Engaged or Involved in Civil Contravention (Accessories)

                                                                                                                                                                                                                                S.  Perkovic, Principal, Northfields Lawyers, 9 October 2016

Sometimes situations arise when accessory liability is to be determined for contravention of civil law.

Australian Position

Australian Consumer Law and the Corporations Act 2001 (Cth) contain almost identical provisions about accessory which can be arguably used for interpretation of other statute prescribing accessory liability in civil matters.

The words involved or engaged in contravention are imported from criminal law, derived from former s 5 of the Crimes Act 1914 (Cth) (now s 11 of the Criminal Code Act 1995 (Cth)). They import an element of knowledge. Some degree of knowledge of the facts or deception on the part of the person alleged to be involved in the contravention must be established. See, for example, Yorke v Lucas (1985) 158 CLR 661 at 670; 61 ALR 307; 59 ALJR 776; (knowledge of essential facts required); Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274; 84 ALR 700; (1989) ATPR ¶40-926 , Fed C of A, Full Court (orders made against agent of vendor of business for misrepresentations concerning profitability of business).

Causation

In the context of the Australian Consumer Law and Corporations Act, it has been held that defendants’ involvement need not have had a ‘but for’ causative impact on the commission of the wrong by a principal wrongdoer .  It is needed to establish causation only between the principal wrongdoer and loss and damage. There is no need to establish causation between accessory and loss and damage – only his or her involvement in contravention of the principal. In Trade Practices Commission v Australian Meat Holdings Pty Ltd, Wilcox J stated that:

 it seems to me to be erroneous to read s 75B as being limited to conduct without which the relevant contravention could not have occurred… In that context the word ‘concerned’ has been read as requiring facts connecting the accused with the commission of the relevant offence …[55]. This view was affirmed in the HIH case: Indeed, it is arguable that a person may be knowingly concerned in a contravention for the purposes of s 75B(1)(c) even if the defendant’s particular conduct turns out not to have been causally connected with the contravention.[56]

For a relationship between a principal and accessory, it is necessary to identify the principal wrong in order to identify which particular accessorial liability rules are activated. Further, it is important to identify the essential matters or elements of a principal wrongdoer’s wrongful conduct, as accessorial liability often turns on some consideration of the accessory’s knowledge of those ‘essential matters’, that is, what precisely must the accessory have known? This question goes to the moral quality of defendants’ involvement,  what did they know about the principal wrong, were they had actual knowledge of the above essential matters. What precisely they must have known and degree to which this level of knowledge are relevant.

Level and Degree of Knowledge

A person involved in a contravention will not be liable for damages if he is unaware of the essential matters which constitute the contravention, and has no reason to suspect that he is involved in a contravention  (Yorke & Anor v Treasureway Stores Pty Ltd & Anor (1983) ATPR ¶40-336; ¶40-401), However, under the statutory regime persons alleged to be accessories need not have known that the conduct in question was unlawful – accessory must have knowledge of the essential matters which make the offence whether or not he or she knows that those matters amount to a crime.

Much of the focus of the case law has been on the question of the degree of knowledge necessary to activate liability. The High Court in Yorke v Lucas observed that the only third parties captured by these terms are those who acted in relation to the contravention with actual knowledge (or mens rea) of the essential matters that constitute the contravention. This is so even though principal wrongdoers’ liability for breach of the consumer protection provisions is in some cases strict. It requires intentional participation:

The courts have broadly interpreted the statutory schemes in relation to whether an omission can amount to a sufficient involvement.  S 75B of the former TPA merely notes that one must have been ‘directly or indirectly’ concerned in a contravention, s 79 of the Corporations Act has added the words ‘by act or omission’ before ‘directly’.  For example, a party who merely passively stands by whilst false information is conveyed may be liable as an accessory, if such standing by is done with knowledge of the falsity. In Sutton v A J Thompson Pty Ltd (in liq) an accountant, by remaining silent, withheld vital information from purchasers of a business and accepted joint responsibility for false statements made by the vendor.

Constructive knowledge is clearly not sufficient (Compaq Computer (Aust) Pty Ltd v Merry [1998] FCA 968; (1998) 157 ALR 1, 5 (Finkelstein J),) except possibly for kind of constructive knowledge which was referred to as “wilful blindness”.  In Zipside Pty Ltd v Anscor Pty Ltd [2004] QSC 33 (2 March 2004) [42] (Helman J). It has been suggested that perhaps dishonest ignorance of the truth may also suffice.

In Crocodile Marketing v Griffith Vintners (1989) 28 NSWLR 539 Cole J did not impute to the managing director defendant actual knowledge when he signed documents stating that, based on tests done by external credible agencies, the wine had certain qualities. His argument was based on the fact that it was impossible and not expected from the director to do tests himself or to doubt validity of the tests. The current case may be different as falseness of representations were obvious on the face value of documents and it is expected from the auditor to act with suspicious mind and test transactions.

The proper test may be that from Holloway v Witham (1990) 21 NSWLR 70 at 79; (1990) ASC ¶56-003 per Lee CJ, SC(NSW) quoted Virtue J in Ashbury v Reid (1961) WAR 49 at 51: whether on the effects it can reasonably be said that the act or omission shown to have been done or neglected to be done by the defendant does in truth implicate or involve him in the offence, whether it does show a practical connection between him and the offence.

England and Wales and the US

In England and Wales there is applicable fivefold classification of ‘knowledge’ set out in Baden v Société Générale [1993] 1 WLR 509 (Ch D): (i) actual knowledge, (ii) wilfully shutting one’s eyes to the obvious, (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make, (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable person and (v) knowledge of circumstances which would put an honest and reasonable person on inquiry. It seems that actual knowledge may be found in situations under (i) to (iii).  

 In the USA, the wilful blindness doctrine was expanded in the patent law case Global-Tech Appliances Inc. v. SEB SA, Case No. 10-6, 563 U.S. (2011) The Court held that the patent law requires a defendant to “know” that the third party’s conduct constitutes patent infringement but that a plaintiff need not prove that the defendant had any actual knowledge of the infringement. At point  271 of the Judgment, the Court stated that it was sufficient that the subsidiary “wilfully blinded itself to the infringing nature of the sales it encouraged [a distributor] to make. The wilful blindness term is often used by the USA lower courts but the Supreme Court used it in this instance.

It seems that in England and Wales, and the US, level of knowledge required to establish accessory liability is lower than in Australia as in England and Wales, recklessness seems to suffice; and in the US by virtue of Global Tech case,  constructive knowledge test may prevail, at least in patent law, over actual knowledge test.

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