Four Decisions of Australian Courts Handed down since 1975 - Essay Example

Essay How have Australian legislatures and courts determined the circumstances in which a company will be found to be criminally liable for the acts of its agents, particularly its directors? In your answer, consider at least four decisions of Australian courts handed down since 1975 Fiction theory assumes that only individuals can have the necessary mens rea for criminal liability.1 Although modern legal systems hold that individuals should be criminally liable first and foremost, it is also accepted that there are circumstances in which the company should incur criminal responsibility.2 The circumstances in which Australian legislators and courts assign corporate criminal liability for the acts of its agents suggest an emphasis on the ‘organizational model’ of the firm.3 Under the organisational model of the firm, it is believed that good governance is accomplished through ‘organizational due diligence’, organizational accountability and ‘self-regulation.’4 What has emerged in Australia’s legislation and judicial interpretation, is a culture of vicarious liability in which the corporation is criminally liable for the acts of agents acting with the authority of the corporation or in the course of his or her employment with the corporation.5 In this regard, corporate criminal liability at the ‘Federal level’ in Australia is regulated under the general criminal law, specifically the Criminal Code Act 1995 (Cth. as amended).6 Section 12.2 of the Criminal Code Act 1995 provides that the corporation will be criminally liable for the ‘physical element’ of an offence committed by ‘an employee, agent or officer’ of the company if the employee, agent or officer was ‘acting within the actual or apparent scope of his or her employment’ or with ‘actual or apparent authority’.7 According to Beale, this kind of vicarious criminal liability in respect of corporations is consistent with the rationale for attributing responsibility to corporations for the tortious acts of employees, agents or officers.8 Section 12.3 goes further to state that where the elements of a crime are ‘intention, knowledge or recklessness’, the company will satisfy the necessary elements if the company ‘expressly, tacitly or impliedly authorised or permitted the commission of the offence.’9 These elements will be attributable to the corporation in obvious ways. For example if the evidence proves that the corporation’s board of directors or managers ‘expressly’ or ‘impliedly authorised’ the ‘commission of the offence’ the corporation is criminally liable.10 The elements are also attributed to the corporation in less obvious ways. For example, the corporation is liable for an employee or agent or officer’s criminal offence when it can be shown that there was a ‘corporate culture’ within the corporation that ‘directed, encouraged, tolerated or led to non-compliance with the relevant provision’ or that corporation ‘failed to create and maintain a corporate culture that required compliance with the relevant provision’.11 An example of the relevant provision can be the Trade Practices Act 1974. In Universal Telecasters (Qld) Ltd. v Guthrie the company was charged pursuant to Section 53 of the Trade Practices Act 1974 for making misleading or false statements. The charge arose out of advertisements relating to a reduced sales tax in respect of motor vehicles. Although the manager in charge of the advertisement was not present when a complaint had been made by a viewer, the manager’s duties had been relegated to the company secretary. Nothing was done to correct the advertisement and the viewer then contacted the Trade Practices Commission who in turn, commenced an investigation and informed the company that it had contravened the Trade Practices Act 1974.12 The company sought to defend itself by using Section 85(3) of the Trade Practices Act 1974 by claiming that it is in the business of advertising and received the advertisement in question in a normal way and was not aware that the putting the advertisement on the air was a contravention of the 1974 Act. The court held that with respect to the corporation’s liability on the basis of knowledge, the appropriate test was: …whether the employee is one who, by the memorandum and articles of association or as a result of action taken by the directors or by the corporation in general meeting pursuant to its articles, has been entrusted with exercise of the powers of the corporation.13 However, the court held that the individual within the company receiving the complaint had not referred the complaint to appropriate management and although the individual receiving the complaint ought to have known that the advertisements were in contravention of the Trade Practices Act 1974, given the individual’s