English Judges: Little Mice in the Big Business of Corruption?

© Springer International Publishing Switzerland 2015
Michael 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_6

6. English Judges: Little Mice in the Big Business of Corruption?

Yseult Marique 

School of Law, University of Essex, Wivenhoe Park, CO4 3SQ Colchester, UK



Yseult Marique


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. England seeks 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 starting point in English law for addressing corruption is the relationship between the principal and its agent. Even though the Bribery Act 2010 moved away from this principal/agent relationship to address corruption from a criminal law perspective, the UK Supreme Court relied on this principal/agent relationship in FHR European Ventures LLP v Cedar Capital Partners LLC, where it held that the agent held the product of corruption in trust for his principal. The question remains whether such financial adjustments developed by the judges are a sufficient punishment or deterrence against corruption. They may offer a clear and simple answer signalling clearly that English judges disapprove of corruption as a serious evil. However, as a matter of public policy, a range of other techniques may need to be developed to discourage corruption in a more systematic way among all the parties involved, the bribe-giver included.

I am grateful to Professor John Bell, Dr Paul Hughes and Dr Matt Stone for their comments. All errors remain my own. Any comments on this contribution are welcome.

6.1 Introduction

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.1 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.

6.2 The Civil Law Consequences of Corruption

6.2.1 Definition of Corruption as a Criminal Offence

Corruption is a criminal offence in the United Kingdom according to the Bribery Act 2010. The Bribery Act resulted from intense international efforts to nudge the United Kingdom towards modernizing its criminal system in relation to corruption. Indeed, 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),2 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.5 This led the OECD Working Group on Anti-Bribery to issue negative reports in relation to the English system.6

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)9

  • 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.10 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.11

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.

6.2.2 Resistance to Developing a Bespoke Approach for the Civil Law Consequences of Corruption

There is no statutory regulation dealing especially with the civil consequences of corruption in the United Kingdom. There is strong resistance to the development of such bespoke statutory regulations in the United Kingdom, as the following two elements show. Firstly, the United Kingdom has been a member of the Council of Europe Civil Law Convention on Corruption of 1999. However, although it signed the convention on 8 June 2000, the Convention is not yet ratified. Secondly, the Corruption Bill proposed in 2003 intended to amend civil law to enable the ratification of the Council of Europe Civil Law Convention on Corruption.13 However, the Bill has never been enacted. The Bribery Act 2010, passed instead of the Corruption Bill, does not include provisions related to the civil law consequences of corruption.

However, English courts have had to deal with key problems in relation to the civil law consequences of corruption. Here is a short overview of these problems.


In a few cases, English courts have dealt with the validity of contracts resulting from corruption. These cases revolved around the enforcement of contracts corrupting public life, such as contracts involving the sale of offices.14



Court decisions have dealt with the authority of the agent when acting in corrupt ways. This report discusses these decisions below in Sect. 6.2.4.



A range of highly commented on and disputed court decisions deal with the status of the property or monies gained through corruption.15 The key question is whether the agent or the fiduciary holds these monies and property on trust (what is called constructive trust) for the principal or whether the agent only owes a personal duty to give an account to his/her principal. This report discusses these decisions below in Sect. 6.2.5.



A couple of recent court decisions deal with the consequences of an arbitral award when corruption has tainted the contract.16 This gives rise to a dilemma for the courts between enforcing the foreign arbitral award and enforcing a contract tainted by corruption. However, in Westacre, the judges held that, in the case of corruption, considerations of English public policy do not outweigh the importance of upholding an arbitration award.17

English contract law is used as the law of many international contracts, so that arbitral awards may use English law in situations where there are only few – if any – factual connections with the United Kingdom.18 This report, however, intends to give information on the English legal system as developed by English judges and legal professionals. This narrows down the scope of the investigation. It belongs to different research to compare the similarities and differences between English contract law practised by English practitioners and that practised by an international community of arbitrators with their own cultures and logics.19

6.2.3 Corruption and “Illegal” or “Immoral” Contracts Tensions in Courts’ Roles

The civil consequences of corruption for a contract obtained thanks to corruption are highly problematic. Indeed, the state of the law related to illegality in contracts is confused and few clear-cut principles apply. Therefore this paper can only give an overview of the key ideas, starting with the definition of illegal contracts on the ground of public policy and following with the consequences of such illegality. The starting point of this approach is anchored in the role that courts have in enforcing contractual performance: they regard cooperating in the enforcement of illegal contracts as going against their dignity.

