Passing on responsibility for criminal offences
GEDDES v JOHNSON [2017]
This Scottish case suggests that there are certain limits to a well-established principle of English law which prohibits criminal penalties being passed to another, insurance being taken out against the risk of such penalties or seeking an indemnity against having to pay penalties (the so-called ex turpi causa principle). It was decided that in some circumstances a third party could find itself liable for another’s criminal penalty.
This issue is particularly pertinent in the context of data protection where data controllers often attempt to ensure that data processors are liable to indemnify them in respect of any fines that they suffer as a result of the data processor’s breach.
Facts:
- Geddes (“G”) (a quarry operator) engaged Johnson (“J”) (a health and safety consultancy) to inspect its quarry and advise on the necessary steps to fulfil its obligations under relevant health and safety regulations.
- Subsequently a fatal accident occurred at the quarry, following which G pleaded guilty to a regulatory breach and was fined £200,000. The offence was one of strict liability which meant G was guilty irrespective of whether it was at fault.
- G sought to recoup the fine from J on the basis that J had negligently failed to advise on preventing the particular risk which led to the accident. As well as denying negligence, J asserted that the principle of ex turpi causa applied and that G could not make a claim for damages in respect of its own illegal act.
Decision:
- The reasoning behind this principle is fairly obvious: businesses cannot put themselves in a position to break the law with impunity. However, the Scottish Court disagreed with J, noting that there was no authority in England and Wales or Scotland which held that this principle prevented the recovery of a loss which constituted a criminal penalty or was due to the consequences of the imposition of a criminal sanction in all instances.
- The Court therefore found in favour of G and drew a distinction between claims for compensation where the convicted claimant had some degree of personal responsibility for the criminal act, and those where the claimant did not. It concluded that the key issue with regards to recovery of a loss was not whether it was due to a criminal or civil penalty but whether there was proof of G’s ‘guilty mind’. It went on to say that the principle of ex turpi causa does not apply where there is a complete absence of fault, negligence or dishonesty.
Points to note:
- As a Scottish judgment, the decision is strictly not binding in England and Wales. However, it is likely that a comparable case in England would reach a similar conclusion.
- Advisors and their indemnity insurers may want to consider whether to revise their terms of engagement to exclude such claims. This judgment challenges the notion that a criminal penalty must always be absorbed by the party charged with the offence and removes any lingering doubt that contractual indemnities in respect of regulatory breaches might not be enforceable.
- Interestingly the judge said that where both parties bear a degree of responsibility, “the Court’s task is not one of weighing up the respective [blame]. If negligence on the part of the claimant is established, the ex turpi causa principle excludes the claim altogether”. This may mean that the focus shifts to the party giving the indemnity trying to establish a degree of fault on the party who benefits from the indemnity in order to defeat the claim.