pacta sunt servanda

Tuesday, 2 November 2010

The first time a company has been prosecuted under the Corporate Manslaughter and Homicide Act 2007

After a long research on internet I found a recent case where a company has been prosecuted for the death of one of its employees under the corporate Manslaughter and Corporate Homicide Act 2007.[1] This Act is designed to make it easier to bring cases against companies. It is very attractive case as it is the first time that a company is prosecuted with such a charge.

The case:

Cotswold Geological Holdings Ltd Company is in front of a charge under the Corporate Manslaughter Act 2007 as to the death of Alexander Wright. He was a geologist employed by Cotswold Geological Holdings Ltd and was killed in September 2008 when a pit where he was taking soil samples collapsed on top of him.

Surprisingly, this is the first time a company has been prosecuted under the Act. The case was remitted by Stroud magistrates to Bristol Crown Court in June 2009. Originally, the trial was set to begin on 19^th of August 2009, but was afterwards adjourned until 23^rd of February 2010. It was then again adjourned until 26^th of February, and then because the director of the company, Peter Eaton needed intensive and urgent medical treatment the trial again adjourned in October.

Mr. Justice Field said to the jury: “What was happened in this case is that I have acceded to the application of the defence to adjourn this trial for a longish period because th defendant Mr. Eaton requires urgent and intensive medical treatment. It would be unfair to require him to participate in this trial at the same time as undergoing this treatment. He added that the decision was accepted by all parties. Eaton could be jailed for life if convicted.” Finally, the case has now been adjourned again until 24^th of January 2011.

Unfortunately, charges of gross negligence manslaughter and an additional charge under s.37 of the Health and Safety at Work Act[2] have been eternally stayed due to Mr Eaton’s continuing ill health. As a result the long-awaited first case of corporate manslaughter under the 2007 regulations will not go ahead. The company’s solicitors are seeking to have the cases dropped in its whole.

Saturday, 30 October 2010

Corporate Personality and the Salomon Principle

In my opinion one of the most interesting and fundamental cases of company law is Salomon v Salomon& Co. As I found it very interesting when I did Company law I want to share with my readers the background of this case, the judgments of the CA and HL and my thoughts about this fundamental principle of company law.

Corporate personality has been created by statute in the first half of the 19^th century and the full significance of this provision was not appreciated until the famous case of Salomon v Salomon. On incorporation, a company becomes a separate legal entity separate and distinct from its shareholders and it is not the agent of those shareholders, not even if it is one-man company with one shareholder controlling all its activities. This fundamental principle of company law was established by the House of Lords in Salomon case and is known as the Salomon principle.

Salomon v. Salomon & Co. [1897] A.C. 22 (H.L.)

Background of the case

Aron Salomon was a successful leather merchant who specialized in manufacturing leather boots. A. Mr Salomon ran his business as a sole proprietor. Salomon decided to incorporate his business as a Limited Liability Company when his sons had become interested in taking part in the business.

The shareholders were Mr. Salomon, his wife, daughter and four sons. Mr Salomon was the managing director and two of his sons became the directors of the company. Mr Salomon owned 20,001 of the company's 20,007 shares. The remaining six were shared individually between the other six shareholders. Mr. Salomon sold his business to the new corporation for almost £39,000, of which £10,000 was a debt to him. He was the company's principal shareholder and its principal creditor.

Unfortunately the company went into liquidation. The liquidator claimed that the debentures used by Mr. Salomon as security for the debt were invalid on the grounds of fraud. The judge, Vaughan Williams J. ruled that since Mr. Salomon had created the company solely to transfer his business to it, the company was in reality his agent and he as principal was liable for debts to unsecured creditors.

CA decision

The C.A ruled against Mr. Salomon, though on the grounds that Mr. Salomon had abused the privileges of incorporation and limited liability. The lord justices of appeal described the company as a myth and hold that the incorporation of the business by Mr. Salomon had been a mere scheme to enable him to carry on as before but with limited liability.

