I INTRODUCTION
“…as the bulk of economic activity nowadays takes place through corporations, so does economic criminality”.52
52 G Stessens ‘Corporate Criminal Liability: A Comparative Perspective’ (1994) 43 International and Comparative Law Quarterly 493, 493.
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This statement is an indication that corporate criminality is a serious challenge in today’s society, one that is faced by various jurisdictions and one that in many jurisdictions has resulted in the imposition of corporate criminal liability.53
The term “corporations” in this thesis, refers to corporate bodies as they are generally known in company law. These are legally constituted companies that have legal personality, their own obligations as well as their own rights.54 They exist separately from their members, they can own property, they can sue and be sued and they can enter into contracts.55 The term corporations in this context also includes non-commercial corporate entities whose legal personality is derived from statute such as universities, municipalities etc., as well as legally constituted associations such as sport associations, trade unions etc.56 For purposes of corporate criminal liability, in this thesis the term “corporations” also extends to associations of persons that lack legal personality such as partnerships. Where corporate crime has been committed by such associations, corporate criminal liability is still applicable, however, it is directed towards those individuals who are in control of the association.57
In this chapter the rationale for holding corporations criminally liable and the theoretical discourse underpinning corporate criminal liability will be discussed.
53 “The increase in corporate crime, including breaches of health and safety regulations and environmental degradation perpetrated by companies, as well as the failure of public authorities to protect and/or rescue persons in danger, have led countries to the increasing realisation that comprehensive criminalisation, based on a coherent theory of corporate liability is required”. (J Burchell (note 49) 448. See also V Borg-Jorgensen and K Van Der Linde ‘Corporate Criminal Liability in South Africa: Time for Change? (part 1)’ (2011) 3 TSAR 452, 453).
54 D Davis and W Geach (eds) Companies and Other Business Structures in South Africa 3ed (2013) 29.
55 P Delport The New Companies Act Manual including Close Corporations and Partnerships Student Edition (2011) 11.
56 This is in line with the application of section 332 of the CPA to corporate entities as discussed by Kentridge J with reference to subsection 332(5) in S v Coetzee 1997 SACR 379 CC para 103 and 104.
57 Kentridge J, with reference to subsection 332(5) states that “the principle behind the subsection is that where an artificial legal person exists, the activities of which may be conducted in a criminal manner, some responsibility should rest on those who control it”. (S v Coetzee (note 56) para 104).
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II THE RATIONALE FOR SUBJECTING CORPORATIONS TO CRIMINAL LAW
As corporations started to play an important role in society, they also started impacting on those societies. Corporations as legal persons could sue and be sued; they had responsibilities and obligations;58 and they could also cause harm. The notion of holding them criminally liable is a concept that was resisted, at first,59 however as time went by corporate activities increased, along with corporate crime, and this led to the gradual development of the idea of holding corporations criminally liable for their unlawful actions. Although it took a long time to accept, corporate criminal liability was eventually accepted and is a concept that is currently accepted in many countries, including South Africa, England and Canada.
In imposing criminal liability on corporations “courts were confronted with the problem of how, if at all, a corporate body could commit an offence, given that it could neither act nor think for itself”.60 Two competing theories for holding corporations liable under criminal law were formulated, namely, the nominalist theory and the realist theory.61
(a) The nominalist theory
In terms of the nominalist theory the corporation is regarded as a mere fiction consisting of a
“collection of individuals and thus lacks a substantive independent identity”.62 It is thus an
58 LH Leigh The Criminal Liability of Corporations in English Law (1969) 4.
59 See discussion below at III (a) in this chapter and also in chapter Four II b) i) aa) to (dd) below.
60 Borg-Jorgensen and Van der Linde (note 53) 453. As Colvin states: “What is at issue is the very nature of corporate personality within the context of criminal law. What does it mean to say that a corporation is at fault and the condemnation and punishment of it are deserved? Is the corporation truly an entity that has the capacity for culpable conduct? Or is corporate personality a fiction, so that all propositions about corporations are necessarily reducible to propositions about individual members? What are the implications for criminal law of adopting one or the other of these conceptions of corporate personality”? (E Colvin ‘Corporate Personality and Criminal Liability’ (1995) 6 (1) Criminal law Forum, 1, 1).
