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Should the privilege for bodies corporate be removed by legislation?
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207 THIS CHAPTER assesses whether the privilege against self-incrimination should apply to bodies corporate. What is being examined is the claim of privilege by or on behalf of a corporate body, rather than by its individual officers and directors on their own behalf. In practice, the distinction cannot always be drawn so clearly. In many cases, the representative of the corporation giving evidence or acting on the corporation’s behalf may also be the individual who has committed offences under the corporation’s cloak.[46] Nevertheless, the following discussion proceeds on the basis that corporate liability is distinct from any personal liability of a corporate representative.
208 The arguments for and against the privilege’s applicability focus on one type of corporate body – companies. This is because debate about the privilege’s application to artificial legal personalities arises most often in relation to them. However, much of the discussion in this chapter is relevant to incorporated societies, and the Commission’s proposals refer to “bodies corporate” generally.
209 It should be borne in mind throughout the following discussion that corporations differ from individuals in several important respects:
210 In New Zealand, a corporation may claim the privilege against self-incrimination at common law. The Court of Appeal reached this conclusion in New Zealand Apple and Pear Marketing Board v Master & Sons Ltd [1986] 1 NZLR 191.
211 In that case, the respondent, who had an orchard and roadside shop, refused to allow an inspector from the Apple and Pear Marketing Board to see apples which a director of the business had told him were in the business’s cooler. The respondent was charged, under reg 9 of the Apple and Pear Marketing Regulations 1975, with refusing to allow fruit in its possession to be examined by an officer of the Board. The issue of whether the privilege could be claimed by corporations was not canvassed in detail by the court, but it found:
There seems no policy reason why a corporation should not avail itself of the rule. A corporation acts and makes statements through certain responsible officers ... It is identified in law with the acts and defaults of its directors and officers, and it may make admissions through them. Indeed, in this case ... the actions and statements of the directors ... led to the bringing of the charge ... If then the prosecution may prove its case by the out of Court statements of its directors, it seems reasonable that the company should be entitled to claim self-incrimination when it speaks through them. (196)
The Court of Appeal’s comments suggest that officers of a corporation can claim the privilege on the corporation’s behalf for both oral and documentary disclosures. The Australian case law, referred to below, has taken a different tack.
212 New Zealand corporations range in size and complexity from the corner dairy to huge organisations with many subsidiaries and overseas connections. Many, if not most New Zealand corporations, are small individual or family-owned businesses. These, it is said, should not be distinguished from natural persons (New Zealand Apple and Pear Marketing Board, 197).
213 In practice, whether a corporation is able to claim the privilege in a particular context will usually be a matter of statutory interpretation. While certain legislation (eg, the Commerce Act 1987, the Secret Commissions Act 1910, the Companies Act 1993 and the Unit Trusts Act 1960) removes the privilege in particular contexts, use immunities replace the privilege. Other legislation (eg, the Corporations (Investigation and Management) Act 1989 and the Securities Act 1978) confers broad powers on officials and bodies to investigate areas of activity peculiar to corporations. The privilege is not expressly removed, and it is unclear whether there is a positive duty to co-operate.
214 Section 29 of the New Zealand Bill of Rights Act provides:
Except where the provisions of this Bill of Rights otherwise provide, the provisions of this Bill of Rights apply, so far as practicable, for the benefit of all legal persons as well as for the benefit of all natural persons. [Emphasis added]
There is nothing expressly ruling out the application of the privilege provisions in the Bill of Rights Act to corporations. It is at present unclear whether the provisions which refer to the right to remain silent in the Act (ie, ss 23(4) and 25(d)) are provisions which “otherwise provide” within the meaning of s 29 above. It is unlikely that the right in s 23(4), of everyone who is arrested or detained to refrain from making any statement and be informed of that right, applies to corporations, as they cannot be physically arrested or detained.
215 The position is less certain in relation to the right of everyone who is charged with an offence not to be compelled to be a witness or confess guilt (s 25(d)). A corporation cannot be a witness; therefore, the right may not extend to corporations. On the other hand, in New Zealand at least, corporate officers may speak for the corporation, and this fact might suffice for the purposes of the section.
216 If the right to the observance of the principles of natural justice in s 27(1) encompasses the privilege (discussed in chapter 5), there is nothing in the language of that section to preclude its application to corporations.
217 Section 187 of the Evidence Act 1995 (Aust) expressly precludes claims to the privilege by bodies corporate, for the purposes of a Commonwealth law, a law of the ACT or a proceeding before a federal or ACT court. Before the Act was passed, the High Court of Australia held that the privilege against self-incrimination could not be claimed by corporations (Environment Protection Authority v Caltex Refining Co Pty Ltd (1994) 178 CLR 477). Subsequently, the full court of the Federal Court held that the privilege against liability to a civil penalty was also unavailable to corporations (Trade Practices Commission v Abbco Ice Works (1994) 52 FCR 96).
