Liability of Companies under Tort Law and Criminal Code

This article discusses the liability of companies under tort law and criminal code in Australia. It explains the directing mind theory and benefit test and provides insights into landmark cases and legal principles. The article also covers the criminal liability of corporate legal persons and the principles governing it. Students can access solved assignments, essays, and dissertations on corporate law at Desklib.

Corporate Law
29-Mar-18
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Corporate Law
Part A
Through the landmark case of Salomon v Salomon & Co Ltd [1896] UKHL 1, the companies had
been given the status of being a separate legal entity, which is different from the ones who run
its operations (Harris, Hargovan & Adams, 2016). This means that a company is treated
differently from the ones running its operations. And yet, there are times where the company is
held liable for the negligent directors or shareholders, particularly under the tort law (Latimer
2012). This is based on the principle of vicarious liability and the ones based on statute, which is
discussed here under.
Before going into the common law liabilities for the company, regarding the tort undertaken by
its directors, there is a need to look into the liability being raised under the statute. As
highlighted earlier, the company has separate legal entity status and this status is upheld under
the Corporations Act, 2001 (Cth) (Cassidy 2006). Yet, there are cases where the ones behind the
operations of the company are made liable for the actions undertaken by them. This is due to
the notion that the ones who direct the mind and will of the company, have to be made liable
for the offences undertaken by them. However, it is often difficult to differentiate between the
acts undertaken by the company, and the ones by people who were directing the mind and will
of the company (Lipton, Herzberg & Welsh 2016).
In this context, the case of Tesco Supermarkets Ltd v Nattrass [1972] AC 153 is of help as it
clarifies the directing mind theory in context of the corporate liability. This case had the
employee of large chain of supermarkets advertising goods for sale in a deceiving and
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misleading manner for the consumers. It was held by the House of Lords that the store
manager was not in control of the operations of the company. The work of the company had
been properly delegated which led to the decision that the acts of store manager could not be
deemed as the acts of company (Quilter 2017).
As against this, in H L Bolton & Co v T J Graham & Sons [1957] 1 QB 159 it was concluded by the
court that the directors were the mind and will of the company. The intention of the company
was derived from the intention of its agents and officers. A key point which is worth noting here
is that there is a need for companies to be made liable for their negative acts, and where the
company had been directed by another person, that person had to be made liable for the fault
element. Basically, in a tort and even in criminal cases, through the concept of vicarious liability,
the company is made liable for the acts of employees of the company. When it comes to the
case of direct or organic liability, the directing mind and will is looked at (Yogaratnam & Xynas
2017).
The clash between directors being made liable at certain instances and not liable at other
instances is based on the facts of the particular matter. The acts of the directors are deemed as
the acts of the company since they are deemed as the organs undertaking the work for the
body. As against this, there are cases where the agents can be personally made liable for the
torts which they undertake as being the joint tortfeasors with the company. A leading example
of this is the case of Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517. This contradictory position
puts the law in murky position due to lack of clarity in which acts are exclusively undertaken by
the agents and that by the company (Anderson 2008).
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In Microsoft Corporation v Auschina Polaris Pty Ltd [1996-7] 142 ALR 111, 121, Justice Lindgren
agreed to this difficulty being present and this position was later on affirmed by Justice Hardie
Boys in Trevor Ivory Ltd. v Anderson. The reason for holding the company or the ones running it
liable is to adequately protect the ones injured from the tortious acts, where they are property
compensated for the damage/ loss or injury sustained by them. Justice Hardie Boys stated that
for holding such a case of negligence, there was a need for showing the duty of care being
present. Before holding the corporate or its agents liable, it was required to find clear evidence
for displacing the notion that the director was not acting as the company, and had acted in an
independent manner, for him to be made liable (Farrar 1997). Thus, there are cases where the
directors can be made liable for the torts undertaken by the company and then there are cases
where this might not be the case.
Part B
In Australia, the criminal liability for the corporate legal persons has been recognized since long.
Majority of principles which govern corporate criminal liability come from common law. The
corporate criminal responsibility is provided at federal level under the criminal code,
particularly under division 12, part 2.5 of Chapter 2 (Gans 2012). These are the provisions
through which a company can be made liable for crime.
A company can be held liable for undertaking an offer, till such time the definition or the
subject matter can prove otherwise. So, for an offence covered under the criminal code, a
company can be made liable, which includes the offences which have imprisonment as
punishment. Particularly in context of white collar crimes, the companies can be held guilty of
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Corporate Law
criminal offences, for instance for the briber given to different public officials, money
laundering, false accounting offences, and for contraventions of sanctions of law as well (Allens
2016). However, such criminal liability is born where there is a fault element involved and a
physical element involved. The fault element covers intention, knowledge, negligence and
reckless; whilst the latter covers physical elements to show that the offence had actually taken
place. For making a company liable under the offence charge, there is a need to show conduct
and intention. The fault element comes with exception in terms of absolute and strict liability
offences. In other words, for establishing strict liability, there is a need for showing that the
fault element was present (Denning 2014).
