DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA, SABBAVARAM, VISAKHAPATNAM, ANDHRA PRADESH-

531035
TOPIC: Abandonment of The Doctrine of Attribution in Favour of Gross Negligence Test
in the Corporate Manslaughter and Corporate Homicide Act 2007
SUB: CORPORATE LAW
SUBMITTED To: DAYANANDA MURTHY
SUBMITTED BY:
Gongati Venkata Manish Kumar
2018029
7th SEMESTER
Table of Contents
 Introduction of Corporate Manslaughter and Corporate Homicide Act 2007
Article 1:
 Mark W.H. Hsaio, Abandonment of The Doctrine of Attribution in Favour of Gross
Negligence Test in the Corporate Manslaughter Corporate Homicide Act 2007,
Comp. Law.2009, 30(4), 110-112.
 Doctrine of identification/attribution
 Case Laws
 Issue of corporate structure
 Conclusion
Article 2:
 Mark A Cohen, Corporate Crime and Punishment: An Update on Sentencing
Practice in The Federal Courts, 1988-1990, Boston University Law Review,
March, 1991.
 Comparison of Data Sets, Offenders and Offenses
 Corporate Officer Liability to Investors: Shifting Monetary Sanctions to
Responsible Individuals
 Conclusion: Implications For Sentencing Guidelines
Introduction of Corporate Manslaughter and Corporate Homicide Act 2007:
It has been more than a decade since The Corporate Manslaughter and Corporate Homicide
Act was introduced in the United Kingdom. While the Act has transformed the legal
environment of corporate deaths in the United Kingdom (and indeed a highly justified
disincentive to ‘lax health and safety standards’), the inherent uncertainties in the rules do not
make it fully effective. This Act was important because it created for the first time in the UK
a specific offence for corporate killing. This change was largely appreciated, although a large
number of scholars and practitioners criticized the ineffectiveness of the Act and asked how
successful it would be.
The Act has also been a disappointing compromise because there were fewer prosecutions
than predicted, many times there was an unjustifiable inconsistency in sentencing, a
continued lack of individual accountability and a prosecutor’s preoccupation with a limited
range of defendants. The Act’s attempt to draw a clear line between organizational and
individual culpability created issues.

The crime under the Act could be proven in particular only if the management failures are
committed by the senior management of the corporation. If the failures are exclusively at the
junior level, an organization is not responsible. The failures of the senior management must
be a significant component of the violation. The failure at the senior management level,
however, does not have to be a gross violation of the obligation in itself. This requirement has
clarified the legislation at the outset. The problem of fulfilling the ‘legal identification test’ in
the common law crime of manslaughter was substantially solved by removing the necessity
to link the breach with one or more specific director(s) of the organisation. However, the
equivocal notions of ‘senior management’ have been very questionable for the success of the
prosecution of corporate homicide.

The failure of common law crime of gross negligence to deal with death from corporate
negligence spurred the adoption of the Corporate Manslaughter and Corporate Homicide Act
promptly. While the Act was designed to eliminate common law inadequacies, it has further
noticeably broadened corporate criminal liability by ‘removing doctrinal barriers’.

Corporate manslaughter is wider in scope than the prior offence under the common law. It
applies to only the most significant company failures. There is a high culpability threshold
that requires proof that there is a serious violation of the applicable duty of care. It is no
longer required to demonstrate, however, that a person who was the organization’s ‘control
mind’ was personally responsible for the crime. Responsibility for the offence is evaluated by
considering the faults of the entire organization.
Article 1:
Mark W.H. Hsaio, Abandonment of The Doctrine of Attribution in Favour of Gross
Negligence Test in the Corporate Manslaughter Corporate Homicide Act 2007, Comp.
Law.2009, 30(4), 110-112)

Doctrine of identification/attribution
Introduction :

