Corporate Criminal Liability

In a fault based system of corporate criminal liability, once a prima facie case based on corporate fault has been established by the prosecution, the company should be able to avail itself of the defence of "due diligence". What are the requirements of such a defence and how might a company prove that the requisite standard has been reached.

This discussion will consider the role of criminal liability of companies under the current system; it will explore vicarious and corporate liability, along with corporate liability's defence of due diligence and how a company may use it. There is the additional problem that the current system of law does not utilize this defence efficiently and this has created a system where in respect to some statutes a company is liable through actus reus and in other circumstances it relies on mens rea along with having the defence of due diligence. The situations may be creating equal harm but because of the wording of the statute there may or may not be liability. Therefore this discussion will propose that there should be a new law that finds a prima facie case of liability by a company in the case when intention, knowledge or recklessness is a fault and it may be attributed to a company that expressly, tacitly or impliedly authorises or permits the commission of the offence. This is a very high standard and in most cases there would be liability if there was a breach, but if the company can show due diligence then the liability is excluded. In short this will provide a better system of protection, but is not so unfair as a system of vicarious liability. This discussion will focus on the liability of companies in respect to breaches of environmental law, but there are other areas of corporate criminal liability.

Vicarious Liability:

Vicarious liability is when the company is held liable for actions of their employee with respect to a strict liability offence , i.e. the action equates to a breach without regard to the intention or knowledge of the breach. Therefore the law imputes liability of the company for a breach of a statute from the actions of the employee, as ruled in Birmingham v Gloucester Railway Company the company can be held liable for a breach of statutory duty. The formula for a vicarious liability offence is as follows; a strict liability offence; offence is capable of being breached by anyone in the company; an illegal act performed by an employee who may be prosecuted; and the act is imputed to the employer who may be prosecuted. This is a very simple method of holding a company for the acts of its employees; however there are very few strict liability offences, especially in the area of environmental law where the Environmental Agency and the courts want to hold liability in order to deter breaches of environmental safeguards. The laws must specifically deal with only the actus reus and not the mens rea to be applicable for an action in vicarious liability, which leaves a lot of room for companies to avoid liability for actions that breach statutory provisions; therefore leads to the legal notion of corporate liability.
Corporate Liability:
Corporate liability adopts the principle of identification which is especially important because in areas such as environmental statutes this principle is the basis of defences to the criminal act. Since 1944 it has been possible to impose liability on a company for almost any offence including those containing mens rea, i.e. intention and/or recklessness. This is based upon the aforementioned principle of identification, which relates to the actions, intentions and/or state of mind of the upper echelons, i.e. the senior management, of the company, i.e. if intention or recklessness is required for an offence then for the company to be corporately liable then this intention and/or recklessness needs to be from the senior management. Therefore this leads to the commonly held definition of the controlling mind of the company. If the employee is a mere worker and is not part of this controlling mind and this individual causes a breach of statute then the company cannot be held liable; hence creating a very easy opt out clause for the company, i.e. the company could unofficially get and individual breach the law and not be held liable because it is hard to show this scenario had occurred. This difficultly is created by the laws need for the company to be liable through the hands of a living individual:
A corporation... must act through living persons, they are not always one or the same person... the person who acts is not speaking or acting for the company. He is the company. There is no question of the being vicariously liable. He is not acting as servant, representative, agent or delegate. He is the embodiment of the company or, one could say, he hears and speaks through the persona of the company within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then the guilt is the guilt of the company.
Therefore this includes all individuals who have been afforded the voice of the company, i.e. full independence to work on behalf of the senior management. The question in how far this relates to large companies was questioned in Tesco v Natrass which held a store manager was not a controlling mind of the company therefore his breach of trade descriptions law could not be imputed back to the Tesco chain because a store manager cannot act from the scope that his office is a controlling mind from the highest echelons throughout the Tesco chain. Also if the senior management is acting from their own capacity, i.e. trading shares illegally which only benefits them and not the company, means that this is a personal act and the company will not be corporately liable. There is another added problem with corporate liability and large corporations as it is difficult to ascertain which specific acts are from a certain member of the senior management, as it is not possible to combine the acts of these individuals to equal corporate liability. This means that it is the complete act of a single member of senior management that makes the company liable; therefore corporate liability is determined on the facts of each case, where certain criteria must be completed; one specific controlling mind, i.e. member of senior management; this specific mind has a relevant guilty mind, i.e. the member of senior management was involved in the breach either by positive act or omission to act; where the guilty mind is either the perpetrator in which case the company is the perpetrator or an accomplice, where the company will be charged as an accomplice. In cases where there is a strict liability offence but has the defence of due diligence it becomes a case of corporate liability and the need for a controlling mind because the defence relies on the mind intentions and actions of a controlling officer. This is how Tesco v Natrass became a corporately liable offence, because the breach was strict under the Trade Descriptions Act 1968; however there was the defence of due diligence therefore unable to be a vicarious liability offence.

