Directors’
Criminal Liability in Hong Kong
Mary
Jean Reimer Lau outlines the law governing the extent to which company directors
may be held criminally liable
Introduction
The
traditional view that a company director is only a businessperson, and that the
Government and the courts should be slow to interfere with his or her business
judgment, is gradually losing ground due to the increase in commercial fraud
being perpetrated behind the ‘corporate veil’. There is also a growing
awareness on the part of the public of the need to protect not only their
financial investments, but also their rights as consumers in matters affecting
their personal health and safety.
This
is evidenced by the ongoing creation of numerous statutory offences by our
legislatures. These are made with a view to catching and making the directors
and other officers managing the companies, criminally liable, rather than the
companies themselves, which, strictly speaking, are but tools for the commission
of offences by those controlling them.
Who
are the Directors?
Directors
may be classified as ‘de jure directors’, ‘de facto directors’ and
‘shadow directors’.
A
de jure director is one who has been validly appointed under the Companies
Ordinance (Cap 32) and the articles of association of the relevant company and
has consented to such an appointment. It makes no difference whether his title
is ‘chairman of the board’, ‘managing director’ or ‘alternative
director’.
A
de facto director is one who acts as a director of a company but who is not a de
jure director. He is ‘a person who is assumed to act as a director’. He is
held out as a director by the company, and claims and purports to be a director,
although ‘never actually or validly appointed as such’. There are a number
of provisions under the statutes of Hong Kong defining the liability of
directors in respect of an offence committed by a company which include words
such as, ‘any person who was purporting to act in any such capacity (as
director)’, making the de facto directors liable in the same way as de jure
directors for such offences.
A
shadow director is someone who controls the directors of a company, but who is
not seen to do so, acting either through de jure or de facto director(s).
There
is, however, yet another type of director commonly known as a ‘nominee
director’ who acts as a nominee de jure director or even de facto director of
a shadow director. It is not uncommon for a holding or parent company to appoint
nominee directors into its subsidiaries. Very often, the shadow director of such
subsidiaries is the holding or parent company and since the nominee director
will inevitably have to act in accordance with the direction of the holding or
parent company, the process of identifying the ‘controlling mind’ or
‘alter ego’ of the subsidiary company becomes more complicated.
Elements
of Crime
For
a director to be held liable for or convicted of an offence (other than an
offence of strict liability), it is, as a general rule, necessary for the
prosecution to prove beyond all reasonable doubt that: (a) a certain act, event
or state of affairs, which is forbidden by the criminal law (either at common
law or by statutes) has been caused by his conduct, ie, the ‘actus reus’;
and (b) this conduct was accompanied by a prescribed state of mind, ie the
‘mens rea’.
‘Actus
reus’ is not just an act, it may consist of a ‘state of affairs’. For
example, the making of a disqualification order by the court against a director
under s 168D of the Companies Ordinance is a state of affairs, and any person
who acts in contravention of a disqualification order will be guilty of an
offence under s 168M of the Ordinance.
There
are circumstances where an omission to act will constitute an offence. Although
the common law rarely punishes omission, there are many offences of omission in
our statutes. Under the Companies Ordinance alone, out of the 165 offences
created, there are a total of 111 types of omission offences covering failure or
default on the part of companies, their directors (or other officers),
liquidators, receivers and other persons who perform or discharge various
corporate duties.
‘Mens
rea’ is the mental element required by the definition of the particular crime.
It is, typically, intention to cause the ‘actus reus’ of that crime, or
recklessness whether it be caused, and, recklessness is, for simplicity, the
conscious taking of an unjustifiable risk. ‘Mens rea’ is a term which has no
single meaning since every crime has its own ‘mens rea’ which can be
ascertained only by reference to the statutory provision or case law creating
it.
However,
‘mens rea’ is not a requisite element for some statutory offences where
strict liability is imposed. In certain offences, it is even specifically
provided that the proof of mental ingredient can be dispensed with. For example,
in respect of the offence of discharging waste or any polluting matter into the
waters of Hong Kong in a water control zone contrary to s 8(2) of the Water
Pollution Control Ordinance (Cap 358), it is proved under s 10 of the same
Ordinance that it shall not be necessary for the prosecution to prove that such
act was accompanied by any intention, knowledge or negligence on the part of the
defendant.
