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CORPORATE LAW
FINAL ASSIGNMENT

Muhammad Yahya Ahmed Minhas

Corporate Law, LLB-6
Bahria University Islamabad

CORPORATE LAW
FINAL ASSIGNMENT

Table of Contents
Introduction:............................................................................................................ 2
History:..................................................................................................................... 3
Meaning:................................................................................................................... 3
Modern Trend:......................................................................................................... 4
How it arises:........................................................................................................... 5
a.

By Ratification:.................................................................................................. 5

b.

By Relationship:................................................................................................ 6

c.

By Abetment:.................................................................................................. 10

Exceptions as to knowledge of the Employer:.................................................11

Criminal offences upon which employers are vicariously liable:..................11
Corporate Liability:............................................................................................... 12
Concepts and Procedures:................................................................................... 13
a.

Identification test rule in English Law:.............................................................14

b.

Aggregation test rule in American Law:..........................................................14

c.

Fraud and secondary Liability:.........................................................................15

Corporate criminal enforcement:.......................................................................15

Corporate sanctions:............................................................................................ 15
a.

Fine:................................................................................................................ 16

b.

Conviction:...................................................................................................... 16

Probation:..................................................................................................... 16

License cancellation:.................................................................................... 16

Reputational penalties:................................................................................ 16

Vicarious liability in Pakistan:............................................................................17

Conclusion:............................................................................................................... 18
Works Cited.............................................................................................................. 20

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Criminal Vicarious liability

Introduction:
Vicarious liability is a tort doctrine which in the legal term was initially known as
Doctrine of Respondent Superior which meant let the master answer. This doctrine was
initially only applied on master-slave relationship. But with the passage of time EmployeeEmployer were added to that list. Under this doctrine, liability is imposed on one person for the
actions committed by another. Under vicarious liability a supervisory party bears responsibility
for the conduct of an associate or employee. Vicarious liability only covers special relationships
such as Parent and child, employer and employee or owner of a vehicle and its driver. Under
such conditions the liability or responsibility may fall on the supervisory party rather than the
one who committed it. (Farlex, 2014)
There are three ways or circumstances in which a person may be held vicariously liable
for the acts committed by another person.
1.

Master-servant relationship: An employer may be held responsible and

liable for the actions and doings of his employee. Provided that those actions were
committed by the employee in his official capacity.
2.

Principal-agent: both principal and agents are answerable vicariously for

each others doings and actions.

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3.

Where two parties are in a partnership. Partners are liable for the torts of

other party committed in the course of business. (J, 2014)

History:
The roots of this doctrine goes back to the 13 th century. Communities were smaller at that
time so people were very careful about the reputation of their community because their own
repute was dependent on it. This whole thing was termed as community responsibility system
(CRS).
In the old Roman law, salves were not held liable, in fact their masters had to be
answerable in their place. Slavery and all its forms have been obsolete now but the concept was
evolved and came to be known as the doctrine of vicarious liability. Normally this doctrine
comes into force where there was a negligence on the part of the employee, slave or any party
who is working or is under the supervision of some other party. But with the passage of time this
doctrine was interpreted differently and legal experts started using it in criminal cases as well.
(Scribed, 2011)

Meaning:
Simply putting vicarious liability can be explained as a liability acquired by A to C for B
conduct and actions.
When the law holds one person liable for the actions and wrongs of another, although he
himself hasnt done anything wrong or against the prescriptions of law, this is known as doctrine
of vicarious liability. The principles behind vicarious liability are Respondeat Superior Let the

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master or superior answer and Qui Facit per Alium Facit per se He who employs another
person to do something, does it himself.
These two maxims when taken and focused together, they put the master or an employee
in the same situation as the servant or slave and an employee is. If they commit anything wrong
during their carrying of masters orders their supervisors or superiors or masters or employers are
also liable for the actions they allowed or happened under their supervision. (Scribed, 2011)

Modern Trend:
In the current times the employer or master is held primarily responsible. It is more
beneficiary and promising. Most of the suits filed under the vicarious liability are of monetary
nature. By suing and filing a suit against the employers the victims or plaintiffs tend to benefit
more as they can get more money from the employer as compared to their employee. Lord
Pearce declared this doctrine of vicarious liability as a rough justice.
Normally there is no vicarious liability in criminal law. Crime consists of both Actus
Reus (guilty action) and Mens Reus (guilty mind). For a perfect crime whose punishment is in
the statute, it is mandatory that both elements were present during or before the commission of
that particular crime.
In England, this doctrine was interpreted as the owner of the rights can transfer or
delegate his authority to another person. In this way a person who commits any crime possesses
both Actus and Mens Reus.

