THE LEGAL CONSEQUENCES OF THE RECEIPT OF A BRIBE. MAHESAN v. MALA YSIA GOVERNMENT OFFICERS' CO OPERATIVE HOUSING SOCIETY LTD. 1

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1 The University ofqueensland Law Journal Vol. 12, No.1 89 Case Note THE LEGAL CONSEQUENCES OF THE RECEIPT OF A BRIBE MAHESAN v. MALA YSIA GOVERNMENT OFFICERS' CO OPERATIVE HOUSING SOCIETY LTD. 1 D.A. Mullins* One of the duties of an agent is not to make a secret profit out of the performance of his duties as agent. 2 A secret profit is any financial advantage which the agent receives above the remuneration he is entitled to receive from his principal. Not all secret profits are bribes. To be classified as a bribe the secret profit comes to the agent through the activity of some third party. In Mahesan v Malaysia Government Ojjicers' Co-operative Housing Society Ltd. 3 the Privy Council sought to clarify the remedies available to a principal whose agent has received a bribe. Prior to Mahesan's case the legal consequences of the receipt of a bribe by an agent were formulated in Halsbury's Laws oj England 4 as follows: "On discovering the receipt of a bribe the principal may instantly dismiss the agent... The agent forfeits any commission in respect of the transaction, and becomes liable to his principal for the amount of the bribe, if in money, or for the value of the property so received by him... Interest also is payable from the date when the bribe was received. In addition, the agent is liable, jointly and severally with the briber, for any loss actually sustained by the principal in consequence of any breach of duty on the agent's part; and both he and the briber may be dealt with criminally." A decision of the English Court of Appeal in 1891, Salford Corporation v Lever,5 is acknowledged as the authority for allowing the principal double recovery being :- (a) the amount of the bribe from the agent; and (b) damages for loss sustained by the principal as a result of the Agent's breach of duty from either the agent or the briber. Salford Corporation v Lever 6 was an action between a principal and the briber. The principal (the Corporation) was the proprietor of certain gasworks and its agent being the Manager of the gasworks recommended to the Corporation which tenders for the supply of coal shoulc l be accepted. Lever, a coal merchant, paid the agent one shilling p ~r ton as a bribe for the agent to recommend * B. Comm.(Qld.), 1.L.B. (Hons.)(Qld.), Solicitor of the Supreme Court of Queensland. 1. [1979] A.C G.H.L. Fridman, 1'he Law of Agency (Butterworths: London, 1976). 3. [1979] A.C Halsbury's Laws 0/England (4th ed.), Vol. 1., at p [1891] 1 Q.B Ibid.

2 90 Case Notes that Lever's tenders be accepted. Lever's tender prices were inflated by the amount of the bribe. The Corporation discovered the fraud of the agent and ultimately an agreement was reached between the Corporation and the agent whereby the agent assisted the Corporation to recover the amount of the bribes paid by the various coal merchants including Lever. The agent ~oeposited securities in an amount equal to the Corporation's loss with the Corporation and the securities were to be released to the agent to the extent of the amounts recovered by the Corporation from the various bribers. The Corporation's action against Lever was for damages for fraud and, in the alternative, for money had and received by him to the Corporation's use. Lever's appeal to the Court of Appeal was based on the argument that the Corporation had recovered the amount of the bribe from the agent and therefore could not recover from Lever and also that the agreement between the Corporation and its agent amounted to a release of one of two joint tortfeasors which operated as a release of the other. The Corporation's loss was equivalent to the amount of the bribes so that from a practical point of view it made no difference to the Corporation upon which action recovery was allowed. The Privy Council in Mahesan's case' considered that:- "In the Salford case the principal's cause of action against the briber was described by the majority of the court as being fraud "8 which statement accords with a close reading of the judgments of Lord Esher, M.R. and Lopes, L.J. In the result the Corporation was awarded damages against Lever equal to the amount of the bribes without any deduction for the amount recovered from its agent. The headnote of the Salford case is regarded as correctly summarizing the judgments 9 :- "Where an agent, who has been bribed so to do, induces his principal to enter into a contract with the person who has paid the bribe, and the principal has two distinct and cumulative remedies: he may recover from the agent the amount of the bribe which he has received, and he may also recover from the agent and the person who has paid the bribe, jointly or severally, damages for any loss which he has sustained by reason of his having entered into the contract, without allowing any deduction in respect of what he has recovered from the agent under the former head, and it is immaterial whether the principal sues the agent or the third person first." In a subsequent case Hovenden & Sons v Millhofo the Court of Appeal allowed a principal to succeed against a briber to recover the amount of the bribe as money had and received. Two of the Judges referred to Salford Corporation v Lever 11 to support their conclusion. (It is submitted that in placing reliance upon a statement by Lord Esher M.R.12 A.L. Smith L.J. was mistaken as the 7. [1979] A.C Ibid, at p [1891] 1 Q.B. 168, at 168. See J. Beatson & F.M.B. Reynolds, "Bribery of Agent" (1978) 94 L.Q.R [1900-3] All E.R. Rep [1891] 1 Q.B [1900-3] All E.R. Rep. 848, at 850.

