In a recent decision of Mr Justice Flaux in the case Jalal Bezee Mejel Al-Gaood & Partner v Innospec Limited and Others, the Claimants sued for damages which they claimed arose as a result of the Defendants having bribed the Iraqi Ministry of Oil (“MOO”) to purchase their chemical products, TEL. The claim for damages was for losses which the Claimants alleged they have suffered as a consequence of the unlawful means conspiracy on the basis that, but for the bribery and corruption, the MOO would have started to purchase the chemical additives distributed in Iraq by the Claimants, MMT. The loss claimed, as quantified by the Claimants’ quantum expert, was US $26,572,603.
Reliance was placed by the Claimants on the fact that the Second Defendant and others had been charged by the United States Department of Justice and had pleaded guilty to criminal offences principally under the Foreign Corrupt Practices Act 1977 in relation to bribery and corruption in Iraqi and Indonesia. In addition, civil proceedings were brought by the United States Securities and Exchange Commission against the Second Defendant and certain others as well as criminal proceedings pursued in England by the Serious Fraud Office against the First Defendant and certain others in relation to which various Defendants either pleaded guilty or were found guilty after a jury trial. We have blogged previously on the long running Innospec case including here for example.
In his 78 page judgment Mr Justice Flaux said that by the end of the trial it was common ground between the parties that in order for the claim to succeed the Claimants had to establish three matters on a balance of probabilities:
- That there had been a decision by the MOO in October or November 2003 to replace the Defendant’s chemical product TEL with the Claimants’ chemical product MMT and to continue using TEL only until stocks were exhausted;
- That that decision was not implemented because the promise of bribes by a Mr Naaman procured the MOO to enter into the 2004 agreement and that prevented sales of MMT and;
- That, but for the promise of bribes, the decision would have been implemented and the MOO would have replaced TEL with MMT from early 2004 onwards so that the “counterfactual scenario on which the claim is based would have occurred…”.
After a four week trial, Mr Justice Flaux decided that the Claimants case was not made out on the facts and also failed on grounds of causation. There was much technical evidence about the use of the various chemical products and their test results. Mr Justice Flaux said
“Overall, although there clearly was criminal wrongdoing by Innospec and Dr Turner and, as is accepted on their behalf, their conduct was reprehensible, that wrongdoing did not prevent sales of MMT and was not causative of any loss. ….there is no suggestion that MOO officials were bribed to place those orders: they were placed because the MOO needed TEL and, at least until refining equipment was replaced, the strategic decision within the MOO was to carry on using TEL, at least at Baiji and Basra…in the circumstances, the Claimants have failed to establish that the wrongdoing alleged against Innospec caused them loss and the claim fails on that basis as well…”
Although not strictly necessary, the judge went on explain that in relation to the claim for quantum, there were considerable risks and problems with the Claimants’ claim for loss because the Claimants themselves had engaged in corrupt practices in making payments to the government of Iraq and that, as a distributor, if their supplier, Ethyl, had discovered this earlier than they actually did discover it, they may have terminated the distributorship agreement at an earlier date and this would create additional uncertainty in relation to their loss calculation. The last few pages of Mr Justice Flaux’s judgment are very interesting from the perspective of understanding the difficulties of valuing such claims when there are a number of variables and hypotheticals to take into consideration. However, the considerations made by Mr Justice Flaux are all far too detailed to summarise in a blog post, but nonetheless they are interesting to practitioners who have a spare couple of hours to digest his very carefully reasoned judgment.
Nevertheless, this case demonstrates that the English court will seriously entertain civil damages claims which arise out of corruption prosecutions, even though in this particular case the claims failed.
Civil damages claims similar to this case already take place in the United States (indeed there was at least one in the US of which TheFraudBoard is aware which related to the same set of prosecutions), so we should expect a body of civil jurisprudence related to corruption investigations to grow steadily over the next few years in England, as the Serious Fraud Office begins to prosecute companies and individuals more frequently for corruption offences, both under the Bribery Act 2010 and the laws which predate this Act, which still cover offences occurring prior to 1st July 2011.