation or employment status, providing nomination to a scientific council of a prestigious academic journal or enhancing the position in academia, allowing for a career in mass media or otherwise gaining popularity, or being pleasurable (e.g. sexual intercourse).23
Art 229§6 k.k. provides for the so called “impunity provision”, which releases the bribe-giver from the liability, if he or she duly informs authorities of the corrupt practice in which he or she was involved. That rule was criticized by the OECD Working Group on Bribery, which recommends that it should not be applied with respect to foreign corrupt practices.24
The notion of the person performing a public function has been defined in Art 115§19 k.k. broadly. It encompasses public officials, members of the local authorities, persons employed in the organization with a power to dispose of public funds, and other persons who are vested with exercise of public powers by a statute. The Polish legislator thus made clear that the notion of a person performing public function is not limited to public officials.25
11.2.2 Trade of Influence (Paid Protection)
Art 230 k.k. prohibits conduct which in Poland is usually referred to as the passive paid protection (or passive trade of influence). Since the enactment of the new Penal Code in 1997 Polish law penalizes promises of rendering an influence in the public authority in order to arrange for a matter to be resolved in favour of a person who provides a material benefit in exchange thereto.26 In other words, the crime stipulated in Art 230 k.k. relates to activities of an intermediary who commits to intercede in settling a matter with the public authority.27
The paid protection, as defined in Art 230 k.k. consists of two elements. The first is that a wrongdoer claims to have influence with public authorities (even if in reality the influence does not exist). The second element is that the intermediary undertakes to intercede in settling a matter28 (the crime occurs even if no intervention was in fact carried out by the intermediary; likewise, it is irrelevant whether there really exists a matter to be settled29). Both elements must be present in order for the intermediary to commit a crime.30
Furthermore, in the anti-corruption amendment of 2003, the Polish Penal Code was importantly amended. A new provision was introduced in Art 230a, which supplements the rule described above. It penalizes the active side of the “trade of influence”, i.e. the person who promises a benefit to another in order for the latter to exercise illegal influence in decision making of the public authority.31 The rule constitutes implementation of the Council of Europe Criminal Law Convention on Corruption of 27 January 1999,32 as well as the UN Convention against Corruption of 2003.33
Both Art 230 and 230a k.k. provide for alternative, less severe sanctions in case of acts of “lesser significance” (Art 230§2 and 230a§2 k.k., respectively).
The trade of influence is sometimes contrasted with lobbying. The latter is defined as every action which through legally accepted means aims at rendering the influence on authorities in the process of the law making.34 Thus, lobbying is limited to activities undertaken in order to influence the legislative process. According to Polish law, lobbying can only be carried out by registered entities. If lobbying activities are undertaken by non-registered entities, the authorities are obliged to report this fact to the Ministry who supervises lobbying. The latter rule is however said not to have been applied in practice.35 Regrettably, any transparent attempts to influence the law making are usually met with mistrust, both among the general public as well as the authorities themselves.36 Lobbying, regulated in Poland only since 2005, is still often perceived as at least suspicious, if not openly corrupt, activity.37
The dividing line between lobbying and trade of influence seems to be the means through which influence is attempted. In lobbying, these are only transparent, legally accepted means. The trade of influence on the other hand is secretive and attempts to adversely affect the decision making process by ignoring the objective criteria in favour of a person who gives a benefit in exchange for “interceding in settling a matter”.
Some of the examples of instances of the paid protection that were reported by the press include the following.
The most well-known Polish case at the heart of which was a trade of influence (although there were some doubts as to the exact legal classification of the crime) was the so called Rywingate. It eventually lead to the fall of the post-socialist government in 2005. In that case, a prominent businessman, in exchange for the payment, offered to the major media company to render influence in the legislative process, so that certain changes would be introduced in the law that would allow the media company to acquire one of the leading TV stations in Poland. The arrangement did not succeed because the representatives of the media company have made the proposal public. The businessman was eventually detained in prison for his corrupt proposal.