The concept of a company that is a legal personality separate from shareholders, as illustrated
in the Salomon v Salomon & Co case, creates a legal difficulty in identifying a natural person
who can be considered to represent the controlling mind of the board of directors or managers
who can be considered to act as this artificial legal personality. The principal issue of fixing a
company with a criminal liability is the identification and proof of the mens rea of that natural
person attributed as representing the will of the company. The company as an abstract
being cannot form its own intention; it must act through a natural person. To hold a company
criminally liable requires the establishment of mens rea against those who can be identified
as the embodiment of the company. Therefore identification of the alter ego of a company,
someone whose mind and will are attributed to the company, becomes central to the issue of
holding a company liable. To say that a company cannot do something means
only that there is no one whose doing of that act would, under the applicable rules of
attribution, count as an act of the corporation. An individual must first be shown to have been
guilty of manslaughter and to be the embodiment of the company. The prosecution would
otherwise fail. The doctrine of identification based on attribution was reaffirmed by Lord
Hoffmann. Lord Hoffmann delivered the judgment that the doctrine of identification is based
on a general rule and specific rule of attribution, that is established by looking at the
memorandum and articles of association and the rules of agency. The specific rule of
attribution is determined by
looking into the specific legislation under which the company was charged.

The doctrine of a directing mind and will is derived from Lennard's Carrying Co Ltd v
Asiatic Petroleum Co Ltd, which Viscount Haldane based on the Merchant Shipping Act, in
which the sole director of the company was held to be the alter ego. This case involved a small
ship-owning company and the director inevitably was liable. The case was based on the
interpretation of a particular statute. The development of the doctrine of identification had
not been considered until its reaffirmation by Lord Hoffmann in Meridian Global Funds
Management Asia Ltd v The Securities Commission on this special rule of attribution for this
particular statute, given that a particular statute is intended to apply to a company and the
person whose mind is elected for this purpose is intended to count as the act if company's
were embodied in them.

In Bolton Engineering v Graham, Lord Denning, basing his judgment on Lennard's v

Asiatic, likened a company in many ways to a human body. A company has a brain and nerve
centre and hands. The agents are nothing more than the hands that do the work whereas
directors and managers, who represent the directing mind and will of company, control what
it does. The mind of these directors is the state of mind of the company and is treated by the
law as such. This decision had been regarded as being too simplistic and it is considered that
Viscount Haldane's speech was misinterpreted as a general metaphysical view of a company.
Generally, the primary rule of attribution and the general rule of attribution based on the
principle of agency are usually sufficient to determine a company's rights and obligations.
The former looks at the articles and memorandum of association implied by the Company
Act to see whose power and decision correlates to the Act. The latter still requires a natural
person acting on the authority of the board to carry out operations. However, in certain
circumstances, as in criminal law, the special rule of attribution is needed to determine who
is the alter ego of the company. In particular, any statutory offence with which the company
is charged would state whose act is being attributed to the company.

Lord Reid, although agreeing with Lord Denning in another case, stated that the alter ego
might not always be the same director, but might change from time to time according to
whether a person is sufficiently senior or has sufficient status to be considered an alter ego
and thus to have their mental state attributed to the company. In addition, their subordinates
are not thus considered. The company was not convicted because the branch manager of the
case was insufficiently senior to be considered the alter ego. The company succeeded in
arguing the act
was the fault of another agency rather than of the company. Lord Diplock took the view that
the process of deciding who is the directing mind should start with the memorandum and
articles of association, which is consistent with the primary rule of attribution. If the rules of
attribution were applied properly, seniority would not have been the factor in determining
whether a particular person was the alter ego of the company. Had it been applied properly
in the Tesco Supermarkets v Nattrass case, the branch manager would have been the alter
ego.

In R. v Rozeik, two branch managers' knowledge of a deception practised on the company was
considered as being the knowledge of the company itself; thus, the company was not
deceived. The case R. v Boal, was brought under the Fire Precaution Act 1971, the intended
scope of which was to fix with criminal liability only those who were “in a position of real
authority, the decision makers who had both power and responsibility to decide corporate
policy and strategy”. This was in line with Meridian 's rules of attribution, which was decided
by
looking at the particular statute of the alleged offence to decide whose act or knowledge was
for this purpose to count as the act of the company.

