Die Mercurii, 31° Martii 1971
Parliamentary
Archives,
HL/PO/JU/4/3/1215
HOUSE OF LORDS
TESCO SUPERMARKETS LIMITED
v.
NATTRASS
(on
appeal from a Divisional Court of the Queen's Bench Division)
Lord
Reid
Lord Morris of Borth-y-Gest
Viscount Dilhorne
Lord
Pearson
Lord Diplock
Lord Reid
my lords,
The
Appellants own a large number of supermarkets in which they sell
a
wide variety of goods. The goods are put out for sale on shelves
or
stands each article being marked with the price at which it is
offered for
sale. The customer selects the articles he wants,
takes them to the cashier,
and pays the price. From time to time
the Appellants, apparently by way
of advertisement, sell "
flash packs " at prices lower than the normal price.
In
September 1969 they were selling Radiant washing powder in this
way.
The normal price was 3s. 11d. but these packs were marked and
sold at
2s. 11d. Posters were displayed in the shops drawing
attention to this
reduction in price.
These prices
were displayed in the Appellants' shop at Northwich on
26th
September. Mr. Coane, an old age pensioner, saw this and went to
buy
a pack. He could only find packs marked 3s. 11d. He took one to
the
cashier who told him that there were none in stock for sale at 2s.
11d.
He paid 3s. 11d. and complained to an Inspector of Weights
and Measures.
This resulted in a prosecution under the Trade
Descriptions Act 1968 and
the Appellants were fined £25 and
costs.
Section 11 (2) provides:
" If any
person offering to supply any goods gives, by whatever
"
means, any indication likely to be taken as an indication that the
"
goods are being offered at a price less than that at which they are
"
in fact being offered he shall, subject to the provisions of this
Act,
" be guilty of an offence."
It is not
disputed that that section applies to this case. The
Appellants
relied on section 24(1) which provides:
" In any
proceedings for an offence under this Act it shall, subject
"
to subsection (2) of this section, be a defence for the person
charged
" to prove—
" (a)
that the commission of the offence was due to a mistake or to
"
reliance on information supplied to him or to the act or default
"
of another person, an accident or some other cause beyond his
"
control; and
" (b)
that he took all reasonable precautions and exercised all due
"
diligence to avoid the commission of such an offence by himself
"
or any person under his control."
The relevant
facts as found by the Magistrates were that on the previous
evening
a shop assistant Miss Rogers whose duty it was to put out fresh
stock
found that there were no more of the specially marked packs in
stock.
There were a number of packs marked with the ordinary price
so she put
them out. She ought to have told the shop manager Mr.
Clement about this
but she failed to do so. Mr. Clement was
responsible for seeing that the
proper packs were on sale, but he
failed to see to this although he marked
his daily return "
all special offers O.K." The Magistrates found that if
he had
known about this he would either have removed the poster
advertis-
ing the reduced price or given instructions that only
2s. 11d. was to be
charged for the packs marked 3s. 11d.
Section 24(2)
requires notice to be given to the prosecutor if the accused
is
blaming another person and such notice was duly given naming
Mr.
Clement.
2
The Divisional Court held that
the Magistrates were wrong in holding
that Clement was not "
another person ". The Respondent did not challenge
this
finding of the Divisional Court so I need say no more about it
than
that I think that on this matter the Divisional Court was
plainly right. But
that Court sustained the conviction on the
ground that the Magistrates had
applied the wrong test in deciding
that the requirements of section 24 (1) (b)
had been fulfilled. In
effect that Court held that the words "he took all
"
reasonable precautions . . ." do not mean what they say: "
he " does not
mean the accused, it means the accused and all
his servants who were acting
in a managerial or supervisory
capacity. I think that earlier authorities
virtually compelled the
Divisional Court to reach this strange construction.
So the real
question in this appeal is whether these earlier authorities
were
rightly decided.
But before examining those
earlier cases I think it necessary to make some
general
observations.
Over a century ago the Courts
invented the idea of an absolute offence.
The accepted doctrines
of the Common Law put them in a difficulty. There
was a
presumption that when Parliament makes the commission of certain
acts
an offence it intends that mens rea shall be a constituent of that
offence
whether or not there is any reference to the knowledge or
state of mind of
the accused. And it was and is held to be an
invariable rule that where
mens rea is a constituent of any
offence the burden of proving mens rea is on
the
prosecution. Some day this House may have to re-examine that rule,
but
that is another matter. For the protection of purchasers or
consumers
Parliament in many cases made it an offence for a trader
to do certain things.
Normally those things were done on his
behalf by his servants and cases
arose where the doing of the
forbidden thing was solely the fault of a
servant, the master
having done all he could to prevent it and being entirely
ignorant
of its having been done. The just course would have been to
hold
that, once the facts constituting the offence had been
proved, mens rea would
be presumed unless the accused
proved that he was blameless. The Courts
could not, or thought
they could not, take that course. But they could
and did hold in
many such cases on a construction of the statutory provision
that
Parliament must be deemed to have intended to depart from the
general
rule and to make the offence absolute in the sense that
mens rea was not to
be a constituent of the offence.
This has led to great
difficulties. If the offence is not held to be absolute
the
requirement that the prosecutor must prove mens rea makes it
impossible
to enforce the enactment in very many cases. If the
offence is held to be
absolute that leads to the conviction of
persons who are entirely blameless:
an injustice which brings the
law into disrepute. So Parliament has found it
necessary to devise
a method of avoiding this difficulty. But instead of
passing a
general enactment that it shall always be a defence for the
accused
to prove that he was no party to the offence and had done
all he could
to prevent it, Parliament has chosen to deal with the
problem piecemeal,
and has in an increasing number of cases
enacted in various forms with
regard to particular offences that
it shall be a defence to prove various
exculpatory circumstances.
In my judgment the main object
of these provisions must have been to
distinguish between those
who are in some degree blameworthy and those
who are not, and to
enable the latter to escape from conviction if they can
show that
they were in no way to blame. I find it almost impossible to
suppose
that Parliament or any reasonable body of men would as a matter
3
of policy think it right to make employers criminally
liable for the acts of,
some of their servants but not for those
of others and I find it incredible
that a draftsman, aware of that
intention, would fail to insert any words
to express it. But in
several cases the Courts, for reasons which it is not
easy to
discover, have given a restricted meaning to such provisions. It
has
been held that such provisions afford a defence if the master
proves that the
servant at fault was the person who himself did
the prohibited act, but that
they afford no defence if the servant
at fault was one who failed in his duty
of supervision to see that
his subordinates did not commit the prohibited act.
Why Parliament
should be thought to have intended this distinction or
how as a
matter of construction these provisions can reasonably be held
to
have that meaning is not apparent.
In some of these cases the employer charged with the
offence was a limited
company. But in others the employer was an
individual and still it was
held that he, though personally
entirely blameless, could not rely on these
provisions if the
fault which led to the commission of the offence was the
fault of
a servant in failing to carry out his duty to instruct or
supervise
his subordinates.
Where a limited company is the employer difficult
questions do arise in
a wide variety of circumstances in deciding
which of its officers or servants
is to be identified with the
company so that his guilt is the guilt of the
company.
I must start by considering the nature of the
personality which by a
fiction the law attributes to a
corporation. 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.
In Lennard's Carrying Co. v. Asiatic Petroleum Co.
[1915] A.C. 705 the
question was whether damage had occurred
without the " actual fault or
" privity " of the
owner of a ship. The owners were a company. The
fault was that of
the registered managing owner who managed the ship on
behalf of
the owners and it was held that the company could not
dissociate
itself from him so as to say that there was no actual
fault or privity on
the part of the company. Lord Haldane L.C.
said at page 713: "For if
" Mr. Leonard was the
directing mind of the company, then his action must,
" unless
a corporation is not to be liable at all, have been an action which
"
was the action of the company itself within the meaning of section
502
"... It must be upon the true construction of that
section in such a case
" as the present one that the fault or
privity is the fault or privity of some-
" body who is not
merely a servant or agent for whom the company is
" liable
upon the footing respondent superior, but somebody for whom
the
" company is liable because his action is the very action
of the company
" itself." '
Reference is frequently made to the judgment of Lord
Denning in Bolton
(Engineering) Co. v. Graham [1957]
1 Q-B. 159. He said (at page 172):
" A company may in many
ways be likened to a human body. It has a
" brain and nerve
centre which controls what it does. It also has hands
" which
hold the tools and act in accordance with directions from the
centre.
" Some of the people in the company are mere servants
and agents who are
4
" nothing more than hands to do the work and cannot
be said to represent
" the mind or will. Others are directors
and managers who represent the
" directing mind and will of
the company, and control what it does. The
" state of mind of
these managers is the state of mind of the company and
" is
treated by the law as such."
In that case the directors of the company only met once
a year: they left
the management of the business to others, and it
was the intention of those
managers which was imputed to the
company. I think that was right.
There have been attempts to apply
Lord Denning's words to all servants of
a company whose work is
brain work, or who exercise some managerial
discretion under the
direction of superior officers of the company. I do
not think that
Lord Denning intended to refer to them. He only referred
to those
who " represent the directing mind and will of the company,
and
" control what it does."
I think that is right for this reason. Normally the
Board of Directors, the
Managing Director and perhaps other
superior officers of a company carry
out the functions of
management and speak and act as the company.
Their subordinates do
not. They carry out orders from above and it can
make no
difference that they arc given some measure of discretion. But
the
Board of Directors may delegate sonic part of their functions
of manage-
ment giving to their delegate full discretion to act
independently of instruc-
tions from them. I see no difficulty in
holding that they have thereby put
such a delegate in their place
so that within the scope of the delegation he
can act as the
company. It may not always be easy to draw the line but
there are
cases in which the line must be drawn. Lennard's case was one
of
them.
In some cases the phrase alter ego has been used.
I think it is misleading.
When dealing with a company the word
alter is I think misleading. The
person who speaks and acts
as the company is not alter. He is identified
with the
company. And when dealing with an individual no other indivi-
dual
can be his alter ego. The other individual can be a servant,
agent,
delegate or representative but I know of neither principle
nor authority
which warrants the confusion tin the literal or
original sense) of two
separate individuals.
The earliest cases dealing with this matter \\hich were
cited were R. C.
Hammett Ltd. v. Crabb (1931) 95 J.P. 180
and R. C. Hammett Ltd. v.
London County Council (1933) 97
J.P. 105. In both a servant of the
accused company had infringed
the provisions of section 5 (2) of the Sale
of Food (Weights and
Measures) Act 1926. Section 12 (5) exempted the
employer from
penalty if he charged another person as the actual offender
and
could " prove to the satisfaction of the Court that he had used
due
diligence to enforce the execution of this Act and that the
said other
" person had committed the offence in question
without his consent
" connivance or wilful default."
In the earlier case the offence was committed by the
shop manager
personally and he knew that he was committing an
offence. A conviction
was quashed on the ground that the
magistrate had treated the question
whether the employer had used
due diligence as one of law, that it was
really one of fact and
that there was no evidence on which the magistrate
could reach his
decision.
In the second case the offence was committed by a
subordinate: the shop
manager had warned him but had not exercised
due diligence to see that
his instructions were obeyed. Again the
magistrates convicted on the ground
that the owners were
responsible for lack of due diligence in their manager.
This time
the conviction was upheld by the same court. It was argued for
the
Respondents that the employer is responsible for the acts or
omissions
of all persons above the actual offender. It seems to me
obvious that that
is a matter of law depending on the proper
construction of the statutory
provision. But Lord Hewart, L.C.J.,
did not so regard it. He said that
there was evidence on which
Quarter Sessions could arrive at their opinion
and that they were
entitled to come to the conclusion that the appellants
were
responsible for the manager's lack of due diligence.