HL decision

The House of Lords overturned the CA decision. It was held that there was nothing in the Act[1] about whether the subscribers should be independent of the majority shareholder. The company was duly constituted in law and it was not the function of judges to read into the statute limitations they themselves considered expedient. Lord Halsbury stated that the statute

"enacts nothing as to the extent or degree of interest which may be held by each of the seven shareholders or as to the proportion of interest or influence possessed by one or the majority over the others."

"Either the company was a legal entity or it was not. If it was, the business belonged to it and not to Mr Salomon. If it was not, there was no person and nothing to be an agent at all”

Lord Macnaughten stated that the company was also not to be regarded as an agent of the owner and the company is at law a different person altogether from the subscribers to the memorandum and the company is not in law the agent of the subscribers or a trustee for them.

Exceptions to the fundamental principle of corporate personality

The law has made exceptions to this fundamental principle in order to prevent unfair or fraudulent practices by those in charge. The courts in cases where a company’s separate legal personality is being used as fraudulent or unjustly device, the courts will lift the veil.

· Lifting the veil

In a number of cases the courts are rise to ignore the veil of incorporation and hold members personally liable for the debts of the company. Those exceptions to the general principle in Salomon, can be found in both common law[2] and statute[3], are known as lifting the veil. However, there are two common features to those exceptions:

1) They will only apply to members of the company who created the situation e.g. directors.

2) They are designed to prevent the protection of limited liability being abused to perpetrate any wrongdoing or fraud.[4]

My opinion is that the separate personality of a company creates a range of problems. This is attributed to the fact that the company, which is regarded as a person in law, can only function through the humans who are running the business in which the company is involved. The law should regulate the relationships between the company and the outsiders who do business with the company as well as the relationships between the company and its shareholders or members and creators. It is impossible to find a legal consistent basis for the cases in which the courts have decided to ignore the separate legal personality. In many cases the courts are unwilling to lift the veil and this can be seen as unfair and unjust.

For further reading:

Andrew Hicks & S.H. Goo, Cases and Materials on Company Law, (6^th edn, OUP 2008)

Alan Dignam & Jon Lawry, Company law,( 5^th edn OUP 2009)

Brenda Hanningan, Company law,(2^nd edn OUP 2009) 57-59

Simon Goulding, Company law, (3^rd edn , Routledge, 2005)

Amin George Forji, “The Veil Doctrine in Company Law”, September 28, 2007

CLEMENT CHIGBO, “Lifting The Veil Of Incorporation”, February 23rd, 2007

http://www.llrx.com/features/veildoctrine.htm

http://www.jonesbahamas.com/news/135/ARTICLE/11675/2007-02-23.html

http://en.wikipedia.org/wiki/Salomon_v_A_Salomon_%26_Co_Ltd

[1] Companies Act 1862

[2] Common law exceptions : 1) where the companies are sham or facade (Jones v Lipman [1993] Ch 935 (Ch), Gilford Motor Co Ltd v Horne[1993]Ch 935 (CA)), where there is an agency relationship (Smith, Stone & Knight Ltd v Birmingham Corp[1939] 4 ALL ER 116), where the company is an economic unit/ a group company (Adams v Cape Industries Plc[1990] BCLC 479, DHN Food Distributors Ltd v Tower Hamlets LBC[1976] 3 ALL ER 462)

[3] Section 24 of Companies Act 1985, section 993 Companies Act 2006,section 213-215 of Insolvency Act 1986

[4] Chris Taylor, Company Law, (law express, Pearson Longman) 29

Wednesday, 27 October 2010

The world’s industrial catastrophe- the Bhopal gas disaster

As you will notice my previous post was for corporate crime! When I did my research the Bhopal gas disaster took my attention. I didn’t know or heart anything about it before, I was not even born that time but this is not an excuse! We must be informed of these extremely huge disasters even If they are two thousand years ago because most importantly such disasters as the Bhopal one has to do with human lives! However we could inform our selves by searching. From what I found from my research, I will now talk and inform you about this disaster.

