SCHEDULE
8:30 – 9:00 | Registration |
9:00 – 9:30 | CONFERENCE OPENS |
9:30 – 10:00 | KEYNOTE ADDRESS by Senior Judge Andrew Phang SC - 1.5 Public SILE CPD Points together with Session 1 |
10:00 – 11:10 | SESSION 1 - 1.5 Public SILE CPD Points together with Keynote Address
Modernisation and Globalisation of Commerce (70 min) • Force Majeure Clauses: Character, Scope and Protection • The Mareva Injunction and Crypto Fraud |
11:10 – 11:40 | Break |
11:40 – 12:50 | SESSION 2 - 1 Public SILE CPD Point
Technology and Its Exploitation (70 min) • Blockchain Tokenisation: 'NFTy' Trick or Griftonomics? • Where's Wall-E? Corporate Fraud in the Digital Age |
12:50 – 14:10 | Lunch |
14:10 – 15:20 | SESSION 3 - 1 Public SILE CPD Point
(70 min) • Managing Fraud Risk in the Age of AI • From Customer to Creditor: Consumer Risk and Protection during Central Cryptocurrency Exchange Insolvencies |
15:20 – 15:50 | Break |
15:50 – 17:00 | SESSION 4 - 1 Public SILE CPD Point
Third Parties (70 min) • Agency Law and the Protection of Third Parties - Whither the Balance • The Impact of the Third-Party Fraud to the Assured's Claim Against the Insurer |
17:00 - 18:00 | Buffet Dinner at NUS Law |
09:00 – 09:30 | Welcome |
09:30 – 10:40 | SESSION 5 - 1 Public SILE CPD Point
Private Law Responses to Fraud (70 min) • Should the Wrongdoer's Interests be Subordinated to Those of the Claimant in Tracing Claims? • Trusts and Fraud |
10:40 – 11:10 | Break |
11:10 – 12:20 | SESSION 6 - 1 Public SILE CPD Point
(70 min) • Settling Fraudulent Claims • Preventing Fraud and Bank Customers and Creditors |
12:20 – 13:45 | Lunch |
13:45 – 15:30 | SESSION 7 - 2.5 Public SILE CPD Points together with Wrap Up
(105 min) A Comparative Look at Risk • Strengthening UK Corporate Regulation: Lessons from the Delaware Caremark Duty • High Risk, Limited Rewards: Contracting as a Microbusiness • China's Corporate Social Credit System & Network Liability |
15:30 – 16:00 | WRAP UP - 2.5 Public SILE CPD Points together with Session 7 Session Chairs: Professor Paul Davies -- University College London Professor Hans Tjio -- NUS Law |
16:00 | Participants to discuss the book project with Hart Publishing |
16:30 | End |
ABSTRACTS
This paper will deal with future uncertainty and contractual efforts to deal with that uncertainty given the existing law on contractual frustration. The character of that law, inflexible and strict in its application, amounts to an invitation to contracting parties themselves to provide for an uncertain future imperilling the contractual adventure as planned. With particular reference to contracts calling for performance in the (sometimes quite distant) future, and with a particular focus on sale of goods contracts and to a lesser extent charterparty contracts, this paper will deal with force majeure clauses. Since these are almost infinitely variable in their drafting and bespoke for the particular types of contract for which they are drafted, the coverage of them will fall on matters of general interest. These matters consist of: 1. whether force majeure clauses amount in some or all instances to exception clauses; and 2. if they do, how far do they protect an obligor from liability for non-performance. For the first question, there is an emergent distinction between a true exception clause and what might be styled a cancellation (or frustration) clause. For the second question, issues that have recently presented themselves are (a) whether an obligor might instead be required to render equivalent, yet non-contractual, performance; and (b) whether an obligor, unable to claim the protection of an exception clause for not being ready and willing to perform, might yet assert that its damages liability ought to be reduced because performance would have been impossible even if it had been ready and willing.
