Foundations of Business Law

Lecture 1 (Chapter 1) – Vocabulary page 37

The nature of law

- Jurisdictional laws are not like fundamental scientific principles

- Law is a command proceeding from the supreme authority of a state, and addressed to the
persons who are subjects of that authority
- Laws reflect the predominant norms and values of a given society at a given point in time
- These norms can shift over time (i.e. illegal homosexuality)

How do lawyers work?

- Lawyers are trained to think in terms of looking for problems and how to protect their client
from potential problems (while business people are more looking for solutions or progress)
- Law is rarely black and white: lawyers cannot always predict with anything like certainty how
legal rules will be interpreted
- Lawyers do not approach problems by using statistical analysis

The tool of law: language

Language interpretation is the tool of legal reasoning. Where there is language there is often
ambiguity:

“The company agrees to replace any units found to be defective within three months.”

Meaning?

• Does the three months refer to the time limit in which the defect must be discovered, or
• Does the three months refer to a promise by the company to replace defective units within
three months?

Legal framework

- The principal objective of a legal system is to establish rules and principles to regulate
relationships
- Where interests conflict, the law attempts to resolve differences by the application of these
rules and principles
- Business activities take place within a legal framework that sets out the rights and
obligations of the participants

Private law (also known as civil law) is

concerned with the private rights and
obligations of individuals, for example tort
law and contract law.. Ex: solves disputes.

Public law is concerned with the

relationship of individuals to society, for
example criminal law which imposes
sanctions for anti-social activities.

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 � These forms of law may have both a national and international dimension

Binding precedent: a decision that must be followed.

Obiter dicta: non-binding decision of the judge. What is not part of what forms the precedent.
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Common law (UK): law formulated that is based on cases, a system of case law; authoritative
decisions were laid down by judges in court

- Doctrine of binding precedent: decisions made by judges in the past should be upheld by
judges in new cases if the new cases showed marked similarities

Common law origin:

- The law developed in the Middle Ages in England and Wales as the law administered in the
king’s courts
- Local customs and uses were either assimilated or abandoned to form one set of laws
‘common’ (i.e. uniform) to all throughout England and Wales

🡪 Common law jurists reason from particular cases, applying the legal principles laid down in those
cases to new cases with similar facts. Legislation also plays an important role.

Civil law: codified system based on Roman law as codified by Emperor Justinian in the 6 th century AD
(and built upon the ‘Code Napoleon’ drafted in 1804 in France and implemented in conquered lands
in Europe)

- Coded system: laws being laid down in written form. A set of laws compiled to form a
systematic formal legal code. The code provides comprehensive and systematic regulations.
Cases interpret the code but in general are not a source of law

🡪 Jurists argue from the general principles of law laid down in the codes of law. Cases provide
guidance to interpreting the code, but are generally not binding

Although different, one cannot exist without the other, and legislation (laws by legislative parties i.e.
parliament or congress) plays a fundamental role in all common laws.

The term civil law should not be confused between the TYPE of law (civil: private vs public) and the
legal system (civil: not common law)
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The court structures

Usually, the highest court in land is the Supreme Court, the
appellate court is the Court of Appeal and the trial initialization
is the District Court

England
The superior court deals with higher value claims and more
complex ones. The inferior court deals are the County Court
and Magistrates’ Courts. Their distinction is important in terms
of the doctrine of binding precedent

Superior Supreme court Hears appeals on points of law of general public importance
Court of Appeal Bound to Supreme Court decisions and both civil and criminal

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 divisions are bound to their precedent
Bound to upper courts. It has three divisions each with their
High Court
court
Crown Court It is a major criminal court
County Court Deals with civil claims. The jurisdiction has increased
Inferior
Magistrates’ Court Deals primarily with criminal cases. Not binding decisions

* other courts and tribunals exist. All matters concerning the EU are referred to the Court of Justice
of the European Union

** senior court of England and Wales: court of appeal, high court and crown court

United states
Federal courts: creation of the US constitution. These courts only have the powers expressly
conferred in the constitution

- Normally used for disputes between different-state-member US citizens or with aliens

State courts: far more general competence. Hear most legal controversies in their geographical
jurisdiction

As they have overlapping competences, people have the right of forum shopping: select the court
they believe to be the most favourable for their claim

Federal court structure:

- US Supreme court: one chief, eight associate justices.

Only hears rarely (federal or constitutional matters).
Applications are made by certiorari (court process to
seek judicial review of a decision of a lower court or
administrative agency). They have the power of
throwing out any legislation.
- US Courts of Appeals: hears appeals from its circuit
- District courts: trial courts of all federal matter, at least
one in each state. Criminal and civic
- US Bankruptcy courts: these cases cannot be filed at a
state level, thus, go to this court.
- US Tax Court: when the Internal Revenue Service raises
tax issues about individuals or companies
- US Court of Federal Claims: hears claims against the United States (mostly monetary).
nationwide.
- US Court of International Trade. nationwide.

State court structure:

Each state has their own court system. There are significant differences in the ways each state
organises its juridical institutions. These courts deal with a vast majority of court cases

Judicial system: also known as the court system, is the system at courts that interprets and applies
laws in the name of the state

Important courts are high/superior/senior, lower ones are low/inferior

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Court of first instance: the court where the proceedings begin

Outside of the mainstream system of courts there are agencies, tribunal hearings and alternative
dispute resolution (ADR). ADR is quicker and less expensive (mediation, conciliation and arbitration).
ADR is often used in consumer complaints and by businesses wishing to maintain long-term
relationships with suppliers etc.
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The legal profession

Notary is the same in US and UK, but changes in civil law. In fact, functions of legal professionals may
be different from those of legal professionals in other countries

Notary: in the civil law system a notary is a trained lawyer who specialises in drafting and
authenticating legal documents, and retains legal instruments. In the United States, on the other
hand, a notary need not be a trained lawyer and the notary’s function is limited to administering
oaths, affirmations and witnessing the signing of documents.

England
Two professional qualifications: either a solicitor or a barrister (cannot be both). Being a solicitor
advocate means having the same rights of audience (a right of a lawyer to appear and conduct
proceedings in court on behalf of their client) as a barrister

- Legal disciplinary practices (LDP): firms providing legal services

- Alternative Business Structures (ABS): allow external ownership of legal businesses. They
are multi-disciplinary practices that provide a mix of legal and other services.

Solicitor:

Has obtained a university degree and a traineeship (after that, Law Society). They act as partners of
firms like LLP or as ‘in-house lawyers’ for public sector. Can be described as a general legal advisor.

- Conveyancing: law and procedure with respect to purchase and sale of property
- Probate: verify documents, wills or distribution of deceased’s’ estates
- Drafting documents and preparation of litigations (the process of taking a case to a court of
law so that a judgment can be made)

Legal executives: make most of the work for solicitors without having the training (paralegals)

Barrister:

University degree, vocational training, passed his Bar. Most of them are self-employed and they
group together to form a chamber, where they share accommodation. The most important people
are the clerk. The senior ones act as business managers (practice manager) and arrange the briefs
(written instructions from a solicitor to a barrister giving him a case)

Most of them work as advocates, lawyers (arguing a client’s case in court. Barristers have a right of
audience in all courts). He is referred to in court as counsel

Solicitors is the family doctor and the barristers are the hospital specialist

United States
A practicing lawyer is an attorney = lawyer (both roles). Bachelor, law school and Bar exam (makes
you an attorney-at-law). An attorney only practices in the State of his Bar

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Judges in the common law system
Judge: finds upon the facts, applies the rules of law to those facts and then reaches a decision

The judge acts as an impartial referee and listens to the instances presented by the advocates
(adversarial system). In the European system (civil) it is the judge that calls the witnesses and
examines them (inquisitorial role of the judge)

Judicial review: is a type of court proceeding in which a judge reviews the lawfulness of a decision or
action made by a public body. It involves a higher court examining a case first dealt with by an
inferior court or tribunal or the decisions made by a public body affect the rights of individuals.

