IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before:
B E T W E E N:
-and-
MR. GEORGE LEGGATT Q.C. and MR. MICHAEL ROLLASON
(instructed by Messrs. Warner Cranston) appeared on behalf of the Claimant.
MR. STEPHEN HOFMEYR and MR. CHARLES HOLROYD (instructed by Messrs. Holman Fenwick
& Willan) appeared on behalf of the Second and Third Defendants.
The Hon. Mr. Justice David Steel
29 February 2000
1. The First Claimant is incorporated in the Cayman Islands and is a wholly owned subsidiary of National Petroleum Limited, Bermuda. It is engaged in trading in crude oil and petroleum products. It is also engaged in crude oil refining through a processing agreement with another subsidiary, Belgian Refining Corporation NV. The Second and Third Claimants are Swiss companies within the group which provide services to the First Claimant. It is not necessary to distinguish between them and I shall refer to them jointly as "Petrotrade".
2. The First Defendant is the former operations manager of the claimant companies with responsibility for chartering affairs until his dismissal in September 1993. At the commencement of the trial, the claim against Mr. Smith was settled. The Second Defendant provides port agency services to vessels that call at the port of Antwerp and the Third Defendant is an associate company. I shall refer to them jointly as "Alpina".
3. The essence of Petrotrade's case was that Alpina, in return for their appointment as port agents for vessels chartered on terms whereby Petrotrade could make the nomination, paid secret commissions to Mr. Smith, and his assistant Mr. Sen, amounting to about £160,000 over a period of more than four years. These payments were made through a Jersey company called Independent Maritime Services Limited ("IMS Jersey") which was owned and controlled by employees of Alpina. There were many issues in the case but a primary one was whether Alpina was vicariously liable for the activities of their employees in agreeing to and making these payments.
4. In the course of its oil trading operations, Petrotrade was frequently concerned with chartered vessels calling at Antwerp. At that port, the fees charged to shipowners by port agents were fixed by a tariff at above the market rate and, accordingly, it was common practice for port agents to agree to pay a rebate or, as appropriate, a commission to the party responsible for their appointment. The practice is both legal and widespread.
5. Petrotrade commonly negotiated the right to appoint the port agents under the terms of the relevant charterparty. Given the volume of their business at Antwerp, Petrotrade was able to command a substantial commission from their chosen port agents. Prior to the appointment of Alpina, Petrotrade had used Anthony Veder Co. NV and later Ahlers Agency NV. Both these companies paid a commission in the region of 40 to 50% to Petrotrade.
6. Mr. Smith was promoted to the position of operations manager in July 1988 and thereupon became responsible for the nomination of port agents and arranging for the payment of commissions. In late 1988 or early 1989, two employees of Alpina approached Mr. Smith with a view to winning Petrotrade's business. They were Mr. Van der List and Mr. Mertens. Mr. Van der List was the assistant Manager and later Manager and Deputy Managing Director of Alpina. Mr. Mertens was the Managing Clerk.
7. Mr. Van der List was not called to give oral evidence but the Defendants put in a statement made by him in July 1999. In that statement, Mr. Van der List explained how he proposed to Mr. Smith that, in exchange for his giving Alpina port agency business, Alpina would pay a commission of 50% of the fees to Mr. Smith and Mr. Sen rather than Petrotrade. Mr. Smith agreed to this but required that the payments should not be made direct to him and his assistant. This problem was overcome by Mr. Van der List agreeing to make the payments via IMS Jersey, a company set up by him and Mr. Mertens some years earlier. It was managed by a Jersey trust company associated with a Jersey law firm.
8. In his statement Mr. Van der List stated that he had informed Mr. Tissot, the managing director of Alpina, of the proposed arrangement whereby Alpina would obtain the agency business in return for commissions paid to Mr. Smith. It was his evidence that Mr. Tissot stated that he was happy with the deal "as long as there were invoices". This approval of the scheme, subject to receipt of invoices, was broadly confirmed in a statement taken from Mr. Tissot that was also put in evidence by the Defendants. Mr. Tissot was under no illusion that, if the commissions were not offered and paid, Alpina would not have obtained Petrotrade's business.
