Still Some Unclarity Regarding the Legal Consequences Arising from the Nullity of Agreements Through Corruption – Estonia
© 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_77. Still Some Unclarity Regarding the Legal Consequences Arising from the Nullity of Agreements Through Corruption – Estonia
(1)
Faculty of Law, Tartu University, Näituse 20, 50409 Tartu, Estonia
Abstract
Estonian law differentiated between two ways of corruption – promising execution of illegal acts (bribery) or legal acts (gratuities). The reasons for such distinctions were unclear and from 1 January 2015 the distinction as described before will disappear.
Until 1 January 2015 existing law had identical rules for corruption in both public and private sector, which caused problems in relation to declaring some positions in private law companies as officials within the meaning of the offence. The importance of the offence criminalizing corruption in the private sector has increased especially during the last years. The new offence – albeit consisting of handful of new and somewhat ambiguous terms – shall hopefully provide sufficient aptness.
No special rules in civil law exist to determine any civil law consequences of corruption. Although there is lack of any sufficient case law one can clearly state that bribery is considered as contrary to good morals and hence transactions made through corruptive act or acts are to be regarded as void and hence do not have any legal consequences from inception.
The criteria to determine the separability of different parts is largely based on subjective criteria. Therefore it is possible that agreements not constituting part of the contract such as agency agreements are not void though linked with transactions made through acts of corruption.
7.1 Introduction: Reform of the Criminal Code
Estonia is a member to most of the international instruments relating to corruption. The requirements of international treaties and other instruments have been transposed into local law.1 The current framework of criminal law provisions on corruption stemming from the Estonian Criminal Code (in Estonian: Karistusseadustik) in force until 1 January 2015 distinguished between acceptance, arrangement and giving of bribes and gratuities. All acts were criminalized as separate offences. The difference between bribery or acceptance, delivery or arrangement of gratuities lied in the illegal nature of the acts promised in return: in the case of bribery the acts promised as a return were illegal per se, in the case of gratuities the acts promised were legal. Regarding everything else the objective and subjective criteria of the acts of bribe and gratuities were identical.2
The core essence of the offences was the commission of the act of either promising to give or in reality handing over a certain amount of money or benefits3 and existence of a special agreement between the giver and taker of the bribe or gratuities according to which both parties acknowledge that the actions taken by the receiver had been caused by promise or receipt of assets.4
Originally, the legislator had decided to criminalize such actions through the enactment of six separate offences: the accepting of gratuities or bribes (ss 293 and 294), arranging receipt of bribes or gratuities (ss 295 and 296) and granting gratuities or giving bribes (ss 297 and 298). Such a distinction had been criticized for being unreasonable and causing complexity when defining the offence.5 As a result, the panel of experts working at the Ministry of Justice proposed that the difference between bribing and transfer of gratuities should be abolished. The corresponding bill was passed onto the Parliament in late November 2013 and was adopted by the Parliament in June 2014. From 1 January 2015 at least the situation regarding corruption offences is to some extent simplified: the distinction between bribes and gratuities has been lashed, ss 293, 295 and 297 have been deleted and the offences criminalizing accepting, arranging receipt and giving bribes are intended to cover all acts blanketed by the former offences of bribes and gratuities.6
7.2 Corruption in the Private Sector: Growing Importance of the Relevant Offences in Practice
The current ss 293–298 of the Criminal Code require the person on the receiving end of the act of bribery or handing of gratuities to be an official. According to s 288(1), official means a person who holds office in a state or local government agency or body, or in a legal person in public law, and to whom administrative, supervisory or managerial functions, or functions relating to the organization of movement of assets, or functions of a representative of state authority have been assigned. Such a position does not have to be attributed to the person officially – the mere factual possibility to have decisive influence on the execution of any decisions within these functions is sufficient.7
It is important to stress that according to s 288(2), also persons holding offices in private legal persons are included: a person who directs a legal person in private law or acts on behalf of such person or acts on behalf of another natural person, provided that the person has the authority and duties specified in s 288(1) and the criminal offence has been committed in the course of the economic activity of the corresponding legal or natural person. There is sadly a lack of apt case law on the determination of officials in larger companies – issues such as whether compliance officers or risk managers can be regarded as officials are still unsolved. Still one can clearly see that the lower court practice regarding corruption within the private sphere is growing in importance.8 Thankfully, recent case law has given some general remarks on the issue of official in the private legal person: the persons could be considered as an official having a general obligation of loyalty before the private legal persons.9
Together with the reform of the existing rules corruption in the public sector the Estonian Ministry of Justice introduced amendments to the corruption offences in the private sector, which have also entered into force from 1 January 2015.10 The existing offences were annulled and a new offence – ss 4023 and 4024 – criminalizes the accepting or giving of bribes by a person entitled to act in the interests of the company in exchange of abuse of his/her position. What is exactly meant by the notions “act in the interest” or “abuse of position” is unclear and shall have to be defined in future case law.
S 288(3) of the Criminal Code clearly states that foreign officials are also to be regarded as officials. This means that theoretically foreign officials can be liable under the Estonian Criminal Code for corruption. In both cases, the case of acts committed by foreign officials and also Estonian officials outside Estonia, the general rules on territorial applicability of the Estonian Criminal Code apply.
It must be stressed that since 15 July 2013 the Criminal Code has been amended by s 7(2) clearly stating that the Estonian Criminal Code has applicability on actions of bribery and handing of gratuities as described in ss 293–298 mentioned above if the acts have been committed by an Estonian citizen, Estonian official or a private legal person registered in Estonia. The clear shift to applying the principle of universal jurisdiction was, according to the explanatory letter circulated by the Ministry of Justice, mainly caused by corresponding proposals from GRECO’s evaluation committee to Estonia in 2008.11 The rule has not, however, been analyzed in case law.
7.3 Civil Law Implications of Transactions Tainted with Corruption: No Special Rules Adopted
7.3.1 Introduction
There is no specific instrument in Estonian civil law that stipulates the civil law consequences of acts of corruption. The corresponding consequences shall be derived from general civil law rules on validity of transactions and claims for damages. Even more, there is scarcely any case law of higher courts but the system of consequences can be derived from academic literature and also some case law and literature in areas close to the issue – the example of agreements breaching competition law rules.12
7.3.2 Nullity Under Contradiction with Good Morals
S 86(1) of the General Part of the Civil Code Act (in Estonian: Tsiviilseadustiku üldosa seadus) declares that transactions contrary to good morals or public order are void.13 S 84(1) declares the legal consequences of nullity – a void transaction has no legal consequences from inception.
That which is received on the basis of a void transaction shall be returned pursuant to the provisions concerning unjust enrichment unless otherwise provided by law. In relation to international commercial contracts one must also stress that the content of the notion of good morals has been linked with the territory of Estonia – if a contract is governed by Estonian law, the content of the principle must be derived from values intrinsic to Estonian law.
In order to identify the invalidity of a transaction due to its contradiction to good morals under s 86 two prerequisites must be met. First, the value of the reciprocal performances of the parties shall be out of balance, so that the transaction would be contrary to good morals. Second, the party shall have concluded the contract because of extraordinary need, in a relationship of dependency, because of lack of experience or because of other similar circumstances. The burden of proof generally lies on the party who claims the invalidity. For instance, the Supreme Court found in the case no 3-2-1-109-04 that a suretyship contract may be contrary to good morals when the commercial pledge securing a loan is replaced with personal surety or the personal surety contract is agreed in addition to the commercial pledge and the limit of personal surety exceeds the limit that was first assured with the commercial pledge.14