61 Colvin (note 60) 1.
62 Borg-Jorgensen and Van der Linde (note 53) 453. See also Wells (note 15) 85.
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artificial being which owes its existence to the coming together of the individuals who have formed it and it does not exist independently without those individuals. Colvin explains that this theory regards corporations as
“nothing more than collectivities of individuals. Speaking of corporate conduct or corporate fault is seen as a shorthand way of referring to the conduct and culpability of the individual members of the collectivity. The ‘corporation’ is simply a name for the collectivity and the idea that the corporation itself can act and be blameworthy is a fiction”.63
According to the nominalist theory it is not acceptable that the corporation itself is capable of being blameworthy.64 This theory demands that for a corporation to be held liable it is imperative for individual liability to be present.65 The absence of individual liability means that the corporation will not be held criminally liable.66
In South Africa as well as in England and Canada the rationale behind corporate criminal liability has been that even though it has its own separate legal personality, a corporation is in fact a legal fiction, which exists through its agents, the individuals within the corporation. For that reason in imposing liability the individuals within the corporations play a crucial role.
These individuals have in fact become a conditio sine qua non for establishing corporate liability in that without taking the individual liability for the corporate crime into consideration,
63 Colvin (note 60) 2. See also E Colvin and S Anand Principles of Criminal Law 3rd ed (2007) 123.
64 Colvin (note 60) 2.
65 “Corporate criminal liability can therefore only be derived from the guilty conduct of individuals who form part of the corporate body”. (Borg-Jorgensen & van der Linde (note 53) 453). “On the nominalist approach, organizational culpability is derivative. It must always be located through the culpability of an individual actor.
An individual first commits the offence; the culpability of that individual is then imputed to the organisation”.
(Colvin & Anand (note 63) 124).
66 “…If there is no individual culpability, there can be no organizational culpability”. (Colvin & Anand (note 63) 124). See also Colvin (note 60) 2.
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it is not possible to impose liability on the corporation.67 Both the derivative approach, which is followed in South Africa and the identification doctrine which has been followed in England and Canada, fall under the nominalist theory.68 Although identifying the individual within the corporation whose action will lead to the corporation being held criminally liable is sometimes a challenge, the countries which follow the nominalist theory have had some successful prosecutions of corporate criminals.69
(b) The realist theory
In contrast to the nominalist theory, according to the realist theory corporations have a separate existence that does not depend on their members and they may act and also have fault.70 As Colvin states
““Realist” theories, on the other hand, assert that corporations have an existence that is, to some extent, independent of the existence of their members. Corporations can act and be at fault in ways that are different from the ways in which their members can act and be at fault”.71
The realist theory thus accepts that a corporation has a separate legal personality and exists independently of its members72 and may therefore be held criminally liable directly.73 The realist theory makes it possible to have direct responsibility of the corporation, without having to rely on the fault of some natural person to establish the criminal liability of the corporation as
67 This is the case with both the derivative approach and the identification doctrine.
68 Borg-Jorgensen & Van der Linde (note 53) 453.
69 See discussions under the current provision of corporate homicide in chapters three, four and five below.
70 Colvin (note 60) 2.
71 Ibid.
72 Wells (note 15) 85. See also Leigh (note 58) 5 -6.
73 “A realist perspective on corporate personality makes it possible to hold corporate bodies liable for their own acts, omissions and fault”. (Borg-Jorgensen & Van der Linde (note 53) 454).
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“culpability is analysed within a realist framework by examining directly questions about what the organization did or did not do; what it knew or ought to have known about its conduct; and what it did or ought to have done to prevent harm being caused”.74
Belgium, Romania and Australia provide examples of corporate criminal liability models based on the realist theory. In Belgium, where corporate criminal liability was established in 1999,75 a legal entity may be held criminally liable and even be convicted without “evidence that an offence has been perpetrated by an individual who works for, or is otherwise associated with the legal person”.76 In Romania corporate criminal liability was established through a new Criminal code in June 2004.77 Corporate criminal liability in Romania is direct therefore there is no need to identify a natural person before the corporation is held criminally liable.78 Australia follows the corporate culture approach which entails the direct liability of corporations. It is an approach that is found in section 12 of the Australian Criminal Code Act 1995.79
Apart from the fact that Belgium, Romania and Australia are based on the realist theory, it is interesting to note that in all three jurisdictions the adoption of this approach is a fairly recent development and in some cases it is too soon to tell whether the approach is successful or not.
