Dangerous minds

The Court of Appeal in Ferguson v British Gas [2009] EWCA Civ 46 sent a strong message that it was not prepared to accept attempts to escape liability for criminal and tortious acts by hiding behind what was termed by Sedley LJ 'the privilege of incorporation'. The decision provides a timely warning for large organisations (see Tom Collins, 'Rage against the machine', Solicitors Journal, 3 March 2009) but what effect will it really have for the law of corporate liability?

Ms Ferguson alleged harassment by British Gas for their threatening behaviour following her move to another supplier. British Gas 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 argued 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.

Corporate ego

By rejecting this contention, has the Court of Appeal effectively neutered the requirement to bring an action against a 'directing mind'? 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] A.C. 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.'

The rule was subsequently 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.

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 contains 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 on the level of knowledge of British Gas in this particular case.

Some general points have emerged through the line of authorities concerning this area of corporate liability. It seems clear that each case will turn on the construction of the relevant statute.

Where the relevant legislation does not contain a due diligence defence, or refers to real or imputed knowledge, it is unlikely companies raising the 'directing mind' defence will be successful. However, each statute will need to be approached sui generis. 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' [34].

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' [1]. 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' [51].

The future?

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 made it significantly easier to bring an action against a large corporate body for manslaughter occurring because of a fault on the part of the body itself.

While the ruling in Ferguson does not close the door to raising a 'directing mind', it does raise serious questions about its application in future cases.