The world's worst industrial catastrophe is the Bhopal gas tragedy. It happened on the night of December 2–3, 1984 at the Union Carbide India Limited (UCIL) pesticide plant in Bhopal, Madhya Pradesh in India. A leak of methyl isocyanate(MIC) gas and other chemicals from the plant resulted in the death of several thousands of people.

Estimates of the death toll vary greatly. The official immediate death toll was 2,259. The government of Madhya Pradesh has confirmed a total of 3,787 deaths related to the gas release.[1] Other government agencies estimate 15,000 deaths.[2] Some approximate that 3,000 died within weeks and that another 8,000 have since died from gas-related diseases.[3] In 2006 a government affidavit stated that the leak caused 558,125 injuries including 38,478 temporary partial and about 3,900 permanently and severely disabling injuries.[4] You could understand from these estimates the great and very huge size of the disaster. Is very problematic and I could say what happened was inhuman.

The UCIL factory was built in 1969 to produce the pesticide Sevin using methyl esocynate (MIC) as an intermediate. A MIC production plant was added in 1979. Mr Y P Gokhale, the managing director of Union Carbide in India, stated that Mic Had escaped when a valve in the plant's underground storage tank broke under pressure. As a result a deadly cloud of lethal gas float from the factory over Bhopal.

Bhopal is home to more than 900,000 people who many of them live in slums. Now you could understand or figure the size of the disaster. Its obvious that chaos and panic prevailed in the city. Ten thousands of people attempted to escape. Thousands of cats, dogs and cows were dead on the streets. More than 20,000 people have required treatment for symptoms such as frothing at the mouth, swollen eyes and breathing difficulties. Estimates claim that 50,000 people were suffering from terrible side-effects, blindness, kidney and liver failure. Campaigners stated that nearly 20,000 other have since died from the effects of the leak. Many woke up only because they heard their children coughing. As people jumped up from their beds, they felt their eyes and throat burning. Other feel to the ground in contortions of pain. People ran and ran, but they didn't know in which direction to go. Families were split in the confusion. Many people fell to the ground unconscious.

Ahmed Khan, the Bhopal resident said: "We were choking and our eyes were burning. We could barely see the road through the fog, and sirens were blaring. We didn't know which way to run. Everybody was very confused. Mothers didn't know their children had died, children didn't know their mothers had died and men didn't know their whole families had died."

One of the worst parts of this tragedy is actually what has happened in the years following. The company immediately tried to detached itself from legal responsibility. They claimed that they were not liable for any damages because they blamed a saboteur for the disaster and claimed that the factory was in good working order before the gas leak. . Ultimately it reached a settlement with the Indian Government through mediation of that country's Supreme Court and accepted moral responsibility and paid $470 million in compensation. This is a quite small amount based on the large underestimations of the number of people who have been exposed and of the long-term health consequences as many of the victims are unable to work and continue to live in ill health.

· The penalty

The Union Carbide factory was closed immediately after the accident and three senior members of staff arrested. Medical and scientific experts have been dispatched to the scene and the Indian government has ordered a judicial inquiry. Civil and criminal cases are pending in the United States District Court, Manhattan and the District Court of Bhopal, India, involving UCC, UCIL employees, and Warren Anderson, UCC CEO at the time of the disaster. In June 2010, seven ex-employees, including the former UCIL chairman, were convicted in Bhopal of causing death by negligence and sentenced to two years imprisonment and a fine of about $2,000 each, the maximum punishment allowed by law. An eighth former employee was also convicted but died before judgment was passed.

However, since the disaster, India has experienced industrialization. Some behaviors of new industries and positive changes in government policy have taken place. But major threats to the environment from poorly regulated industrial growth remain. Widespread environmental deprivation with significant adverse and human health consequences continues to occur in India.

