SOLVINGTHECORPORATEISSUEFROMCOUCHV
ATTORNEYGENERAL:HOWCANLEGALPERSONSBE
SUBJECTIVELYRECKLESS?
BethanyMathers
AdissertationsubmittedinpartialfulfilmentofthedegreeofBachelorofLaws
(withHonours)attheUniversityofOtago
October2016
1
Acknowledgements
Tomysupervisor,SimonConnell,forallhisadviceandguidance.Yourenthusiasmand
interestinthisprojecthasbeengreatlyappreciated.
TotheothermembersoftheOtagoLawFacultywhohaveassistedme,inparticularBarry
AllanforhisthoughtfulsuggestionsatmyseminarandMichaelRobertsonforsendingme
manyinterestingarticles.
Tomypartner,Paul,forhislove,supportandunendingpatience.
Tomylawstudygroup,forthegreatstudybreaksandmanygooddiscussions.
Tomyfamily,fortheirsupportandloveovertheyears.
2
TableofContents
Introduction Chapter1:Backgroundtothecorporateissue
1.1Backgroundtotherequirementofsubjectiverecklessness 1.1.1 Historyofexemplarydamagesincasesofnegligence
1.1.2 Thepurposesofexemplarydamages
1.1.3 Definingsubjectiverecklessness
1.2Howcancorporatesubjectiverecklessnessbedetermined? 1.2.1 Inferringsubjectiverecklessness
1.2.2 Whatarethe‘objectivecircumstances’? 1.2.3 Inferringcorporateintention
1.2.4 TheCorporateIssue. 1.3Theoreticalbackgroundtothemethodsofsolvingthecorporateissue
Chapter2:Methodsofcorporateliabilitybasedonthesubjectiverecklessnessofone
humanperson
2.1 VicariousLiability
2.1.1 Overviewofargumentsforandagainstvicariousliabilityfor
exemplarydamages 2.1.2 NewZealandcaselaw
2.1.3 Conclusions 2.2Theidentificationprinciple
2.2.1 Identificationinthecontextofexemplarydamagesfor
negligence 2.3Conclusionsontheidentificationprincipleandvicariousliability
Chapter3:Aggregation
3.1 WhatisAggregation? 3.2 Precedentforaggregatedstateofmind
3.3 Argumentsforandagainstaggregatedsubjectiverecklessness
3.3.1 Aggregationofknowledgeisnotsubjectiverecklessness 3.3.2 Aggregationincentivizesgoodsystems
3.4 Aggregationinthecontextofexemplarydamagesfornegligence Chapter4:Objectiveapproachestocorporaterecklessness
4.1 CorporateFaulttheories
4.1.1 Contentofthetheory
4.1.2 Comparisontoparliamentaryintention
4.1.3 Findinganappropriatecorporatefaulttheory
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4.1.4 CorporateFaultinthecontextofexemplarydamagesfor
negligence 4.2 Contractlawapproach:
4.2.1 Constructingintentionincontractinterpretation
4.2.2 Similaritiestocorporatefault
Conclusions Bibliography 42
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4
Introduction:
InCouchvAttorneyGeneral1theSupremeCourtheldthatexemplarydamagesarerestricted
to cases of intentional or subjectively reckless wrongdoing. Exemplary damages are noncompensatorydamageswhichcanbeawardedatthecourt’sdiscretionincasesofoutrageous
wrongdoingwhichthecourtwishestopunishthedefendantfor.2Outrageouswrongdoing
requires“anelementofflagrancyorcynicismoroppressionorthelike:somethingadditional,
rendering the wrongdoing or the manner or circumstances in which it was committed
particularly appalling”.3 Outrageousness can be described as; “malicious, vindictive, highhanded, wanton, wilful, arrogant, cynical, oppressive, and contumelious disregard of the
plaintiff’srights”.4
Liabilityfornegligenceisbasedonobjectivestandardsofconductdeterminedbyreference
to the reasonable person.5 However, for exemplary damages there must be a subjective
intentiontocauseharmorrecklessnesstotheriskofharm.Therequirementsforliabilityfor
thetortofnegligencecanbesummarisedas:
1. adutyofcareowedbythedefendanttotheplaintiff,
2. thedefendantbreachedtheduty,and
3. thebreachcausedharm.
Inadditiontothis,forliabilityforexemplarydamagestheremustbe;
4. outrageousconductbythedefendant,and
5. thedefendantintendedtocauseharmorwassubjectivelyrecklessastotheriskof
harm.
Thefocusofthisdissertationisonthefifthelement,intentionorsubjectiverecklessnessand
how this can be found when the defendant is a legal person as a company, government
department and other organisation. Throughout this dissertation, in particular in the
exampleswhichIwilluse,Iamassumingthattheotherelementshavebeensatisfied.
1
CouchvAttorney-General(No2)[2010]NZSC27,[2010]3NZLR149.
th
StephenTodd(ed),TheLawofTortsinNewZealand(7 Ed,ThomsonReuters,Wellington,2016)at[25.3.03].
3
AvBottrill[2002]UKPC44,[2002]2NZLR721at[23];whilethisdecisionwasoverturnedbytheSupreme
CourtinCouchthedescriptionsoftheoutrageousnessrequirementarestillapplicabletoexemplarydamages.
4
At[25].
5
Todd,aboven2,at[5.2.04]
2
5
Thepurposeofthisdissertationistodiscusspossiblemethodsbywhichlegalpersonsmaybe
said to have acted with subjective recklessness. This topic was raised in Couch v Attorney
General where Tipping J discussed four possible methods under the title ‘The Corporate
Issue’.6TippingJsuggestionsare;vicariousliability,attributionofanidentifiedperson’sstate
ofmindtothecorporation,aggregationandsystematiccorporatefault.InthisdissertationI
willdiscussTippingJ’spossiblesolutionsandassesstheirsuitabilityforsolvingthecorporate
issue.
Chapter1willlayoutthebackgroundtothetopicnecessarytoexplainthecorporateissue
andwhyitexists.
Chapter2willdiscussvicariousliabilityandtheidentificationprincipleasmethodswhereby
thecompanyisheldliableforthesubjectiverecklessnessofoneperson.
Chapter3willdiscussthepossibilityofaggregatingsubjectiverecklessnessfromthestateof
mindofmultiplepeople.
Chapter4willfocusonthecorporatefaultdoctrineandthepossibilityofinferringcorporate
subjectiverecklessnessfromtheobjectivecircumstances.
Mattersthisdissertationisnotintendedtocommenton
Thisdissertationisnotintendedtocommentontheoverallmeritsofexemplarydamagesin
the civil law or the requirement of subjective recklessness. This dissertation is also not
intended to investigate the requirements of outrageousness. Nor is is this dissertation
intendedtosuggestalegislativechangeinthelawisneeded.RatherIhopetoprovidean
analysis of the options available to a court when a claim for exemplary damages is made
againstanegligentlegalperson.
6
CouchvAttorneyGeneral(No2),aboven1,at[157]-[161].
6
IacknowledgethatthereisanissueastotheextentofCrowntortliability,whichmightbe
limitedtovicariousliabilityonly.7Thisdissertationisnotintendedtocommentonwhether
Crown tort liability should be extended beyond this. If Crown tort liability is restricted to
vicariousliability,thereisstillvalueinexploringthecorporateissuewhichwillbepresentin
claimsagainstotherlegalpersons.
7
CrownProceedingsAct1950,s6.
7
Chapter1:Backgroundtothe‘CorporateIssue’
This chapter will provide an overview of the background to the subjective recklessness
requirement,anintroductiontothecorporateissueandsometheoreticalbackgroundtothe
possiblemethodsofsolvingthecorporateissue.Thepurposeofthischapteristoprovidethe
readerwiththebackgroundinformationtodemonstratewhatthecorporateissueisandwhy
itexists.
1.1Backgroundtotherequirementofsubjectiverecklessness
1.1.1Abriefhistoryofexemplarydamagesincasesofnegligence
In the early cases on exemplary damages in New Zealand, such as Taylor v Beere8 and
DonselaarvDonselaar9theCourtofAppealseemedtoacceptthatexemplarydamagescould
only be awarded for intentional torts.10 However in McLaren Transport Ltd v Somerville11
TippingJawardedexemplarydamagesfornegligencebecausetherewasan“outrageousand
flagrant disregard for the plaintiff’s safety, meriting condemnation and punishment”.12 In
Bottrill v A, the majority of the Court of Appeal held that exemplary damages could be
awarded in cases of negligence, but confined exemplary damages to “cases where the
defendantissubjectivelyawareoftherisktowhichhisorherconductexposestheplaintiff
and acts deliberately or recklessly in taking that risk.”13 In the Privy Council, the majority
reversedthisfindingandheldthatwhileoutrageousbehaviourwillusuallyinvolveintentional
orrecklessbehaviour,thisisnotarequirement.14
ThequestionofexemplarydamagesincasesofnegligencecametotheSupremeCourtin
Couch v Attorney General.15 Susan Couch sued the Department of Corrections for being
negligentintheirsupervisionofaWilliamBellwhilehewasonparole.TheProbationBoard
hadjudgedBelltobeatahighriskofreoffendingandthereforesetseveralconditionsonhis
probation.OneoftheseconditionswasthatBellwasnottoworkinaplacewherealcohol
8
TaylorvBeere[1982]1NZLR81(CA).
DonselaarvDonselaar[1982]1NZLR97(CA).
10
Todd,aboven2,at[25.3.03(4)].
11
McLarenTransportLtdvSomerville[1996]3NZLR424(HC).
12
At434.
13
BottrillvA[2001]3NZLR622(CA)at[41]perRichardsonP.
14
AvBottrill,aboven3.
15
CouchvAttorneyGeneral(No2),aboven1.
9
8
wassold.Bell’sprobationofficerdidnotfollowthroughontheconditionsofBell’sprobation
and Bell was allowed to work at licenced RSA premises. Bell then shot and killed several
peopleattheRSAandseriouslyinjuredCouch.ThemajorityintheSupremeCourtheldthat
exemplarydamagesareconfinedtointentionalorsubjectivelyrecklesswrongdoing.Thecase
wassettledbeforegoingtofulltrialandsotheissueofwhetheradutyofcarewasactually
owedorbreachedwasneverdecided.
1.1.2Purposesofexemplarydamages
The case law on exemplary damages displays a range of opinions as to the purposes of
exemplarydamages.Emphasisingdifferentpurposesmayresultindifferentapproachesto
liability for exemplary damages. Throughout my discussion of the possible methods of
corporateliabilityIwillreferbacktothepurposesofexemplarydamagesinassessingthe
appropriateness of different methods and how they might be applied in light of these
purposes.
The narrow view of exemplary damages emphasises the punitive purpose of exemplary
damages.InBottrillthemajorityoftheCourtofAppealconcludedthattheprimarypurpose
ofexemplarydamagesispunishmentandwhiledeterrencemayresultfromthis,thereshould
notbeanemphasisondeterrence.16InCouchTippingJemphasisedthepunitivepurposeof
exemplarydamages.17HisHonouracknowledgedpossiblewiderpurposessuchasvindication,
education,appeasementofthevictim,therapeuticeffectandexpressingsocietaldisapproval,
howeverconsideredthatthesethingsshouldbeseenasconsequencesofapunitiveaward
ratherthandiscretepurposesintheirownright.Similarly,McGrathJapprovedoftheprimary
purposeofexemplarydamagesbeingtopunish,withspecificdeterrenceandvindicationof
the plaintiff as “incidental consequences”.18 On this view exemplary damages are only
justifiedwhenthedefendantisdeservingofpunishment.
Deterrenceisalsoanimportantpurposeofexemplarydamages,althoughitisusuallyseenas
secondarytopunishment.Deterrencecanbeeithergeneralorspecific;specificdeterrence
16
BottrillvA,aboven13,at[42]perRichardsonJ.
CouchvAttorneyGeneral(No2),aboven1,at[95]perTippingJ.
18
At[238]perMcGrathJ.
