Corporate liability in criminal law
Corporate liability in criminal law outlines the extent to which a corporation as a legal body can be made liable for the wrongdoings of the natural persons it employs. We shall start this essay with a definition of what constitutes a corporation and a crime. We shall next consider its subsequent development throughout these years and we will then move on to establish the various bases of corporate liability charged to a corporate defendant, in our context, a company. A critical evaluation of each of the various bases of liability will be produced. We shall finally end our essay by assessing the position of the current law today.
2. Definition of a Corporation
The relevant and current legislation relating to companies is the Companies Act 2006. The Act treats companies and corporations separately although they are both similar concepts. A corporation is defined as an artificial person created by law  . Corporations exist independent of human beings who are in fact members of the entity.
Lord Viscount Haldone LC in the Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd case defines a corporation as “an abstraction. It has no mind of its own any more than it has a body of its own…"  .
The distinguished New Zealand Judge Sir John Salmond, stated in the last edition of his jurisprudence that although corporations are deemed to be fictitious persons, the acts and interests, as well as rights and liabilities, attributed to those corporations by the law are in fact those of real and natural persons  . If such is the case, we can thus deduce that just like human beings, that corporations could similarly be convicted for both tortuous and criminal offences.
Let us now turn to what constitutes a crime.
3. Definition of a Crime
A crime is a wrongdoing classified by the State as a felony or misdemeanour  . The Courts look at crimes as a moral wrong demanding retribution. Corporate crime has been defined as “an illegal act of omission or commission, punishable by a criminal sanction, committed by an individual or a group of individuals in the course of their work as employees of a legitimate organisation.  "
4. Development of Corporate Liability
In the past 15 years, the issue of criminal liability among corporations has aroused remarkable interest. A series of disasters in the United Kingdom which lead to a significant loss of lives, such as the King’s Cross Fire in November 1987, the Piper Alpha oil rig explosion in July 1988 and the sinking of the Herald of Free Enterprise  in 1991 have surprisingly left considerable thought towards seriously considering the criminal liability of corporations. Several factors have hindered the development of corporate criminal law. Firstly, there was the procedural requirement that an accused attend in person, but this has been changed by s.382 of the Companies Act 1963 which also allows a corporation/company to be represented at all stages of the court proceedings.
5. BASES OF CORPORATE LIABILITY
We shall now come to the main part of our essay, taking into account the circumstances in which a corporate defendant can be liable for a criminal offence. Several doctrines, theories, common law cases, strategies and statutes would be considered and a critical evaluation of each doctrine and theory would also be provided.
5.1 The Identification Doctrine
The identification doctrine has been described as being the main rule for determining corporate liability for both civil and criminal wrongs carried out by agents and the servants of the company  . Under this theory, the minds, collectively and individually, of the person or persons who control and direct the corporation are in law, the mind of the corporation itself  . The identification doctrine is thus also known as the directing mind theory.
Indeed it was recognised that one of the beneficial aspects of the identification doctrine is that it has a unifying elegance and simplicity, and has also been accepted by case law over a long period of time, without any major criticisms  . Two significant academic articles have also taken up the directing mind doctrine as one providing a more intelligible and fair basis for corporate criminal liability as compared to theories of agency and vicarious liability  . Moreover, the American Penal Code also adopted the concept as one of its fundamental principle of corporate criminal liability  , and has thereby received the acknowledgement and support of the Law Commission in UK  .
The development of the identification doctrine started with the Lennard’s Carrying Co. Ltd v Asiatic Petroleum Co Ltd case. In this case, the House of Lords questioned whether a corporate shipowner could be made liable for the loss of his cargo due to the negligent navigation of one of its ships. Viscount Haldane stated that actual fault did not have to do with the liability of a servant or agent only, but also with the liability of the company who would be made liable by someone whose action was the very action of the corporation itself  . The directing mind and will theory was thus applied.
