12.3 Fault elements other than negligence

The statement of general principle which opens Division 12 declares that the “Code applies to corporations in the same way as it applies to individuals.” The principle is immediately qualified by the recognition that the language of individual responsibility will have to be adapted to the contours of corporate criminal responsibility. Section 12.3 provides an explicit set of rules for attributing the fault elements of intention, knowledge and recklessness to corporations. States of mind that provide the basis for a finding of individual fault are given corporate equivalents. The rules include familiar common law principles which impute to the corporation the intentions, knowledge or recklessness of the board of directors or high managerial agents. The rules go well beyond the familiar, however, by permitting fault to be imputed to a corporation which maintains a culture of non-compliance with the law in question or fails to maintain a culture of compliance.

The rules for the imputation of fault in s12.3 are limited in their application  to intention, knowledge and recklessness. Negligence is the subject of specific provision in s12.4. Negligence aside, s12.3 is far from exhaustive in its coverage of fault elements. Many Commonwealth offences, in the Code and in general legislation, utilise other forms of criminal fault in the regulation of particular areas of criminal activity. So, for example, in 138.1 Unwarranted demand with menaces - the offence commonly known as blackmail - liability depends on proof of the offender’s absence of belief that there were reasonable grounds for either making the demand or reinforcing it with menaces. Absence of the requisite belief is clearly a fault element required for the offence and it is equally clear that this is not a variety of fault which can be equated with intention, knowledge or recklessness. The fact that s12.3 makes no specific provision for unusual fault elements does not mean that absence of belief cannot be attributed to a corporation. The opening injunction of Part 2.5, to modify the language of individual responsibility to fit the contours of corporate liability, should enable a court to conclude that corporations can act with the fault required for the offence of demanding with menaces. If particular varieties of fault can be brought within the rules set out in s12.3, however, there are obvious advantages of clarity and certainty.   Dishonesty,  which plays so large   a role in the regulation of corporate conduct, is the obvious case in point. Analysis of the concept reveals that it is, in reality, a compound of the familiar fault element of knowledge, coupled with a circumstantial element. As a consequence, the rules of attribution in 12.3 do extend to the fault element in dishonesty: this is discussed below 12.3-K.

A similar, though more intractable, problem arises in offences which make use of ulterior intentions as a fault element defining liability. In these offences, it is very arguable that 12.3 does not permit the ulterior intention of an  agent to be attributed to a corporation. The argument, if accepted, frustrates the objects of s12.3. The issue requires resolution. With this caveat, the discussion which follows assumes that the contrary argument will not prevail and that s12.3 does permit the ulterior intentions of an agent to be attributed to a corporation. The issue is discussed in more detail below at 12.3-J.

Section 12.3 attributes fault to a corporation if it authorised or permitted the “commission of an offence”. The language of the provision suggests that there must be an offence  committed,  before  fault  is attributed.³⁶⁶  If that is the case, it will be necessary to prove intention, knowledge or recklessness – as the case may require – against an agent of the corporation before any of those fault elements can be attributed to the corporation. An alternative view of the provisions is possible. Professor Eric Colvin argues that the fault elements of intention, knowledge or recklessness can be attributed to a corporation in the absence of any evidence that an agent of the corporation acted intentionally, with knowledge or recklessly: “The fault element…can be located in the culture of the corporation even though it is not present in any individual”.³⁶⁷ On this view, s12.3 goes well beyond the invention of a corporate equivalent for the intention, knowledge or recklessness of an individual agent of the corporation. The corporate culture provisions are taken to require the attribution of these fault elements to a corporation in the absence of fault on the part of any individual. Though it is possible that the provisions were intended to have this effect, the practical difficulties of implementing such an interpretation seem insurmountable. The better view is that intention, knowledge and recklessness cannot be attributed to a corporation unless an agent acted with intention, knowledge or recklessness. Take the simple example of a corporation engaged in the construction industry which fails to ensure that its workers maintain adequate safeguards against injury or death. It fails to maintain a culture of compliance with safety standards. A rigger is killed by a crane driver who breaches those standards. There is no doubt that the corporation could be held guilty of manslaughter in such a case: 12.4 Negligence. But murder?  The problem, which Professor Colvin remarks, is the absence of any apparent difference between corporate intention, corporate knowledge, corporate recklessness and corporate negligence. Failure to maintain a “corporate culture that required compliance with the relevant provision” provides a basis for attributing intention, knowledge or recklessness to a corporation. The only way in which one can differentiate between corporate murder and corporate manslaughter is by reference to the question whether the corporate agent – the crane driver - acted with the appropriate fault element for murder. To attribute intention  to kill, or recklessness to the corporation, it would be necessary to show a corporate culture of non-compliance or a corporate failure to maintain a culture of compliance, among its agents, with the law against murder. The problems are even more apparent when the fault element of an offence takes the form of ulterior intent: see below 12.3-J.