Criminal
Liability of Directors Per Se
Under
the Companies Ordinance
Most
criminal liability of directors arises from their special relationship with
their company. Their legal position may perhaps best be described as ‘the mere
trustees or agents of the company – trustees of the company’s money and
property-agents in the transactions into which they enter on behalf of the
company.’
In
Hong Kong, the Companies Ordinance contains many statutory provisions with
criminal sanctions in areas where the directors are found in breach of one or
more of their civil duties, thus making them criminally liable. Among these
offences, some deal with serious crimes, but the majority of them are mainly of
an administrative nature. They aim to prevent fraud and to protect the existing
shareholders and investors to whom the directors owe a fiduciary duty.
Of
the 165 types of offence created under the Companies Ordinance, which are
punishable with fines, imprisonment or both, 27 point directly to the directors
(and some other officers) and 110 refer to the acts done or omitted to be done
by the companies and officers who are in default. Section 2(1) of the Companies
Ordinance defines ‘officer’ to include a director, manager or secretary,
thus making a total of 137 possible offences hovering over the heads of the
directors. The offences created under the Companies Ordinance form a potential
minefield for directors.
However,
s 351(2) defines for the purpose of making an officer (including a director)
liable for offences under the Companies Ordinance, ‘the officer who is in
default’ to mean any officer ‘who knowingly and wilfully authorises the
default, refusal or contravention (as the case may be) mentioned in such
provisions’.
The
focus is on the mental elements of ‘knowingly’ and ‘wilfully’ which are
required in order to make a director (and other officers) of the company liable
for such offences.
Offences
Under the Theft Ordinance and Fraud
Undoubtedly,
if a director steals his company’s property, he will be liable for theft, like
anybody else, under s 9 of the Theft Ordinance (Cap 210) which carries a maximum
sentence of 10 years imprisonment on indictment. Directors are reminded that
they owe a fiduciary duty to the company’s property and if they are found
guilty of theft in respect of such property, they may find themselves receiving
a heavier sentence than ordinary thieves, because the sentence passed would be
deemed to reflect the abhorrence of the reasonable-minded man in the street.
Under
s 2(1) of the Theft Ordinance, a person commits theft if he dishonestly
appropriates property belonging to another with the intention of permanently
depriving the other of it.
As
regards crime of fraud, in Hong Kong there is no general offence of fraud.
Instead, there are a number of specific fraud-related offences under the Theft
Ordinance and these include:
(a)
Obtaining property by deception (s 17);
(b)
Obtaining pecuniary advantage by deception (s 18);
(c)
Obtaining services by deception (s 18A);
(d)
Evading liabilities by deception (s 18B);
(e)
Making off without payment (s 18C);
(f)
Procuring false entries in records in banks and deposit-taking companies (s
18D);
(g)
False accounting (s 19); and
(h)
Suppression of documents (s 22), and, in cases where two or more persons are
involved, the offence of ‘conspiracy to defraud’.
Of
crimes of fraud, perhaps the most commonly perpetrated in Hong Kong is the
offence of ‘obtaining property by deception’. It is no longer unusual to
find senior officials of the government or public bodies, using companies under
their control through nominee shareholders and directors, to buy properties in
order to cheat their employers of housing or tenancy allowances.
Fraudsters
also set up companies to buy goods with post-dated cheques or other means and
thereafter disappear with their loot.
In
respect of the offence of ‘obtaining pecuniary advantage by deception’
contrary to s 18(2) of Theft Ordinance, ‘pecuniary advantage’ is defined to
include, inter alia, the granting by a bank of credit facility, improvement to
or the extension of the terms of credit facility, and allowing to borrow by way
of overdraft. Accordingly, a director who lied about his company’s affairs in
order to secure a credit facility or a better term of extension of it from a
bank will be caught under this section.
