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Part of the book series: Ius Comparatum - Global Studies in Comparative Law ((GRIA,volume 24))

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Abstract

Corruption is recognized as one of the major obstacles to the development of international trade today. There seems to be consensus that curbing corruption is a task too big to be discharged by criminal law alone and that other branches of law have to contribute their part as well. Thus, where contracts are tainted with corruption, there are genuine issues of contract law at stake that need to be decided with a view to effectively protecting victims and at the same time deterring potential wrongdoers. In this report, we shall take a look at contracts providing for bribery as well as contracts that have been procured by the payment of bribes. The analysis is tailored toward commercial contracts, including also contracts with state-owned enterprises. It shows that, interestingly, different jurisdictions have taken quite different approaches as to whether these contracts can be enforced in court. A second, though related, problem is whether the wrongdoers, after they have performed their part of the deal, should be punished by denying them restitutionary remedies for their investment.

This report was also published in: Bonell/Meyer, The Impact of Corruption on International Commercial Contracts, Springer, 2015, pp. 1–36.

The general report builds on national reports from CANADA (Joshua Karton); CHINA (Qiao Liu and Xiang Ren); CZECH REPUBLIC (Jiří Valdhans); DENMARK (Peter Damsholt Langsted and Lars Bo Langsted); ENGLAND (Yseult Marique); ESTONIA (Marko Kairjak); FRANCE (Mustapha Mekki); GERMANY (Matthias Weller); ITALY (Giorgio Sacerdoti and Paola Mariani); the NETHERLANDS (Abiola Makinwa and Xandra Kramer); POLAND (Maksymilian Pazdan and Maciej Zachariasiewicz); PORTUGAL (Luís de Lima Pinheiro); SINGAPORE (Michael Furmston); SWITZERLAND (Christa Kissling); UNITED STATES (Padideh Ala’i); VENEZUELA (Eugenio Hernández-Bretón and Claudia Madrid Martinez); and on the UNIDROIT Principles of International Commercial Contracts (Richard Kreindler and Francesca Gesualdi).

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Notes

  1. 1.

    Kaufmann (2005-2006), p. 83.

  2. 2.

    Fighting Corruption in the EU, Communication from the European Commission, 6 June 2011, COM(2011) 308 final.

  3. 3.

    In particular, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997, the Inter-American Convention Against Corruption of 1996, the Convention on Corruption involving Officials of the European Communities of 1997, the Council of Europe Criminal Law Convention on Corruption and the Council of Europe Civil Law Convention on Corruption, both of 1999, the African Union Convention on Preventing and Combating Corruption of 2003, and the United Nations Convention against Corruption of 2003.

  4. 4.

    Foreign Corrupt Practices Act of 1977 (15 U.S.C. §§ 78dd-1 et seq.).

  5. 5.

    Bribery Act 2010 (c.23).

  6. 6.

    See, e.g., the ICC Rules on Combating Corruption (2011), the ICC Guidelines on Agents, Intermediaries and Other Third Parties (2010), as well as the PACI Principles for Countering Bribery, issued by the World Economic Forum in 2004. The 2010 version of the UNIDROIT Principles of International Commercial Contracts also tackles the topic of corruption.

  7. 7.

    The majority of the national reports are from OECD member states that have since transposed the anti-bribery convention into their national law; the legislative measures for CANADIAN law are currently in preparation. CHINA and SINGAPORE (both of which are not members of the Convention) prohibit the bribery of foreign public officials. In contrast, a corresponding rule is apparently missing in VENEZUELA, where prosecution only takes place with respect to acts against domestic public officials.

  8. 8.

    See, e.g., the OECD Recommendation on Tax Measures for Further Combating Bribery of Foreign Public Officials in International Business Transactions of 2009.

  9. 9.

    Here, special mention should be made of the protection of whistleblowers; see the general report by G. Thüsing in this volume. Cf. also the ICC Guidelines on Whistleblowing.

  10. 10.

    See for instance the OECD Principles for Enhancing Integrity in Public Procurement of 2009.

  11. 11.

    The introduction of the ‘adequate procedures’ defence in sec. 7(2) UK Bribery Act 2010 has caused the discussion to reach new heights.

  12. 12.

    From the vast amount of literature compare Kreindler (2011); Sayed (2004); Albanesi and Jolivet (2013), each with further references.

  13. 13.

    For earlier comparative research see Meyer (2009); Makinwa (2012).

