Due Diligence and State of Mind: Tesco Revisited
Was Lord Diplock correct in saying in Tesco v Nattrass that, to establish a due diligence defence, all a defendant had to do was show that he acted without negligence? First published in the Criminal Law & Justice Weekly (2011) 175 JPN 89 and 177.
The harshness of absolute liability in many regulatory offences is compensated for by a statutory defence under which the defendant can escape conviction if he can show that he acted with the requisite degree of diligence. Although this type of defence is generally known as the "due diligence" defence, it will usually include additional elements for the defence to prove, most notably that it has taken all reasonable precautions or steps to avoid the commission of the offence. The seminal authority on the due diligence defence, particularly as it applies to corporate liability, is Tesco Supermarkets Ltd v Nattrass [1972] AC 153 ("Tesco v Nattrass").
Tesco v Nattrass
Tesco displayed a poster in the window of one of their stores which stated that Radiant washing powder was for sale at one shilling off. When the store sold out of Radiant marked with the reduced price, an assistant, without telling her manager or removing the poster, refilled the shelf with Radiant marked at the normal price. A customer, enticed into the store by the poster, was charged the normal higher price for the product and complained to Trading Standards. Tesco was charged with giving a misleading price indication by means of the poster under what was then s 11 of the Trade Descriptions Act 1968 ("the TDA"). Tesco relied on the due diligence defence in s 24 TDA asserting that the offence was due to the act or default of another person, namely the store manager, who had failed to see that Tesco's policy was carried out, and that Tesco itself had taken all reasonable precautions and exercised all due diligence to avoid the commission of the offence. The magistrates convicted Tesco on the basis that it was not open to them to cite their own manager as "another person". The Divisional Court held that the magistrates were wrong in reaching that conclusion but that the conviction should stand as the magistrates had applied the wrong test. The Divisional Court held that the word "he" in "he took all reasonable precautions ..." did not refer to the defendant alone, but to the defendant and all his employees who acted in a managerial or supervisory capacity. Tesco successfully appealed to the House of Lords which held that an employee of a defendant, other than one who was part of the directing mind of a corporate defendant, could be "another person" within the meaning of s 24 TDA. Lord Morris said of the store manager:
"His duties as the manager of one store did not involve managing the company. He was one who was being directed. He was one who was employed but he was not a delegate to whom the company passed on its responsibilities. He had certain duties which were the result of the taking by the company of all reasonable precautions and of the exercising by the company of all due diligence. He was a person under the control of the company and on the assumption that there could be proceedings against him, the company would by s 24(1)(b) be absolved if the company had taken all proper steps to avoid the commission of an offence by him. To make the company automatically liable for an offence committed by him would be to ignore the subsection. He was, so to speak, a cog in the machine which was devised: it was not left to him to devise it. Nor was he within what has been called the 'brain area' of the company. If the company had taken all reasonable precautions and exercised all due diligence to ensure that the machine could and should run effectively then some breakdown due to some action or failure on the part of 'another person' ought not to be attributed to the company or to be regarded as the action or failure of the company itself for which the company was to be criminally responsible. The defence provided by s 24(1) would otherwise be illusory".
For a defendant to establish that the commission of the offence was due to the act or default of another person, however, was not the end of the matter; he still had to prove "that he took all reasonable precautions and exercised all due diligence to avoid the commission of such an offence". In order to prove this it was necessary for the defendant to have set up an efficient system and ensured that it was carried out. As Lord Morris of Borth-y-Gest put it:
"The company had its responsibilities in regard to taking all reasonable precautions and exercising all due diligence. The careful and effective discharge of those responsibilities required the directing will and mind of the company. A system had to be created which could rationally be said to be so designed that the commission of the offences would be avoided."
