Parent Company Liability (nothing to do with vicarious liability)

Dear old Mr. Droog works for Fyodor Ltd in the 1960s. Fyodor Ltd was a bit bad, and exposed Mr. Droog to batemanium, a chemical that caused Mr. Droog to go blind in his later life. By the time Mr. Droog suffers his loss, realises the cause, and wants to sue, Fyodor Ltd is history. It was wound up. Can Mr. Droog sue the extant parent company, Dostoevsky Plc?

By Chandler v Cape [2012] EWCA Civ 525, he can. The Court of Appeal agreed with the judge at first instance, and upheld the imposition of parent company liability. This was because the parent had assumed responsibility for the safety of its subsidiary’s employees.

What I find interesting about this case is the fact that it has no relation whatsoever with vicarious liability. Arden LJ made passing reference to the fact that the first instance judge had not found liability on “any form of vicarious liability”. That’s the only mention it gets, and no vicarious liability cases were cited in argument. Google “chandler cape vicarious”, and you get the square root of hee-haw.

Given that it was accepted by the parent in Chandler v Cape that the subsidiary would have been liable, it seems surprising that there was no argument at all regarding whether the parent ought to be liable vicariously. If vicarious liability were to apply to parents and subsidiaries, the parental liability would be a slam-dunk success.  Instead, counsel for the claimant argued for the direct liability of the parent. It is worth noting that counsel’s approach was breaking new legal ground, in that the idea of ‘parent company liability’ is new. Although the approach taken is a far less iconoclastic approach than arguing for vicarious liability. All the court had to do was accept that the normal rules of assumption of responsibility in the tort of negligence could apply to the parent company, and did indeed apply on the facts of the case.

I think the reason why vicarious liability was left to one side can be explained in this quote:

“69  I would emphatically reject any suggestion that this court is in any way concerned with what is usually referred to as piercing the corporate veil. A subsidiary and its company are separate entities. There is no imposition or assumption of responsibility [read, liability] by reason only that a company is the parent company of another company.”

This concern is fair enough. If we are to have “limited liability” companies, and the bundles of legal risk are supposed to be capable of being parcelled up and apportioned amongst a corporate group, vicarious liability might be the wrong approach.

But let's apply this logic to natural beings. Why should it be that we (as individuals or companies) be liable on one set of terms for the acts of natural persons we employ (vicarious liability is expressly fault free) but a different set for the actions of legal persons we own (where normal tort rules apply)?   Is the commercial uncertainty caused by a raggedy corporate veil a better reason to keep liability separate than the moral oddness of being responsible for the vulgar, deliberate and secret acts of your employees?

Put another way, if the correct way to decide if a parent is liable to its subsidiaries employees, or Borstal guards are liable to terrorised residents[1] is through the application of a general tortious test that incorporates an element of fairness, why is that different for companies and employees? Given that vicarious liability is dogged by uncertain theoretical foundations, ought it ignore the more stable reasoning afforded by the general law of negligence? Abandoning vicarious liability in favour of the general test would replace strict liability with fault based liability, and import a measure of fairness. Vicarious liability cases could be re-theorised to fit that model. The role of control would be more central. And in those cases where the employer is truly blame free, they would not be saddled with a tort liability they could have done nothing to avoid. 

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[1] I’m referring to the Dorset Yacht Co Ltd v Home Office [1970] AC 1004 

Minimum Alcohol Pricing in Scotland 3: A Decision

I have blogged about minimum pricing before; both on its possible illegality, and on the SWA’s approach. Now a Scottish court has heldthat there is no problem in law with the proposals, and so it would appear minimum pricing will become a reality. (Except that other EU states are challenging the measure at a higher level, as reported here).

I don’t propose to go through all the aspects of the judgment, which is here, at any length. I am more interested in the free movement of goods (FMG) issue, which I discussed before. This was, as I understand, the main argument of the SWA. Other arguments, including ones based on the Scotland/England Acts of Union hardly passed a smell-test.

On the FMG point, it was held that the Scottish measure did impinge on free movement, but was justified on the basis of the protection of the life and health of humans (Art 36 TFEU). This is a treaty-enshrined basis that allows derogation from strict free movement of goods. Lord Doherty held that there was a legitimate aim, and that the measure was proportionate to that aim.

[55] There is overwhelming evidence of grave health, social, economic and public order consequences caused in Scotland as a result of excessive alcohol consumption. Such consumption by harmful and hazardous drinkers is particularly concerning, and is harmful to those drinkers and to others. On the basis of the material placed before me I am in no doubt that reduction of alcohol consumption generally, and reduction of consumption by hazardous and harmful drinkers in particular, are both legitimate aims in terms of Article 36.