  14. 14.

    In the CZECH report J. Valdhans mentions one claim under competition law that ultimately failed at last instance. For ESTONIA, M. Kairjak also refers to just one court decision. According to the ITALIAN report by G. Sacerdoti and C. Mariani, decisions dealing with the civil law consequences of corruption are “very few” in Italy. The POLISH reporters M. Pazdan and M. Zachariasiewicz, too, bemoan the “surprising scarcity” of published case law in this matter. The PORTUGUESE (L. de Lima Pinheiro) and VENEZUELAN reporters (E. Hernández-Bretón and C. Madrid Martínez) were not aware of a single court judgement on the civil law consequences of corruption in their respective countries.

  15. 15.

    The Civil Law Convention is not self-executing, but requires implementing legislation. It has to date been ratified by 35 countries. See further Rau (2009).

  16. 16.

    18 U.S. Code § 1964(c). The FCPA, on the other hand, does not give a private right of action.

  17. 17.

    Cf. for POLAND, Art. 12 u.z.n.k.; for the CZECH REPUBLIC, sec. 2983 of the New Civil Code; for SWITZERLAND, Arts. 4a, 13 UWG.

  18. 18.

    The drafters of the CISG famously excluded matters of validity altogether from the Convention, since they deemed them too controversial to achieve uniform rules. See Uncitral Yb. VIII (1977), at p. 93. However, the UNIDROIT Principles and the PECL have since approached this topic.

  19. 19.

    For an overview of different definitions of corruption see Johnston (2005); Gardiner (2002).

  20. 20.

    See, for instance, Rose-Ackerman (1978); Klitgaard (1988); Lambsdorff (2007), pp. 63 et seq.

  21. 21.

    See the definition given by Lord Templeman in Attorney General for Hong Kong v Reid [1994] 1 AC 324: “A bribe is a gift accepted by a fiduciary as an inducement to him to betray his trust”.

  22. 22.

    In Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134 (2003), the defendant allegedly bribed Korean public officials with sexual favours in a weapons deal. Another case is mentioned by A. Makinwa and X. Kramer in their DUTCH report.

  23. 23.

    On damages see Identification and Quantification of the Proceeds of Bribery – A Joint OECD-StAR Analysis, 2012.

  24. 24.

    See OECD Working Group on Bribery in International Business Transactions, “Typologies on the Role of Intermediaries in International Business Transactions”, final report 2009.

  25. 25.

    Crivellaro (2003); Wrage (2007), pp. 78 et seq.; Khvalei (2013).

  26. 26.

    Suspicious, superficial paraphrasing of the tasks expected of the consultant is correctly considered a ‘red flag’ for a corrupt basis of the agreement.

  27. 27.

    Therefore, Art. 2 of the ICC Rules on Combating Corruption (2011) provides that any payment made to an intermediary should represent no more than an appropriate remuneration for legitimate services rendered by him.

  28. 28.

    Hovenden v Millhoff [1903] All ER 848, per Smith LJ: “If a vendor bribes a purchaser’s agent, of course the purchase money is loaded by the amount of the bribe. It cannot be denied.

  29. 29.

    The Bribe Payers’ Index, most recently issued by Transparency International in 2011, provides an overview of the spread of corruption in different industry sectors.

  30. 30.

    On remedies for competitors in case of bribery see Burger and Holland (2006).

  31. 31.

    Penalties in the amount of hundreds of millions USD are no longer a rarity in American proceedings based on the FCPA. In 2008, Siemens settled with the US authorities for a record-breaking USD 800,000,000 in fines and disgorgement.

  32. 32.

    The report can be found at http://www.reuters.com/article/2010/11/01/us-bribery-lawsuits-idUSTRE6A04CO20101101. P. Ala’i in her US report discusses some recent civil actions that took place after a firm’s disclosure of an FCPA-related investigation. The CANADIAN report by J. Karton mentions pending class actions in the courts of Ontario and Quebec.

  33. 33.

    See, for the correlation between corruption and share value, Eicher (2009), at pp. 42 et seq.; Wrage (2007), p. 71.

  34. 34.

    For a general overview of the different concepts of illegality see Bonell (2011).

  35. 35.

    Meyer (2013), pp. 237 et seq. This result is confirmed by all national reports.

  36. 36.

    http://www.trans-lex.org, Principle No. IV.7.2(a).

  37. 37.

