Freezing orders: An opportunity to obtain information?

In any word association game, “tracing, proprietary and yawn” would probably make a good grouping. However, the importance of the former two for a potential bribery victim in carrying out investigations and conducting disciplinary proceedings was recently underscored in a decision involving the UK’s largest housebuilder.

The case — BDW Trading Limited v. Michael Neill Fitzpatrick and Top Construction Services Limited (available here) — involves allegations that a procurement manager and his corporate vehicle received and participated in the payment of secret profits, bribes or commissions from subcontractors or potential subcontractors.

On becoming aware of the alleged facts, the employer obtained a freezing order to prevent the alleged bribe monies and derived assets from being disposed of, with ancillary orders for disclosure. In particular, disclosure of bank statements and financial information was sought in order to understand the extent of the alleged fraud, ensure compliance with bribery policies and to manage commercial relationships. It also sought the release of confidentiality undertakings so as to use disclosed information for the collateral purpose of bringing employee disciplinary proceedings.

The procurement manager sought to resist disclosure on the grounds that it amounted to a fishing expedition for information and that there were no special circumstances justifying an employer being able to rely on freezing order disclosure information for the purpose of bringing disciplinary proceedings.

That a principal has a proprietary remedy to recover bribes or commission paid to his agent or employee, as if held on trust, was confirmed by a recent UK Supreme Court decision in FHR European Ventures LLP and others  v Cedar Capital Partners LLC (avaliable here). Although an order for pre-proceedings disclosure can be obtained, particularly in fraud cases, the courts will do so but only in exceptional circumstances. The significance of having a proprietary remedy to recover “trust assets” at risk of disposal is that disclosure will be more readily ordered.

The release of the confidentiality undertaking to use information in connection with proposed disciplinary proceedings is also an important aspect of the case. The judge concluded that it would be artificial for disclosed information to be used against the subcontractors who made the alleged secret payments but not against the alleged briber.

For UK companies that have fallen victim to bribery, the case is instructive on the need to take speedy civil action to protect assets and perhaps more importantly, to obtain disclosure of information. It also illustrates  the often artificial requirement of demonstrating the risk of trust asset disposal in order to obtain early disclosure of vital information.

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Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.