Broadly speaking, illegality arises from an express or implied prohibition in a statute or at common law. The consequential idea is that, in a number of situations, common law policy implies that a contract cannot be enforced despite a lack of express or implied statutory prohibitions. Judges consider that their own role is not to enforce certain types of contracts that would be injurious for society. Although the notion of “injury to society” is vague, it has been applied to various forms of illegality, such as contracts against the public good, contracts constituting the commission of a crime, contracts driven by sexual immorality, contracts presenting risks to public safety or contracts that have arisen ex turpi causa. 20 In Holman v Johnson, Lord Mansfield wrote that “no court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act”.21 The scope of public policy varies over time depending on public opinion and general ideas about morality.22

At first, contracts involving corruption may thus be seen as breaching criminal law, especially since the Bribery Act 2010. To this day, no reported decision seems to draw the conclusion that an offence has been committed under the Bribery Act 2010 (with or without prosecution or sentence under the Act) for contracts that may have been concluded thanks to this offence. However, courts may in the future integrate this Bribery Act into their reasoning and include corruption and bribery in the sense of this Act within the scope of the public policy ground for refusing the enforcement of contracts. Indeed, courts will not enforce an agreement when its direct object is the commission of a criminal offence. Yet if an offence is committed in the performance of an otherwise legal contract, this last contract will not be illegal.23

Judges have sometimes expressed more flexibility regarding corruption, especially when corruption happens abroad or involves breaching foreign law.24 For instance, when presented with arbitration cases involving corruption abroad, English courts have faced a dilemma between following their usual approach to illegality on the ground of public policy, and therefore refusing the enforcement of the contract, on the one hand, or enforcing the given foreign arbitral award on the other hand. Overall, courts give priority to the enforcement of these foreign arbitral awards over the consideration of enforcing a contract tainted by corruption.25 In this context, apart from straightforward cases of corruption, many cases involving bribery or more sophisticated arrangements inducing corruption have probably fallen outside the ground of public policy as understood by the courts in relation to contractual performance.26 It remains to be seen whether the Bribery Act 2010 will lead courts to adopt a different course of reasoning.

The inadequacy of illegality appears here: a contract can be illegal and its enforcement can be against English public policy for reasons connected to corruption (such as corruption in public life). Some forms of corruption (such as corruption of an English public office) undoubtedly fall into the realm of public policy. However, a breach of English public policy does not necessarily or inherently extend to all forms of corruption carried out anywhere in the world by way of principle; and this despite the strong statement uttered by Lord Templeman in Attorney General Hong Kong v Reid that “bribery is an evil practice which threatens the foundation of any civilized society”.27

Further issues arise in relation to illegality and corruption in commercial contracts, especially in relation to the consequences attached to illegality. Illegality in contracts on the ground of public policy means that if both parties are involved in the illegality no party can claim any rights or remedy under the illegal operation in which he was involved. This is expressed with the maxim ex turpi causa non oritur actio. This means that the court has to refuse the enforcement of the contract once it knows that an illegality has been committed, regardless of the source of this information. The party guilty of illegality cannot enjoy any remedies under the contract. A subsequent or collateral contract which is based on or results from an illegal operation is also illegal or void.28 Yet, if the collateral contract is not tainted by corruption, it may be enforceable.29

We can illustrate this point with the following hypothetical scenario. Let us suppose that contractor A of country X enters into an agreement with agent B. This agreement provides that B is to receive a commission fee of USD 1,000,000 to pay, on behalf of A, USD 10,000,000 to C, a high-ranking procurement advisor of D, the Minister of Economics and Development of country Y, in order to induce D to award A the contract for the construction of a new power plant in country Y. B pays C the USD 10,000,000 bribe and D awards the Contract to A. A may then be tempted to refuse to pay B the agreed commission fee by invoking the illegality of the Commission Agreement. In that case, the doctrine of illegality and ex turpi causa would be applied. Courts would recognise no right or remedy to the parties invoking rights or remedies based on an illegal transaction. They would not agree to enforce a contract between A and B which has as its direct purpose corruption, bribery or secret commissions.

Such a scenario, however, could lead to another problem. Indeed, D may not award A the contract even though B has paid C the bribe. In this case, B could wonder whether he could ask A to pay his agreed commission fee and A could be tempted to seek ways to recover from B the bribe B paid to C. Such a scenario can be found in the similar facts at the origin of an English case, Romy Nayyar and ors v Denton Wilde Sapte and Gauri Advani.30 In this case, the claimants (the bribe givers) had to rely on the tainted payments to establish the damage that they had suffered. The doctrine of illegality was triggered and the claim was accordingly barred according to ex turpi causa non oritur actio. The court refused to help a claimant recover compensation for the consequences of his own wrongful conduct.31 The proof of a payment which was intended to be a civil law bribe was enough to engage the ex turpi causa principle, and it was not necessary to establish that the illegal purpose had been carried out.

However, there are cases when public policy does not require that illegality always triggers such drastic effects. For instance, money paid may be recoverable or the courts may agree to sever the illegal part of the contract from its legal part.32 Indeed, the illegality defence may bring difficult consequences in relation to the enrichment of one party in comparison to the other party. Therefore, uncertainty regarding the rigidity of the defence has arisen. The House of Lords seemed to reject the possibility of judges exercising discretion according to their conscience in Tinsley v Miligan. 33

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