In Belgium it has been stated that the judiciary has made significance use of the approach and that “by the end of April 2004, 381 judgments had been passed (in all areas of the law), using
74 Colvin & Anand (note 63) 124. See also Borg-Jorgensen & Van der Linde (note 53) 454
75 This was done through Article 2 of the Act of 4 May 1999. (M Ramkissoon ‘Country Report: Belgium’ in J Gobert and A Pascal European Developments in Corporate Criminal Liability (2011) 214, 214). Also see Jordaan (note 42) 65.
76 Ramkissoon (note 75) 215.
77 A Pascal ‘Country Romania’ in J Gobert and A Pascal European Developments in Corporate Criminal Liability (2011) 296, 296.
78 “In order to hold a company criminally liable, it is not required to identify or convict a natural person. The company itself is liable for offences which were the result , for instance, of a faulty decision, an omission in the way it organises its operations, or deficient safety measures”. (Ibid 298).
79 Australian Criminal Code Act 12 of 1995.
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various provisions of the 1999 law”.80 Since Romania has implemented it just over ten years ago, it is basically too soon to really determine whether the realist model is successful or not.81 With regard to Australia Van der Linde and Borg-Jorgensen aver that
“even though this fairly new approach has not yet been given much opportunity to be tested in prosecutions of truly criminal offences, it represents an innovative, potentially just and efficient method of establishing corporate criminal liability”. 82
It is submitted that the realist theory provides a better approach, in comparison to the nominalist theory, as the prosecution of corporations is not hampered by the inability to identify a guilty individual within the corporation.
III THE RELEVANCE OF CORPORATE CRIMINAL LIABILITY
South Africa, like many jurisdictions,83 recognizes two kinds of persons: the natural person and the juristic or legal person.84 The term natural person refers to all human beings85 - individuals capable of having rights and duties. A juristic person, on the other hand, refers to a legally recognized artificial person86 that has its own rights and its own obligations. South African law recognizes corporations as juristic persons.87
80 Ramkissoon (note 75) 219.
81 With regard to Romania Pascal states that “It is, however, too early to comment on how vigorously the new laws will be enforced. There is yet limited implementation in practice”. (Pascal (note 77) 302).
82 K Van der Linde and V Borg Jorgensen ‘Corporate Criminal Liability in South Africa: time for change (part 2)’ TSAR 2011 (4) 684, 699.
83 Including England and Canada. See Chapter Four II (a) and Chapter Five II (a) below.
84 Davis & Geach (note 54) 29.
85 Delport (note 55) 9.
86 Ibid 10.
87 “A duly registered company is a distinct legal persona, quite a separate entity from its members, either individually or as a body”. (P Delport, Q Vorster & D Burdette Henochsberg on the Companies Act 71 of 2008, (2011) 82). See also Snyman (note 22) 253. In terms of the Companies Act 71 of 2008 ‘From the date and time that the incorporation of a company is registered, as stated in its registration certificate, the company
(a) Is a juristic person, which exists continuously until its name is removed from the companies register in accordance with this Act;
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Traditionally only a natural person was held criminally liable for his unlawful acts and omissions, as only a natural person has the physical ability to perform an unlawful act and to have a blameworthy state of mind.88 Over the years there have been developments in this regard. As a way of dealing with the problem of crimes committed by juristic persons, criminal law now allows a juristic person to be held criminally liable for its unlawful acts and omissions.
This is despite the juristic person’s inability to act and to think.89 Holding a corporation criminally liable is therefore an anomaly as crimes are usually committed by natural persons within the corporation, human beings who have the ability to think as well as the ability to act with intent or negligence.
Corporate criminal liability is in fact a way of ensuring that the common-law rule that an offender should be held liable is enforced,90 however, since a corporation is a juristic person, it relies on natural persons to think and act on its behalf. This begs the question: is holding a corporation, an entity which lacks physical existence, criminally liable for offences committed by those who act as its brains and hands really justifiable? For this question to be answered the questions whether corporate criminal liability is relevant or not and whether there is justification for imposing corporate criminal liability, while civil liability remains a basis for liability, will first have to be addressed.
(b) Has all the legal powers and capacity of an individual, except to the extent that –
(i) A juristic person is incapable of exercising any such power, or having any such capacity; or (ii) The company’s Memorandum of Incorporation provides otherwise; (section 19).
88 Jordaan (note 42) 48.
89 MA Rabie A Bibliography of South African Criminal Law: General Principles (1987) 29.
90 As strictly speaking, the corporation is the actual offender, CMV Clarkson Understanding Criminal Law 4th ed (2005) 148.
