Who Gets the Bribe? – The German Perspective on Civil Law Consequences of Corruption in International Contracts
© 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_8
8. Who Gets the Bribe? – The German Perspective on Civil Law Consequences of Corruption in International Contracts
EBS University for Economics and Law, Chair for Civil Law, Civil Procedure and Private International Law, Gustav-Stresemann-Ring 3, 65189 Wiesbaden, Germany
This contribution analyzes the civil law consequences of corruption in international contracts under German law. Firstly, the relevant German criminal law is briefly summarized because there are points of intersection between criminal and civil law. Secondly, the most important legal relationships in civil law are identified and analyzed on the basis of the relevant statutory provisions and German case law. Thirdly, three typical problems will be presented in order to further illustrate the functioning of the German civil law on corruption. Against this background, a central concern of German civil law becomes apparent: Who should get the bribe when it comes to litigation.
Corruption has always existed in international commerce. However, the fight against corruption has been neglected in the past. This is about to change. In recent times, several legal instruments have been adopted such as eg the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997, the Inter-American Convention Against Corruption of 1997, the Council of Europe Criminal Law Convention on Corruption and the Council of Europe Civil Law Convention on Corruption, both of 1999, and the United Nations Convention against Corruption of 2003. These legislative initiatives focus almost exclusively on the criminal law aspects of corruption, except of course for the Council of Europe Civil Law Convention on Corruption. Beyond the consequences under criminal law, corruption may influence the trade relationship of the parties involved in international commerce and the contracts concluded by them. These civil law aspects of corruption have long been disregarded or even overlooked.
The following article summarizes the core findings with respect to civil law consequences of corruption under German law. In order to better understand these consequences a brief summary of the regulatory framework of criminal law on corruption in Germany will be presented first.
8.2 Brief Summary of Criminal Law
Legal persons are deemed incapable of committing crimes. German criminal law addresses natural persons only. However, under administrative law, natural persons and legal persons alike may be fined for administrative offences (Ordnungswidrigkeiten), sec 30 Administrative Offences Act (Gesetz über Ordnungswidrigkeiten, OWiG). According to sec 130 of that Act it is an offence not to provide for sufficient supervision to ensure compliance within a company. However, it is unclear to what extent this provision that generally deals with compliance covers typical cases of corruption.1
8.2.1 Corruption in the Public Sector
Since the enactment of the German Criminal Code in 1871, sec 331 (Vorteilsannahme) prohibits claiming and/or accepting benefits for executing public duties. This section is complemented by sec 333 (Vorteilsgewährung) that prohibits the other part’s act, ie offering, promising and/or giving benefits to a government official or civil servant for the execution of the latter’s official duties. Sec 332 (Bestechlichkeit) prohibits claiming and/or accepting benefits for committing an illegal act in office. Sec 333 (Bestechung) prohibits the other part’s act, ie offering, promising and/or giving benefits to a government official or civil servant for committing an illegal act in office. Sec 108e (Abgeordnetenbestechung) sanctions the “sale” or “purchase” of votes of Members of Parliament and equivalent bodies on local level.
8.2.2 Corruption in the Private Sector
In 1909 the German legislator prohibited certain forms of corruption by including a provision in the German Act against Unfair Commercial Practices (Gesetz gegen den unlauteren Wettbewerb, UWG). The relevant provision, sec 12, prohibited the offer, promise, claim or acceptance of benefits for unduly preferring the offeror/promisor or a third person in business decisions about the purchase of goods or services. In 1997, the provision was integrated into the German Criminal Code2 as secs 299 ff (Bestechlichkeit und Bestechung im geschäftlichen Verkehr). On this occasion the maximum sentence was increased.
8.2.3 (No) Legal Definition of Corruption Under German Law
As has become apparent from the relevant provisions of German criminal law, the term “corruption” (Korruption) is not a legal term. Rather, German criminal law connects sanctions to the active and passive acts of “bribery” (Bestechung/Bestechlichkeit). Bribery in this sense requires, grossly speaking, (1) certain categories of persons acting (ie either government officials and/or civil servants or employees or agents of businesses), (2) any kind of benefit for the passive part, (3) claiming and offering this benefit respectively, and (4) the agreement of illicit preferential treatment in exchange to the benefit.3
This definition is also relevant for civil law effects on contracts under sec 134 German Civil Code (Bürgerliches Gesetzbuch, BGB), according to which contracts are void if they are illegal (for more details see below). In addition, the understanding of “bribery” under German criminal law is relevant in determining whether a contract is immoral/violates public policy in the sense of sec 138 German Civil Code (for more details see below). However, under the general clause of sec 138 German Civil Code the public policy on combating corruption is to be understood in a broader sense than under the narrow definitions and conditions of German criminal law.4 For example, if conditions of the criminal law for conviction in respect to certain objective or subjective requirements are not fulfilled in the particular case at hand and thus the bribery contract is not void under sec 134 German Civil Code because no statutory prohibition was violated, the contract may still be void under sec 138 German Civil Code for violating the public policy.
