Directors liability consent, connivance or neglect In this feature | Huckerby v Elliott (1970) | charging bodies of persons | case law rulings cut The directors When is it appropriate to charge a body of persons with consent, connivance and/or neglect? Alison Lambert looks at case law rulings on the issue S ome concepts cause difficulty for trading standards departments, and offences committed by bodies of persons or directors liability as it is more commonly called is a regular culprit. It is not unusual to agonise over who should be charged, and whether to charge them with consent, connivance and/or neglect. Many pieces of legislation allow for those who are the controlling mind of the company to be prosecuted alongside the company. For example, Regulation 15 of the Consumer Protection from Unfair Trading Regulations 2008 refers to offences committed by a director, manager, secretary or similar officer and it includes anyone purporting to act in such a capacity. Some legislation also covers consent and connivance only for example, section 101(5) of the Trade Marks Act 1994 and section 12 of the Fraud Act 2006. It is commonly found that those appointed as directors seem to take a back-seat role. They are often directors on whom the spotlight has shone previously and who, therefore, appoint another as a director often the marital partner. On examination, they appear to play no role in the company, or they lurk in the shadows while managers are responsible for running the company. The latter position is sometimes taken by those who have been disqualified from acting as a director. It is not unusual toagonise over who should be charged, and whether to charge them with consent, connivance and/ or neglect Consent, connivance or neglect? The director must be proved to know the material facts that constitute the offence, and to have agreed tothe conduct ofthe business onthe basis of these facts When considering whether to bring a case under consent, connivance or neglect, the knowledge of the individual is key. Unravelling this can be quite complex and depends on a multiplicity of factors, each of which will be case-specific. The courts have considered knowledge over the years and shed some light on these issues. In the early 1970s, the case of Huckerby v Elliott brought some clarity to the charges of consent, connivance and neglect. Huckerby was one of several directors of a club running card games for members but the club did not have the requisite licence. One director, who was also the secretary, pleaded guilty by his consent. Huckerby was charged by her neglect, because she appeared The Huckerby influence to have little direct involvement in Certain important propositions regarding consent the running of the club, and was and connivance were approved in Huckerby v Elliott: found guilty. Her conviction was nConsent the director consents to the commission quashed on appeal. It was held that of an offence by their company; they are well there were other directors who aware of what is going on and agree to it were far better placed than she to nConnivance the director is equally well aware know what was going on. She knew ofwhat is going on, but their agreement is tacit, one of the directors was dealing notactively encouraging what happens but letting it continue with the issue of licences; there was nNeglect this is not a failure to see that the law is money set aside for this purpose observed, but rather the prosecution has to show and she had no reason not to trust that the director was guilty of neglect to do what the other director to do his job. they ought to have done So Huckerby had no responsibility to check or monitor what other directors were doing. This accords with the general principle that business would grind to a halt if all directors were required to keep a constant check on their fellow directors. Knowledge vs consent The need for actual knowledge where consent is concerned was considered again some years later, in the Attorney Generals Reference No 1 of 1995 [1996] 1 WLR 970. The directors were charged by their consent to the company carrying on a deposit-taking business without the authorisation required by section 3(1) of the Banking Act 1987. The opinion of the Court of Appeal was sought on what mens rea the intention or knowledge of wrongdoing that constitutes part of a crime was required for consent to be proved. It was decided that the director must be proved to know the material facts that constitute the offence, and to have agreed to the conduct of the business on the basis of these facts. So, actual knowledge of the exact nature of the conduct is needed. Specifically, the director had to know that the acts in this case the taking of the deposits could only be performed by the company if it was licensed and were being performed when no licence existed. The directors claimed ignorance of the law, saying they did not know a licence was needed. Interestingly, the court said that if there was no licence, the directors could be taken to know that they were operating without a licence, and it did not matter if they said they didnt know they needed one. They were found guilty by their consent. More recently, the case of R v Hutchins and Charalambous (2011) concerned unlicensed security guards. The issue was whether the two directors had consented, or at least connived, to their deployment. The defence argued that, for the