Directing Mind PrabhleenGurunay

VOLUME I, ISSUE 3 | ISSN: 2456-3595 INTERNATIONAL JOURNAL OF LEGAL INSIGHT
THE DIRECTING MIND AND WILL TEST IN CORPORATE CRIMINAL

LIABILITY
Prabhleen Gurunay
ABSTRACT
test. The first part of this paper examines cases which delineate that a company is identified
directors and board of members. The second part of the paper elaborates on how this
interpretation is too narrow. The companies deliberately decentralize the responsibilities
among the lower levels of employers such that no one group or individual is in the position of
is position is corrected by Meridian Global Funds
Management Ltd. v. Securities Commission. After this case, corporate attribution has been put
to two broad uses. First, to impose liability on companies; second, to raise a defense against
claims brought by companies. However, it has been observed that in both categories the lessons
of Meridian have been brushed aside for purposes of convenience. The problem is more acute
corporate attribution. Thus, it is advised to return to the principles of Meridian to prevent

another conundrum in law.
Keywords: Corporate Personality, Company, Criminal Liability.
INTRODUCTION
It is a well-established rule in company law that where a company is incorporated by a trader,
be created distinct from the one or more individuals behind that company. Yet, this legal entity
shall possess rights and be subject to duties similar to those of a natural person. 1 While the
its
* Prabhleen Gurunay, Student, National Law School of India University, Bengaluru, Karnataka.
1
Solomon v. A. Solomon & Co. Ltd., (1897) A.C. 22.
105
2
The corporation employs the individual and sustains him to that position on the
requirement of doing certain things. Therefore, the corporation should bear primary liability or
at least equivalent liability to that of its accused employee.
In the 1700s, a company was not indictable at all. The late 1980s were marked by a string of
disasters involving considerable loss of life and all of them were linked to corporate activities.
Enquiries into these disasters pointed towards the deficiencies in corporate management and
accountability which led to the need for penalizing provisions for the companies. Outside
criminal law, there were developments in terms of the doctrines of strict liability and vicarious
liability in the law of torts.3 These doctrines impose civil liabilities and are largely effective
where it is easier to construe the statutory provision. But where a company needs to have done
be applied. Hence, a basis for attribution of actions to the company is required.4
In 1944 in DPP v. Kent and Sussex Contractors Ltd.,5 the defendant company was charged
with two offences; one, that it made a statement that was known to be false; second, that it used
a false document with the intent to deceive. The Divisional Court held that the company could
be held liable for both these offences as the officers of the company possessed the requisite
ficers could be
v. Asiatic
Petroleum Co. Ltd.6 by which the company is identified with the actions of those officers who
The Identification Principle was illustrated in Tesco Supermarkets v. Nattrass.7 Lord Reid
dered an
company which defined the roles and functions that could be attributed to the company. Lord
Diplock seems to have ignored the fact that there may be a number of direct or collateral
2
ANDREW ASHWORTH & JEREMY HORDER, PRINCIPLES OF CRIMINAL LAW 152 (7 th ed., 2013).
3
ASHWORTH & HORDER, supra note 2, at 148.
4
Ellis Ferran, Corporate Attribution and Directing Mind and Will, 127 Law Quarterly Review 239, 241 (2011).
5
AMANDA PINTO & MARTIN EVANS, CORPORATE CRIMINAL LIABILITY, 61 (2003).
6
g Co. Ltd v. Asiatic Petroleum Co. Ltd, (1915) AC 705.
7
Tesco Supermarkets v. Nattrass, (1971) UKHL 1.
106
per se, but which are integral
was narrowed down considerably to only directors and board of members and to functions that
only found mention in the constitution of the company. This was manifestly at odds with the
managerial power in large companies. It perversely incentivized decentralization of
responsibilities among the lower levels of employers such that no one group or individual is in
8
Eighteen months before the Meridian case, a civil case, El Ajou v. Dollar Land Holdings plc.,9
had been decided. The plaintiff was a victim of fraud seeking the recovery of money. His
money had been invested in a fraudulent share selling scheme without his permission by the
non-executive director of the defendant company (DLH) despite knowledge of the fraud
involved in that investment. This non-executive director did not play any major role in the
business decisions and management of DLH, but he made all the arrangements and signed all
documents himself with respect to this particular arrangement without seeking any special
authorization from the board members. At first, the case was dismissed by Miller J. on the
grounds that the non-
generally or in the round. It is necessary to identify the natural persons having management
10
and control in relation to the act or omi This decision paved way for Lord
Meridian where he further elaborated on
the need for context sensitive rules of attribution for corporate criminal liability.
THE CORRECT APPROACH: MERIDIAN CASE
The three basis of attributing liability to corporations discussed are relatively uncontroversial
and wanted for. However, Lord Hoffman observes that these three are not a panacea to all
cases. The identification principle propounded by Lord Viscount has been construed narrowly
leading to misunderstandings about the principle. Some exceptional cases may require a
8
Pinto & Evans, supra note 6, at 61.
9
El Ajou v. Dollar Land Holdings Plc, (1993) EWCA Civ 4.
10
Supra note 7.
107
contextual attribution which has been elucidated in Meridian Global Funds Management Asia
Ltd v. Securities Commission.11
In 1990, a number of companies were competing against each other to gain control of a cash
rich, publicly listed company of New Zealand called Euro National Corporation Ltd. (ENC)
and use its assets for their purpose.12 Norman Koo Hai Ching, the chief investment officer and
Norman Ng Wo Sui, the senior portfolio manager of the defendant company, Meridian Global
Funds Asia Ltd. sought to purchase 49% shares in this company. Initially, these shares were to
e the time gap between
Meridian funds without disclosing this information to the managing director or the board of
members of the company. This information was not disclosed to the New Zealand Securities
Commission either. Later it turned out that ENC did not own the said shares and the persons
who sought to sell them, had no authority to do so. But money had already been paid through
the Meridian funds. On the other ha
was frustrated by the independent directors of the company. This resulted in the Meridian
management suffering a loss.13 The Securities Commission required the immediate disclosure
of shares bought in another company.
The issue was whether Meridian, the defendant company was in breach of Section 20(3) and
20(4) of the Securities Amendment Act which mandated it to report its shareholdings in another
company. This further required to prove whether or not
company.
Lord J. Heron without going deep into the juridical details of attribution decided this case
against the company. It was held that the knowledge of the two employees responsible for
buying the shares could be attributed to the company. 14 Subsequently the case went to the Court
test propounded by Lord Viscount.15 Plain reading of this principle