ATTRIBUTING FAULT TO A CORPORATION: BRIBING A FOREIGN OFFICIAL WITH INTENT

The Code makes it an offence to bribe foreign officials in the pursuit of business advantage: 70.2 Bribing a foreign official. The prosecution must prove, among other fault elements, that a benefit was given to a foreign official with intention of influencing the exercise of official duties in order to obtain a business advantage. It is not necessary to prove that any business advantage was obtained in fact: liability for this offence requires proof of an ulterior intention: discussed 5.2-D.   A corporation which turned a blind eye to its agents’ consistent practice of bribing officials to secure business for their employer would be equally guilty with those agents. The existence of a corporate culture of non-compliance or of corporate failure to maintain a culture of compliance is the corporate equivalent of the agent’s intention to secure a business advantage. In this scenario, the corporation tacitly authorised “the commission of the offence”: s12.3(1). Suppose, however, that it could not be proved that the agents conferred benefits with the intention of securing any business advantage. They did so,  let us say, with the intention of deriving some personal advantage for themselves. As before, the corporation tacitly encourages the practice or fails to discourage it. There is, in such a case, no offence on the  part of the agents and no offence on the part of the corporation.

The foreign bribery example, which can be generalised to many other offences, is consistent with the view that the corporate culture provisions merely provide a corporate equivalent to the intentions, knowledge or recklessness of an agent of the corporation. In the absence of proof of a particular variety of fault on the part of the individual, however, the corporate culture provisions have no application. They require proof that the corporation tacitly encouraged individuals to commit the offence. If there is no evidence of an  offence on the part of the agent, there is no basis for the allegation of  a corporate culture of non-compliance or corporate failure to maintain a culture of compliance.

The legislative instruction is mandatory. It appears that authorisation and permission are meant to be taken as near synonyms: an offence is “permitted” when permission is given to some individual to commit that offence. The word does not seem to extend more generally to include simple failure to prevent the occurrence of the offence.³⁶⁸ Authorisation of an offence and permission for it to occur are corporate equivalents of the states of mind which provide the basis for attributing the fault elements of intention, knowledge or recklessness to individuals. It is important to notice that the Chapter 2 conception of corporate fault does not distinguish among the  fault elements of  intention,  knowledge  and  recklessness.³⁶⁹  Authorisation or permission will provide the basis for attributing each and all of these    fault elements to the corporation. When corporate fault is in issue, they are treated as a collectivity. It follows that the distinction between crimes requiring proof of intention and crimes requiring proof of recklessness, a distinction which can be used to mark different grades of criminality when individual liability is in issue,³⁷⁰ is elided when corporate liability is in issue.

The opening statement of general principle in s12.3(1) adds little if anything to existing law. It does provide the foundation for the extended applications of authorisation and permission which follow.

