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Fault-Based Liability Ruled a Requirement for Enterprise Penalty 

by Knut Emil Johannesen Lie

Published: May, 2021

Submission: May, 2021

 



General about enterprise penalty
In relation to the previous section on enterprise penalty as enshrined in section 48a of the 1902 Penal Code, discussion were had as to whether there was a requirement of Fault-based liability in the provision. In the preparatory work on section 27 of the new Penal Code, this was discussed in depth, after which it in Ot.prp. no. 27, 90 (2003-2004) s. 242 was clearly stated that the new provision should not have such a requirement. The legislative rationale for this was largely the effectiveness of section, as well as consideration regarding investigation and procedural actions. Section 27 of the Penal Code was pursuant to this worded as follows:


When a penal provision is violated by a person who has acted on behalf of an enterprise, the enterprise is liable to punishment. This applies even if no single person meets the culpability or the accountability requirement, see section 20.


This meant that an enterprise could be punished even if it could not be proved that an individual who had acted on behalf of the enterprise had exercised the culpability or accountability requirement. Thus, according to the wording, a company could be held criminally responsible for so-called anonymous errors and cumulative errors.


Such an understanding was based on and maintained in sub-court practice and, among other things, the Supreme Court decision set out in Rt. 2007 p. 1684. A review of case law in relation to both the old and new section of the Penal Code clearly shows that a number of enterprises were imposed penalties for so-called cumulative errors, including events whereby the criminal act was committed by, for example, several divisions of the enterprise, without a single person having shown sufficient culpability.


In the aftermath of the European Court of Human Rights’s (ECHR) grand chamber ruling of 28 June 2018 G.I.E.M. S.r.l. and others against Italy, questions were raised among some theorists about whether the decision meant that enterprise penalties could not be applied without the requirement of Fault-based liability. This question came to the forefront in the Supreme Court’s decision of 15 April 2021 (HR-2021-797-A).


The background for the case and the Supreme Court’s assessment
A general manager of a Norwegian limited liability company did not have a residence and work permit in Norway. The question was thus whether the Norwegian limited company could be fined for using said labour when there was no residence and work permit in Norway, cf. Section 28 of the Penal Code, cf. Section 27 of the Penal Code, cf. Section 108, third paragraph, (a) of the Immigration Act.


A fine was imposed on the limited liability company for violating Section 108, third paragraph (a) of the Immigration Act.  The limited liability company did not accept the fine, and the case was therefore submitted to the District Court. In the District Court, the limited liability company was acquitted, while the Court of Appeal sentenced the company to pay a fine of NOK 250,000. The case was appealed to the Supreme Court and one of the questions to be considered was whether the strict liability as set out in section 27 was in conformity with the concept of punishment in Article 6 (1) of the European Convention on Human Rights (ECHR) 2 and Article 7, as set out in the above judgment of the European Court of Human Rights, cf. Article 7. EMD-2006-1828.


The Supreme Court concluded that it was not in conformity with the ECHR case law to uphold such strict liability, citing statements in the grand chamber judgment that suggested that there must be an «intellectual link» or «mental link» between the act and the actual circumstances that represented the criminal responsibility.


The significance of the above is that the section on enterprise penalties may not be applied according to its wording, and someone in the enterprise must consequently have shown fault-based liability before the provision can be applied. Thus, there will be no room to punish an enterprise for cumulative errors. The Supreme Court also clarified that there was sufficient general negligence, and that such was sufficient even where the penal provision of the relevant legislation breach by the enterprise required gross negligence or intent.


In the case, the general manager was nevertheless fined as the Supreme Court found that the person in question had acted negligently. The fine was set at NOK 30,000, which was the amount enshrined in the initial fine. In this regard, the Supreme Court stated that although the prosecution was not formally bound by the amount of the initial fine, they had to at least be barred from deviating from the amount notified in the initial fine.


The Supreme Court therefore also spoke about amount a enterprise may be fined if the initial fine is contested.


The decision is fundamentally very important for enterprises, as the requirement for control and supervision is increasing, and hence the pitfalls for non-compliance with public requirements. Since enterprise penalties are usually imposed on enterprises in the form of fines that the company may choose to accept or not accept, it may therefore be of great importance that the company is aware of the requirement of fault-based liability before the fine is accepted or not.


 



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