If
a director with intent to make default even temporarily for a debt due (which is
not uncommon practice in these days of economic crisis), induces any creditor to
wait for payment, he may find himself liable for ‘evasion of liability by
deception’ under s 18B(1)(b) of the Theft Ordinance.
As
for the offence of ‘false accounting’ and ‘suppression of documents’
under ss 19 and 22 respectively of the Theft Ordinance, the mental element of
being dishonest, with a view to gain for himself or another or with intent to
cause loss to another, must be proved by the prosecution.
In
respect of the false accounting offence, it is specifically provided under s
19(2) that a person who makes or concurs in making in an account, record or
document any entry which is or may be misleading, false or deceptive in a
material particular, or who omits or concurs in omitting a material particular
from an account, record or document, is to be treated as falsifying them.
‘Gain’
and ‘loss’ are defined in s 8(2) as extending only to money or other
property whether temporary or permanent and include a gain by keeping what one
has, as well as getting what one has not, and a loss by not getting what one
might get, as well as parting with what one has.
However,
if the director is able to show that the wrongful act was done relying on
professional advice, it appears that he will not be guilty of the offence since
the element of dishonesty is missing.
For
some reason, the 1995 Law Reform Consultation Paper has not included the
offences of ‘false statement’ contrary to s 21 of the Theft Ordinance and
‘false statutory declaration and other false statements’ contrary to s 36 of
the Crimes Ordinance (Cap 200) in its list of fraud-related offences. In any
event, apart from these, the directors may also find themselves liable for the
following fraud-related offences under the Companies Ordinance:
(a)
Authorising the issue of a prospectus containing an untrue statement (s
40A(1));
(b)
Authorising a statement in lieu of prospectus containing an untrue statement
(s 43(5));
(c)
Authorising the issue, etc in Hong Kong of a prospectus relating to shares in
debentures of an overseas company containing an untrue statement (s 342F(1));
and
(d)
Wilfully making a false statement (s 349).
Conspiracy
to Defraud
Conspiracy
to defraud is constituted by an agreement between two or more people, by
dishonesty, to deprive a person of something which is his or to which he is, or
would be, or might be entitled, or to injure some proprietary right of a person.
An agreement with intention to induce another to put his economic interest in
jeopardy is also sufficient to constitute conspiracy to defraud.
The
common law crimes of conspiracy have been abolished except in relation to
conspiracy to defraud. Conspiracy contrary to statute does not preclude a charge
of common law conspiracy to defraud being brought against the conspirators in
respect of the agreement.
Conspiracy
is an inchoate offence. It is completed when the parties agree to commit the
fraud and it is not necessary to prove that the conspirators did anything
further to carry out their agreement. In Wai
Yu Tsang v The Queen [1992] 1 AC 269,
the Privy Council held that:
-
the
question whether particular facts revealed a conspiracy to defraud depended
upon whether the conspirators had agreed to practise a fraud on somebody;
and for this purpose, it was enough that they had dishonestly agreed to
bring about a state of affairs which they realised would or might deceive
the victim into so acting, or failing to act, that he would suffer economic
loss or his economic loss would be made likely;
-
it
was, however, important in such a case to distinguish a conspirator’s
intention (or immediate purpose) dishonestly to bring about such a state of
affairs from his motive (or underlying purpose); the latter might be benign
to the extent that he did not wish the victim to suffer harm, but the mere
fact that it was benign would not itself prevent the agreement from
constituting a conspiracy to defraud, but could be taken into account in
passing sentence.
While
it is necessary for the constitution of the offence that all conspirators agree,
it is not necessary, however, that they all have to agree with each and every
member of the conspiracy or that all of them be in direct communication with or
even know each other. Accordingly, a person can be guilty of conspiracy even if
he or she joins in after it has been formed, provided that he has agreed to a
criminal purpose common to all the conspirators.
The
fact that all or some of the conspirators have reservations or qualifications to
their agreement does not necessarily render the agreement non-indictable. Thus,
an agreement to commit an offence only if it is safe to do so may still render
the conspirators liable for the offence.