In another case, a journalist and an army officer have been accused of undertaking to render influence with the WSI (Military Information Services) Committee in order to obtain a positive verification of another officer.38 For these actions, the journalist and the army officer were promised a payment. Furthermore, in a different case, the prosecutor accused a member of the parliament of accepting a payment in exchange for the promise to influence a decision of the administrative body, which was to approve the market halls for the benefit of businessman who offered the payment. The press also occasionally reported about instances, where the influence was traded in relation to driving licence examination or compulsory military service examination.39 The wrongdoers were accused of promising to render an influence (sometimes inexistent) on the decision making bodies in order to obtain a desired result of the examination.
11.2.3 Liability of Legal Entities
In accordance with international obligations resulting from the United Nations Convention against Corruption and the Council of Europe Criminal Law Convention on Corruption, Poland has adopted rules on corporate liability for corrupt practices committed by the officers of the legal persons and other entities. These rules have been incorporated in a separate Act on Liability of Collective Entities for the Prohibited Conduct Subject to Criminal Penalty of 28 October 2002 (hereafter: “Act on Liability of Collective Entities”).40
Under the Act on Liability of Collective Entities, a legal person or another collective entity is liable for the conduct of natural persons that constitutes one of the crimes named in the Act,41 if that person, either:
acts in the name or on behalf of the entity under the authority or duty to represent it,
is allowed to act because the person empowered to represent the legal person has abused its authority or neglected its duties,
is an entrepreneur, who cooperates directly with the entity in the realisation of a legitimate aim.42
There are a number of preconditions on which the liability of a legal entity depends. First is that the criminal conduct in question has caused, or could have caused, a benefit to the legal entity, whether material or non-material.43 Second, the liability can only be imposed on the legal entity if the natural person has already been convicted for the crime in question in a final judgment of the court (the conviction has to take place before any prosecution of the legal entity commences).44 This rule has been strongly criticized by the OECD Working Group on Bribery as seriously hampering the enforcement of sanctions against legal entities in Poland.45 Third, the legal entity is liable for the criminal conduct of a natural person if an absence of adequate supervision of the natural person or irregularities in management of the entity is proved.46
The fines that can be imposed under the Act are between PLN 1,000 and 5,000,000, however no more than up to 3 % of the revenue generated in the tax year when the offence in question was committed.47 The limits on the fines were criticized by OECD Working Group on Bribery as too low.48 Another sanction provided for in the Act is the forfeiture of the objects, directly or indirectly obtained from the prohibited act, or objects used as tools for perpetrating the prohibited act, or the financial benefits obtained from the prohibited act.49 Theoretically, the forfeiture is mandatory. However, forfeiture will not be ordered, if the object or benefit (or their equivalent) should be returned as restitution to another party.50 In practice, the courts rarely order forfeiture against legal entities.51 There are also other administrative sanctions that can be imposed against the legal entity (such as prohibiting the entity from applying for public funding or procurement contracts, or banning it from advertising its business).52
11.2.4 Corruption in the Private Sector
In order to respond to international obligations,53 in particular the Council of Europe Criminal Law Convention on Corruption,54 which require that corruption in the private sector is combated, the Polish Penal Code was changed so to incorporate international standards derived from the Convention. The rule to that effect was introduced in 2003 (Art 296a k.k.55)56 and importantly amended in 2008.57 According to some, Polish regulation still does not fully comply with the standards established in international instruments.58 The rule penalizes corruption in the private sector, the so called managerial corruption. It imposes penalties for managers, employees and service providers of the undertakings,59 who accept benefits in exchange for abusing their positions,60 with a result of financially harming the undertaking (though a risk of harm is sufficient61). Moreover, the rule penalizes such persons for accepting benefits in connection with acts of unfair competition or to offering preferential treatment to purchasers or sellers of goods or service providers. Art 296a provides sanctions both for a person who accepts the benefit (on the passive side – Art 296a §1 k.k.), as well as for a person who gives the benefit (on the active side – Art 296a §2 k.k.). Both types of managerial corruption (passive and active) require that the act is carried out with a direct intent.