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Whereas in America, this doctrine is applied only on the civil natured offences of the
negligence. Those who have any criminal intent on their part were tried under Penal provisions
and not the remedial one. There were few cases where employer were not punished for the
actions committed by his employee. For instance, in State V. Guminga (1986), Employer was
acquitted when his employee, a waitress served alcohol to a minor. (Wikipedia, 2014)

How it arises:
There are three ways or occasions when a person is held liable for the wrongs committed
by the others instead of him. (Scribed, 2011)

a.

By ratification: when a person authorizes another person or employee

of his to carry out certain duties and actions.

b.

By relationship: when the relation of the two persons demand each

other to take responsibility and liability for one another.

c.

By Abetment: And when a person abets and helps another

person in carrying out any certain torturous and criminal acts against
the prescribed ways of law.
Each will be now elaborated.

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a.

By Ratification:

Ratification is a process in which a person authorizes or delegates his

authority to another person and allows him to carry out certain acts and
orders. The former is called Principal and the latter is known as an agent.
There are few key points which are necessary to be kept in mind while
discussing the term ratifications. Any person who does or carries out certain
orders must be an official appointed agent. And upon his commission he
should be claiming the same. The principal must have the full knowledge of
the actions committed or about to be committed by his agent. It is necessary
that the acts being ratified are not illegal and void in nature.

b.

By Relationship:

As already described earlier, relationship sometimes created liabilities

and obligations towards and for one another. There are following classes of
liabilities which are created under a relationship.
i.

Principal and agent

ii.

Firm and partners

iii.

Master and servant

iv.

Company and its directors

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Each will now be explained

i.

Principle and agent: Agency is a legal principle in which

a party known as an agent is authorized by another person or party

known as principal. When the same has happened the liability is upon
the principal sometimes for the actions of his agent. An agent is not an
employee but an employee may be an agent.
Cases: In Lloyd V. Grace, smith & co, a firm of solicitors, Mrs.
Lloyed went to managing clerk of grace, smith and co for an advice
on her cottage not producing good profits. Clerk advised her to sell
those cottages and invest her money in something else. She agreed
and singed few documents which were supposed to be a sale deeds.
They came out to be a gift deeds in the name of that clerk. Who
later on disposed of the property as per his wishes and Mrs. Lloyed
went to court. Which decided in favor of Mrs. Lloyed and held
principle liable for fraud.
Where as in State bank of India v. Shyama Devi, the plaintiffs
husband gave checks to his friend who was an employee/agent in
the defendants bank. Friend lost and misplaced the checks which
were to be deposited in the plaintiffs husbands account. Case was
filed against the bank for the compensation. Court decided in favor
of the defendant as they had no direct communication with the
plaintiff and her husband. They gave that check and amount to

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banks employee in their own personal capacity and as their friend.

State bank of India was acquitted.
Sometimes merely giving permission to a friend or family
member creates this agent and principal relation. In Ormrod v.
Crosville Motor service Ltd, the owner of the car allowed his friend
to drive his car. While the car was being driven by the friend it
collided with a bus. The owner was held vicariously liable for the
accident.
Whereas: in Trilok singh V. Kailash bharti, the owners brother
took out a bike without his consent and caused an accident. The
owner was not held vicariously liable as he had no knowledge of the
actions by his brother. Relations do not create this liability. For a
liability the agent and principal relationship must be proved.
Convicting somebody merely on a fact that offender is related is not
permitted under this doctrine.
ii.

Firm and partners: For a wrong committed by one

partner also puts all the others partners in the same category. All the
partners will be liable and responsible for one anothers actions
provided that it is within the bounds of their authority. The liability of
each partner is joint and several.

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Case: In Hamlyn V. Houston & co., one of the two partners

well within the bounds of his authority tried to bribe the plaintiffs
clerk to leak the business secrets of his employer. Later it was held
in court that both partners are liable even though the actions were
committed by only one of them.
iii.