17
9
seekstodetertheparticularwrongdoerfromactinginthesamemanneragainandgeneral
deterrenceseekstodeterlikemindedpersonsfrombehavinginasimilarmanner.19InCouch
Blanchard J emphasised both punishment and deterrence as important purposes of
exemplary damages.20 His Honour considered that there was a “proper moral role” for
exemplary damages in deterring outrageously harmful behaviour, both generally and
specifically. On this view, exemplary damages can be justified by either punishment or
deterrence.
Thewideviewofthepurposesofexemplarydamagestakesintoaccountmanypurposesand,
incontrasttothenarrowview,exemplarydamagescanbejustifiedtoserveanyoneofthese
purposesevenwhenthereisnotastrongreasontopunish.Thewideviewisdemonstrated
byThomasJ’sdissentingjudgmentinBottrill.21HisHonourconsideredthatwhiletheprimary
functionofexemplarydamagesispunishmentotherfunctionsalsoexistsuchas“deterrence,
vindication,condemnation,education,theavoidanceoftheabusesofpower,appeasement
ofthevictimandthesymbolicimpactofadecisionasanexpressionofsociety’sdisapproval
ofcertainconduct.”22ThomasJconsideredthatexemplarydamageswereananimportant
toolforcondemningconductwhichisreprehensibleandunacceptabletothecommunityas
“[e]xemplarydamagescanservetohighlightthefactthatviolationofcertainvaluesisinitself
objectionable, irrespective whether any compensatable loss ensues”.23 Thomas J also
considered the importance of vindicating and appeasing the victim and considered the
‘therapeutic effect of a civil trial in which the victim is an equal participant with the
perpetratorofthewrongfulconduct.”24InCouchNo2EliasCJtookasimilarviewthatthe
jurisdiction of exemplary damages was to “mark society’s condemnation of outrageous
behaviourbythedefendantwhichisinsufficientlyaddressedbyotherremedy”.25
19
PaulWalker“VicariousLiabilityforexemplarydamages:amatterofstrictliability”(2009)83ALJ548at
[551].
20
CouchvAttorneyGeneralNo2,aboven1,at[58]-[59]perBlanchardJ.
21
BottrillvA,aboven13,at[95]-[100]perThomasJ.
22
BottrillvA,aboven13,at[95]perThomasJ.
23
At[98].
24
At[98].
25
CouchvAttorneyGeneral(No2),aboven1,at[4]perEliasCJ.
10
CurrentlythenarrowviewisdominantanditexplainsthedecisioninCouchtolimitexemplary
damages to cases of subjective recklessness as only advertent wrongdoing is deserving of
punishment. In contrast, emphasising other purposes might have allowed for exemplary
damages to be awarded for non-advertent wrong doing. However, the wider view is also
important,particularlyinregardstodeterrencewhichisastrongfactorinexemplarydamages
cases.
1.1.3Defining‘subjectiverecklessness’
In the case law various terms are used to describe the required standard. The majority in
Couch is relatively consistent in using the term ‘subjective recklessness’, but there is little
elaboration on this standard. Blanchard J states reckless is acting “with a conscious
appreciation of putting others at risk”.26 Tipping J refers to the requirement of being
consciously aware of the level of risk to the plaintiff’s safety and consciously running this
risk.27InCouchtheterms‘advertent’and‘inadvertent’arealsocommonlyused.Themajority
judgmentoftheCourtofAppealinBottrilldescribed“recklessness”as“wherethedefendant
appreciatedtherisktowhichheorshewasputtingtheplaintiff,and,thoughhopingnoharm
wouldensue,wentaheadandtookthatrisk”.28
To flesh out the requirements and nuances of subjective recklessness we can turn to the
criminal law. Criminal subjective recklessness requires three elements; foresight of risk of
harmanddeliberatelytakingtheriskofharm,whereitisobjectivelyunreasonabletodoso.29
Subjective recklessness can be contrasted with objective recklessness which is when the
defendantdidnotappreciatetheriskofharmbutoughttohavedoneso.30Usuallyliability
fornegligenceisbasedonobjectivewrongdoing,butliabilityforexemplarydamagesrequires
subjectivewrongdoing.
26
At[60]perBlanchardJ.
At[150]perTippingJ.
28
BottrillvA,aboven13,at[43]perRichardsonJ.
th
29
APSimesterandWJBrookbanks,ThePrinciplesofCriminalLaw(4 Ed,ThomsonReuters,Wellington,2012).
at[4.3].
30
At[4.3].
27
11
Criminalsubjectiverecklessnessisdifferentfromsimplypossessingknowledge.InRvHarney
the court held that recklessness is not simply possession of information which, if the
defendant stopped to think about it, would have amounted to a knowledge of the risk.31
Theremustbeasubjectiveappreciationoftheriskandadeliberatetakingoftherisk.
Inthecriminalsphere,recklessnessisnotconcernedabouttheattitudetowardstherisksuch
asthedefendant’smotivesorhopesintakingtherisk.32Itisirrelevantwhetherthedefendant
hopedthattheiractionswouldnotresultinharmorwascallouslyindifferenttotherisk.33
The issue is whether the action was undertaken with subjective awareness of the risk.
RichardsonPinBottrillobservedthatrecklessnesswouldbesatisfiedevenifthedefendant
hopednoharmwouldensue.34Aparticularlycallousapproachtorisktakingwouldcertainly
berelevantinassessingoutrageousness,butforsubjectiverecklessnessonlyawarenessof
theriskisrelevant.
Forcriminalrecklessnessitmusthavebeenobjectivelyunreasonabletotaketherisk.35Inthe
contextofnegligencethiswillhavebeenestablishedindeterminingwhetherthedutyofcare
wasbreached,asthisisbasedonadeterminationofwhatareasonablepersonoughttohave
done.
1.2Howcancorporatesubjectiverecklessnessbedetermined?
Thispartofthechapterwillconsiderhowsubjectiverecklessnesscanbeproved,andhow
thisprocessdiffersfromahumanpersontoalegalperson,resultinginthecorporateissue.
1.2.1Inferringsubjectiverecklessness
Inmanycasesinvolvinghumandefendantstherewillbenodirectevidenceastothestateof
mindofthedefendant.Inthissituationthecourtisabletoinferastateofmindfromthe
objectivecircumstances.Thisobjectiveapproachanimportantstepinthecourt’sabilityto
constructcorporatesubjectiverecklessness.
RvHarney[1987]2NZLR576(CA).
SimesterandBrookbanks,aboven29,at[4.3.2].
33
At[4.3.2].
34
BottrillvA,aboven13at[43]perRichardsonJ.
35
SimesterandBrookbanks,aboven29,at[4.3].
31
32
12
In Bottrill the majority of the Court of Appeal concluded that the inquiry into subjective
recklessnessinvolves;
“… an objective assessment of whether the defendant's conduct amounted to
deliberateorrecklessrisktakingandsowhetherinthatlattersituationheorshewas
subjectivelyreckless.Thattestofconsciousrisktakingwillbesatisfiedwhereonan
objective assessment the defendant had an actual appreciation of the risk … [and]
wheretheparticularriskwasobviousbutthereisanabsenceofevidenceastothe
defendant'sactualstateofmind,thecircumstancesmayjustifytheinferencethatshe
orhewasawareofitandacceptedtheriskthatitcouldwellhappen.”36
The process of inferring subjective recklessness is demonstrated in the case of McLaren
TransportvSomerville37whichinvolvedanemployeeofMcLarenTransportoverfillingatyre
withairwhichcausedthetyretoexplodeandphysicallyinjureMrSomerville.TippingJheld
that the “overwhelming inference” from the evidence was that the employee “must have
beenconsciousoftherisk”ofwhathewasdoing.38InBottrillTippingJclarifiedthatwhile
therewasnodirectevidenceofsubjectiverecklessnessinMcLarenhisHonourwasprepared
toinferthatthedefendantmusthaveappreciatedtheriskinherentinwhathewasdoing.39
InBottrillTippingJwentontosaythattheelementofsubjectivitymustnotbeconfusedwith
the method by which it can be proved; his Honour writes “[t]he fact that the process of
reasoningwillusuallybeoneofobjectiveinferencemustnotbeallowedtoobscurethefact
thatultimatelywhathastobeprovedisasubjectivestateofmind.”40InCouchNo2Justice
Tippingalsotooktheapproachthataninferenceofsubjectiverecklessnesscanbemadefrom
theobjectivecircumstances.41
1.2.2Whatarethe‘objectivecircumstances’?
36
BottrillvA,aboven13,at[62]perRichardsonP.Emphasisadded.Whilethisdecisionwasoverruledbythe
PrivyCouncil,itisausefuldiscussionofhowthesubjectiverecklessnessrequirementmightworkinpractice.
37
McLarenTransportvSomerville,aboven11.
38
At435.
39
BottrillvA,aboven13,at[168]perTippingJ.
40
Atat[175].
41
CouchvAttorneyGeneral(No2),aboven1,at[161][131]and[124]perTippingJ.
13
The ‘objective circumstances’ from which subjective recklessness can be inferred are the
outwardwordsandactionsbythenegligentpersonattherelevanttime.Thisapproachis
takeninbothcontractandcriminallawwhenthecourtisrequiredtofindthementalstateof
aperson.
In contract law, the objective circumstances from which intention can be inferred are the
outwardconductandwordsoftheparties.42Insomecases,thecourtmaybepreparedto
inferastateofminddifferentfromwhatthepersonclaimstohavepossessed.43Incontract
lawthiscanoccur,forexample,inthecontextofrectificationwhereonepartyclaimstohave
notsharedtheotherparty’sintention.Forexample,inWestlandSavingsBankvHancock44
MrHancocktoldthecourtthathethoughtthatthecontracthadafixedinterestrateforthe
durationofthemortgage.However,hehaddonenothingtoprotestorinvestigatewhenthe
interest rate was increased several times. From this inaction the court inferred that Mr
Hancockmusthavethoughtthatthebankwasactingwithinitsrightsunderthecontractin
increasingtheinterestrates.Therefore,hiscontractualintentionswerethattheinterestrate
couldincreaseatamonth’snotice,despitehisdenyingthisintention.
Inthecriminallawcontextthecourtisalsoentitledtoinferthatthedefendantmusthave
possessedthenecessarystateofmind.45Forexample,inRvBlackthecourtconcludedthat
the circumstances of case irresistibly compelled the conclusion that the appellant was
recklesswhetherdeathensuedornot.46Inthiscasetheappellanthadstabbedthevictimin
theneckwithconsiderableforcesothattheknifewasburiedtothehilt.Thecourtheldthat
thisactwasofanaturewhichmusthavebeenknowntotheappellanttobelikelytocause
death.
1.2.3Inferringcorporateintention
Inferringsubjectiverecklessnessfromtheobjectivecircumstancesisalegitimatemethodof
comingtoaconclusionofsubjectiverecklessness.However,whenthedefendantinquestion
42
WestlandSavingsBankvHancock[1987]2NZLR21(HC)at31.
Tri-StarCustomsandForwardingLtdvDenning[1999]1NZLR33(CA)at37.
44
WestlandSavingsBankvHancock,aboven42.
45
SeeRvPrice[1919]GLR410at410.
46
RvBlack[1956]NZLR204(CA)at204.
43
14
isacorporationratherthanahumanpersonitisadifferentexercise.Thecourtcanstilllook
attheobjectivecircumstancesandholdthatthereisasubjectivestateofmind,howeverthis
stateofmindisinherentlyalegalfiction.Whenacourtinfersastateofmindofahuman
person they are saying that despite the lack of direct evidence as to state of mind and
regardlessofwhatthepersonmightclaim,inthecircumstancesthecourtisconfidentthat
thepersonwasreallyawareoftherisk.Inregardstoacorporationifthecourtlooksatthe
circumstancesofthewrongdoing,suchastheactionstakenandthingssaidbymembersof
thecorporate,theycouldalsomakeaninferenceofsubjectiverecklessness.However,inthis
casethecourtisinferringsomethingwhichcannotreallyexist;acorporatesubjectivestate
ofmind.Therefore,Iwillrefertothisprocessasconstructingacorporatestateofmind.
