Optimal Deterrence, the Illegality Defence, and Corporate Attribution

20 European Business Organization Law Review (Forthcoming)

University of Hong Kong Faculty of Law Research Paper No. 2019/026

38 Pages Posted: 24 May 2019 Last revised: 5 Jun 2019

See all articles by Kelvin Hiu Fai Kwok

Kelvin Hiu Fai Kwok

The University of Hong Kong - Faculty of Law

Ernest Lim

National University of Singapore (NUS) - Faculty of Law

Date Written: April 18, 2019

Abstract

Companies are often penalised for violating regulatory requirements of various kinds, including those under competition law. Some of the relevant statutes only impose liability on the company, but not its directors or employees, whose wrongdoing must nonetheless be attributed to the company to render it liable. Where a company infringes competition law or another regulatory statute and seeks to recover the penalty by suing its delinquent insiders for breach of duties, should courts allow or prevent the company’s recovery? This article examines this complex issue — which straddles competition/regulatory law, company law, agency law, and private law (in particular the illegality defence) — from a theoretical perspective, and makes two key contributions. First, it advances a refined concept of optimal deterrence, and argues that courts should not deprive the company of its well-established right to sue under company and agency law by interpreting the deterrence policy under competition law or another regulatory statute in light of this concept and recognising the limits of judicial law-making. Second, this article demonstrates for the first time how courts should analyse private law claims arising from corporate regulatory infringements under the ‘range of factors’ approach to the illegality defence, using competition law infringements as an illustration. Under our proposal, courts need not proceed to the stage of balancing competing and incommensurable factors to arrive at the conclusion that companies should not be precluded by the illegality defence from recovering against their delinquent insiders.

Keywords: Optimal Deterrence, Illegality Defence, Corporate Attribution, Competition Law, Law and Economics

JEL Classification: G34, G38, K21, K22, K23, L40, L50

Suggested Citation

Kwok, Kelvin Hiu Fai and Lim, Ernest, Optimal Deterrence, the Illegality Defence, and Corporate Attribution (April 18, 2019). 20 European Business Organization Law Review (Forthcoming); University of Hong Kong Faculty of Law Research Paper No. 2019/026. Available at SSRN: https://ssrn.com/abstract=3373915

Kelvin Hiu Fai Kwok (Contact Author)

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

Ernest Lim

National University of Singapore (NUS) - Faculty of Law ( email )

469G Bukit Timah Road
Eu Tong Sen Building
Singapore, 259776
Singapore

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