directors to be guilty, they would have to have specific knowledge of individual deployments. The two directors knew that unlicensed guards were being deployed, but did not have knowledge of specific deployments of individual employees in a particular or specific role. It was held that the directors did not need tohave specific knowledge of each individual offence or specific deployment to be found guilty it was sufficient that they had knowledge that the guards were being deployed. If it had to be proved that the directors had knowledge of the specific deployments by specific security guards, it would allow directors to shut their eyes to the management of theircompanies. Neglect and the importance of ought Less evidence of neglect will be needed for a director involved in the company directly than against those working at adistance While the case law appears to offer clear guidance on the knowledge needed for consent and connivance, the position is not the same when considering neglect. The important thread that began with Huckerby and that runs through the remainder of the case law hinges on what a director ought to have done. In the case of Hirschler v Birch (1987), Director 1 (the defendant) wanted to import brake lights into the UK from the Netherlands, but was warned that the brake lights were no longer lawful. He asked Director 2 to carry out enquiries to establish if they were legal and told him that he was not sure about the lights. When Director 2 subsequently told Director 1 that the lights were legal, Director 1 did not ascertain what enquiries had been made and it transpired that diligent enquiries had not been made. Director 1 was convicted by his neglect because he had failed to ensure an authoritative answer to the issue. Heappealed on the basis that he had delegated responsibility to Director 2 and was entitled to rely on that delegation. The conviction was upheld because he did not do what he should have done, in spite of the measure of delegation. He had been warned about the legality of the lights, but simply accepted what Director 2 told him. This puts focus on the actions and responsibilities of the individual director and there is an important distinction to be drawn between directors who have a hands-on role and those who work away from the coalface. Less evidence of neglect will be needed for a director involved in the company directly than against those working at a distance. Particularisation The full circumstances of the case and roles of individual directors must beconsidered carefully Compare this, however, with the position in Motor Depot Ltd v Kingston-Upon-Hull City Council (2012) 7. Lord Judge Patrick Elias was clear that in a company such as Motor Depot Ltd where advertisements were central to the business there was a duty on the managing director to ensure that the advertisements were correct, notwithstanding another member of staff having responsibility for that task. It was suggested by the judge that the managing director could, during the course of giving evidence, explain why he had no reason to supervise the other individual. It is important to remember that the defendant does not have to give evidence. It is always for the prosecution to prove their case and never for the defendant to prove their innocence, but the defendants evidence explaining their actions can be pivotal. However, the difficulties dont stop there, and it is often questioned whether consent, connivance and neglect should all be particularised in a single charge. When it is unclear, it is perfectly acceptable to charge all three, but where there is clarity, particularisation should be made. Identifying areas of responsibility While it is tempting to adopt a scattergun approach when dealing with a company that has numerous directors, the case law shows us that this is not correct and care should be taken. The full circumstances of the case and roles of individual directors must be considered carefully. A vital source for this will be an analysis of what is said during interview under caution. Of course, if there are numerous directors, and trading standards invitations to attend for interview under caution are declined, there may be no option but to charge all directors and winnow them down when the inevitable representations are made that show there are discrete areas of responsibility for each individual. This is an area that will continue to prove problematic, but close consideration of the case law should help alleviate potential problems. Who should you prosecute? One of the first decisions an officer has to make is whether the company should also be charged, along with any directors. The statutes and statutory instruments require that the company is guilty of an offence. Ifthe company is guilty and the commission of the offence is down to the actions of a director by consent, connivance and/or neglect then the director can also be prosecuted. There are various reasons why a company might not be prosecuted, the most common being if it has been dissolved. Although not mandatory, it is always advisable to charge the company. If this is not done, it will be necessary to prove that the company would have been guilty of the offence. Credits Alison Lambert is a barrister at Gough Square Chambers. Images: istock.com / selimaksan / angelhell To share this page, in the toolbar click on You might also like Delay, replay January 2018