5
I find these cases most unsatisfactory. There is no
explanation of how
it could be a question of fact whether the
provisions of section 12(5) meant
that what the employer had to
prove was that he personally had used due
diligence, or that he
also had to prove that some or all of his servants had
also done
so. But the Court did not deal with that. Nevertheless because
the
only difference between the two cases appears to have been that in
the
first the shop manager was himself the offender whereas in the
second the
fault was lack of supervision, these cases have been
thought to afford
authority for the proposition that an employer
has a defence if the only
fault was in the actual offender but not
if there was fault of any of his
servants superior to the actual
offender. I can find no warrant for that
proposition in the terms
of section 12(5). Both parts of the provision—
that the
employer had used due diligence and that the offence had
been
committed without his consent, connivance or wilful
default—appear to me
plainly to refer to the employer
personally and to no one else.
I agree with the view of Lord Justice-General Cooper in
a case dealing
with the same Act Dumfries and Maxwelltown
Co-Operative Society v.
Williamson [1950] J.C. 76 that
"The underlying idea manifestly is that there
" should
not be vicarious responsibility for an infringement of the Act
"
committed without the consent or connivance of an employer . . ."
In the next two cases a company was accused and it was
held liable for
the fault of a superior officer. In D.P.P. v.
Kent and Sussex Contractors
[1944] K.B. 146 he was the
transport manager. In R. v. I.C.R. Haulage
[19441
K.B. 551 it was held that a company can be guilty of common
law
conspiracy. The act of the managing director was held to be
the act of
the company. I think that a passage in the judgment is
too widely stated:
" Where in any particular case there is
evidence to go to a jury that the
" criminal act of an agent,
including his state of mind, intention, knowledge
" or belief
is the act of the company, and, in cases where the presiding judge
"
so rules, whether the jury are satisfied that it has been proved,
must
" depend on the nature of the charge, the relative
position of the officer or
" agent, and the other relevant
facts and circumstances of the case." This
may have been
influenced by the erroneous views expressed in the two
Hammett
cases. I think that the true view is that the judge must direct
the
jury that if they find certain facts proved then as a matter
of law they must
find that the criminal act of the officer,
servant or agent including his state of
mind, intention, knowledge
or belief is the act of the company. I have
already dealt with the
considerations to be applied in deciding when such
a person can
and when he cannot be identified with the company. I do not
see
how the nature of the charge can make any difference. If the
guilty
man was in law identifiable with the company then whether
his offence was
serious or venial his act was the act of the
company but if he was not so
identifiable then no act of his,
serious or otherwise, was the act of the
company itself.
In Henshall v. Harvey [1965] 2 Q.B.
233 a company was held not criminally
responsible for the
negligence of a servant in charge of a weighbridge. In
Magna
Plant v. Mithell (unreported) 27th April 1966 the fault
was that of
a depot engineer and again the company was held not
criminally responsible.
I think these decisions were right. In the
Magna Plant case Lord Parker,
L.C.J., said: ". . .
knowledge of a servant cannot be imputed to the
"Company
unless he is a servant for whose actions the Company are
"
criminally responsible, and as the cases show, that only arises in
the case
" of a company where one is considering the acts of
responsible officers
" forming the brain, or in the case of
an individual, a person to whom
" delegation in the true
sense of the delegation of management has been
" passed."
1 agree with what he said with regard to a company. But
delegation by
an individual is another matter. It has been
recognised in licensing cases
but that is in my view anomalous
(see Vane- v. Yanopoulus [1965] A.C. 486).
The latest important authority is Series v. Poole
[11969] 1 Q.B. 676. That
was an appeal against the dismissal of
an information that the holder of a
carriers licence had failed to
keep or cause to be kept records required by the
Road Traffic Act
1960 with regard to the driver of a vehicle. That was
6
an absolute offence but that was
amended by the Road Traffic Act 1962
which provided by section 20
that it should "be a defence to prove that
"he used all
due diligence to secure compliance with those provisions".
The
Respondent proved that he had given proper instructions to the
driver,
that he employed a secretary to check the driver's records
and had to
begin with supervised her work, but that thereafter she
failed to make
proper checks. The justices held, possibly wrongly
that the accused had
used all due diligence as required by the
Act. The Court accepted that
finding but nevertheless sent the
case back with a direction to convict.
Lord Parker L.C.J. dealt with
the case on the basis that the accused had
done everything that
was reasonable. He said " He may acting perfectly
"
reasonably appoint somebody else to perform his duty, his alter
ego, and in
" that case it seems to me if the alter
ego fails in his duty the employer is
" liable. Equally,
if the employer seeks to rely on the defence under
" section
20, he must show that the alter ego has observed due diligence
".
I have already said that the
phrase alter ego is misleading. In my
judgment this case
was wrongly decided and should be over-ruled. When
the second
statute introduced a defence if the accused proved that " he
used
" all due diligence " I think that it meant what it
said. As a matter of
construction I can see no ground for reading
in " he and all persons to
" whom he has delegated
responsibility ". And if I look to the purpose
and apparent
intention of Parliament in enacting this defence I think that
it
was plainly intended to make a just and reasonable distinction
between
the employer who is wholly blameless and ought to be
acquitted and the
employer who was in some way at fault, leaving
it to the employer to
prove that he was in no way to blame.
What good purpose could be
served by making an employer criminally
responsible for the
misdeeds of some of his servants but not for those of
others? It
is sometimes argued—it was argued in the present
case—that
making an employer criminally responsible, even
when he has done all
that he could to prevent an offence, affords
some additional protection to
the public because this will induce
him to do more. But if he has done
all he can how can he do more?
I think that what lies behind this
argument is a suspicion that
magistrates too readily accept evidence that an
employer has done
all he can to prevent offences. But if magistrates were
to accept
as sufficient a paper scheme and perfunctory efforts to enforce
it
they would not be doing their duty—that would not be " due
diligence "
on the part of the employer.
Then it is said that this would
involve discrimination in favour of a
large employer like the
Appellants against a small shopkeeper. But that
is not so. Mr.
Clement was the " opposite number " of the small
shopkeeper
and he was liable to prosecution in this case. The
purpose of this Act
must have been to penalise those at fault, not
those who were in no way
to blame.
The Divisional Court decided
this case on a theory of delegation. In that
they were following
some earlier authorities. But they gave far too wide
a meaning to
delegation. I have said that a Board of Directors can delegate
part
of their functions of management so as to make their delegate
an
embodiment of the company within the sphere of the delegation.
But here
the Board never delegated any part of their functions.
They set up a chain
of command through regional and district
supervisors, but they remained
in control. The shop managers had
to obey their general directions and
also to take orders from
their superiors. The acts or omissions of shop
managers were not
acts of the company itself.
In my judgment the Appellants
established the statutory defence. I would
therefore allow this
appeal.
Lord Morris of Borth-y-Gest
my lords.
The main question which is raised in this appeal is
whether, on the
findings of fact of the magistrates, the company,
Tesco Supermarket Limited
(Tesco) established a defence under the
provisions of section 24(1) of the
Trade Descriptions Act, 1968,
The terms of section 24(1) are as follows: —
" 24.—(1) In any proceedings for an offence
under this Act it shall,
" subject to subsection (2) of this
section, be a defence for the person
" charged to prove—
" (a) that the commission of the offence was
due to a mistake or to
" reliance on information supplied to
him or to the act or default
" of another person, an accident
or some other cause beyond his
" control; and
" (b) that he took all reasonable
precautions and exercised all due
" diligence to avoid the
commission of such an offence by himself
" or any person
under his control."
There were " proceedings for an offence under "
the Act. The Company
(Tesco) was the " person charged ".
The Case Stated finds that Tesco is
" a nationally known
public Company who own many hundred stores".
There are at
least 230 such stores in the north. In one of these on the
26th
September, 1969, there was in the window (and there had been for
some
days previously) a poster which proclaimed that a customer
could
purchase a certain package for 1s. less than its normal
price of 3s. 11d.
An advertisement so stating had appeared in
local and national newspapers.
For a number of days prior to the
26th September there had been displayed
in the particular store
and upon a separate fixture a number of the packages
upon each of
which was the legend " Is. off recommended price". But
at
10 a.m. on the 26th September there were no packages so marked.
Packages
of that variety were displayed for sale—but each
had a price marking of
3s. 11d.: they were on a shelf which had a
price marking of 3s. 11d. It was
at 10 a.m. that a customer
searched the store for one of the packages at
the price of 2s.11d.
He had expected to find one at that reduced price.
He could not.
He could only find those at the marked price of 3s. 11d.
He took
one of those and asked its price of the cashier. Being informed
that
there were none of the packages in stock for sale at 2s. 11d. he
was
charged and paid the higher price.
A breakdown in the system had occurred. During the
period of a special
offer all packages marked with the normal
price should have been removed
from display. If any special offer
stock was sold out the manager should
have been so informed in
order that he could remove any display notice
that would be
misleading. Actually on the evening of the 25th September
an
assistant had noticed that none of the special offer packages
remained on
display: she had thereupon filled the appropriate
fixture with packages having
the marked price of 3s. 11d.: she had
not reported to the manager either the
dearth of packages marked
2s. 11d. or her action in placing in the fixture
those marked 3s.
11d. The manager had over-estimated his stock of pack-
ages at the
reduced price: he thought that four cases were full which were
in
fact empty. Furthermore, the manager did not check the fixture on
the
26th September though in his Weights and Measures Book for
that morning
there was an entry " All special offers O.K.".
Had he realised that the
store had sold out of the reduced price
packages he would either have
removed that part of the poster
which related to them or he would have
reduced the price of the
packages in the store to 2s. 11d. The store was,
on the date in
question, displaying for sale many thousands of different
lines
including many which were offered at reduced prices (referred to as
"
flash " offers).
On the facts as found it appeared, therefore, that an
offence had been
committed. There had been a misleading indication
as to price. It is
provided by section 11 (2) of the Act as
follows: —
" 11.—(2) If any person offering to supply
any goods gives, by what-
" ever means, any indication likely
to be taken as an indication that
8
" the goods are being
offered at a price less than that at which they
" are in fact
being offered he shall, subject to the provisions of this
"
Act, be guilty of an offence."
There was an indication which
was likely to be taken as an indication that
the packages in
question were being offered at 2s. 11d. whereas the customer
in
the shop found that they were being offered at 3s. 11d. So the
question
arises as to who was guilty of an offence. An information
was preferred
against Tesco (i.e. the Limited Company) for that
they in offering to supply
the package gave an idication by means
of a notice bearing a statement
that the goods were being offered
at a price less than that at which they
were in fact being offered
(i.e. 3s. 11d.).
It has not been suggested that
Tesco (i.e. the Limited Company) could
not be held to have
committed the offence. In this connection reference
may be made to
a passage in the judgment of Viscount Reading C.J. in
Mousell
Brothers v. London and North-Western Railway [1917] 2 K.B.836.
At
page 844 he said: —
" Prima facie, then, a
master is not to be made criminally responsible
" for the
acts of his servant to which the master is not a party. But it
"
may be the intention of the Legislature, in order to guard against
"
the happening of the forbidden thing, to impose a liability upon a
"
principal even though he does not know of, and is not a party to,
"
the forbidden act done by his servant. Many statutes are passed
with
" this object. Acts done by the servant of the licensed
holder of licensed
" premises render the licensed holder in
some instances liable, even
" though the act was done by his
servant without the knowledge of
" the master. Under the Food
and Drugs Acts there are again instances
" well known in
these Courts where the master is made responsible,
" even
though he knows nothing of the act done by his servant, and he
"
may be fined or rendered amenable to the penalty enjoined by the
law.
" In those cases the Legislature absolutely forbids the
act and makes
" the principal liable without a mens rea."
It will have been seen, however,
that under section 11(2) it is only " subject
" to the
provisions of " the Act that a person is guilty of an offence.
