What constitutes bribery and when does an estate agent cross the legal line? Malcolm Warner and Peter Blair QC explore what defines a bribe and why employers should be aware of the risks
It is easy to recognise an out-and-out bribe, but with the advent of the Bribery Act 2010 (the 2010 Act) and the risk of the full force of criminal sanctions, estate agents must be alert as to where the borderline cases may now fall.
Bribery in both the criminal and civil law contexts is considered below, along with some examples of where estate agents have stepped over the line and the risks for employers who do not implement adequate anti-bribery arrangements and relevant training programmes.
What is a bribe to an agent?
In the civil context it has four elements (see Industries & General Mortgage Co v Lewis [1949] 2 All ER 573 and Fiona Trust & Holding Corp v Skarga [2013] EWCA Civ 275):
(i) A payment made by Smith to the agent of Jones where Smith and Jones are dealing with each other;
(ii) Smith makes the payment knowing the recipient is Jones’ agent;
(iii) Smith fails to disclose to Jones the payment to the agent; and
(iv) The payment originates from an earlier promise of payment.
Of course, a bribe need not involve money. It can include holidays, cars and tickets for matches.
The criminal law also spreads its net wide, encompassing any “financial or other advantage” (section 1(1) of the 2010 Act) and covering circumstances to include where:
(1) Smith offers, promises or gives a financial or other advantage to another person, and Smith intends the advantage to either: (a) induce a person to perform his task improperly; or (b) to reward a person for improperly performing his ?task; or
(2) Smith offers, promises or gives a financial or other advantage to a person and Smith knows or believes that the acceptance of the advantage would itself constitute an improper performance of that person’s task.
In such instances, both the payer and the recipient can be prosecuted. The improper performance of a task by a person in business (or as an employee) includes his failing to act in good faith, when that is what a reasonable person in the UK would have expected of him. It is likely that estate agents are most at risk in relation to (1), although (2) will also catch improper approaches by agents to public servants such as local authority officers dealing with planning issues or contractual tenders.
Where is the borderline?
The answer is not found by looking at whether the gift is a large or small sum of cash; whether it is a case of champagne, 500 cigarettes or rugby tickets. The correct test in the civil law context is in the words: “… a gift be made … with the view of inducing the agent”. (See Industries & General).
In other words, whatever the advantage being provided, it is a bribe if “pitched” in terms of getting the agent to act in a certain manner, or at least in some way different from the manner in which he would otherwise have acted.
The criminal test is similar in (1) above, where the intention is to induce the recipient to act improperly, or to reward him for doing so. It is again the “pitching” of the offer intending it to induce a manner of performance of the task that creates the offence.
Correspondingly, if a developer or landlord moves into a new area where land or suitable housing is scarce and invites several local estate agents to supper parties it should not cause concern, since it is part and parcel of becoming known to them.
However, if the result is that thereafter the newcomer is always the first to know when such property is coming onto the market then an effect can be seen and its cause can be questioned.
Consequences
If an estate agent is bribed, then in civil law:
(i) he will be liable to pay the bribe across to his principal (usually the vendor);
(ii) he will be liable in damages (eg the difference between the price the property should have sold for and the price it was sold for);
(iii) his commission is likely to be lost; and
(iv) if proceedings are necessary to extract/determine the above, it is a racing certainty that he will be paying the claimant’s costs on an indemnity basis.
Under the criminal law, a person who requests, agrees to receive, or accepts a bribe, is guilty of an offence (see section 2 of the 2010 Act), just as much as a person who offers, promises, or gives a bribe (see section 1 of the 2010 Act).
The potential penalties are:
(a) 10 years’ imprisonment;
(b) an unlimited fine;
(c) confiscation of the benefit received, which is paid to the government. In the case of the recipient of the bribe this may include his commission on the deal, as well as the amount of the bribe. For the payer of the bribe this would probably include the whole of the value of the tainted transaction, which he has secured as a result of paying the bribe;
(d) compensation, which is paid to anyone who has incurred a financial loss as a result of the tainted transaction; and
(e) the costs of investigation and prosecution.
Vicarious liability (eg, liability of an employer for acts of its employee): “a person” includes a body of persons either corporate or not (see Schedule 1 of the Interpretation Act 1978). Therefore, a firm of estate agents is technically at risk of being prosecuted for taking a bribe, although that would be unusual.