position within the corporation, that individual’s knowledge cannot be said to be the equivalent of the corporation’s knowledge. Therefore, the corporation was at liberty to rely on the defences available under Section 85 of the 1974 Act.14 Corporate culture may be a difficult element to prove. Corporate culture is defined as an ‘attitude, policy, rule, course of conduct or practice’ of the corporation either ‘generally’ or in ‘the part of the body corporate in which the relevant activities takes place’.15 The difficulty with proving the element of corporate culture is that evidence will originate from within the corporation. This can prove to be problematic since the High Court of Australia has already ruled that the corporation in criminal proceedings enjoys the same privilege against self-incrimination that individuals enjoy.16 Despite this ruling however, it has also been established that the corporation may not invoke the privilege against self-incrimination in circumstances where there is a statutory demand for furnishing information.17 However, once a company is subject to criminal prosecutions, the obligation to cooperate with investigators with respect to providing information in relation to the offence in question, the statutory obligation is not as strictly applied.18 Regardless, the corporate culture element appears to be a significant factor for the judiciary. For instance, it was previously held that primary, rather than vicarious liability for a criminal offence will be substantiated in circumstances where it can be shown that the corporation as an organization is the mind behind the conduct. The mind behind the criminal conduct can be ‘constituted by the minds of several persons each acting separately and independently of the others’ and these persons will usually be managers or directors of the company.19 Establishing the collective mind of the corporation is also difficult to prove since the courts have demonstrated a reluctance to cull together what might amount to a collective mind for establishing corporate criminal liability.20 At the end of the day, the vicarious liability for criminal offences usually arise when an employee or subordinate agent or officer, is acting in the course of his or her employment or with the authority of the company. Primary liability arises when the conduct is attributed to directing minds which are usually individuals in a position of authority within the corporation. The individuals holding a position of authority are often regarded as not only the directing minds of the corporation, but are the corporation itself. Essay 2: Citation: Carey v Commissioner for Consumer Protection [2013] WASCA 195 (28 April 2014). Court: Western Australia Court of Appeal Judges: Martin CJ, Pullin JA and Newnes JA. Procedural History: First Instance: Convicted by a Magistrate Court in Western Australia. Supreme Court: Appeal against conviction denied. Court of Appeal: Current case Facts: The appellant was the director of Westpoint Realty Pty. Ltd. and its subsidiary Lanepoint Enterprises Pty. Ltd, a developer. The company sought to terminate apartment purchases through the use of false and misleading statements. The Appellant, the company and agents were charged and convicted of providing false and misleading statements pursuant to Section 12(2)(b) of the Fair Trading Act 1987.21 Issues: 1. Did the Appellant successfully raise the defence against the presumption that a director is also guilty of an offence committed by the company under the Fair Trading Act 1987, pursuant to Section 81 of the 1987 Act? 2. Is the Appellant’s claim that he had not instructed agents to make false and misleading statements, sufficient for the purposes of Section 81 of the 1987 Act? 3. Did the magistrate err in holding that the Appellant director had not successfully proved his defence under Section 81? In other words, could the use of due diligence have prevented the acts constituting the company’s criminal conduct? 4. What effect does the appellant’s failure to challenge the magistrate’s finding of fact have on the Appellant’s defence? Reasoning/Decision: 1. No. The Court of Appeal ruled that the Appellant could have with the exercise of due diligence, prevented the agents’ conduct. To begin with, the Appellant could have corrected his own false and misleading statement that he had received legal advice indicating that the company was at liberty to terminate the contracts. It was very likely this statement that induced the agents to act as they had done. Secondly, the Appellant could have in exercising due diligence obtained legal advice and informed the agents of what would have been the proper thing to tell their clients with regards to terminating their contracts for the sale of the apartments. The Court of Appeal therefore ruled that the Appellant had not satisfied the requirements of the defence under Section 81(1) of the Fair Trading Act 1987 and his appeal was dismissed. 