For holding the company liable of such offences, different tests are made use of by the courts.
The first one in this regard was given under Tesco Supermarkets Ltd v Nattrass [1972] AC 153,
which was the identification test. This provides that a person does not speak or act for the
company, upholding the principle of separate legal entity (Dignam & Hicks 2011). The
individuals have their own mind and they become the mind and will of the company, as
discussed earlier. So, the guilt mind of the person has to be taken as the guilt of the company.
This approach however, has been largely spoken against due to the corporate liability being
restricted in the acts of the high level managers and that of directors. So, this allows for the big
companies to escape their criminal liability easily, as they can claim that it is the act done by the
employees and they directed the will of the company, instead of the company itself (Dine,
Gobert & Wilson 2010).
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Corporate Law
The next test which is often made use of is the benefit test. This test has been used by the
Australian Federal Court where the company is made liable when it attains the benefit from
such acts. There is a varied application of this test where the organic theory comes into play,
and where the acts are undertaken based on mind and will concept, as against the agency
theory, which makes the company liable for the acts of the agents (Beaton-Wells & Fisse 2011).
The precedent set through Tesco Supermarkets Ltd v Nattrass, was adopted by High Court in
Hamilton v Whitehead (1988) 16 CLR 121. This case saw an issue regarding the individual
commissioning the offence as the directing of will and mind, which was the company’s
embodiment. There is a need to show guilty test in terms of mens rea to be established in this
test (Wee & Gauja 2015).
Under the criminal code, whenever it is required to establish that the company had been
negligent, the conduct of its employees, agents and officers is combined and aggregated. The
case of negligence is established by the fact that restricted conducted was majorly attributed to
the lack of proper corporate management, control or supervision of officers’, agents’, or
employees’ conduct, or to the failure in making available the required system for providing the
requisite information related to the relevant persons in the company. The common law holds
the companies liable for the mental state and conduct of directing mind of the individuals on
behalf of the company. The will here is of the board of directors, key personnel and managing
directors, who perform the board functions. Where the employee or the agent acts based on
their scope of employment, which includes both ostensible and actual authority, and indulge in
physical element of offence, the criminal law would hold the company liable where they
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permitted or authorized such offices to be commissioned in a tacit, express or implied manner
(Allens 2016).
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References
Allens 2016, Corporate criminal liability,
https://www.allens.com.au/pubs/pdf/ibo/CorporateCriminalLiabilityPublication_2016.pdf
Anderson, H 2008, Directors' Personal Liability for Corporate Fault: A Comparative Analysis,
Kluwer Law International.
Beaton-Wells, C, & Fisse, B 2011, Australian Cartel Regulation: Law, policy and practice in an
international context, Cambridge University Press.
Cassidy, J 2006, Concise Corporations Law., 5th edn., The Federation Press.
Deming, SH 2014, Anti-bribery Laws in Common Law Jurisdictions, Oxford University Press.
Dignam, AJ, & Hicks, A 2011, Hicks & Goo's cases and materials on company law, Oxford
University Press.
Dine, J, Gobert, J & Wilson, W 2010, Cases and materials on criminal law, Oxford University
Press.
Farrar, JH 1997, ‘The Personal Liability of Directors for Corporate Torts’, Bond Law Review, vol.
9, no. 1, pp. 102-113.
Gans, J 2012, Modern criminal law of Australia,Cambridge University Press.
Harris, J, Hargovan, A & Adams, M 2016, Australian Corporate Law. 5th edn., LexisNexis
Butterworths.
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Latimer, P 2012, Australian Business Law 2012, 31st edn., CCH Australia Limited.
Lipton, P, Herzberg, A & Welsh, M 2016, Understanding Company Law, 18th edn., Thomson
Reuters (Professional) Australia Limited.
Quilter, M 2017, Company Law Perspectives, 3rd edn., Thomson Reuters (Professional) Australia
Limited.
Wee, S & Gauja, A 2015, Corporate crime, fraud and investigations in Australia: overview,
https://uk.practicallaw.thomsonreuters.com/6-519-2034?
transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1
Yogaratnam, J & Xynas, L 2017, Corporations Law: In Principle, 10th edn., Thomson Reuters
(Professional) Australia Limited.
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