Corporate and Executive Liability

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Corporate Liability - A Very Simple Explanation

Due Diligence - A Very Simple Definition

Negligence - A Simple Definition

Defending A Claim of Corporate Liability

Burden of Proof

Personal Liability of Executives and Officers

Corporate and Executive Liability

A corporation, and potentially the officers of a corporation, will be deemed liable for damages when the actions of its employees, officers, products, services, processes or systems cause losses to individuals or organisations and where such actions could have been reasonably anticipated and prevented by the corporation or its officers.

Corporate Liability - A Very Simple Explanation

If something goes wrong or if somebody does something wrong in your organisation that results in an individual or corporation making a loss, your organisation, and potentially the senior officers of your organisation, will be held responsible for the loss incurred unless the organisation or officer can prove that the organisation or officer did all it could to anticipate and prevent the circumstance. Or, using and unusually simple legal term, the organisation will be liable unless it can prove "due diligence".

Due Diligence - A Very Simple Definition
Due Diligence is the act of an organisation that has done everything possible to prevent, avoid or remedy an adverse situation or circumstance. Due Diligence is a term that is somewhat on a knife edge as if you cannot prove Due Diligence, by default you are guilty of negligence, another legal term that has serious connotations.

Negligence - A Simple Definition
Negligence is the failure of an organisation or individual to take action that would otherwise have prevented, avoided or remedied an adverse situation or circumstance.

Defending A Claim of Corporate Liability

When losses have been incurred and a claim of liability is brought against a corporation, the only defence required is to prove due diligence. To prove due diligence the organisation must have tangible evidence of the actions it took to anticipate and prevent the event in question. As with all cases, the more evidence that can be brought, the more likely the defence will be successful.

It should be stressed that it is both the "quality" and "quantity" of effort invested that the court will consider, so if an organisation has preferred to take in-efficient and in-effective measures in their approach to due diligence (common when trying to reduce cost), then a court may rule that the approach in itself is negligent.

Burden of Proof

The burden of proof of a successful claim against a corporation or its officers is on the part of the claimant. The burden of proof to defend against a claim of corporate liability is on the part of the organisation and their officer against whom the claim is being brought is on the part of the organisation and/or its officers. If you have no evidence then by default the court will find the organisation, and possibly its officers, guilty of negligence.

Personal Liability of Executives and Officer

Whilst claims of corporate liability are often initially brought against corporations or organisations, there is always the potential that a successful claim will result in key individuals being liable in their own right. With increasing accountability and focus on the role of executives in ensuring the well running of their enterprises, the personal liability could result in criminal proceedings as are evident in the RailTrack, Enron, WorldCom and Nat. West Three cases where executives are standing trial with the realistic outcome being long term imprisonment if they are found guilty.

Having said this, there are very few instances where personal liabilities are realised in legal proceedings. More commonly where an executives or officers are considered guilty of negligence the liability is realised in terms of their position, with many of those "believed" guilty of neglect losing their positions, jobs or, in the case of a local authority, being surcharged. Unfortunately, in many instances those "believed" guilty have actually done nothing wrong, they simply lack the evidence they need to prove this fact.