#10837 - Corporate Regulation And The Role Of Asic - Business Associations 1

Adler v ASIC [2003] NSWCA 131

Giles JA dealt with the issue of compensation. His honour noted that causation under the statute does not adopt the more stringent (easier to satisfy) test for causation in equity

• The words “resulted from” in s 1317H are words which refer only to damage which as a matter of fact was caused by the contravention – only this can be the subject of an order for compensation

  • By contrast the stringent test of equity only requires that a breach was a cause of the relevant loss – even if there is other immediate operative causes, there is no room for speculating as it whether the loss might have occurred even without the wrongdoing or whether it might have been avoided under certain contingencies

• In the court below it was decided that both under the common law and in equity the same result would have occurred – this is because the only intervening cause that could have happened was the chance that the board may have given the $10m payment a priori approval

• Evidence was adduced to the effect that the board would have subsequent ratification, in the words of Gardner ”probably in the end, probably it would have been approved”.

• His honour did not interfere with the TJ in the court bellows holding that the result would not have been the same either way – this was because it was very unlikely that the purchase of shares from Adler corporation would have gained approval

Fisse B and Braithewaite, J, Corporations, Crime, and Accountability

1. The authors point to two problems with public enforcement of liability on corporations – the incentive to prosecute corporations rather than individuals as a short-cut and the inadequacy of internal disciplinary mechanisms to hold individuals accountable within the corporate structure because of the lack of incentive to do so. In light of this, the authors conduct an empirical study of how existing theories help to resolve these problems and make a normative suggestion as to how to achieve accountability for Corporate Crime

2. A number of examples are cited to back up the idea of non-prosecution of individuals, two include:

   1. E.F. Hutton and Co. a brokerage firm engaged in a massive fraudulent scheme by which 400 banks were defrauded of $8m. Only the company was prosecuted and the justification given was balancing the ability to obtain a quick settlement and avoid a court fight

   2. In Australia 41/96 regulatory agencies said they preferred to target the corporations rather than individuals; 20 said they would target individuals and these were in the areas of mine/maritime safety (where legislation is actually focused on managers in the former case), maritime safety and pollution regulation

3. Other examples are used to demonstrate the same for non-assurance of internal accountability – the authors further note that companies have strong incentives not to take disciplinary measures (it would be disruptive, embarrassing, encourage whistle-blowers and could be hazardous in the event of civil litigation claims)

   1. One AU example is the case of TPC v Pye for resale price maintenance in violation of the TPA. At sentencing the court concluded an almost total lack of supervision or interest by the BOD in the conduct of their management and executives IRT resale price maintenance. But the court, being uninformed as to the nature of the company’s disciplinary violation –made no finding as to this and imposed a penalty of $120,000

   2. The authors also note a death on empirical research in this area of corporate legislation

4. They then go on to point out why corporate accountability for crime is important – the chief quote of which is John Stuart Mill who argued that “Responsibility is null, when nobody knows who is responsible. Nor, even when real, can it be divided without being weakened. To maintain it at its highest, there must be one person who receives the whole praise of what is well done, the whole blame of what is ill” – a number of prominent speakers are quoted who demonstrate similar concerns

5. The authors draw attention to the fact that regulation has generally turned a blind eye to the reality of legal liability which confers a de facto immunity on managers. They point to the risks of a breakdown of social control (already evident in toxic waste regulation etc.) especially in light of the increasing prevalence of the corporate form to conduct actions

6. The authors then make a normative judgment saying that those responsible should be held responsible – and this is only possible by legal systems recognizing corporate systems of justice

   1. They base this idea on the fact that corporations have both the will and capacity, while courts only the former, to do so. Thus a solution can bring this facet of the firm, and the public justice systems demand for accountability to the fore

   2. This would be done by an accountability model which would involve holding a metaphorical ‘axe’ over the head of the company by sanctions of liquidation if the company does not utilize internal regulatory mechanisms

Moussel Bros v London and Northwestern Railway Co[1917] 2 KB 836

Facts:An Act required owners of goods conveyed by rail to give the collector of tolls, on demand, an account...