Introduction

In June 2015, whilst the Australian Securities and Investments Commission (ASIC) was before the Senate Estimates Committee, the ASIC Chairman, Greg Medcraft, raised the idea of making companies liable under new civil penalty provisions for circumstances where an employee commits an offence if ASIC believes that the company’s culture led to the employee breaking the law.

In effect, what Mr Medcraft wants is a modified new law, based on s 12.3 of the Criminal Code Act 1995 (Cth) (Criminal Code Act) which creates a criminal offence if a company is proved to have a corporate culture that directed, encouraged or tolerated non-compliance with a relevant provision.

Instead of the standard of proof being ‘beyond reasonable doubt’, Mr Medcraft wants the modified new provisions to have a‘balance of probabilities’ proof standard so that any proven breach will attract the court’s ability to order fines, compensation or disqualification, similar to civil penalties under ss 1317G, 1317H and 206C of the Corporations Act 2001(Cth) (Corporations Act).

Section 12.3 of the Criminal Code Act currently imposes corporate criminal responsibility if unlawful acts of an employee, agent or officer resulting in an offence can be attributed to the corporation’s culture of non-compliance or corporate failure to maintain a culture of corporate compliance.

The purpose of s 12.3 can be easily understood in the following hypothetical scenario:

A corporation is the construction contractor on a building site. The corporation has a history of recurring safety breaches under Workplace Health and Safety legislation. The corporation does not improve its safety compliance for workers and a worker is killed by the corporation’s crane driver who, on turning the crane struck the worker.

Arguably, the apparent corporate culture of disregard for safety precautions could lead to a charge of manslaughter against the corporation.

There is a clear public purpose in using s 12.3 of the Criminal Code Act in the workplace health and safety scenario where deaths or serious injury to workers is to be abhorred where there is no or little regard to safety standards.

These sections are designed to target a specific perpetrator, such as a director, and one might argue that secondary perpetrators (such as the company) could be incidental even if there was a bad corporate culture responsible for the initial offence.

One of the foremost cases in this area is Hamilton v Whitehead (1988) 82 ALR 626. This was a case in Australia’s High Court where Mr Whitehead, the managing director of Establish Pty Ltd, was charged with six offences relating to the offer and issue of prescribed interests under superseded company legislation. He was charged as knowingly concerned in the commission of alleged offences under the name of Establish Pty Ltd, based on Mr Whitehead being the directing mind and will of Establish Pty Ltd. (HL Bolton (Engineering) Co Ltd v T.J., Graham & Sons Ltd [1956] 3 All ER 624). This concept was enlarged upon in Tesco Supermarkets v Nattrass [1972] AC 153, where one of the judges said:

‘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 a 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 Hight Court therefore considered that Mr Whitehead was acting for the company, Establish Pty Ltd, as an accessory and concluded that ‘the protection of the public…would be seriously undermined if the hands and brains of a company were not answerable personally for breaches of the Code which they themselves have perpetrated’. Mr Whitehead therefore lost the appeal.

Another case of interest is Presidential Securities Services of Australia Pty Ltd v Brilley (2008) 67 ACSR 692, a decision of the NSW Court of Appeal. Mr Bingle was a security guard and the managing director and sole employee of Presidential Security Services of Australia Pty Ltd (Presidential). Mr Bingle was guarding a sports club when he shot and wounded an intruder who broke into and entered the sports club. The intruder sued Mr Bingle for damages for assault and battery. Mr Bingle was initially found guilty of assault and battery following which the intruder was awarded damages.

On appeal, the court could not attribute Mr Bingle’s liability to his company even though Mr Bingle was the controlling mind and will of the company. The court believed that he ‘stepped over the line’ with the court distinguishing self defence from assault and battery. The court found that the assault and battery of the intruder was not in furtherance of the company’s interests, recognising there are some crimes which were not capable of being committed by a company, such as incest, bigamy, homicide and assault. Mr Bingle was not therefore able to attribute his liability to his company.

‘Culture’ just a buzzword?

In the area of bribing a public official, there will be scenarios where this is may apply due to a ‘win business at any cost’culture that may exist in a corporation. However there is a defence available if the corporation had in place anti bribery guidelines and maintained vigilance over the adherence of those guidelines.

The Senate Economics References Committee is to undertake an inquiry into foreign bribery with emphasis on non-compliant corporate culture and the liability of directors and senior managers who fail to implement corporate cultures of compliance. A report from the Committee is due for tabling in the Senate by 1 June 2016.

If the United Kingdom Bribery Act 2010 is adopted as guidance for Australia, the fundamentals of legislative reform may lead Australia to adopt the UK position where a commercial organisation will be liable if it fails to prevent bribery by an associate (for example an employee) who has acted with intent to obtain or retain business or to obtain a business advantage by resorting to bribery.

In the UK, the employee’s organisation has a full defence to bribery charges if it can show it had ‘adequate procedures’ in place to prevent associates from engaging in bribery. The ‘adequate procedures’ defence needs to be supported by senior executives and directors who need to establish active monitoring and remedying of any inadequacies. Directors as the‘guardians of corporate compliance’ can be exposed to greater liability if the defence cannot be established.

Has s 12.3 been a success?

Despite s 12.3 being in existence for around 20 years, there would not appear to be any reported case where the prosecution has successfully proved that an inadequate corporate culture was the root cause of an offence committed by an employee, agent or officer of a corporation.

It is therefore with some trepidation that these suggestions are possible reasons for that circumstance:

  1. The lack of a suitable test case.
  2. The prosecutor’s difficulty of proving beyond reasonable doubt that inadequate corporate culture was the source of non compliance leading to the offence. Seemingly, this would involve establishing an expected benchmark corporate culture and then finding inadequacies in the defendant’s culture followed by proving that inadequacies were essentially causation factors for the offence.
  3. That prosecuting the company employing or engaging the primary offender was not in the public interest (whether by reason of expense or otherwise).

Whilst s 12.3 requires the criminal standard of proof to be imposed, the model contemplated by Mr Medcraft of ASIC, for civil penalty provisions, still means that ASIC may need to consider these factors:

  1. Why is it worthwhile to mount an inadequate corporate culture case against a company when the primary offender has been found guilty (a public interest argument)?
  2. Will ASIC be able to produce convincing evidence to establish a minimum benchmark appropriate standard of corporate culture (connected to the relevant event) that should have been in place for deterring the act in question?
  3. Will ASIC be able to identify the shortcomings in corporate culture and establish those shortcomings as tantamount to causation?

Can s 12.3 be made simpler?

If Federal Parliament gave ASIC what it wanted (ala Mr Medraft’s corporate culture scenario) ASIC may not actually be better equipped to deal with corporate misconduct.

Using the UK Bribery Act 2010 for guidance, a possible reform might be a ‘deemed inadequate culture of corporate compliance’ for a company unless it has ‘adequate procedures’ in place to prevent the commission of a breach of the law by an employee, agent or officer. It also follows, based on the location of corporate power, that the Board of Directors for a company could be deemed to have liability for an inadequate corporate culture or an inadequate prevention policy in resulting circumstances. Suggestively, the ‘adequate procedures’ defence should be available to both the company and individual directors.

Conclusion

It has been concluded that ASIC’s desire to extend s 12.3 to civil penalty provisions may have been on Mr Medcraft’s wish list, but there are going to be problems if the idea goes any further. Even if the wish was granted, the provisions may well remain unutilised due to the difficulties of proof.