The Polish legislator attempts to break loyalty between the bribe-giver and bribe-taker (both in the public and private sector) by releasing from the penalty the bribe-giver, if he denounces the crime. The bribe-giver will be exempted from the penalty if he or she provides information about the benefit or its promise to the competent authority, before the authority had learned of the crime (the “impunity provision”).62 The statistics show that the rule has proved relatively effective in combating corruption, at least in the local area.63
11.2.5 Foreign Bribery
Art 229§5 k.k. penalizes the “foreign bribery”, i.e. giving bribes to persons performing public functions in foreign states or in the international organizations.64 , 65 The penalties provided in the Criminal Code in that respect are the same as for domestic bribery. The provision in question implements the OECD Convention on Combating Bribery of Foreign Public Officials.66
Art 229§5 k.k. covers both giving and promising material and personal benefit to a foreign official. The OECD Working Group on Bribery expressed, however, concerns as to whether “Poland’s legislation adequately covered non-pecuniary bribes to third parties since the amendments do not define the term personal benefit”.67
11.2.6 The Territorial Scope of Application of the Polish Criminal Law
Since the present work is concerned primarily with cross-border corruption, it is important to present the rules defining the scope of application of the Polish criminal law, i.e. the conflict rules that decide when a given conduct is criminalized by the Polish legislation. The basic rule68 of the Polish international criminal law is provided for in Art 5 k.k.69 It expresses the principle of territoriality, in making the application of the Polish criminal law dependent upon the place where the crime has been committed, irrespective of whether the perpetrator was a Polish or foreign citizen or domiciliary.70
In certain situations, the Polish criminal law can also be applied to crimes committed abroad (Arts 109–114a k.k.). The specific rule providing for criminalization of the foreign corrupt practices under Art 229§5 k.k was already mentioned above (Sect. 11.2.5). Furthermore, there are certain general rules that extend application of the Polish penal law as to conduct that occurs outside the territory of Poland.
First, Art 109 k.k. provides that Polish penal law might also apply to offences committed abroad by Polish citizens. The criminalization is however subject to the rule of double penalization (Art 111§1 k.k.).71 The rule implies that in order for the certain behaviour to be prosecuted under Polish criminal law, it should constitute a crime both according to Polish law, as well as the law of the state where the crime was committed.72 The requirement of double penalization does not apply to Polish public officials who perform their duties abroad (Art 111 §3 k.k.). It also does not apply if Art 112 k.k. comes into play. According to this provision, in case of selected crimes named therein (crimes against internal or external security of Poland or its essential economic interests, against Polish public offices or public officials, crimes of false testimony before a Polish public office, and all crimes that resulted in obtaining a benefit on the Polish territory), it is sufficient that the committed act constitutes a crime under Polish law. With respect to these types of crimes, a Polish citizen can thus be held liable even if under foreign law certain behaviour does not constitute a crime. Furthermore, criminal sanctions for the crimes listed in Art 112 k.k. can also be imposed on foreign nationals.
According to Polish scholars the iura novit curia principle does not pertain to foreign criminal law.73 This creates difficulties in the practical application of the rules of foreign law, when it becomes necessary to assess whether the requirement of double penalization is satisfied.
11.3 Civil Law Consequences of Corruption
11.3.1 Introduction. The Bribery Agreement and the Main Contract
In Poland there is no statutory regulation that would deal specifically with the civil law consequences of corruption. Moreover, there is a surprising scarcity of the published case law relating to the civil law consequences of corruption in Poland. Nevertheless, some jurisprudence concerning general principles of civil law is relevant to the issue and will be discussed below, in an appropriate context. In particular, we will start with the rules governing the invalidity of the contract under Polish law (Sect. 11.3.2).
In the context of corruption, there are two contractual relationships that have to be analysed. First, there is a “bribery agreement” (bribery contract), which will be understood as an agreement between the person who gives a bribe (bribe-giver) and the one who receives it (briber-taker), usually a public official, or the intermediary who is to pass the bribe to a public official or other bribe-taker. Under such agreement the bribe-giver offers a payment or other benefit to the other party in exchange of undertaking illegal action, including making a decision in favour of the bribe-giver, rendering influence over public authority or passing a bribe to a targeted bribe-taker. If an intermediary is involved, this type of arrangement is often hidden behind various types of consultancy or lobbying contracts. These agreements often aim at winning a bid for a lucrative contract by the bribe-giver (“the main contract procured by corruption”). The invalidity of the bribery agreement and of the main contract procured by corruption will be examined below (Sects. 11.3.3 and 11.3.4, respectively).