Shortly afterwards, in the case of Daimler Company Ltd v Continental Tyre and Rubber Company (Great Britain Ltd)  , Lord Atkinson also confirmed that a company’s place of residence was one from which the directing mind and will of the company operated and controlled its senior officers  . However, it should be emphasised that the Lennard’s case was not mentioned in the Daimler case, and it was also stated that the approach of Lord Parker in the latter case, was not identification theory, but based simply on the agency theory instead  .
Indeed there has been some blurriness as to whether the identification or agency theory applies in some cases. In Ranger v Great Western Railway  , Lord Cranworth stated that a company can only achieve its targets and goals through the agency of its employees, and if the agents conducted themselves in such a way that an employer would be held liable for their acts or omissions, then the same rule should apply where the employer was a corporation. The question here was simply one of agency and thus the identification theory of the ‘directing mind and will’ was not mentioned, even though the cashier actually acted like the general manager himself.
Hence, it can be noticed that the identification doctrine has been used in cases involving issues with regards to the civil liability of companies. It may be assumed that both the identification and agency concepts could be regarded as harmonious alternatives, but it is doubtful as to whether this is always the case  .
Case law also involved other considerable difficulties: Lord Reid criticised the courts’ approach stating that persons convicted of offences for which they were entirely blameless was mere injustice  . While Lord Reid added that those previous decisions were unsatisfactory, Lord Morris used bolder language adding that the principles of vicarious liability were limited to civil matters only, and were not applicable to criminal cases  .
Finally, the use of the directing mind test triumphed in the famous case of Tesco Supermarkets Ltd v Natrass  . It was perceived that this was a sign that a more liberal trend now prevailed concerning the criminal liability of employers and employees for the actions of others  .
However, 20 years later, a crack appeared in the directing mind theory structure and this was brought up by the case of Tesco Stores v Brent London Borough Council  . As Wickins outlines, it is surely ironic and unique that in the annals of legal history, one corporate group (Tesco) provides the vehicle for both the creation of the new law, and its eventual subsequent failure in favour of the previous status quo  . In the Tesco Stores case, the knowledge and belief was stated to be that of the cashier, and not that of the company. The original principle was thus under direct challenge, and the Tesco Supermarkets case was thereby distinguished.
Additionally, the case of El Ajou v Dollar Land Holdings PLC  in fact reshaped the whole doctrine. In this case it was held that different persons could be the directing mind and will of the corporation for different purposes. They thus did not have to be in the senior or top level management. The conclusions reached in the case thus had somehow radical implications for the original doctrine. It is thus suggested that the reasoning adopted in the case is not an application and example of well established principles  . Instead it can be described as being a radical definition of the whole, original theory. Also, the outcomes reached as a result of those previous cases all appear to have a very conservative approach on the issue, irrespective of whether the original or extended application of the theory has been adopted  . Likewise, it is still considerably doubtful as to whether the directing mind extends beyond top level management employer or director who exercises full discretionary powers and control of the corporation with the permission of the board  .
Moreover, in the Tesco Supermarkets case, there was also no mention as to why the supermarket manager was not regarded as the directing mind of the corporation and thus not found liable  . The El Ajou case, with regards to its radical conclusions and outcomes, appears to open up new possibilities such that a person can be a directing mind even if he does not possess full discretionary powers. It also presumes that shadow managers that are those having only the de facto (rather than de jure) management of a corporation could be entitled to be the directing minds of the company  . This could have other implications leading for example, a group of middle level managers to rebel against the board of directors, to struggle for power and be regarded as the directing mind, if no immediate actions are taken  .
