The English civil law remedies arising from a contract that is subsequently infected by bribery were recently the subject of consideration in the case of Tigris International NV v China Southern Airlines Company Ltd & Anor  EWCA Civ 1649 (17 December 2014) [paragraphs 128-145]. Although, the case did not involve allegations of bribery, the alleged breaches of fiduciary duty involve the same principles.
It’s reasonably well established that where a party’s agent is bribed by a counterparty to enter a contractual transaction, the bribe victim party may, on discovering those facts, rescind the contract from the outset provided: (1) benefits taken and received and the positions of directly and indirectly affected parties can be fairly restored and (2) there is no delay in exercising that right. Where restoration is impossible or there has been delay, the victim party may terminate the contract and pursue alternative remedies for either recovering the bribe monies or claiming damages for actual losses sustained from having entered the infected transaction.
Less clear are the remedies arising from a contract where the bribery arises subsequent to inception of the contract. The most common scenario, indeed one which arose in one of the leading cases, involves a counterparty bribing a party’s agent to award a sub-contract. Plainly, the infected sub-contract can be rescinded in accordance with the principles above but uncertainty surrounded whether the main contract itself could be rescinded or terminated by reason of repudiation. Having considered contradictory and conflicting decisions, the court summarized the position as follows:
“If, after the contract has been entered into, the agent is bribed in the course of its performance, the principal may bring it to an end as from the moment of discovery i.e. for the future. The same applies if the bribery was effected at the time of the contract but for some reason (delay, impossibility of counter restitution, rights of bona fide third parties etc.) rescission ab initio is impossible… At law bribery whether at or after contract, amounts to a repudiatory breach by the bribing party which, on discovery, his counterparty may accept as bringing the contract to an end. Whether that is because bribery is a stand-alone ground for termination, or the obligation to restrain from it an incident or an implied term of every contract is debatable and, for present purposes, does not matter.”
As was pointed out in the Tigris case, different results arise from termination for rescission and that of repudiatory breach. In the latter case, the parties may already have accrued enforceable rights prior to termination, whereas in the former, the slate is wiped clean. Tigris unsuccessfully sought to establish rescission in order to recover contractual deposits and avoid the consequences of its own breaches prior to repudiation.
The decision is persuasive authority for the proposition that where a bribe victim party discovers that a contract has been subsequently infected by bribery, rescission is less likely to be granted than termination for repudiatory breach. In the case of a contract formed and tainted by reason of bribery, and where restoration is achievable, the victim may rescind and effect a straightforward recovery of deposits or contractual payments.
In certain situations it may be vital to ensure that a party’s right to rescind is not lost through a combination of performance, deliberation and delay, all of which can make restoration problematical. For a bribing party (through itself and associated persons) the rescission or repudiation of a contract for bribery probably provides a longstop from the point of view of commencing investigations and if necessary, self-reporting to the relevant authorities.
Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.