As I said in the beginning what happened was inhuman! I saw many photos on Google from the disaster and honestly what happened was not only inhuman but also “MORRALY UNACCEPTABLE”. For me such mistakes are not allowed in the world of industry and must be punished NOT ONLY BY FINES; I may be a bit strict about that but we must reconsider the penalty that the law imposes to such cases. We are talking about human lives, THOUSANDS OF HUMAN LIVES! We are talking about families, children, mothers, fathers, even dogs and cats! These are lives too! I will close with the quote “No more Bhopals” for the good of the humanity! But if you read this I want you to set a question to yourself. If this will happen to you, to your country, to your family what are your feelings going to be?? What you will do about this?? You are going to live it happen to you? Because if you don’t do anything about this, be sure this will happen again may be not to you but in other peoples life.

Sunday, 24 October 2010

Corporate crime & White-collar crime

Corporate crime

Corporate crime refers to crimes committed by individuals who may be identified with a corporation or other business entity. Corporate crime involves acts like environmental pollution (corporate crime, such as the 1985 Union Carbide accident in Bhopal, India), fraud, dangerous work environments and making of unsafe products. Environmental crimes often result in death, injury and disease. A recent example of corporate violence is that of the 12 New Mexico campers who were killed in August 2000 when a natural gas pipeline operated by El Paso Natural Gas Co exploded near Carlsbad and more than 100 Americans have died in crashes linked to Firestone tire separations that caused their Ford Explorer vehicles to crash. Dr. Troyen Brennan, a leader of the Harvard University Medical Malpractice Study of New York State, stated that there are 100,000 deaths each year from hospital-based medical negligence. Thus, a huge number of people die every year on the job or from occupational diseases such as asbestosis and black lung. Job deaths often result from criminal recklessness. They are sometimes prosecuted as homicides or as criminal violations.

White-collar crime

Edwin Sutherland defined white-collar crime as "a crime committed by a person of respectability and high social status in the course of his occupation". Some examples of white-collar crime are the blackmail, the bank fraud and credit card fraud. White collar crime is a category of criminal offenses that occur in corporations or business. Examples of white- collar crime are the insider trading, the antitrust violations, the computer fraud, the securities fraud and the money laundering. However, White-collar crimes are non-violent in nature, and generally involve some form dishonesty or fraud

What Businesses could do to prevent White Collar Crime?

Businesses can impose safeguards, to check on the conduct the employees. By making sure that records are preserved and by launching an internal investigation they could respond to allegations of wrongdoing. In order to ensure that employees are not engaging in unauthorized transactions they could audit banking activities.

A business that does not respond appropriately to criminal activity it could appear to be involved in that activity. If a business does not wish to be held responsible for illegal conduct the best way of doing so is to cooperate with any investigation of the wrongful conduct.

The punishment

A business could be punished only in financial terms for example by imposing fines so large that the business is forced to close down. It is also possible to impose a term of "probation," during which the business can be carefully monitored by the court. However, it is not possible to impose a "corporate death penalty" as the corporation is not an individual but a legal entity.

Corporate crime – Damage on society

My opinion is that corporate crime inflicts a huge and enormous damage on society than all street crime combined. Corporate crime poses a significant threat to the welfare of the community. The potential for both economic and physical harm caused by a corporation is great given the pervasive presence of corporations in a wide range of activities in our society, and the impact of their actions on a much wider group of people.

Further reading:

http://en.wikipedia.org/wiki/Bhopal_disaster

http://www.statesman.com/specialreports/content/specialreports/pipelines/22pipecarlsbad.html

http://www.umsl.edu/~keelr/200/wcolcrim.html

http://en.wikipedia.org/wiki/Corporate_crime

Is fairtrade fair?