9. It is common ground that, between early 1989 and September 1993, Alpina made payments to IMS Jersey totalling nearly £160,000 (of which only about £80,000 can be positively identified as reflecting a rebate on port charges). It was also common ground that IMS Jersey then paid out these monies primarily to Mr. Smith and Mr. Sen, although some more modest amounts were paid to Mr. Van der List and Mr. Mertens.
10. It was also not in issue that Petrotrade was wholly unaware of these payments to their servants. Indeed it is plain that those involved in setting up the arrangement were concerned to ensure that the payments were kept secret from Petrotrade. For instance, when Petrotrade first started to investigate matters following the dismissal of Mr. Smith by reason of other irregularities,1 Mr. Van der List asserted on the telephone that no rebates had been paid by Alpina in respect of port agency fees for Petrotrade chartered ships and, indeed, that neither he nor anyone else in Alpina had been approached for a rebate. When asked in writing for details of the relevant vessels and the charges made, Mr. Van der List and Mr. Tissot wrote a joint letter purporting not to understand the purpose of the exercise. Far from being "suitable" as designated by Mr. Tissot in his statement, that letter was so evasive as to be fairly categorised as dishonest. When the finance director of the parent company of Alpina made his own inquiries, the "management" (a reference, as I infer, to Mr. Tissot and Mr. Van der List) came up with the cock-and-bull story in March 1994 that they believed that IMS Jersey was a collection agent for Petrotrade.
11. This last invention sits with almost entertaining lack of consistency with a contemporaneous letter dated the 4th March 1994 from Mr. David Morgan the principal of the trust company responsible for the affairs of IMS Jersey. The company had been smartly wound up when Mr. Morgan had been tipped off by Mr. Mertens in September 1993 about "problems" with regard to payments to Mr. Smith. The letter, which is ironically headed "without prejudice", reads:-
Further to the points raised in your letter dated 24th February which I referred to my clients2, please note that although my clients were aware that Mr. Smith was an employee of Petrotrade they were not aware of his terms of employment or of any restrictions imposed on Mr. Smith by Petrotrade. My clients also state that at no time have they had any dealings with Petrotrade or Mr. Smith in his capacity as agent of Petrotrade.
This appears to reflect a new and equally spurious story being advanced by Mr. Van der List and Mr. Tissot that Mr. Smith was simply being paid consultancy fees for services to Alpina.
12. The lack of frankness on the part of those involved in the arrangement, their determination to keep the payments secret and their appreciation that payments were corrupt is further evidenced by the remarkable tenacity of Mr. Morgan on behalf of his clients to frustrate the Claimants efforts to reinstate IMS Jersey and obtain copies of its records. The advocate instructed by Mr. Morgan was a Ms. Melia of Messrs. Philip Sinel & Co. whose notepaper described Mr. Morgan as an associated solicitor. Ms. Melia felt able to categorise Petrotrade's application in the following terms: a more ludicrous and ill-conceived application I have yet to encounter. This view may not have been exactly prescient but the fact remains that the legal saga was not finally resolved until the judgment of the Jersey Court of Appeal in October 1996. The obstructive attitude of IMS Jersey prompted a protest from the President of the court:-
Finally, I wish to express my disapproval of the immensely tortuous nature of the procedure adopted by the Appellants whereby this matter has come to the court on two associated but inconsistent appeals over two years after the order complained of.
13. The motive for this unco-operative attitude was laid bare when the records of IMS Jersey were finally disclosed in March 1997. They immediately revealed the true nature of the relationship between Alpina and IMS Jersey, the scope of the financial transactions between them and the identity of the recipients of the monies.
14. It was the Claimants' case that the payments made Mr. Smith and Mr. Sen were bribes and that the consequences specified in Article 98 of Bowstead and Reynolds on Agency (16th Ed.) followed:-
Where an agent is induced by bribery to depart from his duty to his principal, the third party who bribed or promised the bribe to the agent is liable jointly and severally with the agent to the principal-
a. in restitution, for the bribe; or
b. in tort, for any loss sustained by the principal from entering into the transaction in respect of which the bribe was given.