And, per Lord Diplock:
"If the principal has taken all reasonable precautions in the selection and training of servants to perform supervisory duties and has laid down an effective system of supervision and used due diligence to see that it is observed, he is entitled to rely on a default by a superior servant in his supervisory duties as a defence under s 24(1), as well as, or instead of, on an act or default of an inferior servant who has no supervisory duties under his contract of employment."
Hence the setting up an effective system could be the taking of all reasonable precautions and seeing that it was observed could amount to the exercise of all due diligence.
Meaning of "due diligence"
The five Law Lords in Tesco v Nattrass were unanimous in allowing Tesco's appeal and in their reasoning for doing so. Lord Diplock, however, included within his speech a passage which has been read as indicating that "due diligence", and indeed the entire due diligence defence may be satisfied by the defendant establishing a lack of mens rea or a lack of negligence. Lord Diplock said:
"Due diligence is in law the converse of negligence and negligence connotes a reprehensible state of mind - a lack of care for the consequences of his physical acts on the part of the person doing them. To establish a defence under s 24(1)(b) of the Act, a principal need only show that he personally acted without negligence."
The wording of the above is unfortunate because it has often been cited as a judicial definition of "due diligence" which, emanating as it does from the House of Lords, is binding on the lower courts. Many a trial court has elevated Lord Diplock's dicta to a test for establishing whether the due diligence defence has been made out. But, were they right to do so?
As the words "all reasonable precautions" and "all due diligence" are clear and unambiguous they are not in need of definition or judicial gloss. Lord Diplock's words were unnecessary and confusing. If applied as a test, they change the application of the statutory defence from being a consideration of whether the defendant had taken positive steps to avoid the offence to one of looking at whether there was a negative, namely a lack of care by the defendant. Introducing the notion of the defendant's "state of mind" is to convert the real test from an objective to a subjective one.
A closer analysis of what Lord Diplock said, within the context of his whole speech, makes it clear that he was not seeking to rewrite the due diligence defence or that he thought the statutory defence could be made out solely by the defendant establishing that he did not have "a reprehensible state of mind". Firstly, even if one sees "due diligence" as the converse of negligence, the defence also requires the defendant to prove that he had taken all reasonable precautions. That this additional limb of the defence was not lost on Lord Diplock is abundantly plain from the rest of his speech in which he makes express reference to the need for the defendant to prove that he took all reasonable precautions, by setting up a system, as well as that he acted with all due diligence, by ensuring that the system was operated. Secondly, it can be seen that Lord Diplock reference to "reprehensible state of mind" was intended to be synonymous with "blame" rather than with guilty knowledge. The following passage shows that Lord Diplock was in no doubt what each party had to prove:
"The section speaks of 'the commission of the offence' notwithstanding that the person charged may have a defence to the charge under sub-s (1). This language refers to a stage in the proceedings at which the prosecution have proved facts necessary to constitute an offence of strict liability on the part of a principal. This is all that it is incumbent on the prosecution to prove. The onus then lies on the principal to prove facts which establish a defence under the subsection. The 'strict liability' of the principal is thus qualified; but the onus of proving that he was not to blame lies on him. It is reasonable that this should be so since the facts which can constitute the defence lie within his knowledge and not within that of the prosecution."
Lord Reid also, fleetingly, looked at the due diligence defence in terms of blame where he said "the main object of these provisions must have been to distinguish between those who are in some degree blameworthy and those who are not, and to enable the latter to escape from conviction if they can show that they were in no way to blame." In saying that, Lord Reid was not inviting courts of trial to substitute for the statutory test the question of whether the defendant could prove "blamelessness" any more than Lord Diplock was inviting them to substitute lack of "reprehensible state of mind" as the test. Whereas lack of due diligence may be associated with blame and negligence, neither concept can replace what Parliament has laid down as the statutory test.
An opportunity for the higher courts to take a view on the significance of Lord Diplock's "definition" of due diligence came 30 years later in Bilon v WH Smith Trading Limited (2001) 165 JP 701 ("Billon v WH Smith").
Continued in Part 2