3 Case Notes 91 statement taken in the context of Lord Esher's judgment is referable to an action for fraud and not money had and received). Lindley L.J. (the other member of the Court of Appeal in the Salford case) had clearly opened the way for this possibility to treble recovery by a principal. 13 On the facts of the Salford case l4 and the Hovenden case ls respectively double recovery or treble recovery would never have eventuated. Prior to Mahesan's casel6 double recovery seems never in fact to have been allowed!7 The facts of Mahesan's case l8 gave rise to the possibility of double recovery against the agent if the Salford case l9 was good law. In the result the Privy Council did not follow the Salford case 20 and statements on the effect of the receipt of a bribe by an agent in Halsbury and the various textbooks now require revision. Mahesan (the appellant) was the agent of the respondent society being one of its directors and an employee. The society provided housing for government employees. Mahesan made an inspection with one Manickam of some land which was suitable for the society's purposes. Manickam purchased the land for $456,000 and the society, on the recommendation of Mahesan, then purchased the land from Manickam for $944,000. The gross profit to Manickam was $488,000 of which one-quarter ($122,000) was passed on to Mahesan. Manickam's net profit was $443,000, after allowing for the cost to him of evicting squatters which was $45,000. When the transaction between Manickam and Mahesan was discovered Mahesan was convicted of two offences of corruption under the Malaysian Prevention of Corruption Act 1961, sentenced to seven years imprisonment and ordered to pay to the society a penalty of $122,000 being the amount of the bribe. The society also brought civil proceedings against Mahesan claiming:- (a) recovery of the amount of the bribe (under section 30 of the Prevention of Corruption Act); and (b) damages of $488,000. for the loss sustained by it in connection with the purchase of the land. The trial judge gave judgment for the society for the amount of the bribe ($122,000) but found that the society failed to prove on the facts that it had suffered the damage it claimed under the second head because of rising land prices. On appeal to the Federal Court of Malaysia the judgment for $122,000 was confirmed and it was further held that the society was entitled to $443,000 being the measure of damages arising from Mahesan's breach of duty. In assessing damages under the second head at $443,000 the Federal Court applying the Salford case 21 made no allowance for the 13. Ibid, at [1891] 1 Q.B [1900-3) All E.R. Rep [1979) A.C Beatson & Reynolds, op cit, at p [1979] A.C [1891] 1 Q.B Ibid. 21. Ibid.

4 92 Case Notes judgment for the amount of the bribe. It should also be noted at this point that under the Prevention ofcorruption Act the order made in the criminal proceedings did not affect the rights of the principal against the agent in civil proceedings. This Act was also held to preserve the right of the principal to recover from the bribed agent damages for fraud 22 Le. the statutory provisions did not alter the position from the common law. The question before the Privy Council on appeal by the agent from the judgment of the Federal Court was therefore whether a principal was entitled at common law to double recovery against his bribed agent. There was no dispute on the facts of the case so the appeal before the Privy Council turned on this question of law. The Privy Council first ruled that the statement by the Court of Appeal in the Salford 23 and Hovenden 24 cases approving two cumulative remedies by a principal against his bribed agent were obiter in that both these cases were actions by the principal against the briber. The Privy Council then went on to hold that in any event the statements in the Salford case 2S were wrong insofar as they conflicted with the authorities as confirmed by the House of Lords in United Australia Ltd. v Barclays Bank Ltd. 26 The principles confirmed in that case by the House of Lords were: (a) where the same facts gave rise in law to two causes of action against a single defendant, one for money had and received and the other for damages for tort the plaintiff must elect between the remedies but the election was not irrevocable until the judgment was recovered on one cause of action or the other; and (b) where the same facts gave rise in law to an action for money had and received against one defendant and to a separate action in tort against another defendant judgment recovered in the first action does not bar the second action but to the extent that the judgment is satisfied this constitutes satisfaction pro tanto in the second action. The Privy Council illustrated how there was no basis in law for the dicta in the Salford case. 27 According to Salford's case 2S if the principal recovered the amount ofthe bribe from his agent he could then in an action for fraud recover as damages the loss sustained as a result of his agent's breach of duty without deducting therefrom the amount of the bribe recovered. The Privy Council pointed out that according to established principles damages are the gist of actions in tort so that in the action for fraud against the agent the principal's actual loss is determined after taking into account the amount of the bribe recovered [1979] A.C. 374, at [1891] 1 Q.B [1900-3] All E.R. Rep [1891] 1/ Q.B [1941] A.C [1891] 1 Q.B Ibid. 29. [1979] A.C. 374, at 381.