1.2.4TheCorporateIssue
Simplyput,thecorporateissueis:howcanweconstructacorporatestateofmindwhichis
equivalent to a human state of mind? While the courts still use the language of ‘making
inferences’,‘intention’and‘subjectiverecklessness’whendiscussinglegalpersons,whatthey
arereferringtoisalegalfictionwhichcannotactuallyexist.47Thecourtisconstructingastate
ofmindforthelegalperson.Whenacourtinfersastatemindofacorporatetheyareineffect
saying;weknowthiscorporationdidnotpossessanactualstateofmind,howevergiventhe
evidencewearewillingtoconstructthisstateofmindbecausethecorporateoughttobe
treatedasthoughitpossessedthisstateofmind.Thelegalfictionofacorporatestateofmind
servesausefulpurposeinallowingcorporationstofunction,forexamplebyallowingthemto
entercontractsandbyallowingcorporationstobeheldaccountablethroughcriminaland
tortlawprocesses.Therefore,thelawhasdevelopedmethodsforconstructingthefictional
stateofmindofalegalpersonexists.
Therearetwomainmethodsbywhichastateofmindofalegalpersoncanbeconstructed.
Firstly,thecourtsmayconstructacorporatestateofmindfromthestateofmindofahuman
person. These methods are vicarious liability, the identification principle and aggregation
whicharecoveredinChapter2and3.Secondlythecourtsmayuseamethodwhichseeksto
constructacorporateequivalentofhumanstateofmindthroughtheobjectivefeaturesofa
47
SeeSirGeorgeLeggatt,“MakingSenseofContracts:therationalchoicetheory”(2015)131LQR454.
15
corporationandthecircumstancesofthenegligence.ThismethodiscoveredinChapter4.
ThesemethodsweresuggestedbyTippingJinCouchvAttorneyGeneralandareinlinewith
literaturefromthecorporatecriminalsphereonthemodesofcorporateliability.48Therefore,
Iwillbedrawingonthecorporatecriminaljurisprudenceinassessingthesolutions.
ThroughoutthisdissertationIamusingthewords‘corporation’and‘company’,howeverit
shouldbenotedthatthecorporateissueencompassesalllegalpersonssuchasgovernment
departments, societies and other organisations which can be sued in their own right.
Therefore,referencestocompaniesandcorporationsshouldbereadasincludingotherlegal
persons.
1.3Thetheoreticalbackgroundtothemethodsofsolvingthecorporateissue
Thefourmethodsofcorporateliabilitywhichthisdissertationwilldiscusscomefromfrom
twodifferentconceptionsofthecompany.Theseconceptionsofthecorporationshapethe
different methods and therefore are useful background information for assessing the
methods.
Vicariousliabilityandtheidentificationtheoryarederivedfromthenominalistperspectiveof
thecorporation.Thenominalistperspectiveistheorthodoxviewthatthecorporateisagroup
ofindividualsandthereisnocorporation‘itself’whichexistsbeyondthepeopleinvolvedin
it.ThisviewwasproclaimedbyLordHoffmaninMeridianwhenhesaid;
“Judgessometimessaythatacompany“assuch”cannotdoanything;itmustactby
servantsoragents...Butareferencetoacompany“assuch”mightsuggestthatthere
issomethingouttherecalledthecompanyofwhichonecanmeaningfullysaythatit
canorcannotdosomething.Thereisinfactnosuchthingasthecompanyassuch,no
dingansich,onlytheapplicablerules.Tosaythatacompanycannotdosomething
meansonlythatthereisnoonewhosedoingofthatactwould,undertheapplicable
rulesofattribution,countasanactofthecompany.”49
Thenominalistviewleadstothepositionthatacorporationcanonlyhavederivativeliability
48
49
JamesGobert“CorporateCriminality:FourModelsofFault”(1994)14LegalStud.393.
MeridianGlobalFundsManagementAsiaLtdvSecuritiesCommission[1995]3NZLR7(PC),at12.
16
whichisattributedtothecorporationfromanindividualwhohascommittedawrong.50This
position has been justified by arguing that only human people are morally culpable51 and
corporationsare‘fictitiouslegallycreatedpersonsincapableofculpability’.52
Incontrast,corporatefaulttheoriesoriginatefromtherealistperspectiveviewsacorporation
isathinginitselfwhichcanhavelegalliabilitywhichisnotderivedfromindividualliability.53
Forrealists,corporationsaremorallyculpableentitieswhichcanbedirectlyliablefortheir
procedures,policies,cultureandsystems54.Thiscanbejustifiedbyarguingthatcorporations
have moral agency which is demonstrated by the fact they can have intentions and goals
which are separate from any individual associated with the company. 55 This can also be
justified on the pragmatic approach that corporations should be considered to be moral
agentscapableofbearingculpabilitybecauseofthelargeroletheyplayinmodernsociety.56
Clarksonarguesthatcorporatesaremoralagentsintheirownrightbyreferencetotwomain
theoriesofresponsibility.FirstlyunderHart’scapacitytheory57,corporationsareresponsible
astheyarecapableofreason,exercisingcontrolandchoosingwhethertocomplywiththe
law.Secondly,underthecharactertheory,corporatesareabletoexpressundesirabletraits
suchasindifferencetoariskofharm.Undereithertheory,thecorporatecanbeaculpability
bearingagentinitsownright.58
SaraSunBealedefendstherealistpositionagainstthenominalistpositionbyexplainingwhy
the premise of the nominalist perspective is flawed as beginning with the concept that
corporationsarefictionalentities“canleadquicklytotheconclusionthatcorporateliability
isunjustbecauseiteffectivelypunishesinnocentthirdparties(shareholder,employees,and
soforth)fortheactsofindividualswhocommitoffenseswhileintheemployofthesefictional
entities”. This is problematic as it misses the reality that corporations “are enormously
50
NeilCavanagh“CorporateCriminalLiability:AnassessmentoftheModelsofFault”(2011)75J.Crim.L.414
at414.
51
S.Wolf,‘TheLegalandMoralResponsibilityofOrganisations’inPennockandChapman,CriminalJustice:
Nomos27(NewYorkUniversityPress:NewYork,1985)
52
GSullivan,‘ExpressingCorporateGuilt’(1995)15OJLSat283.
53
Cavanagh,aboven50,at415.
54
At429.
55
PAFrench,‘TheCorporationasaMoralPerson’(1979)16AmericanPhilosophicalQuarterly2017.
56
Cavanagh,aboven50,at431.
57
HLAHart,PunishmentandResponsibility(London:OxfordUniversityPress,1968)
58
CMVClarkson,“KickingCorporateBodiesandDamningTheirSouls”(1996)59Mod.L.Rev.557at567-568.
17
powerful, and very real, actors whose conduct often causes very significant harm both to
individualsandtosocietyasawhole.”59Thisperspectiveexplainsthetension,whichwillbe
demonstrated in Chapter 2, between the urge to punish a corporate for outrageous
behaviour,andunfairnessthismaycauseifcorporateliabilityrestsonthestateofmindof
oneindividual.
Aggregation can be considered to be a middle ground between nominalist and realist
perspectivesasitreliesonconstructingacorporatestateofmindfromthestateofmindof
varioushumanpersons,butitalsoreflectsamoreorganisationalviewofcorporateliability
thanvicariousliabilityandtheidentificationprinciple.60Thiscompromisebetweenthetwo
viewsofthecorporationisperhapsoneofthemainweaknessesofthetheory.Lederman
statesthatthe‘weaklink’intheaggregationmodelcomesfromthefactthatittriestoremain
loyal to the traditional conceptual framework but also seeks to incorporate the idea of
collectiveknowledge.61AswillbeshowninChapter3,thismeldingofthetwoperspectives
resultsinaconceptuallyproblematictheory.
59
SaraSunBeale“AResponsetotheCriticsofCorporateCriminalLiability”(2009)46Am.Crim.L.Rev.1481at
1482.
60
Cavanagh,aboven50,at425.
61
EliLederman,“ModelsforImposingCorporateCriminalLiability:FromAdaptationandImitationToward
AggregationandtheSearchforSelf-Identity”(2000)4Buff.Crim.L.Rev.641at676.
18
Chapter2:Methodsofcorporateliabilitybasedonthesubjectiverecklessness
ofonehumanperson
InthischapterIwillconsidervicariousliabilityandtheidentificationprinciple62asmethods
of solving the corporate issue. These methods can impose liability on a corporation for
exemplarydamagesbecauseofthesubjectivelyrecklessstateofmindofonepersonwithin
the corporation. Vicarious liability is imposed on a policy basis, primarily because of the
relationship between the corporate and the negligent individual63, but for reasons I will
explain,liabilitywillusuallynotextendtoexemplarydamages.Theidentificationprinciple
allows for the court to identify one person with the company and attribute that person’s
subjectiverecklessnesstothecompany,resultinginliabilityforexemplarydamages.
Whethervicariousliabilityoridentificationisappropriatedependswhoowesthedutywhich
has been breached. Vicarious liability makes a company liable for the tortious acts of its
agentsandemployees,anditdoesnotrequirethecompanytohavecommittedatort64.In
contrast, identification is appropriate when the company is negligent, either through the
actionsonanemployeeoronasystematicbasis,andapersonwhocanbeidentifiedwiththe
company was subjectively reckless. The identification principle creates direct liability and
culpability for the company65 and is therefore can result in exemplary damages being
awardedagainstthecompanyforthesubjectiverecklessnessoftheidentifiedperson.
2.1Vicariousliability
Asageneralruleexemplarydamagesarenotavailableonavicariousliabilitybasisbecause
todosowouldnotfulfilthepunishmentpurposeofexemplarydamages66.However,there
remains a discretion for the courts to impose exemplary damages in cases when the
punishmentanddeterrencepurposesofexemplarydamagesaremet,orthecasefallswithin
anarrowexception.
62
Theidentificationprincipleissometimesalsoreferredtoasattributionor‘thedoctrineofattribution’,butto
avoidconfusionIhaveusedthemorepopularterm‘theidentificationprinciple’.Ihaveused‘attribution’to
refertoalltheprocessesbywhichliabilitycanbeattributedtoacompany.
63
Todd,aboven2,at[22.1].
64
Bilta(UK)Ltd(inliq)vNazir(No2)[2015]UKSC23at[186]perLordHoulsonandLordHodge.
65
At[7]perLordSumption.
66
SvAttorneyGeneral[2003]3NZLR450.
19
Vicariousliabilityiswhereonepersonbecomesliablefortheactsofanotherbecauseofa
relationship of employment or agency between them. Vicarious liability is strict and is
imposeddespitethelackoffaultonbehalfofthepartybeingheldliable.67Ascorporations
can only act through the acts of employees and agents, vicarious liability is an important
principleofcorporateliability.68Therearethreemainrequirementsforvicariousliabilityto
exist.69Firstly,atortmustbecommittedbyaperson.Secondlytheremustbearelationship
ofemploymentoragencybetweenthepersonwhocommittedthetortandthepersontobe
held liable. Thirdly the tort must be committed in the course of that relationship. In the
contextofemployment,thetortmusthavebeencommittedinthecourseofemployment.In
thecontextofagency,itthetortmusthavebeenwithinthescopeofauthoritygrantedtothe
agent. The employer or principal is liable for acts which are not authorised, if they are
connectedwithauthorisedactssothattheycanbeseenasmodesofdoingauthorisedacts70.
