Crime and punishment
6 October 2003
The introduction of the Enterprise Act 2002 in the UK means that company directors can now be held individually responsible for anti-competitive behaviour. For the first time, they face the risk of imprisonment. The Government has also announced forthcoming legislation on corporate manslaughter. The latter will retain a focus on the companies themselves, and target the pockets of owners and shareholders rather than extend liability to the directors themselves. The key question is whether holding the company responsible is enough to hold decision makers accountable, or whether individual responsibility is the key to ensuring compliance.
Companies have long been liable to fines for cartel behaviour, under the Competition Act 1988. Under the Enterprise Act 2002, individuals face imprisonment if they dishonestly engage in price-fixing, market-sharing, limiting production or supply, or bid-rigging. This new offence carries a maximum sentence of five years imprisonment and an unlimited fine. There is also the new offence of falsifying, concealing or destroying documents if that person knows or suspects they would be relevant and knows or suspects an investigation is being conducted or likely to be conducted.
Furthermore, under this offence, directors can be extradited, in particular to the US. The former chairman of Sothebys, Alfred Taubman, was recently imprisoned in New York for a year when Christie's blew the whistle on an agreement between the two auction houses to fix commissions paid by clients. Parties to any such arrangement will be actively encouraged to inform on fellow conspirators in exchange for 'non-action letters' and immunity from prosecution. With the new extradition provisions, it will be important to blow the whistle on all agreements abroad, as otherwise they could find themselves pursued under anti-competition laws in other jurisdictions. This legislation is a recognition that fining companies may not in itself be a sufficient deterrent.
What, then, of deaths caused by the activity of business? The Government is proposing a new offence of corporate killing. Corporations are notoriously difficult to prosecute under the current provisions. It must be proved that a senior member of the company is guilty of manslaughter before the company can be convicted. In the Herald of Free Enterprise cross-channel ferry case, there was a failure to pinpoint the controlling mind, even though Mr Justice Sheen said that P&O was "infected from top to bottom with the disease of sloppiness and staggering complacency".
As for individuals, there have only ever been eight directors prosecuted for manslaughter in the UK. In 1996, the Law Commission recommended that action should also be taken directly against culpable directors and not just the company. In proposals earlier this year, the Government decided that personal liability should not in fact be extended beyond the current law for manslaughter or the Health and Safety Act 1974. To that extent, the Confederation of British Industry and the Institute of Directors have succeeded in their argument that there should be collective corporate responsibility with the company taking responsibility rather than pursuing individual directors.
That said, individuals are also held liable for health and safety offences committed by the company where they have been "committed with the consent or connivance of, or have been attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the body corporate". Offences carry penalties of up to a £20,000 fine. In reality, deaths at the workplace often only result in convictions under the Health and Safety Act, due to the difficulties in the law.
The act imposes a duty on employers to take reasonable care for the health and safety of themselves and any persons who may be affected by their acts or omissions at work. Notably, these are attempts to impose direct responsibility on directors where there has been neglect or indifference on their part.
Health and safety
Currently, companies can be prosecuted for manslaughter, but liability is linked to individual responsibility. This involves first establishing that there is sufficient evidence to convict a senior manager or director of manslaughter. Once an individual is identified as 'the controlling mind' it has to be proved that he is guilty of 'gross negligence'. The company can only be prosecuted if that person can be found and successfully prosecuted. Herein lies the difficulty. In successive cases, the prosecution has failed to identify that key individual whose gross negligence has caused death. Successful prosecutions have invariably been in relation to small companies where the bosses have been few and it has been relatively easy to find the controlling mind. In large corporations, lines of responsibility are often blurred, or decisions relevant to safety made by more junior employees who can evade responsibility under current law.
In 1999, John Prescott launched a consultation called 'Revitalising Health and Safety at Work' and suggested that organisations should appoint a director for health and safety. The recent Company Directors (Health and Safety) Bill attempted to make such an appointment mandatory, but failed for lack of parliamentary time.
Directors do not have duties and obligations in relation to health and safety, only the 'employers' do, which invariably will be the incorporated bodies themselves. This creates a circular problem as they are the very individuals who must be 'guilty' of manslaughter before the corporate body can be convicted. As a result, convictions have only been against small companies, such as the leisure company OLL, which was convicted of corporate manslaughter following the deaths of four schoolchildren in December 1994. The managing director was imprisoned for three years.
The Government is proposing a new offence specifically targeted at the company, or 'undertakings'. This encompasses all employing organisations. By extending liability to 3.5 million enterprises in the country, including hospital trusts, schools, charities, trade unions and partnerships, the offence will be wider than current liability, which deals only with companies. Furthermore, it will no longer be dependant on identifying an individual within the company as guilty of manslaughter.
It suggests that an undertaking will be guilty of an offence of corporate killing if "a management failure by it is the cause, or one of the causes, of a person's death; and that failure constitutes conduct falling far below what can reasonably be expected of it in the circumstances".
The sanction proposed against directors will be "disqualification from acting in a management role", if it can be shown that they had some influence or responsibility for the circumstances in which the management failure was a cause of the person's death. Directors Disqualification Orders are not new and already exist as a standalone order or an additional sanction for criminal courts upon conviction of various company offences.
The Government's plans will see the introduction of two new offences covering unlawful killing. Individual liability for directors will continue, but now in relation to the statutory offences. The first will create an offence of reckless killing, punishable with up to life imprisonment. The second offence is causing death by gross carelessness. These will govern the circumstances in which an individual will be guilty of manslaughter, whereas the new offence of corporate killing will apply to a company.
Hence, individual liability of directors will now be dealt with by these new offences rather than under the gross negligence test relating to manslaughter established in the House of Lords case of Adomako. In addition, the Government has invited comments on the merits of a new offence of 'substantially contributing an offence of corporate killing' whereby directors would be directly responsible for corporate offences.
There are, arguably, dangers in this approach, however. The Centre for Corporate Responsibility argues that as it will no longer be necessary to identify an individual director or manager to prosecute, there will be no incentive to investigate the conduct of the directors themselves and, in any event, the Crown Prosecution Service might be tempted to avoid risky prosecutions against directors themselves. If anything, the new provisions might end up with less directors being prosecuted.
Tan Ikram is a criminal defence partner at IBB Solicitors