8.2.4 International Dimension of Corruption
22.214.171.124 Application of German Law Rules in Cases of Corruption with an International Dimension
Sec 299(3) German Criminal Code expressly provides that subsections (1) and (2) – prohibition of corruption in the private sector – apply also to actions in foreign states. Subsection 3 was introduced by Art 1 No 4 of the Act on the Second Protocol of 19 June 1997 on the Convention on the protection of the financial interests of the European Communities.5 In general (and prior to the enactment of subsection (3)), sec 7(2) German Criminal Code provides that German Criminal law applies, inter alia and subject to certain conditions, to acts committed by German nationals if the act is prohibited at the place of acting.
In respect to corruption in the public sector, the German legislator extended the scope of those provisions of the German Criminal Code that prohibit, on certain conditions, the bribing of government officials (not being bribed as a government official) in order to receive an illegal act by the government official in the future (not for illegal acts in the past).6
126.96.36.199 Participation of Germany in International Instruments Relating to Corruption
As a Member State to the European Union, Germany is obliged to comply with instruments adopted by the European Union. This includes the Convention on the protection of the financial interests of the European Communities including its Protocols,7 the Convention on the fight against corruption involving officials of the European Communities or officials of Member States of the European Union,8 and the Joint Action on corruption in the private sector.9 On the level of international treaties, Germany is party to the OECD Convention on Combating Bribery of Foreign Public Officials in Business Transactions10 and recently joined the United Nations Convention against Corruption (UNCAC).11 Germany is not party to the Council of Europe Criminal Law Convention on Corruption12 nor to the Council of Europe Civil Law Convention.13 In respect to the latter instrument, the view was that there is no need to accede as Germany’s domestic private law was considered to comply anyway.
8.3 Civil Law Consequences of Corruption
As regards the civil law consequences of corruption, there is no statutory regulation in Germany. The consequences of corruption on contracts are exclusively dealt with by general civil law. There are numerous court decisions starting with judgments of the Imperial Court (Reichsgericht) of Germany at the beginning of the twentieth century.14 The following overview provides for preliminary notes about the points of law in question, followed by reports on selected cases:
8.3.1 Relationship Between Bribing and Bribed Part (Bribery Contract)
188.8.131.52 Preliminary Notes
The bribery contract is void for both illegality (Gesetzeswidrigkeit) and immorality/violation of public policy (Sittenwidrigkeit): Sec 134 German Civil Code provides that a legal transaction that violates a statutory prohibition is void, unless the prohibiting statute leads to a different conclusion. Sec 299 German Criminal Code deals with taking and giving bribes in commercial practice (see above). Chapter 30 of the German Criminal Code deals with offences committed in public office (see above). These provisions count as statutory prohibitions in the sense of sec 134 German Civil Code.15
Sec 138 German Civil Code provides that (1) a legal transaction which is contrary to public policy is void, and (2) that, in particular, a legal transaction is void by which a person, by exploiting the predicament, inexperience, lack of sound judgment or considerable weakness of will of another, causes himself or a third party, in exchange for an act of performance, to be promised or granted pecuniary advantages which are clearly disproportionate to the performance. A bribery contract is held to be contrary to public policy.16
The claims for restitution on the grounds of unjust enrichment due to the nullity of the contract and violation of public policy under sec 812(1), Sentence 1, Alternative 1, and sec 817 Sentence 1 German Civil Code are barred by sec 817 Sentence 2 German Civil Code.17 Sec 817 German Civil Code provides, in its Sentence 1, that if the purpose of performance was determined in such a way that the recipient, in accepting it, was violating a statutory prohibition or public policy, then the recipient is obliged to make restitution. Sentence 2 provides that a claim for restitution is excluded if the person who rendered performance was likewise guilty of such a breach. However, if the receiving part exploits the bribing part in a way that constitutes a violation of public policy of its own, then the bribing part is, on this exceptional ground limiting the wording of the provision, not barred from his claim for restitution.18
184.108.40.206 Selected Cases
In a judgment of the Upper Regional Court (Oberlandesgericht) Stuttgart of 10 February 2010, the defendant, who sells medical products, asked the plaintiff, national of the state A, but domiciled in Germany, to commission sales in state A. Both parties agreed that bribes should be used to influence the relevant persons in state A. Two sales contracts were concluded between the defendant and the buyers of the military in state A. The plaintiff now claims a commission fee according to the agreement. It was held that German law is applicable to the contract and that the contract is void both for violating statutory prohibitions according to sec 134 German Civil Code and for being contrary to public policy according to sec 138(1) German Civil Code.