Anexampleofanemployeeactingoutsidethescopeofemploymentisanemployeepranking
anotheremployeeinadangerouswaywhichcausesinjury.71
2.1.1Overviewoftheargumentsforandagainstvicariousliabilityforexemplarydamages
JoannaManning,drawingfromseveralsources,summarisestheprincipledargumentsforand
against vicarious liability for exemplary damages.72 The main arguments against vicarious
liability for exemplary damages focus on the idea that the employer is blameless and
thereforethepunishmentpurposeofexemplarydamagesarenotmet.Iwillcallthisconcept
the‘innocentprincipalargument’.InCouchTippingJreliedonthisargumentintakingthe
view that exemplary damages are not available in cases of vicarious liability. His Honour
wrote;
“[t]hereisnopolicybasisforpunishingsomeonefortheconductofanotherunless
thefirstperson'sconductitselfalsoqualifiesforpunishment.Peopleshouldnotbe
67
Todd,aboven2,at[22.1].
Meridian,aboven49at12perLordHoffmann.
69
Todd,aboven2,at[22.1].
70
Todd,aboven2,at[22.4.01].
71
SeeGrahamvCommercialBodyworksLtd[2015]EWCACiv47.
72
JoannaManning“ReflectionsonexemplarydamagesandpersonalinjuryliabilityinNewZealand”[2002]
NZLR143at170-172.
68
20
vicariously liable for punishment on account of the conduct of someone else just
becausethatconductrendersthemliabletocompensatetheplaintiff.”73
Forexample,anemployermightbevicariouslyliableforanemployeewho,withinthescope
ofhisorheremployment,contravenesanexpressruleoftheemployer.74Inthissituationthe
employer could be considered blameless and therefore punishment through exemplary
damages would be unfair. Furthermore, because the employer is blameless there is no
deterrenteffectonthewrongdoer,whoistheemployee,orinincentivisingtheemployerto
maintainpropercontrolanddiscipline.
Theargumentsinfavourofvicariousliabilityforexemplarydamagesfocusonthedeterrent
effect. The deterrent effect from vicarious liability for exemplary damages will incentivise
employerstodevelopwrong-preventingprocessesandtohaveacontrolledandeducated
workplace where employees are punished for their wrongdoing.75 Furthermore, vicarious
liabilityforexemplarydamagesmaybeappropriatewherethereisdifficultyidentifyingthe
culpablememberoftheworkplaceandpreventsworkersfromclosingrankstoprotecteach
other.
2.1.2NewZealandcaselaw
Thecaselawsuggeststhatwhile,asageneralrule,exemplarydamageswillnotbeawarded
incasesofvicariousliability,therearesomeexceptionalcircumstancesinwhichexemplary
damagesmaybeawarded.
InSvAttorneyGeneral76theCourtofAppealconsideredthequestionofvicariousliabilityfor
exemplarydamages.TheCourtendorsedtheinnocentprincipalargument77andnotedthat
therewillstillbeanincentiveontheemployertoreduceoreliminatenegligence,soasto
avoid direct liability for exemplary damages78. However, the Court also preserved an
exceptiontothisgeneralruleforwhenanofficialofthestateactsdeliberately,recklesslyor
73
CouchvAttorneyGeneral(No2)aboven1,at[158]perTippingJ.
Todd,aboven2,at[22.4.03]
75
Manning,aboven72at172.
76
SvAttorneyGeneral,aboven66.
77
At[88]and[124]perTippingJ.
78
At[92].
74
21
inagrosslynegligentwaywhichinflictspersonalinjury.Particularlyiftheofficialcannotbe
identifiedthentheCrownmaybeheldtobevicariouslyliablefortheactsoftheunidentified
officer79. This exception appears to be based on the case of Monroe v Attorney General80
wheretheCrownwasheldvicariouslyliablefortheassaultofaprotesterbyapoliceofficer.
ThePoliceDepartmentrefusedtoidentifyorpunishthepoliceofficerresponsibleandsothe
courtheldtheCrownvicariouslyliableforexemplarydamagesgiventheoutrageousnature
oftheact.
TheapplicationofSvAttorneyGeneralhasbeenconsideredintwoHighCourtcaseswhich
affirmedthegeneralruleagainstexemplarydamagesonavicariousliabilitybasis.However,
thesecasescarefullyconsiderwhetherexemplarydamagesmightbeavailableonthefacts
becauseoftheMonroeexceptionorbecausethepunishmentanddeterrencepurposesare
met.FalwasservAttorneyGeneral81involvedamanwhowasarrested,beatenandpepper
sprayedrepeatedlybytwopoliceofficers.StevensJstatedthatthecourtsmustacceptthe
generalprinciplefromSvAttorneyGeneraland,afteranalysingthecircumstancesofthecase,
heldthatexemplarydamagesoughtnottoberecoveredagainsttheCrowninthisparticular
case.82 Exemplary damages were not available because the police officers have been
identified, prosecuted and faced professional discipline, a timely apology was given by a
seniorpoliceofficer,andthattherewasredressthroughthecompensationforthebreachof
NewZealandBillofRightsAct.
PvAttorneyGeneral83consideredtheapplicationofSvAttorneyGeneralinthecontextofa
claimfordamagesarisingfromasexualassaultwhilePwasintheNavy.Exemplarydamages
wereclaimedagainstthenavyvicariouslyfortheactsoftheemployeeswhoassaultedPand
directlyagainsttheNavyforfailingtoinvestigatetheclaims.MallonJacceptedthegeneral
ruleinSvAttorneyGeneralbutherHonourconsideredthatawardingexemplarydamageson
avicariousliabilitybasiswaspossibleinsomecircumstancesiftheawardwouldprovidean
additional deterrence for grossly improper behaviour and incentivise a higher standard of
79
SvAttorneyGeneral,aboven66at[93].
MonroevAttorneyGeneralHighCourtAucklandA617/82,27March1985.
81
FalwasservAttorneyGeneral[2010]NZAR445(HC).
82
SvAttorneyGeneral,aboven66,at[106]
83
PvAttorneyGeneralHighCourtWellingtonCIV-2006-485-874,16June2010.
80
22
caretotakeprecautionstoavoid,detectorstopgrosslyimproperbehaviour84.However,in
this case there would be no specific deterrence as the Navy operates differently now and
there would be no general deterrent effect on similar organisations for the same reason.
Furthermore, this was not a situation where the wrong doers went unpunished or
undisciplined.Therefore,itwasinappropriatetoawardexemplarydamagesonavicarious
liabilitybasis.
2.1.3Conclusions
The case law demonstrates three possibilities for when exemplary damages might be
awarded on a vicarious liability basis; the Monroe exception, when it is fair to punish the
employer,andpotentiallyifdeterrenceisachieved.
So far the Monroe exception has remained a narrow exception which has not been
successfullyarguedinanycasesinceMonroe.However,theremaybeapotentialtoexpand
on the exception depending on how the rationale behind the exception is explained. One
explanation is that it puts a higher expectation on the Crown to maintain control over its
employees.Anotherexplanationisthattheexceptionisfocusedonwhenthewrongdoeris
not, or cannot be identified, and therefore the employer must be vicariously liable for
exemplarydamagesbecausethevictimcannotbringaclaimforexemplarydamagesdirectly
againstanunidentifiedemployee.IfthisisthepurposeoftheMonroeexception,thenthere
isscopetoarguethatitshouldbeexpandedtoincludeallsituationsofvicariousliability.The
thirdpossibilityisthattheexceptionrecognisesthatanemployer’sreactiontowrongdoing
canbeasourceofmoralwrongdoingwhichthecourtcanpunishbecausetheemployerisno
longerblameless.Therefore,theinnocentprincipalargumentnolongerapplies.Thisrationale
fortheexceptioncouldalsojustifyanexpansionoftheexceptionbeyondCrownliability.
Anotherpossibilityforthevicariousliabilityforexemplarydamagescouldexistifthecourt
foundthattheemployerwasnotblamelessandthereforetheinnocentprincipalargument
doesnotapply.InSvAttorneyGeneralandFalwasserwhenthecourtendorsedtheinnocent
principal argument they also considered whether, on the facts, the principal was actually
84
PvAttorneyGeneral,aboven83,at[86]-[88].
23
blameless.Thisleavesopenthepossibilitythatacourtcould,ondifferentfactsfindthatthe
employerwasnotblamelessandthereforethepunishmentpurposeofexemplarydamages
wouldbemetbyawardingexemplarydamagesonavicariousliabilitybasis.However,itis
difficult to conceive of a situation where an employer could be said to have caused or
contributedtothewrongdoingbutwasnotdirectlyliable.Manningnotesthat“[p]ersonal
liability for exemplary damages is available against employers who protect culpable
employeesunabletobeidentifiedbytheplaintiff,throughthedoctrinesofauthorisation,
assistance,andratification.”85Iftheemployerauthorises,assistsorratifiesthewrongfulacts
of the employee then they are likely to attract personal liability for doing so and if the
employer’sactionsareoutrageousandintentionalorsubjectivelyrecklessthentheywillbe
directlyliableforexemplarydamagesaswell.Alternatively,theemployermightbeliablefor
systematicnegligencewhichcausedthewrongdoing,orforbeingnegligentininvestigating
thewrongdoing(providedtheyoweadutyofcaretothevictim).86Inanyofthesesituations,
ifthecourthasjudgedthattheemployerwasnotdirectlyliable,itwouldbehardtojustifya
findingthattheywereneverthelesstoblameforthewrongdoingoftheiremployeeandthat
punishment was appropriate. However, if for some reason the courts were satisfied that
punishmentwasappropriatethenthismightbe,theoretically,groundsforavicariousaward
ofexemplarydamages.
Currently,punishmentisthemainpurposeofexemplarydamageswithotherpurposessuch
asdeterrenceasmerelyflowoneffects.87Onthisviewitisdifficulttojustifyavicariousaward
ofexemplarydamagesonthedeterrenceeffectalone.However,adifferentconceptionof
the purposes of exemplary damages might lead to a different result. For example, in P v
AttorneyGeneralMallonJ’sdiscussionofvicariousliabilityforexemplarydamagesfocused
onthegeneralandspecificdeterrenceeffect.Thisindicatesthatiftherehadbeennochange
intheNavy’ssystemsandattitudesexemplarydamagesmighthavebeenappropriatetodeter
theseinadequatesystemsandtoincentivisebettercontrol,educationandreportingsystems.
PaulWalker,writingintheAustraliancontext,suggeststhatexemplarydamagesshouldonly
beawardedincaseswherethereisareasonablebasisforbelievingthattheawardwould
85
Manning,aboven72,at171.
SeePvAttorneyGeneral,aboven84.
87
SeeChapter1.1.2.
86
24
bringaboutachangeintheemployersbehaviourwhichwouldpreventtherecurrenceofthe
offendingconduct.88Iftheemployerhastakenreasonablestepstopreventorminimisethe
risk,thentheemployershouldbeabsolvedofliabilityforexemplarydamages.Therefore,in
futurecasestheremaybescopetoarguethatdeterrenceissufficienttoresultinvicarious
liabilityforexemplarydamages.
Inconclusion,onthecurrentlaw,duetothenarrowconceptionofthepurposesofexemplary
damages, there is little scope for awards in cases of vicarious liability. This means that
vicariousliabilityisonlygoingtobeamethodofsolvingthecorporateissueinverylimited
circumstances.
2.3Theidentificationprinciple
Theidentificationprincipleattributestheactsandstateofmindofcertainindividualstothe
corporation.Identificationisavailableasaprincipleofliabilityinbothcriminalandtortlaw.89
InCouchTippingJsuggeststheidentificationprincipleasapossiblesolutiontothecorporate
issue;
“Whenahumanbeingactsonbehalfofthecorporationordepartmenttheirconduct
maybeattributedtothatbody.Theirconductandtheirstateofmindbecomesthat
ofthecorporationordepartmentitself.Theyactasratherthanforthecorporationor
department.”90
The identification principle originates in the case of Lennard’s Carrying Co Ltd v Asiatic
PetroleumCoLtd91whereViscountHaldanefamouslysaid;
“acorporationisanabstraction.Ithasnomindofitsownanymorethanithasabody
ofitsown;itsactiveanddirectingwillmustconsequentlybesoughtinthepersonof
somebody who for some purposes may be called an agent, but who is really the
directingmindandwillofthecorporation,theveryegoandcentreofthepersonality
ofthecorporation.”92
88
Walkeraboven19.