Magistrates are at the bottom of the judicial hierarchy in England. People in their community sitting
on average one day per fortnight. They are advised by a clerk (or not, if paid professionals)

Attorney general: highest charge in England with his deputy, the Solicitor General. He is the legal
adviser to the Crown. Also advises governmental departments

The debate of whether judges create law or interpret it is open, but it is certainly a creative process.
It demands the construction of a just solution by taking into account unwritten general principles of
law within the existing law.

The jury
The role of the jury is to decide on matters of fact, it is to the judge to decide on matters of law.
However, most criminal cases are heard by magistrates on summary trial. If called, the jury consists
of twelve jurors who are laymen and represent the cross-section of the community. The jury only
decides if guilty or not in criminal cases.

The jury is not confined to common law jurisdictions.

Trials in common law jurisdictions have been influenced by the presence of a jury. However,
whether a jury will be present varies from one common law jurisdiction to another.

Jury selection: (US) voir dire (the examination by the court or by the attorneys of prospective jurors)
and (UK) jury vetting (selection of the jury with interviews to make it impartial and representative)

Two types of jury in the US:

Grand jury: 23 jurors, if needed. It determines whether there is enough evidence to put someone on
trial in criminal cases.

Petit jury: ordinary, listening to criminal and civil cases. Normally 12 jurors.

Jurors can be challenged either by the defence or by the prosecution

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Operation of a common law system

Sources of law that have played a role in the development of the common law system are the canon
or ecclesiastical law. They influenced criminal and marital law as well as the development of equity.
In a common law system, there are 3 main sources of law: legislation, equity and case law.

Counsels may adopt their arguments and these arguments are persuasive (i.e., should be taken into
account but are not binding).

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Legislation/statute law
Legislation (statute law): written laws passed by a legislative body (Parliament). It is more
responsible for wholly new principles of law than judges (even in common law)

- Statue: a written law by the legislative party, in an Act of Parliament. Forms of codification

The old common law usually forms the basis for the statute, but the legislature takes the
opportunity to amend and update the old law.

England:

Doctrine of parliamentary sovereignty: supreme power is vested in parliament.

- Legislative body or legislature is the bicameral parliament (House of commons and House of
Lords) and laws approved by the Crown

With the membership in the EU, the EU law is set above the national law. This has extended the
rights of English courts of judicial review of Acts of Parliament (also called primary legislation, are
statutes passed by a parliament) if inconsistent with EU obligations.

Bill: Act of Parliament before being approved (royal assent missing). An Act has a heading and is
given a chapter number, is divided in parts,these in sections, these in sub-sections and paragraphs
and ends with the schedules

Statutory instrument: form of delegated legislation. (ministers are given the power to make laws for
specified purposes)

United States:

Federal law is above (pre-empt) state law. These are the two levels of legislation.

The Supreme Court (judicial review) rules constitutionality (allows it to invalidate legislation deemed
inconsistent with the Constitution).

Congress (House of Representatives and the Senate) has the power to make ‘necessary law’. At the
federal level it is the legislative body, and the President is the head of federal legislature.

Doctrine of pre-emption: refers to the idea that a higher authority of law will displace the law of a
lower authority of law when the two authorities come into conflict.

Each state also has its own legislature.

Equity
• The king’s courts built up the common law, but the common law became rigid because of
writs. If there was not an applicable writ, no lawsuit could be commenced (aka a person had
no legal remedy).
• Dissatisfied litigants’ petitions were passed to the Lord Chancellor
• Equity developed in the 15th century as a response to the harshness of the common law

🡪 It led to the creation of the court of equity. This court implemented principles of equity (fairness),
not the common law

- The equity court created new rights

- It also created new remedies, called equitable remedies, as the common law courts usually
could only offer damages as a remedy. For example: the injunction and specific performance

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 - Equitable remedies are discretionary, i.e. not a right, but decided according to the rules of
equity
o Equity offers damages, injunction and specific performance. Equity remedies have
remained discretionary (depends upon decision of the court. they are not rights)
- For centuries, equity and common law were two parallel systems of law with separate
courts. Only in the 19th century did these courts fuse
- However, lawyers still use the terminology of equitable principles and equitable remedies

Damages: money compensation for loss or injury caused by the wrongful act of another.

Injunction: a legal and equitable remedy in the form of a special court order that compels a party to
do or refrain from specific acts. "When a court employs the extraordinary remedy of injunction, it
directs the conduct of a party, and does so with the backing of its full coercive powers

Legal remedy: means provided by the law to redress the harm suffered by one party due to contract
not abiding behaviour by the other

Equity: supplemented and remedied the deficiencies in the common law (there was no legal
remedy). Principles of equity: principles of fairness

Equity lay down important principles for property law. It developed new constructions such as the
trust and mortgage

Differentiation between legal title

(ownership) and equitable title (use at
benefit/enjoyment). They could coexist in
different hands when a trust is present
(can be set for various purposes). A trust,
widely used in finance and commerce in
common law jurisdictions like the USA and
England, makes use of this splitting of
interests (in the Netherlands it is not
allowed to split interests in this way)

- To set up a trust, a settlor gives

person A property with intention
of benefitting B. A is the trustee
and B the beneficiary

� Legal title usually prevails when

there is a conflict

Example: corporate pension fund

Trustee: the
Settlor: the Trustee has
pension fund
employer the legal title
manager

Beneficiaries
Beneficiaries:
have the
the employees
equitable title

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Why commercial trusts?

- Asset protection and limits liability

- Unlike a company, a trust can avoid legal entity tax. A trust is not a separate legal person
(but exceptions – see e.g. Delaware Statutory Trust Act)
- Beneficiaries of a trust pay tax on income they receive from a trust at their own rates

The common law: case law

The term common law is used in two ways: to describe a form of legal system: common law system
and to denote case law as distinguished from statute law

Case law: the decisions made by judges applying legal principles to the circumstances of the dispute

- When trying a case, a judge must always look back to see how a judge in a prior case with
similar facts dealt with the issue

jurisprudence: philosophy of law (England). science of law or case law (US).

Binding precedent:

Doctrine of binding precedent where the judge is expected to take decisions based on results of
previous cases (Stare decisis). It ensures flexibility while giving legal certainty

If the case can be distinguished (facts are different) from previous cases and these facts are material
= key (important or vital) a precedent must not be followed.

Case reports:

To have all the precedents, law reports

can be traced back centuries. Each case is
given a reference, depending on whether
it is criminal or civil, followed by the year
and the abbreviation of the name of the
series in which it is reported (R = rex or
regina, DPP = Director of Public
Prosecutions). V is read as and.