Writing extra-judicially, Lord Leggatt suggests one of the ways in which commercial law facilitates commerce is through effective procedures, including procedures to ensure that a judgment or award is not rendered a hollow victory by the defendant’s strategic dissipation of assets.[1] The Mareva injunction, which is also known as a freezing order in a number of jurisdictions, has been described as a “nuclear weapon” in the judicial toolbox to do exactly that. Whilst this type of injunctive relief does not apply exclusively in fraud cases, it is an effective device in dealing with fraud perpetuated by defendants who may hide their assets in companies and across a number of jurisdictions. Yet, the theoretical foundation of the Mareva injunction remains a matter of debate. It appears that pragmatism has been the driving force before the fast expansion of the jurisdiction to grant a Mareva injunction. In jurisdictions where the power to grant the injunction is statutory in nature, courts may have approached the matter as a matter of legislative intent and statutory interpretation.
This paper begins by tracing the developments of the Mareva injunction, including its use on third parties and unnamed parties, as well as the recognition of a ‘free-standing’ Mareva injunction. The discussion explains how the Mareva injunction can be used to combat commercial fraud. The second part of the discussion focuses on exploring the theoretical foundation of the injunction. In particular, it addresses Lord Leggatt’s suggestion in Broad Idea International Ltd v Convoy Collateral Ltd {2021] UKPC 24 that the purpose of the injunction is to facilitate the enforcement of a judgment. Clarity on the theoretical foundation of the Mareva relief is important both as to understanding its developments and in setting bounds to the exercise of discretion. Finally, the paper examines some of the more difficult issues arising in practice in relation to the court’s exercise of discretion - for example, how should the court decide whether to issue an injunction against a bank and whether the court should exercise its power to grant a free-standing Mareva injunction in support of foreign litigation.
[1] Lord Leggatt, “What is the point of commercial law?” [2022] LMCLQ 242, 251.
The widespread hype of blockchain technology over the past decade or so has sparked a wave of interest in “tokenisation”. Borrowing an expression from data security in which sensitive information such as credit card details were tokenised through substitution with non-sensitive information, blockchain tokenisation refers not so much to the desensitisation of sensitive information intended to be repeatedly used, but the use of a blockchain ledger entry to represent property rights in an off-chain asset. This trend began with the initial coin offering (“ICO”) boom of 2017, which envisaged unregulated ICOs as an alternative fund-raising mechanism to initial public offerings. This phase of excitement involved tokenisation through the launch of an independent blockchain on which said tokens would be issued. With the recent mania surrounding non-fungible tokens (“NFTs”), tokenisation is now envisaged to deploy on blockchains with smart contract functionality such as Ethereum. It is claimed that literally any type of asset, from land to art and shares, can be “tokenised” in this fashion. The benefits of tokenisation, according to its advocates, include the ability to sell fractional interests in otherwise extremely expensive assets such as real estate and art as well as increase transactional security and transparency, create greater liquidity, and facilitate trade. This article critically examines these claims and exposes the flaws in the reasoning in support of this fad, concluding that tokenisation, like so much of the crypto space, is mostly predicated on grifting rather than a true innovation.
Laws of corporate attribution are key to establishing the mental elements of corporate fraud at common law, in equity and under statute. Highly individualistic in focus, they search for blameworthy natural persons whose state of mind can be treated as that of the corporation. This ‘Where’s Wally’ approach already fails in the face of complex and diffused organisational structures. As corporations increasingly adopt automated processes to pursue their corporate ends, it threatens to become wholly unfit for purpose. Using a range of topical examples, this paper explains how a new model of ‘Systems Intentionality’ tackles the reality of corporate fraud in the digital age, providing a principled and practical method for identifying the culpable corporate mind.
Artificial Intelligence (AI) applications are widely expected to revolutionize every dimension of business. This paper explores current and potential impacts of AI on corporate management of fraud risk in both operational and compliance contexts. Much attention has been paid to the operational efficiencies that AI applications could enable in numerous industry settings, and such systems have already become central to a range of services in certain industries – notably finance. Heavy reliance on algorithmic processes can be expected to give rise, however, to a range of risks, including fraud risks. New forms of internal fraud risk, emanating from intra-corporate actors, as well as external fraud risk, emanating from extra-corporate actors, are already placing greater demands on the compliance function and requiring greater corporate investment in responsive AI capacity to keep pace with the evolving risk management environment. At the same time, these developments have already begun to prompt reevaluation of conventional legal theories of fraud that took shape, in commercial and financial contexts alike, by reference to human actors, as opposed to algorithmic processes.