Master and servant: A servant is any person who is

employed by another person on the stipulation that he is in total

control of his employee and he will treat him as he sees fit and will
require tasks of different nature the way he wants. This is the definition
of a servant more compatible with the todays time. This relationship
involves a power of control and directions by one called the master to
another called his servant.
There must be a clear distinction between a servant and an
independent contractor. Unlike a servant, an independent contractor
is not subject to a control or receiving orders. He usually is a
specialist and when his task is completed so is his relation with the
employer and his business. Employer is generally not liable for the
actions an independent contractor committed.1
There are few exception where employer is held liable for the
independent contractors actions of mischiefs.
1 Honeywill & stein Ltd V. Larkin Bros Ltd, An employer is not liable for the acts of
his independent contractors he is for the acts of his employees or agents.

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a)

Strict liability cases

b)

Use of fire

c)

Matters of causing danger on highways

d)

Personal interference

e)

Unlawful work

f)

Destroying or damaging some other persons property

Doctrine of common employment: this rule was first

applied in 1837. Where it was made clear that a master is not liable
for the negligent harm done by one servant to another acting in the
course of their common employment.
Case: In Rylands V. Fletcher, the defendant got constructed a
reservoir from a contractor. Water escaped somehow and damaged
the plaintiffs property. Applying the strict liability rule, defendant
was held liable.
In Honeywill & stein Ltd V. Larkin Bros Ltd, An employer is not
liable for the acts of his independent contractors he is for the acts of
his employees or agents.
Whereas; In Priestly V. Fowler, the master was acquitted of the
liability which was imposed on him when one servant negligently

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treated another. English law took a unique turn when this case was
decided in favor of the defendant. It also created a doctrine of
common employment.
iv.

Company and its directors: A company is liable for the

acts of negligence by his employees. This liability is governed by the

principles of the laws of agency. Similarly, the directors of the company
are personally liable for their doings even if their actions were in the
best interest of their company.

c.

By Abetment:

Abettor is the one who instigates, encourages and promotes any

certain crime. Here we are only concerned with the negligence and other tort
related cases where vicarious liability could be imposed. Abetment is a
practical help and a way of patronizing a certain offence prohibited by the
law.
Section 108 of Pakistan Penal code defines the abettor as the one who
aids and abets any commission or omission of an act against the prescription
of the law. Therefore making it a penal offence as well.

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Exceptions as to knowledge of the Employer:

Following are the two exceptions as to the knowledge of the employer
is concerned to follow this doctrine of vicarious liability.
i.
ii.

Public nuisance
Criminal Libel

If an employee commits any of the above mentioned offences, his

employer may also be held liable regardless of his knowledge and consent.

Criminal

offences

upon

which

employers

are

vicariously liable:
There are many offences which are criminal in nature but they are
sometimes tried under the doctrine of vicarious liability. Where even the
employer may and can be held liable for the actions of their employers and
agents. The whole doctrine of vicarious liability has already been explained
in detail. Now the criminal offences which are these days tried rather as a
tort and under this doctrine, will be identified and the methods through
which this whole procedure is carried out will also be explained. But for both
of these kinds of offences a company or its employer can be held vicariously
liable.
i.

Civil nature offences

ii.

Criminal nature offences

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There are many criminal acts which are these days tried as a tort and
rather than going for penal remedy the victims or plaintiffs prefer the
monetary remedies. Fraud, Money laundering, smuggling, human trafficking,
drugs import export and other mal practices by the firms and companies are
these days known to generate a lot of money if anyone was to file a lawsuit
against any such company under this doctrine of vicarious liability. But on
the other hand there are examples where the same doctrine was applied to
criminal cases tried under the penal provisions and where in fact the
defendants were convicted and punished rather than the monetary
remedies.2 In Commonwealth V. Koczwara [1959] the defendant was punished
following not only this doctrine of vicarious liability but also the strict liability rule.
These two were adapted at the same time and the defendant was punished for the
acts of his employees, whom served alcohol to minors.

Corporate Liability:
Corporate liability is a concept which is derived from the doctrine of
vicarious liability. Under this concept it is presumed that if the company or a
firm who is given the status of a legal or factious person, then this person will
and can also be tried for offences committed directly or vicariously by him.
If any member of the board or supervisory committee member carries
any certain activity which is unlawful or illegal, a company can be taken into
2 Commonwealth V. Koczwara [1959], a defendant may be guilty/convicted of
criminal charges even if he had nothing to do with the acts in question, under the
vicarious liability and strict liability rule.