Further erosion of the identification doctrine could be witnessed in the Re Supply of Ready Mixed Concrete (No.2)  case, where it was held that the principles in the Tesco Supermarkets case were not relevant to the law of contempt, so that their decision was solely based on law relating to contempt. Moreover, distinguishable from the Tesco Supermarkets principles that the most senior employees were in fact the directing mind and will of the company, R v Redfern  disagreed. According to the Redfern case, the mere fact that a person holds a managerial position is not in itself sufficient to characterise the employee as the company itself. Comparatively, while Lord Reid states that the directing mind can be either the board of directors, or the managing director or the other senior officers of the company, Viscount Dilhorne suggested that it would be “those who control the company or parts of its operations are not responsible to another person in respect of discharging their duties.  "
But regardless of the different views, the core issue remains the corporate structure and hierarchy in order to evaluate and point out whose conduct it is that the company is directly liable for. In bigger companies, due to the large disparity that exists between the directing mind and the operational level, criminal liability is even harder to impose. In the Herald of the Free Enterprise  , both the company and senior managers were found not to be liable because it could not be established that they were reckless as to the deaths. Smaller companies on the other hand, are easier to impose corporate criminal liability onto, since the directing mind is more likely to be involved in the day to day operations of the business, and thus be well acquainted with the company information from which mens rea can be derived.
Hence, when it comes to the directing mind theory, many contemporary issues and concerns appear to be present. The approach in Tesco Supermarkets, even if it was introduced without major criticisms, is now blamed for limiting corporate liability to the acts of directors and a few high level managers. And can be seen from what we mentioned above, not only is this unfairly beneficial for large companies for escaping criminal liability committed by low level employees but it also causes significant problems in cases of corporate manslaughter, as unlike small companies, it is unlikely that a manager will commit both the actus reus and mens rea of an offence.
Furthermore, in large companies, it is difficult to attach liability to one particular person as it difficult for the directors to determine who actually committed the crime. It has also been suggested that the recent physical and financial disasters in the corporate field, and the subsequent public outcry to introduce a strict regulatory regime for corporations may be one of the reasons why the identification doctrine has fallen into disfavour  .
And while the leading texts and cases have been unwilling to treat the directing mind as an intrusion on the doctrine of separate legal entity, the directing mind theory tends to precisely do just that, thereby blurring the distinction between a company and its senior officers and directors  . Thus, although Tesco Supermarkets case establishes a clear and definitive test, it does not rid the law of all its uncertainties, and it is far from certain that it has created an acceptable basis of responsibility.
5.2 The Attribution Doctrine
The doctrine of identification was re-affirmed by Lord Hoffman in Meridian Global Funds Management Asia Ltd v Securities Commission  . He noted that the identification doctrine is based on a general rule and a specific rule of attribution, in turn established by taking into account the memorandum and articles of association as well as the rules of agency  . The specific rule of attribution is thus determined by looking at the specific legislation relating to the company’s charge, and hereby implies that a particular statute will be intended to apply to a company  . In certain circumstances, like in criminal law for instance, the special attribution rule is required to be able to determine who the alter ego of the corporation is.
It should be emphasised that seniority and determination of who the alter ego person of the company is, in most cases, would not have been an issue if the rules of attribution were properly applied. It thus goes without saying that had the rules of attribution been properly applied in the Tesco Supermarkets v Natrass case, the branch manager would have been the directing mind and will of the company.
Needless to say, the size of a company will logically diminish the identification doctrine- the larger the company and the more complex its structure, the more challenging it is to identify whose mind within the company can be attributed to the corporation for liability  . The Law Commission likewise stated that it was unfair for a small company to be guilty of manslaughter, but not a large one- there should be no justification for allowing a distinction as to liability between the two  . Rose LJ in the case of Re Attorney General’s Reference (No.2 of 1999)  emphasised that large companies should be as vulnerable and as liable to prosecution for manslaughter just like small companies do. Thus, owing to public pressures and recent disaster, Jack Straw the then Home Secretary, drew out a consultation paper in March 2000 regarding a similar test, but went further to include projects  . The scope of the offence was widened to include partnerships, schools, hospital trusts, charities among others.