The paper begins with an overview of growing operational reliance upon increasingly sophisticated AI applications across various industry settings, reflecting the increasingly data-intensive nature of modern business. It then explores forms of internal and external fraud risk that may arise from efforts to exploit weaknesses in operational AI, which efforts may themselves involve sophisticated deployment of malicious extra-corporate AI applications – ‘offensive AI’, as the cyber security industry describes it. This can in turn be expected to require responsive corporate efforts in the form of ‘defensive AI’, and the paper describes burgeoning efforts along these lines, as well as the increasing pressure to devote substantial resources and managerial attention to these dynamics that may arise from both corporate law and commercial realities. Finally, the paper analyzes shortcomings of conventional legal theories of fraud in this context. Here the paper assesses the difficulty of applying concepts such as deception, scienter, reliance, and loss causation to algorithmic processes lacking conventional capacity for intentionality and defying conventional explanation as to how inputs and outputs logically relate – a reflection of the AI ‘black box’ problem. The paper concludes with proposals to reform corporate oversight duties to incentivize managerial attention to these issues, and to reform conventional legal theories of fraud to disincentivize malicious AI applications.
From crypto-hub to crypto-restructuring-hub, Singapore is no stranger to the collapse of central cryptocurrency exchanges (CEXs). The recent string of CEX insolvencies has revealed that customers-turned-creditors of failed CEXs face significant challenges and misunderstandings when trying to enforce a proprietary claim on their crypto-asset.
These challenges are twofold: first, customers have realised that they often did not have property rights in the crypto-asset to begin with (ex-ante insolvency). This paper builds upon the existing judicial developments and scholarship on crypto-asset ownership by analysing how the existing theories compare against the common products offered by CEXs, as well as the latest regulatory developments in the digital payment token space in Singapore. The analysis will reveal that a regulatory approach that is silent on the precise nature of crypto-assets as property may be putting the cart before the horse: how far should CEXs be able to determine the nature of those property rights? As the spate of CEX insolvencies has illustrated, allowing CEXs to do so has disproportionately shifted the burden to legally uninformed consumers.
Secondly, customers without a proprietary claim may then seek restitution on the basis of the CEX’s fraud (ex-post insolvency). Here, Singaporean customers may face further challenges ranging from the viability of a claim in fraud, to the potential cross-jurisdictional nature of insolvency proceedings. As to the latter, Singaporean customers may face difficulties as claims against the Singaporean CEX may interfere with foreign insolvency proceedings– should they be recognised by the Singaporean courts.
A Singaporean customer thus faces challenges in identifying and enforcing their legal rights against an insolvent Singaporean CEX. In order to protect consumers and facilitate insolvency proceedings, the nature of the consumers' rights in crypto-assets needs to be clarified.
This chapter calls for an increased focus on the inherent risks associated with operating as or contracting with a microbusiness (‘MB’)[1] in the world of commercial contracting, particularly those risks related to fraudulent transactions. MBs are an integral part of economies. In the UK, there are approximately 5.3 million MBs, accounting for 95% of all businesses[2], contributing c.£5.5 billion annually to the economy and employing one-fifth of UK workers.[3] MBs are also on the rise in Singapore. Whilst no specific figures are currently available, SMEs in Singapore make up 99% of all enterprises and provide employment to 70% of the workforce.[4] The numbers of MBs are generally increasing year-on-year as jobseekers are drawn to the entrepreneurship, freedom and flexibility afforded by MBs compared to larger, more traditional businesses.[5]
The lack of focus, by academia or regulators, on MBs creates a range of risks – both to the business themselves and trading with them. First, MBs are provided with little-to-no tangible protection against larger companies despite their relative lack of expertise in purchasing products or services, high opportunity costs of time spent making such decisions, and poor bargaining power.[6] For the purposes of commercial law, both legislative and common, MBs are treated the same as larger businesses. This section of the chapter will therefore explore the risks posed to MBs by the current law. It examines the extent to which the law facilitates the abuse of these entities, which stem from an inadequate understanding of the B2MB market.