In the US it depends whether the case is

brought to federal (US vs) or state court (Commonwealth of Massachusetts vs). in civil cases the
name of both parties is presented (plaintiff/claimant vs defendant)

Every case report sets out:

- The material facts (not binding)

- The ratio decidendi (holding in the US): the grounds of the decision, with the statement of
the law applicable to the legal problem.
- The judgment based on 1 and 2, in which the judge finds either for the claimant (in the US
plaintiff) or the defendant

Only the ratio decidendi is binding as it forms the precendent. Everything outside the ratio is called
obiter dicta: things said by the way. The ratio is binding, the obiter is not. Obiter dicta are
persuasive, and CAN be used to help future cases. These are observations, opinions. When judges
agree with each other, they concur. Otherwise they dissent, having to publish the dissenting
judgement regardless (classified as obiter)

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BINDING: IF A DECISION IS BINDING, IT MUST BE FOLLOWED.

Countries vary in the way they report on court cases:

• Some systems publish only one amalgamated majority verdict but also a dissenting
judgment.
• Others have one majority verdict and do not publish a dissenting judgment, abiding by the
‘secret of the judges’ chamber’
• In England, each judge delivers his own judgment

Appeal:

Reversed: when a decision in a higher court on appeal comes to opposite conclusions, which means
the higher court rejects the judgement of a lower court (in the same case)

An appeal court can approve or disapprove a precedent. It can overrule a principle that has been
established in a previous case. Once overruled, a decision has no precedential value

Reversing affects the PARTIES INVOLVED, overruling ONLY the rule of law contained in the decision,
not the parties

____________

Conveyancing: drawing up legal documents to transfer the ownership of property from seller to
buyer; in general, the law and procedure with respect to the purchase and sale of property.

Custom: this is unwritten law that is legally valid if a practice can be shown to have been
continuously in operation since time immemorial.

Legal certainty: to protect the expectations of individuals by ensuring that laws are applied
consistently and predictably.

Question to be able to answer

1. In what fundamental way is there a difference in approach between common law and civil
law systems?
2. In the English system, which institution may revoke legislation? Is the American system
different in this respect?
3. Businesses could decide to have their disputes settled other than by a judge in court. Which
alternatives to the courts do you know?
4. In common law systems, trusts are important constructions for both individuals and
commercial organizations. How does a trust operate?
5. What is the difference between `ratio decidendi' and `obiter dicta' in a judgment? Which
element is the more important?

🡪 Also see questions in English Legal Terminology on pages 44

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Article: Conflict of Interest, Secrecy and Insider Information of Directors
Duty of care: stems from laws of negligence and a director’s task to fight negligence

Duty of loyalty: fiduciary principles that were developed by the courts in equity

- Trust analogy: the strictness in duty of loyalty in common law results from the equation of
the duties of the company directors with the duties of the trustees by the court of equity
- Path dependency led to differences with civil law
- It is also a protection of the market

The principals are shareholders and the directors are their agents (Common law). Looser relationship
in civil law 🡪 generates the two-tier boards

Conflict of interest stems from agency problems arising in concrete conflict situations and since they
exist everywhere, they are hardly a matter of legal consequences (i.e. two-tier boards letting
directors be on several boards and creating more conflict, not legal matter still)

- Fraud: stealing, granting and receiving bribes and kick-backs, degrading the company
- Loans and credit to directors: heavily restricted or prohibited by law
- Self-dealing: taking advantage of his position in a transaction and acting for his own interest
rather than for the interest of shareholders or clients
- Competition within the company: directors are forbidden or restricted to cause competition
within their own firm
- Corporate opportunities: directors may not use business opportunities that arise from their
company for themselves
- Wrongful profiting from position: directors are not allowed to use their position to self-
interest
- Remuneration: linking salaries to actual performance, to prevent paying without
performance. Supervisory board often has duty to keep remuneration of management board
directors in line with their performance
- Ongoing duty of loyalty: post-contractual duty (i.e. with company secrets)
- Takeovers: lead to large conflict of interest for board members in the target company
- Management buy-outs: management not only has to decide whether to accept an offer, but
even make the offer themselves
- Groups of companies: often lead to conflict of interest between the parent company and its
subsidiaries

Usually, explicit rule for company secrecy, but if not, it juts follows from the duty of loyalty. There
are many leaks

Prevention techniques for conflict of interest:

- Disclosure: has to be disclosed before taking director position, and all other members should
be notified
- Consent: prevents negative actions of the director. Consent of the various boards
- Organizational duties: involving independent auditors or directors and avoiding anti-
competitive practices
- Techniques against circumvention: still difficult and involves excluding family members and
regulating the burden of proof (prima facie)

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Remedies in case of unlawful behavior in conflict of interest

- Nullity, prohibition against voting: first step, a company can require a director to abstain
from voting
- Liability for damages and disgorgement of profit: the usual sanction for a breach of duty of
care
- Stepping down or dismissal: when conflict of interest is grave and more permanent instead
of situational, the best solution for a director is to step down. He may even be legally
required to do so
- Disqualification: if duty of loyalty is gravely violated, a director may no longer be fit to be a
director. Supervisory authorities can use this sanction

🡪 Can be private (within company) enforcement, or public authorities can step in

Lecture 8 (Chapter 3) – European Union Law – Vocabulary page 109

Initially 6 states:

• Belgium
• Germany
• France
• Italy
• Luxembourg
• The Netherlands

🡪 Current Member States: 28

Legal concepts and institutions that have arisen from

a supranational legal system: that of the European Union

- Enlargement: term used to describe the growth of the EU through the accession of new
Member State

Common market: (now referred to as the internal market or the single market): a form of economic
integration established by the European Community. The aim was to integrate the national markets
of the Member States into a single European market by removing barriers to trade between the
Member States

European Union: the EU, as set up under the Treaty of Maastricht, comprised not only the European
Community, but also two other pillars. These other pillars were foreign and security policy, and co-
operation in judicial and criminal matters. These three pillars were intended to form a unitary
institutional framework. Under the Treaty of Lisbon, however, the three-pillar system was
dismantled. The European Union, as one united entity, assumed legal personality
3

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Primary sources of law: the treaties

Treaty of Lisbon: The EU becomes a legal person;

• More power for the European Parliament, with respect to budgetary supervision and
legislative power (co-decision with the Council of the European Union becomes the norm)
• Each institution has a president

Secondary sources: secondary legislation

Secondary legislation: the major EC Treaties delegated the power to legislate to certain institutions

- EU institutions only have the power to legislate on matters within EU competence

There are three types of legally binding acts that may be classed as EU legislation:

- Regulations: laws that are binding in their entirety and directly applicable in all Member
States
o No need for further national legislation for implementation purposes
- Directives: binding as to the result to be achieved
o Lays down an objective and then leaves it to the individual Member State to decide
how best to achieve and to transpose them into national law
o Specifies a time limit by which time the Member States should have achieved the
required result
o Not directly applicable
- Decision: binding in their entirety on those to whom they are addressed
o May be addressed to individual Member States, corporations or private individuals
o Used where it has been concluded that an undertaking is acting contrary to EU
competition policy

Two measures that are not classed as legislation because they are not binding, although they do
have persuasive authority:

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 - Recommendations: not binding but are only persuasive guidelines
- Opinions: non-binding guidelines issued by the EU
� Usually addressed to Member States, setting out a view or guidelines on a particular issue