The
Act provides for certain defences which the person charged may
prove:
if he proves one of them then he is not guilty. The terms
of section 24(1)
of the Act have been set out above. Subsection
(2) imposes a requirement
of serving a notice in cases where the
defence involves attributing the offence
to the act or default of
another person or to reliance on information supplied
by another
person: the notice is to the prosecutor and it must give
informa-
tion identifying (or assisting to identify) that other
person. Tesco gave the
requisite notice. It was to the effect that
the contravention of section 11(1)
was due to the act or default
of the manager of the store in question.
But
for one point the magistrates would have found that the defence
was
proved: but for that one point they would have acquitted
Tesco. They
found (1) that Tesco had established that the
commission of the offence was
due to the act or default of the
manager of the store by his failure to see that
the company's
policy was correctly carried out and/or to correct the errors
of
the staff under him, and (2) that Tesco had proved that they had
taken
all reasonable precautions and had exercised all due
diligence to avoid the
commission of the offence under section
11(2) either by themselves or by
any person under their control.
They had exercised all due diligence in
devising a proper system
for the operation of the store and by securing as
far as was
reasonably practicable that it was fully implemented. In the
careful
and ample statement of case the magistrates set out in much
detail
their reasons for arriving at these conclusions. They need
not be here
repeated. Suffice it to say that the case describes
the system of administration
and the various steps taken by Tesco
to ensure that the manager was instructed
and continuously and
fully instructed in regard to the proper management of
the store.
There was a careful and reasonable system of selection of
managers.
Furthermore, the case describes in detail the various
steps taken by Tesco
in the exercise of supervision over the
manager and the proper running
of the store. The manager of the
store had under him an assistant manager
9
and there were various section
heads: the total number of the staff in the
store was 60. It was
found that the company had provided adequate staff
and equipment
for the running of the store. Then there was a " ladder of
"
responsibility " of those whose work was that of supervision.
Thus there
were branch inspectors whose duties (involving regular
attendance) were solely
those of supervision in regard to some 6
or 8 stores. There were Area
Controllers who in regard to some 24
stores supervised the branch inspectors
as well as the managers
and the operation of such stores: their duties also
involved
regular attendance at stores. There was a Regional Director
who
was responsible for a number of stores and the supervision of the
area
controllers, branch inspectors and managers for them.
The one point which resulted in
the conviction rather than the acquittal
of Tesco was that the
magistrates were not satisfied that the manager was
" another
person " within the meaning of section 24(l)(a). They
considered
that the manager represented the company in his
supervisory capacity and
that the company were responsible for his
lack of due diligence in that
capacity with the result that he was
not " another person ". They considered
that the "
original act or default" had been that of a lady on the staff
at
the store and that the " act or default" of the
manager lay in his failure to
instruct her or supervise her.
A point had been argued before
the magistrates whether an offence under
section 11 (2) had been
made out. They considered that it had. They stated
two questions
for the opinion of the High Court, viz. (1) whether they were
correct
in concluding that an offence under section 11(2) had been made
out
and (2) whether they were correct in concluding that the manager
was
not "another person" within the meaning of section
24(l)(a). The
Divisional Court held that they were correct in
regard to (1) and that matter
was not pursued before your
Lordships. In regard to (2) it was accepted
by the Respondent in
the Divisional Court, and it was common ground, that
the manager
was "another person " within the meaning of section
24(1)(a).
It was said that where a defendant is an
individual then any other individual
could be " another
person " and that where a defendant is a company or
corporate
body then any individual could be " another person "
provided
that he is not a person within section 20 carrying out
functions as such
person. Section 20 is in the following terms: —
"20.—(1) Where an
offence under this Act which has been com-
" mitted by a body
corporate is proved to have been committed with
" the consent
and connivance of, or to be attributable to any neglect
" on
the part of, any director, manager, secretary or other similar
"
officer of the body corporate, or any person who was purporting to
"
act in any such capacity, he as well as the body corporate shall be
"
guilty of that offence and shall be liable to be proceeded against
and
" punished accordingly.
" (2) In this section '
director ', in relation to any body corporate
" established
by or under any enactment for the purpose of carrying
" on
under national ownership any industry or part of an industry
"
or undertaking, being a body corporate whose affairs are managed by
"
the members thereof, means a member of that body corporate."
It was held that the word "
manager " in that section denoted someone
managing the
affairs of the company rather than someone in the position of
the
manager of a store as in the present case.
On those conclusions it would
have followed that on the case as stated
the appeal would have
been allowed. The Divisional Court, however, took
the view and
they were invited to take the view that the magistrates had
not
applied their minds to the " real question " which
arose. The Divisional
Court considered that that question was
whether the defence under section
24(1) was open to the company in
view of the finding of the magistrates
that the manager had been
guilty of a failure in his duty of supervision of
the staff under
him in the store. On the assumption that the company
had set up an
efficient system, or one that could not be criticised, the
Divisional
Court considered that the question arose whether the company
was
deprived of a defence under section 24(1) if it was shown that there
10
was a failure by someone to whom
the duty of carrying out the system
was "delegated"
properly to carry out that function. As the Divisional
Court
considered that all the facts were sufficiently found so that the "
real
" question " could be answered even though it was
not a question raised,
and as they considered that the manager of
the store was a person to whom
the company had, in respect of that
particular store, " delegated " their duty
to take all
reasonable precautions and to exercise all due diligence to avoid
the
commission of an offence, they concluded that it was impossible for
the
magistrates to find that the company had satisfied the
requirements of
section 24(l)(b). Accordingly, they dismissed the
appeal. In granting leave
to appeal the court certified the point
of law of public general importance
in the following terms: —
"Whether a person charged
with an offence under Section 11(2) of
" the Trade
Descriptions Act 1968 in a retail shop owned by him would
"
have a defence under Section 24(1) of the said Act if: —
" (a) he instituted
an efficient system to avoid the commission of
" offences
under the Act by any person under his control
" (b) he reasonably
delegated to the manager of the shop the duty
" of operating
the said system in that shop
" (c) the manager failed to perform such duty efficiently
" (d) the offence charged was committed by reason of such failure
" (e) such failure
by the said manager is the ' act or default of another
"'person'
relied on under Section 24(1 )(a)."
My Lords, we are here only
concerned with the question whether the
company committed an
offence. If the nature of the offence under section
11 (2) was
such that, under the perhaps rather exceptional principle
already
referred to, the company could be held to be guilty of
it—it would only be
guilty if it failed to prove one of the
defences available under section 24(1).
If it is accepted that "
the commission of the offence " was due to " the act
"
or default of another person " then the company would have a
defence
(and so be entitled to be acquitted) if it further proved
that it (i.e. the
company) " took all reasonable precautions
and exercised all due diligence
" to avoid the commission "
of the offence either by itself or by any person
under its
control. It is here that it is important to remember that it is
the
criminal liability of the company itself that is being
considered. In general
criminal liability only results from
personal fault. We do not punish people
in criminal courts for the
misdeeds of others. The principle of respondant
superior is
applicable in our civil courts but not generally in our
criminal
courts. So the sole issue in the present case is whether
" the company "
took all reasonable precautions and
exercised all due diligence. We are
not concerned to express any
opinion as to whether some other or which
other person was by
reason of the terms of section 11 and of section 23
guilty of an
offence.
How,
then, does a company take all reasonable precautions and exercise
all
due diligence? The very basis of section 24 involves that some
contra-
ventions of the Act may take place and may be
contraventions by persons
under the control of the company even
though the company itself has
taken all reasonable precautions and
exercised all due diligence and that the
company will not be
criminally answerable for such contraventions. How,
then, does a
company act? When is some act the act of the company as
opposed to
the act of a servant or agent of the company (for which, if
done
within the scope of employment, the company will be civilly
answerable)? In
Lennard's Carrying Company Limited v.
Asiatic Petroleum Company Limited
[1915] A.C.705 Viscount
Haldane L.C. said (at page 713): "My Lords, a
"
corporation is an abstraction. It has no mind of its own any more
than it
" has a body of its own; its active and directing
will must consequently be
" sought in the person of somebody
who for some purposes may be 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. That
person may
" be under the direction of the shareholders in
general meeting; that person
" may be the board of directors
itself, or it may be, and in some companies
" it is so, that
that person has an authority co-ordinate with the board of
11
" directors given to him under the articles of
association, and is appointed
" by the general meeting of the
company, and can only be removed by the
" general meeting of
the company." Within the scheme of the Act now
being
considered an indication is given (which need not necessarily be an
all-
embracing indication) of those who may personify " the
directing mind and
" will " of the company. The question
in the present case becomes a question
whether the company as a
company took all reasonable precautions and
exercised all due
diligence. The magistrates so found and so held. The
magistrates
found and held that " they " (i.e. the company) had
satisfied the
provisions of section 24(l)(b). The reason why the
Divisional Court felt that
they could not accept that finding was
that they considered that the company
had delegated its duty to
the manager of the shop. The manager was, they
thought, " a
person to whom the Appellants had delegated in respect of that
"
particular shop their duty to take all reasonable precautions and
exercise
" all due diligence to avoid the commission "
of an offence. Though the
magistrates were satisfied that the
company had set up an efficient system
there had been " a
failure by someone to whom the duty of carrying out
" the
system was delegated properly to carry out that function."
My Lords, with respect I do not think that there was any
feature of
delegation in the present case. The company had its
responsibilities in regard
to taking all reasonable precautions
and exercising all due diligence. The
careful and effective
discharge of those responsibilities required the directing
mind
and will of the company. A system had to be created which
could
rationally be said to be so designed that the commission of
offences would
be avoided. There was no delegation of the duty of
taking precautions
and exercising diligence. There was no such
delegation to the manager of a
particular store. He did not
function as the directing mind or will of the
company. His duties
as the manager of one store did not involve managing
the company.
He was one who was being directed. He was one who was
employed but
he was not a delegate to whom the company passed on
its
responsibilities. He had certain duties which were the result
of the taking
by the company of all reasonable precautions and of
the exercising by the
company of all due diligence. He was a
person under the control of the
company and on the assumption that
there could be proceedings against him,
the company would by
section 24(1)(b) be absolved if the company had taken
all proper
steps to avoid the commission of an offence by him. To make
the
company automatically liable for an offence committed by him would
be
to ignore the subsection. He was, so to speak, a cog in the
machine which
was devised: it was not left to him to devise it.
Nor was he within what
has been called the " brain area "
of the company. If the company had
taken all reasonable
precautions and exercised all due diligence to ensure
that the
machine could and should run effectively then some breakdown due
to
some action or failure on the part of " another person "
ought not to be
attributed to the company or to be regarded as the
action or failure of the
company itself for which the company was
to be criminally responsible. The
defence provided by section
24(1) would otherwise be illusory.
In reaching their conclusion, the
Divisional Court placed reliance on and
followed the decision in
Series v. Poole [1969] 1 Q.B. 676. In that case
the holder
of a carrier's licence was charged with failing, contrary to
section
186 of the Road Traffic Act, 1960, properly to keep
current records. The
records were in fact defective but the
licence holder had employed someone
to check the records. He had
instructed such employee as to the method
of checking the records:
he had supervised the work of such employee
until he was satisfied
that the system was working well. The justices found
that he had
used all due diligence to secure compliance with the
relevant
statutory provisions. Provided that this finding could on
the facts be sup-
ported I see no reason why the Divisional Court
should have denied to him
the defence which by section 20 of the
Road Traffic Act, 1962, was made
available. On the justices'
finding I consider that the acquittal should have
been allowed to
stand. The licence holder had not washed his hands of
his
responsibilities: he had used all due diligence to see that
they were discharged
so that there should be compliance with the
provisions of the statute.
12
In R. C. Hammett Limited v. London County Council
Vol. 97 J.P. 105,
employers were denied the defence available
under section 12(5) of the Sale
of Food (Weights and Measures)
Act, 1926, on the ground that the manager
of a shop had not shown
due diligence though the employers themselves had
in all other
respects used due diligence. I do not think that that case
was
rightly decided.