Secondly, MBs are increasingly vulnerable to fraud – as they tend to have limited awareness or resources to protect themselves from exploitation. The Department for Digital, Culture, Media and Sport recently reported 38% of MBs fell victim to cyber-fraud in 2021; a third of which suffered significant financial loss as a result. Despite these real concerns, 80% of MBs do not see cyber-attacks and data loss as a considerable threat to their business.[7] This lack of awareness means that they do not take steps to protection themselves and therefore remain vulnerable to these fraudulent activities.
Finally, on the other side of the coin, MBs are often perpetrators of fraud. The size and difficulties of obtaining redress against these organisations give them scope to undertake illegal activities that would pose a greater practical risk to larger businesses. As a recent example, 80% of UK Covid-19 loan applications were granted to MBs of which it is estimated £22 billion might be lost to defaults or fraud.[8]
In light of these challenges, the chapter evaluates the relationship between regulation and the private law and provides proposals to policymakers on mitigating these risks. The case for reform is compelling for two reasons. First, reform is urgent: the risks faced and fraud incurred by MBs in conducting business has been a long-standing issue in the B2MB market but have been exacerbated by recent events, such as the pandemic.[9] Secondly, reform is necessary for aligning the law with the nuances of the business sector and, importantly, in offering protection to those businesses that are – in all but name – individuals.
The current regulator often responds to these challenges by enhancing competition and disclosure. This chapter argues more is necessary. Reform should take inspiration from the other countries. For example, MBs are included in the Australian definition of ‘consumer’[10] and in Canada there has recently been an expansion of common law protections.[11] Such a reform would have numerous benefits. In economic terms, minimising opportunity and bargaining costs will allow MBs to grow through reduced difficulties caused by poor bargaining power. Additionally, by instilling a more ‘level playing field’, reform would incentivise larger businesses to be more efficient and innovative, driving productivity and GDP-per-capita.[12] In legal terms, the law will better reflect the nuances and realities of the business landscape and prevent fraud. Reform also has the moral benefit of protecting against the increased commercialisation of individuals who, through self-employment structures such as the gig-economy, are more frequently being used as a ‘means to an end’[13] and to whom the UK Supreme Court (amongst others) has deemed it important to protect.[14]
[1] Micro business is under Section 384A, Companies Act 2006: a business consisting of not more than 10 employees with a turnover of no more than £632,000. The Australian definition is broader: Section 12BF of The Treasury Legislation Amendment (Small Businesses and Unfair Contract Terms) Act 2015 defines a small business as a business that has fewer than 20 employees and contracts for an amount not exceeding $300,000, or contracts for more than 12 months with a contract price not exceeding $1,000,000.
[2] Commons Library Research Briefing, ‘Business Statistics’ (21 December 2021), 12 available at https://researchbriefings.files.parliament.uk/documents/SN06152/SN06152.pdf (last accessed 19 May 2022).
[3] Ibid.
[4] https://www.singstat.gov.sg/modules/infographics/-/media/Files/visualising_data/infographics/Economy/singapore-economy30042021.pdf
[5] Office of National Statistics, ‘UK Business; activity, size and location: 2021’ (4 October 2021), available at https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/bulletins/ukbusinessactivitysizeandlocation/2021 (last accessed 20 May 2022).
[6] A. Fletcher, A. Karatzas, A Kreutzmann-Gallasch, ‘Small Businesses As Consumers: Are they Sufficiently Well Protected?’ (Centre for Competition Policy, 2014). National Westminster Bank plc v Morgan [1985] AC 686 (HL), 707-708 (Lord Scarman) who dismissed Lord Denning’s view in Lloyds Bank Ltd v Bundy [1975] QB 326 (CA) 339).
[7] The Department for Digital, Media, Culture & Sport, Cyper Security Breaches Survey: 2022 < https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1089586/Cyber_Security_Breaches_Survey_2022_Infographic-Micro_Small_business.pdf>.
[8] The Guardian, ‘UK government failed to prevent Covid-19 loan fraud, says watchdog’ (3 December 2021) < https://www.theguardian.com/business/2021/dec/03/uk-government-covid-loan-watchdog-national-audit-office>.
