15.1 This Chapter examines the relevance in setting the penalty on a corporate offender of any penalty imposed (or to be imposed) on other offenders that are convicted for the same offence, namely:
- the owners of the defendant corporation, where the corporation is owned by one director or by a relatively small number of people, or
- a related corporation (eg, a subsidiary or parent company)
THE PENALTY IMPOSED ON THE OWNERS OF A DEFENDANT CORPORATION
15.2 If the owners of a corporation have been prosecuted and fined for the same offence, or if they are co-defendants with the corporation, an issue that arises is whether or not the fine imposed on the owners is relevant in determining the amount of fine to be imposed on the corporation. This issue is important in the context of a corporation owned by one director or by a relatively small number of people. In such instances, it may be argued that the corporation is the alter ego of its owner-managers and so an appropriate punishment may be achieved by offsetting the fine imposed on the corporation by the amount imposed on its owners. It may be argued that a failure to do so would result in the imposition of a double (and therefore excessive) penalty.
15.3 There is a dearth of New South Wales case law on the issue. In Gosford City Council v Build Max Developments Pty Ltd,1 where the corporation and a director were convicted of the same environmental offence, the NSW Land and Environment Court found the fact that the defendant director was wholly identified with the corporate defendant relevant in setting the penalty for each:
Mr Ciliegi as a Director of the Company is, it seems, wholly identified with the corporate Defendant. As I say, he is now conducting his building development activities through the corporate identity. This seems to me to require regarding the offences against each of the Defendants as requiring application in sentence of the totality principle. That is, it is appropriate to have regard to the totality of culpability reflected in both offences and to apportion responsibility between the corporate Defendant and the individual Defendant.2
15.4 The Court determined the appropriate penalty for the offence to be $20,000, but instead of imposing the same amount for each defendant, apportioned it between them: $15,000 for the corporation and $5,000 for the director.
15.5 In the United States, the Federal Guidelines on Sentencing of Organisations provides that the court may offset the fine imposed upon a closely held organisation when one or more individuals, each of whom owns at least 5 percent interest in the organisation, has been fined in a federal criminal proceeding for the same offence for which the organisation is being sentenced. An organisation is “closely held” under the Guidelines when relatively few individuals own it. The Guidelines provide a limit on the amount that can be offset, stipulating that it should “not exceed the amount resulting from multiplying the total fines imposed on those individuals by those individuals’ percentage interest in the organisation”.3
DETERMINING THE PENALTIES FOR CLOSELY RELATED CORPORATIONS
15.6 Where two related corporations are prosecuted, that is, where the first defendant is a wholly owned subsidiary of the second, an issue arises as to whether the penalty imposed on one should be relevant to the determination of the penalty for the other.
15.7 Some occupational safety cases have considered this issue. In Haynes v CI & D Manufacturing,4 a work-related accident occurred on the premises owned by CI & D Industries Pty Ltd (Industries) and leased to the associated and wholly-owned company CI & D Manufacturing Pty Ltd (Manufacturing). As a result of the accident, an employee of the latter company, the subsidiary, was killed. Both companies were prosecuted and convicted under sections 15 and 16 of the Occupational Health and Safety Act 1983 (NSW). At sentencing, the Full Court of the Industrial Court of NSW said:
Should the prosecution of closely related companies attract one penalty or two penalties assessed against each company? The evidence available showed that Manufacturing at the time of the accident employed at the Somersby plant about nine workers and that for purposes related to company structure was a company wholly-owned by Industries. The personnel on whom the ultimate responsibility for ensuring the supervision of the employees rested at the time the accident were the same.
We have come to the view on the evidence that the connection between the two companies was so intimate that it is permissible to view the offence in a global way. We are of the view that an appropriate penalty in all the circumstances would be a total fine of $30,000.