Section 12.3(6) defines the board of directors as the body, whatever it may  be called, which exercises the executive authority of the corporation. Section 12.3 reiterates the common law doctrine of “direct corporate liability” in which the corporation is identified with its board of directors.³⁷¹ The board of directors may implicate the corporation in criminal activity if they personally engage in criminal conduct, or if they authorise or give permission to another to do so. It will be necessary, however, to prove that the directors acted with intention, knowledge or recklessness with respect to the physical elements of the offence or authorised its commission intentionally, knowingly or recklessly.³⁷²

Common law extends the identification of the corporation with its board of directors to include senior officers of the corporation.  Once again, Chapter  2 reiterates common law doctrine, which found its most significant expression in the House of Lords decision in Tesco Supermarkets v Nattrass.³⁷³ A high managerial agent may implicate the corporation in criminal activity if the agent personally engages in criminal conduct or authorises or gives permission to another to do so. It will be necessary, however, to prove that the high managerial agent acted with intention, knowledge or recklessness with respect to the physical elements of the offence or authorised its commission intentionally, knowingly or recklessly.³⁷⁴ The limits  of  attribution  under this head are inherent in the notion of a “high managerial agent”.  Chapter  2 summarises common law criteria³⁷⁵ for distinguishing between those senior officers whose states of mind can be counted as those of the corporation and those who do not have a share in the corporate mana.³⁷⁶ A high managerial agent is defined, in s12.3(6), as an “employee, agent or officer of the body corporate with duties of such responsibility that his or her conduct may  fairly be assumed to represent the body corporate’s policy”. The importance of those limits is much reduced, however, by the provisions on corporate culture which follow.

Chapter 2 draws a significant distinction between the board of directors    and high managerial agents. Any criminal activity undertaken by the board  is attributed to the corporation. In the case of high managerial agents, however, their derelictions are only presumed to be attributable to the corporation. The presumption can be rebutted. If the fault of a high managerial agent is imputed to a corporation, s12.3(3) permits an affirmative defence of due diligence if appropriate measures were taken to restrain the criminal activities of the high managerial agent: on affirmative defences, see 13.4 Legal burden of proof – defence.

Proof of recklessness is not the same as proof of intention or knowledge, whether corporate or individual criminal responsibility is the subject of inquiry. If an offence requires proof of corporate intention or knowledge, s12.3 permits the intention or knowledge of the board, or of a high managerial agent, to be attributed to the corporation. Intention and knowledge are interchangeable – the corporation will be taken to have known a circumstance if the board or agent intended it. But the provision does not permit intention or knowledge to be attributed to a corporation if the board or high managerial agent was merely reckless with respect to a circumstance or result. Though the provisions are not explicit on the point, it can be inferred that similar restrictions apply when the corporate culture provisions are invoked. Some Commonwealth offences are graded in seriousness, requiring intention for the more serious offence and recklessness for the less serious offence.³⁷⁷  If   the offence requires intentional wrongdoing, proof that the corporate agent possessed the requisite intention will be necessary before the corporation   can be convicted of the more serious offence. There is no other way of distinguishing between corporate intention and corporate recklessness and   it cannot be assumed that the difference in seriousness between the two offences counts for nothing, simply because a charge is brought against a corporation rather than an individual.

The corporate culture provisions in ss12.3(2)(c),(d), extend the concept of corporate authorisation and permission well beyond the limits imposed at common law by Tesco Supermarkets v Nattrass.³⁷⁸ The fault of any agent in the corporation, no matter how minor or peripheral their role, can be attributed to the corporation when these provisions apply. In that sense, corporate forms of fault are quite distinct from the states of mind of individuals within the corporation. As Fisse remarks, “Corporate policy is the corporate equivalent of intention and a corporation that conducts itself with an express or implied policy of non-compliance with a criminal prohibition exhibits corporate criminal intentionality.”³⁷⁹ In the Code, authorisation and permission are taken to be the expression of corporate policy. But, negligence aside, Chapter 2 still requires proof of intention, knowledge or recklessness on the part of some human agent if fault is to be attributed to the corporation.³⁸⁰