    In DENMARK there is no tradition of distinguishing between a contract being contra legem and being contra bonos mores. Both principles are set out side by side in s. 5-1-2 of the Danish Law. In the UNITED STATES, the idea of “contracts unenforceable on grounds of public policy” is seen as the general concept, and “illegal contracts” are just one specific example for this category.

  38. 38.

    See the reports for CANADA (QUEBEC), FRANCE, ITALY and VENEZUELA.

  39. 39.

    The invalidity of the bribe agreement can be obtained by this means in, for instance, CHINA, the CZECH REPUBLIC, DENMARK, ESTONIA, GERMANY, the NETHERLANDS, POLAND, PORTUGAL and SWITZERLAND.

  40. 40.

    See the reports for CANADA, ENGLAND, SINGAPORE and the USA.

  41. 41.

    Lambsdorff and Frank (2011), p. 116.

  42. 42.

    For an economic analysis of the self-enforcing nature of the bribe agreement see Lambsdorff and Teksoz (2005).

  43. 43.

    See, for instance, ICC Case No. 9333 (final award), ASA Bull. 19 (2001), 757 et seq.; ICC Case No. 6497 (final award), YbCA XXIVa (1999), 71 et seq.

  44. 44.

    See the report by R. Kreindler and F. Gesualdi; Raouf (2009), at p. 127.

  45. 45.

    ICC Case No. 1110, Arb. Int. 10 (1994), 282 et seq. On the question of whether the claim should be dismissed on procedural or substantive grounds, see Kreindler (2003), pp. 226 et seq.

  46. 46.

    ICC Case No. 6497, YbCA XXIVa (1999), 71, 72. Cf. furthermore Cour de Justice Geneva, 17 November 1989, YbCA XIV (1994), 214 et seq.; the court found it “utterly shocking” that the bidder stopped making payments to the intermediary as soon as he got his desired contract. Intentions to bribe were not found in this case, however.

  47. 47.

    Cf. ICC Case No. 6497, at 72: “By the way, the result of such nullity is not necessarily equitable. The enterprise having benefited from the bribes (i.e., having obtained substantial contracts thanks to the bribes) has not a better moral position than the enterprise having organised the payment of the bribes. The nullity of the agreement is generally only beneficial to the former, and thus possibly inequitable. But this is legally irrelevant”.

  48. 48.

    Lambsdorff (2007), pp. 144 et seq.

  49. 49.

    Cour d’appel Paris, YbCA XX (1995), 198, 202.

  50. 50.

    ICC Case No. 5622, Hilmarton Ltd v Omnium de Traitement et de Valorisation, YbCA XIX (1994), 105 et seq.

  51. 51.

    For the courts in the EU Member States, the applicable conflict rule can be found in Art. 9(3) Rome I Regulation.

  52. 52.

    The GERMAN reporter M. Weller, for instance, would give effect to such a prohibition as a legitimate means of tackling corruption, whereas L. de Lima Pinheiro in his PORTUGUESE report considers the absolute prohibition of intermediaries as unreasonable and would not enforce it when it is not part of the applicable law. In his report for SINGAPORE, M. Furmston denies that a simple local prohibition on the use of intermediaries – i.e. without allegations of bribery – would make a contract illegal under the law of Singapore.

  53. 53.

    The DUTCH report holds, in this respect, a unique position as it considers it possible for the restitution to fail when the bribe-taker has performed his part of the agreement and has procured the contract for the bribe-payer. In this instance reasonableness and fairness would demand the performances be left where they have fallen, as otherwise the recipient would receive no remuneration for his performance.

  54. 54.

    For a comparative overview see Zweigert and Kötz (1998), § 39 III; Schlechtriem (2000), pp. 216 et seq.

  55. 55.

    The exclusion of restitution due to the ex turpi causa rule is generally supported by the national reporters for ENGLAND, ESTONIA, FRANCE, GERMANY, ITALY, SINGAPORE, SWITZERLAND and VENEZUELA.

    The national reports for QUEBEC, DENMARK, the USA and the UNIDROIT PRINCIPLES support this approach only on a case by case basis after considering the individual facts. In contrast, the reimbursement of the bribe can, in principle, be demanded in the CZECH REPUBLIC, POLAND, PORTUGAL and the NETHERLANDS.

  56. 56.

    Nayyar v Denton Wilde Sapte [2009] EWHC 3218 (QB), at 118.

  57. 57.

    The GERMAN report quotes OLG Karlsruhe, Blutalkohol 2007, 49 et seq.

