The concept of Doctrine of Identification finds its roots in the English Law. The growth of this doctrine has helped in the implication and prosecution of the criminal activities of directors / managers of many companies.
The corporate personality of a company is different and separate from the promoters, directors or owners of the company. This is a widely known principle in law and has its source in the celebrated case of Solomon v. Solomon. In this case, the Court held that the corporate entity is different from the people who are in the business of running of the company. The misuse of this principle led to “Lifting of the Corporate Veil” wherein the shareholders or creditors of the company are protected if the company is engaged in any fraud or other criminal activities.
A corporate entity can sue and be sued in its own individual name. In criminal cases, the company can be prosecuted against but it is quite ineffectual as the company cannot be punished with imprisonment or death. The only punishment that can be levied on the company is by way of fine, which at times is quite minimalistic. The question then raised is whether a company can ever be prosecuted for criminal offences and be punished with more than just a monetary fine.
The Courts in England, during the 1940s had in various judgments like DPP v. Kent & Sussex Contractors Ltd. R v. ICR Haulage Ltd. and Moore v. Bresler Ltd. ruled that the corporate personalities could be subjected to criminal action and the companies were held liable for crimes requiring intent (mens rea).
In light of the above, the Doctrine of Identification was promulgated so as to affix liability of the crimes committed by the people in charge of running the company.
This theory states that the liability of a crime committed by a corporate entity is attributed or identified to a person who has a control over the affairs of the company and that person is held liable for the crime or fault committed by the company under his supervision.
The growth of this doctrine has been in the early 20th century, over many common law countries.
In the case of Director of Public Prosecutions v. Kent and Sussex Contractors Ltd, where the defence was taken that the company is incapable of forming criminal intent as it did not have the will or a state of mind, the Court held that the company can form its intentions through its human agents and in certain circumstances (like in this case) the knowledge of the agent has to be imputed to the body corporate.
In H.L. Bolton Company v. T.J. Graham & Sons, Lord Denning as explained the position and said that the company could in many terms be equated with a human body. They do have a brain and a nervous centre which controls the entire body. They have people as their hands and legs, under instructions of whom work of the nervous centre is carried out. Lord Denning equated the brain and nervous system to the directors and managers who represent the directing will of the company. He held that:
“………The state of mind of these managers is the state of mind of the company and is treated by law as such. … So also in the criminal law, in cases where the law requires a guilty mind as a condition of a criminal offence, the guilty mind of the directors or the managers will render the company themselves guilty.”
In the celebrated case of Tesco Supermarkets Ltd. v. Nattrass, the Appellant was marketing a packet of washing powder at a price lower than the market price, but the Defendant did not find the packet of washing powder at the reduced price, as advertised. The Defendant therefore filed a complaint under the Trade Descriptions Act, 1968. One Mr. Clemant of the Appellant was in charge of the packets with the reduced price being displayed in the store. Lord Reid discussed the law relating mens rea and the importance of the same in criminal law.
“A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent. In that case any liability of the company can only be a statutory or vicarious liability”
Lord Reid also discussed which people can be ¨identified¨ with the company. He stated that the main considerations are the relative position he holds in the company and the extent of control he exercises over its operations or a section of it without effective superior control. In this case, it was held that the shop manager could not be identified with the company.
In Meriden Global Funds Management Asia Ltd. V. Securities Commissioner, Lord Hoffman discussed the principle of identification and stated that if an employee had be considered the ¨directing mind and will¨ of the company, the employee should have the authority to act as he did. In the same case, the Court in its obiter stated that conviction of a smaller company is easier (on application of this principle) because the relationship between the culprit and the company can be identified with more ease and certainty. That is not the case in larger companies.
In Lennard's Carrying Co. v. Asiatic Petroleum Co., Viscount Haldane propounded the “alter ego” theory and distinguished that from vicarious liability. The House of Lords stated that the default of the managing director who is the “directing mind and will” of the company, could be attributed to him and he be held for the wrongdoings of the company. It was famously stated that:
“ .. a corporation is an abstraction. It has no mind of its own any more than a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes maybe called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.”
There was a different view taken in Tesco Stores Ltd. V. Brent London Borough Council wherein a store clerk sold a over -18 video to an underage customer. The Court noted that Doctrine of Identification could not be applied here and the company was hence not liable. The reason for this decision was that in a large company, the senior management could not be expected to know each and every customer and whether the customer was a minor or not. In that event to locate a person for this knowledge was hence impossible and the doctrine of identification was hence inapplicable in this case.
Again in R v. Redfern & Dunlop Ltd. (Aircraft Division) , the Court held that where the employees who were not in the decision making level could not be ¨identifiable¨ with the company and therefore were not deemed to be the controlling mind of the company. The question that comes up is that if a person at a lower level commits a crime in the name of the company, the company cannot be held liable for the same. This may pose to be a problem in the sense that the company may make a division between the senior management and the employees to avoid criminal proceedings against them.
Vicarious Liability Vis-A-Vis Identification Doctrine
Vicarious liability is a doctrine wherein the company is held liable for the negligent acts of the servants / agents. The doctrine of identification supposes a situation where the crimes committed by the company can be directed towards the directors / managers of the company who are the directing mind and will of the company and they are held liable for the acts committed by a separate legal entity namely the company. Vicarious liability is a reverse proposition where the negligent agents of a servant/ agent during the course of his employment or agency, are deemed to be the acts of the company and the company is held liable to make good the same. In the doctrine of vicarious liability, the servants/ agents are being protected under law for the negligent acts done by them, during the course of their employment / agency. On the other hand, doctrine of identification holds the directors / managers who are involved in the criminal activities through the company, liable.
The directors/ managers try to avoid the penalty by taking the defense that the company being a separate legal entity, should be prosecuted separately. The problem that arises in particularly criminal cases is that, the punishment for the crimes are fine and / or imprisonment. If the offender is a company, only a a monetary penalty can be imposed. This led to more offences being committed on the name of the company by the directors/ managers, who are protected under the ¨separate legal entity¨ theory.
By this doctrine of identification, those offenders are being held liable for the acts committed by the company. The main objective of the doctrine is to punish the people who are actually committing the crime who are the brain and mind of the company through which the crime is being committed.
Thus in conclusion, the doctrine is paraphrased in this manner:
“The Court appears to be using the term ‘doctrine of identification’ for a broad set of principles on which actions of an individual who is ‘identified’ with a company can be attributed to the company and considered to be actions of the company itself. This is distinct from vicarious or agency-based liability. In the case of vicarious liability, the company would be liable for the acts of its servants/agents. In the case of attribution, the acts will be in law the acts of the company itself”