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29 Jun 2017

Passing the buck – ex turpi causa and third party liability for criminal penalties

When convicted of a criminal offence, how far is it permitted for another to accept the consequences of the sentence? Put another way, to what extent should punishment-by-proxy be allowed?

The instant and obvious response is ‘not at all’. Of the five purposes of sentencing laid down by the Criminal Justice Act 2003[1], three require the sentence to be applied against the guilty offender if they are to be effective (punishment, reform and rehabilitation and protection of the public) whilst the remaining two (reduction of crime including deterrence and reparations) are nonetheless greatly diminished if they are not.

Clearly it would defeat the object of a prison sentence if, say, a sufficiently wealthy offender were permitted to pay a willing stand-in to serve it in their stead.

Similarly, it would defeat the punitive and rehabilitative objects of an unpaid work requirement (community service) if the offender were able to avoid carrying out the sentence personally. The High Court has held that carrying out an unpaid work requirement on behalf of another can amount to perverting the course of justice. This is on the basis that the court retains jurisdiction to impose further sentence if the offender himself does not carry out the original sentence, and so the ‘course of justice’ subsists until the original sentence is discharged.[2]

The endorsement of driving licences is another apt example; the consequences of improperly accepting points on behalf of another driver are well known[3], and far outweigh the original penalty.

However, should a defendant be sentenced to a fine, there is nothing preventing it being paid by a third party. In practical terms, this must be so. It would be impossible to ensure that a fine was paid only from the defendant’s personal assets, particularly if the fine exceeds his, hers or (in the case of a corporate offender) its means.

This result can also be justified for policy reasons, on the basis that a fine is the lowest level of criminal sanction available and so does not need to punish a defendant personally in the way that a community order, prison sentence or licence endorsement should.

This reasoning could lead to the conclusion that a corporate offender has an unfair advantage over the individual in sentencing, on the basis that the most significant penalty for corporate offending (i.e. a fine) is impersonal and potentially transferrable.

However, this is to overlook the wider effect of financial penalties, as well as other sanctions such as being debarred from procurement opportunities, submitting to monitoring conditions or being subject to a publicity order, all of which will directly affect the health of the business. The company is simply a shell or legal construct. Behind it are shareholders, employees and other stakeholders, some of whom may be completely blameless but will nonetheless be punished for the actions of others.

This is one of the policy rationales justifying deferred prosecution agreements, which permit reduced fines on condition of cooperation and future compliance, thus lessening the immediate impact on current stakeholders. This potential division between those responsible for corporate offending and those bearing the burden of the punishment is one of the reasons why English criminal law permits deferred prosecution agreements only for corporate offenders and not individuals. Nonetheless, it would be wrong to suggest that penalties for corporate offenders have no human consequences, or are somehow just a ‘cost of doing business’.

Insurance, indemnities and ex turpi causa

Just as individuals cannot transfer the burden of their criminal penalties to another, so too are individuals unable to pre-emptively insure against the risk of such penalties, or seek an indemnity for the same.[4]

The reasoning behind this is clear. It would be disastrous were individuals and companies able to put themselves in a position to break the law with impunity and would inevitably create a classic moral hazard if such offending presented an opportunity for profit greater than the penalty.

However, the recently decided Scottish case of D Geddes (Contractors) Ltd v Neil Johnson Health & Safety Services Ltd [2017] CSOH 42[5] (‘D Geddes’) suggests that there are limits to this policy, and that in some circumstances a third party could find itself liable for another’s criminal penalty.

The claimant company (a quarry operator) engaged the defendant (a health and safety consultancy) to inspect its quarry and advise on the necessary steps to fulfil its obligations under the relevant health and safety regulations. Subsequently a fatal accident occurred at the quarry, following which the claimant pled guilty to a regulatory breach and was fined £200,000. The offence was one of strict liability, meaning that it was irrelevant whether the claimant had deliberately, negligently or completely inadvertently failed to take the necessary steps to protect those onsite.

The claimant sought to recoup the fine from the defendant, on the basis that the defendant had negligently failed to advise on preventing the particular risk which led to the accident. As well as denying negligence, the defendant asserted that the principle of ex turpi causa applied. The claimant, the defendant asserted, could not make a claim for damages which arose from its own illegal act.

