Criminal liability of company

Introduction

Companies are subject to the criminal law in much the same way as natural
persons.1 A company may be liable for criminal offences where an offence is
committed by its directing mind. In such cases, it’s the duty of public prosecutor to
prove that the illegal acts were committed and mens rea must be shown to exist. Mens
rea can be in the form of intention to commit the criminal act or knowledge that the
act was unlawful. It is difficult to accuse a company of possessing a guilty mind,
because it has no personal mind or conscience, and it is guilty of accusing a company
of a guilty act, because it is a legal construct without any means of acting on its own
behalf.

Nevertheless, it has been found to be expedient to make companies liable to

penalties for wrongful acts by attributing to as company the wrongful acts and
thoughts of human identified with the company. Therefore, if the accused is a
company, the mental sate of those persons who control and manage it is attributes to
the company. Consequently, if the directing mind of a company commits an unlawful
act with criminal intention, the company will be guilty.

Liability of the company is deemed on 2 parts i.e. the direct liability and
vicarious liability. These liabilities will be discussed further and moreover, necessary
mens rea must be form at the time of the commission of the crime occurred.

The scope of direct liability

Direct liability has been the means by which in criminal law, it has been
possible to impose liability in respect of specific mens rea offences as well as in
respect of offences of strict or absolute liability. However, direct liability to some
extent that certain offences cannot be committed by a company. The court in the R vs.

1
Undertanding Company Law, Lipton and Herzberg, published by Thomson Lawbook Co.
ICR Haulage Ltd2 stressed that, prima facie, a company is criminally liable to the
same extent as natural person. But, there are two exceptions.3 :
1. Certain offences such as bigamy cannot be committed by company. The
company is incapable of being affected by sense of shame for the purpose of
the common law offence in Scotland of shamelessly indecent conduct.
2. The court will not pursue a trial, the result of which will be a guilty verdict
where no enforceable sentence can be administered, as in the case of murder
where imprisonment is the necessary result of the proceeding.

Hence, a corporation as a non-human entity cannot commit such as perjury

because a company cannot testify in person in the court and thus cannot commit
perjury. That’s why corporation should not be held able to commit a wide range of
criminal offences.

Under this scope we consider the situation where liability attaches directly to the
corporation and primary liability regards the servant’s or agent's acts as those of the
corporation. The question of "whose actions o omissions are to be regarded as those
of the company, and whose state of mind is to be attributed to the company?"

The mental state of a person is the directing mind and will of a company may
be attributed to the corporation itself. In other words, the acts of the persons in
control of a company are the acts of the company. In Lennard’s case, 4 the company
owned a ship which had carried a cargo of benzene consigned to the Asiatic
Petroleum Co Ltd. The ship ran aground because its boilers were in such a poor state
that hols. The benzene escaped and exploded when it came into contract with the
boiler fires. The appellant company as owner would have been exonerated from
liability by the terms of the Merchant Shipping Act 1894, s.502 (now repealed); if it
could show that the loss happened without its ‘actual fault or privity’. The House of
Lords held that the concepts of fault and privity were capable in law of being
attributed to a corporate body, but that on the facts the appellant had failed to show
that it came within the exception.

2
[1944]K.B 551 ; [1944] 1 All ER 691
3
Corporate Liability, Prof Neil Hawke, [2000]
4
Lennard’s Carrying Co Ltd v Asiatic Petroleum Co. Ltd [1915] A.C 705
 Moreover, Mr Lennard who seems to be active director in the company and he
must know or can not excuse for himself for not having known of the defects which
manifested themselves in the condition of the ship, amounting to unseaworthiness.
The question is whether the company can invoke the protection of s 502 of the said
Act to relieve it from liability which the respondent seeks to impose on it. Viscount
LC said,
“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. Since, Mr Lennard took the active
part in the management of the ship on behalf of the owners and Mr Lennard as I have said was
registered as the person designated for this purpose in the ship’s register. If Mr Lennard was the
directing mind of the company , then, his action must unless a corporation is not liable at all, have
been an action which was the action of the company itself within the meaning of s. 502…It must
be upon the true construction of that section in such a case as the present one that the fault or
privity is the fault or priority of somebody else who is not merely a servant or agent but somebody
for whom the company is liable because his action is the very action of the company itself.”

The company could have had the benefit of s 502 if it had shown that Mr
Lennard’s position was such that his fault was not the company’s fault or fault to
which the company was privy. However, the burden of proving this was on the
company and as it had not discharged that burden it was liable.

In case of HL Bolton (Engineering) Ltd5 A corporate landlord was held

capable of ‘intending’ (through its managing directors) to occupy premises for its own
use. The question arise is whether the landlords have proved the necessary intention to
occupy the holding for their own purpose. This point arises because the landlords are
limited company. They contended that there was no meeting of any board of directors
to express the landlords’ intention and that therefore the landlords i.e. the company
cannot say that it has the necessary intention. His lordship referred to Lennard Case to
support that the intention of the company can be derived from the intention of its
officers and agents. However it depends on the nature of the matter under
consideration, the relative position of the officer and other relevant facts and
circumstances of the case.

5
[1957] 1 Q.B 159
 By applying the principle in Lennard case, although there was no board
meeting, nevertheless, having regard to the standing of these directors in control of
the business of the company, having regards to the other facts and circumstances
which we know, whereby plans had been prepared and much work done, the judge
was entitled to infer that the intention of the company was to occupy the holding for
their purposes.