The
scope of common law conspiracy to defraud is very broad and far-reaching and
embraces almost every offence in the Theft Ordinance, provided that the
defendant has conspired with another to carry out the conduct in question. The
prosecution authorities in Hong Kong have often resorted to prosecuting under
this type of offence.
However,
a director cannot ‘conspire’ with the company of which he is the alter ego.
Under such circumstances, it would be unrealistic to say that his company has a
separate mind. It would, however, be a totally different matter, if the director
conspires with another person or with his company in addition to another person.
A
person convicted of conspiracy to defraud under common law will be liable for a
maximum prison sentence of 14 years.
This
should be a warning to these directors who control their companies and take the
view that as long as they are running their companies, their criminal activity
will go undetected.
Where
a company becomes insolvent (the causes of which, like economic crises, are
often unpredictable and beyond control) and an independent examination is
conducted into its affairs, prosecution of offences revealed may become
possible. Under s 277 of the Companies Ordinance, if it appears to the court in
a compulsory winding up that any past or present officer of the company has been
guilty of an offence, the court may, either on its own motion or on the
application of an interested person, direct the liquidator to refer the matter
to the Secretary of Justice, and in case of a voluntary winding up, a strict
obligation is imposed on the liquidator to do so.
So
far, we have been looking at the various criminal offences for which a director
may be held liable as an individual. There are, however, situations where a
director may also have to face criminal sanctions for offences committed by his
company. Before looking at such situations, we shall briefly discuss how a
company may be held liable for an offence.
Corporation
– Its Capacity to Commit Crime
Direct
Liability
Section
3 of the Interpretation and General Clauses Ordinance (Cap 1) defines
‘person’ to include, unless the contrary intention appears, any corporation,
and such definition shall apply notwithstanding that the word ‘person’
occurs in a provision creating or relating to an offence. Under s 87 of the
Magistrates Ordinance (Cap 227) and s 49 of the Criminal Procedure Ordinance
(Cap 221), a corporation may plead and stand trial for offences committed by its
appointed representative. Accordingly, a company is capable of being held liable
for any offences except those by their nature requiring a natural person such as
begging, sexual offences or perjury, and any offence in which the sole
punishment is death or imprisonment, eg, murder.
Unlike
an autonomous individual, companies are artificial entities incapable of
thinking, or acting and making decisions except through their controllers whose
‘mens rea’ is attributable to the corporations.
Since
1944, the English courts have established the common law rule that a company may
be liable for offences attributable to ‘mens rea’ which can be established
by way of the ‘identification doctrine’.
Under
this doctrine, the courts ‘lift the veil’ of the companies to see if there
is an individual who has committed the ‘actus reus’ of a crime with the
appropriate ‘mens rea’, and if such an individual was sufficiently important
in the corporate structure for his or her acts to be identified with the
company, the company could be directly criminally liable.
Since
it is usually the case that the directors are in overall control of the
management and operation of a company’s affairs and activities, their acts and
states of mind will, as a general rule, be attributable to the company. Indeed,
there are plenty of cases which have decided that the state of mind of the
company’s director could be attributed to the company.
Where
the directors have delegated certain of their authorities to other persons, such
persons, in exercising the delegated authority, may constitute the alter ego of
the company for the purposes of its criminal liability. For example, a company
secretary may, if the relevant criteria are satisfied, constitute the persona of
the company for the offence in question. It is a question of law as to whether a
director or an employee is to be regarded as the company for such purposes.
However,
the doctrine of identification in locating a company’s alter ego may not be
workable in respect of modern, sophisticated companies whose corporate
decision-making is often the product of corporate policies and procedures rather
than individual decisions.
In
modern companies, the corporate structure may be so complex and impenetrable,
with decision-making buried at many different departmental levels, that it
becomes difficult, if not impossible, to pinpoint any individual with
responsibility for a particular activity or area of activities. Corporate
behaviour and policies are not simply the choice of any individual or group of
individuals; they often depend on the organisational structure and lines of
authority or historical authority within the corporation. The responsibility for
standard procedures is spread throughout the company with ‘no soul to be
damned, and no body to be kicked’.