However, the attribution doctrine as a basis for liability was still not strong enough to gain public approval regarding corporate liability. And with time, the unsatisfactory result of charging a company with involuntary manslaughter prompted the debate of differentiation between the liability of big and small companies  . This subsequently led to the enactment of the Corporate Manslaughter and Corporate Homicide Act 2007. The attribution doctrine is now then abandoned in favour of the gross negligent test in the new 2007 Act, which we will now turn to.
5.3.1 The Corporate Manslaughter and Corporate Homicide Act 2007
The Corporate Manslaughter and Corporate Homicide Act 2007 (here forth referred to as the 2007 Act) came into force in April 2008, and creates an offence termed as corporate manslaughter in England and Wales and corporate homicide in Scotland. The Act retains much of the common law, such as the need to establish a duty of care and breach of that particular duty, but it replaces the common law offence of manslaughter by gross negligence as it was enforced by companies before  . The Act also reserves the charge derived from Health and Safety regulation  . So the current law now is such that a company can be charged of corporate manslaughter under the new 2007 Act and under health and safety legislation.
Indeed some beneficial aspects came alongside the enactment of the new Act. Instead of identifying the person who failed to satisfy the duty of care, which was the problem under the common law previously, the new 2007 Act identifies senior management as the one who should be culpable for gross breach of their duty of care as they play a significant role in the management and decision-making of the whole or part of the company’s undertakings  . The new offence created under the Act therefore has the underlining objective of making conviction easier for involuntary manslaughter relating to companies. By so doing, the Act similarly chooses the corporate approach to liability and rejects the individualistic concept relating to liability under the identification/attribution doctrine  . Senior management will be considered both collectively as well as individualistically.
The new Act also appears to be consistent with Lord Denning’s proposal in Tesco v Natrass stating that seniority does not necessarily illustrate that the person identified is the directing mind of the company  . The Act thus fixed both the issues of seniority and manager, with the simple meaning of management. So instead of the word “manager", “management" is now what is proposed in the Act. Another benefit is that senior managers would not be able to escape prosecution by the delegation of their inherent duties down the hierarchy  . As mentioned above, if that was applied before, many of the defendant companies in the manslaughter cases, who were not found liable, would now be caught under the Act. In P & O European Ferries (Dover) Ltd  case, the defendant company probably would probably have been held liable under the 2007 Act, instead of being acquitted. It can therefore indeed be noticed, that surely, the 2007 Act would result in more successful, fair and satisfactory prosecutions particularly those of larger companies. Likewise, the scope of an organisation’s duty has been broadened to include employees, contractors and anyone else connected with activities of the organisation  . Even the parties involved in the unlawful conduct would now owe a duty of care to one another.
However, some criticisms could be pointed out from the previous 2005 Bill and 2006 Bill on corporate manslaughter. These criticisms are still relevant to the 2007 Act as it is largely similar to both preceding bills. It can thus be read them, for now, as applying to the 2007 Act as well  . To begin with, the definition of “senior management" can lead to further problems in determining whether certain persons in fact play a major role in making decisions about an important part of the business’s activities  . Bebb argues that “the endless legal debate as to whether the defendant is so senior as to embody the company will be replaced by a similar debate as to whether or not the defendants are senior managers.  "
Similarly, it is deemed that the issue of failure being either at junior level or senior level is relevant to sentencing but not to liability  . Bebb proposes that the senior management test be replaced by a more general “management failure" test instead  . He also argues that the senior management test would be more favourable to the big company than the small one, as the former has more scope to argue that the failure did not occur at a sufficiently senior level  .
5.3.2 Statutory Duty- Insolvency Act 1986 and Health and Safety at Work Act 1974
Corporate liability can also be attributed to the company if it was found to be in breach of some statutory requirements or statutory duties. The Section 249 and section 435 of the Insolvency Act 1986 for instance, would be briefly mentioned here- both sections of the Act identify the persons connected and associated to the company respectively. Thus, as mentioned before, these natural persons represent the company and if these very individuals are in breach of their statutory duties, they will be held liable on behalf of the company.
