The professional column: Legal Q&A

A while back, a development project went badly wrong. I believe that one of our team may have been paid by a supplier to use his influence to get an unfavourable contract (from our viewpoint) signed. What can we do?

Without proof, the short answer is not a whole lot. Suspecting is not the same as having proof, so be careful how you deal with this. However, if you can gather enough evidence to back your claims you may be able to sue and recover whatever you have lost.

The approach you adopt depends on whether your suspected 'turncoat' is a director or an employee. Directors have a statutory obligation to declare any interests (or those of their family) in a contract to fellow directors. This covers anything from owning shares in the supplier, to accepting gifts or travel.

Directors with interests in suppliers are under a duty to account to the company for secret profits they made as a result of the deal, or payments received by way of inducement.

You can sue directors for losses your company has suffered. However, if he or she is not able to make good that loss, you may be forced to consider suing the supplier for resulting losses. If you can prove the supplier did collude with your renegade, you can then sue them for inducing the director to breach his duty of good faith.

If the turncoat is an employee, the situation is slightly different. The law imposes certain obligations on any employee: a duty of honesty; a duty to account for secret profits; a duty to disclose misdeeds; a duty not to disclose confidential information; and a duty to exercise reasonable skill and care in the performance of his job.

You may find you can sue the employee for breaking a number of these obligations. Again, the supplier is a legitimate target if you can prove it colluded or conspired in the employee's actions.

To sue, you will need to establish one of two things - that the employee has made a secret profit or that your company has suffered a loss.

A successful suit means you will recover any blatant 'backhander', regardless of whether you stick with your supply contract. If a bribe has been paid, you will also be able to reject the agreement with the supplier. However, even if you cancel the contract and return all other benefits received under it (as you must do) you may still retain the bribe. The supplier has no legal right to recover it from you.

To strengthen your hand in such situations, you should consider inserting a clause in all purchasing agreements asking suppliers to certify that no inducements have been given. Employees' contracts should include a clause setting out their duty to declare any relationships with suppliers or contracts. I cannot overstress that you must be able to prove your suspicions if you go to court.

In civil cases, the standard of proof required is that the 'balance of probabilities' is in your favour. However, if you decide your colleague's actions are criminal, you will need to prove it beyond reasonable doubt - a much higher standard. In either situation, your best option is to start gathering evidence as soon as you become suspicious and before the trail goes cold.

? Email your legal queries to info@tarlo-lyons.co.uk