Suggestions
have been made by various scholars as well as the English Law Commission to
restructure corporate liability on this aspect of finding ‘mens rea’.
Nevertheless, until the identification doctrine is overruled by our own courts
or taken away by our legislature, it is still with us for the purpose of
identifying the alter ego of the corporate offender.
Vicarious
Liability
Apart
from the offences for which a company may be held directly liable, a company may
be vicariously liable for an offence committed by its employee. At common law,
subject to a few exceptions, it is the general principle that the employer shall
not be answerable for any offence committed by his employee, servant or agent
unless the employer orders or permits such a criminal act. However, under the
statutes, there are numerous provisions requiring the employer to be so
answerable.
Where
a company has delegated certain duties to its employee, this does not in law
automatically affix the company with that employee’s mental state or conduct
under the doctrine of identification. If, however, such employee is acting in
the course of his employment for the duty delegated and commits an offence, the
company may become vicariously liable for such offence, and if the act leading
to the offence was ultra vires, yet authorised by the company, the company will
nevertheless be liable vicariously.
The
rule laid down in R v Wong Tak Choy [1994]
2 HKCLR 194 is that, even for statutory offences, an employer is not criminally
liable for the act of his servant unless a particular statute imposes this
liability on him by express terms or by implication. In that case, the Import
and Export (General) Regulations (Cap 60 sub leg) do not by express terms, make
an employer liable for his servant’s act of taking goods out of Hong Kong
contrary to the provision of the export licence, unless the employer caused his
servant to do it. An example of express creation of vicarious liability can be
seen in R v Chan Wing Hong [1996]
3 HKC 225.
Whether
a statute creates vicarious liability is a question of construction. As a
general rule, where the statute clearly applies only to a person of a specified
status, eg a licensee, then only the company (as licensee) can be liable as the
principal vicariously for the breach of the condition of the licence, whereas if
the statute is silent as to the status of the principal, than the servant may
also be convicted as joint principal with the company which is vicariously
liable as the principal offender.
The
nature of the employer company’s vicarious liability varies in accordance with
the terms of the particular statute. In addition to offences for which a company
may find itself being held vicariously liable, such as offences committed by its
employees, it may be liable for offences of its employees under the doctrine of
strict liability.
Strict
Liability
Offences
of strict liability are creatures of statutes in that the prosecution is not
required to prove ‘mens rea’ or at least a certain mental element relating
to the ‘actus reus’ of an offence.
There
is, however, a presumption that in every statutory offence, the prosecution has
a duty to prove the element of ‘mens rea’ even where the offence is defined
only in terms of ‘actus reus’ unless such requirement is expressly or by
necessary implication displaced by statute.
A
wide variety of areas have been defined by our courts as matters of social
concern for this purpose and these include:
(a)
safety on construction sites;
(b)
safety, health and welfare of children and young persons;
(c)
public health and pure food;
(d)
public safety in connection with dangerous goods and buildings;
(e)
employing those not lawfully employable;
(f)
illicit importation or exportation of goods;
(g)
certain corporate offences;
(h)
trade description;
(i)
attainment of governmental economic projects;
(j)
sale of liquor and other intoxicants;
(k)
illegal gambling.
In
any case, the presumption is particularly strong where the offence is ‘truly
criminal’ in nature. ‘Truly criminal’ springs not from any inherent evil
in the conduct prohibited, but from the fact that such conduct is prohibited and
where the subject matter of a statute is the regulation of a particular activity
involving potential danger to public health, safety or morals, the court may
feel driven to infer an intention of the legislature to impose a higher duty of
care on those who choose to participate in such an activity.
It
is interesting to see that the Court of Appeal in HKSAR
v Paul Y-ITC Construction Ltd [1998] 3
HKC 189 has taken the view that, in a society like Hong Kong, there should be
sensible controls over any kind of pollution. Directors should be aware that
this attitude is now prevalent amongst the judiciary.