218 Prior to the Caltex decision, the Australian cases recognised practical difficulties when corporations claimed the privilege, including issues about to whom a subpoena or notice to supply information should be addressed and upon whom it should be served. Problems arose when the corporate officer or director made a claim to the privilege on the grounds that the answers or production sought would incriminate the corporation.[47]
219 The Australian cases suggest that a party seeking production of documents avoided corporate claims to the privilege by directing the subpoena for production to a particular officer of the corporation, rather than to the corporation itself (eg, see Concrete Constructions Pty Ltd v Plumbers and Gasfitters Employees’ Union (Aust) (1987) 71 ALR 501, 518). Any claim to the privilege was then defeated, provided that the documents did not incriminate that officer personally. Because the command of the subpoena was addressed to the individual, rather than to the corporation, the only question of self-incrimination arising was in relation to the individual. It is presently unclear whether New Zealand courts might in future follow the Australian authorities (as already noted, there has been a paucity of New Zealand case law on the issue of corporate claims to the privilege).
220 In Caltex, the court also assumed that the preceding Australian case law precluded corporate claims to the privilege for oral testimony. In practice, corporate officers could only invoke the privilege on behalf of a corporation in response to requests for the production of documents or the answering of interrogatories (eg, see Deane, Dawson and Gaudron JJ, 155).
221 In addition, the Australian cases suggest that, at common law, a claim to the privilege could not be made in relation to production of another person’s property. This principle worked to circumvent claims by corporate officers or directors when production of corporate documentation was sought (conceivably, this could occur in New Zealand). Conversely, a director or officer may have been able to avoid production on the basis that she or he did not in fact have possession of the documents; rather they were in the possession of the corporation. The court in Trade Practices Commission v Arnotts Ltd (1990) ATPR 41–010, for example, held that a director subpoenaed to produce documents was not bound to produce them because the corporation was the owner of the documents and it had forbidden their production. Similarly, principles of master and servant duties were relevant: see Eccles & Co v Louisville & Nashville Railroad Co [1912] 1 KB 135, where the court held that an employee was not obliged to produce an employer’s documents if production would violate the duty owed by the servant to the master.
222 As already noted, in Canada, the privilege has been abrogated and the testimonial immunity in s 5 of the Canada Evidence Act 1985 does not extend to corporations; neither do ss 11(c) and 13 of the Charter (right to silence of witnesses).[48]
223 At least at common law, the privilege continues to apply to corporations (Triplex Safety Glass Co Ltd v Lancegaye Safety Glass (1934) Ltd [1939] 2 KB 395).
224 The Fifth Amendment only applies to natural persons (Hale v Henkel 202 US 43 (1906)). Constitutional considerations underlie this approach. The guarantees of the Fifth Amendment cannot be abrogated without providing the protection of an effective immunity. Therefore, there is a concern that extending the privilege to collective entities could create very real problems for the government in the investigation and prosecution of offending by very large and powerful organisations: see Caltex Refining Co v State Pollution Control Commission (1991) 74 LGRA 46, 52.
225 A more restrictive approach has been taken in some cases suggesting that corporate officers are not even entitled to claim the privilege on their own behalf. In Bellis v United States 417 US 88 (1974), for example, the court held:
[A]n individual cannot rely upon the privilege to avoid producing the records of a collective entity which are in his possession in a representative capacity, even if these records might incriminate him personally.
226 One common argument against the application of the privilege to corporations is that they are incorporeal entities, without thoughts or emotions, and are unable to feel physical pain or discomfort. As Lord Denning said in British Steel v Granada Television [1981] AC 1096, 1127 (somewhat against the tide of English authorities):
[I]n these Courts, as in the United States, the privilege is not available to a corporation. It has no body to be kicked or soul to be damned.
227 Critics of the “no body to be kicked or soul to be damned” line of argument say that while corporations cannot be physically detained or imprisoned or suffer a breach of dignity when their privacy is invaded, analogous consequences may arise.[49] Corporations can be severely penalised by incriminating disclosures. Sometimes “punishment” takes a form which destroys the corporation (eg, winding up). In addition, although corporations do not have personal thoughts and feelings, they have a substantial interest in maintaining their reputations and the confidentiality of their operations.
228 The Commission’s stance is somewhere between these two positions. Although corporations can suffer many disadvantages from disclosing incriminating information, the very personal sense of intrusion and fear of physical imprisonment which individuals may experience is lacking. Of course, corporate representatives may experience a sense of intrusion and fear when they are personally at risk of self-incrimination.