General principles of the EU

General principles of the EU: originating inter alia from international law and the national systems of
various Member States, are applied uniformly throughout the EU

- These principles are an important source of EU law, as they provide a useful tool for
interpretation
- Allow EU law to be challenged on the basis that it is contrary to a general principle of EU law

Case law: European Court of Justice gives preliminary rulings and hears actions brought against
other Member States and EU institutions

Principles
Proportionality: public authority may not impose obligations on a citizen except to the extent to
which they are strictly necessary or proportionate to the aim to be achieved (from German law)

Legal certainty:

- Retroactivity: legislation is not expected to be applicable in the period before it became law
- Legitimate expectations: measures should not frustrate the valid expectations of those
concerned, unless there is a matter of public interest at stake

Procedural rights: cover the principles of the right to be heard (giving the accused person notice of
what he is accused and an opportunity to be heard) and of due process (regular course of the law
through the courts)

Principle of equality: general principle of EU law that makes various types of discrimination illegal,
(i.e. sexual discrimination)

- Member States are under an obligation to provide effective remedies where there has been
a breach of the equal treatment principle

Protection of human rights: principle of EU law in accordance with the European Convention on
Human Rights

- Charter of Fundamental Rights: the EU Charter provides a range of civil, political, economic
and social rights to EU citizens and residents

Decisions of the Court of Justice

Court of Justice: the European Court of Justice is the senior court of the Court of Justice of the
European Union

- It ensures that EU law is observed

- It hears actions and provides preliminary rulings on preliminary references

The Court has the right to hear actions brought against Member States and EU institutions

- Preliminary reference: is a request by a national court of a Member State to the European

Court of Justice to give a ruling on a question of interpretation and validity of EU law
- Preliminary ruling: is the answer given by the European Court of Justice concerning a
question on the validity or interpretation of EU law

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4

The relationship between EU law and national law

Principle of supremacy: where there is EU competence, EU law cannot be overridden (EU law
overrides national) by national legal provisions, regardless of whether these provisions were drawn
up earlier or later than the EU law

- Member states cannot put a force majeure clause on EU

- Conflicting national legislation must simply be revoked

Principle of subsidiarity: the EU has only the right to deal with those matters that fall within the
exclusive EU competence. Matters that are not covered by the EU competence remain the
prerogative of the individual Member States, unless communal action is a better approach because it
is more effective than action taken at national, regional or local level

- Principle of conferral: the limits of EU authority are governed by the principle of conferral.
This doctrine of conferred powers means that the EU shall act only within the competences
conferred upon it by the Member States in the Treaties in order to obtain the objects set
down in the Treaties
- Under the principle of proportionality, the content and form of EU action shall not exceed
what is necessary to achieve the objectives of the Treaties

Direct applicability: a provision becomes operative in a Member State immediately without the
need for the national legislature to pass implementing legislation to incorporate it into national law

- Directly applicable EU law prevails in any conflict with national measures for states and
individuals

Direct effect: the EU legal order differs from international law in that it can create rights for citizens
that are enforceable before national courts

- For EU law to have direct effect, certain conditions must be satisfied

- Vertical direct effect: rights and obligations provided by EU law can be enforced by
individuals against the (member) state
- Horizontal direct effect: rights and obligations provided by EU law can be enforced by
individuals against other individuals

Direct effect (in detail)

• Direct effect of treaty provisions: the articles in a treaty have (both vertical and horizontal)
direct effect if they comply with the Van Gend conditions (Defrenne v Sabena 1978). There
are certain criteria that must now be met if a provision is to have direct effect (Van Gend
case 1963). The provisions must:

- Be clear and unambiguous

- Be unconditional
- Not require further action by the EU or a national authority

Direct effect of regulations: a regulation is directly applicable. The enforcement of its provisions is
immediate, as no national action is required to bring it into effect

- If it is considered by the ECJ to be too vague as to give individuals enforceable rights, it may
not have direct effect 🡪 Need more i.e. legislation
- Both horizontal and vertical direct effect

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Direct effect of directives: may have direct effect provided it is sufficiently clear, unconditional and
precise. It may still have direct effect even if it has not been adequately implemented into national
law 🡪 only vertical direct effect

- Marshall v Southampton Health Authority 1986 (a public sector authority, so directive

enforceable) 🡪 women had to retire at 60, men had to retire at 65, Marshall brought an
action, she got favoured in court

🡪 Compare

- Roberts v Tate and Lyle 1986 (a private sector company so directive not enforceable) 🡪
biggest sugar producer in the UK (Tate and Lyle)
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European Union Institutions

The European Commission: initiates policy and proposals for legislation to be adopted by the
Council of the European Union and the European Parliament

- It implements agreed policies and acts as the guardian of the Treaties 🡪 executive
- Power to fine organisations and individuals who act in breach of EU competition law
- Can negotiate international treaties for the EU
- Commissioners who sit in the Commission are nominated by the governments of the
Member State 🡪 Must be independent from national states and act for the good of EU

The Council of the European Union (EU Council): carries out policy-making and coordinating
functions

- It has a legislative function and adopts secondary legislation mainly together with the
European Parliament
- One minister from each of the Member States, although that member may vary depending
on the issue being discussed
- It coordinates economic policies and approves the EU’s budget together with the European
Parliament
- Qualified majority: a weighted voting procedure where the vote of each Member State
reflects the size of the population
- The Council of the European Union should not be confused with the Council of Europe
- Also not be confused with the European Council

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European Parliament: directly elected by the citizens of the Member States from national political
parties and participates in the legislative process

- It also has several supervisory functions: the Commission is accountable to Parliament and,
together with the Council of the European Union, it exercises budgetary supervision
- Legislative power: ordinary legislative procedure, formerly known as co-decision, requires
the Commission to submit a proposal to the European Parliament and the EU Council (both
must accept the legislation)
- Special legislative procedures: certain legislative proposals require a consultation procedure
or a consent procedure
o Consultation procedure: used in a limited number of legislative areas, such as
internal market exemptions and competition law, requires the Council of the
European Union to ask the European Parliament’s opinion on proposed legislation
before it can be adopted
o Consent procedure: gives the European Parliament the right of veto. It was formerly
known as the assent procedure

European Council: meeting of the heads of government of the Member States and is separate from
the Council of the European Union (EU Council)

The General Court: may hear all direct actions brought by private parties, but it does not have the
competence to give preliminary rulings

The civil service tribunal: this is a specialised court. It determines disputes involving the EU civil
service: disputes between employees of the EU institutions and the institutions themselves

Subsidiary institutions:

- European ombudsman: may hear complaints from any citizen of the Union about EU
institutions
- Committee of Permanent Representatives: this committee consists of diplomats who liaise
with the various government ministries as a preparation for the Council
- Economic and Social Committee: this is an advisory committee. Its opinions are not binding
but are persuasive
- Court of Auditors: not a court in the sense of a court of law. The duty of this Court is to
examine the revenue and expenditure of the EU. It must draw up an annual report, which is
presented to the other EU institutions

The EU legal order: the Court of Justice of the EU (ECJ): three courts: the Court of Justice, the
General Court and specialised courts. At present there is only one specialised court: the European
Civil Service Tribunal

- Ensure that EU law is observed

- Can hear actions against Member States and EU institutions
- Can give preliminary rulings (the answer given by the European Court of Justice concerning
a question on the validity or interpretation of EU law) on references from any national court