Bilta,aboven64,at[65]perLordSumption.
90
CouchvAttorneyGeneral(No2),aboven1,at[159].
91
Lennard’sCarryingCoLtdvAsiaticPetroleumCoLtd[1915]AC705.
92
At713.
89
25
Fromthiscasecametheconceptofthecompany’s‘alterego’or‘directingmindandwill’.This
person’sactsandstateofmindcouldbeconsideredtobethatofthecompanyandtherefore
the company would be liable for them. This person tends to be an owner/operator or
someone who is core to the business such as a CEO. For example, in Lennard’s case, Mr
Lennardwasfoundtobethecompany’salteregobecausehewasthesoleshareholderand
directorofthecompany.
The modern approach to the identification principle started with Meridian Global Funds
Management Asia Ltd v Securities Commission.93 The Privy Council rejected the ‘directing
mind and will’ test from Lennard’s Carrying Co and held that the rules of attribution will
determine the liability of a company. The primary rules of attribution are found in the
companyconstitution,impliedbycompanylawandbuiltuponbythegeneralrulesofagency.
Usually these primary rules of attribution will be sufficient to determine the rights and
responsibilitiesofthecompany.However,theseruleswillbeinsufficientiftheruleoflaw
seemstoexcludeattributionbasedoncompanyandagencyrules.Forexample,theserules
willnotbesufficientfortortsorcriminaloffenceswhichrequireasubjectivestateofmind.If
the rule is intended to apply to companies, then the court must fashion a special rule of
attribution for the particular substantive rule. The court should consider “whose act (or
knowledge, or state of mind) was for this purpose intended to count as the act of the
company?”94
ThemostrecentconsiderationofthetheidentificationprinciplecomesfromtheUKSupreme
Court in Bilta (UK) Ltd (in liquidation) v Nazir95 where the court reaffirmed the contextual
approachofMeridian.Forexample,LordNeubergerwrote:
“whether or not it is appropriate to attribute an action by, or state of mind or, a
companydirectororagenttothecompanyortheagent’sprincipalinrelationtoa
particular claim against the company or principal must depend on the nature and
factualcontextoftheclaiminquestion.”96
93
Meridian,aboven49.
At12.
95
Bilta,aboven64.
96
At[9].
94
26
Thetraditional‘directingmindandwilltest’focusedontheactsofhigherlevelmanagement
asbeingappropriateforattributiontothecompany.However,LordManceinBiltasuggested
thatthedifferencebetweenattributionandvicariousliabilityisnotbasedonwhereinthe
hierarchy of the company the person it. In some situations, particularly in third party
relationshipstheactsofanordinaryemployeeoragentmayberelevant.97
2.3.1Theidentificationprincipleinthecontextofexemplarydamagesfornegligence
Asexemplarydamagesrequiresubjectiverecklessnesstheusualrulesofagencyandcompany
lawwillusuallynotbesufficientindeterminingliabilityforexemplarydamages.Therefore,as
perMeridianandBiltathecourtsshouldconsiderthefactualcontextandthepurposefor
whichattributionisbeingused.Thequestionthecourtswillbelookingtoansweris,forthe
purposeofexemplarydamages,whosestateofmind,ifanyone’s,shouldcountasthatof
company?Thepersonidentifiedwiththecompanydoesnotnecessarilyhavetobetheone
who physically takes the negligent actions, rather the identified person needs to have
knowledgeoftheriskanddeliberatelyallow,permitorinstructanemployeewhofulfilsthe
actions.
Thecourtswillneedtoconsiderwhetheritisfairtopunishthecorporateforthestateofmind
heldbythatperson.Oneofthereasonsagainstvicariousliabilityforexemplarydamagesis
thatitpunishesthecorporateforthewrongcommittedbyonepersonandthatthisisunfair
andthe‘punishment’purposeofexemplarydamagesisnotmet.Similarly,whenconsidering
whethertoidentifysomeonewiththecorporationandthereforeattributetheirsubjective
recklessness to the company, the court will consider whether the corporate ought to be
punishedforthatperson’sstateofmind.Onepossibleconclusionisthatitisnevergoingto
beappropriatetopunishthecompanyforthestateofmindheldbyoneperson.Another
possibleansweristhatgenerallyitwillbeinappropriatetopunishthecorporationforthe
state of mind of one person, unless that person is the ‘directing mind and will of the
corporation’.WhileMeridianheldthatthedirectingmindandwilltestisnotappropriatein
97
Bilta,above,n64,At[41]perLordMance.
27
allcases,itleftopenthepossibilitythatthetestmaystillbeappropriateinsomecontexts.98
When one person can be said to be “the very ego and centre of the personality of the
company”99thenarguablyitisrighttopunishthecompanyforthatperson’sstateofmind
becausethatperson’smindisthemindofthecompany.However,thisapproachmightbe
veryrestrictiveandapplyunevenlybetweenlargeandsmallcompanies.100Inlargecompanies
theremaynotbeadirectingmindandwill,orthatmaybesofarremovedfromthenegligence
sothatidentifyingthemwiththecompanymayshieldthecompanyfromcompanyliability.
However, the highly contextual Meridian approach could mean that it is appropriate to
identifymembersofseniormanagementwhohaveresponsibilityfortheareainwhichthe
negligenceoccurredandattributetheirsubjectiverecklessnesstothecompany.Thisisafact
intensiveanalysiswhichwouldconsiderthesystemsandprotocolsforresponsibilitywithina
particular organisation. This approach is fairer as it can apply more evenly between
companies of different sizes. For example, in Merdian Lord Hoffmann suggested that as
Lennard’sCarryingCoonlyownedshipstherewasnoneedtodistinguishbetweentheperson
who fulfilled the functions of running the company’s business in general and the person
whosefunctionscorrespondedtothatofanindividualownerofaship.101Thissuggeststhat
thatinalargercompanythe‘directingmindandwill’testwouldnothavebeenappropriate
andthecourtsshouldlooktofindapersonwithauthorityoveraparticularareaofoperations.
LordHoffmannpointstothecaseofTheAdmiraltyvOwnersoftheSteamshipDivina(The
Truculent)102 where the appropriate person to be identified with the Admiralty was the
person who had been entrusted with the function of supervising the navigational lighting
which had caused the crash. Therefore, in relation to negligence, it would likely be
appropriatetoidentifyapersonwhohadauthorityandcontrolovertheareaofthecompany
wherethenegligenceoccurred,andattributetheirstateofmindtothecompany.Isuggest
thismeansthatwhosestateofmindisappropriatewilldependonthescaleofthenegligence
alleged.Forexample,inPvAttorneyGeneraltheclaimofnegligencerelatedtothelackof
investigationintotheparticularassault,thereforeitwasappropriatetolookattheactions
98
Meridianaboven49at14.
LennardsCarryingCo,aboven92.
100
Cavanagh,aboven50,at418.
101
Meridian,aboven49,at14-15.
102
TheAdmiraltyvOwnersoftheSteamshipDivina(TheTruculent)[1952]P1(UK).
99
28
andstateofmindofthepersonresponsibleforinvestigatingit.Inconsideringwhetherthe
NavywassubjectivelyrecklessinhandlingthecomplaintMallonJheldthatoncethematter
cametotheattentionoftheMasterAtArmsitwasdealtwithappropriatelythereforethe
Navy was not subjectively reckless. However, the allegation had been of systematic
negligencethroughouttheNavythenitislikelythatsomeonewhohascontrolandauthority
overallinvestigationswithintheentirearmywouldneedtobeidentifiedwiththeNavy.
Currentlypunishmentisthedominantpurposeofexemplarydamages,howeverthecourts
mightalsochoosetoconsiderdeterrenceaswell.Deterrencecouldtaketheformofdeterring
peopleinsimilarpositionswithinsimilarcompaniestonottakeunreasonablerisks.Another
possibledeterrencefactorwouldbetoincentivisecompaniestoensurethatthepeoplethey
place in positions of responsibility are well trained and educated. One possible situation
whereideasoffairnessanddeterrencemaycomeintoconflictiswhenaseniorofficialhas
acted independently of the company, potentially for their own personal gain or against
explicitcompanypolicy.Inthissituationitishighlylikelythatthecourtswillconsiderthatthe
company should not be punished for the subjective recklessness of this person, as the
company has been blameless. However, there may be a strong deterrence rationale to
incentivise companies to maintain control over managers and ensure suitable people are
hired,monitoredandwell-educatedaboutrisks.Onthecurrentnarrowviewofthepurposes
of exemplary damages it would not be appropriate to award exemplary damages in this
situation.
Inconclusion,theidentificationprincipleisusefulinthesituationforsolvingthecorporate
issuewherethereisapersonwhocanbeidentifiedwiththecompanyandshowntohave
been subjectively reckless. Under the contextual Meridian approach to the identification
principleitislikelythatthecourtswillseektoidentifysomeonewhohasauthority,control
andresponsibilityovertheareaofthecompanyinwhichthenegligenceoccurred.
2.3.Conclusionsontheidentificationprincipleandvicariousliability
Inconclusion,vicariousliabilityandtheidentificationprinciplearequitenarrowmethodsof
liability.Becauseofthenarrowfocusonpunishmentinexemplarydamagesvicariousliability
ismostlikelyrestrictedtotheverynarrowMonroeexception.Theidentificationprincipleis
29
wider,butasitsrelianceonthesubjectiverecklessnessofonepersonlimitsthecasesinwhich
itisaneffectivemethodofcorporateliability.Insomecases,theresimplywillnotbeone
subjectivelyrecklesspersonwhocanbeidentifiedwiththecompany,howeverthecompany
canstillbesaidtobedeservingofpunishment.ThisproblemisillustratedinthecaseofRv
P&OEuropeanFerries(Dover)Ltd103whichinvolvedtheHeraldofFreeEnterprisewhichsank
killing192people.InaninquiryintotheaccidentitwasfoundthatP&O‘wasfromtopto
bottominfectedwiththediseaseofsloppiness’.104Howeveritcouldnotbeshownthatthe
riskswereoblivioustoanyoftheseniormanagersandthereforenosubjectiverecklessness
could be attributed to the company. Cases such as this where the identification principle
failedtoresultinliabilityhelpedtoformtherealistpositionandthetwoalternativetheories
whichareconsideredinthenexttwochapters.
103
RvP&OEuropeanFerries(Dover)Ltd(1991)93CrAppR72.
DepartmentofTransport,TheMerchantShippingActof1894:MVHeraldofFreeEnterprise–Reportofthe
CourtNo.8074(SheenJ,WreckCommissioner,24July1987)at[16].
104
30
Chapter3:Aggregation
AsdemonstratedinChapter2,vicariousliabilityandtheidentificationdoctrinecanresultin
corporateliabilityonlyinanarrowrangeofsituations.Thishasledtoalternativetheoriesof
corporate liability in the criminal sphere which are based on the realist conception of the
corporation.Thischapterwillfocusonthetheoryofaggregation,whichwassuggestedby
TippingJinCouchasapossiblesolutiontothecorporateissue.105However,asthischapter
willshow,whileaggregationmaybeanappealingoptionforwideningthepossibilitiesfor
corporate liability, it is conceptually difficult to use aggregation to construct a corporate
equivalenttosubjectiverecklessness.
3.1WhatisAggregation?
Theaggregationdoctrineallowsfortheaddingtogetheroftheactionsandstateofmindof
multiple human people within the corporate. I consider that there are three forms of
aggregation;
1. aggregationoftheactsofmultiplepeople(“actsaggregation”),
2. aggregationoftheactsofoneormorepeoplewiththestateofmindofoneperson
(“mind/actsaggregation”),
3. aggregationoftheknowledge,recklessnessorotherstateofmindofmultiplepeople
(“aggregatedstateofmind”).