In
short, a company may be criminally liable for an offence, under the doctrines of
identification, vicarious liability or strict liability, and where the company
is held liable, a director may, subject to the wordings of the relevant statute
and depending on the culpable extent of his participation in the company’s
criminal ventures, be held liable as a joint principal with the company or as a
secondary party to the offence.
A
Director’s Criminal Liability as a Party to an Offence Committed by his
Company
If
the statute concerned clearly applies only to the company, then only the company
will be liable as the principal offender. The director who took part in the
offence may, however, be convicted as a secondary party. In such a case the
prosecution must prove that the director had the ‘mens rea’ to aid, abet,
counsel or procure the commission of such an offence.
Section
89 of the Criminal Procedure Ordinance provides that ‘any person who aids,
abets, counsel or procures the commission by another person of any offence shall
be guilty of the like offence.’ This reflects a desire to make those who
assist in the commission of a crime liable for the full crime.
In Hamilton v Whitehead
(1989)
166 CLR 121, the High Court of Australia held that the managing director who was
in control of a company ‘which has spoken through his mouth and acted through
his hand,’ can be liable for aiding and abetting the company in committing an
offence.
The
offence of conspiracy has been explained earlier. Apart from the common law
conspiracy to defraud, a director may be held liable for statutory conspiracy
under s 159A of the Crimes Ordinance, if he agrees with at least one other
person (but not his company alone) that a course of conduct is to be pursued
which, if the agreement is carried out (which it need not actually be) in
accordance with their intention, will necessarily amount to or involve the
commission of an offence or offences by one or more parties to the agreement.
In
addition, a director who has endeavoured to persuade, induce or encourage the
company to commit or participate in the commission of an offence may find
himself liable for ‘inciting’ the company’s commission of such offence
under s 101C of the Criminal Procedure Ordinance irrespective of whether or not
his incitement is successful.
Under
ss 90(1) and 90(2) of the Criminal Procedure Ordinance, a person may be liable
for impeding the arrest or prosecution of a person who has committed an
arrestable offence and concealing the commission of an arrestable offence. Since
it is difficult to see how a company may commit an ‘arrestable offence’
which by its definition would involve a sentence of imprisonment or a sentence
fixed by law (unless a fine fixed by law can be treated as such), it is
impossible to say that a director may commit such an offence in relation to
offences committed by his company.
He
can of course be liable for these two offences in respect of arrestable offences
committed by another director or other officer of his company. That, however, is
beyond the scope of discussion of this article.
A
Director’s Statutory Liability for Offences Committed by His Company
Section
101E of the Criminal Procedure Ordinance provides that, where a company has
committed an offence, and it is proved that the offence was committed with the
consent or connivance of a director concerned in the management of the company
or any person purporting to act as such, the director shall be guilty of the
same offence. This section is totally independent of the doctrine of
identification in finding the ‘mens rea’ of a company in order to make it
criminally responsible for the offence committed by its alter ego.
The
provision was formerly contained in the Interpretation and General Clauses
Ordinance. The purpose of such provision was to put the management under a
positive obligation to prevent irregularities if it was aware of them. Passive
acquiescence does not, under the general law, make a person liable as a party to
the offence, but there are clearly cases where the director’s responsibilities
for his company require him to intervene to prevent fraud.
Indeed,
in respect of offences committed by a company, the central question in hot
debate is always whether the criminal law should hold the company accountable,
or should it rather seek to punish the culpable individuals behind such a
company. The arguments in favour of prosecuting individuals are that:
(a)
it was the individuals behind the corporate veil who are blameworthy; and (b) to
fine the company concerned will only punish its shareholders, creditors and
employees and, ultimately, members of the public.
On
the other hand, individuals are not the only parts of a modern and complex
company. Corporate policy operates, to a large extent, independently of human
agents. Changes of personnel may not affect the corporate ‘culture’ or
affect the policy of non-compliance or failure to avoid the offence to which
blame attaches. Punishing the company may force it to identify and discipline
the employees responsible whom, in the case of large corporations with complex
structures, it may not have been possible to locate under the identification
doctrine.
The
solution is perhaps to make, in cases where the company has committed an
offence, the responsible person personally liable for such an offence.