mind and
11
Meridian Global Funds Management Asia Ltd v. Securities Commission, MANU/UKPC/0004/1995.
12
1, Meridian Global Funds Management Asia Ltd v. Securities Commission, MANU/UKPC/0004/1995.
13
14
15
108
board of
members and the directors and managing director of the company.
The counsel for the appellant, Andrew Tabachnik submitted that it is not disputed that at the
it did
not know that it had such interest because the knowledge of K., the chief investment officer
16
His second contention was
be found in the managing director and the board of members, and in the immediate case, none
in his self-interest and not in the interest of the company

(in fact contrary to the interest of the company as the company suffered a loss from this
investment).17 Therefore, the doctrine cannot be appropriately applied and the company cannot
be made liable.
The court of appeal went into the details of the functioning of the company and found that the
board of members of the company partly lived in Hong Kong and partly in Australia. They met
were circulated by post. Koo
used to be the managing director of the company but was superseded by Mr. Armour on August
1, 1990. In theory Koo reported the selling and buying of shares to Mr. Armour but he
functioned as before. The transaction with ENC was recorded in books, but it came to Mr.
18
were not being supervised or regulated by anyone and he worked autonomously. Lord Hoffman
observed that in such exceptional cases general principles of agency or vicarious liability
cannot be applied. It involves the elements of mens rea and actus rea on the part of defendant,
therefore a special rule of attribution should be devised. 19 The rule of attribution is a matter of
interpretation and construction of the relevant substantive provision.20
Lennard case21is referred to, in which Section 502 of Merchant Shipping Act, 1894 required
the devising of an attribution rule. It provided a defense to the ship owner against the claim for
16
17
Meridian Global Funds Management Asia Ltd v. Securities Commission, 502, (1995) 2 A.C.
18
19
20
21
109
actual
boilers. The language of Section 502 specifically excluded vicarious liability. It made clear
that, in the case of an individual owner, only his own fault or privity could defeat the statutory
defense. Viscount Haldane held that such action could be attributed to the company irrespective
-a-vis the functions of the company in relation to the casualty, i.e.,

maintenance and repairing of the ship. This person was Mr. Lennard, the owner of the ship
itself. Since the person running the company and performing the functions in relation to the
test.22
Lord Denning
in H. L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd.23 held that a company has
It also has hands which hold the tools
24
from the purpose for which
25
Considering the context is
.26 In order to attribute any action
to those functions of the company in relation to the casualty. The employees were investment
Meridian case. However, the purpose of

