Introduction

On 20^th July 2010 the Ministry of Justice issued a press release on the Bribery Act 2010 (the “Bribery Act“) stating that the Bribery Act would come into force in April 2011. The Bribery Act is aimed at reinforcing the reputation of the United Kingdom as one of the least corrupt countries in the world and seeks to pave the way for fairer practice by encouraging companies to adopt anti-bribery safeguards.

The Bribery Act seeks to address the problems associated with the previous bribery legislation which was criticised for being outdated, inconsistent and in urgent need of reform. The fact that anti-arms trade campaigners attacked a £286 million deal allowing BAE Systems to settle an alleged corruption case out of court evidences this criticism.

On 14^th April 2010 John Dougall became the first British Citizen to be convicted of overseas corruption of a foreign public official under the Prevention of Corruption Act 1906, which is discussed in further detail below. Moreover, according to a survey by the global fraud investigation and dispute services sector of Ernst & Young, greater enforcement against fraud, bribery and corruption is now a fundamental priority in many major international markets.

This Article will outline the “corporate offence” element of the Bribery Act which is of significance to companies; describe a relevant case study and a survey; and provide practical measures which companies can implement in order to protect their organisation and its employees. In sum, all companies would be well advised to revisit their compliance programmes and to ensure they have robust systems and controls in place to prevent corruption within their organisations in this current climate.

The Corporate Offence

As we noted in last month’s Legalese article, the most significant change for all companies is that the corporate offence is now one of strict liability. Therefore, under the Bribery Act, an organisation will automatically be guilty of a criminal offence where a bribe is paid on its behalf, subject to the defence of “adequate procedures”. If a bribe has been paid on the organisation’s behalf, the onus will then be on the organisation to prove that “adequate procedures” were in place to prevent its employees and/or associates from giving or accepting a bribe.

The Ministry of Justice has announced that the UK government will launch a short consultation exercise and provide guidance on the types of procedures which commercial organisations can put in place to prevent bribery. This will be published early next year in order to give businesses adequate time to familiarise themselves with the relevant procedures before the Bribery Act commences.

The consultation is to be followed by a series of “awareness-raising” events to ensure that the public is informed of the changes that the Bribery Act makes to the current legislation.

Court of Appeal Case (John Dougall)

On 14^th April 2010 John Dougall became the first British Citizen to be convicted of overseas corruption of a foreign public official. Prior to his conviction, Mr Dougall had entered into a cooperation agreement with the Serious Fraud Office and, as a result, the SFO represented that a suspended sentence would be appropriate for Mr Dougall.

The Court of Appeal suspended Mr Dougall’s sentence in light of the particular circumstances of the case, including:

“[T]he value of the defendant’s early admissions of guilt, the considerable assistance given by him to the authorities investigating complex multi-jurisdictional corruption, and the public interest in bringing these cases to justice, as well as the contribution the defendant may already have made and intends to continue to make to that process…”

The Court of Appeal also considered the following mitigating factors as important considerations in suspending Mr Dougall’s sentence:

• The corrupt practices predated Mr Dougall’s involvement;
• Mr Dougall was a middle-manager acting under the instructions of senior executives in the company who knew of and instructed the continuation of the corrupt practices;
• Mr Dougall had attempted to end the corrupt practices but was overruled by senior executives in the company; and
• Mr Dougall received no personal benefit from the corrupt conduct and was previously of good character.

This decision illustrates the apparent benefits available to individual offenders who co-operate with the investigating authorities where they are implicated in the bribery or corruption involved.

Ernst & Young Survey

A recent survey conducted by Ernst & Young confirmed that concerns of executives about their exposure to criminal liability are increasing. The survey found that 1,409 executives from 36 countries who had responsibility for anti-corruption or fraud efforts within their organisation stated that their boards were becoming more concerned about being held personally responsible. The relevant findings may indeed highlight the impact of the credit crisis and the concerted efforts by authorities to target financial crime, one of the more notable cases being the prosecution of Bernard Madoff.

