Our offices are open as usual over the Easter break

Corporate liability of a company

4688 words (19 pages) Essay in Free Law Essays

02/02/18 Free Law Essays Reference this

Disclaimer: This work has been submitted by a student. This is not an example of the work produced by our Law Essay Writing Service. You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of LawTeacher.

Corporate liability of a company

This essay is written on the area of company law, specifically concerning the corporate nature of a company, which allows it to have its own legal personality in order to conduct its own business in its own capacity without the need to be dependent on the legal personality of its owners.

The first part of this essay discusses two statements directly related to the corporate liability of a company, and how the liabilities of the owners of the company are limited to ensure that the corporate personality is able to effectively conduct the business without intervention from the owners and their interests. It then focuses on aspects which may make the owners nevertheless guilty of criminal offences.

The second part of this essay discusses the enactment of the Corporate Manslaughter and Homicide Act 2007 [1] in light of the statements previously discussed in the first part of the essay.

One of the substantive cases in focus under this part is Transco Plc v Her Majesty’s Advocate [2004] SLT 41, [2] which concerns a company involved in the transmission and distribution of gas, where the company itself was prosecuted as a result of a gas explosion resulting in the deaths of four people. Although the case is that under the Scottish law for the offence of culpable homicide, this case will be taken into account as the offence of culpable homicide under Scottish law is broadly similar to the English law offence of gross negligence manslaughter.

2. Part A

The two statements specifically refer to the issue of separate corporate personality of the company, with the first statement focusing on the aspects of businesses of which the company is able to function independently according to this doctrine, and the second statement focusing on the breakdown of such corporate personality in relation to the attachment of criminal responsibility to artificial persons.

The most authoritative legal reference for the basis of the doctrine of separate corporate personality of a company can be attributed to the landmark case of Salomon v A Salomon & Co Ltd [1897] AC 22, [3] where the court upheld the doctrine which was also entrenched in the Companies Act 1862. [4] 

In this case, Mr. Aron Salomon transformed his sole proprietor business into an incorporated company by selling his business to the company which he set up, giving shares to his wife and five eldest children, and making two of his eldest sons, directors. However, he retained 20,001 of the 20,007 shares of the company, and as he sold his business to the company, also acted as a debenture holder. When economic trouble ensued, the company later went into liquidation and the liquidator sought for Mr. Salomon to pay all the creditors as the owner of the company.

The House of Lords however held that there was nothing fraudulent in the way the company was incorporated, and Mr. Salomon was entitled to sell his business to the company. Mr. Salomon was not liable for the debts of the company as the company is a separate legal entity distinct from the shareholders of the company.

Get help with your essay today, from our professional law essay writers!

Qualified writers in the subject of law are ready and waiting to help you with your studies.

Get help with your essay today

from our professional essay writers!

Visit www.lawteacher.net to see how we can help you!

There are several effects of the concept of separate legal personality when it comes to the proper functioning of the company, of which the courts have easily devised a set of rules allowing such actions to be performed.

The main importance of a separate legal personality is the ability to contract in its own capacity. The importance of this can specifically be seen in the case of Lee v Lee’s Air Farming Ltd [1961] AC 12, [5] wherein the court identified the director and the company as ‘separate and distinct legal entities which could enter, and had entered, into a valid contractual relationship’. As the employment was valid, the court allowed his widow’s claims against the insurance company for compensation for the death of Mr. Lee in the course of the business as an employee.

The second effect of a separate legal personality is the ability to sue on its own and be sued without due regards for the owners of the company. It must be noted that as the corporate personality of a company stands throughout its lifetime, an owner of a company could not set aside the corporate personality as he so wishes and must at all time regard the company as a completely separate entity from himself. This prohibition can be seen in Macaura v Northern Assurance Co Ltd [1925] AC 619, [6] where Macaura, the owner of a company tried to rely on his own personal insurance in claiming insurance compensation for the destruction of timbers caused by a fire. In this case, the court prevented such reliance, invoking the doctrine of separate legal personality and establishing that Macaura and his company are two separate and distinct legal entities.

