ACCOUNTING FOR BRIBES: A JERSEY UPDATE

Introduction

The law in Jersey relating to the consequences of receiving a bribe has been recently clarified in the case of Lloyds Trust Company (Channel Islands) Limited v Fragoso and Others [2013] JRC 211 concerning a Jersey trust known as the Rex Trust
The Rex Trust itself had been established in 1999 by a Mozambican national, Mr Fragoso.
He told the professional trust company which would act as trustee that he was a civil engineer who had earnt the funds to be settled into trust from various engineering consultancy contracts he had undertaken in different parts of the globe.
In 2010, the trustee became aware that an English construction company had been convicted in England of paying bribes in Ghana and Jamaica in order to obtain construction contracts.
Whilst there were no charges which related specifically to Mozambique, the company accepted in the course of the prosecution that it had in various countries, including Mozambique, made corrupt payments to public officials so as to procure contracts.

Corrupt Payments

had been employed as a director at the National Directorate of Roads and Bridges in Mozambique and
that subsequently he was the chairman of the National Roads Administration.

It appears that representatives of the company had met with Mr Fragoso and that between October 1997 and March 2000 various payments were made by the company to Mr Fragoso via Swiss bank accounts which he held.
The trustee took steps to obtain more information from Mr Fragoso as to the source of funds which had been settled into trust and specifically as to whether or not they were the proceeds of crime.
No satisfactory response was received (although Mr Fragoso denied receiving any bribes) and the trustee accordingly applied to the Court for directions.
The beneficiaries were convened –

Mr Fragoso’s wife and children, as was the Government of the Republic of Mozambique as a potential claimant to the funds.
The latter was able to produce to the Court evidence as to Mr Fragoso’s employment with the National Directorate of Roads and Bridges as well as to his salary during that time. It was also able to produce an “export agent’s commission card” from the company which showed six payments to Mr Fragoso described as commission. Neither Mr Fragoso nor his family participated in the hearing.

Although it was not possible to trace all of the funds in the Rex Trust back to the company, the Court nevertheless found that on the balance of probabilities all of those funds represented bribes.
In so doing it adopted the approach used in the Federal Republic of Brazil et al v Durant International et al [2012] JRC 211 of relying on

The Court set out the reasons why it could not accept Mr Fragoso’s denial and concluded that it was reasonable to infer that the monies paid into the Trust were derived from his abuse of position as a public officer of Mozambique whether through contracts with the company or otherwise.

Abuse of Position

The Government of Mozambique sought a declaration that those monies were held on trust for it. In so doing, it relied on

the Privy Council case of AG for Hong Kong v Reid [1993] UK PC2 on appeal from the Court of Appeal in New Zealand.

“When a bribe is accepted by a fiduciary in breach of his duty then he holds that bribe in trust for the person to whom that duty was owed”.

The Royal Court noted that the English Court of Appeal in Sinclair Investments UK Limited v Versailles Trade Finance Limited & OIJ [2011] EWCA Civ 347 had not followed Reid.
In Sinclair, Lord Neuberger made a distinction between three broad categories of situations in which a fiduciary obtained a benefit in breach of fiduciary duty.

In only two out of three of those situations did a constructive trust arise. Sinclair followed the much earlier Court of appeal decision of Lister v Stubbs [1890] 45 CL.1.

In Lister, the Court of Appeal held that the relationship between the recipient of a bribe and the person whose trust had been betrayed was that of debtor and creditor and not that of trustee and cestui qui trust.
The question of which line of authorities to follow was considered in passing in the Brazil case in which it was stated that had it been necessary to choose, Reid would have been followed:

“There are powerful policy reasons for ensuring that a fiduciary does not retain gains acquired in violation of fiduciary duty …”.

Violation of Fiduciary Duty

The Royal Court also noted the more recent English Court of Appeal case of FHR European Ventures LLP & Ors v Ramsey Neil Mankarious & Ors [2013] EWCA Civ 17 which referred to Sinclair as a

However, the question of whether Sinclair and Lister were correctly decided would have to be left to the Supreme Court.

It was however further noted by the Court that the full Federal Court of Australia in Grimaldi v Chameleon Mining NL (No.2) [2012] FCA FC6 had not followed Sinclair or Lister but Reid citing policy reasons in support.

In deciding Reid, the Privy Council had examined previous precedents including Lister about which it said:

“[it] is not consistent with the principles that a fiduciary must not be allowed to benefit from his own breach of duty, that the fiduciary should account for the bribe as soon as he receives it and that equity regards as done that which ought to be done”.

The Royal Court noted that it was only formally bound by decisions of the Privy Council on appeal from Jersey.

Decisions on appeals from other jurisdictions were persuasive, but the degree of persuasiveness would depend on the similarity of the point at issue as well as social and policy considerations peculiar to Jersey.
In this case the Royal Court considered that Reid (even though from New Zealand) should be accorded the “highest degree of persuasiveness” and certainly more weight than decisions from the English Court of Appeal.

Deter Fraud and Corruption

“namely the need to deter fraud and corruption and to have the ability to strip fiduciaries that have channelled their illicit funds through this jurisdiction of all benefits”.