On the facts as found and by the application of section
24(1) I consider
that the company should have been absolved from
criminal liability.
Accordingly, I would allow the appeal.
Viscount Dilhorne
my lords,
On the 3rd February.,1970, the
Appellants were convicted at the Magi-
strates Court at Northwich
of an offence under section 11(2) of the Trades
Descriptions Act,
1968, which read-, as follows:
" If any person offering to
supply goods gives, by whatever means,
" any indication
likely to be taken as an indication that the goods are
"
being offered at a price less than that at which they are in fact
being
" offered he shall, subject to the provisions of this
Act, be guilty of an
" offence."
On the 26th September, 1970, the
Appellants had a poster attached to the
window of their
supermarket in Northwich bearing the words " Radiant
"
1s, off.,Giant Size 2s. 11d.". This meant, and could only have
been
taken to mean, that Giant Size packs of Radiant Washing
Powder were
being offered for sale at that price. The Appellants
had also advertised
that these packs were being offered for sale
at this price in local and national
newspapers.
An old age pensioner sought to
purchase one of these packs, but he was
only able to find
displayed in the supermarket packs marked with the
price of 3s.
11d. He took one of these to the cashier who told him that
there
was no packs for sale at 2s. 11d. and he was charged 3s. 11d.
He
immediately complained to the Inspector of Weights and
Measures.
On proof of these facts, the
magistrates were right to convict the Appellants
if they had not
succeeded in establishing one of the defences open to them
under
section 24 of the Trades Descriptions Act.
Section 24(1) is in the following terms:-
" In any proceedings for an
offence under this Act it shall, subject
" to subsection (2)
of this section. be a defence for the person charged
" to
prove—
" (a) that the
commission of the offence was due to a mistake or to
"
reliance on information supplied to him or to the act or default
"
of another person, an accident or some other cause beyond his
"
control ; and
" (b)that he took
all reasonable precautions and exercised all due
" diligence
to avoid the commission of such an offence by himself
" or
any person under his control."
Section 24(2) reads as follows:
" If in any case the
defence provided by the last foregoing subsection
" involves
the allegation that the commission of the offence was due to
"
the act or default of another person or to reliance on information
"
supplied by another person, the person charged shall not, without
"
the leave of the court, be entitled to rely on that defence unless,
"
within a period ending seven clear days before the hearing, he has
"
served on the prosecutor a notice in writing giving such
information
" identifying or assisting in the identification
of that other person as
" was then in his possession."
13
The Appellants gave notice as required by this
subsection, alleging that
the commission of the offence was due to
the act or default of a Mr. Clement,
the manager of their
supermarket at Northwich. They were consequently
entitled to an
acquittal if they proved that, and also that they had taken
all
reasonable precautions and had exercised all due diligence to
avoid the
commission of the offence by Clement.
What had happened was that the evening before the
commission of the
offence Miss Rogers, a shop assistant, whose
duty it was to put the packs
on display for sale, had discovered
that there were no packs displayed for
sale at 2s. 11d. and no
packs marked with that price available for display.
She had,
therefore, put out packs marked with the price of 3s. 11d. She
had
not reported to Clement that there were no 2s. 11d. packs to
display.
It was his duty to check the display of the special
offers and to enter in a
book that he had done so. In the entry
for the 26th September he had
written " All special offers
O.K." when in fact the special offer of Radiant
Giant Size
packs was not, as no such packs were being offered for sale at
2s.
11d. a pack.
The magistrates found that " the original act or
default was that of
" Miss Rogers and the act or default of
the said Clement was in his failure
" to instruct or
supervise her " and that " the commission of the offence
"
was due to the act or default of the said Clement by his failure to
see
" that the Appellants' policy was correctly carried out
and/or to correct
" the errors of the staff under him."
The magistrates held that the Appellants had exercised
all due diligence
in devising a proper system for the operation of
the store and by securing,
so far as was reasonably practicable,
that it was fully implemented and
thus had fulfilled the
requirements of section 24(l)(b). Although they did
not in terms
say so, they clearly meant that the Appellants had, as well
as
exercising all due diligence, taken all reasonable precautions
to avoid the
commission of the offence.
They, however, held that Clement was not " another
person " within the
meaning of section 24(1) (a) and
so that the statutory defence failed. The
Divisional Court held
that they were right to convict but wrong to conclude
that Clement
was not " another person ". In their view, the Appellants
had
delegated to Clement "their duly of taking all reasonable
precautions and
"exercising all due diligence" and
consequently his failure to do so was
failure by the Appellants.
Section 23 of the Act is in the following terms:
" Where the commission by any person of an offence
under this Act
" is due to the act or default of some other
person that other person
" shall be guilty of the offence,
and a person may be charged with and
" convicted of the
offence by virtue of this section whether or not
"
proceedings are taken against the first-mentioned person ".
These provisions in the Act make its policy clear. To
secure a conviction
for an offence under section 11 (2), the
prosecutor is relieved of the burden
of proving any intent on the
part of any person. If that burden rested
on him, it might often
prove very difficult to discharge. It suffices to prove
(a) that
the accused was offering the goods and (b) that, at the time he
did
so, an indication had been given that the goods were being
offered at a
price less than in fact was the case.
That could happen without the person
offering the goods being in any
way to blame. Parliament,
therefore, provided the accused person with
a number of defences
and cast upon him the burden of establishing his
innocence. If he
was going to allege that the events which took place and
amounted
to the commission of the offence were due to the act or default
of
another or in consequence of information supplied by another
person,
he had to comply with section 24(2) and then it would be
open to the
authorities to charge that other person, if they
thought fit, but, whether
or not another person is charged, the
accused is entitled to be acquitted if he
proves that he took all
reasonable precautions and exercised all due
diligence to prevent
the commission of the offence and that it was due to the
14
act or default of another or, if
that is the defence put forward, in consequence
of information
supplied by another.
Difficulties may arise with
regard to the interpretation of section 23. The
offence may have
been committed as the result of the act or default of
another
without that other person having done the acts which constitute
the
offence. Here the magistrates found, as I have said, that the
original
act or default was that of Miss Rogers, but she does not
appear to have
had any responsibility for the poster in the window
indicating that the packs
were for sale at less than 3s. 11d.
Clement, on the other hand, was respon-
sible for the poster in
the window but he had not displayed or authorised
the display of
the packs for sale at the price of 3s. 11d.; and if, despite
the
notice, no such packs had been displayed for sale, no offence
under
section 11 (2) would have been committed.
In this case the magistrates
found not that Clement had committed or
had been a party to the
offence but that it had occurred through his failure
to carry out
the Appellants' policy and/or to correct the errors of his staff.
The language of the first part
of section 23 might be understood to mean
that on the facts of
this case if Miss Rogers or Mr. Clement had been
prosecuted, they
would have been convicted though neither of them had done
the acts
which constitute the offence. In this case one has not to decide
that
question, and section 23 is only relevant with regard to the
meaning
to be given to the words " act or default of another
person " in section
24(1)(a). In that subsection, whatever
they may mean in section 23, they
must be given their literal
meaning. To succeed on this defence it is not
necessary to show
that some other person did the acts which constitute
the offence.
It will suffice to show that the acts were done as a result of
an
act or default of another person.
If the chain of supermarkets
owned and run by the Appellants, some
eight hundred we were told,
were owned and run by an individual or partner-
ship, then it
could not be disputed that Mr. Clement was of another person
within
the meaning of the subsection. Does he cease to be " another
person "
because the stores are owned by a limited company?
Further, if the stores were
owned and run by an individual or partnership
and that individual
or the partners had themselves exercised all due diligence,
is it
right that they should be held not to have done so because a
shop
manager of theirs has not done so? And has the statute here
to be inter-
preted differently where a company is accused than
where the accused is an
individual?
Prima facie one would have
thought it unlikely that Parliament intended
" another person
" to have a different meaning in relation to a company
from
that in relation to an individual or that the ambit of section
24(1)(b)
should differ depending on whether the owner of the shop
was a company
or individual.
In Hammett Ltd. v. Crabb
(1931) 95 J.P. & L.G.R. 182 Lord Hewart and
Avory J. held,
in relation to the Sale of Food (Weights and Measures) Act,
1926,
that whether or not the principal charged had exercised due
diligence
was a question of fact in every case. In that case as in
this the accused
company was seeking as a matter of defence to
prove due diligence.
In this case as in that, in my
opinion, the questions whether there was
due diligence and whether
all reasonable precautions were taken are questions
of fact.
Hammett Ltd. v. London County
Council (1933) 97 J.P. R. 105
appears to be the first reported
case where the extent of a statutory defence
similar in many
respects to that in this case was considered. There the
prosecution
was under the Sale of Food (Weights and Measures) Act, 1926.
There
the Divisional Court (Lord Newart L.C.J., Avory and Acton
J.J.'s)
dismissed the appeal against conviction on the ground that
there was evidence
on which Quarter Sessions could arrive at the
opinion that due diligence
was not used by the shop manager, an
assistant at the shop being the
15
actual offender, and that for
the purpose of the Act the company was
responsible for the absence
of due diligence on his part though in all other
respects the
company had exercised due diligence.
Lord Hewart distinguished this
case from the earlier Hammett case on the
ground that in
that case the evidence was clear that there was due diligence
on
the part of everybody down to the very person who had committed
the
act. He held that the justices were entitled to come to the
conclusion that
for that lack of due diligence the Appellants were
responsible.
I do not myself regard this as a
satisfactory decision. No authorities were
cited for the
proposition that the company could not establish that they
had
acted with due diligence if a shop manager of theirs had not
exercised
due diligence and, in relation to this defence, the
question is not, was the
company responsible for the act of its
servant and for his omissions but
whether due diligence had been
exercised by the company.
In the course of the argument a
great many cases were cited with regard
to the criminal liability
of a company. A company can only act through
individuals, and it
is well established that a company can be criminally
liable even
if the offence involves proof of an intent (Mousell Bros. Ltd.
v.
L. & N.W.R. Ry. [1917] 2 K.B. 836: Director of
Public Prosecutions v.
Kent & Sussex Contractors Ltd.
[1944] K.B. 146).
If an offence under section
11(2) is committed by a company, the acts
necessary to constitute
the offence must have been done by individuals in
their employ.
Here the question is not whether the Company is criminally
liable
and responsible for the act of a particular servant but whether
it
can escape from that liability by proving that it exercised all
due diligence
and took all reasonable precautions and that the
commission of the offence
was due to the act or omission of
another person. That, in my view, is
a very different question
from that of a company's criminal responsibility for
its servants'
acts.
The Act does not exclude a
person in the employ of a company from
being " another person
". In Beckett v. Kingston Bros. Ltd. [1970] 1
Q.B.D.
606 it was argued that it did. That argument was rejected
by Bridge J.,
and rightly, in my opinion. If it had prevailed, the
statutory defence would
seldom avail an accused company for seldom
would it be possible to prove
that the act or default was that of
someone not employed by the company.
In Series v. Poole
[1969] 1 Q.B. 676, a case decided in 1967 and which
does not
appear lo have been cited to the Court in Beckett v. Kingston
Bros.
Ltd., the appeal to the Divisional Court was from the
dismissal of an informa-
tion for an offence under Regulations
made under the Road Traffic Act,
I960, alleging that the accused
unlawfully failed to cause to be kept a current
record of the
driving periods of his driver.
The Road Traffic Act, 1962, by
section 20 provided that it should be a
defence to prove in such
proceedings that the accused had used all due
diligence to secure
compliance with the regulation.
While I think that on the facts
it would be difficult to say that the accused
had exercised all
due diligence, that was not the ground on which the appeal
by the
prosecutor was allowed. Lord Parker L.C.J., with whose
judgment
Salmon L.J. and Widgery L.J. agreed, regarded the
"absolute obligation
under section 186 of the Act of 1960"
as a personal obligation which an
individual could not evade by
delegating it to someone else.