The courts have also generally taken into consideration the possibility that the corporate personality might be manipulated in order to limit the liability of its owners through fraudulent means. Hence, the courts have also established the doctrine of piercing or lifting the corporate veil in order to place liability on its owners. Some of the exceptions which will allow for this doctrine to apply are provided by statute, such as in cases of fraudulent as well as wrongful trading, (section 213 and 214 of the Insolvency Act 1986). [7] The case of Jones v Lipman [1962] I All ER 442 [8] is also authoritative in allowing the corporate veil to be pierced when the court considers the company to be a mere facade to hide any fraudulent activities which the owners intend to carry out.

However, such clear rules of application are only available and sufficiently coherent with respect to attributing civil liabilities and capacities. Conversely, the rules relating criminal liability of a company are much more obscure and indefinite. This is because the doctrine of criminal liability comes from the legal Latin maxim of actus non facit reum, nisi mens sit rea, which translates as, “An act does not make a man guilty of a crime, unless his mind be also guilty.” (per Lord Hailsham [1975] pp. 491-492). [9] 

This is where the essence of the problem lies, as it is a necessary component of criminal law to attribute liability through the ascertainment of a guilty mind and a guilty act (mens rea and actus reus) on the part of an accused, whether a corporation or a real person. This raises the issue of whether it is really possible for the court to look into the guilty mind of a company, without looking behind the veil to see the minds of its owners or controllers. A company, in all practical purposes, merely acts as a vehicle of its human employees and representatives, and so, establishing mens rea has proved to be a veritable Gordian knot.

The failures of the court in attributing criminal liability can be seen in many cases such as the attempts at corporate persecution of the King’s Cross Fire (1987), the capsizing of the Zeebrugge, the accident of the Piper Alpha Oil [10] as well as various other incidents in which no criminal liability has successfully caused the prosecution of a corporate body.

The failure of successful prosecutions of companies for criminal liability has caused wide academic debate as well as policy debates for reform in this area, and many rules attempted to be formulated to suit the prosecution of a company under criminal law. [11] 

Get help with your essay today, from our professional law essay writers!

Qualified writers in the subject of law are ready and waiting to help you with your studies.

Get help with your essay today

from our professional essay writers!

Visit www.lawteacher.net to see how we can help you!

In the case of Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705, [12] although this case involves a civil matter involving a company, the dictum of Viscount Haldane nevertheless provided an alternative rule to the traditional doctrine of mens rea by suggesting that the mens rea can be inferred from attributing such from the state of mind of the senior representatives of the company. In that case, he stated that,

“A corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.” [13] 

In the case of Wheeler v New Merton Board Mills Ltd [1933] 2 KB 669, [14] this theory was tested, although in a civil context. The issue concerned the liability of New Merton Board Mills for the negligence of the company in the operations of the factory, resulting in injury to its employees. In this case, the court made use of the doctrine developed in Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705, [15] deciding that a company can be made liable only if it can be shown that the negligence could be attributed to what the court referred to as “its governing nucleus”, or persons having authority from the board in order to carry out company action, such as the directors of a company.

In the case of R v P&O European Ferries [1991] 93 Cr App Rep 72 [16] which revolves around the earlier discussed issue of the capsizing of the Herald of Free Enterprise ferry, Turner J initially put the requirements of mens rea as inferable from the minds of its agents, stating that: “Where a corporation through the controlling mind of one of its agents, does an act which fulfils the prerequisites of the crime of manslaughter, it is properly indictable for the crime of manslaughter.” [17] 

In the case of R v HM Coroner ex parte Spooner (1989) 88 CR App R10, [18] related to the same incident, Lord Bingham similarly attributed liability to “those who were to be identified as the embodiment of the company itself”.