It is another thing that in Poland there exists a well-established practice of the civil law courts relating to forfeiture of bribes under Art 412 k.c. However, this practice – existing mainly at the level of lower instance courts – has hardly produced published case law. This civil law forfeiture will be discussed further below (Sect. 11.3.5).
11.3.2 General Rules Concerning Invalidity of Contracts (Art 58 k.c.)
Art 58 of the Polish Civil Code of 196474 (hereafter: “k.c.”) provides for the sanction of invalidity of a contract which is contrary to the rules of law (statute) or the principles of social conduct.75 , 76
The term “statute” used in Art 58 k.c. should be understood broadly. It covers not only mandatory rules of private law (ius cogens) but also provisions of public law, including administrative and criminal law. Moreover, it refers also to provisions of international conventions,77 to the extent they are self-executing.
Polish doctrine underlines that not every violation of the rules of public law leads to the invalidity of a legal act, by which parties have carried out a transaction that is prohibited by these rules. The legal consequences depend predominantly on the function and purpose of the public law rules in question. It was proposed that the impact of the violation of the rules of public law provisions on the validity of legal acts should be assessed functionally, with a due consideration given to the social and economic goals that lay behind the given rule.78 The case law on the other hand underlines that the violation of the rules of public law can lead to the invalidity of the legal act, if these rules have impact on the formation of the relationships of civil law.79 This idea was developed in the literature, where it was pointed out that the relevant criterion is whether the public law rule aims at precluding the creation of given civil law relationship.80
An important category of the rules of public law, which are capable of leading to the invalidity of legal acts, is the criminal law. However, not even a violation of criminal legislation leads to the invalidity of the civil law legal act in each and every case. The Supreme Court explained in this regard that: “Art 58 k.c. applies, if the behaviour prohibited by the rules of criminal law becomes the subject matter of the obligations assumed by a legal act”.81 Nevertheless, even if the party who undertakes a legal act commits a crime by the same behaviour (i.e. by making that legal act), the violation of criminal law does not automatically lead to the invalidity of a legal act.82 It might occur that in the given circumstances, the sanction remains a sole domain of the criminal law and is limited to imposing a criminal penalty.83 The civil law, guided by its own principles and policies, would not necessarily step in with a sanction of the invalidity of a legal act. In particular, this could be the case, if one of the parties to the transaction was not aware of the criminal nature of the behaviour of the other party to that transaction.84 Then, even though that other’s party making of a legal act constitutes a crime, it would not influence the validity of that legal act.
One example given in that regard is that of a manager of the company who, by concluding a certain contract, abuses his or her position or fails to adequately perform his or her obligations and thus causes a considerable financial harm to the company. In such a situation, even if making the contract meant that the manager plunged into criminal behaviour, the contract itself will normally remain valid.
The rules of criminal law that penalize corruption will often lead to the invalidity of the civil law contracts. This issue is discussed below.
11.3.3 Application of the Rules Concerning the Invalidity of the Contract to the Bribery Agreement
It follows from what was said above, that the contract, the subject matter of which is a bribe prohibited by the rules of criminal law, should be treated as invalid under Art 58 §1 k.c.85 The rules expressed in Arts 228 and 229 of the Penal Code criminalize accepting and giving a bribe to a person who exercise public function. Although no civil law consequences are stipulated therein, the aim of these provisions is clearly also to preclude creation of valid civil law obligations, the subject matter of which would be a bribe. This would seem to include contracts providing for corruption both when concluded directly with the public official who accepts a bribe and with the intermediary, who undertakes to pass the bribe to the targeted public official.
Arts 230 and 230a k.k., on the other hand, prohibit the trade of influence in public institutions. Often, undertaking to exercise influence over the public authority involves assuming an obligation to pass a bribe to that public authority. Polish doctrine underlines in that respect that “it is not necessary to exercise the influence to be an accessory to the offence”.86 Rather, for the criminal responsibility to be imposed, it is enough to undertake to intercede in exercising the influence. The aim of these rules should also be read as to render invalid any civil law obligation, by which a person undertook, in exchange for the material or personal benefit (e.g. payment of a “commission”), to exercise illegal influence over a public official or other person performing public function (e.g. having that person/principal assign the main contract to the bribe-giver). Here again, however, one must distinguish between an illegal influence over public authority and various kinds of lobbying, marketing, legal and other services that remain within the boundaries of law. A contract to render a legally acceptable influence in the public authority will not be considered invalid.