Defence of Due Diligence:
To successfully use the defence of due diligence the following factors need to be employed:
 The system must be exercised by those having the directing mind or will of the company.
 The due diligence system must be written down.
 The precautions and checks to be taken depend on the size and resources of the company, the risks imposed by the products and all other relevant circumstances of the case.
 Reliance can no longer be placed on warranties or on general assurances from suppliers, although in some instances, they can contribute towards a due diligence system.
 Any reasonable precautions which can be taken must be taken.
 Random samples must be taken and analysed.
 The responsibilities of directors, managers and employees must be stated in writing.
 The operation of the system must itself be checked.
 Internal and external codes of practice may contribute to a system of due diligence but are not sufficient in themselves.
 The system must cover all aspects of the business.

In the truth the system follows the basic steps that exclude negligence, but is important for companies to use and have as a defence because all reasonable precautions by the company - its directing will and mid have been taken to exclude liability. Yet it is also important that there is corporate criminal liability for those companies that do not take the appropriate steps to protect employees, consumers and neighbours under the neighbour principle of negligence. This seems to be the approach taken in respect of environmental damage by individuals and companies in respect to negligence and nuisance. Some areas of adaptations have been the smudging of the parameters between Rylands v Fletcher, negligence and nuisance. In respect to a nuisance of such a dangerous nature which does not fulfil the requirements of Rylands v Fletcher the court altered this nuisance to be of strict liability like that of Rylands v Fletcher, which can be seen in Cambridge Water . However this is not the only adaptation in order to bring the traditional common law more in line with a 'Greener Law and Policy'. In the area of nuisance which turns on a form of liability in negligence, this has allowed for individuals to be liable for nuisances which have been caused by a third party or an act of nature if the individual has fulfilled the requirements of a measured duty of care as set forth in the following cases; Goldman v Hargrave ; Leakey v National Trust ; Bybrook Barn Garden Centre v Kent County Council ; Stockport MBC ; and Marcic . What these cases have formulated is that a duty of care in nuisance is measured by practicability, cost and the means of the individual. In order to balance this adaptation of nuisance which can find an individual to be liable for an act of a third party or nature is to bring the standard of care to that of a fault based action; which means is if reasonable care is taken to abate the nuisance when the individual is aware or if the individual is not aware then the individual is not liable. The defence of due diligence takes it a step further when dealing with companies whereby the controlling mind must take all reasonable and practicable steps to ensure that a breach of statute does not occur. The main problem with due diligence is that is deals with the controlling mid of the company who must take all steps and this means if they plead ignorance to the problem then they can exclude liability, because it is a corporate liability defence. Rather the company should be held liable in all cases of breach, i.e. there should be no distinction between vicarious and corporate liability, rather if a prima facie case of breach under vicarious liability is found then a defence of due diligence should be available to ensure that criminal liability of companies has teeth; however this must be in accordance with proper sanctions rather than negligible fines, rather there needs to be harsher criminal sanctions such as detention. The following discussion will compare vicarious and corporate liability and the problems with the current system and then suggest reform; whereby the defence of due diligence would play an integral role.
Application of Vicarious and Corporate Liability:
The application of vicarious and corporate liability has become even more confused due to a recent spate of cases that seem to be merging the two actions. In NRA v McAlpine there was a case of water pollution in a river resulting in dead fish. The company's site manager took responsibility; however the NRA decided to prosecute the company directly therefore the company had to decide if it was a strict liability offence or not as it allowed for one of two actions caused (strict liability) or knowingly permit (mens rea). McAlpine argued that it was a mens rea offence in order to exclude liability; however the court decided it was a case of vicarious liability therefore held accountable. The problem with this case was whether it really should have been caused as opposed to knowingly permit, i.e. a case of corporate liability; however this was the first case that pointed towards companies being held liable for their employees acts regardless of mens rea. In the case of Shanks v McEwan which was a case that definitely required mens rea because the company was charged with knowingly cause under Section 33 (1)(a) of the EPA 1990, which dealt with a waste management license and the actions of a site supervisor, which was not a controlling mind of the company, who had failed to fill out the correct paperwork when a change in the deposit of some waste occurred, i.e. a breach of the waste management license. This breach was committed by the site supervisor; however how could this be imputed back to the company as he was not the controlling mind of the company. The answer formulated by the court was that as the controlling mind of the company knew they ran a waste management business under a waste management license this was enough knowledge that any breach equals corporate liability.