I do not in the least wish to
criticise this. Section 186 of the 1960 Act
under which the
prosecution was brought created an absolute obligation
and as the
law stood prior to 1962 what he said was clearly right. By the
Road
Traffic Act, 1962, Parliament qualified that absolute obligation
and
for the first time provided a defence dependant on proof of
the exercise
of due diligence by the accused.
That could not be established
merely by showing that a good system had
been devised and a person
thought to be competent put in charge of it. It
would still be
necessary to show due diligence on the part of the accused
in
seeing that the system was in fact operated and the person put in
charge
of it doing what he was supposed to do. From May to
September, 1966,
16
the accused does not appear to
have taken any steps to ascertain whether
the person he had put in
charge was doing what she had been instructed to do.
If he had
taken any steps, he would have found that she was not, and that
is
why I have said that on the facts in that case it would be difficult
to say
that the exercise of due diligence had been proved.
Lord Parker said that a man
under the duty imposed by section 186 might
reasonably appoint
someone else to perform his duty " his alter ego "
and
in that case it seemed to him that if the alter ego failed
in his duty the
employer is liable. He went on to say that to rely
on a defence under section
20 of the 1962 Act an employer must
show that the alter ego has observed
due diligence.
That an employer, whether a
company or an individual, may reasonably
appoint someone to secure
that the obligations imposed by the Act are
observed cannot be
doubted. Only by doing so can an employer who owns
and runs a
number of shops or a big store hope to secure that the Act
is
complied with, but the appointment by him of someone to discharge
the
duties imposed by the Act in no way relieves him from having
to show
that he has taken all reasonable precautions and had
exercised all due
diligence if he seeks to establish the statutory
defence.
He cannot excuse himself if the
person appointed fails to do what he is
supposed to do unless he
can show that he himself has taken such precautions
and exercised
such diligence. Whether or not he has done so is a question
of
fact and while it may be that the appointment of a competent
person
amounts in the circumstances of a particular case to the
taking of all
reasonable precautions, if he does nothing after
making the appointment to
see that proper steps are in fact being
taken to comply with the Act, it
cannot be said that he has
exercised all due diligence.
I do not think that the Act is
so narrowly drawn that to rely on the
defence under section 24 an
employer must show that the alter ego has
observed due
diligence. That is not, in my opinion, what the Act provides,
He
has, to show, that he used due diligence, and it does not suffice for
him
to show that others did so.
Lord Parker's reference to an
alter ego may have had its origin in the
statements made by
Lord Haldane in Lennard's Carrying Co. I.td. v.
Asiatic
Petroleum Co. Ltd. [1915] A.C. 705. He said at p.
713 :
" My Lords, a corporation
is an abstraction. It has no mind of its
" own any more than
it has a body of its own ; its active and directing
" will
must consequently he sought in the person of somebody who for
"
some purpose, may be 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. That
person may be under the direc-
" tion of the shareholders in
general meeting; that person may be the
" board of directors
itself, or it may be, and in some companies it is so,
" that
that person has an authority co-ordinate with the board of
directors
" given to him under the articles of association,
and is appointed by
" the general meeting of the company and
can only be removed by the
" general meeting of the company
".
Following this, Lord Denning in
Bolton (Engineering) Co. Ltd. v. Graham
& Sons Ltd. [1957]
I Q.B. 159 said:
" A company may in many
ways be likened to a human body. It has
" a brain and nerve
centre which controls what it does. It also has hands
" which hold the tools and
act in accordance with directions from the
" centre. Some of
the people in the company are mere servants and
" agents who
are nothing more than hands to do the work and cannot
" be
said to represent the mind or will. Others are directors and
"
managers who represent the directing mind and will of the company,
"
and control what it does. The state of mind of these managers is
the
" state of mind of the company and is treated by the law
as such."
If when Lord Denning referred to
directors and managers representing
the directing mind and will of
the company he meant, as I think he did, those
who constitute the
directing mind and will, I agree with his approach.
17
These passages, I think, clearly indicate that one has
in relation to a
company to determine who is or who are, for it
may be more than one, in
actual control of the operations of the
company, and the answer to be given
to that question may vary from
company to company depending on its
organisation. In my view, a
person who is in actual control of the operations
of a company or
of part of them and who is not responsible to another
person in
the company for the manner in which he discharges his duties in
the
sense of being under his orders, cannot be regarded as " another
person "
within the meaning of sections 23 and 24(1)(a).
Section 20 provides that where an offence under the Act
has been com-
mitted by a body corporate and is proved to have
been committed with the
consent or connivance or to be
attributable to any neglect on the part of
any director, manager,
secretary or other similar officer of the body corporate
or any
person who was purporting to act in any such capacity, he, as well
as
the company, is to be guilty of the offence. Parliament by this
section
may have attempted to identify those who normally
constitute the directing
mind and will of a company and by this
section have sought to make clear
that although they are not other
persons coming within sections 23 and
24(1)(a), they may still be
convicted.
However this may be, shop managers in a business such as
that conducted
by the Appellants—and their number may be of
the order of eight hundred
if the Appellants have that number of
shops—cannot properly be regarded
as part of the Appellants'
directing mind and will and so can come within
the reference to
"another person" in sections 23 and 24(l)(a).
In my opinion, the ratio
decidendi in Hammett Ltd. v. London County
Council
(supra) and in Series v. Poole (supra) was wrong.
For the reasons I have stated in my view this appeal should be allowed.
Lord Pearson
MY LORDS,
In September, 1969, the Company (Tesco Supermarkets
Limited) was
selling Giant Size packets of Radiant washing powder
at a price of 2s. l1d.,
being a reduced price 1s. below the price
of 3s.11d. which was the ordinary
price normally recommended by
the manufacturers. Affixed to the window
of the company's shop at
Northwich in Cheshire was a large poster, of which
the upper part
bore the legend "Radiant 1s. off Giant Size 2s.
11d."
Advertisements to the same effect had been inserted in
local and national
newspapers. Initially there was at the shop a
stock of " flash packs ", that
is to say Giant Size
packets of the washing powder bearing the legend
" 1s. off
recommended price".
Things went wrong on the 25th and 26th September, 1969.
The stock of
such " flash packs " was exhausted. On the
evening of the 25th September
Miss Rogers, an assistant at the
shop, discovered that no such " Hash packs "
remained on
display, and she filled up the " fixture " with ordinary
packets
of the washing powder marked with the ordinary price of
3s. 11d. and she
failed to inform the shop manager, Mr. Clements,
of the dearth of flash
packs or the action which she had taken.
Mr. Clements failed to check
the washing powder " fixture "
on the 26th September, notwithstanding his
entry in his Weights
and Measures Book for that morning " All special offers
"
O.K." On the morning of the 26th September a customer entered
the shop
expecting to find a " flash pack " at 2s. 11d.
but was able to find only a packet
offered at the ordinary price
of 3s. 11d. and he had to buy it at that price.
The relevant
provisions of the Trade Descriptions Act, 1968, are as
follows:
Section 11 (2). "If any person offering to supply
any goods gives, by
" whatever means, any indication likely
to be taken as an indication
" that the goods are being
offered at a price less than that at which
" they are in fact
being offered he shall, subject to the provisions of
" this
Act, be guilty of an offence."
18
Section 20(1). "Where an offence under this Act
which has been
" committed by a body corporate is proved to
have been committed with
" the consent and connivance
of, or to be attributable to any neglect
" on the part
of, any director, manager, secretary or other similar officer
"
of the body corporate, or any person who was purporting to act
in
" any such capacity, he as well as the body corporate
shall be guilty
" of that offence and shall be liable to be
proceeded against and
" punished accordingly."
Section 23. " Where the commission by any person of
an offence
" under this Act is due to the act or default of
some other person that
" other person shall be guilty of the
offence, and a person may be
" charged with and convicted of
the offence by virtue of this section
" whether or not
proceedings are taken against the first-mentioned
" person."
Section 24(1). " In any proceedings for an offence
under this Act
" it shall, subject to subsection (2) of this
section, be a defence for the
" person charged to prove—
" (a) that the commission of the offence was
due to a mistake or to
" reliance on information supplied to
him or to the act or default
" of another person, an accident
or some other cause beyond his
" control: and
" (b) that he took all reasonable
precautions and exercised all due
" diligence to avoid the
commission of such an offence by himself
" or any person
under his control."
In my opinion, the first conclusions to be drawn from
the application of
these provisions to the facts of the present
case are as follows : —
An offence was committed under section 11(2).
Prima facie the company has committed
and is liable for the
offence, because the company through
its servants offered to supply
the goods and gave the indication
of the reduced price. The case
is similar to Coppen v.
Moore (No. 2) [1898] 2 QB 306, decided
under the
Merchandise Marks Act, 1887, section 2, where Lord
Russell
C.J. said at pages 312-3: "The question, then, in this case.
"
comes to be narrowed to the simple point, whether upon the true
"
construction of the statute here in question the master was
intended
" to be made criminally responsible for acts done
by his servants
" in contravention of the Act. where such
acts were done, as in
" this case, within the scope or in
the course of their employment.
" In our judgment it was
clearly the intention of the Legislature to
" make the
master criminally liable for such acts, unless he was
" able
to rebut the prima facie presumption of guilt by one or other
of
" the methods pointed out in the Act." Also
relevant is the judgment
of Lord Goddard C.J. in Melias Ltd.
v. Preston [1957] 2 Q.B. 380.
In the present case the company was the master of the
persons who
committed the acts or defaults whereby the offence
was committed,
and as in Coppen v. Moore (supra)
the company may rebut the pre-
sumption of guilt in one or other
of the methods pointed out by
the Act. Section 11(2) is
expressly made "subject to the provisions
" of this Act
" and therefore is subject to section 24(1). The company
has
sought to prove under section 24(1)(a) that "the
commission of
" the offence was due ... to the act or
default of another person ",
naming Mr. Clement as the other
person. In order to complete its
defence the company must also
prove that the company took all
reasonable precautions and
exercised all due diligence to avoid the
commission of such an
offence by itself or any person under its
control. The
question in this appeal is whether the company has
proved those
two points.
Your Lordships are not concerned in this appeal with the
questions
whether Miss Rogers and Mr. Clement or either of them
could be held
liable under section 23 for the commission of the
offence, and whether they
19
or either of them would have a
defence under section 24. I express no
opinion on those questions.
The magistrates have said in
paragraph 7 of the Case Stated that they
were of opinion that ....
" (ii) the commission of
the offence was due to the act or default of
" the said
Clement by his failure to see that the Appellants' policy
"
was correctly carried out and/or to correct the errors of the staff
"
under him;
" (iii) the Appellants had
exercised all due diligence in devising a
" proper system for
the operation of the said store and by securing
" so far as
was reasonably practicable that it was fully implemented
"
and thus had fulfilled the requirements of section 24(1)(b);
" (iv) the Appellants could
not rely upon the act or default of the
" said Clement as he
was not ' another person' within the meaning
"of section
24(l)(a)."
In giving their reasons for the
opinion in (iv) they said that they reached
the conclusion that
the original act or default was that of Miss Rogers
and the act or
default of Mr. Clement was in his failure to instruct or
supervise
her; Mr. Clement represented the company in his supervisory
capacity
and for his lack of due diligence the company was responsible on
the
principle laid down in R. C. Hammett Ltd. v. London County
Council
(1933) 97 J.P. and L.G.R. 105 ; accordingly, Mr.
Clement was not "another
" person " for the
purposes of section 24(1)(a) of the Act.
The magistrates' opinion that
Mr. Clement was not " another person "—
a person
other than the company—seems to me to be clearly
unsustainable.
