We are enjoying a busy summer at Trinity, working on existing and new transactions in various emerging markets.

We are working on three transactions in Ghana and are approaching the closing of a 340MW power plant. We hope it will be a milestone transaction in terms of African IPPs in the region and the first of a number of proposed power deals in Ghana.

We are also close to financial close of the refinancing of one of Africa’s leading infrastructure debt funds (we act for several major development finance institutions). Recent new instructions include power sector transactions in Kenya and Zambia. Our ongoing matters in Nigeria, Tunisia, Cyprus, Romania, Madagascar, Mauritius, South Africa, Zambia, Kenya and Mozambique (among other jurisdictions) remain busy.

Senior Associate Kaushik Ray recently wrote a piece for the Financial Times’ publication This is Africa on the effect of the forthcoming EU Directive on Alternative Investment Fund Managers. The full story can be found at the following link: This is Africa Online

With several Africa-based funds (or institutions that lend to them) as clients, it is important to know how this significant piece of legislation will affect their business in the years to come.

As for this month’s articles, Trinity Associate Guy Jolly gives us an in-depth look at the new UK Bribery Act, including its background and practical steps for companies to consider.

Our newest recruit, Tamila Nakazwe, writes the Legalese column on the duty of care owed by beneficial owners of property – following a recent Court of Appeal decision. The decision is an important to consider for anyone who owns the equitable title to property (for example mortgage holding banks).

As ever, if you have any comments or questions about Focus, or generally, please get in touch.

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Africa in Context

Bribery and corruption are likely to be words that come to mind when people think of the risks of doing business in frontier markets, particularly African countries. Transparency International’s Corruption Perceptions Index 2010 is a useful benchmark for the measure of corruption. Africa does not do well. Somalia is 178^th out of 178 countries (with a rating of 1.1) and only Tunisia, Ghana, Namibia, Botswana and South Africa score higher than 4 out of 10^[1].

The Bribery Act

As a law firm that specialises in advising on projects, corporate and finance transactions in Africa, particularly in the power, natural resources and infrastructure sectors, the introduction of the Bribery Act 2010 (the Act) ( click here for Act) in the UK on 1 July is of real significance to the firm and its clients. This is primarily because the Act (depending on the particular offence and subject to certain requirements) has broad extra-territorial effect.

Extra-Territorial Application

The extra-territorial application of the Act means that it is more likely for bribery outside the UK to attract the attention of the UK authorities, in particular, the Serious Fraud Office (SFO). It is also more likely that bribery outside the UK will attract the attention of authorities in multiple jurisdictions, and will result in the more frequent need for co-operation between authorities in conducting investigations and prosecutions.

Foreign Corrupt Practices Act

In respect of cases that also attract the attentions of the US Department of Justice, for example, with respect to alleged Foreign Corrupt Practices Act of 1977 violations, the Attorneys General of the US and the UK will take into account joint guidance that they have issued for handling criminal cases with concurrent jurisdiction. This sets out protocols in respect of information sharing and consultation among the prosecutors from an early stage. In practice, the US authorities, including the US Securities and Exchange Commission and UK authorities, regularly share information regarding anti-corruption investigations, including those stemming from voluntary disclosures, through formal and informal mechanisms.

OECD Convention on Combating Bribery

Organisations from the 34 OECD member countries and four non-member countries (Argentina, Brazil, Bulgaria, and South Africa) will also need to be aware of the OECD Anti-Bribery Convention (click here). It establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective. It is the first and only international anti-corruption instrument focused on the ‘supply side’ of the bribery transaction.

African legislation

In addition to the well-documented legislation and convention referred to above, companies doing business in Africa will need to be cognisant of the existence and content of local legislation in the countries in Africa in which they are operating.

In this series of articles we focus on three jurisdictions in which the firm and its clients are currently very busy: Nigeria, Kenya and South Africa.

