International Corporate Crime: Precis Tesco Supermarkets v. Nattrass - Case Study Example

International Corporate Crime: Precis Tesco Supermarkets v. Nattrass [Name] [Professor Name] [Course] [Date] [WORD COUNT 1,488] Precis for Tesco Supermarkets v. Nattrass Introduction Tesco Supermarkets v. Nattrass involved an appeal case held in 1972 in the House of Lords. The case law expansively demonstrated issues regarding consumer protection and corporate liability1. The landmark ruling demonstrated a decision of the House of Lord based on theory of ‘directing mind’ of corporate liability. In the case, Tesco relied on defence of the ‘act or omission of another person,’ to demonstrate that it had taken all reasonable precautions as well as due diligence2. Fact In the case Tesco Supermarkets v. Nattrass, Tesco offered a discount on washing powder that had been advertised on posters put on view in the stores. After the store ran out of the lowly-priced once, the store manager decided to replace them with a regular priced stock. However, the manager had failed to remove the signs while the customers continued to be charged a higher price. Tesco was charged under Trade Descriptions Act 1968  for defective advertising of the washing powder. Tesco defended itself that it has taken all reasonable precautions and due diligence and therefore the manager’s conduct could not allocate the liability to the company. Decision The House of Lords considered the argument of the defense and established that the manager could not be termed as being part of the ‘directing mind’ of the corporation. This meant that his conduct could not be attributable to the company. Further, it was held that the company had made efforts to do all it could to put into effect the rules concerning advertising3. In the ruling, Lord Reid argued that for the liability of the company to be attached to the ‘actions of the person,’ it must be under circumstances where an individual who is not acting or speaking on behalf of the company commits the offence. The individual is acting as the company and that his mind that directs his acts can be termed as the mind of the company. If the act is guilty, then the guilt can be termed as the guilt of the company4. In the ruling, Tesco was successful with its defence showing that the manager was categorised as ‘another person,’ and that a system through which responsibility was delegated to that individual was ‘performance of due diligence’ rather than’ avoidance of due diligence.’ The House of Lords also determined that the manager was not the ‘will and the directing mind’ of the company since the company had endeavoured to do all it could to avert commission of an offence. It was further established that the fault was of ‘another person’ – in this case an employee. The company was therefore acquitted. Impact on the law Under the common law, the case law has established the criminal liabilities of corporations. Its impact can be felt in the conception that a company is a legal person with the capacity to be prosecuted for criminal offenses unless a statute determines otherwise5. The case law significantly impacts the way criminal offense committed by an employee can be attributed to a company. Indeed, based on the case law, there are a number of ways in which liability for a corporate entity can be attributed to a criminal offence6. For offences that are serious and which involve a fault element – such as those that do not enforce strict liability – a corporation will generally be criminally liable in cases where commission of an offence is attributable to an individual who at that material time of offence was ‘directing mind and will of the corporation7. The impact on delegation principle is also evident. The case law’s impact on the law in situations where criminal liability arises in instances where the board of directors has allotted part of its managerial functions and the person whom this is delegated is fully aware that he is required to act independently and autonomously from them8. In application of the delegation principle, the manager could not be identified with the company since the House of Lords had found that the board of director had not delegated any of its management functions to the manager9. Accordingly, while the board had instituted a chain of command through its district or regional supervisors, they still remained in control10. As held in the case law the principle of delegation implies that omissions or acts of the branch manager could not be attached to the company11. However, the principle of attribution has raised a number of issues questioning its reliability and applicability. A key concern is the issue of criminal liability within the statutory context. It is critical that courts should examine the underlying rationale behind the related statutory scheme instead of seeking to apply the doctrine of identification to attach the liability, or as the default doctrine of liability. In any case, justifying the principles of Tesco v Nattrass should depend to a large extent on the facts of the case. For instance, complications on the case have failed to be exemplified in some case such as Meridian Global Funds Management Asia Ltd v Securities Commission12. In this case law, the Court of Appeal held that as in the process of statutory construction, it was not possible to attaché criminal liability on a company except when an intention to