…

[64] If … alternative measures would be just as effective as minimum pricing in achieving the legitimate aims being pursued, the contention that they would be less of an obstacle to freedom of movement of goods would appear, at least prima facie, to be logical and have force…

…

[73] The petitioners [argue] that excise duty on alcohol can be increased as much as is necessary to raise the prices of cheaper products to desired levels. Such an approach would not affect, or target, drinkers of cheaper products only: but it could subject them to price increases of at least the same order as under minimum pricing. … In those circumstances [an excise duty] would be no less effective in reducing the consumption of cheap alcohol or the consumption of alcohol by hazardous and harmful drinkers.

…

[77] That argument would have been more persuasive if the legitimate aims of the measures had been to reduce consumption, including consumption by hazardous and harmful drinkers, to the maximum extent possible regardless of possible economic or social consequences. However, those are not the aims of the measures. Rather, the relevant aims are [ [54][striking] a reasonable balance between, on the one hand, public health and social benefits, and, on the other, intervention in the market … The Parliament and the Ministers recognised that many people have "a balanced, positive and enjoyable relationship with alcohol": such drinkers are not the target of the measures. The major problem is excessive consumption of cheap alcohol. The measures seek to address this by increasing the price of such alcohol.]

This is proportionality doing what proportionality does worst. Proportionality, as a concept, is primarily found in EU law. If measure is tied to a legitimate aim, and goes no further than necessary to achieve that aim, it is proportionate. On this occasion, that has the net result of blowing an FMG argument out the water.

But note the judicial sleight of hand. We have defined the aim of the measure such that there is much less scope for an alternative, less-FMG-infringing measure. An excise duty would raise all prices, and that is not the aim. The aim is to increase prices of cheaper products only. But it is precisely the increase at the lower end that means there is an FMG issue – a foreign drinks company now can’t compete on pricing. By defining the aim of the measure with such tight reference to the measure made the proportionality hurdle a much lower one for the Scottish Ministers to clear.

Being a City lawyer: Pro Bono

Here’s the thing, kid. Corporate lawyers aren’t into charity work. Or at least, they aren’t as part of their day-to-day. Some of them are excellent people who do marvellous charitable things, but it can’t be allowed to get in the way of the job.

I’ve been to a couple of graduate recruitment events, and students ask about the extent of pro bono work at my firm. Truthfully, if you want to be helping people with landlord disputes, benefits and immigration issues, don’t come to the City.

City firms often have a pro bono commitment. You can do a set number of hours on business time of pro bono work, take days off to do charitable things, give ad hoc advice at drop-in legal clinics. The theory behind this is a bit odd, I think. It is supposed to show clients that the firm is committed to doing good deeds, and this is supposed to make clients want to use the firm. Frankly, everyone knows that both the firm and the client exist to make money, and therefore, to my mind, the idea of impressing clients with these efforts is backward. If a firm spends firm time on charity, it basically needs to charge more to cover those costs (or, certainly, it will make sure any pro bono work achieves a net positive financial result). The client is then (in theory) paying more so that the firm can spend it (given time = money) on someone else. Cut out the middleman, chaps. Let the clients give direct.

The problem too is that City firms aren’t really cut out to give the pro bono advice that is most needed. Commercial property lawyers don’t know about residential tenancy rules. Those who advise on complex international construction disputes aren’t really your first choice consumer litigation advisers. Maybe they’d be better providing services (books, facilities, trainee resource) to those lawyers who can do those things.

Ronald Dworkin, Tom Bingham and the Rule of Law

Modern jurisprudence has lost one of its most renowned intellectual heavyweights. Ronald Dworkin was the legal philosopher who really challenged HLA Hart’s “Concept of Law”, and in so doing, shaped many theoretical debates from the 1970s onwards.

As an undergraduate, I did not subscribe to Dworkin’s beliefs. I must confess that it may well have been largely due to my inability to really grasp his arguments, and nail down how his views changed over the years. This is not a flaw in his writing; I am not sure I could promise I read his books with anything like the requisite diligence. As a full time working chap, I was delighted to come across this piece, which outlines the Hart v Dworkin debate; although I would caution that I think Shapiro’s proselytising at the end may go so far as to his view on what the debate is, not just his view in the debate.

Dworkin believed moral principles were part of the law and any theory of law had to account for them. Sometimes law runs out, and morality plugs the gaps. I hope I’ve not simplified too brutally.