Nevertheless, despite attributing liabilities to persons in order to determine the mens rea of a company, prosecutions in relation to the Zeebrugge capsizing failed on the basis that the negligence was in most of the instances of the incident, attributed to many individual employees of the company, in all levels of jobs, and not within the senior officers of the company. Because of this, the findings for negligence failed to be attributed to the “agents of the company”, and all prosecutions related to this incident failed. [19] 

In R v P&O European Ferries [1991] 93 Cr App Rep 72, [20] the prosecution attempted to use the principle and notion of aggregation in order to attribute responsibility to a company. In the case of the Zeebrugge sinking, hence, a successful conviction for the corporation would rely on the basis that the mens rea of the company is attributable through the collective fault of the senior individuals, putting different negligence together to form one mens rea where the guilt of P&O European Ferries could form its basis on. This argument was however rejected by Turner J, as well as Lord Bingham who both argued that the guilty mind of a company can only be shown if the mens rea of the crime can be attributed to one individual within the company.

Nevertheless, criminal liability for corporate manslaughter was successfully established for the first time in the case of R v Kite and OLL Ltd, [21] wherein, the court found the company as well as its managing directors to be guilty of manslaughter on the basis of gross negligence. In this case, four teenagers drowned on a canoeing trip operated by the accused company who organized an activity centre in Lyme Bay. It was found that inter alia the canoeing trip was supervised by unqualified and incompetent canoeists.

However, the success of the prosecution was mostly because the company was a small operations and hence, the negligence was easily attributable to the company. Andrew Dismore in the House of Commons, accurately commented that:

“[The fact that there was only two successful prosecutions showed] the absurdity of the law of corporate manslaughter as it presently stands. The bigger the company, the less chance of a successful prosecution. Safety awareness, and the great responsibility that it entails, should lie with those at the top – the chairman and the managing director – and not with the employees, such as train drivers or ship’s crews, who are always put up as the fall guys.” [22] 

This case opened the doors for other successful prosecutions, such as the case of R v Jackson Transport (Ossett) [1996], [23] but nevertheless, it has caused room for arguments for reforms with respect to attributing criminal liability to corporations, since it has been clear that the courts have failed to devise rules and principles from traditional doctrines of criminal responsibility where the criminal liability of a company is concerned.

3. Part B

The Corporate Manslaughter and Corporate Homicide Act of 2007 was given the royal assent on the 26 of July 2007 and brought into force on the 6thth of April 2008. The Act established and created a new offence of corporate manslaughter under the laws of England and Wales as well as Northern Ireland, while Scotland was provided with the offence of corporate homicide.

Get help with your essay today, from our professional law essay writers!

Qualified writers in the subject of law are ready and waiting to help you with your studies.

Get help with your essay today

from our professional essay writers!

Visit www.lawteacher.net to see how we can help you!

The case which will guide the analysis for this part of the paper is Transco Plc v Her Majesty’s Advocate [2004] SLT 41 which was tried in the year 2005. The case represented the most successful prosecution of a corporation as well as the largest fine ever imposed to a company, although it occurred prior to the Corporate Manslaughter and Corporate Homicide Act of 2007. In the case, the court fined Transco the amount of £15 million, representing 1% of the annual turnover of the firm for having breached health and safety legislation resulting in a gas explosion and the death of four people.

In this case, Lord Osborne discussed the nature of an incorporated company under the Companies Act 2006. Lord Osborne adhered to the idea propounded by Viscount Haldane in Leonard’s Carrying Company Ltd v Asiatic Petroleum Company Ltd [1915] AC 705, [24] arguing that as a legal fiction, it is impossible for an incorporated company to be “wicked”, and so “it cannot perform the actus reus of a crime, nor can it have the mens rea to commit such a crime in fact.”

Nevertheless, the court made use of the rules of attribution described by Lord Hoffman in the case of Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 [25] and modified it for the purpose of a company by attributing fault towards “who in the company was responsible for the monitoring of the [business]”, said to be the “directing mind and will” of the company.