…In determining the way in which the totality of the fine should be apportioned, we have decided that Manufacturing and Industries are so clearly linked that each should bear the fine equally – $15,000 by Manufacturing and $15,000 by Industries.5
15.8 In contrast however, Justice Walton in later case did not seem to agree with what was held in CI & D. He observed that the case relied on previous cases that had applied the sentencing principle of totality. This principle requires a judge who is sentencing an offender for a number of offences to ensure that the aggregation of the sentences appropriate for each offence is a just and appropriate measure of the total criminality involved. Justice Walton clarified that this principle operates only in circumstances where a single defendant is convicted of a number of offences: it does not apply where two defendants face different charges. He was of the view that “the approach adopted by the court in CI & D does not sit comfortably with the principle of totality …” because “[w]hilst the charges against the corporations in CI & D (and the assessment of penalty) were heard concurrently … the matter essentially concerned prosecutions for different offences under the Act”. He held further that “the decision in CI & D is based upon the unusual circumstances applying in that matter where both defendants had supervisory responsibility for the employees concerned”.6
15.9 The two companies in CI & D were charged and convicted under separate sections of the Occupational Health and Safety Act 1983 (NSW) because only one of them was the employer of the victim and as such was liable under one section of the Act (s 15). The other company was liable under another provision of the Act (s 16), for failing to ensure the health and safety of non-employees while they are at the company’s place of work. Hence, even though the two companies were convicted under different provisions of the pertinent Act, their negligence, which gave rise to their criminal prosecution, was closely related. Considering this and the relationship between the two corporations, it may have been legitimate for the court in that case to apportion the fine between the two defendants and avoid the imposition of a “double penalty”.
15.10 The same result was had in a case which involved charges brought against Nicholson Air Services Pty Ltd under s 16 of the Occupational Health and Safety Act 1983 (NSW) and Agair Development Pty Ltd under s 15 of the Act. Justice Fisher found that the companies belonged to common owners, and further, that the directors and management were the same. His Honour accepted the agreed position of the prosecutor and the defendant that only one penalty should be fixed in relation to the charges.7
THE COMMISSION’S CONCLUSION
15.11 It would appear then, that when setting the penalty for corporate offenders, courts take into account the penalty imposed on the corporation’s owners, or a related corporation. The courts’ decisions ultimately turn on the facts of the case, with particular attention paid to any existing close relationship between the defendant corporation and its directors, or between two related corporate defendants. In each case, courts weigh the respective culpabilities of the defendants to ensure a proper apportioning of responsibility.
15.12 However, there is uncertainty regarding the ultimate basis of the rule governing this practice. Most judges have relied on the principle of totality.8 However, the Commission agrees with Justice Walton that the totality principle is irrelevant in this context. Regardless of their correct bases, however, the rules at common law that allow courts to offset the penalties to be imposed on a corporation and its owners, or between two related corporate defendants, are useful in ensuring the proper apportioning of responsibility and avoiding the imposition of an excessive penalty. The Commission does not think it necessary to make any recommendations for legislation on the matter. The common law is best suited to the further development of these rules and in settling any issues that may arise from them.
FOOTNOTES
1. Gosford City Council v Build Max Developments Pty Ltd [2000] NSWLEC 224.
2. Gosford City Council v Build Max Developments Pty Ltd at [23].
3. United States Sentencing Commission, Guidelines manual (2002) § 8C3.4. The Guidelines give this example: an organisation is owned by five individuals, each of whom has a twenty percent interest; three of the individuals are convicted; and the combined fines imposed on those three is $100,000. In this example, the fine imposed on the organisation may be offset up to 60 percent of their combined fine amounts, ie, by $60,000.
4. Haynes v CI & D Manufacturing (1995) 60 IR 149; (No 2) (1995) 60 IR 455.
5. Haynes v CI & D Manufacturing (1995) 60 IR 149; (No. 2) (1995) 60 IR 455 at 458.
6. WorkCover Authority of NSW (Inspector Ankucic) v McDonald’s Australia Ltd (2000) 95 IR 383 at 459.
7. WorkCover Authority of NSW v Nicholson Air Services Pty Ltd (NSW, Industrial Court, No CT1008 and 1009, Fisher P, 8 April 1998, unreported).
8. Gosford City Council v Build Max Developments Pty Ltd [2000] NSWLEC 224; Haynes v CI & D Manufacturing (1995) 60 IR 149; (No. 2) (1995) 60 IR 455.