Issue of corporate structure:

The size of a company will diminish the doctrine of identification, for the larger the company,
and the more complex its structure, the more difficult it is to identify whose mind within the
company can be attributed to the company. In R. v P & O European Ferries (Dover)
Ltd,1there was insufficient evidence to identify the culpable individual whose acts would be
considered those of the company. This is in contrast to R v Kite where the director and
company were convicted of manslaughter, for it was a one-man company and its managing
director was obviously the directing mind and will. The Law Commission stated that it was
unfair that a small company could be found guilty of manslaughter but not a large company.
The subsequent proposal to confer liability based on management failure, but not involving
identification, was because the public interest required the denunciation of a company
inherent in a conviction of manslaughter. The majority of public disasters are caused by the
failure of the systems controlling the risk, with the carelessness of individuals being a
contributing factor. A company
will be guilty of manslaughter if it is management failure that subsequently is the cause or one
of the causes of a person's death and if the standards of safety fall below what can reasonably
be expected of a company under such circumstances. Besides, the health and safety of
employees or those affected gives rise to management issues, too.
Such failure is a cause of death notwithstanding that it has been immediately caused by an
individual. However, nothing has yet been done regarding fines.

After the Southall disaster of 1997, Rose L.J. in Re Att Gen's Reference (No.2 of
1999)iemphasised that large companies should be as susceptible to prosecution for
manslaughter as one-man companies and there could be no justification for drawing a
distinction as to liability between the two. He reaffirmed the existence of the identification
theory of Lord Hoffmann, rather than departing from it, and stated that it is the present law.
His Lordship stated that it is up to Parliament to change the law.

Owing to public pressure and recent disasters, the then Home Secretary, Jack Straw, proposed
a consultation paper in March 2000 regarding a similar test, but went further to include
undertakings. This broadened the scope of the offence to include partnerships, schools,
hospital trusts, charities and so on. In addition, any person responsible for the circumstances
in which a management failure occurred would be disqualified from acting in a management
role in any undertaking, or of carrying on a business or activity in the United Kingdom. The
unsatisfactory result of convicting a company for involuntary manslaughter prompted the
debate and led to the subsequent enactment of the Corporate Manslaughter and Corporate
Homicide Act 2007.

Corporate Manslaughter and Corporate Homicide Act 2007

The evolution of corporate culpable liability has been piecemeal. It has taken more than a
decade for the relevant Act to be passed, which deals with the difficulty of fixing a corporate
manslaughter or, in Scotland, a corporate homicide. The Act creates an offence by which,
should the activities of the organisation cause a person's death, it is considered a gross breach
of the relevant duty of care owed to the deceased by the organisation. The term
“organisation” covers a wide range of institutions and previous reports to include partnerships,
trade unions and
associations. The Act directly points to the senior management or the management of the
activities as the body to be liable should its managed activities cause the death of a person in
a way that constitutes a gross breach of duty of care.

Abolition of corporate manslaughter at common law

The common law rules on the corporate manslaughter by gross negligence have been
abolished explicitly by the Act. However, the Act reserves the charge arising out of health
and safety legislation as a particular circumstance. This is in keeping with Lord Hoffmann's
perception of the specific rule of doctrine of attribution. A company could be charged under
the new Act and under health and safety legislation. Furthermore, no individual
could be found guilty of aiding, abetting, counselling or procuring the offence or being part
thereof.
Gross breach by senior management

Instead of identifying the individual culpable of the failure of duty of care, which was the
issue and difficulty in the common law, the Act identifies the senior management as the
persons having a significant role in the decision-making, management or organisation of the
whole or a substantial part of the organisation's activities. This has been in line with Lord
Denning's suggestion in Tesco v Natrass that although the branch manager was not held as
the mind attributed to the company, seniority may not necessarily indicate the person
identified as being
the mind of the corporation. The Act has fixed the difficulty of seniority and manager issues
with the simple implication of the management. Instead of “manager”, “management” has
been suggested in the Act. This avoids also the problem with larger corporations where a
complex structure may lead to an evasion of the liability of identification. The standard of the
gross negligence is an objective one whereby the breach falls below what can reasonably be
expected of the organisation in the circumstances.