In looking at English cases to discover the traditional position of England concerning the criminal liability of a person, the court looked at the Zeebrugge Harbour incident, specifically in light of R. v Her Majesty’s Coroner for East Kent, ex parte Spooner (1989) 88 Cr App R 10 [26] where the Divisional Court held that a corporate body could be guilty of manslaughter if the mens rea and actus reus of the company could be established against “those identified as the embodiment of the company itself”. In Transco, the court specifically made reference to Bingham LJ’s rejection of the aggregation theory, although made note of the statement of Turner J holding that an indictment might lie against P&O European Ferries, were Turner J stated that “Suffice it that where a corporation, through the controlling mind of one of its agents, does an act which fulfils the prerequisites of the crime of manslaughter, it is properly indictable for the crime of manslaughter.”

The main problems in sustaining a conviction against a company can be seen in the case of R. v Great Western Trains Company Ltd (unreported) (30 June 1999), [27] where Scott-Baker J discussed the idea of liability for manslaughter against a corporation, holding that the doctrine of personal liability cannot be used in these instances, and as such a conviction could not persist on that basis. Putting it as a fault in the law, Scott Baker J stated that,

“The law is, in my judgment, clear and well settled, a view which I believe is shared by the Law Commission. It is not for judges to change the law; that is a matter for Parliament. Were the law otherwise, and the Crown entitled to advance its case on the basis of personal liability of the company, a conviction, assuming gross negligence to be proved, would mark public abhorrence of a slip-shod safety system leading to seven deaths and many injured victims…There are many who say that the present state of the law is unsatisfactory and that the present obstacle to prosecuting large corporations for manslaughter should be removed. However, if the law is to be changed it is up to Parliament to do so.”

In looking at these cases, the court summed up the position of the law as follows (taking into note the similarity of legal application in Scotland and England),

“It is an obvious consequence of that state of affairs that no company can possess the necessary mens rea for the commission of a common law crime in Scotland; since a company has no mind, it cannot have a guilty mind. In England, the problem has been overcome by the attribution to the company of the necessary mens rea in certain circumstances. It appears to me that the clear rules concerning these matters, developed in England and now accepted in Scots law, demand that the person who is possessed of the guilty mind must occupy such a position in the control of the company that they are capable of being characterised as its directing mind and will, in relation to the subject-matter of the action in question, responsible to no superior in the company and charged with that responsibility himself, before the rules can operate. [28] 

It can hence be seen that the law regarding companies’ criminal liability was in need of an overhaul, and for this purpose, this essay will hence focus on whether the Corporate Manslaughter and Homicide Act 2007 has successfully covered the flaws of the legal system relating to the attribution of criminal liability to companies.

It must be noted that the guidance provided under the Transco case has been utilized in deriving the guidelines under the Corporate Manslaughter and Homicide Act of 2007, and the case represented the only successful prosecution of homicide in Scotland. Accordingly, it must be agreed that the enactment has indeed improved the law by codifying the guidelines which were provided under the Transco case, and making it applicable within England and Wales as well as Northern Ireland, allowing the consistent application of the law regarding criminal liability of companies along with Scotland (where the Act seeks to further substantiate and expand on the doctrine propounded in the case).

The 2007 Act provides new guidelines for which a company can be made liable in a criminal action, and abolishes completely the common law offence of gross negligence manslaughter as was previously applicable under English law. It creates instead an indictable offence against a company where its activities which are managed or organized had caused the death of a person, where the activities had amounted to a gross breach of a duty of care owed between the company and the deceased victims.

In looking at attributing liability, the Act made particular mention of the management and organization of the senior management of the Company in order to infer negligence. The Act also made some guidelines of penalties against the company, which includes the publication of company failures, remedy of all breaches as well as a provision for an unlimited fine. The Sentencing Guideline of 2007 suggested a starting fine of 5% of the company’s annual turnover, which is much larger than the fine which was given in the case of Transco. [29] 

Get help with your essay today, from our professional law essay writers!

Qualified writers in the subject of law are ready and waiting to help you with your studies.

Get help with your essay today

from our professional essay writers!

Visit www.lawteacher.net to see how we can help you!

It is submitted that the new guideline under the Act is a much welcomed approach, as it abolishes the confusion caused by the different rules and principles established by the courts in trying to develop new principles while still adhering to the traditional rules of manslaughter. In particular, the Act has completely done away with the principles of necessity of attributing negligence to one member of the “governing nucleus” as the “directing mind and will” of the company, as well as the unsatisfactory approach of the principle of aggregation (which was rejected by the courts).