The concept of corporate culture is defined in ss12.3(6) as “an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place.”³⁸¹ Of course, policies of non-compliance may be overt in cases where a high managerial agent has authorised past breaches of the law, leading to an expectation that future breaches will be condoned:   s12.3(4)(a).³⁸²   It   is perhaps more likely, however, that the policy will be tacit or implied. Chapter 2 invites courts to consider the reasonably founded views of ordinary employees on the attitudes of management to compliance when drawing conclusions about corporate culture: s12.3(4)(b)³⁸³ The prosecution may, in this way, lead evidence that the unwritten rules of the corporation tacitly authorised non-compliance with the law,  whatever the formal appearances  of compliance.

The Code treats proof of absence of a culture of compliance and proof of the existence of a culture of non-compliance as equivalent grounds for the conclusion that the corporation gave its authorisation or permission for the offence. The provisions facilitating proof of a culture of non-compliance are equally applicable to proof of failure to establish a culture of compliance: s12.3(4).

Earlier sections of the Guidelines discuss offences which make use of an ulterior intentionas a fault element defining liability:  see 5.2-D.  The Code offence, 70.2 Bribing a foreign official, is an example of an offence defined by reference to an ulterior intention. A benefit given to a foreign official can amount to a bribe, if the benefit was given “with the intention of influencing the…official” in order to secure a business advantage. Since the offence requires proof of a fault element of intention, s12.3 permits the corporate agent’s intention to influence an official to be imputed to their corporate principal. It is true the agent’s ulterior intention does not fall within s5.2 Intention. But the definition in that provision does not exhaust the meaning or application of intention as    a fault element. References to “intention” in s12.3(1) accordingly include ulterior intentions. Though the Dictionary which concludes the Code declares that “intention has the meaning given in section 5.2”, definitions in the Dictionary give way when “context or subject matter…indicates or requires”.³⁸⁴ The s5.2 definition is displaced in this instance: there can be no reason to exempt corporations from liability for offences which require proof of an ulterior intention. Many, like the offences in the foreign bribery provisions, are peculiarly appropriate for use against errant corporations.

No mention in made of dishonesty in s12.3, which is exhaustive in its catalogue of the fault elements which may be attributed to a corporation,  but s12.3 is not the only avenue to the attribution of fault to a corporation. The fundamental principle governing corporate liability is found in s12.1, which requires Code provisions to be applied (with whatever modifications may be necessary, to corporations in the same way as they apply to individuals). It is possible that dishonesty might be attributed to a corporation without reference to the provisions of s12.3. However, in view  of the large number of offences of dishonesty that involve corporate misconduct, it is preferable to avoid sailing into totally uncharted waters. Closer consideration of the meaning of dishonesty, as it is defined in the Code, permits the conclusion that s12.3 does indeed provide the basis for attributing dishonesty to a corporation.  That conclusion, it should be said,  is based on the definition of dishonesty in Chapter 7 – The proper administration of government, which deals with theft, fraud and related areas of criminal behaviour. It may not follow in the same way, if dishonesty is defined differently or not defined at all in other offences which do not fall within Chapter 7. Section 130.3 Dishonesty defines the concept as an amalgam of two distinct elements. First, the conduct in question must be “dishonest according to the standards of ordinary people.” Second, the conduct must be “known to be dishonest according to the standards of ordinary people”. It is apparent that the fault element here is “knowledge”. The “standards of ordinary people” are, in fact, a physical element of those offences that require proof of dishonesty: see 3.1.2.³⁸⁵ Nothing in the Code requires “dishonesty” to be characterised as a fault element and nothing in the Code forbids dissection of this compound concept into its component elements. The fault element in these offences is knowledge. Like knowledge of any other physical element of an offence, s12.3(2) provides the criteria   for attributing an individual’s knowledge that conduct violated the standards of ordinary people to a corporation. The hypotheticals which follow illustrate the attribution of the fault element in dishonesty to a corporate employer.