It would be immediately obvious in the case of an
individual proprietor
of a business and the manager of one of his
shops. It is less obvious in the
case of a company which can only
act through servants or agents and has
generally in the law of
tort and sometimes in criminal law vicarious respon-
sibility for
what they do on its behalf. But vicarious responsibility is
very
different from identification. There are some officers of a
company who
may for some purposes be identified with it, as being
or having its directing
mind and will, its centre and ego, and
its brains. Lennard's Carrying Co. v.
Asiatic Petroleum Co.
Ltd. [1915] A.C. 705, 713 ; H. L. Bolton (Engineering)
Co.
Ltd. v. T. J. Graham & Sons Ltd. [1957] 1 Q.B., 159,
171-3 ; The Lady
Gwendolen [1965] P. 294, 343. The
reference in section 20 of the Trade
Descriptions Act, 1968, to "
any director, manager, secretary or other similar
" officer
of the body corporate " affords a useful indication of the
grades
of officers who may for some purposes be identifiable with
the company,
although in any particular case the constitution of
the company concerned
should be taken into account. With regard to
the word " manager " I agree
with Fisher J. who said, in
his judgment in the present case, that the word
refers to someone
in the position of managing the affairs of the company,
and would
not extend to include a person in the position of Mr. Clement.
In
the present case the company has some hundreds of retail shops,
and
it would be far from reasonable to say that every one of its
shop managers
is the same person as the company.
The Divisional Court, although
they affirmed the conviction and dismissed
the company's appeal,
took a view that was different from that of the
magistrates. They
held that Mr. Clement was " another person " distinct
from
the company, so that the company proved its point under paragraph
(a)
of section 24(1). But they held that the company failed
under paragraph (b).
Their reasoning was that, although the
company had devised a proper system
for taking precautions and
exercising due diligence to avoid the commission
of an offence,
the company had delegated the function of operating the
system to
employees, of whom Mr. Clement was one ; that Mr. Clement
had
operated the system negligently ; the company was responsible for
the
negligent operation of the system by one of its delegates ;
and so the company
failed to prove that it had taken all
reasonable precautions and exercised
all due diligence to prevent
the commission of the offence. Some extracts
from the judgment of
Fisher J. will show clearly how the Divisional Court
reached their
conclusion. He said: " The taking of such precautions and
20
" the exercise of such diligence involves,
or may involve, two things. First
" of all it involves the
setting up of an efficient system for the avoidance of
"
offences under the Act. Secondly it involves the proper operation
of
" that system. Inevitably the second part, the operation
of the system,
" will in most cases have to be delegated by
the Company to employees
" falling outside those mentioned in
section 20. The question which this
" court has to consider
is whether a company can be said t6 have satisfied
" the
requirements of paragraph (b) if it satisfies the justices
that it has set
" up an efficient system, or a system which
cannot be criticised, or whether
" it is deprived of the
defence under that section if it is shown that there
" has
been a failure by someone to whom the duty of carrying out the
system
" was delegated properly to carry out that function."
Later he said: " If it
" be the case that Mr. Clement
was a person to whom the Appellants had
" delegated in
respect of that particular shop their duty to take all reasonable
"
precautions and exercise all due diligence to avoid the commission of
such
" an offence, and if Mr. Clement had failed properly to
carry out that duty,
" then the Appellants are unable to show
that they have satisfied paragraph (b)
" of section 24
subsection (1)." The conclusion was: "It seems clear to
"
me that a person in the position of Mr. Clement, the manager of a
shop,
" a supermarket, is properly to be considered as being
a person to whom
" the Appellants had, so far as concerned
that shop, delegated their duty
" of taking all reasonable
precautions and exercising all due diligence to
" avoid the
commission of an offence; and it seems to me that in the light
"
of the findings which I have just read, it was impossible for the
magistrates
" to find that the Appellants had satisfied the
requirements of paragraph (b)."
Fisher J. also cited the case
of Series v. Poole [1969] 1 Q.B. 676, in which
it
was held that the defendant was liable under section 186 of the
Road
Traffic Act, 1960, and had failed to prove a defence under
section 20 of
the Road Traffic Act, 1962, when he had "
delegated " the checking of certain
records to a lady
secretary and she had been negligent in the performance
of that
task. In his judgment in that case Lord Parker C.J. had said at
pages
683-4—" If I can go by stages, the absolute obligation
under section 186
"of the Act of 1960 is a personal
obligation, personal in this sense, that
" if an employer,
acting perfectly reasonably, puts some competent person
" in
charge to perform his, the employer's, duty, the employer remains
liable
" if the servant fails in his duty. ... He may, as I
have said, acting
" perfectly reasonably appoint somebody
else to perform his duty, his alter
" ego, and
in that case, as it seems to me, if the alter ego fails in his
duty
" the employer is liable. Equally, if the employer seeks
to rely on the
" defence under section 20, he must show that
the alter ego has used due
" diligence."
Clearly the Divisional Court's decision was based on the
theory of " dele-
" gation ". One has to examine
the meaning of the word " delegation " in
relation to
the facts of this case and the provisions of the Trade
Descriptions
Act, 1960, sections 11(2) and 24. In one sense the
meaning is as wide as
the principle of the master's vicarious
liability for the acts and omissions of
his servants acting within
the scope of their employment. In this sense
the master can be
said to " delegate " to every servant acting on his
behalf
all the duties which the servant has to perform. But that
cannot be the proper
meaning here. If the company " delegated
" to Miss Rogers the duty of
filling the fixture with
appropriate packets of washing powder, and " dele-
"
gated " to Mr. Clement the duty of supervising the proper
filling of fixtures
and the proper exhibition or withdrawal of
posters proclaiming reduced
prices, then any master, whether a
company or an individual, must be
vicariously liable for all the
acts and omissions of all its or his servants acting
on its or his
behalf. That conclusion would defeat the manifest object of
section
24 which is to enable defendants to avoid vicarious liability
where
they were not personally at fault.
Section 24 requires a dividing line to be drawn between
the master and any
other person. The defendant cannot disclaim
liability for an act or omission
of his ego or his alter
ego. In the case of an individual defendant, his ego
is
simply himself, but he may have an alter ego. For instance, if
he has
only one shop and he appoints a manager of that shop with
full discretion
21
to manage it as he thinks fit.
the manager is doing what the employer would
normally do and may
be held to be the employer's alter ego. But if the
defendant
has hundreds of shops, he could not be expected personally to
manage
each one of them and the manager of one of his shops cannot in
the
absence of exceptional circumstances be considered his alter
ego. In the
case of a company, the ego is located in
several persons, for example, those
mentioned in section 20 of the
Act or other persons in a similar position
of direction or general
management. A company may have an alter ego, if
those
persons who are or have its ego delegate to some other person
the
control and management, with full discretionary powers, of
some section of
the company's business. In the case of a company,
it may be difficult, and
in most cases for practical purposes
unnecessary, to draw the distinction
between its ego and
its alter ego, but theoretically there is that distinction.
Mr. Clement, being the manager
of one of the company's several hundreds
of shops, could not be
identified with the company's ego nor was he an
alter
ego of the company. He was an employee in a relatively
subordinate
post. In the company's hierarchy there were a branch
inspector and an area
controller and a regional director
interposed between him and the Board of
Directors.
It was suggested in the argument of this appeal that in
exercising super-
vision over the operations in the shop Mr.
Clement was performing functions
of management and acting as a
delegate and alter ego of the company. But
supervision of
the details of operations is not normally a function of
higher
management: it is normally carried out by employees at the
level of foremen,
chargehands, overlookers, floor managers and "
shop" managers (in the
factory sense of " shop ").
Also reference was made to the case of R. C.
Hammett Ltd. v.
The London County Council [1933] 97 J.P. and L.G.R. 105,
in
which, when the reported arguments are taken into account, the
ground
of decision appears to have been that, for the purposes of
the Sale of Food
(Weights and Measures) Act, 1926, sections 5(2)
and 12(5), the employer had
to show due diligence on behalf of all
the employees concerned except the
actual offender. In my opinion,
there was no justification for drawing the
line of division
between the company and its employees at that point, and
the case
was wrongly decided. As to the case of Series v. Poole
(supra),
the decision of the Divisional Court seems to have
been in accordance with
the general merits of the case, but the
treatment of the secretary as an
alter ego of the employer
is difficult to uphold, when she had merely been
instructed by him
to check the records and had failed to do so diligently.
I would allow the appeal.
Lord Diplock
MY LORDS,
This appeal turns on the meaning to be given to penal
provisions contained
in the Trade Descriptions Act, 1968. The Act,
which replaces the
Merchandise Marks Acts, 1887 to 1953, is
concerned with consumer protec-
tion. It is a criminal statute and
creates a number of offences of giving
inaccurate or inadequate
information to customers in the course of business
transactions
relating to the supply of goods or services. Offenders are liable
to
a fine or to imprisonment for not more than two years or to both.
Nowadays most business transactions for the supply of
goods or services
are not actually conducted by the person who in
civil law is regarded as the
party to any contracts made in the
course of the business, but by servants
or agents acting on his
behalf. Thus, in the majority of cases the physical
acts or
omissions which constitute or result in an offence under the
statute
will be those of servants or agents of an employer or
principal on whose
behalf the business is carried on. That
employer or principal is likely to
be very often a corporate
person, as in the instant appeal.
Consumer protection, which is the purpose of statutes of
this kind, is
achieved only if the occurrence of the prohibited
acts or omissions is
prevented. It is the deterrent effect of
penal provisions which protects the
22
consumer from the loss he would sustain if the offence
were committed. If
it is committed he does not receive the amount
of any fine. As a taxpayer
he will bear part of the expense of
maintaining a convicted offender in
prison.
The loss to the consumer is the same whether the acts or
omissions which
result in his being given inaccurate or inadequate
information are intended
to mislead him, or are due to
carelessness or inadvertence. So is the
corresponding gain to the
other party to the business transaction with the
consumer in the
course of which those acts or omissions occur. Where, in
the way
that business is now conducted, they are likely to be acts or
omissions
of employees of that party and subject to his orders,
the most effective
method of deterrence is to place upon the
employer the responsibility of
doing everything which lies within
his power to prevent his employees from
doing anything which will
result in the commission of an offence.
This, I apprehend, is the
rational and moral justification for creating in the
field of
consumer protection, as also in the field of public health and
safety,
offences of " strict liability " for which an
employer or principal, in the
course of whose business the
offences were committed, is criminally liable,
notwithstanding
that they are due to acts or omissions of his servants or
agents
which were done without his knowledge or consent or even
were contrary
to his orders. But this rational and moral
justification does not extend to
penalizing an employer or
principal who has done everything that he can
reasonably be
expected to do by supervision or inspection, by improvement
of his
business methods or by exhorting those whom he may be expected
to
control or influence, to prevent the commission of the offence (see
Lim
Chin Aik v. The Queen [1963] A.C. 160, 174;
Sweet v. Parsley [1970] A.C.
132, 163). What the
employer or principal can reasonably be expected to
do to prevent
the commission of an offence will depend upon the gravity
of the
injury which it is sought to prevent and the nature of the
business
in the course of which such offences are committed. The
Trade Descriptions
Act, 1968, applies to all businesses engaged in
the supply of goods and
services. If considerations of cost and
business practicability did not play
a part in determining what
employers carrying on such businesses could
reasonably be expected
to do to prevent the commission of an offence under
the Act, the
price to the public of the protection afforded to a minority
of
consumers might well be an increase in the cost of goods and services
to
consumers generally.
My Lords, I approach the
question of construction of the Trade Descrip-
tions Act, 1968, in
the expectation that Parliament intended it to give effect
to a
policy of consumer protection which does have a rational and
moral
justification.
The offence with which the
instant appeal is concerned is one created
by section 11 (2) of
the Act:
" If any person offering to
supply any goods gives, by whatever means,
" any indication
likely to be taken as an indication that the goods are
"
being offered at a price less than that at which they are in fact
being
" offered he shall, subject to the provisions of this
Act, be guilty of an
" offence."