15. On behalf of the Defendants, Mr. Hofmeyr submitted that the payments did not constitute bribes since the payments did not bring about any contract between Petrotrade and Alpina but only a contract between Alpina and the various shipowners. In the alternative, he submitted that, even if it was appropriate to classify the payments as bribes, the above remedies were not available in the absence of a contract being induced between the third party (Alpina) and the principal (Petrotrade).
16. Neither common sense nor authority supports the proposition that the payment must induce a contract between the principal of the recipient of the payment and the donor. The secret payment is just as corrupt in the absence of an agreement (though often enough the payment will be intended to achieve such a purpose). In its ordinary meaning, the word bribe includes any reward given with a view to perverting the judgment or conduct of the recipient. The law adopts the same approach:
For the purpose of the civil law a bribe means the payment of a secret commission, which only means (i) that the person making the payment makes it to the agent of the other person with whom he is dealing (ii) that he makes it to that person knowing that that person is acting as the agent of the other person with whom he is dealing; and (iii) that he fails to disclose to the other person with whom he is dealing that he has made that payment to the person whom he knows to be the other person's agent: Industries and General Mortgage Co. Ltd. v. Lewis [1949] 2 All E.R. 573 per Slade J. at p. 575.
17. There is no requirement for a contract between the parties to be thereby induced: see e.g. Reading v. R. [1949] 2 K.B. 232. Indeed to focus on the possible outcome of the payment is to misapprehend the key distinguishing feature of a corrupt payment, namely that the making of it gives rise to a conflict of interest on the part of the agent. As Leggatt J. stated with characteristic clarity and brevity in Anangle v. IHI [1990] 1 Lloyd's Rep. 167:
More succinctly, it may be said that a bribe consists in a commission or other inducement, which is given by a third party to an agent as such, and which is secret from his principal.
18. Nor am I able to accept the proposition that the remedies of claims in fraud and in restitution are only available in circumstances where a contract between the same principals has been induced. It commonly will be so and, indeed, in such cases there may be a presumption of damage up to the amount of the bribe: Hovenden and Sons v. Millhof (1900) 83 LT 41. But damage is the gist of the cause of action in fraud and such can clearly be independent of whether it was sustained as a result of such a contract. As regards the claim for money had and received, the gist of the cause of action is the benefit which has accrued to the briber, again whether or not attributable to a contract between the briber and the claimant: Boston Deep Sea Fishing and Ice Co. v. Ansell (1888) 39 Ch. D 324. Despite the comprehensive submissions of Mr. Hofmeyr, I am unable to detect from the decision in Mahesan S/O Thambiah v. Malaysia Gov. [1979] AC 374 any view to the contrary.
19. I now turn to the issue of vicarious liability. The first point taken by the Defendants was that bribery is a species of the tort of deceit and, so the argument ran, Alpina would only be liable in tort (or presumably in respect of the alternative cause of action in restitution) by reason of the actions of Mr. Van der List and Mr. Tissot if its employees were acting within their actual or ostensible authority: Armagas v. Mundogas [1986] 1 AC 717. It was not suggested by the Claimants that the two employees of the Defendants were acting within their authority in tendering the bribes. Indeed it is not easy to envisage an agent having actual, let alone ostensible, authority to proffer bribes. The short answer is that the claim based on bribery is not a species of deceit but a special form of fraud where there is no representation made to the principal of the agent let alone reliance. I am unable to accept the suggestion that there is to be discerned an implied representation that "the transaction is at arms length with no secret profit". To the contrary, the whole premise of the cause of action in fraud is that no representation has been made to the principal: "the real evil is not the payment of money but the secrecy attending to it": see Shipway v. Broadway [1899] 1 QB 369 per Chitty J. at p. 373.
20. The decision of the House of Lords in Armagas v. Mundogas (supra) was solely concerned with the principles applicable to vicarious liability for deceit. Having cited Lloyd v. Grace, Smith & Co for the proposition that the absence of authority is not decisive in showing that conduct is not within the course of employment, Lord Keith observed:-
This dictum... may have some validity in relation to torts other than those concerned with fraudulent misrepresentation, but in my opinion it has no application to torts of the latter kind, where the essence of the employer's liability is reliance by the injured party on actual or ostensible authority.