The Outer House of the Court of Session disagreed with the defendant, noting that there was no authority in England and Wales or Scotland which held that ex turpi causa prevented the recovery of a criminal penalty or the consequences of a criminal sanction in all instances.

In allowing the claimant’s case, Lord Tyre drew a distinction between claims for recompense where the convicted claimant had some personal (albeit perhaps diminished) responsibility for the criminal act, and those where the claimant did not. For example:

  1. Where a driver was fined for driving without insurance, he was entitled to recover the fine from the insurance broker who negligently advised him that he was covered (Osman v J Ralph Moss Ltd [1970] 1 Lloyd’s Rep. 313)
  2. Where a trader engages an accountant to prepare accounts and provides him with the correct information. The accountant negligently fails to prepare the accounts properly and the trader is fined (an example given by Lord Walker in Stone & Rolls Ltd v Moore Stephens [2009 AC 1391] at para 179)

As a result of the judgment, the claim will now proceed in the civil courts. The claimant still bears the burden of proving that the accident occurred as a result of the defendant’s negligence, and no doubt the defendant will assert the contrary. However, this is irrelevant to the principle that ex turpi causa does not prevent recovery for penalties arising from strict liability offences.

To some extent, such arguments with regard to professional indemnity cover are self-limiting. No expert would ever consent to being engaged on terms which incur liability for a client’s deliberate misconduct. Equally, accepting liability for a client’s recklessness is an unlikely prospect. It would be contradictory for a claimant to have both properly relied upon and implemented competent expert advice, but also to have knowingly taken an unacceptable risk.

This point is articulated clearly in the judgment of Lord Tyre, who concluded at para 18 that the key issue with regards to recovery was not the nature of the loss (i.e. a criminal or civil penalty) but the claimant’s culpability. In other words, the principle of ex turpi causa only applied where there was proof of the claimant’s mens rea.

What next?

As a Scottish case, the judgment is not binding in England and Wales. However, given Lord Tyre resorted to English case law in an attempt to find clarity and found none, it is likely that a similar case in this jurisdiction would reach a similar conclusion.

Assuming it did, what would be the consequences? Immediately, experts and advisors in industries exposed to strict liability criminal penalties (for example, health and safety, accountancy and tax) and their indemnity insurers would no doubt consider whether to revise their terms of engagement to exclude such claims. In doing so, they would have to consider whether clients  regard such liability as reasonable for those purporting to offer professional advice underwritten by indemnity insurance. Either way, it would constitute a new risk to be factored into the insurance equation.

More broadly, might the widening of the net lead to more imaginative indemnity claims which were previously made unviable by the apparently overarching public policy against recovering criminal penalties?

For example, since the introduction of new sentencing guidelines in February 2016, fines for health and safety offences have increased significantly. This, combined with the stricter regime for gaining credit as a result of an early guilty plea, means that the stakes in this arena have become significantly higher. As such, are solicitors advising on the early guilty plea provisions now at an increased risk of negligence claims?

If a claim against the health and safety consultant whose failings led to an inadvertent breach of regulations can be pursued, is there any reason a solicitor whose negligent advice on plea leads to a loss of reduction (potentially worth millions of pounds) could not also be liable?

Similarly, confiscation, restraint and forfeiture proceedings can all have significant financial consequences for suspects and defendants. Were losses to arise as a result of negligent advice, it would need to be considered whether those losses were sufficiently detached from any underlying deliberate or reckless criminality to avoid the ex turpi causa exclusion.

Whilst this judgment (even if it were repeated in this jurisdiction) is unlikely to open the floodgates, it challenges the notion that a criminal penalty must always be absorbed by the defendant.

[1] See s142(1) Criminal Justice Act 2003

[2] See DPP v SK [2016] EWHC 837 (Admin)

[3] The convictions of Chris Huhne, Vicky Pryce and Constance Briscoe for perverting the course of justice being perhaps the most high-profile example.

[4] See Safeway Stores Ltd v Twigger [2010] EWCA Civ 1472; [2011] 2 All E.R. 841 (CA (Civ Div)) and

Gray v Thames Trains Ltd [2009] UKHL 33

[5] https://www.scotcourts.gov.uk/search-judgments/judgment?id=820f2da7-8980-69d2-b500-ff0000d74aa7

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