The Court of Appeal in Ferguson v British Gas [2009] EWCA Civ 46 sent a strong message that it was not prepared to accept any attempt to escape liability for criminal and tortious acts by hiding behind what was termed by Sedley LJ as ‘the privilege of incorporation’. The decision provides a timely warning for large organisations who rely on automated systems to provide customer services, but what effect will it have in practice for the law of corporate criminal liability?

Facts
Ms Ferguson brought her claim against British Gas under the Protection from Harassment Act 1997 in respect of their threatening behaviour following her move to another gas supplier in May 2006. From August 2006, British Gas sent Ms Ferguson an unstoppable torrent of bills and threatening letters. The letters consisted of three variously connected threats; disconnection, legal proceedings, and reporting to credit rating agencies. Ms Ferguson attempted to contact British Gas by phone, through writing a number of letters (including two to the Chairman of British Gas), and indirectly, via a complaint to Energy Watch. Her attempts were met by a combination of unresponsiveness, apologies and additional threats.

British Gas applied unsuccessfully to strike out the claim. On appeal from the decision of HHJ Seymour QC, they argued, inter alia, that they could not be held liable as she had not brought the claim against a ‘named employee’ of the company. They contended that Ms Ferguson needed to sue either an employee for whose acts the company would be vicariously liable, or someone with sufficient seniority to be regarded as the ‘directing mind’ of the company. Furthermore it was argued by counsel for British Gas, that as the threats had been generated by an automatic computer system, Ms Ferguson should have known to not take them as seriously as if they had been from an individual.

The Court of Appeal had little sympathy with these arguments, and rejected the appeal in a robustly worded judgement. In particular, Sedley LJ noted the absurdity which would result from a situation whereby large organisations could hide behind corporate structures to defend their actions. ‘It would mean that the privilege of incorporation not only shielded its shareholders and directors from personal liability for its debts, but protected the company itself from legal liabilities which a natural person cannot evade.’

Counsel for British Gas came in for particular criticism over the failure to provide ‘as full a citation of authority about corporate liability as might be appropriate’ (per Jacob LJ). As a result, the Court of Appeal asked their judicial assistants to carry out further research into the recent case law. This led to a raft of further cases being considered, including; Essendon Engineering v Maile [1982] Crim LR 510; Group Newspapers v SOGAT [1987] ICR 181; Tesco v Brent [1993] 1 WLR 1037; Re Supply of Ready Mixed Concrete (No.2) [1995] 1 AC 456; Meridian Global Funds Management Asia v Securities Commission [1995] 2 AC 500; Re British Steel [1995] 1 WLR 1356; and Cambridgeshire CC v Kama [2006] EWHC 3148.

Corporate ego
By rejecting the corporate liability argument raised by British Gas, has the Court of Appeal effectively neutered the requirement to bring an action against a ‘directing mind’? The common law has traditionally been quick to allow civil claimants to recover against corporate bodies through the mechanism of vicarious liability. When it comes to determining criminal liability however, courts have been required claimants to jump through the hoop of the ‘identification doctrine’.

The classic formulation of this principle was laid down by Viscount Haldane LC in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705:

“A corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.”

This doctrine has had the effect of imposing a tough burden on claimants. Bringing a claim against a small company will be relatively easy, where there may be only one or two individuals who comprise the entire management structure. However, claims will be much more difficult to bring against larger organisations with complex internal structural arrangements.

It is worthy of note that the House of Lords in Lennard's, considered that where the ‘directing mind’ defence was raised in response to an action, the responsibility for discharging the burden of proof lay with the company raising it. As the defendant had failed to call the relevant individual to give evidence, the House of Lords held that he should be regarded as the directing mind of the company for the purposes of the claim.

Applying the doctrine
The doctrine of identification has resulted in a situation where large anonymous corporate entities are better placed to escape criminal liability than their smaller counterparts. As the subsequent case law shows, the courts have made some attempts to mitigate against its worst effects.

Review.

The rule was applied in the leading case of Tesco v Nattrass [1972] AC 153. This concerned a prosecution under the Trade Descriptions Act 1968. Tesco escaped liability through the defence provided under s.24(1), which applied where the offending action had been undertaken by ‘the act or default of another person’ and Tesco had ‘exercised all due diligence to avoid the commission of such an offence’. Responsibility rested on the actions of the individual employee, and it was held that on the appropriate statutory construction the company could avoid liability via the s.24(1) defence.

Tesco was subsequently involved in a case which turned on the application of the same principle to a different statute. In Tesco v Brent [1993] 1 WLR 1037, the Divisional Court rejected the argument that Tesco as a corporate entity could not have knowledge about the age of a 14-year-old purchaser of an 18 certificate video. However, the court noted that the language in the Video Recordings Act 1984 referred to knowledge and information and not due diligence. Staughton LJ recognised the potentially harsh effect that could arise as a result of taking too strict an approach to applying the ‘identification doctrine’, stating that he could ‘not believe that Parliament intended the large company to be acquitted but the single-handed shopkeeper convicted’.

Statutory interpretation
In Ferguson, the relevant statute was the Protection from Harassment Act 1997. It does not contain a defence of corporate ‘due diligence’, or ‘accidental’ harassment. Instead it uses comparable language to the Video Recordings Act. For instance, s.1(2) refers to the knowledge, or presumption of knowledge, of a reasonable person, in relation to the offence. Perhaps unfortunately, as the case only concerned an application to strike out, the court was not addressed in detail as to the question of the level of knowledge of British Gas in this particular case.

The court was careful to limit the application of its decision in Ferguson to the instant case. As Jacob LJ noted, ‘one cannot just jump from one Act to another and say the rule for one is the rule for the other’. Whilst it is still the case that each statute will need to be approached sui generis, some general points can be discerned from the authorities. Crucially, where the legislation in question does not contain a due diligence defence, or refers to real or imputed knowledge, it is unlikely that companies raising a ‘directing mind’ defence will be successful.

The approach of the courts has been largely sympathetic in relation to individual claimants bringing actions against large corporations. Indeed, the judgment opens with Jacob LJ opining that ‘it is one of the glories of this country that every now and then one of its citizens is prepared to take a stand against the big battalions of government or industry’. Sedley LJ highlighted the disparity of arms, noting that ‘it would be remarkable if…the privilege of incorporation not only shielded its shareholders and directors from personal liability for its debts but protected the company itself from legal liabilities which a natural person cannot evade’.

Future developments
There has been a recent legislative push to restrict the loophole created by the ‘directing mind’ principle. The Corporate Manslaughter and Corporate Homicide Act 2007 has made it significantly easier for the police and Health and Safety Executive to bring an action against a large corporate body for manslaughter occurring as a result of fault on the part of the body itself. Following on from this landmark piece of legislation, the Health and Safety (Offences) Act 2008 introduced the option of custodial sentences as well as an unlimited fine in cases involving a breach of health and safety legislation.

While the ruling in Ferguson does not close the door to raising a ‘directing mind’ defence, it does raise serious questions about its application in future cases. The question of how Ferguson applies to future cases is likely to be subject to a considerable amount of debate by lawyers on all sides of the issue.

Thom Dyke is a barrister.