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 [1] . Corporations exist
independent of human beings who are in fact members of the entity.
Viscount Haldone LC in the Lennards 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" [2] .
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 [3] . 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 [4] . 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. [5] "

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
Kings Cross Fire in November 1987, the Piper Alpha oil rig explosion in
July 1988 and the sinking of the Herald of Free Enterprise [6] 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 [7] .
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 [8] . 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 [9] . 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 [10] . Moreover, the American
Penal Code also adopted the concept as one of its fundamental
principle of corporate criminal liability [11] , and has thereby received
the acknowledgement and support of the Law Commission in UK [12] .
The development of the identification doctrine started with the
Lennards 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 [13] . 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) [14] , Lord
Atkinson also confirmed that a companys place of residence was one
from which the directing mind and will of the company operated and
controlled its senior officers [15] . However, it should be emphasised
that the Lennards 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 [16] .
Indeed there has been some blurriness as to whether the
identification or agency theory applies in some cases. In Ranger v
Great Western Railway [17] , 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 [18] .
 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 [19] . 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 [20] .
Finally, the use of the directing mind test triumphed in the famous
case of Tesco Supermarkets Ltd v Natrass [21] . 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 [22] .
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 [23] . 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 [24] . 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 [25] 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 [26] . 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 [27] . 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 [28] .
 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 [29] . 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 [30] . 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 [31] .
Further erosion of the identification doctrine could be witnessed in
the Re Supply of Ready Mixed Concrete (No.2) [32] 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 [33] 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. [34] "
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 [35] , 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 [36] .
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 [37] . 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 [38] . 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 [39] . The specific rule of attribution is thus
determined by looking at the specific legislation relating to the
companys charge, and hereby implies that a particular statute will be
intended to apply to a company [40] . 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 [41] . 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 [42] . Rose LJ in the case of Re Attorney Generals Reference (No.2
of 1999) [43] 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 [44] . 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 [45] . 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 [46] . The Act also reserves the charge derived from Health and
Safety regulation [47] . 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 companys undertakings [48] . 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 [49] . Senior management will be
considered both collectively as well as individualistically.
The new Act also appears to be consistent with Lord Dennings
proposal in Tesco v Natrass stating that seniority does not necessarily
illustrate that the person identified is the directing mind of the
company [50] . 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 [51] . 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 [52] 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
organisations duty has been broadened to include employees,
contractors and anyone else connected with activities of the
organisation [53] . 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 [54] . 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
businesss activities [55] . 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. [56] "
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 [57] . Bebb proposes that the senior management test be
replaced by a more general management failure" test instead [58] .
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 [59] .
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 [60] .
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 [61] and R v Transco Plc [62] . 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 employees 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 [63] ,
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 [64] .
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 [65] . In R v Great Western Trains Ltd in
1999 [66] , 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 [67] . 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 [68] . 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 [69] . 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 companys defective and inefficient
system [70] . The P & O case [71] 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 [72] .
But in the United Kingdom, the aggregation theory was rejected in
R v HM Coroner for East Kent Ex p. Spooner [73] . 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 peoples 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 [74] . 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-
Generals Reference (No. 2 of 1999) [75] .
It should however be noted that contrary to English Law, the
American authority greatly favours the aggregation doctrine [76] . This
can be illustrated by the case of United States v Bank of New
England [77] , 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 [78] .
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 [79] .
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 [80] . This is termed as the extensive construction.
In National Rivers Authority v Alfred McAlpine Homes (East)
Ltd [81] , 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 [82] .
Secondly, perceived in a different angle, it is under the employers
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 [83] . 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 [84] .
However, in England, the courts have hesitated to extend the
companys liability to encompass the fault of every employee no
matter how junior their position is in the hierarchy [85] . 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 [86] . 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 [87] . 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 [88] . 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.

6. Conclusion:
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.