Court of justice (ECJ) (in detail)

Personnel: twenty-eight judges, with each Member State providing one

- Advocate General: review a case and present his opinion to the judges hearing the case. The
judges are not bound by his opinion and may accept or reject it

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Procedures: more in line with those of the civil law system than of the common law system

- Pleadings: commenced by the applicant filing an application, with the defendant serving a
defence in reply to the application and it is possible for the applicant to serve a reply to the
defence
- Preparatory inquiry: the case is first assigned to one of the judges to act as ‘rapporteur’. The
judge rapporteur must then produce a preliminary report
- Court proceedings: the oral proceedings are held in open court
- Judgment: each judge gives his opinion, even if that opinion is not in agreement with the
majority. No dissenting judgment

EU institutions: legislation

The internal market

Internal market: the TFEU, which came into force in 2009 as part of the Treaty of Lisbon, refers to
the internal market, rather than to the common market

- Free movement of goods, the free movement of workers, the freedom of establishment and
the freedom to provide services and the free movement of capital

Free movement of goods

Once called the common market, this is now referred to as the Internal or Single Market

Goods: not specific, but anything that can have a monetary value and can constitute the object of
commercial transactions (ECJ)

- To achieve economic integration

Removal of custom duties (a charge levied on goods because they have crossed the frontier) and
national taxes. Genuine taxes (internal duties are applied to a certain category of products,
regardless of the origin of the products) can be applied

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Common customs tariff: goods entering the EU from non-Member States. Once third countries have
paid the customs duties, which should be the same in all EU countries, their goods will be in free
circulation in the Member States

Quantitative restrictions: a national measure (any charge, whatever it is called or however it is

applied) that places a physical/non-pecuniary restriction on the amount of goods that may enter or
leave a state (thus, acting like a custom duty), for example, a quota (Article 34)

- Prohibited
- Measures equivalent to quantitative restrictions: also, prohibited (Article 34)
o Dassonville formula: all trading rules that (potentially) hinder trade within the EU
are considered as measures having an effect equivalent to quantitative restrictions
unless they fall within the ‘rule of reason’
- Article 36: unless the restrictions can be justified on the grounds laid down in this article

Distinctly applicable: measures applicable only to imports 🡪 breach of quantitative restrictions

(Article 34)

Indistinctly applicable: measures applicable to domestic and imported products alike 🡪 may still
have the effect of restricting imports. If so, Cassis de Dijon principle, also known as the rule of
reason principle, the measure could be void as contrary to the prohibition

- Mutual recognition principle: it is presumed that goods that have been lawfully marketed in
one Member State will already comply with the mandatory requirements of other Member
States

Article 36 justification
A quantitative restriction will not, however, be prohibited if it can be justified under Article 36 TFEU
(e.g. on the grounds of public morality or public health):

- Eyssen case 1981: disagreement within the scientific community as to whether cheese with
niacin posed a public health risk. Import restriction by the Dutch was therefore justifiable

But submissions by Member States will not be taken at face value

- Cassis de Dijon 1979: minimum alcohol level for cassis liqueur not justified
- Commission v United Kingdom 1982: blocking import of turkeys from outside the UK as
possibly diseased was not justified

Restrictions on imports and exports or goods in transit can be justified on some grounds 🡪
derogation: partial release from a law

Free movement of workers

Worker: a person, who is a citizen of a Member State, in genuine and effective employment (real
work) and performing services for an employer under his direction and control in return for
remuneration 🡪 A worker from one EU country has the right to work as an employee in another EU
Country

Residence permit: conditional on finding employment, but this right is not lost if the worker is
involuntarily unemployed

- There must be no discrimination between workers from different Member States

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Independent rights: right of residence in the country in which an EU worker has accepted
employment

- Dependent rights are granted to the family of a person with an independent right

There are certain exceptions to the free movement of workers on the grounds of public policy,
public security or public health

Freedom of establishment and the freedom to provide services

Right of establishment: gives both individuals and legal persons the right to set up a permanent
base for a business in a Member State other than their own

- Services means ‘services for remuneration, in particular activities of an industrial and

commercial character
o The distinction between providing services and establishment is not clearly defined
- Freedom to provide services: to provide services in a different Member State on a temporary
basis
- Geared up to self-employed people, firms or companies rather than ‘workers’

Some Member States have shown a reluctance to accept the professional qualifications of those
qualified elsewhere 🡪 harmonisation: (or approximation): to bring the laws of the various Member
States into line

The movement of capital

The basic principle is that there must be full freedom of capital movements and payments between
Member States and between Member States and third countries

- Economic and monetary union: the adoption of an economic policy is based on coordination
between the economic policies of the Member States, on the internal market and on
common objectives
o European central bank: is one of the institutions of the economic and monetary
union
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Competition law
Will affect undertakings (natural or legal person carrying on commercial or economic activity. It
includes a company, partnership, sole trader and association)

- External companies will be affected if they have a subsidiary in the EU and the parent
company exercises control

Merger control:

- EU test: if the merger would significantly impede competition within the internal market as a
result of the creation or strengthening of a dominant position
- The European Commission may stop a merger if the test predicts impeded competition

Examples of prevented mergers by the European Commission:

- General Electric and Honeywell: blocked even though the merger had been cleared by the
American authorities
- The proposed takeover of the Irish flag carrier Aer Lingus by the low-cost airline Ryanair. The
acquisition would have combined the two leading airlines operating from Ireland

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 - TNT Express and UPS: package delivery services. TNT is Dutch, UPS is a US based global
provider

At the EU level, enforcement is by the European Commission 🡪 The aim of the EC Treaty was to
create fair competition, efficiency, consumer protection and integration within the European
Community

- It first investigates, then informs the parties and, after a hearing, issues a Decision
- Each member state also has a national competition authority
- Measures that would hinder fair competition are prohibited

Restrictive practices: those that prevent fair competition. Such practices would include any
agreements that would prevent or distort competition within the internal market

Abuse (of a dominant position): the abuse of a dominant position in the market. There is no need to
show that the undertaking intended to cause harm

Article 101 TFEU: restrictive practices

Article 101 TFEU: prevent restrictive practices by prohibiting anti-competitive agreement. To
prohibit agreements, vertical or horizontal, that would restrict competition

- Prohibits all undertakings and concerted practices (practical co-operation between

undertakings instead of the risks of competition) where the object or effect is the distortion
of competition in the internal market (that hinder competition)
- Decisions by associations of undertakings
- Against cartels: where the major suppliers of a product, operating on a mixture of
agreements and concerted practices, coordinate their behaviour. This prevents competitors
entering the market and, where it affects trade within the internal market of the EU, it falls
under EU jurisdiction
o Cartel members can be heavily fined by the European Commission
- Exemptions can be given if agreements promote technical or economic progress, while not
acting unfairly to the detriment of the consumer
- Block exemptions: certain categories of agreement will not infringe EU competition law
- Severable contract: where a contract is treated as having several independent agreement

Example of prohibited agreement:

Commission vTelefónica and Portugal Telecom 2010:

- After acquisition by Telefónica of Vivo, a Brazilian mobile operator, which was until then
jointly owned by both parties, the parties inserted a clause in the contract indicating they
would not compete with each other in Spain and Portugal as from the end of September
2010
- Fined: € 79 million for illegal non-compete contract clause to stay out of each other’s
markets

