The Toyota issue has become the biggest auto-safety uproar since the Ford-Firestone recalls of 2001 and consequently “corporate criminal liability” has become a highly discussed topic around the globe these days. Toyota has recalled a large number of its cars, including the RAV4, Corolla, Matrix, Avalon, Camry, Highlander, Tundra and Sequoia, for problems that cause the throttle to stick open.
The pressure on Toyota Motor Corp. intensified as the company disclosed subpoenas from a federal grand jury and the Securities and Exchange Commission- USA (SEC) related to sudden acceleration in its cars. Specially, products liability lawsuits against Toyota, or any car manufacturer, for injuries caused by the defects, can result in significant verdicts and settlements. Therefore, some inquisitive folk might be asking how the government can send a corporation to jail. The answer is that the state cannot send a corporation to jail; though, the state undoubtedly can send its officers, directors, or agents to jail.
One of the Toyota models that was recalled |
In the USA, motor vehicle safety and defect issues are handled by the National Highway Traffic Safety Administration (NHTSA), and it is uncommon, and perhaps unprecedented, that a vehicle recall is also the subject of a criminal investigation. The SEC focus is on the adequacy of Toyota’s disclosure of the potential financial impact of the vehicle problems as required by the securities laws. Though corporate disclosure issues are generally not the subject of a criminal investigation, a possible focus for the criminal investigation is whether Toyota made complete and truthful disclosure to the NHTSA regarding the unintended acceleration and brake problems in its vehicles.
In 2000, as part of the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act, Congress added the provision 49 U.S.C. § 30170(a) which imposes enhanced prison sentences for the violators of the law. At this point, the investigation appears to be focusing only on Toyota, and no individuals have been identified as being potentially involved in the case. The enhanced prison sentence available under § 30170(a) only applies to “an individual”, not the corporation, and as a result it will be remarkable to see if false statements by any individuals are in fact something the Justice Department focuses on.
In addition, under the law, there is a noticeable distinction between “ordinary negligence” and “gross negligence”. The law requires “reasonable care” or “ordinary prudence”, and negligence is a cause of action that arises when one party’s conduct simply falls short somehow. Conversely, “gross” negligence is a wrong of a higher magnitude as it is negligence plus the added constituent of some “willful and wanton” misconduct. Most significantly the “gross negligence” charge allows a court to award “punitive damages” and generally insurance policies often do not extend to the principal when it is found guilty of gross negligence.
Legal concepts such as actus reus, mens rea (guilty mind), and causation, designed with natural actors in mind, do not simply allow themselves to inanimate fictional entities such as companies. In response to the shortfalls of the existing law, statutes ave been enacted in many European countries, including France, Italy, the Netherlands, Austria, and, most recently, the UK (Corporate Manslaughter and Corporate Homicide Act 2007).
For a long time, the common law of England did not normally allow a corporation to be convicted of a crime except for three common law crimes; namely, public nuisance, criminal libel and contempt of court and for regulatory offences created by statute. Apart from these three exceptions, corporations were liable under the concept of “vicarious liability”. Later, the “directing mind” theory was applied to the prosecution of corporate crimes. Under this concept, the acts and state of mind of certain senior officers of the corporation - the directing minds - are deemed to be the acts and state of mind of the corporation.
The Canadian application of the “identification doctrine” for the directing mind of the corporation resides in a broader and lower-level group of corporate officials (see, Canadian Dredge & Dock Co. Ltd. v. The Queen (1985), 19 C.C.C. (3d) 1 (S.C.C.)) than appears to exist in England under the leading case of Tesco Supermarkets Ltd v. Natrass [1972] A.C. 153 (H.L.). However the case of Rhone v. The Peter A.B. Widener [1993] 1 S.C.R. 497, suggests at least implicitly in future cases directing minds will only be found at higher levels of authority in Canada also.
In Sri Lanka, for example, Section 90 of the Regulation of Insurance Industry Act No.43 of 2000 (RII) raises an interesting issue on the application of criminal liability to companies. In terms of Section 99 of the RII Act, any company which (a) carries on insurance business, or commences any insurance business, without being duly registered under this Act ; or (b) carries on any type of insurance business which it is not authorised to carry on under a licence issued under Section 15 of this Act, shall be guilty of an offence and shall, on conviction after summary trial before a Magistrate, be liable to a fine not less than Rs 50,000 or to “imprisonment” of either description for a term not less than one year or to both such fine and imprisonment.
As this article has tried to point out, the field of corporate criminal liability is a multi-faceted issue. It seems clear that a singular approach will not be adequate to deal with either the conviction of corporations or the sanctioning of corporations and this warrants more discussions in the academic literature on this subject.
(The writer is the author of the book titled “Principles and Practice of Company Law in Sri Lanka, 2008”.) |
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