Examination of Witnesses (Questions 120
- 140)
WEDNESDAY 20 MAY 2009
MR COLIN
NICHOLLS QC, PROFESSOR
CELIA WELLS
AND PROFESSOR
BOB SULLIVAN
Q120 Chairman: Since we are not going
to get a reform of corporate liability is this particular provision
worth having?
Professor Wells: I think we are
going to have a reform because the Law Commission is now working
on that.
Q121 Chairman: I know but we do not
know when that is going to be brought into effect.
Professor Wells: We are not going
to have it in time for this but I think it is definitely worth
having because if we do not have it at all then you are left with
identification liability, which is where the OECD regards us as
non-compliant, and it is of very limited use in this kind of situation.
So I think we do need this offence but it needs to be a separate
provision, yes, we do need it, but the form in which we have it
at the moment it seems to me is going make it very difficult for
the prosecuting authorities. How they establish who the responsible
officer is and how they prove that that person, having identified
that person, was negligent just seems to me to be an unnecessarily
complicated provision.
Q122 Chairman: I suppose that if
we did have a Bill on corporate liability anything that was not
wanted in this clause could be subsumed?
Professor Wells: Yes presumably
that would be part of it. You could have different provisions
in different statutes as of course we do anyway. We have the vicarious
route in many statutes.
Q123 Lord Goodhart: The history of
the Law Commission does not suggest that there is at all a certainty
of a general Bill coming forward to remove the identification
procedure, does it?
Professor Sullivan: I think it
is important that we have the identification principle operative
in this Bill because corporations can commit the general offences
are in the foreign public officials offence, but only on the basis
of the identification doctrine, and this I think is almost not
worth having. We have a consent and connivance offence for directors
for corporate offences, but of course there will not be any corporate
offences, more or less. The history to date is almost a blank
sheet for foreign corruption, and so there we will have a provision
which we can say to OECD, well, we have done this, we have put
directors under scrutiny, but, in fact, there will be no convictions
forthcoming because of the identification doctrine. I think that
is not even worth having.
Q124 Lord Thomas of Gresford: In
the whole history since 2001 there has been one civil action,
has there not, where a corporation paid money over but there has
been no criminal liability imposed upon any corporation?
Professor Sullivan: Yes.
Lord Sheikh: I cannot see this being
a serious issue. For example, in my own business we need to establish
whether it is vicarious liability in respect of injury or damage
to third party property, but I do not necessarily agree with Lord
Thomas's point about strict liability because I would not like
to see strict liability. I think the onus of proof must lie with
the prosecution or with the plaintiff really. I just wondered
if he agreed with that?
Q125 Lord Mayhew of Twysden: If we
keep the negligence provision in, negligent as in failure to prevent
the crime, and the burden is on the prosecution to establish that,
how should the jury be instructed as to whether to find negligence
or not? Negligence normally is regarded as breach of the due standard
of care but how is that to be established and by what means?
Professor Sullivan: It would be
a very broad question very often involving a lot of evidence about
practice across the industry and, as you say, in a typical tort
case you have a specific incident and a fairly sharply focused
question as to whether the defendant owed a duty of care, but
here it would be was this particular company up to standard in
terms of its anti-corruption code of practice, and that will involve,
I would have thought, a lot of comparative evidence from companies
in the same industry and in cognate industries.
Q126 Lord Thomas of Gresford: In
medical negligence you look at what was the standard required
at a particular point in time across the whole medical profession
in determining what the duty of care is and whether it has been
breached.
Professor Sullivan: Yes.
Q127 Lord Thomas of Gresford: So
you are saying that, as drafted, the prosecution would have to
establish what was the general standard of compliance across the
whole field in order to see whether negligence had been established?
Professor Wells: I am not quite
sure that is what it means because, as it is drafted, the negligence
is the negligence in failing to supervise the person that has
committed the offence, so it is within the context of the supervision
of that employee or agent. One takes it as read that there was
a failure to supervise presumably because the offence has been
committed and then the question, as the Bill is drafted, would
be for the prosecution to establish that that failure was a negligent
failure on the part of the responsible officer.
Q128 Lord Thomas of Gresford: That
might involve for example saying well you have got a code of conduct
and your code of conduct is inadequate by industry standards or
across the board.
Professor Sullivan: But even with
a failure of supervision the company can raise the due diligence
defence. That is my difficulty with this: there can be a finding
of a failure of supervision—
Professor Wells:—that was
negligent.