  58. 58.

    This aspect has been emphasized by P.D. Langsted and L.B. Langsted in the report for DENMARK and by E. Hernández-Bretón and C. Madrid Martínez for VENEZUELA.

  59. 59.

    Herbert (1979), at p. 335.

  60. 60.

    OGH 3 Ob 13/99d, 20.09.2000, RdW 2001/364, 333.

  61. 61.

    In contrast, in similar instances of unsuccessful attempts to purchase a title the courts have rejected the claim for reimbursement, see for ENGLAND Parkinson v College of Ambulance Ltd [1925] 2 KB 1; for GERMANY, BGH, NJW 1994, 187.

  62. 62.

    RGSt 51, 87, 91.

  63. 63.

    AG Offenbach, NJW-RR 1992, 1204 et seq.

  64. 64.

    Art. 3.3.1 PICC (2010), Illustration 21.

  65. 65.

    Chitty on Contracts (2013), para. 16-191 et seq.

  66. 66.

    Rather critical vis-à-vis this last minute decision Bonell (2011), 530 et seq.

  67. 67.

    In the words of Lord Hatherly in Jegon v Vivian (1870–1871), Law Reports Chancery Appeal Cases VI 742, 761: “This Court never allows a man to make profit by a wrong”.

  68. 68.

    However, the POLISH report notes that there have seemingly been no court decisions on forfeiture in corruption cases.

  69. 69.

    See the official Commentaries on the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, para. 23; Pieth et al. (2007), p. 262.

  70. 70.

    RGZ 146, 194, 208 et seq.

  71. 71.

    § 111 i (5) Criminal Procedure Code (StPO).

  72. 72.

    According to the ENGLISH report by Y. Marique; see also Millett (2012).

  73. 73.

    Attorney-General for Hong Kong v Reid [1994] 1 AC 324.

  74. 74.

    Sinclair Investments v Versailles Trade Finance [2011] EWCA Civ 347, para. 53.

  75. 75.

    FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45.

  76. 76.

    See the references in the GERMAN report by M. Weller.

  77. 77.

    For details see C. Kissling in her SWISS report.

  78. 78.

    Fiona Trust & Holding Corp & Ors v. Dimitri Skarga & Ors [2013] EWCA Civ 275.

  79. 79.

    When Lord Mustill included in his famous listing of principles of lex mercatoria that a “contract obtained by bribes or other dishonest means is void, or at least unenforceable”, he indeed avoided a decision in favour of one of the two models, see Mustill (1988), p. 111 et seq.

  80. 80.

    It is noticeable that this wording of the Convention follows the French model, according to which the termination of contracts has to be decided by a court and not, for instance, by a unilateral declaration.

  81. 81.

    According to the Explanatory Report to the Convention, para. 64, “[i]t remains for the court to decide on the status of the contract, having regard to all the circumstances of the case”.

  82. 82.

    See Art. 3.3.1 UNIDROIT Principles, Illustration 16: “If D [who at the time of the conclusion of the contract neither knew nor ought to have known of the bribe to C] subsequently becomes aware of the payment of the bribe, [then he] may choose whether or not to treat the Contract as effective. If D chooses to treat the Contract as effective, A will be obliged to perform and D will have to pay the price, subject to an appropriate adjustment taking into consideration the payment of the bribe. If, on the other hand, D chooses to treat the Contract as being of no effect, neither of the parties has a remedy under the Contract. This is without prejudice to any restitutionary remedy that may exist.”

  83. 83.

    Vienna Convention on the Law of Treaties of 1969.

  84. 84.

    See the CHINESE report by Q. Liu for further details.

  85. 85.

    See especially the reports by M. Mekki for FRANCE and E. Hernández-Bretón and C. Madrid Martínez for VENEZUELA. For a different view, cf. J. Karton in the Canadian report for QUEBEC.

  86. 86.

    As is indicated for ESTONIA, ITALY and possibly in DENMARK.

  87. 87.

    BGH NJW 1989, 26; BGHZ 141, 357, 361; however, the tendency is now towards the mere voidability of the contract, see BGH NJW 2000, 511 et seq.

  88. 88.

    See the CHINESE report.

  89. 89.

    According to the PORTUGUESE report.

  90. 90.

    The ITALIAN report cites Art. 135 Code of Procurement (Statute n. 163/2006).

  91. 91.

