Corporate Criminal Liability

If a company is a separate legal personality then it follows that it may at times be liable for criminal acts. In criminal law, corporate liability determines the extent to which a corporation as a legal person can be liable for the acts and omissions of the natural persons it employs.

A key component of criminal law is the mens rea, the mental state of the person who committed the criminal act. For this the Courts look to the minds of the natural persons who were in control of the company.

Vicarious liability of a company for acts of an employee is long established under the law of tort for civil wrongs ad they are agents of the company. It is however, the mental component of the crime which causes difficulty.

Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [is a famous decision by the House of Lords on the ability to impose liability upon a corporation. The decision expands upon the earlier decision in Salomon v Salomon & Co.  and first introduced the "alter ego" theory of corporate liability. In this case A ship owned by Lennard's Carrying Co was transporting some goods on a voyage from Novorossiysk to the Asiatic Petroleum Company, a joint venture of the Shell and Royal Dutch oil companies. The ship sank and the cargo was lost. The judge found that the director, Mr Lennard, did know or should have known about defects in the ship, which led its boiler to catch fire, and ultimately sink the ship. There was an exemption from liability in section 502 of the Merchant Shipping Act 1894, stating that a ship owner would not be liable for losses if an event happened without ‘actual fault or privity’. Asiatic Petroleum Co Ltd sued Mr Lennard's company for negligence under the Act. At issue was whether the guilty acts of a director would be imposed upon the corporation. Lennard's Carrying Co Ltd argued that it was not liable and could be exempt under section 502. The House of Lords held that liability could be imposed on a corporation for the acts of the directors because there is a rebuttable presumption the directors are the controlling minds of the company.  The directing mind and will of the corporation needs to be identified. This is the test that is imposed and has been traced back to German Law principles. It has become known as the identification theory.

Prior to this case the primary means of imposing liability on a corporation was through vicarious liability, however, that only applied to employees of the company, which excluded the act of the directors. After the Lennard case, the alter ego theory has become the most powerful method of imposing liability on a corporation. It has proved to be particularly effective for imposing criminal liability.

In DPP v Kent and Sussex it was held that this theory could be used to impute criminal intention on a company.  In practice this usually means that directors of a company can be covered if they are acting in a criminal manner.

In Moore v Bessler the company secretary and branch sales manager were acting as agents of a company when making a false tax return. There mens rea was seen as that of the company and thus the company was held liable for their actions.

Officers of the company are an accepted mens rea source.

Tesco Supermarkets Ltd v Nattrass is a leading decision of the House of Lords on the "directing mind" theory of corporate liability. In this case Tesco was offering a discount on washing powder which was advertised on posters displayed in stores. Once they ran out of the lower priced product the stores began to replace it with the regularly priced stock. The manager failed to take the signs down and a customer was charged at the higher price. Tesco was charged under the Trade Descriptions Act 1968 for falsely advertising the price of washing powder. In its defence Tesco argued that the company had taken all reasonable precautions and all due diligence, and that the conduct of the manager could not attach liability to the corporation.

The House of Lords accepted the defence and found that the manager was not a part of the "directing mind" of the corporation and therefore his conduct was not attributable to the corporation. The corporation had done all it could to enforce the rules regarding advertising.

Lord Reid held that, in order for liability to attach to the actions of a person, it must be the case that "The person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company."

In the House of Lords Tesco were successful with their defence showing that, a store manager was classed as ‘another person’, and, a system of delegating responsibility to that person was performance of due diligence, not avoidance of it

The store manager was not the directing mind and will of the company - the company had done all it could to avoid committing an offence and the offence was the fault of another person (an employee). The company was acquitted

There are limits to the identification theory. The theory covers only those at the apex of the corporate structure, the directing mind and will. However, statute can be used to capture more junior employees, as seen in Mousell Bros Ltd v London and NW Railway.

When determining the mens rea, the degree of delegation is key. Directors will be seen as controlling the mind and will of the company of their actions. If a director delegates a duty to individuals, it is the amount of authority delegated which will determine whether acts are seen as those of the company.

