Corporate liability

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  • Created by: Nikki
  • Created on: 19-04-15 16:41

Background to the corporate responsibility

Historical/social reasons for the growing recognition of corporate criminal responsibility:

  • willingness to blame collectives as well as individuals stemming from:
    • growth of technology
    • developments in mass communication
    • new attitudes towards risk and responsibility

Should corporations be punished? --> a few fundamental questions

  • are corporations autonomous entities?
  • can corporations act?
  • can corporations be at fault?
  • can corporations be deterred?
  • can corporations be effectively punished? If so, how?

It is always possible to prosecute the individual who was responsible as well as/instead of the company

Middle managers are a development corporate liability has struggled to incorporate within law

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Statutory attribution

Statutes which explicitly refer to corporate liability 

s18 Theft Act 1968 --> Where an offence committed by a body corporate under section...17 of this Act is proved to have been committed with the consent of connivance of any director...he as well as the body corporate shall be guilty of that offence...'

Corporate Manslaughter and Corporate Homicide Act 2007

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Vicarious liability

Company will be liable through its agents --> liable whenever its employees or directors are liable

Vicarious liability is only possible where there is no fault --> unsuitable for mens rea offences

Even if a company were to put out a notice to all employees warning them not to commit the offence, the offence would still be attributable to the company if the employee commits the offence

Culpa in eligendo as possible rationale --------> delegation principle

Problem of statutory interpretation

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Identification theory (1)

Centered on acts of directors of a company to establish fault

Directors represent the company --> their actions/state of mind are evaluated to consider whether company can be found liable

Too simplistic to divde a company between directors and employees --> not an accurate way to describe most medium to large size companies --> inevitably will be middle managers with discretion to take some decisions on behalf of company despite being under control of directors

Perverse incentives to decentralise to make it impossible to identify a senior manager in charge of any matter

Moore v Bresler (1944)

  • 2 company directors sought to defraud HMRC by submitting incorrect tax returns --> company, as well as directors, charged with submitting false tax return 'with intent to deceive' 
  • all convicted, despite fact company was 'innocent instrument' of the directors
  • company committed crime, with required fault, because director committed it --> directors as alter ego of company --> what they do company does too
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Identification theory (2)

Tesco v Nattrass

  • regional manager mislabelled some good (wrong price) --> trading standards picked up on error --> company prosecuted for trade descriptions offence 
  • defence of Tesco that regional manager was 'another person' --> employee, not director 
  • HL found employee was 'another person' for reasons above and therefore company couldn't be prosecuted

R v Redfearn (1993)

  • European Sales Manager was held not sufficiently senior to be alter ego of company --> only 4 steps down from Chief Executive
  • Company accused of seeling arms to prhibited regime in violation of an embargo, through contact negotiated by manager
  • CA questions whether he would have had authority to commit crime on company's behalf --> is this the righ issue?
  • suggests company can devolve responsibility down to more regional level and be safe because person committing offence wasn't senior enough
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Aggregation theory

Company's culpability is constructed out of the knowledge and attitudes of its employees

Recognition that indivdiuals within a company contribute to the whole machine --> whole which is judged --> so question is whether, given the information held amongst a number of 'responsible officers' it can be said that the corporation itself was reckless

Recognises that reponsibility and control is diffused to a certain extent amongst the directors

Question whether the employee has enough power/responsibility within the company to represent the company

Is this fair? --> even if company takes zero tolerance to soemthing, if a group including some senior staff do it then the company could be convicted

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Contextualism

Question of construction in each case as to wheter the particular rule requires that the knowledge that an act has been done, or the state of mind with which is was done, should be attributed to the company

No unique criterion for attribution of action to corporations

1. consideration of internal decision making structure of the corporation

2. consideration of the purpose of the legal rule

Issue of fair warning --> very uncertain

Given authority of HL in Meridian Global Funds (1995)

Re A (A company) (1980)

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Holistic theory

Company is a system of plans, policies and structures to deliver those policies

When you join the company you become a part of that structure, those policies and plans

Structure has an existence independent of the workers and directors

Liability could be assessed on whether an action is in line with ompany policy, and whether the company has in place a system to stop crimes being committed on its behalf