The section is dealing with
offers to enter into contracts for the sale of
goods. Prima
facie, the offence is committed by the person who would be
a
party to the contract of sale resulting from acceptance of the offer,
not-
withstanding that the actual offer was made and the
prohibited indication
given by a servant or agent acting within
the scope of his actual or ostensible
authority on his employer's
or principal's behalf. So construed the sub-
section creates an
offence of " strict liability " on the part of the
employer
or principal. But this strict liability is expressed to
be " subject to the
" provisions of this Act ".
This construction is, in my
view, confirmed by sections 23 and 24 of the
Act. It is convenient
to deal with these sections in reverse order and in their
application
to an employer or principal who is a natural person
before
considering the position of an employer or principal who is
a corporation.
23
" In any proceedings for an
offence under this Act it shall, subject
" to subsection (2)
of this section, be a defence for the person charged to
"
prove—(a) that the commission of the offence was due to a
mistake
" or to reliance on information supplied to him or to
the act or default
" of another person, an accident or some
other cause beyond his control;
" and (b) that he took
all reasonable precautions and exercised all due
" diligence
to avoid the commission of such an offence by himself or any
"
person under his control."
The section speaks of " the
commission of the offence " notwithstanding
that the person
charged may have a defence to the charge under subsection (1).
This
language refers to a stage in the proceedings at which the
prosecution
have proved facts necessary to constitute an offence
of strict liability on the
part of a principal. This is all that
it is incumbent upon the prosecution to
prove. The onus then lies
upon the principal to prove facts which establish
a defence under
the subsection. The " strict liability " of the principal
is
thus qualified; but the onus of proving that he was not to
blame lies upon
him. It is reasonable that this should be so since
the facts which can constitute
the defence lie within his
knowledge and not within that of the prosecution.
There are two limbs to the
defence. Under paragraph (a) the person
charged must prove
that the commission of the offence was due to one of
the causes
specified in that paragraph. They have the common characteristic
that
the offence must have been committed without his knowledge
or
acquiescence. The particular cause which is relevant to the
instant appeal
is " the act or default of another person ".
But the person charged must
also prove under paragraph (b) that he
did all that could reasonably be
expected of him to prevent
offences of that kind being committed by himself
or by any person
under his control—a class of persons which would include
his
servants or agents.
Where the employer or principal
is a natural person I can see no reason
in linguistics or justice
for construing the expression " another person "
in
paragraph (a) as excluding a servant or agent of the
employer or principal,
however exalted his grade, whose actual
physical act or omission resulted
in the commission of the
offence. They all fall within the expression " any
"
person under his control " and his duty in respect of their acts
and omissions
is dealt with in paragraph (b).
Where the cause of the
commission of the offence by him which is relied
upon by the
person charged is the act or default of another person, sub-
section
(2) requires him, as a condition of relying on the defence, to
provide
the prosecution, not less than seven days before the
hearing, with such
information as he possesses which may lead to
the identification of that
other person. This procedure is
calculated to serve two purposes. One
obvious purpose is to give
to the prosecution in advance of the hearing
an opportunity to
investigate the validity of the defence. The clue to the
other
purpose, which is important to the deterrent policy of the Act, is
to
be found in section 23. It provides:
" Where the commission by
any person of an offence under this Act
" is due to the act
or default of some other person that other person
" shall be
guilty of the offence, and a person may be charged with
" and
convicted of the offence by virtue of this section whether or not
"
proceedings are taken against the first-mentioned person."
It is important to observe that
this section makes guilty of the offence
created by some other
section of the Act, such as section 11(2), persons,
such as
servants or agents, who do not fall within the description
contained
in that other section of the person by whom the offence
can be committed.
They can nevertheless be charged and convicted
of that offence by virtue of
section 23 if the commission of the
offence by a person who does fall within
the description contained
in that other section, was due to any act or default
by them.
In the expression " act or
default" in section 23 and in paragraph (a) of
section
24(1) the word " act" is wide enough to include any
physical act of
the other person which is causative of the
offence. But the use of the
24
word "default" instead
of the neutral expression "omission" connotes a
failure
to act which constitutes a breach of a legal duty to act. A legal
duty
to act may arise independently of any contract or it may be a
duty owed
to another person arising out of a contract with him.
That in paragraph (a)
the word "default" embraces
a failure to act which is in breach by a
servant of his contract
of employment, is, in my view, made apparent by
paragraph (b)
which requires that a person who relies on this defence must
show
" that he took all reasonable precautions and exercised all due
diligence
" to avoid the commission of such an offence by ...
any person
" under his control". This contemplates that
the person charged has the
power to control the acts or defaults
of the other person. The only legal
source of such power to
control is contractual.
But even where the power to
control is derived from a contract, the
contract need not
necessarily be made directly between the person who
has the power
to control and the " person under his control ". In the
context
of offences committed in the course of business
transactions, a superior
servant may owe a duty to his employer
under his contract of employment
to supervise the work of an
inferior fellow servant in the same employment
and to give him
orders as to how he should do his work; while the inferior
servant
may owe a corresponding duty to the same employer under his
own
contract of employment to accept the supervision and to comply
with the
orders of the superior servant. A failure to supervise,
or an omission to
give orders to, an inferior servant if it
constitutes a breach by the superior
servant of his contract of
employment with his employer, may be a " default
" of
another person " upon which the employer can rely as a defence
under
paragraph (a).
So construed these sections
provide for a rational and just system of
enforcement of the penal
provisions of the Act which is calculated to deter
anyone engaged
in the business of supplying goods or services, whether as
principal
or as a servant, from conduct, whether careless or intentional,
which
would result in the commission of an offence, and, where it fails to
deter
to impose a criminal sanction upon those who are really to
blame and not
upon those who are innocent of any carelessness or
wrongful intent.
The enforcing authority is the
local weights and measures authority (sec-
tion 26). The powers
conferred upon its authorised officers to make test
purchases,
etc., (section 27) and to enter premises and inspect and seize
goods
and documents (section 28) are calculated to enable these
officers to obtain
evidence of the commission of an offence by the
principal by whom or on
whose behalf the business of supplying
goods or services is carried on.
It is then for the principal to
identify the other person or persons (if any)
to whose act or
default the offence was actually due and to pass to the
prosecutor
the available identificatory information. If the principal is
not
able to do this, it shows a defect in the system which he has
laid down for
allocating among his servants the duty of taking
precautions to avoid the
commision of offences under the Act.
There is no injustice in requiring
him to lay down a reasonably
effective system and in treating any failure
to do so as a
criminal offence. If, on the other hand, the principal is able
to
identify a person to whose act or default the offence was actually
due,
he still has to show that he himself exercised due diligence
to devise an
effective system to avoid such acts or defaults on
the part of his servants
and to satisfy himself that such system
was being observed.
What amounts to the taking of
all reasonable precautions and the exercise
of all due diligence
by a principal in order to satisfy the requirements of
paragraph
(b) of section 24(1) of the Act depends upon all the circumstances
of
the business carried on by the principal. It is a question of fact
for the
magistrates in summary proceedings or for the jury in
proceedings on indict-
ment. However large the business, the
principal cannot avoid a personal
responsibility for laying down
the system for avoiding the commission of
offences by his
servants. It is he alone who is party to their contracts
of
employment through which this can be done. But in a large
business, such
as that conducted by the Appellants in the instant
appeal, it may be quite
impracticable for the principal personally
to undertake the detailed super-
vision of the work of inferior
servants. It may be reasonable for him to
25
allocate these supervisory duties to some superior
servant or hierarchy
of supervisory grades of superior servants,
under their respective
contracts of employment with him. If the
principal has taken all reasonable
precautions hi the selection
and training of servants to perform supervisory
duties and has
laid down an effective system of supervision and used due
diligence
to see that it is observed, he is entitled to rely upon a default by
a
superior servant in his supervisory duties as a defence under
section 24(1),
as well as, or instead of, upon an act or default
of an inferior servant who has
no supervisory duties under his
contract of employment.
Thus, the supervisory servant may have failed to give
adequate instruc-
tions to the inferior servant or may have failed
to take reasonable steps to
see that his instructions were obeyed.
In the former case the supervisory
servant may alone be to blame.
In the latter both may be to blame. Or it
may be, as might have
been the case in the instant appeal, the commission of
the offence
is due to a combination of separate acts or omissions by two
more
inferior servants none of which taken by itself would have
resulted in the
commission of an offence.
In the instant case there were findings of fact by the
magistrates that the
commission of the offence was due to the act
or default of the Appellant's
servant Clement in his duties as
branch manager to supervise the work of
the staff under him, and
that the Appellants had fulfilled the requirements of
paragraph
(b) of section 24(1). They had also fulfilled the requirements
of
section 24(2) by serving a notice on the prosecutor identifying
Clement as
the other person to whose act or default the commission
of the offence was
due.
On these findings the Appellants were, in my view,
entitled to succeed in
their defence under section 24. The
magistrates, however, were of opinion
that Clement was not in law
" another person " within the meaning of
paragraph (a)
of section 24(1) and, accordingly, convicted the Appellants.
The magistrates, however, were of opinion that Clement
was not in law
" another person " within the meaning of
paragraph (a) of section 24(1) and,
accordingly, convicted
the Appellants.
The Divisional Court were of opinion that Clement was "
another person "
but achieved the same result by dismissing
the appeal upon the ground that
under the Act a principal was
personally responsible criminally for any failure
by any of his
servants or agents to exercise diligence in supervisory
functions
which he had required them to undertake.
The Divisional Court in reaching this conclusion did not
rely upon the fact
that the Appellants are not a natural person
but a corporation. But, before
turning to the previous authorities
which the Divisional Court felt bound to
follow, it is convenient
to deal with the legal consequences of the corporate
character of
the Appellants, for this has been relied upon by the Respondent
in
your Lordships' House as an alternative ground for dismissing the
appeal.
To establish a defence under section
24 a principal who is a corporation
must show that it " took
all reasonable precautions and exercised all due
"
diligence." A corporation is an abstraction. It is incapable
itself of
doing any physical act or being in any state of mind.
Yet in law it is a
person capable of exercising legal rights and
of being subject to legal
liabilities which may involve ascribing
to it not only physical acts which are
in reality done by a
natural person on its behalf but also the mental state
in which
that person did them. In civil law, apart from certain
statutory
duties, this presents no conceptual difficulties. Under
the law of agency
the physical acts and state of mind of the agent
are in law ascribed to the
principal, and if the agent is a
natural person it matters not whether the
principal is also a
natural person or a mere legal abstraction. Qui
facit per
alium facit per se: qui cogitat per alium cogitat per
se.
But there are some civil liabilities imposed by statute
which, exceptionally,
exclude the concept of vicarious liability
of a principal for the physical acts
and state of mind of his
agent; and the concept has no general application
in the field of
criminal law. To constitute a criminal offence, a physical
act
done by any person must generally be done by him in some
reprehensible
state of mind. Save in cases of strict liability
where a criminal statute.
26
exceptionally, makes the doing
of an act a crime irrespective of the state
of mind in which it is
done, criminal law regards a person as responsible
for his own
crimes only. It does not recognise the liability of a principal
for
the criminal acts of his agent: because it does not ascribe to him
his
agent's state of mind. Qui peccat per alium peccat per se
is not a maxim
of criminal law.
Due diligence is in law the
converse of negligence and negligence con-
notes a reprehensible
state of mind—a lack of care for the consequences
of his
physical acts on the part of the person doing them. To establish
a
defence under section 24 (1) (b) of the Act, a principal need
only show that
he personally acted without negligence.
Accordingly, where the principal
who relies on this defence is a
corporation a question to be answered is:
What natural person or
persons are to be treated as being the corporation
itself, and not
merely its agents, for the purpose of taking precautions
and
exercising diligence?