In the ruling by the Upper Regional Court (Oberlandesgericht) Karlsruhe of 200519 the applicant applies for legal aid (Prozesskostenhilfe) in order to institute proceedings for a claim for restitution of money paid to obtain public certificates to prove that the driver’s licence should not be withdrawn after positive alcohol control. Legal aid was dismissed for bad prospects of success of the claim because the contract about the payment was void and the claim for restitution on the grounds of unjust enrichment was barred by sec 817 Sentence 2 German Civil Code that excludes the restitution claim if both parties violate a statutory prohibition and/or public policy.
The Federal Court of Justice (Bundesgerichtshof) handed down a judgment20 where the plaintiff, a foreign corporation with seat in state L, commissioned international sales and services. The plaintiff was looking for a firm to establish a brewery on behalf of the government of state B. In order to make business in that state it was perceived to be inevitable to bribe the relevant persons there. This was known to the parties. At the same time, bribery was a criminal offence in that state. In order to avoid the risk of criminal sanctions and of being placed on black lists, European companies, according to the Court’s findings, usually resorted to nationals of that state to effectuate the bribing. The plaintiff offered one of his employees for doing so. Thereupon, the defendant agreed with the plaintiff that the defendant cooperate exclusively with the plaintiff in the construction project and pay a commission (5 % of the fob value of the machines to be imported) to the plaintiff for herself and for “third parties”, if the defendant manages to join the project. After certain activities in the target state by the plaintiff, the defendant and that state concluded a contract to establish the brewery, but later the project failed because of financial difficulties. The plaintiff nevertheless now claims the commission.
The Court held that the contract between the plaintiff and the defendant is governed by German law. Therefore, the validity of the contract is controlled by sec 138 German Civil Code. Since there is no application of foreign law, there is no case for a public policy control under the provisions of German private international law. The claiming and receiving of bribes by foreign government officials violates German public policy, at least if it violates the law of the foreign state. The violation of foreign laws that represent values shared and supported by German law as well constitutes a violation of the German policy. It does not matter whether bribing is common practice and inevitable for making business with the government in the foreign state.
In a judgment by the Local Court (Amtsgericht) Offenbach21 the plaintiff, foreign national, claimed DM 5000 from the defendant, also foreign national of the same state. The plaintiff contended that the defendant had received DM 5000 in order to obtain a resident permit (Aufenthaltsgenehmigung) for the plaintiff from German authorities. However, the plaintiff did not receive such a residence permit. The defendant contested any payment of money to him and contented that he only helped, for free, translating and filling out the necessary forms.
The Court held upon evidence that the defendant did received DM 3500 for bribing German authorities and DM 1500 for himself. Further, the Court held that the contract is void for violation of statutory prohibition of bribery according to sec 134 German Civil Code in connection with sec 299 German Criminal Code as well as for violation of public policy according to sec 138 BGB. Therefore, the plaintiff received DM 5000 without cause and thus has a claim for restitution on the grounds of unjust enrichment, according to sec 817 Sentence 1 German Civil Code. Sec 817 Sentence 2 German Civil Code excludes any claim for restitution if both parties violate public policy. In principle, this condition is fulfilled in the case at hand. However, the defendant had exploited the plaintiff’s ignorance of Germany and his trust in the defendant as being of the same nationality. In this particular case where there is an additional violation of public policy by the receiving part sec 817 Sentence 2 should not be applicable. On these exceptional grounds, the claim for restitution for unjust enrichment was granted. Appeal against the judgment to the Regional Court (Landgericht) of Darmstadt was rejected.22
In a Federal Court of Justice (Bundesgerichtshof) judgment23 of 1990, the plaintiff, who was the sole shareholder of a Limited Liability Company (GmbH), agreed with the defendant, a buyer of the company’s real estate, the agreed commission fee of DM 200,000. After the conclusion of the sales contract, the plaintiff claimed this commission. The defendant sought to rescind the contract and also contended that the contract was void for violation of public policy according to sec 138 German Civil Code.
The Court held that the contract is valid. Given the special position of the seller, ie the company, and agent, ie the company’s sole shareholder, the contract on the payment of the commission must be interpreted as integral part of the sales contract. Economically speaking, parts of the sales price were paid directly to the economic owner of the real estate, ie the agent and sole shareholder of the company. Therefore, in this special case, there is, contrary to the holding of the court of the previous instance, no bribing of the organ of a corporation. Had there been such a bribe, the contract would have been void for violation of public policy according to sec 138 German Civil Code. Since there could not be assessed a case of tax evasion, nor a case of disadvantaging of creditors, there was also no reason to invalidate the contract on these grounds. Therefore, the plaintiff was successful in claiming the payment of the agreed commission.
8.3.2 Relation Between Principal and Agent
220.127.116.11 Preliminary Notes
The damaged part, ie the company paying a higher price or receiving goods of less quality due to the undue influence by one of its employees accepting bribes, may terminate the labour contract with its corrupt agent for exceptional grounds of termination even if the bribery is not fully proven at the moment of termination.24 The damaged company can claim the bribe money from the employee.25 Further, the company may raise claims for damages for breach of contract and under tort law.26