Practical Steps for Companies

Against this backdrop, all companies need to be proactive and not reactive in terms of compliance; and should ensure that the requisite anti-corruption measures are put in place to properly address bribery and corruption within their organisations. This has particular significance for larger businesses who operate in higher risk jurisdictions and who have a considerable employee base. Accordingly, all companies should have an adequate anti-corruption compliance programme that extends beyond written policies and should address the following measures:

• Companies should implement practical training and educate their employees on how to conduct business in an ethical manner;
• Companies should implement effective procedures for the selection of third parties who either transact business for or on behalf of the company;
• Companies should monitor and audit the business practice of their employees to ensure that all ethical procedures are complied with;
• Companies should clearly identify an individual to be given responsibility for the implementation of adequate anti-corruption procedures within an organisation; and
• Companies should consider implementing a “whistle-blowing” hotline to enable employees and others to report any suspicions of bribery and corruption.

Companies are well advised to consider the Bribery Act. We are able to assist your business by providing you with any relevant advice that you may seek in respect of any bribery or anti-corruption related matters. This may include assessing the adequacy of any anti-corruption measures that your business may currently have in place.

We can also help you to create robust procedures that will safeguard against any risks posed by transacting business in high risk countries, for example through the drafting of a corporate compliance programme. We believe that the UK’s attitude to these offences reflects the global focus on stamping out these offences, particularly in frontier markets. Even those not subject to the Bribery Act would be well advised to adopt the measures highlighted above.

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In the case of Shell UK Ltd v Total UK Limited and Othersand Total UK Ltd v Chevron Ltd [2010] EWCA Civ 180, the English Court of Appeal (the "Court of Appeal") recently considered the duty of care owed to beneficial owners of property. In particular, the Court of Appeal addressed the issue of whether a defendant who has negligently damaged property is liable for the resultant economic losses suffered by a claimant, where the claimant is not the legal owner of the property, but merely the beneficial owner.

Facts

The dispute related to the negligent overfilling by Total UK Ltd ("Total") of a fuel storage tank at Buncefield Oil Storage Terminal in Hertfordshire which caused considerable damage to the tanks and pipelines through which Shell UK Ltd ("Shell") distributed and supplied oil to its customers in the South East of England. It was accepted that Total was vicariously liable for the negligence with Total conceding that the damage caused to the facilities was a reasonably foreseeable consequence of their negligence. As a consequence, Shell suffered widespread economic losses through its inability to supply fuel.

Legal title to the tanks and pipelines were vested in "vehicle" companies, which had been set up to hold the property on trust for Shell. The relevant companies did not trade, had no employees, made no profits nor held any assets on their balance sheets. Shell only had a part beneficial interest in the damaged facilities, but was a shareholder of the vehicle companies and it also owned the oil flowing in the pipelines. On this basis, the Court of Appeal still allowed the claim in negligence for its economic losses.

Court of Appeal’s Findings

The general rule is that there can be no recovery for economic loss caused by negligence unless it is the foreseeable consequence of physical damage to the property. It is not enough for the claimant to have had only contractual rights in relation to such property (Leigh and Sillavan Ltd v Aliakmon Ltd [1986] AC 785).

However this case illustrates that the exclusionary rule is not absolute. The Court of Appeal established that a duty of care is owed to the beneficial owner of property by a defendant who can reasonably foresee that his negligence will damage that property. The defendant in breach will not only be liable for physical damage, but also for foreseeable economic losses such as extra expenditure or loss of profit incurred by the beneficial owner. Provided that the beneficial owner can join the legal owner in the proceedings, it does not matter that the beneficial owner is not in possession of the property.

In this instance, Shell was the beneficial owner of the pipeline. Although it had a contract to use the pipeline, it was only an incident of its beneficial ownership. Shell was the "real" owner, with the "legal" owner being little more than bare trustee. Furthermore, both the legal and beneficial owners were parties to the proceedings. The Court found that it would be too legalistic and "a triumph of form over substance" to deny a remedy to Shell.

This judgment demonstrates that the Court will not be overly concerned with titles and form when assessing the duty of care owed to the beneficial owners of property.

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