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court for a remedy as per the wishes of the victim or the plaintiff. Under this
term, a company or a corporation can be held liable for the acts and
omissions by his members of the board, supervisory committee, name
partners and other executives. (Scribed, 2011)

Concepts and Procedures:

A company is a legal or fictitious person. It is immoveable and
therefore it cannot do anything by itself. The executives, agents and the
employees of the company or corporation carry out certain activities in its
name or in its behalf. Those activities may be legal or illegal in nature and
they are all carries out by the company employees and other members
associated somehow with it.
Upon any of the illegal activity carried out by any agent or employee a
company can be held vicariously liable. Now the issue remains is of the
punishment. Evidently and obviously a company cannot be sent to jail.
Therefore, it must be fined by the court of law to make sure that nothing of
the sort happens anywhere again. In addition to that, injunctive remedy and
monetary damages can also be availed and recovered from a company. Fine
will be paid by the members and executives through the wages of the
shareholders, agents and other employees whom were fine or complying
with the acts in question.

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On the other hand, all those employees or executives who were

involved in the acts against the law can be punished and they will not be
shown any leniency by the court. The law will punish them either by putting
them into jail or imposing heavy fines or order a mandatory community
service, which is highly unlikely in the big corporate cases.
There are few tests which have been devised over the passage of time
to identify the nature and content of the crime a company and its owners or
agents or employees commits.
They are as follows. (Wikipedia, 2014)

a.

Identification test rule in English Law:

This test has been criticized and ridiculed by the law makers and jurists
because it only restricts the liability to the owners and high level
managers/directors. If any other employees and agents do anything they will
be tried in their own personal capacity, not the companys.
Case: In Tesco supermarkets Ltd v. Nattrass [1992], Lord Reid of the
House

of

Lords

said

that

the person who acts is not acting or speaking for the company, he in fact is
the company. If the person is of guilty mind than the company has guilty
mind, and if the person is guilty of an act than the company is guilty of that
act as well.

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b.

Aggregation test rule in American Law:

Under this law, even if the two or three or more people had the
knowledge of a certain act in their own capacities and authorities they form a
corporation. And corporation will be held for the same act done by those
employees, employer or agents.
Case: In the United States v. Bank of New England [1987], bank was
held responsible for the offence of not reporting few transactions which its
employees knew collectively. This rule was established and is now actively
used to prosecute. This rule is also being followed in Australia but England
rejected it.

c.

Fraud and secondary Liability:

Fraud is a criminal offence. And in the court criminal offences take

priority over the civil offences. It the prosecution succeeds to uncover the
criminal aspects the civil suit goes into the pending status. When the
criminal suit is settled, civil suit will resume provided that the defendant had
already been convicted and punished in which civil suit will be dismissed. As
double jeopardy is not allowed in law for any offence no matter how bad and
inhuman it may be.
There are some crimes which are inchoate or missing the essential of
Actus Reus (guilty act). Those acts may be construed as an attempt or

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conspiracy acts. Under those acts, company will be charged with the
abetting and being an accomplice to its employees.

Corporate criminal enforcement:

Organizations are liable to an assembly of laws that criminalize
demonstrations that are possibly gainful for the firm however hurt society.
Some of these laws, for example, those denying securities and medicinal
services misrepresentation, criminalize purposeful wrongdoing. (Arlen, 2012)

Corporate sanctions:
Those corporations who have been convicted may be subject to many
penalties. This includes fines, collateral penalties, other monetary sanctions
and civil, administrative sanctions imposed by the court or advised by the
government. (Arlen, 2012)

a.

Fine:

Companies may be awarded heavy fines once they have been found
within the bounds of the criminal corporate vicarious liability. These fines are
normally determined by the court. And its values go directly to state.

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b.

Conviction:

Those corporations which are once convicted, there are two modes via
which they are held liable and punished following the doctrine of vicarious
liability.

Probation:

Companies who are held liable may be given probation. During this
period company cannot commit another crime of any sort. And if they do the
full wrath and extent of the law and justice will be at the doorsteps of that
company or corporation.

License cancellation:

Companies held liable or convicted may also get their license in their
particular area of expertise cancelled. Getting a license cancelled is
sometimes a huge havoc for the corporations. Their very existence ceases to
exist without it.

Reputational penalties:

Once a company is involved in any illegal activity it loose its reputation

and the reputation is everything in a business for a corporation. Once a
corporation or company is convicted court officially declares it an un-just and
non-law abiding company. Its reputation is made questionable and future
perks like probation and small warning are no longer available.