the statute
22
23
H. L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd., (1956) 3 All ER 624.
24
25
26
110
particular purpose.
Meridian specifically u
constitution) and general (vicarious and strict liability) rules. The Meridian judgement did not
only suggested that this should not be limited to the
highest level of controllers in the company.27
On the flip side, it is not always possible to provide precise answers to general questions that
crop up with regard to whose acts and knowledge should be attributed to the company.
Nonetheless, this approach is certainly an improvement on other rules of attribution and this is
implicit in the fact that the Law Commission has commended this approach to the courts.28
CORPORATE CRIMINAL ATTRIBUTION POST MERIDIAN CASE
Two of the most significant developments in corporate criminal attribution have been the
context sensitive approach taken in the Meridian ex turpi causa
non oritur action while the narrow construction
R v. Regis Paper Co. Ltd.29 is an example of the problems that arise before courts while
applying the principles of Meridian to corporate criminal law cases. The issue in this case was
entry in a record required for environmental pollution control could be attributed to the
company. The appeal largely emphasized on w
Court of Appeal tried considering the case contextually, but then concluded that there was no
reason to deviate from
applicability of the context specific approach very complex. Had the court followed the
principles advocated by Lord Hoffman, Mr. Steer would have been found to be in a similar
position as the two investment managers in Meridian. It is palpable that the judges are narrowly
27
Jennifer Payne, Corporate Attribution and the Lessons of Meridian, The Jurisprudence of Lord Hoffman: A
Festschrift for Leonard H. Hoffman, 10 (2014).
28
The Law Commission Consultation Paper No. 195, Criminal Liability in Regulatory Contexts: A Consultation
Paper, 103-110 (2010).
29
R v. Regis Paper Co. Ltd., (2011) WLR (D) 317.
111
constructing this test, such that they are ignoring the relevant context. 30 In effect, the narrow
or serious crimes, beyond
which the courts have been unable to move.31 One repercussion that this will have is that it
shall give de facto immunity from prosecution for serious crimes to larger companies with
-m
situation.32
ex turpi causa
defense; one among them being Stone & Rolls Ltd v. Moore Stephens.33 The company was
essentially a one man company, and the sole man behind the company, Mr. Stojevic, used the
company to carry out fraud against certain banks. He presented false documents, receipt of
funds, and payment of those funds to other parties involved, to the bank on behalf of the
company. The company alleged that the auditor appointed failed to act with due care and
ex turpi causa ff the

allegation, on the grounds that the acts of the one man behind the company be attributed to the
company.
the basis that it was a one-man company which was suing to recover on behalf of all those other
34
parties, that it itself had
Consequently, the company was barred from recovering compensation.
It is suggested that in this case the questions have been considered in the wrong order, and the
dissenting Judge, Lord Mance was right when he observed that how far a company will be
35
Admittedly
it was right to hold the fraudster as the embodiment or the directing mind and will of the
company. However, Stone & Rolls went wrong in placing undue emphasis on this fact alone.
30
Payne, supra note 30, at 14.
31
Supra note 28, at 175.
32
Ferren, supra note 5, at 246.
33
Stone & Rolls Ltd v Moore Stephens, [2009] UKHL 39.
34
Id.
35
Payne, supra note 30, at 18.
112
In this case the auditor had contractual and tortious duties towards the client company.
Therefore, the losses incurred appear to have resulted within that scope.36 This does not imply
liability is limited.37 A consequence of this approach could be a series of cases in corporate

ex turpi causa
have cases struck down against them.38
CONCLUSION
contextual
interpretation than anthropomorphic inquiry into corporate personality as the basis of criminal
attribution to companies, two notable points that arise from this case review. First, when a
company is said to be a legal person, certain legal consequences follow from the process of
incorporation. However, the entity itself remains distinct from the incorporators. While
attributing the actions of the entity, the focus of attention should be the interaction between
directors, managers, employees, shareholders and so forth. Therefore, the attribution should
largely be contextual.
Moreover, treating a company as if it were a human being will be complicating legal issues.
The approach advocated by Lord Hoffman in Meridian is analytically more convincing.
However, the narrow interpretation of the doctrine of identification remains a major
impediment in meeting the expectations of Meridian. Legal practitioners and judges find the
popularity
would be harmless only if it is ensured that linguistic convenience would not fade the normative
argument. The reasoning adopted in Stone & Rolls indicates that in spite of Meridian case, that
assurance remains far-fetched.
**********
36
Ferren, supra note 5, at 251-252.
37
38
113

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VOLUME I, ISSUE 3 | ISSN: 2456-3595 INTERNATIONAL JOURNAL OF LEGAL INSIGHT

THE DIRECTING MIND AND WILL TEST IN CORPORATE CRIMINAL

corporate attribution. Thus, it is advised to return to the principles of Meridian to prevent

Keywords: Corporate Personality, Company, Criminal Liability.

It is a well-established rule in company law that where a company is incorporated by a trader,

be applied. Hence, a basis for attribution of actions to the company is required.4

per se, but which are integral

THE CORRECT APPROACH: MERIDIAN CASE

test propounded by Lord Viscount.15 Plain reading of this principle

in his self-interest and not in the interest of the company

-a-vis the functions of the company in relation to the casualty, i.e.,

Meridian case. However, the purpose of

CORPORATE CRIMINAL ATTRIBUTION POST MERIDIAN CASE

ex turpi causa ff the

liability is limited.37 A consequence of this approach could be a series of cases in corporate

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