21. It is common ground that Mr. Van der List and Mr. Tissot both had authority to enter into port agency contracts and to make provision for rebates or commissions. The arrangements that they effected with Mr. Smith can be categorised as the conclusion by illegitimate means of a transaction that they were authorised to conclude by legitimate means. It follows that Alpina is vicariously responsible as a matter of English law for the fraud involved in those illegitimate means: see Hamlyn v. Houston & Co. [1903] 1 KB 81:-
It is too well established by the authorities to be now disputed that a principal may be liable for the fraud or other illegal act committed by his agent within the general scope of the authority given to him, and even the fact that the act of the agent is criminal does not necessarily take it out of the scope of his authority. If the act done by the agent is within the general scope of the authority given to him, it matters not for the present purpose that it was directly contrary to the instructions of his principal, or even that it may have been an offence against society itself: per Collins M.R. at p.85.
22. The Claimants accepted that, at least in so far as the claim against Alpina was founded in tort, the relevant conduct occurred in Belgium and that, by reason of the date of the events, the rule of "double actionability" applied. The only issue between the parties was whether Alpina was vicariously liable in Belgian law. This was dependent on the proper application of Article 1384 of the Belgian Civil Code that reads as follows:-
One is responsible not only for the damage that is caused by one's own actions, but also for the damage caused by the actions of persons for whom one is responsible... Masters and those who appoints others [are responsible] for the damage caused by their servants and appointed staff during the service for which they were employed...
23. In determining the scope and meaning of this Article, I had the assistance of two experts; Mr. Peter Van de Vijver called by the Claimants and Mr. Ludo Cornelis called by the Defendants. In the event there was no dispute between them that a recent decision of the Belgian Court de Cassation had laid down the relevant criteria. The case, entitled General de Banque v. Dengler and Gosset, 26 October, 1989, R.C.J.B. 1992 p.216, concerned the misappropriation by an employee of the bank of funds deposited for investment. The principles for assessing the vicarious responsibility were set out as follows:-
Where as for the application of Article 1384, paragraph 3 of the Civil Code, the tortious act, whether intentional or not must be committed in the functions of the employee; that it suffices however that this act has been accomplished during the exercise of these functions and that it be, even indirectly or occasionally, related to the latter; that if this act results from an abuse of functions, the employer is only exonerated from his/her liability if his/her employee has acted outside of the scope of the functions for which he/she is employed, without authorisation and for purposes unrelated to his/her own functions.
24. It was not disputed that, on the facts of the present case, the activities of Mr. Van der List and Mr. Tissot fell within the first part of this analysis. Where the experts parted company was whether Alpina had discharged the burden of examination imposed by the second part. I was not persuaded that this was a matter for expert evidence particularly bearing in mind that there is no doctrine of precedent in Belgian law. Yet it has to be noted that the Court of Appeal had held that the activities of the bank employee were "committed during his functions and that, even if they were accomplished in the spirit of fraud and of seeking personal gain, they were not even directly outside of his functions". In my judgment, the scheme devised by Mr. Van der List and Mr. Tissot to divert monies that otherwise would have been paid to Petrotrade by way of rebate or commission was directly related to their functions. Alpina was accordingly vicariously responsible as a matter of Belgian law.
25. It follows that Alpina is liable in tort and, in the alternative, in restitution. But the Claimants had a third string to their bow in the form of a claim in equity said to be founded on constructive trust. The significance of a claim couched in those terms was not any lack of confidence in the common law claims on the part of the Claimants but their desire to establish a basis for claiming compound interest.
26. This is an area where it important to be careful with the terminology. The pleaded case against the Defendants is twofold: first that they dishonestly assisted Mr. Smith to commit breaches of his fiduciary duty and thus became constructive trustees of the sums misappropriated and second that they are liable to account to the Claimant as constructive trustees. As regards the former way of formulating the claim there is the obvious difficulty in identifying the trust in respect of which there can have been any knowing assistance in the dishonest designs of the trustee: see Baden v. Societe Generale SA [1993] 1 WLR 508 at 573. The monies only became impressed with a constructive trust (in the sense that there was fiduciary obligation to account for the secret profit) when received by Mr. Smith: yet any assistance from A was prior to that.