5 Case Notes 93 Applying the general principles set down in United Australia Ltd. v Barclays Bank Ltd. 30 the Privy Council held that at common law a principal could recover from his bribed agent either the amount of the bribe as money had and received or alternatively damages for fraud being the actual loss sustained in consequence of his entering into the transaction in respect of which the bribe was given. As the Prevention of Corruption Act had not altered the common law, the society was bound to elect between its claim to recover the bribe and its claim for damages for fraud. The Privy Council decided that as the Society would have elected to recover the damages for fraud, being the greater amount, the judgment of the Federal Court was varied by entering judgment for the Society for $443,000 only. The Privy Council's judgment in Mahesan's case 31 is clear authority for the remedies of a principal against his bribed agent. However the Privy Council sought to clarify this area of the law even further and made a general statement in respect of the liability of the bribed agent and briber to the principap2:- "So both as against the briber and the agent bribed the principal has these alternative remedies: (1) for money had and received under which he can recover the amount of the bribe as money had and received or, (2) for damages for fraud, under which he can recover the amount of the actual loss sustained in consequence of his entering into the transaction in respect of which the bribe was given, but he cannot recover both." This statement is not completely without ambiguity. Clearly as against the bribed agent the principal has alternative remedies. It is also clear that. as against the briber the principal has alternative remedies. The statement is not definitive in itself on whether the principal can obtain relief against both the bribed agent and the briber. Some clarification is obtained from the remainder of the judgment. If the principal brings an action for money had and received against either the bribed agent or the briber, according to the Privy Council in Mahesan's case,33 the principal's action against the other for damages for fraud is governed by the second principle extracted from United Australia Ltd. v Barclays Bank Ltd. 34 Le. the principal can bring an action in tort against the party he did not proceed against for money had and received but his claim for damages is satisfied in the tort action to the extent that his judgment for money had and received against the other party is satisfied. Similarly, if the principal brings an action against the bribed agent or the briber for damages for fraud, the principal can still bring an action for money had and received against the other but his claim for damages in the second action is satisfied to the extent 30. (1941) A.C (1979) A.C Ibid, at [1979) A.C [1941) A.C. 1.

6 94 Case Notes that the judgment for damages for fraud against the first party is satisfied. If the principal brings actions for damages for fraud against both parties the rules governing recovery against joint tortfeasors must apply. The situation when some doubt can arise is whether the principal can proceed against the bribed agent and the briber separately for money had and received. This situation is not governed by general principles enunciated in United Australia Ltd. v Barclays Bank Ltd. 35 As the spirit of the judgment of the Privy Council in Mahesan's case 36 is against double recovery, it could be presumed that the Privy Council in the statement last quoted meant that actions against the bribed agent and the briber for money had and received were also alternative. The Privy Council itself in its judgment seems to make this presumption when discussing the Prevention of Corruption Act: 37 "Subsection (1) which refers to the principal's right to recover the amount of the gratification as a civil debt either 'from the agent or from the person who gave the gratification to the agent' gives statutory recognition to the right of the principal at common law to recover the amount of the bribe from either the briber or the agent, as money had and received." Mahesan's case 38 represents an important step in the development of the remedies available to a principal when his agent receives a bribe in connection with a transaction which falls within his duties as agent. It is clear that it is not possible for the principal to obtain double (or treble) recovery against the briber or the bribed agent or by suing both. However one reservation must be noted. The facts of Mahesan's case 39 are confined to a principal's actions against his bribed agent. Insofar as the judgment of the Privy Council seeks to deal with related matters like the principal's remedies against the briber the judgment is obiter dicta. Even though the judgment has not laid to rest all anomalies in this area, eg. it seems as if it will still be possible for the principal to elect to sue the briber and leave the agent to keep the proceeds of his breach of duty (as was the effective result in Salford's case),40 it is unlikely that these obiter comments will be ignored in later cases. 35. Ibid. 36. [1979] A.C Ibid, at [1979] A.C Ibid. 40. [1891] 1 Q.B. 168.