[9] Simply Business, ‘The Impact of Covid-19 on UK small business’ (June 2021) <www.simplybusiness.co.uk/downloads/simply-business-report-covid-19-impact-on-small-business.pdf> accessed 16th September 2021; D. Thomas, ‘Calm before the storm’: UK small businesses fear for their future’, The Financial Times (London, 30 July 2020).
[10] The Treasury Legislation Amendment (Small Businesses and Unfair Contract Terms) Act 2015, s 12BF provides that contracts with small businesses with an upfront contract price of AUD$300,000 or less, or AUD$1,000,000 or less where the term of the contract is for more than 12 months are covered under the Act. Resultantly, small businesses benefit from enhanced protections, including a fairness test for the courts to apply to strike out unfair terms.
[11] As, an example, see Heller v Uber Technologies 2020 SCC 16.
[12] A. Fletcher, A. Karatzas, A Kreutzmann-Gallasch, ‘Small Businesses as Consumers: Are they Sufficiently Well Protected?’ (Centre for Competition Policy, 2014).
[13] For an excellent exploration of this see J. Prassl, Humans as a Service: The Promise and Perils of Work in the Gig Economy (2018, Oxford University Press).
[14] Uber BV and others v Aslam and others [2021] UKSC 5.
Property insurance insures against physical damage to or loss of the subject matter insured. The property could be, e.g., the assured’s business premises, the vehicles used in its business, or the cargo that is being transported. It is not uncommon for a trader to suffer loss without incurring physical loss or damage to the insured property. The assured may be a victim of a fraudulent transaction which may manifest itself as the subject matter of the sale contract, the cargo, never existed, or the same cargo has been sold to numerous different buyers.
Another important aspect of the matter is that first party property insurance policies do not normally insure against ‘pure economic loss’, other than by extension in respect of business interruption. One of the dangers, particularly in the cargo insurance context, is that the loss occurred due to a fraudulent transaction is usually purely economic with no physical damage to the property insured.
On another angle, liability insurance insures against the assured’s liability to third parties. The loss suffered by the third party may be purely economic or may arise out of physical harm to a third party or the third party’s property. In particular, a solicitor, a financial advisor, a banker, an insurance broker, an employer, or a motor vehicle user might be liable to a third party and such liability has to be covered by insurance (such insurance is mandated in some cases through legislation and through business practices in some others). The third party’s claim against the assured which is ultimately borne by the insurer might be fraudulent.
One common misperception about insurance is, especially the case amongst non-experts, entering into an insurance contract will mean that whenever the assured suffers loss, such loss will be indemnified by the insurer. The insurer’s liability under the contract, however, will be strictly determined by the terms of the insurance and the principles of law governing this contractual relationship. In this paper I will be focusing on the contractual wordings which attempt to address losses suffered as a result of a third party fraud. More specifically, the paper will examine the identity of the insured persons in the insurance contract (this aspect will be especially relevant to the insurer’s subrogation against the third party), the meaning of ‘physical damage’, ‘pure economic loss’, ‘policy indemnity’ and ‘proof of the cause of the loss’ claimed against the insurer. The paper will focus on English law. However, some recent developments in the Australian jurisdiction will also be referred to where necessary.
A claimant whose money was misappropriated by a wrongdoer might wish to assert a claim contingent on tracing. Establishing a link between the misappropriated money and another asset is often evidentially difficult. One problematic area is where the claimant’s money was mixed with the wrongdoer’s money in the wrongdoer’s account and the funds from that account were used to purchase an asset. It is not generally possible to establish whether the asset was purchased with the claimant’s or the wrongdoer’s money. While various presumptions developed in law to resolve this, the following question persists: how far should these presumptions favour the claimant?