27. The alternative formulation is really based on the premise that Alpina and its servants were so implicated in the fraud that they thus became liable to account for the secret profits as if they were constructive trustees: see Paragon Finance v. Thakerar [1999] 1 All LR 401 at p. 409. Mr. Hofmeyr argued that this would necessitate the imposition of a purely remedial constructive trust. The response of Mr. Leggatt Q.C. was to invite me to adopt the approach of Moore-Bick J. in Kuwait Oil Tanker Co v. Al Bader 16th November, 1998 to the following effect:-
If one who knowingly assists in a breach of trust may be held liable as a constructive trustee even though he does not receive the trust property (see Royal Brunei Airways v. Tan [1995] 2 AC 378), it must follow that one who dishonestly participates in a theft, albeit as an accessory rather than a principal, must be liable along with the actual thief as a constructive trustee.
28. Underlying this proposition is the general premise that monies obtained by fraud are traceable in equity under a constructive trust. But here the monies were not stolen from the Claimants: it is Alpina's money that has been used as a bribe. I recognise that, as regards the claim in tort, it sometimes may be presumed that the loss sustained equates to the value of the bribe. But, in my judgment, that is not a sufficient basis to render the Defendants to constructive trustees.
29. I turn now to the issues of causation and loss. As regards causation, I reject the Defendants' submission that, absent a bribe from Alpina, Mr. Smith would probably have extracted a similar commission from any alternative port agent. The fact remains that it was the employees of Alpina who promoted and engineered the scheme. There is no evidence to support the view that other port agents were similarly inclined: indeed the attitude of Ahlers both before and after Alpina's engagement demonstrates the contrary. I also reject the submission, made in the content of the claim in tort, that Mr. Smith maximised his return by arranging for additional vessels to be chartered on terms whereby the nomination of port agents was the charterers' responsibility. The only support for this proposition was a somewhat doubtful statistical exercised, based on limited material, to assess the average number of visits per year of such vessels to Antwerp. I find that it was probable that all the vessels for which Alpina acted would otherwise have been tended by other agents on the basis of a 50% rebate to Petrotrade.
30. The restitutionary claim was put forward in the sum of £159,697 being the agreed total of payments by Alpina to IMS Jersey during the currency of the arrangement with Mr. Smith. It is clear that a significant part of this sum relates to payments which were not directly associated with reimbursement of monies paid for port charges. For instance, some of the payments appear to be associated with reimbursement of harbour dues. It is nonetheless common ground that amounts paid out by IMS Jersey to Mr. Smith and Mr. Sen were greatly in excess of the figure claimed and I conclude that the total sum can properly be categorised as a bribe. (In this connection I have not forgotten that the agreed attempt to match the payments to IMS Jersey against the invoices issued pursuant to the wishes of Mr. Tissot demonstrates that there are payments which cannot be reconciled with invoices and vice versa. I have taken the overall view that the disparities broadly cancel each other out.)
31. The claim in tort is put forward in the sum of £81,165 being the Claimants' assessment of the sums forwarded to IMS Jersey in respect of port charges. The figure is agreed as a figure but I agree with the Defendants that it is appropriate to deduct the sum of £3,897 in respect of duplicate invoices and £2,439 in respect of invoices not paid, leaving a balance of £74,829. I make no deduction in respect of invoices challenged solely on the basis that chartering documentation was not included in the disclosed documents: the probabilities remain that the vessels concerned were Petrotrade chartered vessels.
32. The Defendants sought to argue that, if Alpina was vicariously liable for the actions of Mr. Van der List and Mr. Tissot, then equally the Claimants were liable for Mr. Smith and that, therefore, the claim failed for circularity. However, the acceptance of a bribe does not constitute an actionable wrong against the briber. The counterclaim must fail.
33. I conclude, therefore, that:-
a. The Claimants are entitled to recover £74,829 plus interest in respect
of their claim in tort.
b. The Claimants are entitled to recover £159,697 plus interest in respect
of their claim for money had and received.
c. The Claimants must elect on which claim they seek judgment.
d. The Claimants' claim in equity (together with their claim for compound interest)
fails.
e. The Defendants' counterclaim must be dismissed.