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Vicarious liability in Pakistan:

Pakistan has evolved a lot legally and still has a lot of evolving to do.
Pakistani laws are comprehensive and yet accurate and they are being
practiced in the courts without any issues. Tort law is yet not that much
being practiced in Pakistan as compared to the west especially United States
and England. The only tort which is usually practiced in Pakistan is for
defamation.
Vicarious liability has not been seen much in courts neither have they
been quoted anywhere or anyone in courts except for the few times. As it is
very clear that sometimes acts falling under vicarious liability may resemble
or also fall under the penal provisions. Therefore, most of the time in
Pakistan the people pursue the penal side rather than the civil one.
Following are the three cases where doctrine of vicarious liability was
pursued. (LawCasesPK, 2009)
i.
ii.
iii.

State V. Bashir Ahmed and others (PLD 2005 CR.C 987)

State V. Abdul Shakoor (PLJ 2004 CR.C 551)
State V. Muhammad Siddique (PLJ 2004 CR.C 963)

All cases involved criminal nature and doctrine of vicarious liability was
used but there is a lot of awareness that needs to be known by the people
before they can decide what remedy they really want to avail.

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Another notable thing about these cases and most of the others would
be that they are not corporate or civil vicarious in nature. They all are
criminal vicarious in nature. Sections 34, 107, 109 and 114 deal with the
criminal abatement under which a person can be held liable and punished
following the same doctrine of vicarious liability. 3 Most of the time the
lawyers, judges as well as the legal scholars and legislators prefer to call it
strict liability instead of vicarious liability. But both are present in the above
mentioned cases and sections.

Conclusion:
The purpose of the law is to protect and serve all the members of the
society equally. Many of us claim to be the common men and that we believe
in the equality among all human beings, but most of the times we ignore
such claims and show our true colors. Law never discriminates among any
one regardless of their race, color, language, ethnicity, culture, sex and other
life preferences. Law treats everyone equally.
There were instances where many men got away with the heinous
crimes because they were not directly involved. They would hire somebody
to do it for them and they would get away easily. Sometimes people were

3 PLD 1959 Lah. 356

4 PLD 1959 Lah. 950

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forced into doing something and they were the ones to get the punishment
not the ones who were behind forcing it.
This doctrine of vicarious liability is very significant and hugely
important. It does not only punishes the person who committed a certain
illegal or unlawful acts but also puts away the one or ones who planned or
authorized it. Therefore, making him as equal guilty as the one who
committed it. Not only humans, this doctrine also included the corporate
bodies who are not natural persons but legal persons in it.
Law sometimes seems to be very hard and blind. But for the society to
refrain from exploding and starting riots and spreading chaos and terrorism it
is necessary for the law to remain blind and hard because if laws ceases to
do so all will become subject to anarchy. None would be safe, none would
survive in front of the powerful. Humanity will weep and lawlessness and
irrationality will rule.
Pakistan needs to focus on this side of the law. As we all know most of
the times people pursue the criminal side of an offence and try it in a
criminal court. If the people had knew any better, they would pursue it in
more compatible and related court, which would save courts a lot of burden,
time and energy. State need to focus and devise a plan to relate the matters
to more relative forums. There is a need for a proper forum who can guide
people in this regard and eventually help them attain justice.

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As the great philosopher Aristotle once said,

The man is the noblest of all animals, separate him from the law and
justice he becomes the worst.

Works Cited
Arlen, J. (2012). Corporate Criminal Liabilty: theory and Evidence. NYU School of Law
Journal, 11-25.
Basit, M. A. (1860). Pakistan Penal Code. Rawalpindi: Federal Law House.
Farlex. (2014, March 27). Vicarious Liabilty. Retrieved from Law Dictionary:
http://legal-dictionary.thefreedictionary.com/Vicarious+Liability
Laski, H. J. (2014). The basis of vicarious Liabilty. The Yale law Journal , 105-135.
LawCasesPK. (2009, November 21). Case Law, Hurt Cases. Retrieved from Law
Cases in Pakistan: http://lawcasespk.blogspot.com/2009/11/case-law-hurtcases-337_5496.html

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MacLeod, W. B. (2014). Beyond Master Servant: A critique of vicarious liabilty .
SSRN, 04-28.
web. (2014). Law of tort. Retrieved from AssignmentPoint:
http://www.assignmentpoint.com/arts/law/law-of-tort-lecture-03.html
Wikipedia. (2014, March 24). Corporate Liabilty. Retrieved from Wikipedia:
http://en.wikipedia.org/wiki/Corporate_liability