Professor Sullivan:—that
was negligent, but at one and the same time there is no liability
ultimately because the company is able to show that it is of industry
standard as far as these things go, which is very different from
the medical negligence case.
Mr Nicholls: The very fact that
an offence has been committed by an individual is evidence of
inadequacy. The question is what is meant by negligence in this
context and I think it is in FSA principle three, was in the E.ON
case I think: "The application of reasonable care to organise
and control its affairs responsibly and to have adequate management
mechanisms dependent on the size and facilities of the company."
So that negligence is defined, and it is defined as being in relation
to its context.
Q129 Lord Sheikh: Would your recommendation
be with regard to a regulated business like that regulated by
the FSA that the FSA should incorporate something of what you
are suggesting in their rules to make sure that there are rules
within the organisation which adhere to what we are saying?
Professor Wells: I am sorry, you
would have to repeat the question for me.
Q130 Lord Sheikh: Certain businesses
are regulated, if you take financial services for example, there
are certain rules which we need to adhere to, and I was just wondering
whether you would suggest what is in the proposed Bill is written
in the regulations of the FSA or any other regulatory body and
then of course the organisation itself must set up the right filtering
processes because obviously that would be very, very essential
and that may perhaps be one way of ensuring that what we are saying
is being adhered to.
Professor Wells: I think that
is certainly the case, yes, and where you have got particular
activities, and of course the FSA itself already has significant
powers which it has recently exercised in relation to E.ON to
make civil orders, so in a sense that is already happening, but
I suppose what you have got here is a Bill that deals with every
possible type of business activity, which can range from financial
services, very large corporations, to relatively small players
perhaps, or even medium players that do not fit in with one of
those particular regulated fields. It will of course be the case
that where you have got something which falls within something
like the FSA that that would be your standard in terms of an appropriate
compliance.
Lord Thomas of Gresford: In other words,
you would not be corrupt if you had complied with the rules!
Q131 Chairman: I think the difficulty
we have had before is that if you have got adequate procedures
how then do you get negligence?
Professor Wells: Sorry, how do
you—?
Q132 Chairman: How do you prove that
there has been negligence?
Professor Wells: I think that
is the difficulty with the way that this particular clause is
drafted and what it is aiming at, which is that there is an assumption
that the prosecution is able to discover who this responsible
officer was, and you might be in an industry that has very clear
guidance as to always ensuring that there are people who are responsible
for matters such as avoiding bribery but you may not be in that
kind of industry, so it is an evidential problem for the prosecution.
Then how do you show that it was negligent. Once you have got
within the company and established who within the company should
have been supervising the person who committed the offence, I
do not actually think that the negligence issue there is the problem;
the problem is establishing the evidential basis rather than the
standard for negligence. It is my job to ensure that Professor
Sullivan does not bribe somebody and I am negligent because I
do not actually monitor him and apply a standard for that.
Q133 Lord Thomas of Gresford: Supposing
you had monitored him, does the prosecution not have to have the
burden under this clause as drafted of proving that the person
who offered the bribe was on a frolic of his own or is that something
that the defence would have to show that he was on a frolic of
his own? It does seem to me that there is a problem in what the
prosecution have to prove in the clause as drafted.
Professor Wells: I agree.
Q134 Lord Thomas of Gresford: That
is right, if he was not on a frolic of his own, they would have
to prove it.
Professor Wells: And even if he
were on a frolic of his own, there should have been some supervisory
mechanism which the company can point to (and I think that they
should have that evidential burden because they will be familiar
with their own procedures) to say we have done this, we have trained
people, we have made it clear this is our culture. This of course
is where the Australian provision is attractive because it talks
in terms of authorising and permitting a corporate culture and
so on, but if we are not going to go down that road then I think
we need to make an assumption that if an offence has been committed
within a company in the course of that company's business that
the company cannot, as it were, disengage from that by saying,
"Oh, but he or she was just doing it on his/her own",
without actually having to show that they have effective compliance
standards and that they are effectively monitored and that there
is training and so on. The details of that would be contingent
on the nature of the business and the size of the company but
it is the proving of the negligence, yes, that is a step too far,
I think, if this is going to be effective.
Chairman: Our colleagues from the Commons
are going to have to go and listen to Prime Minister's Questions
pretty soon. Lord Onslow, are you content on question five with
the evidence that we have already had that there is going to be
a very strict test about what is allowed and permitted by law
in foreign countries?
