Oil States Industries (UK) Limited v "S" Limited and others: Whose bribe is it anyway?

Facts of the case

The pursuer was seeking damages in the region of £12 million from the first defender, some £10.5 million of which related to the bribery allegation.  The pursuer maintained that (1) cash bribes had been paid at two meetings to “G”, a (now ex) employee of the first defender who ran the procurement process and whose decision it had been to appoint the second defender; and that (2) G’s sister had received free building works worth in the region of £70,000-£80,000 on the second defender’s instruction. The first defender maintained it knew nothing of any bribes given to its employee G.

There was no direct first-hand evidence of the cash bribes, but there was direct evidence of the building works having been carried out and paid for by the second defender (before then being charged back to the pursuer).  The pursuer said that the allegations of bribery were proven by a combination of (a) circumstantial evidence surrounding the appointment of the second defender as building contractor, (b) the building works to the sister’s house, and (c) hearsay evidence that bribes were paid (some of which was from an anonymous source).

Lord Braid confirmed the applicable definition of bribery to be “secret profit received without the consent of a person to whom the recipient owes a fiduciary duty” and that “once payment of the bribe is established, it is to be irrebuttably presumed that the recipient was influenced by its payment”.

Generally, the payment of bribes by businesspeople is considered to be inherently improbable.  However on the facts, there was clearly strong evidence of fraud and circumstantial evidence giving rise to a legitimate inference that the first defender was influenced by bribery from the second defender. Crucially, police recovered a deleted email between consulting engineers who were part of the team engaged in the project which stated “we get sweeties for making it happen” which arguably coloured all subsequent events and removed any scepticism surrounding the allegations of bribes which might otherwise have existed.

The court’s decision

The court found numerous aspects of the case led to a strong inference not only that benefits were given to G, but that they induced him to award the contract to the second defender:

1. The “sweeties” emails, which (in effect) mentioned bribes at the very outset of the procurement process, and referred to G.
2. The consulting engineers’ other communications, which were suggestive of shady goings-on.
3. The payments passing from G to the consulting engineers, confirming a link between the two, and the absence of a plausible legitimate explanation therefor.
4. The highly irregular sharing of price sensitive information with an employee of the second defender during the procurement process, all stemming from G although often conducted through the medium of the consulting engineers.
5. The whole timeline of the emails which, read together, founded a clear inference that G was assisting the second defender with its bid.
6. The selective nature of the information passed by G to the pursuer’s managing director, and the half-truths told.
7. The fact that the second defender was awarded the contract.
8. An anonymous letter received by the pursuer’s managing director which included a specific allegation that a bribe was taken by G in the form of the second defender carrying out building work to his sister’s house in return for being selected as the contractor.
9. The pursuer’s managing director’s hearsay evidence of what the second defender’s employee had told him.
10. The works undertaken on G’s sister’s house, which provided the clearest possible evidence that a bribe had been paid to the tune of £66,000 plus VAT in form of work on the second defender’s instruction, paid for by the second defender, then re-invoiced to the project, so that it was charged to the pursuer.

Ultimately, G owed a duty of trust and confidence to the pursuer and was the very person entrusted with ensuring a level playing field in the tender process; there could be no question that the cash payments and benefits in kind given to him were anything other than secret profits or bribes. The first defender also owed a fiduciary duty to the second defender with the appointment agreement conferring express authority thereon to make financial decisions in relation to the project and to negotiate and execute the building contract.  For the purposes of the procurement exercise leading to the selection of the second defender as contractor, the first defender was an agent with power to bind the pursuer, and it owed a duty of loyalty.

Turning to the headline question, was the first defender vicariously liable for its employee G’s payment of the bribes?  The answer was yes.  The Judge accepted that where a corporate entity is employed to provide services, it is possible that a bribe can be taken by an employee without the knowledge and approval of its directors. However, a company will nonetheless be vicariously liable for intentional wrongdoing by one of its employees if their wrongs were so closely connected with their employment that it would be fair and just to hold the employers vicariously liable.  G was authorised by the first defender to administer the procurement process on behalf of the pursuer, the very service which the first defender was contractually obliged to provide. Both G and the first defender owed a fiduciary duty to the pursuer. In awarding the contract to the second defender, G was carrying out work he was authorised to do, but in an unauthorised way.  G’s wrongful act was therefore indeed so closely connected with his employment that it was fair and just to hold the first defender so liable.

Comments

The parties actually agreed a settlement between the end of the trial and judgment being received, so there was no award of damages made by the court as such.  It was agreed however that publication of the case was nevertheless appropriate: the case raised a novel point of law on which the opinion, if nothing else, might stimulate academic discussion; the case was litigated in public and did, in the most general sense, expose wrongdoing (short of criminality); neither party wished to stop publication, and the opinion had already been completed before the settlement was reached.

The case is interesting for a number of reasons, not least the lengths to which contractors will go to secure a contract…  It is always slightly disappointing when the court doesn’t get to make an award of damages, as there is a sense of wanting to ensure justice is done, particularly for G who is at the centre of it all.  Undoubtedly a fair sum of money passed hands and lessons learnt all round.