Consent
or Connivance
‘Consent’
involves awareness and agreement, but it must be consent with the knowledge of
the material particulars and agreement to them. ‘Connivance’ refers to the
attitude of mind of the person who suspects the truth, but deliberately avoids
finding it out; ‘shutting his eyes to an obvious means of knowledge’ or
‘deliberately refraining from making enquires the results of which he might
not care to have’.
In Mohan Gulabrai Mirchandani v The Queen
[1977]
HKLR 523, a company was convicted for publishing objectionable magazines for
gain which was an offence of strict liability requiring no proof of knowledge of
the contents of the magazines by the company. Our Court of Appeal upheldthe
conviction of two officers under the old s 84 of Interpretation and General
Clauses Ordinance on the basis that they had connived to the offence by shutting
their eyes to an obvious means of knowledge and deliberately refraining from
making enquires the results of which they might not care to have.
‘Neglect’
must entail an omission to do something which the director was under a duty to
do, and the words ‘attributable to any neglect on the part of’ clearly
impose a wider liability in making the director or officer concerned liable for
his negligence in failing to prevent the offence provided, of course, that there
is a duty to do so.
The
statutory offences of the directors under the s 101E type of provision contained
in our Ordinances are undoubtedly pointing to any director, whatever their
technical title. It also points to the shadow director who is the alter ego of
the company concerned since such a director would be consenting to the
commission of the offence. But it will also cover a director who is not the
alter ego of the company but who nevertheless has given his consent to the
offence committed by the company, or, where such offence is attributable to
neglect or omission on his part in failing to prevent the commission of the
company’s offence.
The
statutory liability imposed on company directors is especially necessary in
areas of legislation concerning product liability, health and safety and the
protection of the environment. These areas demand the imposition of strict
liability on companies, particularly, where physical harm, or even death may be
caused by a company in respect of which a ‘controlling mind’ is lacking.
Corporate
Killing – Involuntary Manslaughter
In
Hong Kong, the deaths of workers in construction sites are not uncommon. One
example is the case of Lam Yau v Shun
Shing Construction & Engineering Co Ltd and Anor [1992]
2 HKC 407. An air-duct fitter, aged 17, fell to his death through the uncovered
and unfenced opening in a switch room on the eighth or ninth floor of a building
under construction. The victim’s death was the direct result of the
defendant’s failure to comply with its statutory duty under reg 38P of the
Construction Sites (Safety) Regulations (Cap 59 sub leg) by not providing
guard-rails or coverings for the openings. There was an obvious total disregard
for the danger to the life of the workers on the part of the corporate
defendant. Yet no prosecution for ‘manslaughter’ against the company was
pursued by means of a public prosecution. Compensation under a civil claim is
undoubtedly an inadequate deterrent, and the person or persons responsible for
this failure to comply with regulations went unpunished.
Conclusion
Unlike
traditional crimes, a fraudulent director is seldom caught ‘red-handed’. It
is only after lengthy study of piles of documents that inferences of knowledge
and ‘guilty intent’ may be drawn and by then, very often, the fraudster has
already absconded. Prosecution of such offences is therefore complex, costly and
protracted.
The
Law Reform Commission’s suggestion to create a new offence of fraud based on
‘deceit’ to replace ‘dishonesty’ – a concept requiring a mental
element about which many lawyers disagree, but widely required in ‘fraud’
cases – is not without grounds for justification. Such a change will make it
easier for the prosecution to proceed with charges against the fraudster, and
will make the police force more cost-efficient and effective in fighting crime.
There
is no doubt that the public, the government and the legislature have now
recognised the need to change or further buttress the existing law to make it
easier for companies, their directors and other senior officers to be held
liable for offences in breach of safety regulations.
Honest
persons should think carefully before they agree to act as directors. There are
now many criminal liabilities and sanctions that they may have to face upon
taking up the job, and many more will be created in the future. As for the
villains, they will have to think twice before they leap, for the law is closing
up the loopholes.
Mary
Jean Reimer Lau
Johnson
Stokes & Master