Analogically, Art 296a criminalizes accepting and giving a bribe to a person who performs a managerial function in a private undertaking. Consequently, a contract by which a manager accepts a bribe should be treated as invalid. With respect to corruption in the private sector there is no analogical provision penalizing undertaking to exercise influence. Thus, exercising influence in a private undertaking is not a crime unless that undertaking exercises control over disposition of public funds in the meaning of Art 230.87 It remains an open question whether a contract by which an intermediary undertakes to exercise influence over a manager of a private undertaking, against a payment of the commission, should be treated as void (if not because of the violation of law, possibly for the violation of the rules of social conduct – Art 58§ 2 k.c.). One should, however, be careful in finding such contracts invalid. Providing services, the essence of which is to render influence in private undertaking, in exchange for remuneration, is normally a perfectly legal activity. Only if such services somehow cross the line of acceptable behaviour, could they be treated as giving grounds to the invalidity of the contract. Seemingly, this could be the case if the service provider undertook to perform actions that constitute acts of unfair competition or otherwise violate rules of fair dealing (social conduct).
To sum up, it follows that both a contract, under which the bribe-giver undertakes to give a bribe to a person performing public function directly (or a managerial function in a private undertaking), as well as a contract, by which the bribe-giver provides benefit to an intermediary, who undertakes to pass the bribe to the targeted bribe-taker or to exercise influence over the person performing public function against the payment of the “commission”, should be treated as invalid under Polish law.
The above principles constitute implementation of Art 8(1) of the Council of Europe Civil Law Convention on Corruption, which provides that each contracting state should “provide in its internal law for any contract or clause of a contract providing for corruption to be null and void”.
11.3.4 The Main Contract Procured by Corruption
Corrupt practices often take place in cases when an entrepreneur attempts to win a contract for provision of goods or services to a public institution or another business. This is the main contract concluded between the entrepreneur, who offers a bribe (bribe-giver) and the public institution or another business (the contract-giver). In the present work this contract will be referred to as the “main contract procured by corruption”. The basic scenario assumes that an intermediary, who passes a bribe to the public institution, does not have any authority to conclude a contract on behalf of the principal (Sect. 188.8.131.52). Other scenarios will include situations, where the intermediary is an agent of the bribe-giver having authority to conclude a contract on its behalf (Sect. 184.108.40.206).
220.127.116.11 The Validity of the Main Contract Procured by Corruption
Under the basic scenario, the validity of the main contract depends, it is submitted, on whether the contract-giver received and accepted a bribe passed by the intermediary, or at least knew of a bribe given to intermediary (and whether the bribe has influenced its decision to award the contract to the bribe-giver). If the contract-giver received a bribe, then the main contract concluded with the bribe-giver has to be treated as invalid. Awarding a contract to the bribe-giver constitutes a part of criminal activities of the contract-giver, who accepts a bribe. Since the bribe-giver also commits a crime, a contract that is awarded in such a context should not be upheld, if not because of violation of the statute (Art 58§1 k.c.), then at least because rules of social conduct are infringed (Art 58§2 k.c.).
The situation is different if public institution or another business awarding the contract to the bribe-giver has not received the bribe and, possibly, does not even know about the bribe passed to the intermediary, in other words, if the intermediary keeps the bribe for himself. In such case, even though the bribe-giver could be exposed to criminal liability, the main contract between the contract-giver and the bribe-giver should not be void for that sole reason.
18.104.22.168 Intermediary Acting Under an Authority to Act on Behalf of Another
Polish law knows various types of competences empowering a person to act on behalf of or on account of another. Under the indirect representation, a representative does not have authority to act on behalf of another, but carries out legal acts in its own name. He does so, however, on account of another. Under the direct representation, on the other hand, a representative acts in the name of the principal. He or she actually enjoys authority to bind the principal. The direct representation takes two forms: the statutory representation (the source of authority is the statute), and the authority granted through a legal act by the principal. Below, we will only be concerned with this last type of authority.