I prefer, where possible, to keep law and morals separate (not in my day job, of course). As I’ve discussed before, what is legal and what is good form are not one and the same. I do not know how helpful it is to get bogged down in typographical issues of what can therefore be ‘law’ or (as Finnis would have it) the central case of law. I prefer to identify law, and then decide if it’s any good.

Which reminds me of a book by another legal superstar, Lord Bingham. In The Rule of Law, Bingham argues for a ‘thick’ ‘Rule of Law’. The rule of law, or the principle of legality, is a nebulous concept that many different authors have ascribed many different meanings. At its core, it’s about all people being subject to clear rules, applied by an independent judiciary. In this thin meaning, it is a sword that can cut both ways. It is feasible to have malicious, discriminatory laws that conform to the definition[1]. Bingham argues for a ‘thick’ definition, that includes the substantive protection of Human Rights.

For all that I disagree, I have sympathy with his view. Bingham had such an enormous impact on human rights protection in the UK, and if I were him, I’d include ‘human rights protection’ as part of my definition of ‘breakfast cereal’, never mind ‘the rule of law’. My point remains, however, that as the bare legality principle can be conceptually distinguished from the substantive protection of human rights, it should be. In legal theory, I don’t want catch-all handles. The more elements to a definition, the more utopian and inapplicable the definition becomes.

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[1] And this is what Joseph Raz would tell you the Rule of Law is. 

My Reaction to Starbucks' Reaction to the Public Reaction to Starbucks not paying tax.

It is a hard thing to live a moral life. I have vegan friends, who would insist that the delight I take in [eating] a melting slab of pork belly is depraved. There are difficulties in both utilitarianism and deontology, the two major competing schools of moral philosophy. And what happens when morals run out, and you have to choose between ‘fighting the Nazis’ and ‘saving your grandmother’[1]?

And there’s always the temptation of a gingerbread latte in a red cup, a sweet elixir that the fourth wise man brought Jesus 2000 years ago.

The Starbucks story is well known. Through internal corporate group transfers and payments, Starbucks can manipulate where profits end up. Usually, they end up in countries with lower rates of corporation tax, so that the Starbucks family can cream off the biggest chunk of money that it can. This is a standard sort of ‘tax avoidance’, a perfectly legal way of arranging your finances. But as we know, what is legal is not always what is moral.

Another time, I will look at two ways a state can deal with tax avoidance in law  - retrospective law making and a ‘general anti-avoidance rule’ (or GAAR).

For present purposes, I am more interested in the corporate communications of Starbucks. To me, they look stupendously ill advised.

The initial Starbucks reaction was hilarious. In it, Starbucks claimed to be acting not only to the letter of the law, but in its spirit as well. The ‘spirit’ of taxation, in my view, is that those who benefit from society contribute to it. Not that you move your money away to low tax jurisdictions which are not realistically your key business centres so you can benefit handsomely  Starbucks also claimed to pay £160m in the UK in tax, including in National Insurance, business rates and VAT. Forgive me, but isn’t VAT a consumer tax, paid at the very end of the supply chain? I paid some VAT for Starbucks; give me a medal.

A month or so on, and it’s now reported that Starbucks has acknowledged the ”feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more”.

I like many things about this statement. One, that it’s taken a month or so, and public feedback, for Starbucks to see that their approach sticks in the craw of your average UK taxpayer. Jimmy Carr could have told them tax avoidance isn’t popular. Second, is that it reeks of the corporate sentiment of maintaining customer loyalty, when really what is needed is an appreciation that paying tax is a good thing for society. Capitalism does not necessitate that you forget the world outside your direct business chain. Finally, the ‘need to do more’. No, the need to do the right thing. It’s not more. It’s standard.

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[1] I have no idea if this is a common example. I’ve lovingly borrowed it from John Finnis. 

Phone Hacking Charges: What do we need to prove?

It’s been widely reported that eight people related to News International are facing charges relating to the phone hacking scandal. This post details what the prosecution will have to prove to secure a conviction. The charges are for conspiracy to commit an offence under section one of the Regulation of Investigatory Powers Act 2000, regarding ‘unlawful interception of communications’.

For a defendant to be convicted, they will need to be:

1.       A person

2.       Who agreed

3.       With another person to

4.       Intentionally and

5.       Without lawful authority

6.       Intercept

7.       ,In the UK,

8.       A communication

9.       Made by a private telecommunication system

10.   In the course of its transmission

11.   Without having the right to control the operation or the use of the system; and

12.   Without consent to make the interception

The first three tests are the ‘conspiracy’ requirements. By the Criminal Law Act 1977, a person guilty of conspiracy to commit crime X is liable to be punished as harshly as a person who actually committed crime X. A conviction here could result in a prison sentence of up to two years.