Africa Business Affairs

In addition to this article, Trinity has launched its Africa Business Affairs Guide that is designed to assist clients to build their businesses in Africa. The Guide will be updated to include details of the anti-bribery and anti-corruption legislation in each of the 15 countries the Guide currently covers. Additional jurisdictions will also be added over time.

Nigeria, Kenya and South Africa

In this series of articles, we consider the relevant anti-bribery legislation that applies in South Africa, Nigeria and Kenya. These Parts have been very kindly contributed by Bowman Gilfillan in South Africa,Adepetun, Caxton-Martins, Agbor & Segun in Nigeria and Walker Kontos Advocates in Kenya.

PART I: PRACTICAL CONSEQUENCES OF UK BRIBERY ACT

The Offences

In summary, the Act creates the following offences:

· General offences of bribing another person (section 1 of the Act) and being bribed (section 2).

· Bribery of foreign public officials (section 6).

· Failure of commercial organisations to prevent bribery (section 7).

· Senior officer consent or connivance offence (section 14).

All Commercial Organisations

All commercial and public sector organisations should put in place adequate procedures to ensure that they are not involved in bribery and corruption and that they do not incur liability under the Act.

An anti-corruption policy is a suitable and effective tool. The nature of the policy will depend on the size of the company, the value of transactions and the sectors and jurisdictions in which the company operates.

In our view, those companies active in Africa should strongly consider putting in place an anti-corruption policy.

Organisations will need to consider reviewing the adequacy of their internal procedures to prevent bribery and put in place staff training as well as ensuring they have written procedures available to staff and contracted consultants. It is prudent to consider incorporating these into contracts of employment and service including a right for the employer to terminate employment or engagement in the case of breach.

Companies should also carry out due diligence before entering into arrangements with other parties as well as ensuring that appropriate checks are carried out during the processing of payments.

Mitigation strategies should be put in place so that organisations can deal with an allegation of bribery or corruption made within the company or in public. For a public allegation, for instance, a response through traditional print, visual or audio media alone may not effectively reduce potential damage to reputation, because the allegations may emerge and spread via small campaigning groups, NGOs, specialist blogs and other online activity.

Ministry of Justice Guidance

On 30 March 2011 the Ministry of Justice in the UK published its guidance (the “Guidance”) about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing ( Click here for the Guidance).

The Guidance is centred upon six principles for bribery prevention. These principles should be considered when implementing procedures to prevent bribery and corruption.

(a) Proportionate Procedures

As noted above, a commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities. They should also be clear, practical, accessible, effectively implemented and enforced.

(b) Top Level Commitment

This emphasises that senior management have responsibility for ensuring that their commercial organisation has the correct procedures in place to prevent bribery and corruption. The board of directors should be seen to take responsibility for the company’s anti-corruption regime.

(c) Risk Assessment

It is essential for all organisations to make periodic, informed and documented assessments of the risks they face in terms of the markets in which they transact business and the counterparties in those transactions. Relevant factors to be taken into account include the jurisdictions where the company operates, the sectors in which it operates, the extent to which it deals with public officials or government contracts and the nature of the transactions.

Our clients that our entering into contracts with a government in an African jurisdiction within the extractive or energy industries will, clearly, need to be particularly vigilant. Equally, companies entering into construction contracts in these jurisdictions and sectors will need to be cautious.

(d) Due Diligence

All businesses are expected to perform due diligence on the individuals and entities who perform services on their behalf. It is essential that all commercial organisations know exactly who they are doing business with. The use of risk consulting companies to carry out integrity due diligence is an essential tool in high-risk African markets, for instance.

All new business partners should be made aware, in writing, of the company’s anti-corruption code of conduct before any dealings with them begin, and the organisation should ensure that business partners have strict anti-corruption policies and procedures in place. In addition, contracts with business partners should include express contractual obligations and penalties in relation to corruption.