22.214.171.124.2 Intermediary Expressly or Impliedly Authorized to Give a Bribe
Let us first consider an example of a situation when the intermediary has been empowered to conclude the main contract on behalf of the bribe-giver and expressly or impliedly authorized to pass the bribe to the contract-giver, usually a public authority. To the extent granting the authority implies giving a bribe it should be treated as invalid under Art 58 k.c., since it violates statutory provisions of law (prohibition of corruption). A question then arises whether the authority to conclude the main contract as such is sufficiently separable from the authority to give a bribe, so that it could stand valid irrespective of the invalidity of the latter. If both are intertwined so that they cannot be separated, the authority to conclude the main contract would have to be treated as invalid along with the authority to give a bribe. This means that the intermediary/agent never had a valid authority to represent the bribe-taker. The main contract concluded on its behalf would thus have to be deemed invalid too.
A question then arises how to protect an innocent public institution (or other contract-giver), who had no knowledge of the bribe (because it has not received it, nor was influenced by it), and was not aware of the fact that the agent was empowered to give a bribe (and thus could not have known that its authority to conclude the contract was invalid). Two possibilities seem to arise. First, under Art 103§3 k.c. a “sham agent” can be held liable for “any damage which the other party had suffered as a result of concluding the contract while not being aware of the lack of authority or that it was exceeded”. This rule, it is submitted, might potentially be applied in case the authority is invalid under Art 58 k.c., also if the invalidity results from violation of rules on bribery. Second, if the pocket of the agent proves insufficient in order to satisfy the innocent party’s claims, one might attempt to hold the principal liable under tort law. The liability under Arts 415 and 416 of the Civil Code could then potentially come into play. This would allow the innocent public official (or other party) to seek redress directly from the principal who authorized a corrupt practice to be carried out by its agent. Tortious liability under Arts 415 and 416 k.c. will be dealt with below (point 126.96.36.199).
If, on the other hand, the authority to conclude the main contract may be deemed self-standing from the authority to pass a bribe, the agent could be treated as properly empowered to conclude the contract, irrespective of its power to give a bribe. The result would then be as under the basic scenario, i.e. the validity of the main contract would depend on whether the public institution (or other contract-giver) received a bribe or was otherwise influenced by it. If it had not and was not aware thereof (because the agent kept the money for himself), the contract could stand as valid. It is thought that under Polish law the public institution or other contract-giver could not in such a situation terminate or otherwise repudiate the contract for the reason that the bribe-giver attempted to corrupt the public institution.
If however, the contract-giver received the bribe from the agent, than the main contract should be treated as invalid since both the bribe-giver and bribe-taker were implicated in the corrupt practice.
188.8.131.52.3 Intermediary Not Authorized to Give a Bribe
Another possible scenario is that the principal has not authorized the agent to give a bribe, but the latter gives a bribe from its own initiative. The scenario thus implies that the public official (or other bribe-taker) took a bribe or was otherwise influenced by it. The situation presents a dilemma. On one hand, the public official (bribe-taker) took a bribe for awarding the contract to a specific contractor, which should preclude full legal effectiveness of the contract. Moreover, one might argue that the principal takes a risk of its agent’s action being illegal and should thus not be allowed to rely on the contract which was concluded in relation to, or even as a result of a corrupt practice. On the other hand however, the principal is innocent because it has not authorized, and possibly never learnt of, a bribe given by its agent. Taking the above arguments into account, it is thought that such a contract should rather be treated as invalid.
If the contract is treated as invalid, an innocent principal may seek redress for losses suffered for the reason of invalidity against both its agent and the public institution that accepted a bribe. The claim against agent would foremost depend on the type of the internal relationship between the principal and agent (whether employment or mandate, etc). The claim against the bribe-taker, on the other hand, could be based on tort law. If the bribe was accepted by a public official, the state’s liability for exercise of public powers could potentially arise (see below Sect. 184.108.40.206).