We also need to talk about prosecution under the Health and Safety at Work Act 1974 Act (here forth referred to as the 1974 Act) which is an alternative to corporate manslaughter in corporate incidents. S.2 (1) of the Act states that, you should ensure, so far as is reasonably practicable, the safety and welfare of your employees. Nevertheless, a difficulty under the 1974 Act is that it is enforced by the Health and Safety Executive (HSE) which uses a compliance strategy and thus favours advice and assistance to companies instead of prosecution  .
Similarly, even if it resorts to prosecution, it would not get the same outcome it is seeking. This can be illustrated in 2 cases: R v HTM  and R v Transco Plc  . Two pieces of information, presumed to be good news in nature, can be derived from these cases. Firstly, it was possible for employers to refer to evidence that the victim was responsible for the accident and secondly, on appeal, the fines were reduced in the Transco case. However, one issue was apparent from the HTM case: foreseeability- the accident had to be foreseeable in order for the duty to arise. However now, as mentioned, the employers are able to produce evidence of the employee’s fault as their defence, in an action under the 1974 Act.
But would that amount to a lowering of the bar for employers? The fines being reduced for the defendant companies could also illustrate this doubtful question. In my opinion, each case should be viewed on their merit because others argue that fines have significantly risen instead such as in Transco Plc v HM Advocate  , where Transco was fined £15million on a health and safety offence. It should however be borne in mind that while grave breaches will attract very high, deterrent fines, the courts are also ensuring that on the other extreme, this fine does not jeopardise their costs in relation to future safety work  .
Hence, summarising the evaluations of both the 2007 Act and the 1974 Act as bases of liability for corporate manslaughter, the fact that both alternatives ca be used harmoniously is itself a good sign that corporations has less chance of escaping liability. We should acknowledge that the introduction of the senior management test itself is a good start, and amounted to a major change in the law on corporate manslaughter  . In R v Great Western Trains Ltd in 1999  , the crash resulted in the death of 7 people and more than 151 injured and the company was thus charged with seven counts of corporate manslaughter as well as one charge bearing on the 1974 Act. There is therefore no doubt that with both Acts, the corporate manslaughter regime will indeed be tougher.
5.4 Aggregation Theory
Another basis of corporate liability is the aggregation theory, where the combined fault of various individual faults, each of whom lacks the required mens rea (mental state/ intention), is charged to the corporation  . But consideration of the actus reus (physical acts) as well as the mens rea elements under this theory is aggregated and applies only to those who are the directing mind and will of the company  . Beneficially, this doctrine recognises that isolation of a single individual, especially in large companies, is unrealistic and almost impossible.
Nevertheless, the aggregation doctrine is inefficient in terms of deterrence in the sense that it does not give any advance notice to the corporation of what they can do to ensure their own maximum protection and keep potential risks of criminal liability to a minimum  . Moreover, this doctrine fails to consider the real reason of the offence- if might for example, not always be due to the individual faults of the employees, but due to a system failure instead which arose because of the company’s defective and inefficient system  . The P & O case  similarly still doubts whether the acts and omissions of various employees or individuals would have amounted to a corporate crime. The real fault had to do with a lack of safety obligations and policy within the organisation  .
But in the United Kingdom, the aggregation theory was rejected in R v HM Coroner for East Kent Ex p. Spooner  . In the case, Lord Bingham in fact stated that since the law prevents the conviction of a particular individual to be based on aggregating other people’s mens rea, it should undoubtedly be the same for a company. Putting emphasis on this important point of law, he stated that a case against a defendant “cannot be fortified by evidence against another defendant" thus implying at the same time that a case against a corporation can only be made if subsequent evidence can be properly addressed in order to establish guilt on the part of the corporation itself  . It is on this ground, that the directing mind of the company did not possess the required fault necessary for manslaughter, leading the company being acquitted. The rejection of the aggregation theory was also referred to and confirmed by the Court of Appeal in Attorney-General’s Reference (No. 2 of 1999)  .