Thefirstformisacceptedintortlawastheactionsofmultiplepeoplewithinacompanycan
resultincompanyliabilityfornegligence106,howeverisnotusefulforthepurposeofsolving
the corporate issue as it does not contain a state of mind. The second category is also
acceptedintortlawtotheextentpermittedbytheidentificationprincipleasthenegligent
actionsofoneormoreemployeesinconjunctionwiththesubjectiverecklessnessofaperson
whocanbeidentifiedwiththecorporationcanresultinliabilityforexemplarydamages.The
third form of aggregation possibly allows for the knowledge and state of mind of various
employees to be combined to find the subjective recklessness required for exemplary
damagesandisthefocusofthischapter.
105
106
CouchvAttorneyGeneral(No2),aboven1,at[160].
W.B.Anderson&SonsLtdvRhodesLtd[1967]2AllER850.
31
3.2Precedentforaggregatedstateofmind
IntheUnitedKingdom,AustraliaandCanadanewlegislationexpandingcorporatecriminal
liabilityhasallowedforactsaggregationbuthasnotallowedforaggregatedstateofmind.In
theUnitedKingdomunderthecommonlawalegalpersoncannotbeconvictedofacrimein
the absence of a human person who has committed all of the required elements of the
crime.107 The UK Corporate Manslaughter and Corporate Homicide Act 2007 contains a
versionofactsaggregationwhichallowsfortheadditionofthefailingsofanumberofsenior
management personnel to find corporate liability for gross negligence causing death. In
Australia,actsaggregationisacceptablefornegligenceundertheCriminalCodeAct1995,but
theoptionsforcorporatemensreaundertheactdoesnotincludeaggregatedstateofmind.
InCanadathe2003amendmenttotheCanadianCriminalCodeknownasBillC-45widens
corporate criminal liability by expanding the category of people whose mens rea can be
attributed to the company through the identification doctrine and by allowing for acts
aggregation.108 Therefore, it seems that in considering possible ways to expand corporate
liabilitythelegislatorsinthesecountrieswereconvincedthataggregatedstateofmindwas
notanappropriatemethodofcorporateliability.
TheAmericancaseofBankofNewEnglandvUnitedStates109isoneoftheonlyexamplesof
aggregatedstateofmindandisoftencitedwithapprovalisrealistwritings.InBankofNew
England,thebankwaschargedwithwilfullyfailingtoreportatransactionwhichrequired
knowledge of the reporting transactions and an intentional failure to report. No one
employeepossessedbothknowledgeandintention,howeversomeemployeesatthebank
hadknowledgeandthatoneemployeeintentionallyfailedtoreportasafavourtoaclient.
The court held that it was possible to aggregate the knowledge from various employees
togetherandholdthatthebankhadsufficientknowledgefortheoffence.Thejudgeinthe
lowercourtgaveacollectiveknowledgeinstructiontothejury,saying;
“Youhavetolookatthebankasaninstitution.Assuch,itsknowledgeisthesumof
alltheknowledgeofitsemployees.Thatis,thebank’sknowledgeisthetotalityof
AttorneyGeneral’sReferenceNo2/1999[2000]EWCACrim91.
PaulDusome,“CriminalLiabilityunderBillC-45:Paradigms,Prosecutors,Predicaments”(2007-2008)
53Crim.L.Q.98at122-124.
109
BankofNewEnglandvUnitedStates821F.2d844,856(1987).
107
108
32
whatalloftheemployeesknewwithinthescopeoftheiremployment.Soifemployee
Aknowsonefacetofthecurrencyreportingrequirement,andBknowsanotherfacet
ofit,andCathirdfacetofit,thebankknowsthemall.”110
3.3Argumentsforandagainstaggregatedsubjectiverecklessness.
Following the reasoning in Bank of New England, it might be possible to suggest that
knowledgeheldbydifferentpeoplewithinacompanycanbeaggregatedtoholdthatthe
companyhadknowledgeoftheriskandthereforewassubjectivelyreckless.However,this
approach is problematic as aggregated knowledge of a risk is not the same standard as
subjectiverecklessness.Ontheotherhand,thereisalsostrongpolicyreasoningforallowing
aggregation as it incentivises good communication systems with corporations and deters
corporationsfromburyinginformationsothatononepersoncanbesaidtobesubjectively
recklessundertheidentificationdoctrine.
3.3.1Aggregationofknowledgeisnotsubjectiverecklessness.
State of mind aggregation may in inappropriate for subjective recklessness because when
subjective recklessness is dismantled it looses its inherent quality as a distinctive state of
mind.Subjectiverecklessnessisnotsimplyknowledge;itisalsothedecisionswhicharemade
inlightofthisknowledge.Clarksonstatesthattheaggregationdoctrineisrestrictedtothe
philosophythat2+2=4.111However,astateofmindcannotbereducedtoamathsequation.
Therearetwosituationswhereitisproblematictoaggregatesubjectiverecklessness.Firstly,
itisproblematictosplitthetwoelementsofsubjectiverecklessnessbetweentwopeopleas
therisktakingisnotlongerdeliberate.SecondlyItisproblematictoaggregateinformation
heldbyseveralpeopleintoknowledgeoftheriskasthisresultsinalackofknowledgeofthe
riskandalackofdeliberaterisktaking.
InChapter1Iexplainedthatsubjectiverecklessnessrequirestwoelements;knowledgeofa
risk of harm and deliberately taking the risk. In the context of a human person it is
unproblematictosplitrecklessnessintothesetwoelements.However,inthecontextofa
legal person splitting these two elements between two people is problematic. When one
110
111
Atat856.
Clarkson,aboven58at568.
33
personknowsofariskandanotherpersonmakesthedecisiontotaketherisk,theriskcannot
besaidtobedeliberatelytakenasthepersontakingitwasunaware;insteadtherisktaking
isaccidental.Ifweallowthistypeofaggregation,thenthe‘deliberaterisktaking’elementis
lost.Thismeansthattheprocessofaggregationdoesnotresultinaconstructedequivalent
to a subjective state of mind. The problem can be demonstrated through an example;
supposeonthefactsofCouchoneemployeeoftheCorrectionsdepartmentknewaboutthe
riskinvolvedinBellworkingattheRSA,butadifferentemployeewhodidnotknowaboutthe
risk approved him for working there. The second employee cannot be said to have
deliberatelytakentheriskastheyhadnoknowledgeofit.Therefore,iftheemployee’sacts
areviewedcollectivelythereisnodeliberaterisktaking,onlyknowledgeofarisk.Therefore,
thecompanysubjectiverecklessnesscannotbeconstructedasnotallelementsarepresent.
Another possibility for aggregated subjective recklessness is when several people possess
information which collectively demonstrates a risk of harm, but no one employee knows
enoughtorealisethereisariskofharm.Gobertcomparesthissituationtoapuzzle;each
individualwithinthecorporateholdsapieceofthepuzzleanditisonlywhentheyareadded
togetherthatthefullpictureemerges.112Gobertconcludesthatcollectively,thecompanycan
besaidtohaveknowledgeoftheharmandthereforebesubjectivelyrecklesswhentherisk
istakenthroughtheactsoromissionsofemployees.However,Isuggestthatthispuzzlepiece
analogydemonstratesthataggregatedknowledgeisnotsufficientforsubjectiverecklessness.
Untilthecompanyactuallyassemblesthepuzzletheycannotbesaidtobeawareoftherisk.
Thepositionissimilartothatofthehumanpersonwho,whilepossessinginformationwhich
wouldamounttoknowledgeoftherisk,doesnotputtheinformationtogethertobecome
awareoftherisk.AsnotedinChapter1,thiswouldnotamounttosubjectiverecklessnessin
ahumanperson.113Itisonlyoncethefullpictureoftheriskisassembledthatahumanor
legal person can deliberately take the risk. In this situation aggregation is problematic as
neitherknowledgeoftheriskorthedeliberatenessisfulfilled.Forexample:ifweimagineon
thefactsofCouchthatoneemployeeknewthatCouchwouldbeariskifemployedonlicenced
premises, but thinking that the RSA is not licenced allows Bell to work there. Another
employeeknowsthattheRSAisalicencedpremise,butdoesnotrealisethereisariskposed
112
113
Gobert,aboven48,at405.
RvHarney,aboven31.
34
byBellifheworksonalicensedpremise.ThefullpictureoftheriskposedbyallowingBellto
workattheRSAhasneverbeenfullyassembled,thereforetheDepartmentcannotbesaidto
haveknowledgeoftherisk,ortohavedeliberatelytakentherisk.
3.3.2Aggregationincentivisesgoodsystems
Oneofthemainargumentsinfavourofallowingaggregatedsubjectiverecklessnessisthatit
deters companies from burying knowledge and encourages good communication systems
withincompanies.Aggregationofknowledgeensurescorporationscannotescapeliabilityby
compartmentalisingknowledgesothatnoonepersonknowsenoughtobeliable.Inthecase
ofBankofNewEnglandvUnitedStatesthecourtheldthataggregationofknowledgewas
appropriateascorporationscompartmentalizeknowledgeanddividedutiesandoperations
into smaller compartments.114 Cavanagh also writes that ‘the aggregation doctrine would
stop senior management from seeking to remove the chance of criminal liability, by
implementingadiversecorporatestructuretoburyresponsibility’.115Gobertarguesforthe
aggregation of knowledge because a company can establish channels of communication
wherebydangersarebroughttotheattentionofmanagement.116Thelawshouldencourage
suchinternalstructuringsothatdirectorscannotinsulateacompanyfromliabilitybyisolating
themselvesfromthedangerswhichemployeesareaware.
3.4Aggregationinthecontextofexemplarydamagesfornegligence
As demonstrated above there are serious issues as to whether it is possible to aggregate
subjective recklessness from various people within a corporation without loosing the
essentialelementofdeliberaterisktaking.Ifaggregationofknowledgeandactsofvarious
employeesresultsinsomethinglesserthansubjectiverecklessness,thenitisinappropriate
to use in this context. As Couch requires deliberate risk taking for punishment to be fair,
aggregatedsubjectiverecklessnesswillnotsupportthepunishmentpurposeofexemplary
damages.
114
BankofNewEngland,aboven110.
Cavanagh,aboven50,at427.
116
Gobert,aboven48,at406.
115
35
Whiletheremaybestrongdeterrencereasonstouseaggregation,underthecurrentnarrow
viewofexemplarydamagesitisunlikelythatthiscanjustifyanawardofexemplarydamages
when the punishment aspect is not met. Furthermore, in a case of intentional burying of
information about a risk of harm then it is highly likely that a court can infer corporate
subjectiverecklessnesseitherthroughidentificationprincipleorthroughcorporatefault.For
example,amanagerwhointentionallywithholdsinformationofariskanddeliberatelylets
employeestaketheriskwouldbeaclearcandidateforbeingidentifiedwiththecompany
undertheidentificationprinciple.Ifacompanyhasbeenstructuredsoastoavoidinformation
of risks being disseminated, then the corporate fault doctrine may be able to construct a
corporatesubjectiverecklessnessfromthis.Inconclusion,aggregationisnotbestsuitedto
solvethecorporateissuedespitebeingusefulindeterringwrongdoingandincentivisinggood
systems.
36
Chapter4:Objectiveapproachestocorporaterecklessness
Thischapterconsidersthepossibilityoffindingcorporatesubjectiverecklessnessthroughthe
objective policies, cultures and systems of a company. This chapter will consider the
corporatefaulttheoriesfromcorporatecriminaljurisprudenceandtheobjectiveapproach
fromcontractlaw.Boththesetheoriesacknowledgethatacorporatestateofmindsuchas
subjective recklessness is inherently a legal fiction. Therefore, a corporate equivalent to
subjectiverecklessnesscanbeconstructedfromobjectivecircumstancesofthenegligence
and features of the corporation. This is in contrast to previous chapters where subjective
recklessnesswasderivedfromthestateofmindofindividualswithinthecorporate.
