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Wednesday
Nov062013

For F1 Supremo, what's the law behind extortion claim?

John Morton, of Morton's Fork fame, would have been intrigued by Bernie Ecclestone's explanation that it was not bribery but extortion that caused him to pay $44 million due to the banker blackmailing him through a threatened disclosure of his fiscal affairs to the British tax authorities.

If the judge accepts this "lesser of two evils" explanation, then it would avoid the serious consequences of a finding that the payment amounted to a bribe to induce BayernLB to sell and transfer 47 percent of the Formula 1 holding company to CVC.

If the explanation is not accepted, Ecclestone potentially would have to account to BayernLB not only for any losses arising from the transaction, but for the subsequent profit attaching to his interest in Formula 1 that might be attributable to the allegedly tainted share sale.

It is not entirely clear yet why the current claim is being brought by an investor and not BayernLB as principal.

A number of recent cases have established that a principal subjected to bribery is entitled to an account of profits from the briber and the bribed. In taking such an account, the court will not be restricted merely to the profits arising from the transaction itself, but also subsequent, unconnected and market-related profits. (Novoship (UK) Ltd. & Ors v. Mikhaylyuk & Ors [2012] EWHC 3586 (Comm) (14 December 2012)).

Until this recent line of cases, there was some uncertainty as to whether a briber could be held liable for profits in the absence of a fiduciary relationship with the principal. The policy grounds for disgorging profits are that the violation of an agent's/fiduciary's high standard of duty cannot be tolerated, and it would be inequitable to permit a briber to retain profits arising from a procured breach of trust.

Unlike the joint and several liability of the bribed and briber to account for all losses arising from bribery, however, the duty to account for profits is currently only several.

Readers are likely familiar with enforcement agencies' powers to require disgorgement of profits; private law remedies can be equally draconian.

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Alistair Craig is a commercial barrister practicing in London. He can be contacted here.