Introduction
It has long been recognised in Australia that companies may be held liable for the crimes they commit. That is to say, if a company commits an offence, or breaks the law, it will be punished as if it were an individual. Often, though, complications arise where it is apparent that a company has committed a crime. The matter of corporate criminal liability is rarely straightforward. It is therefore unsurprising that many business owners are unfamiliar with its attribution. So what are the principal points that company owners ought to know on the topic of corporate criminal liability?
Foremost, it is important to know that companies are not a shield against liability. Criminal offences, in particular, are serious matters. Ultimately, liability for those offences will rest at the feet of either the company responsible for criminal wrongdoing, or an individual within that company. However, establishing against whom to lay charges involves consideration of many factors, which is made all the more complex by the distinctions of specific offence-making provisions.
The company as a person: when companies are responsible for criminal offences
Before dissecting the nuances of corporate criminal liability, it is important to gain a firm understanding of the concept of companies as persons. This concept is a foreign one to most people without a legal background. It is not hard to see why, either; the notion that a company is, at law, a person, is counterintuitive to say the least. However, this principle is the foundation of corporate liability—criminal and otherwise. The idea of the ‘corporate person’ stems from common law and statute. Both have developed over centuries, and responded to the need for corporate accountability. To do so, the law construes companies as persons, thereby ensnaring them in the same laws and regulations that apply to individuals.
It’s well established that companies can be prosecuted – but how are they prosecuted?
Clearly, companies can face the same criminal liability as natural persons can. However, questions remain as to what that looks like in terms of many offences. For example, how would the law respond to a company committing a crime punishable by imprisonment? Despite being legal persons, companies cannot be imprisoned. However, perhaps unusually, companies still remain liable for crimes that are accompanied by imprisonment. Regardless of how contradictory that suggestion might sound, its basis is straightforward: liability and punishment are separate. Essentially, in the interest of justice, liability cannot be denied for the sole reason that punishment is impractical.
Under most circumstances, criminal liability is incurred where two elements are satisfied: fault, and conduct. The element of fault generally takes the form of intention, knowledge, or even recklessness. The element of conduct is the performance of a contravention of law. With those elements in mind, the idea of corporate liability is a little simpler: companies can engage in conduct, and satisfy the element of fault in doing so. Therefore, companies can be held liable for criminal offences, irrespective of the punishments those offences carry.
Ascertaining corporate criminal liability: here’s what the Court will look at
Companies are multidimensional entities. It must be considered that companies are saturated with the input of many individuals. As companies form and grow, the collective input of shareholders, owners, directors, and employees culminates in many factors. Those factors include company constitutions, operating procedures, cultures, corporate objectives, and more. The law is not blind to those factors either; it is well understood at law that the conduct of a company—broadly speaking—is the sum of those factors. So, if an individual within a company commits a criminal offence, the law will ascertain that company’s liability as according to each relevant factor.
The law recognises that corporate liability is not a black and white matter; criminal conduct needn’t be a directive of a company for that company to be liable. A clear example of that is the notion of culture. Culture is defined, too, in the Commonwealth Criminal Code, to include factors as intangible as a collective attitude. So, if a corporation fosters a culture predictably conducive to criminal conduct, criminal liability may be imposed upon that corporation for the actions of any company member. That is, provided those actions are committed in the course of an individual’s role within the corporation. In essence, then, a company that allows an attitude of non-compliance to flourish is likely to bear the liability of any ensuing criminality.
What happens to liability when people commit criminal offences within companies?
There is at least one individual behind every decision any company makes. It might seem fitting, then, for those individuals to bear liability for company decisions. However, when those decisions are made on a company’s behalf, it may be the company upon whose shoulders liability will rest. But, of course, that does not apply to all offences. An individual cannot, for example, commit an act of violence on a company’s behalf; companies, while persons at law, lack the capacity to perform such acts. The extent of company conduct is limited to acts in which a company can engage, and the extent of company liability is limited accordingly.
The frameworks for determining criminal liability within a company are many and varied. Among them are statutory guides, and common law precedents, which combine to ensure that liability for criminal wrongdoing is apportioned appropriately. Of those many precedents, the case of Brilley offers perhaps the most clarity.
Mens rea: even when it is an individual who forms criminal intention, companies can be liable
It might seem unusual to attribute the wrongdoing of an individual, to the company for which that individual works. But, as affirmed in Brilley, that can be the case. If an individual forms the intention to engage in criminal conduct on a company’s behalf, it may easily be suggested that such an individual ought to be liable. However, if that individual was ‘the directing mind and embodiment’ of the company in whose name the offence was committed, the company will be liable. This test is a complicated one, and it requires careful interpretation of whichever laws have been breached. Whether liability is attributed to the individual or the company is dependent on the specific law that has been broken.
Vicarious responsibility is of equal concern when it come to the attribution of liability
The second, and perhaps more common manner in which companies assume liability is vicarious. The principles of vicarious liability generally serve to recognise that the actions of those within a company are prompted by the rules, directives, attitudes, and purposes of that company. Accordingly, and to alleviate the burden of personal liability from actors within a company, the law recognises liability vicariously. Vicarious liability will be imposed on a company if it is demonstrated that an actor within that company committed an offence of strict liability. Strict liability offences are those that do not require an element of mens rea, which is Latin for ‘guilty mind.’ Instead, strict liability offences can be found where conduct is negligent, reckless, or with a suitable degree of knowledge. Often, strict liability offences occur quite accidentally, as a result of unresponsive or inadequate safety policies, and operations procedures. Companies are responsible for administering such policies and procedures. Therefore, the law considers companies vicariously liable for the acts or omissions of their representatives, whose conduct is governed by company policies and procedures.
Directors’ duties: when personal liability is favoured over corporate liability
Making a determination of corporate criminal liability is not a simple matter. Another of many factors to be considered are the duties imposed on company directors. In most cases, directors are the ‘directing mind and embodiment’ of a company. So it would follow, according to the test in Brilley, that companies would be liable for the actions of their directors. However, those directors are bound to directors’ duties, which are a series of obligations set out by the Corporations Act. Contravention of directors’ duties carries personal liability for directors. If a company engages in a criminal act by virtue of a director’s decision, the director may be personally liable if that decision was made in breach of his or her duties.
The punishments imposed for breaches in directors’ duties vary. In cases of serious criminal conduct performed in breach of directors’ duties, a director may face significant fines or even imprisonment. Another possible sanction is a restriction on future company directorship. Usually, though, such restrictions are not ordered by the Court. Instead, they are ordered by ASIC, the corporate regulator. ASIC is generally engaged to investigate and address corporate misconduct, rather than criminality. However, ASIC can prosecute some criminal charges, or direct them to the Commonwealth DPP.
Navigating the law and minimising liability as a company: what should you do?
Understandably, this area of law is vexing to business owners, many of whom aren’t certain of how their personal liability interacts with that of their companies. Of course, the simplest solution is to create robust and responsive policies and procedures. Doing so can prevent criminal conduct within companies, and encourage a culture of compliance. Of equal importance, though, is avoiding situations of inadvertent illegality. Doing so is easiest with a strong understanding of the laws and regulations relevant to commerce, as well as reliable legal advice from a professional.
By Finian McGrath
Disclaimer
The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.
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