For a while, particularly after the Tesco case, it appeared as if large organisations were well protected.  However, in a more recent case in Regis Paper Co. Ltd it seemed as if corporations had less protection than previously thought. The case concerned the offence of intentionally making a false entry in a record required for environmental pollution control .The company's records were intentionally falsified by its technical manager. At issue was whether the company could be liable under Regulation 32(1)(g).

In the Crown Court, His Honour Judge Wassall held that the actions of the technical manager could be attributed to the company because the manager's mind could be identified as the controlling mind and will of the company. It was left open to the jury to consider whether the manger's action could be attributed to the company. On appeal however Lord Justice Moses, delivering the opinion of the court, held that liability could not be imposed on the company unless the intention to make a false entry was capable of being attributed to it in accordance with Tesco Supermarkets Ltd v Nattrass [1972] AC 153. He held that it could not in the circumstances. As such, Judge Wassall was wrong to hold that the manager's intention to make a false entry could be attributed to the company and it was also wrong for the Recorder to leave it open to the jury to reach such a conclusion.

In England in 1994, OLL Ltd were convicted of corporate manslaughter over the Lyme Bay kayaking tragedy and fined £60,000 while Peter Kite, one of the company's directors, was sentenced to three years' imprisonment.

In contrast to this the case of [4] was an example of a large company evading liability under the common law test because a single ‘directing mind’ could not be identified despite eight defendants being brought to trial. It is arguable that theoretically the company would be held liable under the CMCHA. However, it should be noted that this case was unique due to eight ‘directing minds’ being identified.

This has become known as the paradox of size. The larger the company it seems, the easier to escape corporate criminal liability as it is more difficult to establish the directing mind.

The attribution theory states that Acts of “mere” employees could be “attributed” to the company where to decide otherwise would render legislation toothless 

Meridian Global Funds Management Asia Ltd v Securities Commission is a New Zealand company law case. Meridian was part of a syndicate bidding to take over NZ company, Euro National Corp Ltd. Mr Koo and Mr Ng, working for Meridian, bought 49% of Euro’s shares. But Meridian failed to disclose to the Securities Commission of New Zealand that they had become a ‘substantial security holder’ of over 5% because Koo and Ng wanted to hide the transaction from their superiors. The Commission imposed fines against Koo, Ng and the Meridian. The company argued it was not liable because it had not known about it.

Heron J held Meridian knew it was a substantial property holder, because as employees the knowledge of Koo and Ng was attributable to the company. The NZ Court of Appeal held that Koo’s knowledge should be attributable because he was the ‘directing mind and will’ of the company. Meridian argued that was only the board, not Koo.

Lord Hoffmann for the Privy Council advised that ‘there would be little sense in deeming such a persona ficta to exist unless there were also rules to tell one what acts were to count as acts of the company. It is therefore a necessary part of corporate personality that there should be rules by which acts are attributed to the company. These may be called ‘the rules of attribution’. There can be rules in the constitution or rules implied Otherwise, the principles of agency apply, and the company acts through its servants and agents

Lord Hoffman held that “ a corporation could not wait until senior management became aware of the transaction”

Company was held liable for failure of junior management as to decide otherwise would encourage “hands off approach’’ or hear no evil, see no evil style of management.

The Supreme Court has limited the scope of vicarious corporate criminal liability to situations where the offences where regulatory, the person has particular licence, privilege or duty, like public health and safety or it is difficult or redundant to make an employee liable.

Corporate criminal liability has long been established as a possibility. The Law reform commission recommends the introduction of a corporate manslaughter bill, similar to that of the UK.

In Taylor v Smith the Irish Courts accepted the identification theory. In Crofter Properties Ltd. V Genport Limited the Irish Courts accepted the attribution theory. There are two other theories the Irish courts could adopt, the Organic View and the Atomic View

 The benefit or organic test has been applied in the Federal Court of Australia, the House of Lords (now the Supreme Court of England) and the Supreme Court of Canada. Put simply, the test proposes that where a company gains the benefit of an act, it is considered to be attributed with that act. The test is applied differently when an act is performed by a "mind and will", which usually prompts the use of the organic theory, as opposed to an agent which usually prompts the use of the agency theory.