Crib sheets like these are useful things. They let you see where argument in court really happens. No one will argue in this case that they aren’t a person, aren’t in the UK, or that a victim asked them to tap phones. I imagine some or all of the defendants will argue that they had nothing to do with phone tapping, that it happened where they were working but they didn’t know about it and weren’t involved.

It’s interesting that the prosecutors have gone for the ‘inchoate’ offence of conspiracy. Inchoate offences are the step behind the actual commission of an offence. Attempted murder or conspiracy to defraud. The attraction for a prosecutor is that you don’t need to show that the thing happened. Here, the actual phone tapping will be excellent evidence that the defendants conspired to do it, but prosecutors don’t need to show that Rebekah Brooks sat down one day and hacked phones.

Inchoate offences are interesting because it makes us wonder about why things are bad. Attempted murder can result in the same sentence as murder, because why should an incompetent or unlucky assailant get off lightly? But, the reality is, a conspirator need not necessarily have caused any harm. When we decide what crimes are, should we be more concerned with harm caused or the intrinsic naughtiness of an action? If one pushes the boundaries of conspiracy too far, you can end  in the realms of fantasists. Which is exactly what this policeman is arguing – he says he never actually intended to do the thing (my step 2). 

Unfair or Unread Standard Terms

I’ve not long moved into a flat. To get to stay in the flat, I signed a lease agreement. Because I’m a man who likes some law, I read my lease. One of the terms was that I have to regularly iron my net curtains for the duration of my stay.

I doubt very much that anyone will notice if I do, or do not, iron the net curtains. In fact, there are no net curtains. Or indeed curtains. So I’m almost certain no one will mind that I don’t iron the non-net not-curtains. The terms in the lease were standard terms, used by our estate agent, and likely others, when they rent out residential property for short periods to normal, average people.

These standard term agreements abound. You buy a plane ticket, update iTunes, sign up to phone contracts, change bank accounts, and all the time you’re ticking boxes or signing forms saying you agree to terms and conditions. And you’ve not read them. Easyjet have tickets, I have money, and I can’t negotiate with them. Their terms will have to do, and so I’ll tick the box.

There is statutory protection for us little Droogs when dealing with Fyodor Ltd’s standard terms. Landlord and tenant law is a peculiar area that I won’t delve into here. But the main protection for consumers dealing on standard terms with companies come from two pieces of legislation.

The Unfair Contract Terms Act deals with clauses that exclude or restrict liability under the contract, but applies to all contracts. The Unfair Terms in Consumer Contracts Regulation deals only with standard form consumer contracts, but with all types of clauses in them. If a clause is unfair, then it doesn't bind the consumer. The UTCCR can’t be used to challenge clauses dealing with the price in the contract, or the key subject matter. That why the (controversial) banks charges case in failed[1]. The charges on letters sent by banks form part of the price you pay for their services.

But I’d like to think that another bit of law could apply. When you sign a contract it is immaterial if you’ve read it[2]. In cases where there is no signature, then terms must be reasonably brought to the attention of the party accepting those terms[3]. But there is doctrine of ‘non est factum’. It allows those who are faultlessly unable to read a document from being bound to its terms by their signature. Traditionally, that’s blindness and illness. Further, the key case of Saunders[4] says that the doctrine would only be available to such a person when they were held to a contract radically different from that which they thought they were entering into, and would not be available to a careless person. So the capable but lazy man who misses the small point in the standard terms but signs anyway decidedly cannot plea non est factum[5].

I can’t help but think that the old cases lay down principles that apply at a very different time. Now, it is simply not plausible that anyone (including the Supreme Court Justices) read standard terms every time they book a flight. Are terms buried in reams of small print reasonably brought to our attention before we tick the box? Should the principle behind non est factum apply? I think there is, therefore, an argument to say you should only be taken to agree to standard terms that you could have realistically actually read.

It’s hard to say how big an issue this is. It’s not like Dostoevsky Ltd.’s terms give them an interest in your house, or permission to enslave your first-born. And unfair terms law prevents them introducing too onerous charges and exclusions. But no obligations should be imposed on anyone lightly. And contract law is generally about the agreement of intentions. So why should Mr Droog be bound by stuff he could not reasonably be expected to put his mind to?

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[1] [2010] 1 A.C. 696

[2] L'Estrange v F Graucob Ltd [1934] 2 KB 394

[3] Parker v South Eastern Railway Company [1877] 2 CPD 416

[4] [1971] A.C. 1004

[5] Non est factum means not my deed.