2. No. It did not matter whether or not the Appellant specifically instructed the agents to make false and misleading statements. As the director of the company he had the authority to influence their behaviour and in the circumstances of the case, should have known that they would act as they did. 3. No. The Appellant had not proven that the magistrate erred in his findings that the Appellant had not made out a defence pursuant to Section 81 of the 1987 Act in that the Appellant, for the reasons already stated, could have with due diligence prevented the agents’ making of false and misleading statements. 4. Since the Appellant did not challenge the magistrate’s finding of facts in the case, the magistrate was entitled to find that the Appellant had not proven his defence under Section 81 of the 1987 Act. Based on the undisputed facts of the case as found by the magistrate it is clear that the Appellant could have, with due diligence prevented the offences under Section 12 (2)(b) of the Fair Trading Act 1987. Ratio: As a director of the company, the Appellant had the authority to direct the course of action taken by the agents. It was not a question of whether or not he gave the agents instructions to make false and misleading statements. The issue is that he was in a position to know or should have known that the agents would make misleading and false statements, and with due diligence could have prevented them making those statements. Obiter: There were several options open to the Appellant for preventing the commission of the offences under Section 12(2)(b). He could have told the agents exactly what they should have told the buyers and he could obtained legal advice on the matter. Order: Appealed dismissed, conviction confirmed. Analysis: There are two themes in the findings of the court and in the defence provided for under Section 81(1) of the Fair Trading Act 1987. The first theme is that the director, by reason of his or her position of authority, is deemed to have the requisite knowledge in the event the corporation and agents of the corporation commit an offence. The second theme is that the director, by virtue of this position in the company, is responsible if he fails or fails to take reasonable steps to prevent the corporation and/or its agents committing a criminal offence. The difficulty with this kind of criminal liability is that it reverses the burden of proof and requires the director to prove his or her innocence.22 According to Diez, the director should be subjected to criminal liability for crimes committed by members of the company. However, Diez argues that corporations should be protected from criminal liability as they are in reality victims. Those who manage the company are separate and distinct from those who own the company: shareholders. Shareholders are usually not involved in the day to day management of the corporation.23 Therefore, when the company is convicted of a crime, the shareholders are punished, despite the fact that they had no part in the criminal activities and likely had no knowledge of the crimes either. Arguably, directors should be solely responsible for crimes committed by members of the organization, unless it can be proven that the director acted in good faith and as ruled in Carey, with due diligence. Directors have a fiduciary relationship with the company and have supervisory authority over business decisions and judgement and have the authority to recruit and dismiss key positions within the company.24 Criminalising and punishing directors for criminal behaviour is an appropriate remedy for preventing corporate collapse in some cases. In other words, in cases where directors are prepared to take risks that jeopardise the viability of a company to the point where they commit crimes, the threat of strict liability is expected to be a deterrent and should prevent the collapse of the company. However, there is always a risk that the threat of strict liability could also deter the necessary business risks that are usually responsible for economic growth and development. Directors, afraid of the threat of strict liability may become far too ‘conservative’ to the ‘detriment of business development.’25 Directors’ criminal liability, together with the corporation’s criminal liability, is therefore not the appropriate approach to preventing corporate collapse. There is an inherent injustice involved where a director or a company is criminally liable for a lower-level employee who is committing a crime for his or her own benefit, although acting in the course of employment. Although, directors are in positions of power, they are usually not in contact with the lower-level employees and may not know of that