229 Linked to the “no body to be kicked or soul to be damned” argument is the contention that corporations cannot be pressured into giving unreliable testimony and cannot be subjected to improper treatment: two of the concerns the privilege seeks to address.
230 Much corporate crime is conducted through the use of documents, and the degree of testimonial compulsion leading to unreliability is far less than with face-to-face questioning. The reliability rationale behind the privilege is largely inapplicable.[50] Similarly, the rationale of preventing improper treatment and abuses, when compulsion involves physical abuses of power or overly strenuous questioning, will be inapplicable. However, officers answering questions on behalf of a corporation may be vulnerable to these investigative approaches.
231 When a small corner dairy is under investigation, the owner or employee responding to questioning on the business’s behalf will in reality usually comprise the business itself. However, in that eventuality, he or she will be able to claim the privilege on his or her own behalf (at least under New Zealand law).
232 The privilege’s interest in maintaining the balance of power between individual and State, including the State’s onus of proof, is reflected in du Parq LJ’s additional comments in Triplex Safety Glass:
[I]t would not be in accordance with principle that any person capable of committing, and incurring the penalties of, a crime should be compelled by process of law to admit a criminal offence. (409)
233 In Caltex, Mason CJ and Toohey J (135–138) objected to this approach, for these reasons. First, in general, a corporation is usually in a stronger position vis-à-vis the State than is an individual. This is because of the comparatively greater resources of corporations than individuals and the complexity of many corporate structures. Second, the onus of proof – beyond reasonable doubt – on the Crown would remain unimpaired if corporations were compelled to produce incriminating books and documents. Third, the judges also pointed to corporations’ reliance on documentation to commit crime, and concluded that corporations have a significant advantage in shielding criminal activity if the privilege applies to documents.
234 There is scope for fraud to be concealed effectively in large corporations with complex structures and unclear chains of command. However, as already noted above, in New Zealand, the majority of corporations are more in the nature of small family businesses than giant conglomerates with complicated structures.
235 The judges’ second argument touches on the issue of whether the abrogation of the privilege necessarily encroaches on the State’s burden of proof.[51] Even if abrogation would have no effect on the burden of proof, a narrow exception for corporations alone is unwarranted.
236 In Caltex, the judges’ second and third arguments overlook the fact that individuals can indulge in many of the illegal activities which corporations commit with documentation. They can, for example, run assets through trusts, shift information to places of safety (ie, warehousing), shift documents off-shore, launder money, commit tax evasion etc. In other words, the nature of complex transactions does not differ greatly between corporations and individuals. The documentation used is much the same. The solution the Commission has suggested in the preceding chapter is the removal of the privilege for pre-existing documents, rather than making a narrow exception in the law for corporations’ documents.
237 As discussed in chapter 2, the basis of the privilege’s role in protecting the innocent from conviction is that silence does not always indicate guilt – there may be legitimate reasons for silence. In the context of corporate claims to the privilege, a corporation may have reasons other than guilt for not wishing to produce self-incriminating, pre-existing documents (eg, the material in the documents might give a misleading impression of guilt). However, in the corporate context, this rationale is open to the criticism that the privilege might shelter the corporation or individual officers who are guilty of wrongdoing. The corporation could shelter behind an officer’s claim on his or her own behalf, or an officer could shelter behind the privilege invoked on behalf of the corporation. In the Commission’s view, the removal of the privilege would reduce (but not entirely prevent) these occurrences.
238 If the privilege for corporations were removed, officers not incriminated in any way by the information which they are asked to supply would not be able to protect the corporation by claiming the privilege. However, it is accepted that, in some cases, the respective liabilities of the corporation and the officer will not be clearly demarcated. If an officer is personally suspected of wrongdoing, his or her claim to the privilege on the corporation’s behalf is in a sense artificial. With the removal of the privilege for corporations, the officer would be required to “come out into the open” and invoke the privilege on his or her own behalf. For these reasons, the removal of the privilege for corporations is likely to enhance the detection capabilities of the police and Serious Fraud Office in relation to white collar crime.
239 As noted above, the Court of Appeal in New Zealand Apple and Pear Marketing Board held that because a corporation cannot give evidence and the case against a corporation can be gathered by recourse to its officers’ statements, those statements should attract the privilege on the corporation’s behalf. A corporation cannot make statements on its own behalf. However, despite this, the privilege is essentially a privilege against self-incrimination. In the Commission’s view, the privilege should only be available to the person who is asked to supply evidence which incriminates him or her personally. In other words, the risk of prosecution or penalty is born by the person who chooses whether or not to give the incriminating information.
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URL: http://www.nzlii.org/nz/other/nzlc/pp/PP25/PP25-9.html