While these cases established the idea that the mind of corporation could be
found in that of one or more of its officer, they did not settle the question of how far
into a corporation’s organisational structure this principle should extent. In leading
case of Tesco6Tesco Corporation owned a large chain of supermarket in UK. The
corporation was prosecuted under a section of the UK Trade Description Act [1968]
for false advertising. The corporation had advertised that a brand of washing powder
was on sale at discount price. In one of the company's stores a shop assistant had put
packets of the powder marked at higher price on the discount display stand.

The store manager had failed to check whether the proper packets were on
sale, although he had indicated in his daily return sheet that "all special offers are
okay" A customer was charged at full price for a packet and complained to the
inspector of weight and measures. When prosecuted, Tesco sought to rely on a section
in the act or default of "another person" and that the corporation had taken reasonable
steps and exercised due diligence to avoid the commission of the offences. The issue
was whether the acts or omission of the store manager were those of "another person".
Alternatively, were the store manager's action to be taken as those of the corporation?

His Lordship acknowledged that the corporation need not always act through
one or the same person but on the went on to note that normally the board of director,
the managing director and perhaps other superior officers of a company carry out the
function of management and speak as the company, Their subordinates do not.

The court held that sales manager could not be regarded as the corporation for
the purposes of this section. He had not been delegated a general power to deal with
6
Tesco Supermarket Ltd v. Natrass [1972] A.C 153
complaints. Although the sale manager should have suspected that the advertisement
contravened the act he had not referred the matter to his superiors. His knowledge was
not that of the corporation and therefore the corporation could rely on the defence i.e.
due diligence.

Vicarious liability

Another concept of criminal law that is of great significance for companies is

vicarious liability, which imposes criminal liability on the employer of an individual
who commits offences while acting within the course and scope of his employment. A
company employer may be convicted of a vicarious liability offence committed by its
employee.

Lord Reid in the case of Tesco had emphasised the distinction between
vicarious liability and primary liability. In the former case the question is whether a
company's agent or servant can be said to be acting or speaking for the company. By
contrast in the latter case the person or persons who are said to represent the "mind of
the company" who "hears and speaks through the persona of the company"

The idea of primary corporate liability elaborated in Tesco clearly has more
limited scope than does the doctrine of vicarious criminal liability, Vicarious liability
allows that corporate criminal liability may result from the actions of corporate agents
and servants regardless of their position in the corporation. In contrast, the Tesco
approach directs attention to conduct at the top level of corporate management.

In overviews, the case law requires three points to be satisfied in order to

establish that the vicarious liability of a corporation.

1. It must established that the legal liability in question is one that the
legislature to be applied vicariously:
[R]egards must be had to the object of the statute, the words used, the nature of
the duty laid down, the person upon whom it is imposed, the person upon by
 whom it would in ordinary circumstances be performed and the person upon
whom the penalty is imposed.7

2. The servant or agent must have committed the relevant act during the
course of employment or within the scope of their authority.

3. As indicated in Mousell Bros Ltd v London North Western Railway

Co8, it must be shown that the agent or a servant had state of mind
appropriate to the offence in question (unless the offence is a strict
liability offence)

In Mousell case, a company was made vicariously liable for an offence

committed by its employee even though the definition of the offence required it to be
committed ‘with intent’. The judge held that it was sufficient that the employee had
intent so that the offence was committed; the employer (company) was then
vicariously liable for an offence that had been committed.

Another example in the case of National Rivers Authority v Alfred McAlphine

Homes East Ltd.9 It was held that if a company’s employee acting within the course
and scope of their employment, had cause polluting matter to enter controlled waters
contrary to the Water Resources Act 1991, then the company would be guilty of an
offence regardless of whether the employees were sufficiently senior to be identified
with the company. The company would vicariously liable for its employees’ breach of
the law, not directly liable because of being identified with those employees.

However, the company is not liable for vicarious liability if the employee at
the time of commission of an offence, having no authority to perform within his
employment scope or not in the course of employment. In can be illustrated in the
case of Negara Traders Ltd v. Pesuruh Jaya Ibu Kota, Kuala Lumpur.10 The plaintiff
who was a firm dealing in hardware laid a claim against the defendant company for
goods sold and delivered on the basis of orders placed by the office messenger. The
7
Mousell Bros v London and North-Western Railway Co [1917] 2 K B 836
8
[1917] 2 K B 836
9
[1994] 4 All ER 286
10
[1969] 1 MLJ 123
orders were on the official forms of the defendant company and they were duly signed
and stamped. But it turned out that the orders were forged ones and were never
received by the defendant company. The defendant besides proving forgery also
established the fact that local manager had no authority to have placed those orders.

On the question of the vicarious liability of the company, the judge dismissing
the claims of the plaintiff because those orders were forgeries cannot give them the
efficacy which they do not intrinsically possess. The office messenger, who is a mere
servant, may be the proper person to present (personally) those orders whish the
defendant might due course issue, but he can have no authority to guarantee the
genuineness or validity of the documents which are not the deeds of the defendant. Of
those orders were forgeries, and then they were mere waste paper.11 It was held that
the defendant company in this case was not vicariously liable to the plaintiff.

Reference

11
Quotation from Raja Azlan Shah J in dismissing the claims of the plaintiff.
1. Mayson, French, Ryan on COmaony Lawm 19th Edition [2002-2003]
published by Oxfors University Press

2. Company Law of Malaysia [Incorporation and Management] K.V

Padmanabha Rau, Published by ILBS

3. Understanding Company Law, 12th Edition, Lipton and Herzberg [2004]

Published by Thomson Lawbook Co.

4. Cases and Materials in Company Law 7th Edition, LS Sealy, published by

Butterworths [2004]

5. Corporate Liability, Prof Neil Hawke, Published by Sweey and Maxwell

[2000]