Therefore the courts finagled the laws of corporate liability to fit the circumstances which has created a merged law of corporate and vicarious liability, i.e. the need for a new law.
Need for Reform:
The situation now with respect to companies being liable is a confusion of vicarious and corporate liability, which has in truth after Shanks resulted in a case where the courts will juggle the facts to equal corporate liability. In short this makes a case of there always being liability for the act that has breached the said statute, therefore is in truth vicarious liability. The following scenario will apply the post-Shanks formulation:
In the case were an individual employee of a company has unintentionally caused the chain of events and knew but omitted to rectify the problem therefore he could be prosecuted for causing the pollution of a river under section 85(1) of the Water Resources Act. He would be charged with knowingly permitting because omitted to do anything to stop the pollution going into the river. However there may be a case of causing the pollution because of the case of Empress Car Co (Abertillery) v NRA may argue that the acts of omissions may have caused the end pollution, i.e. it may have been prevented; yet the case of Schulmans has resulted in an omission being a case of knowingly permitting. In the case of the company as a whole the question is whether the EA can prosecute vicariously or corporately. The problem with this section it has the added part of knowingly permits which adds in mens rea; therefore vicariously liability is not applicable, which deals with pure strict liability offences, i.e. knowledge is irrelevant. Therefore corporate liability relies on the fact that brains not hands make the corporation liable, therefore the company has to know and have direct control of causing the individual's actions . Therefore unless it can be shown that the individual's actions were a direct cause of the pollution and he was a controlling mind there would not be any overall prosecution of the company under traditional corporate liability. However, the case of Shanks has resulted in the case that if the company has a license to do a certain activity and the pollution happened due to actions within the bounds of the license on premises that the license covers then the company is liable. Therefore causing a situation where vicarious and corporate liabilities are melded. In this case if a license has been issued and pollution is a result of a person carrying out the activities therefore there would be a good case to apply the Shanks Criteria and extending the liability of the company in relation to polluting the environment. The problem occurs when the actions do not require a license then it will be hard to use this criterion.
A proposed law that combines vicarious and corporate liability into one ambit, where a company is liable for any breach of a statute whether is it solely based on actus reus or both mens rea and actus reus i.e. liability when there is a breach of a law by a corporation in the sense of has extended the Shanks Criteria to all breaches of statute regardless of mens rea and provided that guilt will automatically be imputed back to the company; however to protect the company from reckless acts of employees where due diligence by the company has taken place as a defence. This is not a new defence as in many mens rea statutes it includes a due diligence defence; hence there is a body of case law that protects companies when all reasonable precautions have been taken. A similar notion is used in the new proposed draft bill for Corporate Manslaughter that is based on negligence principles and if all reasonable steps have been taken to protect individuals from harm there is no case of negligence.

Conclusion:

If there was a new law replaces the problems with the corporate liability to create an extension of vicarious liability in circumstances where mens rea is required, which means that companies are obliged to monitor their employees and not expect to avoid liability through in direct orders and lack of responsible care. If this law was to be applied to the above scenario it would not matter is there was a waste management license, as the guilt would be imputed back to the company, as long as it was not shown that the actions of the employee were so reckless or the company had taken steps that such occurrences would not happen, i.e. they were completely unforeseeable as the company had taken due diligence. This will be welcomed by environmental lawyers as this means the long struggle to target companies for sloppiness and lack of correct monitoring of their employees, or just substandard conditions for the work they are undertaking. This will also benefit other areas of law it is just that the area of biggest growth in finding companies liable is the environment because action needs to be taken for companies to ensure that environmental laws are respected and if broken a small fine or avoidance of liability will not occur, i.e. in every case there is a breach of an environmental law there will be liability held by the company. Therefore making due diligence a very important part of ensuring that companies are adequately punished for breaching a statute if there was no system of due diligence to ensure such breaches were minimized.
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