EU Commission v cathode ray tube cartel 2012:

- Cathode ray tubes used in televisions and computer monitors

- 1996-2006 cartel for televisions and a cartel for computer monitors included Philips,
Samsung, LG Electronics, Chunghwa, Panasonic and Toshiba
- They fixed prices, shared markets, restricted output and allocated customers
- Fined: € 1.47 billion in 2012

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Article 102 TFEU: abuse of a dominant position
The aim of this article is to prevent an undertaking that has a commanding position in the market
from abusing that position

- Dominant position: the greater the market share an undertaking has in the relevant market,
the greater the likelihood of dominance. A dominant position is not in itself illegal, only the
abuse of that position. It is not defined in the Treaty, but it requires:
o Defining relevant market and
o Whether the undertaking has the power to prevent or exclude competition
- Abuse: not defined, only a non-exhaustive list of examples given

Anti-competitive abuses: the TFEU does not define abuse as such but lists types of anti-competitive
abuse. The following would fall under that heading:

- Unfair purchase or selling prices: prices that have no reasonable relation to the value of a
product, such as too high prices or predatory pricing, where the price of goods is set too low
in order to drive out competitors. Discriminatory prices arise where different customers are
charged different prices for the same product
- Exclusive dealing: where it is a condition of the sale that the buyer will deal only with that
seller
- Fidelity rebates: a loyalty discount is a reduction in price granted on condition that a specific
proportion of the buyer’s requirements are bought from the supplier
- Tying: where a condition of entering into a contract is that supplementary obligations are
entered into as well. In order to buy one product (the tying product), the buyer must agree
to buy a second product (the tied product) from the seller
- Limiting production: where a dominant undertaking refuses to supply another undertaking,
intending to drive it out of business [Refusal to supply]

European Commission v Microsoft 2004, 2013:

- 2004: Microsoft fined for refusing to supply competitors with interface information and
tying the Windows media player to the Windows pc operating system. Fined €500 million
- 2013: tying - fined for non-compliance with browser choice commitments. Fined €560
million

European Commission v Google 2010, 2017:

- EC investigation after a 2010 complaint filed by rival online shopping services

- EU Commission found that Google, with a market share in searches of over 90% in most
European countries, had abused its dominant position by giving prominent placement in
searches to its own comparison-shopping service and demoted those of rivals in search
results. It was fined €2.4 billion in 2017

Should be able to answer

- In some instances, EU law gives vertical and horizontal direct effect. Explain what this means
- When can the EU block a proposed merger and which institution is responsible?
- What is the function of the Court of Justice of the European Union?
- Are the rules on the free movement of goods always more important than national legal
rules?
- Business strategies can be affected by EU competition law. Explain how
- How is legislation made in the European Union?

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Lecture 9 – Corporate criminal liability
Common law: a common law crime is one created and enforced by the judiciary in the absence of a
statute defining the offence.

- UK: criminal law is largely laid down in statutes which either embody or modify the common
law. These statutes are in turn interpreted by a substantial body of case law

For most serious criminal offences 2 elements must be present:

1. Actus reus: the guilty act. It is an act, or an omission, that the law seeks to prevent
2. Mens rea: the guilty mind. This is a reprehensible, culpable state of mind at the time of the
wrongful act

Actus reus
Actus reus consists of all the elements of an offence apart from the mental element. For example,
the actus reus of murder consists of 3 elements:

1. An unlawful killing
2. Of a human being
3. Under the Queen’s peace

Types of actus reus:

- Conduct crime: the actus reus is constituted by the behavior, for example fraud by false
representation
- Result crime: the actus reus requires a particular consequence, or ‘result’, for example for
murder the result must be the death of a human being
- Omission: in Anglo/American law, there is no criminal liability for an omission to act unless a
statute or the common law imposes a positive duty to act

Mens rea
Mens rea of an offence describes the mental state of the defendant at the time of the offence

- The defendant must have a guilty state of mind at the time of committing the actus reus
- Each crime specifies what the mental state must be in order to be found guilty of that crime

For example, the mens rea of murder is specific intent: only intent to kill or cause grievous bodily
harm will suffice for the crime of murder

Types of mens rea:

UK USA (Model Penal Code)

Intention Intention (or purpose)
Recklessness: Knowledge
Negligence Recklessness
Negligence
Mens rea: Intention
Distinguish:

- Intention from motivation

- Direct intent from oblique intent:
- Direct: the consequence is desired
- Oblique: the consequence is foreseen as virtually certain even if not specifically desired

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Basic intent and specific intent crimes
Distinguish Basic intent crimes from specific intent crimes:

- Basic intent: for these crimes either the mens rea of intent or recklessness, for example
criminal damage
- Specific intent: for these crimes only the mens rea of intent (direct or oblique), for example
murder

Mens rea: Recklessness and negligence

Recklessness: taking an unjustifiable risk. The test for recklessness is subjective; the defendant was
aware of the risk and so acted unreasonably

- R v Cunningham 1957: this was an incorrect definition and the trial judge misled the jury
into believing that if the appellant had acted wickedly, he had also acted maliciously.
The correct test for malice was whether the defendant had either actual intent to cause
harm or was reckless as to the possibility of causing foreseeable harm. This is known as
“Cunningham Recklessness”

Negligence: objective test (reasonable man test); failure to meet the standard of a reasonable
person in that situation. The negligence must be gross to incur criminal liability

Strict liability crimes

Some crimes are Strict liability offences:

• Strict liability offences are an exception to the rule that there must be both an actus reus
and mens rea to constitute a crime
• No mens rea needs to be proved
• A company or other employer can be held liable for the strict liability offences committed by
employees through the doctrine of vicarious liability (US: doctrine of respondeat superior)

Strict liability crimes are mostly statutory offences. For example:

- Selling sub-standard food

- Putting dangerous products on the market
- A pollution prosecution
- Alphacell v Woodward 1972: The defendant operated a paper manufacturing plant
which involved maintaining tanks of polluting liquid near the river, so that pollution
would occur if they overflowed. There were pumps which ought normally to have
drawn off the liquid and prevented the tanks from overflowing. The pumps became
choked with brambles, ferns and long leaves: they did not function, and an overflow
occurred. Held: The pollution was caused by what the defendant had done

The company as a defendant for crimes requiring mens rea: UK law

Vicarious liability does not apply; the company must be held directly liable

• In UK law, the doctrine of identification generally applies: for legal purposes, a person is
recognized as being the company. But this needs at least one senior individual, to be seen as
‘the guiding mind’ of the company
• This senior agent must himself be guilty: he has the required mens rea and was acting for
the company

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Although in the UK the principle of identification generally applies to crimes of mens rea, there are
several major exceptions, for example:

• Corporate manslaughter: it is no longer necessary to find at least one individual with the
mens rea; a general management failure at a senior level will suffice (aggregation test)

USA Law: Federal law:

- Doctrine respondeat superior is applied as in tort law at the federal level. It holds
corporations liable for any agent’s acts, regardless of rank
- Doctrine of collective knowledge (aggregation test): the guilt of one individual is not
necessary. The mens rea can be derived by adding together the failings of several employees

State law:

- Relevant here is whether the state uses the Model Penal Code (MPC) as the foundation of
its criminal law
- Unlike the way the doctrine of respondeat superior is used in federal law, the MPC requires
that to hold the company accountable for felonies and misdemeanours, the crimes should
have been carried out by senior officers of the company; the ‘inner circle’
- So senior agents only to hold employer liable for all crimes other than minor offences

Employee as defendant
For crimes requiring mens rea, where carried out in the course of business:

• Only the employer liable: where the employer is primarily responsible for the
circumstances. Action is only taken against an employee if that employee has shown wilful
or reckless disregard, or for a deliberate act or omission endangering the health and safety
of others
• Only the employee liable: if the employee is not acting as an agent of the company, but as a
private individual for his own benefit, for example insider dealing

Offences against the person

Categories of crime:

- USA: has retained the old common law distinction of felony (serious crimes) and
misdemeanour (less serious crimes). Most states now classify felonies as crimes punishable
by death or imprisonment exceeding one year; misdemeanours are crimes punishable by
imprisonment for less than one year or only by a fine
- UK: did away with the common law distinction of felony/misdemeanour and replaced it by
indictable offences (serious crimes) and summary offences (less serious crimes)

Parties to crime
Principal; is the main perpetrator of the offence. If there is more than one principal, they are
referred to as joint principals

- Note: innocent agent; a principal may not always carry out the actus reus himself. He may
use another who could be an innocent agent

Secondary participation (accomplices or accessories); there are 4 kinds of secondary participation:

aiding, abetting, counselling, and procuring

- Accessory after the fact: person who assist the principal after the crime

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Homicide: Murder
Traditionally, it has been held that a company could not be guilty of murder because:

- The crime could not be punished by a fine

- It was a crime characteristic of natural persons (like rape or bigamy)
- But in a number of jurisdictions a company can now be found guilty of manslaughter

Homicide: Manslaughter
Involuntary manslaughter: has the actus reus, but not the mens rea of murder, as there was no
intention to kill. There are two types of involuntary manslaughter:

- Constructive manslaughter: unlawful, dangerous act manslaughter

o Criminal has set out to commit a lesser crime but has in the process killed a person.
For example, a person killed unintentionally during an arson attack
o Actus reus: an unlawful, dangerous act
o Mens rea: the mens rea of the lesser offence (e.g. recklessness) but held liable for
the death even where no specific mens rea for killing.
o But note that in the USA this is classed as felony murder not manslaughter

- Gross negligence manslaughter: the performance of a lawful act carried out with gross
negligence. Must show there was:
1. A duty of care owed to the deceased
2. Breach of duty
4. That breach caused the death
3. And the negligence was so gross as to justify criminal liability
o R v Adomako 1994: in cases of manslaughter by criminal negligence involving a
breach of duty the ordinary principles of the law of negligence applied to ascertain
whether the defendant had been in breach of a duty of care to the victim. On the
establishment of said breach of duty the next question was that of establishing
causation and, and if this could be so established, whether it should be characterized
as gross negligence and therefore a crime

Holding the company as well as individuals liable for manslaughter

Could a company be liable for gross negligence manslaughter?

• Despite deaths attributable to poor company practices, companies have usually been
punished by fines only under health and safety regulations
• Even where gross negligence, there was not always a criminal prosecution of the company
for manslaughter
• Piper Alpha oil rig disaster 1988

The UK doctrine of identification is a doctrine used in a number of jurisdictions

- The problem was that the doctrine made it possible to hold small companies liable for
manslaughter but difficult to hold large companies liable

Compare:

- R v Kite and OLL 1994: the managing director (Peter Kite) of the company sent a group of
students into the harsh sea and due to unforeseen errors, the canoes capsized, resulting in
four drowned and others badly injured. The company OLL ltd was prosecuted for corporate

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 manslaughter. And uncommonly, the conviction held and Peter (managing director) and his
company were each convicted of four counts of manslaughter charges

- P&O Ferries (formerly called Townsend Thoresen): The Herald of Free Enterprise 1987: A
total of 193 lives were lost after the bow doors of the ferry failed to close and the car deck
was flooded. An inquest jury returned verdicts of unlawful killing in 187 cases. However, the
corporate manslaughter case failed because the various acts of negligence could not be
attributed to any individual who was a "controlling mind".

🡪 This led in the UK to the Corporate Manslaughter Act 2007:

- An organisation can be convicted of corporate manslaughter where there has been gross
negligence
- The way in which the activities were managed or operated shows a breach of a duty to take
reasonable care for a person’s safety
- It is no longer necessary to show an individual, senior agent of the company was guilty. The
doctrine of identification does not apply

Corporate manslaughter Act 2007

A general management failure (aggregation test) at a senior level is sufficient i.e. can add together
failures by several people who have a significant role either at headquarters or in operational
management

- So even if no individual has the mens rea, a company can still be found guilty of
manslaughter
- The offence of corporate manslaughter applies only to organisations (corporation/company
or partnership if it is an employer)
- A senior manager with mens rea can still be prosecuted as an individual but under the crime
of gross negligence manslaughter
- R v Cotswold Geotechnical Holding Ltd 2011: Mr Wright was working in a dangerous trench
because the company's systems had failed to take all reasonably practicable steps to protect
him from working in that way. The company had ignored well-recognized industry guidance
that prohibited entry into excavations more than 1.2m deep. The company required junior
employees to enter into and work in unsupported trial pits, typically from 2–3.5m deep.
Became the first company to be convicted of the new offence of corporate manslaughter

Non-fatal offences
Assault and Battery: assault and battery actually mean two different things in law, but the word
‘assault’ is often used to cover both:
- Assault: actus reus is causing the victim to expect the infliction of violence, mens rea is that
of basic intent, the test being subjective
- Battery: actus reus is the unlawful, hostile application of force to the body of another, mens
rea is that of basic intent, the test being subjective

Statutory assaults: these are aggravated assaults:

- Grievous bodily harm (gbh): serious bodily injury
- Actual bodily harm (abh): not trivial or insignificant harm, but it need not be of a permanent
nature

🡪 USA: Most statutes define certain acts as aggravated batteries and punish them as felonies

- Serious bodily injury rather than grievous bodily harm, but abh used equally

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Inchoate offence: cover the preparatory stages of other criminal offences. There are 3 inchoate
offences: incitement, conspiracy and attempt

Offences against property

There are two categories of property offence:

- Property offences that require fraud, for example false accounting

- Property offences that do not require fraud, for example theft

Examples of fraudulent property offenses

UK: UK Fraud Act 2006: there are 3 ways of USA
committing fraud
False representation Approach varies from state to state, depending
on whether the state bases its criminal law on
the MPC
Failing to disclose information Specific fraudulent offences may distinguish
embezzlement from false pretences
Abuse of position Federal fraud statutes

False representation
False representation:

- Made a false representation 

- Dishonestly 
- Knowing that the representation was or might be untrue or misleading 
- With intent to make a gain for himself or another, to cause loss to another or to expose
another to risk of loss

🡪 Offence is entirely focused on the conduct of the defendant, not on the outcome

Failing to disclose
Failing to disclose information:

- Failed to disclose information to another person 

- When he was under a legal duty to disclose that information 
- Dishonestly intending, by that failure, to make a gain or cause a loss

🡪 Legal duty to disclose may derive from: statue, utmost good faith, implied terms, customs,
fiduciary duty

Abuse of position
Abuse of position:

- Occupies a position in which he is expected to safeguard, or not to act against, the financial
interests of another person
- Dishonestly abuses that position
- Intends, by means of the abuse of that position
o To make a gain for himself or another
o To cause loss to another or to expose another to a risk of loss

Corporate fraudulent offenses

Specific corporate fraudulent offenses: there are various specific corporate offences, although these
may overlap with other general criminal law provisions. E.g. in the UK:

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 - Under specific provisions, company officers can be held criminally liable as individuals, as
well as the company, for false accounting and false statements concerning the company
(overlap here with the general provision on fraudulent representations under the UK Fraud
Act 2006)
- Note that company officers can also be liable as individuals for the crimes of fraudulent
trading and for insider dealing/trading

USA:

- Embezzlement: grand embezzlement is a felony, petty a misdemeanour. Fraudulent

conversion of property of another by a person in lawful possession of that property
- False pretences: (grand and petty), obtaining title to the property of another by an
intentional (or knowing) false statement of past or existing fact, with intent to defraud the
other

Examples of non-fraudulent offences

- Theft: actus reus is appropriating property belonging to another; mens rea is dishonesty and
an intent to permanently deprive
o USA: Larceny: a taking and carrying away of tangible personal property of another
by trespass with the intent to permanently (or for an unreasonable time) deprive the
person of his interest in the property
- Handling stolen goods: receiving stolen goods, knowing them or believing them to be stolen
o Actus reus is receiving stolen goods or arranging to do so
o Mens rea is knowing or believing the goods to be stolen and behaving dishonesty
- Burglary: actus reus requires unlawful entry, mens rea is intent to steal or cause harm
- Blackmail: actus reus is an unwarranted demand with menaces, mens rea is intent to gain or
cause loss to another
o USA: extortion
- Criminal damage: actus reus is destruction or damaging of property without lawful excuse,
mens rea is the intent to destroy or reckless as to whether property is destroyed

Example: the Enron fraud trials

Enron filed for bankruptcy after its collapse in 2001. The CFO (Andrew Fastow) testified that many of
the banks’ transactions were contrived, deceptive deals done solely to create the false appearance
of profits and cash flow

- Enron’s chief executives found guilty of fraud, false statements and insider trading. They
were imprisoned
- Enron’s accountant, Arthur Anderson, fined $500,000 dollars and collapsed
- The banks Citigroup Inc and J.P. Morgan Chase settled with prosecutors: fined $255 million
for aiding Enron to disguise loans as cash

Insider dealing/trading
A person will commit the criminal offence of insider dealing if they have inside information and:

• That information is price-sensitive in relation to securities (e.g. buying or selling shares

advantageously). The information is specific or precise and has not been made public
• He/she deals in those shares, or encourages someone else to deal in those shares, or passes
inside information to another person

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 • The punishment for the criminal offence of using such confidential information is a fine or
imprisonment
• Primary insider: an individual who gains inside information by virtue of his/her position in
the company
• Could be a director, employee or professional advisor, e.g. an independent
accountant advising the company
• The offence applies both to the primary insider and the one who receives and uses
the privileged information from the primary insider

Bribery
It is a criminal offence either to: offer a bribe or receive a bribe

• Until the 1990s, it was the case in many market economies that bribing foreign officials was
not seen as a criminal offence: it lubricated world trade
• For example, paying bribes abroad was legal in Germany until 1999; it was tax deductible
• That has changed: corruption, including bribing foreign officials is now generally a criminal
offence. See for example, OECD and UN conventions
• Siemens AG prosecutions 2008: fined $1.6 billion in the USA: the largest fine for bribery in
modern corporate history. Siemens had paid millions in bribes e.g. in Bangladesh, Nigeria,
China, Argentina

🡪 In some jurisdictions, like in the states of the USA and Europe, bribery is an offence either where
public officials are involved or whether it is so-called commercial bribery (bribes are offered and
accepted by those in the private sector)

Corporate liability for bribery

A company is liable where a senior agent of the company has offered a bribe or received one: the
doctrine of identification applies to this offence

• But in UK law, a company can also be liable simply for failing to prevent bribery, where the
bribery took place with the intention to obtain a business advantage. The doctrine of
identification does not apply to failing to prevent bribery
• Failing to prevent bribery is a strict liability offence. But a defence: the commercial
organisation must be able to show that adequate procedures were in place to prevent
bribery
• Rolls Royce 2017: the ‘corporate offence’ of a failure to prevent bribery being committed by
an associated person to obtain or retain business or a business advantage

Corporate liability for hacking

Computer hacking: it is a criminal offence to have unauthorised access to computer systems

- Unauthorised access with the intention to commit a serious crime

- Unauthorised access with intent to commit or facilitate the commission of a serious crime
(i.e. theft or fraud)
- Unauthorised modification of computer material, or to obtain or disclose personal data

Phone hacking: a criminal offence, for which a corporate body as well as the individual can be
prosecuted

In the UK, Andy Coulson, a former senior editor of Rupert Murdoch’s News of the World, was
sentenced to 18 months in prison for his part in the News Corporation phone hacking scandal

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General defenses
- Infancy: children (in the UK under the age of 10 years) cannot be held criminally liable
- Insanity: the defence must show that at the time of the act the defendant was under such a
defect of reason, from disease of the mind, as not to know the nature and quality of the act
he was doing (the M’naghten Rules)
o If established, the verdict is ‘not guilty by reason of insanity’
- Diminished responsibility: a defence applying only to murder – where a person is suffering
from such abnormality of mind as to substantially impair his mental responsibility
o If successful it reduces a conviction for murder to one of manslaughter
- Automatism: rare situations where the defendant is not legally insane, but for some reason
he is unable to control what he is doing
- Mistake: strictly speaking not a defence, but a mistake or an accident can negate liability if it
negates mens rea
- Consent: again not a true defence but if the victim consents, then a part of the actus reus is
usually but not always missing
- Intoxication: if the defendant does not have the necessary mens rea because he is
intoxicated with alcohol or drugs, this should lead to an acquittal
o Voluntary intoxication is not a defence to crimes of basic intent. In crimes of basic
intent, the mens rea is then assumed. In crimes of specific intent it may be a defence
but not if it can be shown that the intoxication did not prevent the defendant from
having the intent
- Private Defence: covers self-defence and the defence of others, defence of one’s property,
preventing crime and assisting a lawful arrest. The defendant may use only necessary and
reasonable force
- Loss of Control: may reduce a charge of murder to one of manslaughter. There is no
requirement that the loss of self-control be sudden
o Requires that a person of the defendant's sex and age, with a normal degree of
tolerance and self-restraint and in the circumstances of the defendant, might have
reacted in the same or similar way. This is a question for the jury to decide
- Duress: where the defendant is forced by someone else to break the law either by the threat
of serious harm or by duress of circumstances (similar to necessity)
- Necessity: there is no general defence of necessity, but there is a limited defence similar to
duress of circumstances where the defendant was faced with a choice of two evils

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Article: Indicting Corporations Revisited

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Should be able to answer
- What are the two elements necessary for most serious criminal offences?
- What is a strict liability crime?
- What is the difference between murder and manslaughter?
- In what circumstances can a company be found guilty of manslaughter?
- Explain the differences between the UK doctrine of identification and the way the federal
courts in the US apply the doctrine of respondeat superior in criminal cases
- In what circumstances can the company as well as individuals be held liable for bribery?

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