Relevant duty of care

The duty of care has been taken to denote duties owed under the law of negligence. An
organisation's duty has, therefore, been extended to cover employees, contractors, or anyone
in connection with the supply of goods or services to the organisation, the construction or
maintenance of the organisation, any commercial activity for the organisation or property
owned by the organisation. Even the parties engaged in the unlawful conduct would be
regarded as owing a duty of care to one another under this act. Furthermore, a person's
acceptance of a risk of harm does not prevent the application of the Act.
Conclusion

The Act intends to hold the company, as a whole, responsible rather than an individual. The
Act has exempted the individual from being held liable. In essence, the Act laid a straight
identification of the body within the corporation as the mind attributed as being that of the
company. This overcomes the common law difficulty of finding an individual within the
company that could be attributable as being the mind of the company before a company
could be held liable. In previous common law situations, an individual had to be held
accountable before a company could be held liable. In other words, a corporate manslaughter
was conditioned on an individual within the company being held liable, namely, the finding
of the alter ego. A corporate manslaughter charge under the new Act would not be
conditioned as in common law and no individual would be liable under this Act. However,
any individual related to the cause of death would be charged alongside this Act.

As a result, the suggestion for future corporate practice is the establishment of a safety
directorship to oversee and be responsible for the safety policy of the corporation regarding
employees and relevant persons within the Act. The corporation will be liable to be fined if it
were found liable under the Act. The penalty of the fine has always been suggested from the
earlier reports. The Act suggested an abandonment of attribution doctrine, which
has been the difficulty of fixing a company on a manslaughter charge. Instead, the Act
emphasises the gross negligence aspect to ease the previous legal difficulties. The Act merely
smoothes the legal procedure for a manslaughter charge. The issue of the natural person who
will be accountable for the cause of death remains unsolved. The abstract legal personality of
a corporation is upheld again although it makes the manslaughter charge procedure smoother.
Neither a shareholder nor board of director would be individually culpable.

Introduction: Corporate Crime and Punishment: An Update on Sentencing Practice in