In respect of a propose project to be developed, for example, due diligence should be carried out as to whether it is to be billed at market prices and what project-based anti-corruption measures are being implemented. For further information on project based anti-corruption systems, see the Global Infrastructure Anti-Corruption Centre’s note on project anti-corruption systems ( click here).

(e) Communication

It is vital that businesses clearly communicate their policies on bribery and corruption both internally to employees and, where appropriate, externally to those performing services on their behalf.

(f) Monitoring and Review

Given the risks commercial organisations face can change over time, all procedures put in place to prevent bribery and corruption should be periodically reviewed.

Content

An anti-corruption code of conduct should:

· Expressly prohibit all forms of corruption.

· Explain why it is necessary to prohibit corruption (setting out the moral case as well as the legal risks).

· Commit the organisation to conduct its business and affairs so as to ensure that it does not engage in or facilitate any form of corruption.

· Give guidance on what action should be taken when faced with blackmail or extortion, including a clear escalation process and outline expected standards of behaviour and emphasise individual accountability.

· Set out procedures for carrying out due diligence on outside advisors and third parties, and on acquisitions.

· Set out clear rules and policies including on matters such as giving and receiving political donations, gifts, hospitality and facilitation payments.

· Set out procedures for whistleblowing.

· Support anti-corruption action by others in the sector.

Implementation

Once written, the anti-corruption code needs to be implemented effectively. It should be clear who is responsible for implementation and how internal reporting works. In larger organisations in particular, a compliance officer should be appointed and perhaps a help desk to provide advice.

Information on training should be made available to employees and connected persons.

Monitoring processes should be defined and penalties for breach of the policies and procedures made clear.

As noted above, a whistleblowing facility to allow staff and/or third parties to report suspected corruption is a prudent step. Any reports should be made in a safe and confidential manner to either the compliance manager or senior management who will have a clear line of communication to the compliance manager.

The monitoring and auditing of the anti-corruption policies and procedures on a regular basis is important. Organisations should also consider whether to appoint an independent third party to do this to ensure that they are appropriate and effectively implemented.

Compliance Officer

Responsibilities of the compliance officer might include reviewing the risks that face the organisation, developing and reviewing the anti-corruption code of conduct, devising, updating and providing training to all relevant employees, carrying out or overseeing due diligence of third parties, maintaining a conflicts register and supervising the whistleblowing procedures and negotiating (or ensuring that top level management is involved in negotiating) anti-corruption terms in the organisation’s contracts.

Political donations, gifts, hospitality and expenses

Gifts, such as cash, presents, political or charitable donations and hospitality, such as meals, hotels, invitations to arts and sporting events, can be used as bribes. They are currently considered bribes and will be bribes under the Act when they are given or received with the intention of influencing business decisions. Risk assessments should therefore cover the bribery risks associated with hospitality and promotional expenditure across all operations and business partners.

Criticism

There has been criticism directed at the Guidance. The UK’s leading anti-corruption watchdog, Transparency International UK, is strongly critical of the Guidance. Chandrashekhar Krishnan, Executive Director of Transparency International UK maintains:

” The Bribery Act, as passed by the last Parliament, is one of the best anti-bribery laws in the world. But the Guidance will achieve exactly the opposite of what is claimed for it. Parts of it read more like a guide on how to evade the Act, than how to develop company procedures that will uphold it “.^[2]

Transparency International Principles

Transparency International has published a set of Business Principles for Countering Bribery that serve as a useful tool ( click here).

Transparency International has also published guidelines on avoiding corruption in the City and a training toolkit for companies ( click here).

Small and Medium-Sized Organisations

Transparency International publishes a small and medium-sized enterprises (SMEs) version of its business principles for countering bribery (SME business principles). SMEs will often have more limited resources with which to face the challenges of resisting and countering bribery and the growing requirements made by large international companies for their suppliers to have appropriate anti-bribery policies and systems in place.