A corporation is criminally responsible for actions/omissions of its members if its decision struture and its policies are not adequate for the prevention of such actions

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Corporate M&H Act 2007

Corporate Manslaughter Act 2007 

(i) an 'organization' must

  • companies, partnerships, some unincorporated associations, most public bodies

(ii) owe a relevant duty of care

  • confined to duties recognised by law of negligence
  • several exclusions in ss3-7 from duties that would otherwise apply
  • whether there was a relevant duty of care = question of law for judge

(iii) the way in which the activities wre managed or organised must amount to a gross breach of that duty

  • if conduct 'falls far below' what could reasonably be expected of organisation 'in the circumstances'
  • jury required to consider whether there was a breach of H&S legislation --> if there was should take account of how serious breach was, how much of a risk of death it posed, and any evidence of corporate culture
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Corporate M&H Act 2007

(iv) a substantial element in that gross breach being the way that the organization's activities were organised by senior management

  • 'senior management' = persons who play 'significant roles' in decision making about or actual managing of the whole or a substantial part of the organisation's activities
  • restrictive, especially in relation to large organisations
  • test is probably factual --> courts unlikely to be deflected by nomenclature
  • person's role would have to be 'substantial element of the breach' --> invites arguments about role of particular employee's fault --> revisits some problems of identification doctrine

(v) death must be caused by the way in which the activities wre managed or organised

  • issue of causation is not straightforward
  • presumable a 'more than minimal' cause is sufficient
  • no provision to prevent applicaiton of voluntary intervening act to break chain of causation --> not intention of act
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Corporate M&H Act 2007

What models are involved in the offence?

  • aggregation theory (s1(3) and (1)(c))
  • holistic theory (s8(3)(a))
  • identification theory (s1(4)(c))

Liability of individuals

  • no accomplice liability for individuals under this Act
  • could be prosecuted as principals for GN manslaughter

Criticisms of Act

  • only 3 convictions achieved so far (but growing number of cases in pipeline)
  • convicted corporations are rather small --> unsuitable for targeting larger corporations
  • counterintuitive relationship between prosecution of corporation and that of members --> charges against individuals have been dropped
  • too much complexity in parts and open texture in other key terms
  • remains to be seen whether its application is easier and more extensive than ID doctrine
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Punishment

Fines --> pros

  • easy to impose
  • speak language of corporations

Fines --> cons

  • spill-over effect
    • particularly applies to large companies --> very large fine imposed on large companies has affects eg. price rises, job cuts, or if they need bailing out then it's govt who do it --> we pay for fines ourselves in some form
  • overkill effect
  • can be 'swallowed up as business overheads

Alternative punishments (only fines, remedial orders and publicity orders under the act)

  • Corporate probation/remedial order
  • adverse publicity
  • community service
  • equity fines
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Deferred prosecution agreements

Crime and Courts Act 2013, s45 and sch 17

DPA = agreement between prosecution and corporation, approved by Crown Court

Object = financial crimes, fraud, bribery

Content/requirements = statement of facts, fine, compensation, compliance programmes etc

Effect = criminal liability proceedings suspended

In case of breach = proceedings can go ahead

If agreement expires = proceedings are discontinued

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Sentencing guidelines under CMCH Act

Seriousness

  • foreseeability
  • frequency of breach
  • given manslaughter fine 'will seldom be less than £500,000'

Mitigating vs aggravating factors

  • efforts to remedy
  • acceptance of responsibility
    v
  • failures in prevention

Consequences

  • yes: effect on employment
  • no: effect on shareholders
  • turnover and end of business not decisive factors
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Key question

Do yo consider that the tendency to assimilate corporations to individuals may hinder the development of an adequate corporate criminal law?

Issue of attribution --> 'the identification doctrine fails to reflect the fact that, in modern corporations, a good deal of important policy or strategic decision-making may be de-centralised...' (LC Consultation Paper 195 (2010))

Issue of punishment 

  • should widen range of sanctions against companies
  • fines are insufficient
  • one reason why English law has not developed such a range is that there remains in some quarters the anthromorphic view of corporations'
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