The Federal Courts.
The earlier study had two important limitations. First, although the data set represented the
most comprehensive study of corporate sentencing ever assembled, the data did not include
information about individual codefendants who were convicted along with the corporate
offenders. This limitation is particularly important in the context of small, closely held
companies. In a closely held company, the financial burden of monetary sanctions falls on the
owner regardless of whether the company or its owner pays the fine or restitution. Thus, only
analyzing corporate fines might lead one to the wrong conclusion concerning the impact of
penalties on small businesses. The second limitation stemmed from the belief that data on
corporations sentenced between 1984 and 1987 no longer represented "current practice" at
the time of data analysis in 1988, because most of the convictions involved offenses
committed prior to recent increases in statutory maximum fines. In response to these
concerns, the Commission staff collected information on individual and corporate sentences
imposed during 1988 and conducted a preliminary analysis of the data in August, 1989.4
Because the Commission staff was still collecting many of the primary source documents at
the time, the report relied on incomplete data and did not include information about
individual codefendants. Although the staff report briefly compared the 1988 data with the
1984-87 data, the staff did not conduct statistical tests to determine whether fine levels
increased. Moreover, they did not compare fines under the old statutory maximums with fines
under the new statutory maximums.
Comparison of Data Sets, Offenders and Offenses
1. Data Sets
Unfortunately, the three data sets do not entirely coincide. For example, some of the variables
collected in 1988 were not included in the earlier 1984- 87 study. Thus, direct comparisons
are not always possible. Since Presentence Investigation Reports and other court records were
not available for 1989-90 cases, less detailed information about the crimes committed by
organizations sentenced since 1989 is available. For example, few of the press reports on
these more recent cases provide adequate information to estimate monetary losses.
Unlike the 1984-87 and 1988 data sets, the 1989-90 data set is neither
comprehensive nor representative of all organizations sentenced during the period. Because
of limited access to centralized government prosecution and conviction records, only an
uncertain percentage of crimes other than anti- trust and environmental is included. Because
these data sets were collected from public sources, they are also likely to under-represent
smaller crimes committed by smaller companies, except in the case of antitrust and
environmental crimes.
2. Types of offenders
 The 1984-87 data demonstrated that most federal criminal prosecutions involved
small, closely held corporations: "Only about 10% [of prosecuted corporations] crossed the
threshold of $1 million in sales and 50 employees; less than 3% had traded stock."'" Firms
sentenced in 1988 were slightly larger, generally, than those sentenced in the 1984-87 time
period: 4.6% had publicly traded stock and fifteen percent had sales exceeding $1,000,000
and more than fifty employees. Statistics on firm size were available for only half of the firms
in the 1988 data set; thus, the actual percentage of large firms might be higher. Restricting the
analysis to offenses other than antitrust may increase the percentage even more, because few
large companies have been convicted of antitrust violations in recent years.
3. Types of Offenses
The distribution of types of offenses in 1988 did not change significantly from that found in
the 1984-87 data. About twenty to thirty percent of all offenses involved antitrust violations,
while government fraud accounted for an additional twenty to twenty-five percent of the
cases. Environmental crimes and private fraud each accounted for another ten to fifteen
percent, and the remainder involved offenses such as currency reporting, tax fraud, customs,
and food and drug violations. Although not representative, the 1989-90 data include virtually
all types of crimes found in the earlier time periods. Antitrust constitutes over fifty percent of
the sample, while environmental crimes and government fraud each account for about ten
percent. The remaining twenty percent of the sample includes an even distribution of other
crimes. In all three samples, guilty pleas settled most cases. Twelve percent of all convictions
followed trials, and nolo contendere pleas constituted about five percent.
Non-Monetary Government Sanctions Against Organizations
Corporate probation has proven to be one of the most controversial issues confronting the
Commission in its drafting of organizational sentencing guidelines.' Discussion has centered
both on the frequency with which probation should be imposed and on the terms of probation.
About thirty percent of the 1984-87 cases involved some form of probation,' a
sanction generally used either to collect periodic fine payments or as a method of reinstating
suspended sentences in the event a firm violates the law a second time during the
probationary period. None of the cases involved supervised "corporate probation" 'as
envisioned by some commentators.' The cases also included, although infrequently,
imposition of other forms of nonmonetary sanctions. For example, community service was
imposed in only one percent of the cases. However, about twenty-five percent of government
procurement cases and twenty percent of government program fraud cases involved
debarments and suspensions. 57 Probation, community service, and debarment rates appear to
have remained constant since the 1984-87 time period.
Although judges avoid sentences which require actively supervised probation, they
have frequently employed non traditional sanctions in recent environmental cases. For
example, judges often suspend a significant portion of a fine if a firm does not violate
environmental laws during a probationary period. And, in several instances, judges have
ordered firms to give money to various state or local environmental programs, including
those involving community waste disposal, local hiking trails, and protection of migratory
birds. In one particularly noteworthy case, Valmont Industries and two of its managers
pleaded guilty to tampering with a water quality monitoring device. The court suspended
$300,000 of the firm's total fine of $450,000; the suspension was contingent on the firm's
future compliance with environmental laws. The judge also ordered the firm to publish a
public apology in a local newspaper.
The cases involving both corporations and their individual codefendants also reveal that
judges do not consider the parties in isolation. The following examples illustrate this practice.
1. Fines Versus Jail Sentence for Family-Owned Business
Carpenter's Goldfish Farm was convicted of killing thousands of protected migratory birds
which threatened the farm's goldfish. The firm could have netted the birds instead of killing
them, which would have cost an estimated $2 million. An expert economist testified for the
government at the sentencing hearing, estimating that the value of the birds was $2.5 million.
Thus, the monetary harm in this case was estimated to be $2.5 million. Although the firm
received a $30,000 fine (a fine multiple of only 0.01), the owner was sentenced to thirteen
months in jail. In isolation, a $30,000 fine for killing birds valued at $2.5 million seems
totally inappropriate. The fine, coupled with the jail term, however, can easily lead one to a
different conclusion.
2. Corporate Officer Liability to Investors: Shifting Monetary Sanctions to Responsible
Individuals
In some cases, courts have apparently shifted monetary sanctions to responsible individuals
so as to lessen the impact on innocent shareholders. For example, Rice Aircraft and its
president, Bruce Rice, pleaded guilty to several counts of fraud and bribery, admitted to
paying $155,000 in kick-backs, and admitted to "selling falsely documented aerospace
fasteners [to] . aerospace manufacturers Although the firm was fined $50,000 and may bear
some responsibility for restitution, Bruce Rice was fined $750,000, given a four year prison
term, and ordered to pay court costs and restitution. Additionally, he reportedly incurred $2
million in legal fees. According to the prosecutor in this case, Bruce Rice requested that the
court impose the bulk of the fine on him personally, because of a pending lawsuit brought
against him by minority shareholders. Derivative law suits by shareholders seeking to recoup
fines and other costs related to criminal prosecutions are relatively common. In addition, one
could easily imagine a RICO suit in which shareholders seek treble damages for losses to the
company, including any criminal fine paid. In some instances, shareholders may sue
corporate officers who were directly involved in criminal activity to recover a loss in share
value. Recently, a federal district court refused to dismiss a class action securities fraud and
RICO suit against the board of directors of Par Pharmaceuticals ("Par"), a generic drug
manufacturer. Par had pleaded guilty to falsifying test results and to bribing Food and Drug
Administration officials to obtain early approval for new drugs.73 The firm was fined
$150,000 and its subsidiary was fined $250,000. As of September 1990, three company
executives and one FDA official have received sentences totalling $413,000 in fines, thirty-
one months in jail, and 5,500 hours of community service. The impact on the firm, however,
far exceeded its monetary sanction; Par was suspended from dealing with the federal
government for three years. And, "[a]fter the bribes ceased, the rate of approvals slowed,
earnings and sales declined, and the market price of Par securities fell sharply., The plaintiffs
seek treble damages for loss in share value in this case under the theory that Par's fraud
misled investors about the firm's special expertise in obtaining speedy FDA approval of new
drug applications and later misled investors about the FDA investigation and the firm's role in
bribing FDA officials.
. Private Tort Settlements
It is extremely difficult to obtain reliable information on the frequency and magnitude of
settlement in private tort cases resulting from corporate criminal activity. In most cases
involving actual physical injury to victims, private tort damages probably far exceed any
criminal penalty imposed by the sentencing court. The 1984-87 cases reveal two instances of
victim deaths, and both cases resulted in minimal fines but substantial (and unreported)
private settlements. The 1989-90 cases include similar instances of relatively small criminal
sanctions accompanied by large private settlements. For example, O'Neill Inc. ("O'Neill")
pleaded guilty to federal charges brought against the firm for failure to seek approval of a
new drug, which was subsequently linked to the death of thirty-eight premature babies.
O'Neill was fined $115,000 and ordered to pay $125,000 in court costs. Prior to imposition of
the fine, three former company officials received sentences totalling eighteen months in
prison and $140,000 in fines. More importantly, however, the "companies and individuals
involved had previously reached out of court settlements with the families of the victims.