4.1Corporatefaulttheories
Corporatefaulttheoriesdonotconsidertheactualstateofmindofanyindividuals,rather
objectiveinformationisusedtoconstructamentalstateofthecorporation.Thisobjective
informationcanincludeevidenceofcorporatesystems,policiesandcultures.Thereisnoone
comprehensivecorporatefaultdoctrinebutmanysuggestionsfromdifferentwritersasto
howsuchatheorymightoperate.Somecorporatefaulttheoriesseektoexpandcorporate
liabilitysothatcorporationscanbeheldliablewhentheycanbeseentohavecausedawrong.
Thesetheoriesdonotseektofindacorporateequivalenttotoahumanstateofmindand
therefore are unhelpful in solving the corporate issue. I will focus on the versions of the
corporatefaultdoctrinewhichlooktoconstructacorporateequivalenttoastateofmind.
4.1.1Contentofthetheory
There are many possibilities for what a corporate fault doctrine would consider in
determining liability. Most corporate fault doctrines look beyond formal policies of a
companyandlookatthewayinwhichthesystemsofthecompanyrealisticallywork.Inthe
contextofcorporatecriminalliability,RebeccaRoseproposesthatacorporatefaultdoctrine
in New Zealand would “focus on the interplay between the relevant infringement and a
company’s structures, policies, practices, procedures and ‘corporate culture’” as these
elements represent the ‘will’ of the corporation.117 Rose proposes that the court should
considerthingssuchascompanygoalsandpractices,responsestopreviousoffencesandthe
117
RebeccaRose,“CorporateCriminalLiability:AParadoxofHope”(2006)14WaikatoLRev52,at76.
37
existenceandadequacyofanycomplianceprogramsasevidenceofcorporatefault.Cavanagh
describes the corporate culture doctrine as looking at the organizational processes,
structures,goals,culturesandhierarchies.Heconsidersthatthedoctrineaskswhetherthere
isthereacultureofnon-compliancewiththelawwithinthecorporate.118Ledermanfocuses
thecorporatetheoryonwhetherthecorporateencouragedthewrongdoing.Thisisderived
fromorganizationalstructure,monitoringsystems,aimsandpolicies,trainingandsupervisory
methods, methods of employee remuneration and incentives to promote legal behaviour,
ways in which the corporate investigates the offence and reactions to previous criminal
violations.119
4.1.2Comparisontoparliamentaryintention
Atfacevaluetheideathatacourtcanfindacorporateequivalentofasubjectivestateof
mindfromaspectsofthecorporationsuchascorporatepolicy,structures,history,processes
isaradicalproposition.However,asGobertexplains,thatthisisnotasradicalasitseems
because the courts already have the ability to find group intention in a similar way in the
contextoftalkingoflegislativeintent.120Whenthecourtstalkoflegislativeintenttheyare
attributingamentalstatetoacollectiveentity.Thislegislativeintentisnottiedtowhata
particularpersoninthegroupthought,assomepeoplemayhavevotedagainstthelegislation
andthosewhovotedforitmaynotshareacommonunderstandingofthemeaningofthe
legislation.Ascourtsdiscoverlegislativeintentionfromstatute,thecourtscanalsodiscern
corporateintentfromcorporatepolicy.Bothstatutesandcorporatepolicyarelikelytobethe
productoftheinputofmultiplepeopleandthefinalpolicyorstatutemaynotreflectthe
viewsofanyparticularindividual,butdemonstratestheviewofthegroup.Therefore,itis
moreappropriatetoattributecorporateintentionfromthepolicythanfromtheviewsofany
onememberofthegroup.Gobertconcludesthatifthecompanypolicywillbringabouta
resultprohibitedinlawthenthecompanycanbeconsideredtohavetheintenttocommit
theoffence.Similarly,Iwouldconsiderthatacorporatepolicywhichacknowledgesariskbut
fails to offer reasonable solutions to the risk shows a corporate equivalent to subjective
recklessness.
118
Cavanagh,aboven50,at432.
Lederman,aboven61,at694.
120
Gobert,aboven48at408.
119
38
4.1.3Findinganappropriatecorporatefaulttheory
AnexampleofthecorporatefaultdoctrineinthelawcomesfromtheAustralianCriminal
Code. It is natural that a court might look it it for guidance as to how the corporate fault
doctrinemightworkinNewZealand.However,asIwilldemonstrate,comeaspectsofthe
Australian reform created a different standard for corporate liability. Therefore, while the
Australianlegislationmayhavesomehelpfulaspects,thecourtsshouldbewaryofsimply
importingitintoourcommonlaw.
The Australian provisions came into force in 2001, however there is no case law so far to
indicatehowthecourtswouldinterpretandapplytheseprovisions.Thisisbecauseunderthe
Australianconstitutionindividualstatespassmostcriminallawandhavenotpassedsimilar
provisions.Prosecutionsofcompaniesatthefederallevelusuallyinvolvebreachesofstatutes
otherthantheCriminalCodewhichdonotcontainsimilarprovisionsoncorporateliability.121
TheCodeholdsthatinregardstothefaultelementsofintention,knowledgeorrecklessness
these must be attributed to a corporate that “expressly, tacitly or implied authorized or
permittedthebreach.”122Authorizationorpermissionmaybeestablishedinthefollowing
situations:
1. When the board or a high managerial agent intentionally, knowingly or recklessly
engaged in the relevant conduct, or expressly, tacitly or implied authorised or
permittedthecommissionoftheoffence,
2. Whenitcanbeprovedthattherewasacorporateculturewithinthecompanywhich
directed,encouraged,toleratedorledtonon-compliancewiththerelevantprovision,
and
3. When it can be proved that the body corporate failed to create and maintain a
corporateculturethatrequiredcompliancewiththerelevantprovision.123
121
PaulDusome,aboven108,at107.
CriminalCodeAct1995(Australia)s12.3(1).
123
s12.3(2)(a)-(d).
122
39
Corporatecultureisdefinedas“anattitude,policy,rule,courseofconductorpracticewithin
the body corporate generally or in the part of the body corporate in which the relevant
activitiestakesplace.”124
Thefirstsituationisessentiallytheidentificationapproachwhereahighmanagerialagent
possessestherequiredstateofmindandthenengagesintheconductorauthorisesanother
toengageintheconduct.However,thenexttwosituationsaremorecontroversial;theyseem
to be wide enough to hold a corporate liable for causing wrongdoing or failing to stop
wrongdoing.Thisisessentiallyafindingofnegligence.Rosewritesthatthereformshighlight
afundamentalconceptualweaknessinthenotionof‘corporatefault’;despiteattemptingto
make a clear distinction between subjective fault and negligence the reforms return to
negligence as the ‘true’ form of corporate liability. Rose argues she cannot support the
contention that a crime of intention can be secured by establishing only that a deficient
corporate culture led to the commission of the relevant offence, or that a company was
deficientinestablishingacorporateculturethatencouragedrespectforthelaw.Insteadshe
arguesthatacorporateequivalentofintentionitmustbeprovedthatthecorporateculture
encouraged, instigated or influenced the commission of the offence, or that there was a
deliberatefailuretomaintainalawabidingstateofaffairs.125Rose’scriticismisdemonstrated
byWilkinson’sexplanationoftheAustralian‘corporateculture’reformsasmovingawayfrom
“individualcorporateagentstoanexaminationofwhetherthecorporation’spracticesand
procedureshavecontributedinsomewaytothecommissionoftheoffence.”126Itisclearthat
‘contributed in some way’ is not an equivalent standard to requiring an intentional or
subjectivelyrecklessstateofmind.Inthecriminalcontextthisisunproblematicasitiswithin
Parliament’spowertodecidetochangethecriminalstandardsforcorporations.However,it
is important in the context of exemplary damages that a corporate fault theory is able to
constructacorporateequivalenttosubjectiverecklessness.
124
CriminalCodeAct1995(Australia)s12.3(6).
Rose,aboven117,at68.
126
MeaghanWilkinson,“CorporateCriminalLiability–TheMoveTowardsRecognisingGenuineCorporate
Fault”(2003)9CanterburyLRev142,at174,emphasisinoriginal.
125
40
ThewidenatureoftheAustralianCodecanbedemonstratedbyconsideringthefollowing
variationonthefactsofCouch.ImaginetheCorrectionsDepartmenthadaguidelinewhich
suggestedthatprobationofficerswereexpectedtodealwithacertainnumberofcaseseach
week which put them under considerable time pressure. This led to many officers being
routinely negligent in investigating work placement suitability to save time and to the
oversightinallowingBelltoworkattheRSA.UndertheAustraliancodetheguidelinecould
be considered a corporate culture which led to negligence in assigning workplaces for
parolees,thereforethiswouldbesufficientforsubjectiverecklessness.Furthermore,itmight
alsobepossibletoprovethattherewasalackofcorporatecultureencouragingprobation
officerstofullyinvestigateworkplaceassignments.Underthelawofnegligencethissituation
mightresultinafindingthattheDepartmentwassystematicallynegligent,butthisevidence
should be considered inadequate to construct a corporate equivalent to subjective
recklessness.
However, there are many conceptions of the corporate fault theory which rest on
constructing subjective recklessness rather than causation. For example, Gobert’s
comparisonofcorporateintentionwiththeprocessoffindingparliamentaryintentiondoes
notmerelystatethatcorporatepolicyencouragedorfailedtodiscouragethecrime,butcan
bedeemedtodemonstrateanintenttocommitacrimeoranintentiontoignoreaknown
risk.Clarksonalsoproposesastructureforcorporatecriminalliabilitywhichconstructsan
equivalenttomensrea.127Clarksonsuggeststhattheactusreusoftheoffenceiscommitted
whenitisshownthatthecompany’spositiveactsoromissionstoactcausedtheprohibited
harm.InregardstothemensreaaspectofoffendingClarksonsuggeststhiscanbefound
throughcorporatepoliciesandprocedures.ClarksonreferstothetheoryofBrentFissethat
corporatepolicyistheequivalentofintentionandothermensreastatesandifacompany
has an express or implied policy of non-compliance with the law this exhibits corporate
culpability.128Lederman’sconceptionofthecorporatefaulttheoryfocusesonwhetherthe
corporatecanbeconsideredtohaveencouragedthewrongdoing.129
127
Clarkson,aboven58,at569-572.
BrentFisse,'RecentDevelopmentsinCorporateCriminalLawandCorporateLiabilitytoMonetaryPenalties'
(1990)13UNSWLJI,15.
129
Lederman,aboven61,at694.
128
41
Usingthesetheoriestofocusontheideaofacorporateculturewhichencouragesordirects
wrongdoingisamoresatisfactorywayofconstructingacorporatestateofmind.Forexample,
ifweimagineonthefactsofCouchthattherewasarulewhichdirectedprobationsofficers
thatitwaspreferableforparoleestohaveaworkplacementoverunemployment,evenifthe
onlyavailableworkcontravenestherestrictionssetbytheparoleboard.Inthiscasethepolicy
hasnotonlycausedthenegligenceoftheparoleofficerbutcanalsobedeemedsubjectively
recklessasitacknowledgesariskofharmwhichhasbeenidentifiedbytheparoleboard,but
theDepartmenthaschosentoignoreit.
One helpful example of a situation where corporate subjective recklessness might be
constructedisputforwardbyGobertwhodescribestheClaphamrailcrashwhichwascaused
byatechnicianerror.130However,this‘error’wasunderstoodbythetechnicianasstandard
operatingprocedureandhehadneverbeenreprimandedortoldhisworkwasunsafeeven
thoughitwasaviolationofcompanypolicies.Thetechnician’ssupervisoralsofailedtocheck
the wiring, and supervisor checks were never carried out, despite being company policy.
Neitherthetechnicianorsupervisorwasgivenacopyofthepolicy.Anothercausativefactor
wasthatthetechnicianhadonlytakenonedayoffintheprecedingthreemonths.Gobert
writesthatthecompanypaidlipservicetosafetybutdidnotfollowthoughonitspolicies.