This paper argues that, however tempting, it is wrong tempting, to always favour the claimant. One line of cases (English authorities such as Re Oatway[1903] 2 Ch 356 and Shalson v Russo[2005] Ch D 281, and eg an Australian decision in Re French Caledonia Travel Service Pty Ltd[2003] 59 NSWLR 361) appears to suggest that the wrongdoer’s interests should be subordinated to the claimant’s. So, for example, if a trustee combines misappropriated £1m of trust money with its own £1m, and buys property for £1m that later doubles in value, under the subordination principle the trustee’s interests are subordinated to those of the beneficiary, who should be given to ‘cherry pick’ and trace into the valuable investment. Adopting such a subordination principle contradicts the nature the tracing exercise. The less claimant-friendly approach, as indicated by the Court of Appeal of Singapore in Sudha Natrajan v The Bank of East Asia Ltd[2017] 1 SLR 141 and the English court in ED&F Man Capital Markets v Come Harvest Holdings Ltd I[2022] EWHC 229 (Comm), is more consistent with the nature of tracing and should, therefore, be preferred.
Victims of fraud can rescind any contract they have been induced to enter. But what happens to rights already transferred pursuant to such a contract? There is authority for saying that at common law, some, though not all, rights revest on rescission. There is also authority saying that where the revesting cannot happen at law, rescission will nevertheless cause a trust will arise, because the victim’s ‘equitable interest’ revests. There are even cases saying that a trust arises before any act of rescission on the part of the victim of the fraud, because the victim’s ‘equitable interest’ remains with them. The aim of this paper is ask whether the reasoning in any of these lines of authority stands up to scrutiny. The conclusion it reaches is that it does not, and that rescission, though it relieves from any obligation to perform the contract, cannot have ‘proprietary’ effect.
Settling claims for fraud is a common way for parties to manage risks associated with litigation. Yet the compromise agreements ultimately reached are often treated differently by courts from “ordinary” contracts. For example, particular principles of interpretation are often invoked, and it may be easier to set aside settlement agreements for misrepresentation. This paper will argue that normal contractual principles should apply, and that compromise agreements should not be considered to be contracts of the utmost good faith, even where the parties are in a fiduciary relationship.
A number of theories exist to explain the nature of the law of agency. The most dominant is that agency is a relationship underpinned by the consent/assent of the principal and agent that the latter may act on behalf of the former so as to alter the former’s legal position vis-à-vis third parties. Much of the discourse around agency law stems from this fundamental understanding despite challenges to it.
Just as importantly, though often implicit, many doctrines within agency have evolved because of the need to protect third parties. Whether parties contract directly with each other or through intermediaries, the extent of commercial risk will not be materially different so long as sufficient due diligence has taken place. The interposition of an intermediary does, however, raise the legal risks involved in the contracting process. Much of the law of agency has been developed to allocate such risk fairly between the principal, third party and agent.
Modern day fraud looks different, partly due to technological change and the use of financialized entities in a changed regulatory environment which has removed many frictions that used to exist in business. Sometimes the victim is the direct author of its own loss, as with authorized push payment fraud. Often, this comes about because some form of deception has been practiced on the victim and so the issue is with gatekeeper liability, often for an omission. We now see the rediscovery of a common law duty based on failure to prevent fraud on the part of banks in the UK. This may partly be due to courts’ increasing willingness to accept regulatory standards in deciding on facilitator liability, even if that may not have been the case in the past with respect to the more direct liability of financial institutions. Negligence may have to be understood in context, however, if liability is linked to external regulatory codes.
But facilitators are not just entities themselves; often senior individuals (as opposed to those whose wrongs are attributable to the firm) in those entities can and must be incentivized to set up systems to prevent external wrongdoing or regulatory breaches. While they are usually insulated from liability to third parties, their duties to their company or entity must also be understood in context so that a proper chain of responsibility can be created.
There are important recent decisions on areas like transactions (such as large dividend payments) to defraud creditors where it has not followed that directors are liable simply because the company has breached an external rule. It will be suggested that both fraudulent conveyance laws and directors’ duties had and have to respond to the changed regulatory space. Many of the permitted powers in today’s financial context were once prohibited, with regulatory competition removing or diluting capital maintenance rules like, for example, the prohibition against a company giving financial assistance for the acquisition of its own shares. Such a rule once provided a checkpoint to prevent egregious management behavior which in turn founded cases on knowing assistance and receipt by third parties but often no longer exist. Regulatory changes provided new powers to decision makers but may have imposed duties on facilitators and we need to find the right framework to ensure that they are exercised properly and judged accordingly.
