Your Questions: Answered - Written by on Tuesday, March 13, 2012 1:24 - 0 Comments

Ask Barry & Richard: Indemnities worth seeking from ‘Associated Persons’

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Question

I’m a regular reader of thebriberyact.com website and find it an invaluable resource for all things in this field – keep up the excellent work!  I have a question for you that I haven’t seen covered on the site or elsewhere and wonder what your thoughts are on it.  I hope this is the best way of posing it – there doesn’t seem to be a facility on the site itself.

We’re in the process of putting wording in our contracts to allow us to terminate a relationship with a service provider if we know or suspect they are committing bribery.

One of them is seeking to amend the wording to ensure that termination is our sole remedy and their sole liability.

Leaving aside the obvious challenges around proof and causation, it got me thinking about whether it would be possible to sue a service provider whose actions result in us being fined.  If it is, then agreeing to an amendment like this may be inadvisable.

Clearly in such a situation our adequate procedures defence will have failed, but that alone ought not to preclude an attempt to recover an amount equal to the penalty / fine we suffer.  Of course there’s the fact that if our liability is been criminal we wouldn’t be able to make a recovery from third parties due to the ex turpi causa rule (as Safeway found out when it tried to recover OFT penalties from its former directors). However the position would presumably be different if our loss was occasioned via a civil penalty / CRO?

Answer

You are correct that the answer could be different.  In addition to the position in relation to a civil penalty it is also worth keeping in mind that there are numerous other considerations.

For example, costs dealing with a problem often equal or exceed the cost of any penalty.  Citing termination as a sole remedy for proven (and suspected) bribery will limit the options of the ‘victim’ company.

In practice we frequently see provisions which incorporate an indemnity for losses suffered and in order to avoid the problem of ex turpi causa, as you identified, we add a provision making it plain that such provisions do not extend to attempt to cover indemnification of losses which would be void for public policy reasons.

However, there are numerous other costs and losses which a business would suffer and if possible it would be preferable to avoid giving up any claim to them.

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