Under a corporate fault analysis, it might be possible to deem that the company was
subjectively reckless because of the significant gap between formal policy and what was
actuallyhappening.Theformalpoliciesinplacetoensuresafetydemonstrateaknowledgeof
therisksinvolved,butthesystematicdisregardforsafetypoliciesshowsthatthecompany
waswillingtotaketheserisksanyway.Inthiscaseitisimportantthattherewasevidencethat
disregardforsafetyprocedurewassystematicratherthanaoneoffaccident.Thisexample
also demonstrates the importance of looking beyond formal policy to consider informal
attitudes,systemsandproceduresfromwhichsubjectiverecklessnesscanbeconstructed,as
theformalpolicydoesnotshowanaccuratepictureofthecompany.
4.1.4Corporatefaultincontextofexemplarydamagesfornegligence
130
Gobert,aboven48,at402.
42
A version of the corporate fault doctrine would be useful, particularly in cases where
systematicnegligencehasbeenallegedagainstacorporate.Incasesofsystematicnegligence,
thecourtswillalreadybeinvestigatingwhetherthecorporatepoliciesandsystemsledtothe
negligence.Itwouldbenaturaltolookatthesesamethingstodetermineifthecorporate
couldbedeemedtobesubjectiverecklessness.Asdemonstratedabove,thecourtswould
needtolooktoacorporatefaultdoctrinewhichseekstoconstructacorporateequivalentto
subjectiverecklessness.Evidenceofcausationorprovidingtheenvironmentforwrongdoing
maybesufficientforafindingofnegligence,butiswouldnotbeenoughtoprovesubjective
recklessness.
Inthecontextofexemplarydamages,thecorporatefaulttheorywillassistthepunishment
anddeterrencepurposes.Oneofthemainadvantagesofthecorporatefaultdoctrineisthat
itidentifieswhenacorporationis‘deserving’ofpunishmentandincentivizescorporationsto
have good systems. In the criminal context Bucy notes that the corporate fault doctrine
“directs criminal liability towards only those corporations which are ‘deserving’ of
prosecutionasdemonstratedbytheirlawlessethos.Inthiswaythecorporateethosstandard
rewardscorporationsthatpolicethemselves”.131Thecorporatefaultdoctrineisagoodfitfor
exemplary damages as it ensures that there is liability only when the corporate itself is
blameworthyandthereforeitisfairtopunishthecorporate.Inchapter2and3Iexpressed
concernsaboutpunishingacorporateforthestateofmindofonepersonasitwillsometimes
beunfairforacorporationtobearpunishmentforoneperson’sstateofmind.However,the
corporate fault doctrine looks directly at whether the company itself is blameworthy and
deserving of punishment. Therefore, the corporate fault doctrine would ensure that the
punishment aspect of exemplary damages is met. As noted by Bucy, the corporate fault
doctrine also ensures that corporations police themselves which is consistent with the
deterrence goal of exemplary damages. By looking directly at the policies procedures and
attitudesofthecompanythecompanyisdeterredfromtakingapositionwhichallowsfor
negligentconductandrisktakingtooccurandisincentivizedtoensurethatitencourages
goodbehaviour.Asthecorporatefaultdoctrinelooksbeyondformalaspectsofthecompany
131
PamelaHBucy,“CorporateEthos:AStandardforImposingCorporateCriminalLiability”(1990-1991),75
Minn.L.Rev1095atpage1157.
43
itcandetercompaniesfrompayinglipservicetosafetywhilenotactuallyimplementinggood
systems.132 Cavanagh notes that the corporate culture model of liability is preventative of
harmasitincentivizesgoodsafetyandeducationpolicieswithincorporations.133
Inconclusionthecorporatefaultdoctrineisagoodfitforexemplarydamages.Providedthat
theversionofthecorporatedoctrinelookstoconstructacorporatesubjectiverecklessness
from the objective features of the company, rather than only considering whether the
companycausedthewrongdoing.
4.2Thecontractualapproach:
The contractual approach is a useful comparison to the corporate fault theory as both
methods allow for constructing a corporate state of mind. Contract law uses an objective
methodtoinfertheintentionofthepartiesfromtheobjectivecircumstances.Therearesome
differencesbetweentheapproaches,mostlyinwhatevidencetheyfocusonforconstructing
a state of mind. However, the similarities between the contractual approach and the
corporate fault doctrine demonstrate that, despite originating in the criminal law and
appearingtobearadicaltheory,thecorporatefaultdoctrinecouldbewellsuitedtobeing
usedintheprivatelaw.
4.2.1Constructingintentionintheinterpretationofcontracts
The ultimate objective of contract interpretation is to determine and give effect to the
intentionsoftheparties,butasamatterofpolicytheintentionsofthepartiesareassessed
on an objective basis and evidence of one party’s subjective intention is not generally
consideredrelevant.134Thisobjectiveapproachservesmanypurposesincontractlawsuchas
increased certainty and saving time and costs.135 However, the objective approach is also
necessarybecauseofwhoseintentionisbeingsought.Contractsinvolvetwoormoreparties
and the relevant intention is the common intention of the parties. Intention exists in the
mindsofindividualsandthereforetherecannotbeasingularintentionofthepartiesasthere
132
Bucy,aboven131.
Cavanagh,aboven50,at435.
134
VectorGasLtdvBayofPlentyEnergyLtd[2010]2NZLR444at[19]perTippingJ.
135
At[20].
133
44
isnosingleconceptofcollectiveorcommonintention.136Therefore,the‘intention’ofthe
parties must be a construct of the law which is presumed or inferred indirectly through
admissiblematerials,rulesandpresumptionsofcontractlaw.137Theinferredintentionisthen
presumedtobetheactualintentionoftheparties.Becauseitisthecommonintentionofthe
parties which is sought, subjective declarations of intention are generally unhelpful in
contractinterpretation.Thismeansacourtwillusuallynotconsideronepartiesclaimsabout
whattheirintentionswere.
This objective approach also applies to constructing the intentions when one of more the
contracting parties are companies. The objective approach means that it does not matter
whatthesubjectiveintentionsofvariouspeoplewithinthecompanywereorwhetherthey
shouldbeidentifiedwiththecompany.Similarly,inthecontextofexemplarydamagesan
objective approach could be used to construct corporate subjective recklessness. This
constructedstateofmindmaynotlineupwiththestateofmindofanyonehumanperson
withinthecorporate,butcanbeassumedtobeheldbythecorporate.Underthecontract
approachintentionisinferredfromthestatementsandconductoftheparties.138Similarlyin
theprocessofconstructingcorporatesubjectiverecklessness,thecourtcouldlookatwritten
evidence(policiesandcorporatestatements),theconductofthecorporation(thoughtheacts
of its employees and agents) and other evidence the court might consider necessary, for
example evidence ofcommon business practice.From thesethingstocourtcanconstruct
corporatesubjectiverecklessness,despitethefactthatthisstateofmindmustnecessarilybe
aconstructbecauseitisahumanqualitybeingascribedtoagroup.
Agoodillustrationofhowthisobjectiveapproachmightworkinthecontextofexemplary
damagesfornegligencecomesfromthefactsofLiebeckvMcDonaldsRestaurants.139Inthis
caseLiebecksufferedburnstoherbodyafterspillinghotcoffeeonherself.Evidencefromthe
case demonstrated that McDonalds required franchisees to keep coffee at 82-88°C.
136
Leggatt,aboven47,at460.
JWCarter,TheConstructionofCommercialContracts(HartPublishing,Oxford,2012).
138
SeeChapter1
139
LiebeckvMcDonaldsRestaurantsNo.CV9302419,1995WL360309(BernalilloCounty,N.M.Dist.Ct.Aug.
18,1994).
137
45
McDonald’sclaimedthatthereasonforservingcoffeeatthishightemperaturewasthatmany
drivethroughcustomersdidnotconsumethecoffeeimmediatelywhiledriving.However,
McDonald’s research showed some customers intended to drink the coffee immediately.
There was also evidence that McDonalds had received many complaints in the past from
people burnt by hot coffee. Applying the objective contractual approach to constructing
recklessness the relevant evidence is the the outward actions and statements of the
company. The relevant statements of the company would be the written policy given to
franchiseesthatcoffeewastobekeptathightemperature,thewrittenjustificationforthis
policy,theinternalreportsontheresearchshowingthatsomecustomersdrankthecoffee
immediatelyandanywrittenrecordsofthepreviousburncases.Therelevantactionofthe
companyistheomissiontochangethepolicydespitethesewrittenacknowledgmentsofthe
risks.Fromtheseobjectivecircumstancesacorporateequivalenttosubjectiverecklessness
canbeconstructed.
4.2.2Similaritieswiththecorporatefaulttheory
Thecontractualapproachtoinferringacorporateintentionfromtheobjectivecircumstances
is very similar to the corporate fault theory which suggests corporate policy, systems and
actionscoulddemonstrateacorporateintentionorsubjectiverecklessness.Bothapproaches
focusonfindinganactualstateofmindofagroup,butdisregardthesubjectivestateofmind
ofanyoneindividualhuman.
Onpointofdifferenceisthatcorporatefaulttheoriesconsideraspectsofcorporateculture,
unwrittenpoliciesandinformalwaysofdoingthingsandnotsimplytheofficialaspectsofthe
company. Under corporate fault theories there is an emphasis on implicit policies and
customarywaysofdoingthingswithinthecompany.Thistypeofevidencemightbeoutside
the scope of the ‘objective circumstances’ of contract law, although some of it might be
available under a common business practice argument to help interpret the words and
actionsofthecompany.Incontrastacontractualapproachwouldfocusmuchmorestrongly
onevidenceofwrittenpoliciesandcorporatestatementsandtheactionstakenbycorporate
agents and employees. On this analysis, the corporate fault doctrine might cover a wider
rangeofcircumstances.
46
3.Conclusions
Corporatefaulttheoriesandthecontractualapproachareusefulastheyallowforacorporate
subjectiverecklessnesstobeconstructedfromtheobjectivefeaturesofthecompanyandthe
circumstancesofthenegligence.Togethertheyposeamethodofcorporateliabilitywhich
doesnotdependonahumanpersonbeingsubjectivelyreckless.Therefore,theyallowforthe
possibilityofliabilityinverydifferentcircumstancestothemethodsdiscussedinChapter2
and3.Thesetheoriesareusefulastheysupportthepunishmentanddeterrencepurposesof
exemplarydamagesbylookingdirectlyforcorporateculpability.Whilethecorporatefault
doctrineisnotcurrentlyapartofNewZealandlaw,itssimilaritiestothecontractualapproach
meanitcouldberelativelyeasilyimportedintotheprivatelawsphere.
47
Conclusion
Of the four methods covered in this dissertation only the identification principle and the
corporatefaulttheoryaresignificantlyhelpfulinsolvingthecorporateissue.Vicariousliability
forexemplarydamagesisonlyapossibilityunderverynarrowcircumstancesandtherefore
will not be an option in the majority of cases. For direct liability against a corporation
aggregationposesaninterestingmethod,howeveritisultimatelyflawedbecauseitisunable
toconstructacorporateequivalenttosubjectiverecklessness.
The corporate fault theory is an appealing alternative to the traditional identification
principle.Whilecorporatefaulttheoryisaradicaldeparturefromthenormativeapproachof
theidentificationprincipleitsconceptualsimilaritytotheexerciseofinferringintentionin
contractlawmakesitanacceptableoptioninprivatelaw.However,thisdissertationshould
notbetakentosuggestthatthecorporatefaultdoctrineshouldreplacetheidentification
principle. Both are acceptable as they allow for liability in very different situations. The
corporatefaultdoctrineexplicitlyignoresthestateofmindofindividualswithinacompany
andthereforeisunabletomakejudgementsaboutwhetheracompanyshouldbeliablefor
thesubjectivelyrecklessstateofmindofaparticularindividual.Theidentificationprincipleis
usefulforassessingwhetheracompanyshouldbeliablewherethereisaclearpersonwho
was responsible for the negligence. In contrast corporate fault is more effective in cases
where systematic negligence is alleged against a company. Therefore, it is worthwhile for
boththeoriestoco-existasalternativeoptionswhichcoververydifferentsituations.
48
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