Detailed Analysis Of Antitrust Offenses

According to the Commission's data, the average corporate fine levied for antitrust offenses
prior to 1987 was $160,000.' since 1987 appear to have nearly doubled to about $300,000 on
average. The median fine, however, ranges from $50,000 to $100,000. There is little
difference between criminal antitrust fines reported in 1988 and those in 1989-90. One reason
for the difference between median and mean fines is that a significant percentage of
companies now receive fines of $1,000,000 or more.
Conclusion: Implications For Sentencing Guidelines
This Part summarizes the major findings of this study and offers a few observations on the
drafting of sentencing guidelines for organizations convicted of crimes.

Sanction Corporate Misconduct, Not Corporate Misfortune

Some corporate crimes are committed by owners of closely held companies, essentially for
their own personal gain. Other crimes are committed by employees and/or management in
furtherance of company policy to violate the law through regulatory noncompliance or
fraudulent business practices. Finally, some corporate criminal liability arises through
negligence or derives from strict and vicarious liability. The data suggest that judges
currently view these three types of crimes differently.
Several earlier examples illustrated how judges often coordinate sanctions among the various
guilty parties. In the case of a family business where the owner received a thirteen month jail
sentence, the judge imposed a small corporate fine. In another case, a substantial monetary
fine was shifted to a company president who was directly involved in fraud when the
minority shareholders apparently were not aware of the illegal activity. On the other hand,
crimes committed by company employees in furtherance of company policy likely result in
substantial corporate fines and restitution. Finally, in some cases, judges appear to be
sympathetic to the concern voiced by many in the business community that, under theories of
criminal negligence or vicarious liability, a firm might be subject to criminal penalties where
management did not intend to commit a crime." In such cases, there appears to be a
reluctance to impose fines commensurate with those imposed in cases of intentional conduct,
gross negligence, or lack of appropriate or timely management follow-up.