220.127.116.11 Invalidation of a Contract Concluded by Tender
If a contract is entered into as a result of a tender, where the best offer was chosen from more proposals, Art 705 of the Civil Code provides for a specific rule that allows invalidating the contract.88 According to Art 705 k.c. any participant to the tender or the organizer may request that the concluded contract is invalidated, if the party to that contract or other participant has influenced the result of the tender in a manner violating statutory provisions or the rules of fair dealing. Art 705 k.c. applies to both private (optional) tenders (organized by private entities), as well as, in principle, to public tenders that are obligatory under the rules of law.89 In the latter case however, the application of the rules of Civil Code, including Art 705 k.c. may be overridden by specific rules of particular statutes applicable to a given type of a public tender.90
Art 705 k.c. may come into play in case of corruption, if one of the participants to the tender gives a bribe in order to influence the results of the tender. If it can be shown that the bribe-giver has influenced the result of the tender (i.e. that the decision to award the contract to the bribe-giver was somehow tainted by the fact that the bribe was given), the principal or competitors can request that the concluded contract is invalidated. Under Art 705 k.c. the contract is not void ex lege but it would remain at the option of the organizer (or competitors) to seek its invalidation.
11.3.5 Forfeiture of the Benefit Under Art 412 k.c. (the Immoral Contract)
18.104.22.168 General Rules
Polish law provides for special consequences applied with respect to the performance made in exchange for carrying out a criminal act or an act having immoral purpose. The category in question is referred to as the “immoral performance” (in Polish: “świadczenie niegodziwe”) and is governed by Art 412 k.c. Polish law treats as immoral a performance (giving a benefit), which was made in exchange for carrying out a criminal act or an act that has an immoral purpose. The specific legal consequence applied with respect to immoral performances (and thus with respect to immoral contracts)91 is that the court may decide on forfeiture of the subject matter of the performance (the benefit). The forfeited benefit becomes the property of the State. Art 412 k.c. reads:
The above wording of Art 412 k.c. was introduced in 1990.93 Two major changes were made to Art 412 k.c. First, the forfeiture no longer occurs ex lege, but requires a constitutive judgment of the court.94 Second, the forfeiture is facultative since under Art 412 k.c. the court “may” but is not obliged to decide that the benefit be forfeited.95 Indeed, it is accepted that in deciding on the forfeiture of the immoral benefit the court enjoys a certain degree of discretion in assessing the criteria thereto.96 Procedurally, this implies that the court can decide on forfeiture only, if the State Treasury brings an action before the court, or intervenes in the proceedings between the parties to the immoral transaction.97 The court is not entitled to render a decision ex officio. With respect to claims based on Art 412 k.c. the rights of the State Treasury are exercised by the Ministry of Finance and its organizational units (the so called statio fisci), such as the Tax Office or Customs Office.98 However, in the legal proceedings, it is usually a prosecutor or the State Treasury Solicitor’s Office that act on behalf of the Treasury and its organizational units.
A court may decide that the object of the performance be forfeited to the State Treasury if the performance was knowingly made in exchange for a criminal act or an act having an immoral purpose. If the object of the performance was used up or discarded, the forfeiture may apply to its value. 92
It should further be explained that the forfeiture of certain objects can occur in the very course of criminal proceedings under the rules of the Penal Code. According to Arts 44 and 45 k.k. the court may decide on forfeiture of whatever was obtained as a result of the crime, including any property acquired by the wrongdoer or any profits therefrom. If that is the case, there is no room to apply Art 412 k.c. However, if for any reason no forfeiture occurred in the criminal proceedings, Art 412 k.c. can come into play, as long as the State Treasury brings an action before a civil court.99 This occurs relatively often.
Art 412 k.c. is criticized as a rule of a penal nature.100 Some see it as a “foreign” element in the body of civil law rules. Others defend its role within the system of private law, attempting to propose a new interpretation that would allow adapting Art 412 k.c. to the new social and economic conditions existing after 1990.101 It is underlined that Art 412 k.c. plays an important function in the field of the law of unjust enrichment. Namely, Art 412 k.c. deprives the enriched party of the benefit obtained from the invalid transaction in exchange for the consciously carried out immoral performance.102 Its merits are underlined in comparison to the in pari delicto