make false entry was attributable basing on the principles outlined in the case Tesco v Nattrass. This was however a surprising verdict and it will remain interesting to note how it is treated in cases in the future. Further, ‘directing mind’ within a corporation is in most case not straightforward, especially in the world where the process of making decision is hugely decentralised and where companies are operating at multinational levels. Except for ‘corporate manslaughter,’ the case law fails to cater for circumstances where there is indeed a clear collective failure by the board, but in cases where it is not possible to attribute particular failures to specific individuals13. The principles from the common law on criminal liability of companies are also potentially unfair to small to medium sized companies. This is because in smaller companies, directors will most likely play an active role in committing an offence if the principles are applied. Although this may not be challenging per se, it may present perverse incentives to companies encouraging them to operate based on devolved structures so as to protect director from what the employees or managers are doing14. Effects on the corporate world The Tesco Supermarkets Ltd v Nattrass has several underlying effects on the corporate world. In the recent decades since the ruling on the case Tesco Supermarkets Ltd v Nattrass was made in 1972, there has been an increased focus on the manner in which corporate conducts and polices interact with legislation, the government, communities and stakeholders, in addition to the lives of individuals. In particular, the real effects have been related to how corporations can be held liable for criminal acts or conducts15. It also demonstrates that corporations are separate legal entities from its employees or company officers. Indeed, this doctrine that was demonstrated in the case Tesco Supermarkets Ltd v Nattrass, reflect those determined in the case law Saloman v Saloman Co Ltd16, where it was held that a corporation is a separate person from its members17. Most importantly, the case law Tesco Supermarkets Ltd v Nattrass impacts the ways that corporations allocate and should allocate their responsibility. Based on the facts of the case law, it is indicated that corporate responsibility is inherently connected to that of the board of directors. In which case, in determining the responsibility of the corporation, the directors must be involved18. Therefore, the ability of the board to managed or allocate responsibility to company officers is crucial in determining whether the company should be attributed faults committed by the officer. With regard to choices of policy between pursuing corporate liability and individuals on the basis of the principles of the case law, focus has been on choosing liability of the individuals who commit the offences and within the corporate world19. Conclusion In the case law Tesco Supermarkets v. Nattrass, the court discussed how ‘will of the company’ and ‘directing mind; should be determined, and whether employees are liable when proper instructions are not given by the board of directors. The case law sets out the way in which corporations should be prosecuted. It demonstrates that although a company is a legal person that may be prosecuted, it sets out restrictions on the application of the principle by determining that such liability is only attributable due to actions of the board of directors or a managing director. Further, it acknowledges the existence or corporate officers as ‘personification or embodiment’ of the company, and whose acts or states of mind are assumed to be those of the company when they act in the business of the company. [WORD COUNT 1,488] Bibliography Books, articles and Journals Anderson, Helen 'Piercing The Veil On Corporate Groups In Australia: The Case For Reform,' Melbourne University Law Review 33 (2009), 333-366 Anon, 'Tesco Supermarkets Ltd -v- Nattrass; HL 31-Mar-1971,' [webpage] (2013), Bailii, 'United Kingdom House of Lords Decisions,' OpenLaw, [webpage] (1971) Beaton-Wells, Caron & Fisse, Brent, Australian Cartel Regulation: Law, Policy and Practice in an International Context (Cambridge University Press, 2011) 236-237 Bennet, Michelle 'A Policy Based Approach To Determining Corporate Criminal Liability,' [web document] (2007) Consumer Crime Cases, 'Due Diligence and State of Mind: Tesco Revisited,' [webpage} (2009), CPS, 'Corporate Prosecutions,' The Crown Prosecution Service [web document] (2013), Gobert, James, Controlling Corporate Criminality: Penal Sanctions and Beyond (Blackstone Press Ltd, 1998) Macleod, John, Consumer Sales Law: The Law Relating to Consumer Sales and Financing of Goods (Routledge, 2006) 967-971 Proudlock, Elly, 'Establishing the criminal liability of corporations,' The Inhouse Lawyer, [webpage] (2013), Robinson, Allens, ''corporate Culture' As A Basis For The Criminal Liability Of Corporations,' United Nations [web document] (2008), Tunstall Consulting, 'Corporate Responsibility: The duties and liabilities of the corporation,' Tunstall [web document] (2008) Wong, Kristen, Breaking The Cycle: The Development Of Corporate Criminal Liability, (University of Otago , 2012)12 Case Laws Meridian Global Funds Management Asia Ltd. v. Securities Commission [1995] 2 AC 500 (PC) Salomon v A Salomon & Co Ltd [1897] AC 22 Tesco Supermarkets v. Nattrass [1972] AC 153 Read More