Instead, the Act made use of a new guideline, which is to infer guilt from the negligence of the senior management of the company, evidenced from a failure in terms of organization and management of the company. Using these new guidelines, it would be seen that should the previous cases which have seen failures in prosecuting companies made use of these guidelines as per the provisions of the Act, it would have been easier to attribute liability as there is no need to infer a guilty mind from the company through a guilty mind of one member of the senior management. For instance, prosecution in the Zeebrugges incident could have been successful by proving that the senior management of the company had failed in organizing and managing the company, a result of which sees negligence occurring from all parts of the ferry. In attributing such liability, the courts might have also seen successful prosecution by evidencing the existence of a fiduciary relationship between the victims and the company: another one of the new guidelines as set out under the Act.

5. Research Diary

The writer made independent research prior to writing the essay, and as such, the list of references will make use of uncited references as well as those cited under the footnotes of this essay.

The sources used were textbooks as well as online sources, archived through Lexis Nexis, Westlaw UK and Google Search Engine or Google Scholar and Google Books.

The search words used included “corporate personality” and “corporate personality criminal liability”. For example on Westlaw UK “corporate personality /p criminal liability” revealed 85 results in the Journals section many of which pertained to the essay question.

All the relevant researches recovered were then compared, and only online journals and authoritative sources were used. Writings from blogs or other informal sources were viewed for any relevant information, but were not used as a source in writing this essay.

On the first day of the research, the writer obtained various sources relating to the issue of separate corporate personality as well as criminal liability of a corporation in order to tackle Part A of this essay.

For Part B, the writer obtained the 2007 Act as well as looking at several cases which could be potentially used for the purpose of Part B.

On day two, the writer began to read excerpts from the sources, and began the process of writing and detailing the issues for the essay in Part A. For Part B, the writer successfully discovered the case of Transco, and began writing up on the issues of the case, relating it to the requirements of the question as well as the Act.

The case of Transco was discovered via Westlaw UK by conducting the following search: –

On 23 March 2010, under the ‘cases’ tab, the writer entered in the ‘Free text’ box: ‘”culpable homicide” and “gas explosion”’. This revealed the case of Transco.

In searching for the Transco case, the key words ‘”culpable homicide” and “gas”’ revealed too many cases (19 cases in total) and was considered to be a failed search.

In searching for the origin of the Latin term “actus non facit reum, nisi mens sit rea” (a phrase the writer recalled from previous legal study) the following search was performed: –

Using Westlaw UK, the writer accessed the ‘Journals’ tab and inserted the phrase “actus non facit reum, nisi mens sit rea” into the ‘free text’ box. This revealed several results including one entitled “Two histories and four hidden principles of mens rea”. This was selected over other Journals as the title inferred that the main bulk of the journal pertained to mens rea. The phrase referenced the case of Haughton v. Smith [1975] A.C. 467 at pp. 491-492 Haughton v. Smith [1975] A.C. 467 at pp. 491-492 Haughton v. Smith [1975] A.C. 467 at pp. 491-492Haughton v. Smith [1975] wherein Lord Hailsham put forward his own construction. To check the accuracy of the reference, the writer accessed the primary source by entering the party’s names under the cases tab in the ‘Party Names’ box. This revealed the case of Haughton v. Smith, reading which proved the accuracy of the reference.

On day three, the writer finished writing the essays and started with the process of proofreading and editing the paper.

4. Critical Evaluation

In order to answer the question set, the writer proceeded to gather information relating to the question set, from authoritative textbooks and online databases.

Gathering information was quite straightforward as the writer has experience of doing so due to having also completed the OU W200, W201, W300 and W301 courses.

Overall the writer is happy with the approach taken to complete the essay.

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Services

View all

DMCA / Removal Request

If you are the original writer of this essay and no longer wish to have the essay published on the UK Essays website then please.

We Write Bespoke Law Essays!