Earl of Onslow: I think, frankly, the
more I have heard the more complicated it gets. We are going to
have to listen to an awful lot of other peoples view's, but I
still in no way can see how can one can avoid these terrible conflicts
in the essence of things which are both in the public interest:
firstly: do not bribe people but, secondly, you could do the Louisiana
purchase, to put it at its highest, and in spite of all the efforts
and great clarity I still find that I cannot solve the Louisiana
purchase problem.
Q135 Lord Thomas of Gresford: I just
have one question arising out of this. Professor Sullivan, you
say that paying commission to the Saudis in the BAE case would
not be caught by the draft Bill under the "legitimately due"
test. I think you said that. Is that acceptable?
Professor Sullivan: I think not
but I think it is at the heart of this problem. As was just said,
we have to do business with Saudi Arabia, and often it will be
very large-scale business, and that will involve, as I understand,
an obligation under Saudi law to appoint a commercial agent. Such
agents, understandably, are very closely associated with the ruling
elites in Saudi Arabia.
Q136 Lord Thomas of Gresford: Sought
after positions.
Professor Sullivan: Very sought
after and of course they are notorious conduits for the payments
of large sums of money which end up in Switzerland, Lichtenstein
or wheresoever. I think doing anything effective about this is
extraordinarily problematic.
Lord Thomas of Gresford: You did talk
about setting out protocols—
Chairman: Lord Thomas, I really must
try and move on because there is one quite important question
which is number seven, and we have got one item of private business
which we must deal with before all the Members of the House of
Commons disappear. It is Lady Henig's point, question seven.
Q137 Baroness Henig: Can I just ask
you about the extra-territorial reach of the draft Bill and whether
you think it is satisfactory and consistent with the approach
taken in other countries. Also the new corporate offence catches
any foreign company or partnership that carries on "business,
or part of a business" inside England, Wales or Northern
Ireland. Again, what are your views on this proposal because I
think that was not included in the Law Commission's draft Bill?
Professor Sullivan: I would just
like to say briefly I think one of the major defects here is that
foreign subsidiaries, even wholly owned foreign subsidiaries of
UK companies, will be outside the framework of this Bill. The
territorial provisions work on a close connection principle and
under the list of persons closely connected with UK interests
there is no reference to wholly owned, let alone partially owned,
foreign subsidiaries, which is a major gap.
Professor Wells: And the US Act
does include that.
Q138 Earl of Onslow: If you have
a situation whereby company A owns company B in a dodgy country,
the main company appoints all the directors, it directly controls
what they do, and those directors of the wholly owned subsidiary
in the dodgy country can go around bribing officials from now
until next Tuesday and we cannot stop them by this Bill; is that
right?
Professor Sullivan: It may be
an offence in the country of origin.
Q139 Earl of Onslow: But we are assuming
in this case that the rule of law is not carried out with perhaps
the diligence that Lord Bingham would carry it out with.
Professor Sullivan: In legal theory
even the Bingham Inquiry accepted that the Rhodesian subsidiaries
were wholly independent entities in law, and that tradition is
carried on here. The legal theory is also the practical reality.
There is no provision to bring within the net foreign subsidiary
companies, so it is just a major hole in this legislation, a sensitive
one, I know, because the Law Commission did think about it and
decided to pass on it because of the general review of corporate
liability.
Q140 Chairman: Mr Djanogly, we are
going to have a special session on parliamentary privilege which
was the next question that you were going to deal with, and I
think we had better leave your question over to that. On the other
hand, I wonder whether the three of you would like to look at
questions eight, nine and ten to see whether you would like to
give us your views in writing on those because we have not got
time to deal with them now. If that is so, I would like to thank
all three of you very much indeed for what you have been able
to tell us. I think we will find it immensely useful in our considerations.
Thank you very much indeed.
Mr Nicholls: May I just say because
I was listening on the internet to the evidence of Professor Horder
and Lord Mayhew had suggested on the "legitimately due"
test for foreign public officials, the addition of the words "expressly
provided by the foreign law". The Australian provision is
"provided for by the written law of the state" There
may or there may not be a difference, but there is a precedent
for what Lord Mayhew had suggested.
Lord Mayhew of Twysden: I find that very
reassuring and surprising!
Chairman: We have got a supplementary
list of questions to send to Professor Horder so could we just
check whether we have covered that or not? If not, we can always
add another question for him. We are going to have to go back
into private business so thank you all very much indeed for coming.
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