Ordinarily it will be the individual(s) who were directly responsible that will be pursued. Companies, however, are often prosecuted and it is possible in that instance for its directors, managers, secretary or other similar officers to be prosecuted as well, if the offence was committed with their consent or connivance (see section 14 of the 2010 Act).
Secret profits
The dividing line between a bribe and a secret profit can be a fine one, as the examples in the box demonstrate. Essentially a secret profit is where the agent receives a profit apart from his commission, which he neither discloses nor pays over to his principal.
Where a secret profit is made, the agent is liable to disgorge it and may or may not lose the right to his commission.
Education and training
Apart from the risks of a civil claim for damages, loss of commission, bad publicity etc that the actions of a rogue employee may visit on his firm by allowing himself to be bribed or taking secret profits, the possible criminal sanctions against the firm itself must be considered very seriously.
It is therefore imperative that all firms of whatever size make education and training as regards bribery and secret profits a regular and key part of their continuing professional development programme.
The dividing line between a bribe and a secret profit: examples
The estate agent
Mr Andrews employed estate agent Ramsey & Co to sell a property for him at an asking price of £2,500, which, if achieved, would result in a £50 commission becoming payable. One Clutterbuck made offers through Ramsey & Co of £1,900 (rejected) and £2,100, which was accepted, following assertions from Ramsey & Co that this was the best offer it could get.
It later transpired that Clutterbuck and Ramsey & Co had had previous property dealings but also that in relation to the instant sale by Mr Andrews a sum of £20 was paid by Clutterbuck to Ramsey & Co. On discovery, this secret profit was ordered to be paid to Mr Andrews and he was absolved from payment of any commission (Andrews v Ramsey & Co [1903] 2 KB 635). On these facts, the position following the passing of the 2010 Act would be likely to result in Mr Andrews and his accomplice at Ramsay & Co being interviewed by the police and prosecuted under sections 1 and 2 of ?the Act.
The hotel broker
Hurley wished to buy a hotel and applied to Fullwood, a hotel broker, for what was available. Fullwood provided a list of hotels and stated that if business was done, a brokerage fee was payable. Hurley bought one of the properties listed.
The vendor paid Fullwood his commission and Fullwood subsequently sued Hurley for his brokerage fee. The claim failed since Fullwood could not be agent for both vendor and purchaser unless the vendor had agreed (see Fullwood v Hurley [1928] 1 KB 498).
If the brokerage payment had been made it would have been recoverable by the vendor from Fullwood as a secret profit.
The auctioneer
Hippisley engaged auctioneer, Knee Bros, to sell goods for him. Hippisley agreed to pay commission and out-of-pocket expenses. Knee Bros rendered an account including printing and advertising in newspapers as such expenses. It was in fact a commonplace for printers and newspapers to give trade discounts, which in this case, Knee Bros had not passed on in their account to Hippisley. This was a case of a secret profit (without fraud) and thus the discounts received did have to be paid to Hippisley but the agents were entitled to keep their commission (Hippisley v Knee Bros [1905] 1 KB 1).
The agent’s valuation
The agent values a property at £200,000 knowing that its true market value is £225,000 to £250,000.
He places it on the market at ?£200,000 and within a couple of days he rings the vendor telling him of ?(non-existent) offers at just below the asking price and that he has managed to secure an offer from Jim at £205,000. The vendor is pleased at the sale, as is Jim, who passes £2,000 to the agent.
Scenarios such as this have ?appeared in the media where they have claimed to expose bad practice in estate agencies. Certainly one of the authors has had a similar scenario alleged ?where a developer and an agent worked hand in glove to secure properties at below market value in return for a ?fixed fee payable by the developer to the agent.
In criminal terms, the developer is giving a bribe to the agent to induce him to undervalue the property and to reward him for presenting only the developer’s offer to the vendor.
They have both committed offences. As a matter of civil law the agent is liable to pay to the vendor the bribe, damages referable to sums lost and repayment of any commission received.
Malcolm Warner is a barrister with a chancery practice that includes property and partnership disputes and Peter Blair QC is a barrister specialising in fraud, environmental and health and safety. Both are based at Guildhall Chambers, Bristol.