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a) Defining corporate criminal liability and establishing its relevance
Corporate criminal liability is regarded by some as an odd concept.91 It is therefore not surprising that accepting the notion of holding a corporation, an artificial entity, criminally accountable for crimes has been met with resistance.92 In English law the concept of corporate criminal liability has been in existence for a longer period,93 however it was, at first, rejected by the English courts and its development was hampered by various obstacles,94 which may be set out as follows:
First, it was mandatory for an accused person to make a personal appearance at the hearing,95 something that could not possibly be done by an artificial person. The view was thus held that since a corporation was not physically able to make a personal appearance in court, it could not be held liable.96 Second, the form of punishment that could be imposed where a felony was committed was death or imprisonment,97 types of punishment that could not be practically imposed on a corporation.98 Third, the artificial nature of a corporation brought about another
91 Wells, a proponent of corporate criminal liability observes that “people rarely stop to ask why we have a system of criminal law. When someone is murdered all sorts of questions might be raised: what powers should be given to the police to find the murderer and to garner sufficient evidence to prosecute? Should there be a difference between murder and manslaughter, and if so, what? What is an appropriate sentence for murder? But it is unusual to hear anyone ask ‘what is the point of punishing a murderer? In contrast the question ‘why punish a corporation?
is commonly put. There are those whose answer would be that there is no justification for punishment, that it cannot be justified as a ‘necessary evil’. Nonetheless we do find the idea of a corporation being punished more odd than that of a murderer or rapist being sent to prison”. (C Wells (note 15) 13). Luna, an opponent of corporate criminal liability, states that “…corporate criminal liability is an oddity, regardless of any approval or acquiescence by courts, politicians, and the public”. (E Luna ‘The Curious Case of Corporate Criminality’ (2009) 46 American Criminal Law Review 1507, 1508).
92 “Even in jurisdictions that have long recognised corporate criminal responsibility, this concept has been treated as something of an outcast, to be tolerated rather than encouraged”. (C Wells ‘Corporate criminal liability in England and Wales: Past, Present, and Future” in M Pieth & R Ivory Corporate Criminal Liability – Emergence, Convergence, and Risk (2011) 91, 93).
93 In 1842 in the English law case of R v Birmingham and Gloucester Railway Company (1842) 3 Q.B. 223 it was accepted that a corporation could be indicted.
94A Pinto & M Evans Corporate Criminal Liability 2nd ed (2008) 18. For a full discussion of the obstacles to corporate criminal liability see Chapter Four II b) i) aa) to cc) below.
95 Ibid.
96 Ibid 19; D Ormerod Smith and Hogan Criminal Law 12th ed (2008) 246.
97 Pinto & Evans (note 94) 18.
98 Ibid 18.
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challenge that was faced by the various jurisdictions. The question arose as to how a corporation, which is not a natural person, could possibly possess such an attribute as mens rea, an element required for committing an offence.99 Fourth, the ultra vires doctrine brought about a further challenge. Since a corporation is created by law it is only able to perform the acts that the law which created it empowers it to perform.100 Actions by a corporation that go beyond what it is empowered to do are ultra vires acts.101 Corporate crime would therefore be an ultra vires act. For that reason, strictly speaking, a corporation could not be held criminally liable for unlawful acts it has committed.102
In spite of the above-mentioned challenges, corporations continued to play an important role in society and as they did so, the criminal activities of corporations impacted on people’s lives and could not be ignored. It became clear that there was a need for corporations to be held accountable for their criminal actions.103
Commentators have provided, inter alia, the following reasons for imposing corporate criminal liability on juristic persons, specifically corporations. Miester observes that criminal behaviour by corporations puts the public at large in danger.104 This is in line with Bucy’s assertion that activities of corporations are potentially harmful and where harm does occur, many people are exposed to such harm.105 Bucy sees the criminal law route as society’s most effective tool to
99 Ibid.
100 Ormerod (note 96) 247.
101 Ibid.
102 Ibid.
103 Pinto & Evans (note 94) 19. See also Burchell (note 49) 562.
104 DJ Miester ‘Criminal Liability for corporations that kill’ (1990) 64 Tulane Law Review 919, 920.
105 P Bucy ‘Corporate Criminal Liability: When does it make Sense?’ (2009) 46 American Criminal Law Review 1437, 1437.