Friday, November 19, 2010

Some further thoughts on Iridium/Motorola: Deviating from Meridian?

As Mr. Umakanth discussed in this post, the Supreme Court of India in Iridium India Telecom v. Motorola Inc. (Criminal Appeal No. 688 of 2005, judgment dated October 20, 2010) has confirmed that companies can be prosecuted for offences involving mens rea. The Court in Iridium appears to have approved of the theory through which the intention of the directing mind and will of a company is attributed to the company. The Supreme Court has expressly approved of Lord Denning’s comparison of the company with a human body; and has also approved of the decision in Tesco v. Natrass.

Lord Denning and Tesco:

Lord Denning had stated in H.L. Bolton (Engg.) Co. Ltd. v. T.J.Graham, [1957] 1 QB 169, “A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company. That is made clear in Lord Haldane's speech in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. (AC at pp. 713, 714). So also in the criminal law, in cases where the law requires a guilty mind as a condition of a criminal offence, the guilty mind of the directors or the managers will render the company themselves guilty…” 

In Tesco Supermarkets v. Nattrass, Lord Reid clarified the distinction between primary liability through attribution and vicarious liability, and observed, “I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these; it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent. In that case any liability of the company can only be a statutory or vicarious liability.

The decision in Meridian:

It is noteworthy that in Meridian Global Funds Management Asia Ltd. v. The Securities Commission, [1995] UKPC 5, Lord Hoffman specifically rejected what he called the “anthropomorphism” of Lord Denning. Lord Hoffman noted, “But this anthropomorphism, by the very power of the image, distracts attention from the purpose for which Viscount Haldane said he was using the notion of directing mind and will, namely to apply the attribution rule derived from section 502 (of the relevant Act in Lennard’s case) to the particular defendant…” In Lord Hoffman’s inimitable style, the question “is one of construction not of metaphysics”. The principles in relation to attribution were then summarised (after taking into account Tesco, as well as In Re Ready Mixed Concrete [a decision which is not noticed by the Supreme Court in Iridium]) in a passage which is now widely regarded as laying down the correct position of English law on the point of when attribution may occur:  

The company's primary rules of attribution (by this, Lord Hoffman means the rules in the companies constitutional documents) together with the general principles of agency, vicarious liability and so forth are usually sufficient to enable one to determine its rights and obligations. In exceptional cases, however, they will not provide an answer. This will be the case when a rule of law, either expressly or by implication, excludes attribution on the basis of the general principles of agency or vicarious liability. For example, a rule may be stated in language primarily applicable to a natural person and require some act or state of mind on the part of that person "himself", as opposed to his servants or agents. This is generally true of rules of the criminal law, which ordinarily impose liability only for the actus reus and mens rea of the defendant himself. How is such a rule to be applied to a company? One possibility is that the court may come to the conclusion that the rule was not intended to apply to companies at all; for example, a law which created an offence for which the only penalty was community service. Another possibility is that the court might interpret the law as meaning that it could apply to a company only on the basis of its primary rules of attribution, i.e. if the act giving rise to liability was specifically authorised by a resolution of the board or a unanimous agreement of the shareholders. But there will be many cases in which neither of these solutions is satisfactory; in which the court considers that the law was intended to apply to companies and that, although it excludes ordinary vicarious liability, insistence on the primary rules of attribution would in practice defeat that intention. In such a case, the court must fashion a special rule of attribution for the particular substantive rule. This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.

Thus Lord Hoffman qualified what appear to be absolute statements in Bolton and Tesco; to suggest that while a company will be imputed with mens rea of its directing mind, who that directing mind is will depend on the specific interpretation of the relevant statutory provisions.

The Meridian test under Indian Law:

The judgment of the Supreme Court however does not mention the decision in Meridian, and whether this Meridian principle applies in India or not is thus an open question. (This is somewhat surprising – Meridian is widely regarded as the locus classicus on the subject in general and the facts in Meridian also were concerned with securities transactions. The difference is of course that – as Mr. Umakanth has pointed out – the complaint in Iridium was under the IPC and not under securities legislation. I am not sure however that this is enough to completely distinguish Meridian) The Court has stated, “The criminal liability of a corporation would arise when an offence is committed in relation to the business of the corporation by a person or body of persons in control of its affairs. In such circumstances, it would be necessary to ascertain that the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the person or the body of persons.” This perhaps indicates that the Supreme Court has adopted a “one size fits all” approach; treating the issue of ‘who is the directing mind and will’ as a question independent of the underlying statutory provision, contrary to the approach in Meridian. It appears that the test is the same regardless of the statutory language of the provisions concerned. For example, there may be several situations where a statutory construction approach would indicate that the acts of (say) a local manager could be attributed to the company. The Supreme Court’s test of the entire corporation “thinking and acting” through such person need not be satisfied. The difference between the Supreme Court’s approach and the Meridian approach can be illustrated through an example. Let us suppose that a statute punishing environmental pollution requires mens rea. A local branch manager of a company branch which has caused the relevant actus has the required mens rea. Is his mens rea to be imputed to the company? Under the Meridian statutory construction approach, this would be an arguable case dependant on the wordings of the statute – it could be argued that the relevant mens rea under the statute specifically was the mens rea of the person in charge of the polluting unit. On the other hand, a strict application of the Supreme Court’s decision in Iridium would not leave such a possibility open at all (unless of course the Chairman/Board of Directors/senior executives also had the relevant mens rea). (The facts in Meridian itself also show how the tests are different.)

Other related issues:

Another aspect which the Supreme Court has not dealt with is whether there can be any exceptions to the attribution – once it is admitted that a person is the directing mind and will, can there still be cases where attribution should not take place? One instance comes to mind – when the directing mind is himself playing a fraud on the company; or when the company is a victim of the directing mind’s criminal/fraudulent acts. The decision of the Canadian Supreme Court in Canadian Dredge & Dock suggests that such an exception does exist. The Supreme Court in India has in one sentence approved of the general Canadian position on the point; but without any specific reference to this issue. We have discussed some similar issues in relation to the decision of the House of Lords in Stone & Rolls v. Moore Stephens elsewhere. Admittedly, the case before the Supreme Court was an appeal against a quashing petition under Section 482 of the Code of Criminal procedure, so possible exceptions would not be in issue before the Court. However, the issue is likely to be important in an analysis of the Indian law on attribution as a whole; and is still an unsettled one.

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