INTENTIONAL AND DISHONEST CORPORATE BRIBERY

It is an offence against Code s70.2 to bribe a foreign public official  and an offence against s142.1, to bribe a Commonwealth public official. The first of these offences requires proof that a benefit was conferred with intent to derive a business advantage;³⁸⁶ the second requires proof that a benefit was conferred or offered “dishonestly”. This difference between offences which are very similar in other ways, provides a useful illustration of the effect of the provisions of Part 2.5 in the attribution of corporate fault elements. Suppose a corporation, Buttons PL, manufactures uniforms. The corporation wanted to renew contracts to manufacture military uniforms for the Commonwealth government and for the government of New Zealand. Donald is an executive of Buttons PL who is responsible for negotiating renewal of its contracts with the two governments. In each set of negotiations, Donald offers a government official a benefit:

1. CC 70.2 Bribing a foreign public official: The offer made by Donald, an employee acting within the apparent scope of his employment, is attributed to Buttons PL as a physical element of the offence: s12.2 Physical elements. The fault element – intention to influence an official of the New Zealand government in order to retain the business – will be attributed to Buttons PL if Donald was a high managerial agent and if he acted with that intention: s12.3(2)(b). Buttons PL will escape the attribution of fault, however, if the corporation can prove that it exercised due diligence and endeavoured to prevent its employees from offering bribes: S12.3(3). If Donald is not a high managerial agent his intention to influence the official can still be attributed to the corporation, if a corporate culture of non-compliance or a failure to establish a corporate culture of compliance can be proved: s12.3(2)(c) & (d).
2. CC 142.1 Corrupting benefits given to…a Commonwealth public official: Once again, the offer which Donald made to the official is attributed to the corporation.  The prosecution must establish that  the offered benefit would ‘tend to influence a public official”: s142(1)(b). It must also be established that the offer was “dishonest according to the standards of ordinary people”: s130.3. These requirements all relate to the physical elements of the offence. The fault element of the offence – knowledge that the offer of a benefit was “dishonest according to the standards of ordinary people” – can be attributed to the corporation in exactly the same way as intention in the previous example.

There is a significant difference between the examples. In the second, where Buttons PL cannot be held liable unless Donald knew his conduct to be dishonest, the corporation escapes liability if Donald was ignorant or mistaken about the ethics and legality of business bribes.

366. The remaining provisions in s12.3 are consistent with this interpretation. The provisions which attribute the fault of the board of directors or “high managerial agents” to the corporation require proof that they acted with the requisite intention, knowledge or recklessness: s12.3(2)(a) & (b). The provisions which attribute fault to a corporation which fosters a corporate culture of non-compliance or fails to foster a culture of compliance appear to be limited to circumstances in which the offence is committed by an agent of the corporation: s12.3(4).

367. E Colvin, “Corporate Personality and Criminal Liability” (1995) 6 Criminal Law Forum 1, 36. Compare Woolf, “The Criminal Code Act 1995(Cth) - Towards a Realist Vision of Corporate Criminal Liability” (1997) 21 Crim LJ 257.

368. The words “expressly, tacitly or impliedly” in s12.3(1) appear to qualify both “authorised” and “permitted,” suggesting that it is permission which must be given expressly, tacitly or impliedly. The inference that “permitted” is used in the sense of giving permission is strengthened by ss(2) and (3), which clearly equate offences permitted with offences for which permission was given.