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Indemnities or "hold harmless" provisions are common in commercial agreements. This month’s Legalese attempts to demystify the concept of an indemnity and to help identify common mistakes people make when drafting these clauses.

An indemnity is a promise by one party to pay a sum of money to compensate a particular loss. The perceived advantage of an indemnity for breach of contract (where one party indemnifies another for losses arising from the first party’s breach of contract) instead of pursuing a claim for damages is that various common law rules – e.g. on remoteness of damage and a duty to mitigate – do not apply. In simple terms the rule on remoteness means that if one party breaches a contract and its counterparty sues it for damages – those damages will be limited to losses that ought to have been in the reasonable contemplation of the contracting parties.

Clients (and some lawyers) often see an indemnity as some sort of "plaster" which covers all manner of sins, allowing their client to recover all losses in the event of a breach by their counterparty. Sadly, this is not the case.

Whether an indemnity overrules the common law rules on remoteness or mitigation depends on the formulation and drafting of the indemnity clause itself. If the indemnity is in relation to a debt claim (i.e. a definite sum of money payable on the occurrence of a debt) then the rules on remoteness and duty to mitigate do not apply – so the indemnity does provide a level of certainty in compensation. However, if the indemnity is in respect of a claim for damages – i.e. a claim in respect of a breach of contract, courts will look to the wording of the indemnity itself.

Remoteness

Is an indemnity for a breach of contract supposed to be an obligation to pay all losses suffered – whether or not in the "reasonable contemplation of the contracting parties"? That is a question of fact. It is certainly possible for an indemnity to be designed to cover all possible losses (however remote) – however, if this is the intention, the contract should state this expressly.

For example, the language in Example A below is preferable to that in Example B:

EXAMPLE A: "Party A shall indemnify Party B against all liabilities, costs, expenses, damages and losses (including any direct, indirect or consequential losses, loss of profit, loss of reputation and all interest, penalties and legal and other reasonable professional costs and expenses) suffered or incurred by Party A arising out of or in connection with [the relevant breaches]."

EXAMPLE B: "Party A shall indemnify Party B against all liabilities, costs, expenses, damages and losses suffered or incurred by Party A arising out of or in connection with [specify relevant breaches]."

even though Example B would appear to be good and clear drafting.

Duty to mitigate loss

In terms of a duty to mitigate loss – the following wording is generally accepted in indemnities:

"Nothing in this agreement shall restrict or limit Party A’s general obligation at law to mitigate a loss it may suffer or incur as a result of an event that may give rise to a claim under this indemnity."

Negligence

One final thing to note, which also trips up many clients and their lawyers, is that an indemnified party cannot claim under an indemnity for damage or loss suffered if that loss was as a result of his own negligence unless this is expressly stated in the clause. The following wording is nonetheless usual:

"The indemnity in this agreement shall not cover Party A to the extent that a claim under this clause results from Party A’s [gross] negligence or wilful misconduct."

The existence of the word "gross" is moot – a party would in any event not be able to claim for loss suffered as a result of the claimant’s own negligence unless wording similar to the below is included:

"The indemnity in this agreement shall cover Party A notwithstanding that a claim under this clause results from Party A’s negligence or wilful misconduct."

This clause would (even in the absence of an editor’s underlining) raise alarm bells – but this exception is worth being aware of nonetheless.

Conclusions

· Don’t believe that indemnities offer catch-all protection – they need to be carefully drafted;

· If you have an indemnity that relates to a stated sum of money – you are probably OK in that common law rules of remoteness and mitigation are unlikely to apply;

· If you have a general indemnity for breach of contract (a damages claim) then make sure you set out in full the losses you want covered;

· You will always be under an obligation to mitigate your loss – unless you expressly say that you aren’t (and this approach is likely to be resisted); and

· You will never be able to claim under an indemnity if you caused the loss due to your own negligence – unless you expressly say so (and again, this is likely to be resisted).

For further information and advice, please speak with your usual Trinity contact.

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