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' COOPERATIVE 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·
England4 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 Lever6 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
*
1.
2.
3.
4.
5.
6.
B. Comm.(Qld.), 1 .L.B. (Hons.)(Qld.), Solicitor of the Supreme Court of
Queensland.
[1979] A.C. 374.
G.H.L. Fridman, 1'he Law of Agency (Butterworths: London, 1976).
[1979] A.C. 374.
Halsbury's Laws 0/ England (4th ed.), Vol. 1., at p. 474.
[1891] 1 Q.B. 168.
Ibid.
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 judgments9 : "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 Lever11 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. 374.
8. Ibid, at p. 382.
9. [1891] 1 Q.B. 168, at 168. See J. Beatson & F.M.B. Reynolds, "Bribery of
Agent" (1978) 94 L.Q.R. 344.
10. [1900-3] All E.R. Rep. 848.
11. [1891] 1 Q.B. 168.
12. [1900-3] All E.R. Rep. 848, at 850.
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.
14.
15.
16.
17.
18.
19.
20.
21.
Ibid, at 850.
[1891] 1 Q.B. 168.
[1900-3) All E.R. Rep. 848.
[1979) A.C. 374.
Beatson & Reynolds, op cit, at p.346.
[1979] A.C. 374.
[1891] 1 Q.B. 168.
Ibid.
Ibid.
Case Notes
92
judgment for the amount of the bribe. It should also be noted at
this point that under the Prevention of Corruption 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
Salford23 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 of the 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. 29
22.
23.
24.
25.
26.
27.
28.
29.
[1979] A.C. 374, at 384.
[1891] 1 Q.B. 168.
[1900-3] All E.R. Rep. 848.
[1891] 1/ Q.B. 168.
[1941] A.C. 1.
[1891] 1 Q.B. 168.
Ibid.
[1979] A.C. 374, at 381.
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.
31.
32.
33.
34.
(1941) A.C. 1.
(1979) A.C. 374.
Ibid, at 383.
[1979) A.C. 374.
[1941) A.C. 1.
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.
36.
37.
38.
39.
40.
Ibid.
[1979] A.C. 374.
Ibid, at 384.
[1979] A.C. 374.
Ibid.
[1891] 1 Q.B. 168.