369. Distinguish the effect of s12.3(5) which bars the attribution of fault elements of intention or knowl- edge to a corporation, pursuant to ss2(a) and (b), when the board of directors or high managerial agent are merely reckless with respect to the commission of an offence. That provision merely limits the means of proving authorisation or permission. It does not limit the effect of proof that the offence was authorised or permitted. That effect is the attribution of the collectivity of fault ele- ments - intention, knowledge and recklessness - to the corporation

370. Though frequent in state and territorial law, examples are comparatively rare in the Code . See, however, Ch 7, Part 7.4 – False or misleading statements, in which distinctions are drawn between offences which require proof of knowledge and offences which require proof of recklessness.

371. P Gillies, Criminal Law (4ed 1997), 138: “The direct liability doctrine (also referred to, variously, as the ‘alter ego’ or ‘identification’ doctrine, or as the ‘primary’ corporate liability doctrine)…”

372. Note, however, that neither intention nor knowledge are attributed to the corporation under ss2(a) or 2(b) where the board of directors or high managerial agent were merely reckless with respect to the criminal conduct or to the risk that they might be taken by an agent to give authorisation or permis- sion to commit the offence: s12.3(5), discussed 12.3-G.

373. [1972] AC 153.

374. Neither intention nor knowledge are attributed to the corporation under ss2(a) or 2(b) where the high managerial agent was merely reckless with respect to the criminal conduct or to the risk that their conduct might be taken give authorisation or permission to commit the offence: s12.3(5): discussed 12.3-G.

375. As to which, see the discussion in P Gillies, Criminal Law (4ed 1997), 141-144.

376. B Fisse, Howard’s Criminal Law (1990), 601.

377. See, for example, Ch7, part 7.4 – False or misleading statements.

378. 8 [1972] AC 153.

379. B Fisse, Howard’s Criminal Law (1990), 606.

380. Section 12.3 is consistent in its insistence that fault is attributed to the corporation when it gives authorisation or permission for the commission of an offence by an agent. In the absence of an offence committed by an individual, the provision gives no basis for the attribution of fault to a corporation. Notice, however, that the inferences drawn from the existence of corporate policy of non-compliance can go beyond the statutory establishment of express, tacit or implied authorisation or permission for the commission of an offence. Proof of such a policy will also tend to establish the necessary fault element on the part of the individual: see: Field & Jorg, “Corporate Manslaughter and Liability: Should we be going Dutch” [1991] Crim LR 156, 159: “[T]he policies, standing orders, regulations and institutionalised practices of corporations are evidence of corporate aims, intentions and knowledge of individuals within the corporation. Such regulations and standing orders are authoritative, not because any individual devised them, but because they have emerged from the decision making process recognised as authoritative within the corporation.”

381. Compare B Fisse, Howard’s Criminal Law (1990), 605-606.

382. Note that it is not open to the corporation to escape the attribution of fault on this ground by proof that it had exercised due diligence in an attempt to control its high managerial agents: s12.3(3).

383. Compare B Fisse, Howard’s Criminal Law (1990), 607: “[A] policy of non-compliance could be deemed to exist where an employee connected with the commission of the offence charged has reason to believe that the company expected him to act as he did and that complaining about the matter would be ineffective or would provoke retaliatory action against him….The focus is not merely on the proclamations about compliance made at the board of directors or top level manage- ment but on the perceptions of the middle and lower level employees by whom the external ele- ments of corporate offences are typically committed.”

384. Section 4(1) of the Criminal Code Act 1995 applies the Dictionary definitions to terms used in federal offences unless context or subject matter requires otherwise. Also, compare 8.2-C, discuss- ing intoxication and ulterior intentions where it was concluded that “intention” in s8.2(1) is limited by 5.2 Intention.

385. Compare, for example, the concept of indecency at common law: conduct is indecent if “respect- able” or “right thinking” or “right minded” or “decent-minded’ people would take it to be indecent: Harkin (1989) 38 A Crim R 296, 300 per Lee J. There can be no doubt that indecency is a physical element of the offence.

386. CC s70.2(1)(c) illegitimate benefit conferred or offered “with the intention of influencing a foreign public official….in order to…obtain or retain business…&c”.