My Lords, a corporation
incorporated under the Companies Act, 1948,
owes its corporate
personality and its powers to its constitution, the Memo-
randum
and Articles of Association. The obvious and the only place to
look,
to discover by what natural persons its powers are exercisable, is
in
its constitution. The Articles of Association, if they follow
Table A,
provide that the business of the company shall be managed
by the directors
and that they may " exercise all such powers
of the company " as are not
required by the Act to be
exercised in general meeting. Table A also vests
in the directors
the right to entrust and confer upon a managing director any
of
the powers of the company which are exercisable by them. So it
may
also be necessary to ascertain whether the directors have
taken any action
under this provision or any other similar
provision providing for the co-
ordinate exercise of the powers of
the company by executive directors or
by committees of directors
and other persons, such as are frequently in-
clouded in the
Articles of Association of companies in which the
regulations
contained in Table A are modified or excluded in whole
or in part.
In my view, therefore, the
question: what natural persons are to be
treated in law as being
the company for the purpose of acts done in the
course of its
business, including the taking of precautions and the exercise
or
due diligence to avoid the commission of a criminal offence, is to
be
found by identifying those natural persons who by the
Memorandum and
Articles of Association or as a result of action
taken by the directors, or
by the company in general meeting
pursuant to the Articles, are entrusted
with the exercise of the
powers of the company.
This test is in conformity with
the classic statement of Lord Haldane in
Lennard's Carrying
Company Ltd. v. Asiatic Petroleum Co. Ltd. ([1915]
A.C.
705). The relevant statute in that case, although not a
criminal
statute, was in pari materia, for it provided for
a defence to a civil liability
which excluded the concept, the
vicarious liability, of a principal for the
physical acts and
state of mind of his agent.
There has been in recent years a
tendency to extract from Denning J.'s
judgment in H. L. Bolton
(Engineering) Company Ltd. v. T. J. Graham &
Sons Ltd.
([1957] 1 Q.B. 159, 172, 173) his vivid metaphor about the "
brains
" and nerve centre " of a company as contrasted
with its hands, and to
treat this dichotomy, and not the Articles
of Association, as laying down
the test of whether or not a
particular person is to be regarded in law
as being the company
itself when performing duties which a statute imposes
on the
company.
In the case in which this
metaphor was first used Denning L.J. was dealing
with acts and
intentions of directors of the company in whom the powers
of the
company were vested under its Articles of Association. The
decision
in that case is not authority for extending the class of
persons whose acts
are to be regarded in law as the personal acts
of the company itself, beyond
those who by, or by action taken
under, its Articles of Association are
entitled to exercise the
powers of the company. In so far as there are dicta
27
to the contrary in The Lady Gwendolen ([1965] P.
294) they were not
necessary to the decision and, in my view, they
were wrong.
But the only relevance of this
to the Appellants' defence under section
24(1) of the Trade
Descriptions Act, 1968, was, as the magistrates rightly
appreciated,
whether the act or default of Clement was that of " another
"
person " than the Appellant Company itself within the meaning of
para-
graph (a). The fact that the principal in the
business transaction in the
course of which an offence under
section 11(2) was committed was a
corporation and not a natural
person cannot affect the principal's duty to
take all reasonable
precautions and to exercise all due diligence under
paragraph (6).
The Articles of Association of
the Appellants were not produced in
evidence. Strictly speaking it
may be that they should have been. But it is
sufficiently evident
from the findings of the magistrates as to the position
held by
Clement in the Appellants' organisation that it was too lowly for
him
to have had confided in him by the board of directors the
co-ordinate
exercise of any of the powers of the company itself.
My Lords, there may be criminal statutes which upon
their true con-
struction ascribe to a corporation criminal
responsibility for the acts of
servants and agents who would be
excluded by the test that I have stated
to be appropriate in
determining whether a corporation has itself committed
a criminal
offence. The Trade Descriptions Act, 1968, however, so far
from
containing anything which compels one to reject that test,
recognises, by
section 20, the distinction between " any
director, manager, secretary or
" other similar officer of a
body corporate" and other persons who are
merely its servants
or agents.
Section 20(1) provides as follows: —
" Where an offence under this Act which has been
committed by a
" body corporate is proved to have been
committed with the consent
" and connivance of, or to be
attributable to any neglect on the part
" of, any director,
manager, secretary or other similar officer of the
" body
corporate, or any person who was purporting to act in any such
"
capacity, he as well as the body corporate shall be guilty of that
"
offence and shall be liable to be proceeded against and punished
"
accordingly ".
The natural persons described in this subsection
correspond with those
who under the Memorandum and Articles of
Association of a company
exercise the powers of the company
itself. From this it follows that if
any of them is guilty of
neglect in the exercise of those powers such neglect
is that of
the company itself. That it cannot be relied upon as " the act
or
" default of another person ", so as to entitle the
company to a defence under
section 24(1), is implicit in the
provision in section 20(1) that a person in the
described category
shall be guilty of an offence " as well as the body
"
corporate ". Without section 20 it would have been open to doubt
whether
persons whose acts were in law the acts of the company
itself would have
been guilty in their personal capacity also of
the offence committed by the
company.
For these reasons I agree with the Divisional Court that
Clement was
" another person " within the meaning of
section 24(l)(o). So all that now
remains is to deal with the
authorities which that court followed in holding
that the
Appellant's defence nevertheless failed.
Those authorities start with the contrasting cases of
Hammett Ltd. v. Crabb
([1931] 29 Cox C.C. 364) and Hammett
Ltd. v. L.C.C. ([1933] 97 L.G.R. 105).
Both were prosecutions
under the Sale of Goods (Weights and Measures)
Act, 1926. The
relevant provisions of that Act exempted the employer
from any
penalty, though not from conviction, if he proved that he had
used
"due diligence to enforce the execution of this Act". But
his right
to exemption was conditional upon his laying an
information against the
person whom he charged as " the
actual offender " and proving that that
person had committed
the offence in question. In Hammett Ltd. v. Crabb
the
employer charged as the actual offender his servant who had done the
28
physical act which constituted
the offence and that servant had been duly
convicted. The
Divisional Court held that the employer was entitled to rely
upon
his having used due diligence. In Hammett Ltd. v. L.C.C.
the
employer again charged as " the actual offender "
his servant who had done
the physical act which constituted the
offence. But the servant charged was
acquitted by the
magistrates—which would seem to dispose of any claim
by the
employer to be exempt from the penalty, as the Divisional Court
had
itself previously decided in Wakling v. Robinson
(1930 46 T.L.R. 151). The
employer, nevertheless, appealed to
Quarter Sessions. Quarter Sessions found
as a fact that a servant
of the employer who was manager of the shop had
not used due
diligence in supervising the servant who had been charged
(and
acquitted) as the actual offender, though in all other respects
the
employer had exercised due diligence. The case stated by
Quarter Sessions
for the opinion of the Divisional Court appears
to have been treated as
raising the question of law as to whether,
in order to avail himself of the
exemption from penalty, the
employer had to prove that due diligence had
been used not only by
himself but also by all of his servants who exercised
supervisory
functions " down to the very person who had committed the
act".
The Divisional Court apparently thought that the
employer had to do so
and that this distinguished the case from
Hammett Ltd. v. Crabb. But the
language of the
judgment is far from clear and affords no clue to the reasons
which
led the court to this conclusion.
This obscure and unsatisfactory
judgment appears to have now passed into
legal folk lore as
authority for a general proposition that where a statute
creates a
criminal offence in relation to a business transaction which is
prima
facie one of strict liability on the part of the principal who is
the
party to the business transaction in the course of which the
offence is com-
mitted, but provides the principal with a defence
if he proves that he has
exercised due diligence, he cannot avail
himself that defence unless he proves
that due diligence was also
exercised by all of his servants whom he
employed in any
supervisory capacity however humble. See Beckett v.
Kingston
Bros Ltd. ([1970) 1 Q.B. 606) a case under the Trade
Descriptions
Act, 1968.
The proposition assumed to have
been established in Hammett Ltd. v.
L.C.C. has not
been followed consistently. In Mellas Ltd. v. Preston
([1957]
2 Q.B. 380) which was also a case under the Sale of
Food (Weights and
Measures) Act, 1926, there were three separate
summons against the employer,
in respect of each of which he
charged the manager of one of his shops as
the actual offender. In
two of the summonses the manager had himself
done the physical act
which constituted the offence (as in Hammett Ltd. v.
Crabb).
In the third his default was his failure in supervising an
inferior
servant who had done the physical act which constituted
the offence (as in
Hammett Ltd. v. L.C.C.). The
Divisional Court drew no distinction between
the three offences
and upheld in each of them the employer's defence " that he
"
had used due diligence " to enforce the execution of the Act.
In Series v. Poole
([1969] 1 Q.B. 676), the case principally relied upon
the
Divisional Court in the instant appeal, was a case under the
Road Traffic
Acts, 1960 and 1962, which contained provisions in
relation to the offence
by a holder of a carrier's licence in
failing to cause records to be kept by
his drivers which are in
pari materia to those of the Trade Descriptions
Act, 1968.
It is a defence to him to prove " that he used all due
diligence
" to secure compliance with those provisions ".
The holder of the carrier's
licence who was a natural person, not
a corporation, had instructed his
secretary to supervise the
keeping of the records by the drivers. The
magistrates found that
he himself had exercised all due diligence, but that
his secretary
had not.
^ Although Hammett Ltd. v.
L.C.C. was cited in argument in the Divisional
Court, Lord
Parker C.J. preferred to decide the case as " purely one of
"
principle." That principle he stated as being: " if
Parliament has put an
" absolute duty on some individual, he
cannot evade that duty by delegating
"it to someone else".
So far the principle is unexceptional. Any legal
duty, whether
arising at common law or imposed by statute, may generally
be
performed by the person upon whom it is imposed through the agency
29
of some other person. But if it
is not performed, the person upon whom
the duty is imposed is
liable for its non-performance. It is irrelevant that he
instructed
a servant or agent to perform it on his behalf, if that servant
or
agent failed to do so. All that is relevant is that the duty was not
per-
formed. When the duty is imposed upon a person by statute and
non-
performance is made a criminal offence without any
requirement of mens rea
this is what is meant by an offence
of " strict liability ".
The fallacy lies in the next
step of the argument. Where Parliament hi
creating an offence of "
strict liability " has also provided that it shall be a
defence
if the person upon whom the duty is imposed proves that he
exercised
all due diligence to avoid a breach of the duty, the
clear intention of Parlia-
ment is to mitigate the injustice,
which may be involved in an offence of
strict liability, of
subjecting to punishment a careful and conscientious person
who is
in no way morally to blame. To exercise due diligence to
prevent
something being done is to take all reasonable steps to
prevent it. It may
be a reasonable step for an employer to
instruct a superior servant to
supervise the activities of
inferior servants whose physical acts may in the
absence of
supervision result in that being done which it is sought to
prevent.
This is not to delegate the employer's duty to exercise
all due diligence;
it is to perform it. To treat the duty of an
employer to exercise due diligence
as unperformed unless due
diligence was also exercised by all his servants
to whom he had
reasonably given all proper instructions and upon whom
he could
reasonably rely to carry them out, would be to render the defence
of
due diligence nugatory and so thwart the clear intention of
parliament
in providing it. For, pace Hammett Ltd. v.
L.C.C., there is no logical
distinction to be drawn between
diligence in supervising and diligence in
acting, if the defaults
of servants are to be treated in law as the defaults of
their
employer.
My Lords, the Divisional Court
was, I think, right in treating the instant
case as governed by
the decision in Series v. Poole. But that case was,
in
my view, wrongly decided and the proposition of law for which
Hammett
Ltd. v. L.C.C. has been treated as an
authority is also erroneous, although
the actual decision in that
case to dismiss the appeal could have been justified
on quite
different grounds.
(314455) Dd. 197055 100 3/71 St. S.