It should however be noted that contrary to English Law, the American authority greatly favours the aggregation doctrine  . This can be illustrated by the case of United States v Bank of New England  , where the bank was convicted for violating a statutory requirement.
5.5 Vicarious Liability/ Indirect Legal Liability
Another way by which a company can be made liable for a criminal offence, is by being made vicariously liable. This principle will often apply to mostly regulatory, strict liability offences  . Vicariously liability will then be attributed to the company, just like in any other circumstances, it can apply to any natural person as well.
According to Jefferson, there are two types of strict liability. There is the one where both the company and natural person would be made liable for an offence if the very offence was committed by an individual to whom they have delegated their duties imposed by statute  . This is termed as the delegation doctrine. The second type arises in cases of strict liability offences set out by Parliament and can be taken to imply that liability will be imposed on any one party, be it corporate or natural, for the particular acts of the individual who performed the prohibited act  . This is termed as the extensive construction.
In National Rivers Authority v Alfred McAlpine Homes (East) Ltd  , the defendant company was charged for polluting a controlled river with cement and this was contrary to s.85 of the water Resources Act 1991. The site agent and site manager accepted their liability. The doctrine of extensive construction applied and the company was made vicariously liable for the acts of its employees irrespective of their respective hierarchy in the company.
There may various justifications as to why it is the employer who should be made vicariously liable for an offence committed by his servant in the course of his employment. It is assumed to be fair- employers are the ones with larger financial means and assets so it is more convenient for them to settle any losses. Besides, tort law is such that an injured individual should, for policy reasons, be allocated some form of compensation and the employers would do just that  . Secondly, perceived in a different angle, it is under the employer’s commands that a tort is committed; by imposing duties to be performed by the servant, and so the employer can be seen to derive some particular gains from those duties- he must thus bear the consequences of any mistakes or prohibited acts committed by them  . Lastly, since the mens rea and actus reus of the employee will be assigned to the employer who will be thus be held responsible or liable, the vicarious route of liability principle, has been deemed to make employers more vigilant, cautious and responsible to keep risks of accidents occurring to the strict minimum when conducting the business  .
However, in England, the courts have hesitated to extend the company’s liability to encompass the fault of every employee no matter how junior their position is in the hierarchy  . The Courts have acknowledged that is in fact unrealistic to expect the company to be liable for the actions of employees that may number in the thousands  . Similarly, till today, it has not yet been proven that vicarious liability would be considered a popular and adequate method for imposing liability on companies in cases dealing with involuntary manslaughter offences  . And as mentioned above, it may still be the case that even if the company has taken all the reasonable steps, the company will still be made liable for any wrongdoings then committed by the employees  . It is thus considered too vast and wide an offence, and this is indeed why it has not been popular in its usage when in comes to corporate liability, except most probably when tort cases are concerned.
Hence, as we can acknowledge from this paper, corporate liability can arise in various circumstances. The application of the doctrines which determine corporate liability, vary and as we have seen so far, their application and relevance depends upon the circumstances of each case. The identification doctrine appears to set out too high a limit by restricting the nature of employees who could be labelled ‘liable’ for the company. Surely the principle has certain lacunae which either needs to be filled or wholly replaced. Moreover, due to an overall dissatisfaction, the attribution doctrine has been replaced by the Corporate Manslaughter and Corporate Homicide Act 2007. We can thereby expect a high level of optimism regarding the future resulting in more prosecutions, and higher fines for corporations.
And even though it may not be considered appropriate to apply the very existing rules designated for human beings to corporate organisations, in my point of view, the realist approach should be that a company, being an artificial body created by law, cannot act, except through its agents- so the acts and intents of its agents should be those of the company itself. In the actual economic climate, and with regards to the post-economic meltdown world, it is crucial for companies to ensure that adequate anti-corruption strategies, health and safety regulations, and proper organisational structures are in place so that they can proactively manage and keep any potential litigation risk to a strict minimum.