    In Grant v Gold Exploration & Development Syndicate Ltd [1900] 1 QB 233 the court held that a bribe-giver cannot seek to defend himself by stating that he believed the agent would disclose the transaction to his principal.

  92. 92.

    This reasoning was applied by the previous instances in BGE 129 III 320 et seq. (sewage case); the decision of the Higher Court of the Canton of Zurich of 17.9.2002 is discussed by Wyss and von der Crone (2003).

  93. 93.

    See in more detail P. Ala’i in the US report.

  94. 94.

    Berg (2000), pp. 39 et seq.

  95. 95.

    See the CANADIAN report.

  96. 96.

    See the CZECH report on the legal basis for such a petition.

  97. 97.

    Art. 705 of the Polish Civil Code.

  98. 98.

    On the Spanish approach see Rodriguez de las Heras Ballell (2009), at p. 253.

  99. 99.

    See official comment h) to Art. 3.3.1 UPICC.

  100. 100.

    BGE 129 III (2003), 320 et seq., as discussed by the SWISS report.

  101. 101.

    See in general on the Anti-Corruption Clause and other ICC instruments Vincke (2013).

  102. 102.

    S. T. Grand, Inc. v. City of New York, 298 N.E.2d 105, 107 (N.Y. 1973), as discussed by the US report.

  103. 103.

    Ibid.: “The reason for this harsh rule, which works a complete forfeiture of the vendor’s interest, is to deter violation of the bidding statutes”.

  104. 104.

    World Duty Free Company Limited v. Republic of Kenya, Award dated 4 October 2006 (ICSID Case No. ARB/00/7).

  105. 105.

    Ibid., at para. 186.

  106. 106.

    The ENGLISH report by Y. Marique refers to Logicrose Ltd v Southend United Football Club Ltd (No.2), [1988] 1 WLR 1256.

  107. 107.

    AG of the Turks and Caicos Islands v Star Platinum Islands Ltd et al, Case No CL 89/2010, 6 June 2011.

  108. 108.

    An unencumbered amount remained after deduction of the charge, but the court was nonetheless convinced that the amount to which the plaintiff was entitled on termination in form of damages and disgorgement would exceed the amount it would still have to pay in restitution.

  109. 109.

    ICC Case No. 11307 (final award) 2003, YbCA XXXIII (2008), 24 et seq.

  110. 110.

    Cameroon Airlines v Transnet Ltd [2004] EWHC 1829 (Comm).

  111. 111.

    Bonell (2011), pp. 531 et seq., referring to legislation in the Netherlands (Art. 6:211(1) Dutch Civil Code) and New Zealand (Art. 7(1) Illegal Contracts Act 1970) as well as Consultation Paper 154 of 1999 of the English Law Commission (“Illegal Transactions: The Effect of Illegality on Contracts and Trust”, Part VII, paras. 7.17-7.22) and Art. 15:104 PECL.

  112. 112.

    See Art. 3.3.2 (2), referring to Art. 3.3.1(3), and Comments 1 and 2 to Art. 3.3.2.

  113. 113.

    With respect to the theory that the costs of tackling corruption can exceed the benefits see especially Klitgaard (1988), pp. 24 et seq.; and also in general Becker and Stigler (1974).

  114. 114.

    See, also for further references, Bonell (2011), pp. 531 et seq.

  115. 115.

    Bonell (2011), at p. 532 fn. 72 and p. 533 fn. 74, again with further references.

  116. 116.

    For excerpts of the Partial Award of 2001 and the Final Award of 2002 see ICC Int’l Ct Arb Bull (Spec Suppl) 24, pp. 39 et seq.

  117. 117.

    Gerzof v. Sweeney, 22 NY 2d 297 (1968).

  118. 118.

    Ibid., 306.

  119. 119.

    See Bonell (2011), pp. 533 et seq.

  120. 120.

    For instance, on the increasing role of private law remedies for asset recovery see van der Does de Willebois and Brun (2013); Daniel and Maton (2008).

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Bonell, M.J., Meyer, O. (2017). The Impact of Corruption on International Commercial Contracts. In: Schauer, M., Verschraegen, B. (eds) General Reports of the XIXth Congress of the International Academy of Comparative Law Rapports Généraux du XIXème Congrès de l'Académie Internationale de Droit Comparé. Ius Comparatum - Global Studies in Comparative Law(), vol 24. Springer, Dordrecht. https://doi.org/10.1007/978-94-024-1066-2_9

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