WFTO and other cooperative initiatives claim that their aims are to ensure and promote better trading conditions[1], social justice[2] and protect the rights of wrokers and producers.[3] They seek to offer workers and farmers access to a better livelihood and better working conditions[4]. In order to implement these objectives fairtrade is using several rules such as a strict certification procedure that includes standards such as environmental support, better working conditions based on corporate social responsibility[5], a price premium to benefit producers and a fixed price of produce[6].However a great debate and controversy surrounds fair-trade.

Some claim that under the FLO rules a farm needs to exploit in its agenda to part time working instead of hiring full time workers in order to qualify as fair trade. This means that part time workers do not have the same rights with full time workers.[7]Although, there have been various reports of horrible working conditions with some of the farmers alleging not having knowledge of the entitlement of a premium.[8] Fair trade is also criticised that instead of helping problematic farming communities in changing their ways they guarantee a fixed price usually higher than the market average holding them back from developing.[9] Although, evidence supports that the premium policy is not effective.

Moreover, many critics support that fair trade is trying to create a ‘guilty conscience’[10] to consumers in order to create a ‘moral monopoly’[11]. Others support the view that the adverse effect of price fixing and of buying produce without taking into consideration demand resulting to a price crunch.[12]

Concluding, fair-trade introduces a competent perception but in its practical application appears to have many insufficiencies due to a number of elements but the Fairtrade Foundation states that always takes very seriously any complaints affecting workers and farmers. [13]

[1] Fair Trade Labelling Organisations International, ‘What is fairtrade?’ <http://www.fairtrade.net/what_is_fairtrade.html>

[2] The fair Trade Coffee Company, ‘Definition of Fair Trade’ <http://www.fairtradecoffee.org/articles/ft-definition.shtml >

[3] World Fair Trade Organisation, ‘What is fair-trade?’ <http://www.wfto.com/index.php?option=com_content&task=view&id=1&Itemid=13>

[4] Fairtrade Foundation, ‘The Fairtrade foundation’ <http://www.fairtrade.org.uk/what_is_fairtrade/fairtrade_foundation.aspx>SustainWeb, ‘Trade Fair’ <http://www.sustainweb.org/sustainablefood/trade_fair/>

[5] Fair Trade Labelling Organisations International, ‘Benefits of fairtrade’http://www.fairtrade.net/benefits_of_fairtrade.html

[6] Fair Trade Labelling Organisations International, ‘What is fairtrade?’http://www.fairtrade.net/what_is_fairtrade.html

[7] D Henderson, ‘Fair Trade is Counterproductive and Unfair’ (2008) Economic Affairs 62-64 ,cited in A M Smith, Evaluating the criticisms of fair trade, Oxford: Blackwell Publishing, 2009, p.30

< http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0270.2009.01944.x/pdf>

[8] P Bahra, ‘Tea workers still waiting to reap Fairtrade benefits; Premium paid for ethical goods may not be passed on, reports Parminder Bahra’ [2009] London Times http://www.lexisnexis.com/uk/nexis/docview/getDocForCuiReq?lni=4V8W-X8W0-TX5B-909P&csi=10939&oc=00240&perma=true

[9] M Sidwell, Unfair Trade (Adam Smith Institute, London 2008) <http://www.adamsmith.org/blog/international/unfair-trade/> B O’Neill, ‘How fair is Fairtrade?’ <http://news.bbc.co.uk/1/hi/magazine/6426417.stm>

[10] K Deconinck, ‘Free marketeers attack Fairtrade principle’ (London 16 March 2004) < http://news.bbc.co.uk/1/hi/business/3542517.stm>

[11] M Sidwell, Unfair Trade (Adam Smith Institute, London 2008) <http://www.adamsmith.org/blog/international/unfair-trade/>

[12] D Henderson, ‘Fair Trade is Counterproductive and Unfair’ (2008) Economic Affairs 6,cited in A M Smith, Evaluating the criticisms of fair trade, Oxford: Blackwell Publishing, 2009, p.30