employee’s criminal conduct until the crime is committed. The appropriate method for preventing corporate collapse is to implement a regulatory regime that provides for compulsory crime detection and prevention plans within the corporation.26 The fact that directors and corporations can face criminal liability for lower-level employees means that corporations face the possibility of public criminal prosecutions even when they are not guilty of the crime. Although the corporation or the director may be exonerated by the court, they still have to assume the burden of the cost of litigation, the negative publicity and damages to the company’s reputation to the detriment of its business growth and development.27 Therefore, while strict liability for directors where employees and/or agents of a corporation are convicted for crimes may deter directors who might act in bad faith and may prevent corporate collapse in those cases, it can contribute to corporate collapse in cases where directors and the company are not involved in or aware of the criminal activities of employees and other agents of the company. Conclusion The criminal liability of the appellant in Carey was entirely proportionate to his conduct. The issue, however, is whether or not the prospect of facing criminal liability for the conduct of employees and agents is unduly harsh and might place otherwise competent and honest directors under too much pressure to supervise and monitor the conduct of employees and other agents of the company. This kind of corporate culture could be detrimental to the business growth and development of the firm. Employees and agents of the firm may feel too restricted, and this could have a negative impact on productivity and could lead to corporate collapse. This is the kind of outcome that the imposition of criminal liability seeks to avoid. Moreover, harsh criminal liability might also force directors to act far too conservatively as they confront the possibility of criminal liability. Holding corporations criminally liable for the conduct of employees, agents and directors is also excessive in that corporations are more likely victims of these crimes as opposed to perpetrators. This could force shareholders to take a more active role in the day-to-day operations of the firm, which could cause conflicts between directors, managers and shareholders to the detriment of the company. It would therefore appear that while some degree of criminal responsibility is necessary, holding companies criminally liable is counterproductive. The continued operation of the company under new management where directors have been convicted is a more appropriate measure for preventing corporate collapse. Bibliography Textbooks Donneley, R R, Fiduciary Duties and Other Responsibilities of Corporate Directors and Officers (US, Morrison & Foerster LLP, 2012). Pieth, Mark, and Radha Ivory, ‘Emergence and Convergence: Corporate Criminal’ in Mark Peith Radha Ivory (Eds.) Corporate Criminal Liability: Emergence, Convergence and Risk (London, Springer, 2011) 3–62. Tomasic, Roman, Stephen Bottomley and Rob McQueen, Corporations Law in Australia (Sydney, the Federation Press, 2002). Journal Articles Beale, Sara Sun, ‘A Response to the Critics of Corporate Criminal Liability’ (2009) 46 American Criminal Law Review 1481–1505. Colvin, Eric, ‘Corporate Personality and Criminal Liability’ (1995) 6(1) Criminal Law Forum 1–44. De Maglie, Christina, ‘Models of Corporate Criminal Liability in Comparative Law’ (2005) 4 Washington University Global Studies Law Review 547–566. Diez, Carlos Gomez-Jara, ‘Corporations as Victims of Mismanagement: Beyond the Shareholders vs. Managers Debate’ (2008) 28 PACE Law Review 795–813. Hill, J G, ‘Corporate Criminal Liability in Australia: An Evolving Corporate Governance Technique?’ (2003) Journal of Business Law 1–44. Sernia, Antoinett, and Mei-Ling Barkoczy, ‘Directors Beware: Corporate Sanctions and Defences, a Matter for Review’ (2009) 16(1) Murdoch University Electronic Journal of Law 134–140. Weissmann, Andrew, ‘A New Approach to Corporate Criminal Liability’ (2007) 44 American Criminal Law Review 1319–1341. Cases Carey v Commissioner for Consumer Protection [2013] WASCA 195. Entwells Pty. Ltd. v National & General Insurance Co. Ltd. [1990-1991] 5 ACSR 424 Environment Protection Authority v Caltex Refining Co. Ltd. [1993] 118 ALR 392. EPA v Caltex Refining Co. Pty. Ltd. [1993] 178 CLR 477. NSW Food Authority v Nutricia Australia Pty. Ltd. [2008] 72 NSWLR 456. Universal Telecasters (Qld) Ltd. v Guthrie [1978] 18 ALR 531. Statutes Criminal Code Act 1995 (Cth.). Fair Trading Act 1987 (Cth.). Trade Practices Act 1974 (Cth.). Miscellaneous Publications Australian Government, ‘Personal Liability for Corporate Fault’ (September 2006) Corporations and Markets Advisory Committee 1–141. Read More