In the 21st century, laws are not made but transplanted. In contemporary company law, English scholars have often conducted comparative analyses with Delaware law. An emerging view is that UK corporate regulation would be enhanced with the adoption of a US-style Caremark duty. However, any legal transplantation must be sensitive to the context and needs of the recipient jurisdiction. Considering the UK’s statutory framework and equity landscape, this paper argues for a more nuanced adoption of the Caremark duty instead of a wholesale importation. Although originally conceived as a fiduciary duty of care, subsequent courts have restated the Caremark duty as a fiduciary duty of loyalty instead. A director can breach this duty if he, in bad faith, (i) fails to implement any reporting or information system or controls to assess operational risks; or (ii) having implemented such a system, has demonstrated a conscious disregard to monitor the company’s compliance with the law. It shall be argued that English fiduciary law should similarly recognise that directors owe a fiduciary duty of active oversight to the company. However, while Caremark liability is scienter-based, the proposed modified duty should not require an element of “bad faith” or “conscious disregard”. It suffices that a director is guilty of unconsidered inaction and has no reasonable justification for it. As such, the duty is “competence-oriented” rather than “selflessness-oriented” (this distinction is drawn on my published work on fiduciary doctrine). It shall also be argued that this fiduciary duty of active oversight is not adequately covered by the current Companies Act 2006. In particular, it is inapt to subsume a Caremark-style duty under sections 172 and 174 of the Act. Consistent with the Caremark duty, the duty of active oversight should be enforced as a fiduciary duty. Not only will this enhance its deterrent effect, it will also have wider remedial implications where loss has been incurred. In this regard, recent developments in English and Singapore law on equitable compensation will be discussed. Furthermore, the duty should properly be accorded its fiduciary character given that the obligation of oversight and monitoring is germane, and indeed central, to a director’s fiduciary undertaking. Although the duty of oversight has some structural similarities with a corporate trustee’s Bartlett duty, the context of both duties differs. Hence, although the HKCFA held in Zhang Hong Li v DBS Bank that the Bartlett duty can be validly excluded through anti-Bartlett clauses, liability for breach of the duty of active oversight cannot be exculpated. Again, this is linked to the centrality of a director’s core role and undertaking. Similarly, under the Delaware Caremark duty, liability for its breach cannot be exculpated as well. 2 Although there are dicta suggesting that the Caremark duty be imposed on directors and senior managerial officers of a company, it shall be argued that the fiduciary duty of active oversight should only be a peculiarly directorial duty. Subjecting managerial officers to this duty is incompatible with their role and undertaking, regardless of whether such officers are recognised as fiduciaries.
Governments worldwide are developing corporate accountability systems within company law, securities and financial regulation, and through broader reporting mandates to improve corporate accountability for their external impacts on climate and on key stakeholders. The scope of these tools increasingly extends beyond the traditional boundaries of the firm or corporate group and to business partners and others in the company’s “value chain.”
Since 2007, China has been developing its social credit system -- a big data-driven system of corporate and individual monitoring whose goals have parallels with those of emerging international sustainability regulation. However, China’s emerging system goes beyond transnational environmental and social due diligence systems in ways that have raised concerns among observers. First, it can impose reputational and financial penalties on corporate groups and networks to an extent that goes beyond the boundaries contemplated by international regimes. Second, its public enforcement mechanisms create collateral consequences for contractual breach that may exceed any private remedies specified by the direct contracting parties. At the same time, both the Chinese and international approaches attempt to deal with the limits of traditional legal tools and enforcement mechanisms as applied to corporate networks, and to respond to common incentives for regulatory arbitrage and evasion that plague all legal systems.
This paper offers a new perspective on the Chinese corporate social credit system by placing it in the broader global context in which it is emerging. Second, this paper identifies lessons from the Chinese corporate social credit system that may have bearing in other jurisdictions that are also attempting to address complex questions of secondary liability, the separate legal identity of corporate actors, and the problem of allocating responsibility for corporate externalities that are not clearly justiciable or proscribed by law.
PARTICIPATION
Please note that a paperbank with draft versions of the papers will be made available to delegates in advance. The speakers will give a presentation, which will be followed by discussion with panel and audience members. We encourage delegates to participate fully in the conference discussions.