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Tag Archives: freedom of information
Is it necessary to ‘pierce the corporate veil’ in addressing patient safety in the public interest?
The impact of poor staffing on patient safety in the NHS cannot be underestimated especially now. Paul Sankey, Principal Lawyer (Partner) in Clinical Negligence at the law firm Slater & Gordon LLP, wrote this week as follows:
As hospital services are increasingly outsourced to the private sector, and as NHS Foundation Trusts themselves are financed at a corporate level through mechanisms such as the Private Finance Initiative (PFI), it has become necessary to consider the extent to which such private operations can be scrutinised through freedom of information (FOI) legislation. Generally, private bodies are excluded from FOI across a number of jurisdictions, and there has even be a sectoral approach under scrutiny. It is a well established principle that the company has a separate legal personality from its members. In very limited circumstances, the English courts can ‘pierce the corporate veil’, putting to one side the company’s separate legal personality and holding that its members are subject to the legal consequences of the company’s acts. Obvious examples might include product liability in breast implants (PIP implants), but more subtle is to consider the effect of staffing levels in the operation of private companies or indeed PFI-sourced NHS Foundation Trusts.
The RCN provide that staffing levels for nursing must be adequate:
“Attention is now focussed more sharply than ever on staffing. Public expectation and the quality agenda demand that the disastrous effects of short staffing witnessed at NHS hospitals such as Mid Staffordshire should not be allowed to happen again. Time and again inadequate staffing is identified by coroners’ reports and inquiries as a key factor. The Health Select Committee 2009 report states: ‘inadequate staffing levels have been major factors in undermining patient safety in a number of notorious cases’. In one year the National Patient Safety Agency (NPSA) recorded more than 30,000 patient safety incidents related to staffing problems.”
Indeed, as the RCN go on to say, staffing levels constitute part of the wider “business case”:
“The financial context means we need to ensure services are staffed cost-effectively. Many of the identified high impact actions and efficiency measures proposed rely on reducing costs by minimising the expense of avoidable complications such as DVTs (deep vein thrombosis), pressure ulcers and UTIs (urinary tract infections). But ‘avoidable complications’ are only avoidable if effective nursing care is consistently delivered. This relies on having sufficient nurses with the right skills in place – which depends on robust planning in terms of nursing staff resources.”
The Health and Safety Executive provide the following useful information about staffing levels and safety:
“The term ‘staffing levels’ refers to having the right people in the right place at the right time. It is not just a matter of having enough staff, but also ensuring that they have suitable knowledge, skill and experience to operate safely. Economic pressures to save costs and improve productivity, as well as organisational initiatives to delayer, multi-skill and enhance team working, have had the effect of reducing staffing levels. Reductions in staffing levels do not necessarily pose a direct threat to health and safety. Rather, the impact of changes to staffing arrangements on health and safety performance will depend on the quality of the planning, assessment, implementation and monitoring. Health and safety should be managed in the same planned and informed manner as all other elements of reorganisation.”
The issue of whether NHS Foundation Trusts are open to freedom of information requests is complicated. Public authorities often enter into outsourcing and private finance initiative (PFI) arrangements with the private sector to run services or deliver capital projects. These are often the subject of complex requests for information under the Freedom of Information Act 2000 (FoI). Sometimes the private sector will hold the requested information and the public authority will have access to it but on restricted terms. The question arises: who holds the information for the purposes of FoI? Section 3(2) of the act states: ‘For the purposes of this act, information is held by a public authority if: (a) it is held by the authority, otherwise than on behalf of another person; or (b) it is held by another person on behalf of the authority.’
The guidance of exemptions from the Freedom of Information Act by the Ministry of Justice is extensive (“Guidance”). Section 43 exempts information, disclosure of which would be likely to prejudice the commercial interests of any person. An example of ‘commercially sensitive information might be a “trade secret”. Section 43(1) exempts information if it constitutes a trade secret. The FOI Act does not define a trade secret, nor is there a precise definition in English law. However it is generally agreed that a trade secret must be information used in a trade or business; is information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret; and the owner must limit the dissemination of the information, or at least, not encourage or permit widespread publication. According to this Guidance, a department’s, or other body’s, commercial interests might, for example, be prejudiced where a disclosure would be likely to: damage its business reputation or the confidence that customers, suppliers or investors; it may have in it have a detrimental impact on its commercial revenue or threaten its ability to obtain supplies or secure finance; or weaken its position in a competitive environment by revealing market-sensitive information or information of potential usefulness to its competitors.
It appears that the research is consistent with the notion that unionised workforces can promote health and safety. For example in “Trade union recognition and the independent health care sector: A literature review for the Royal College of Nursing”, it is proposed that:
“A briefing produced by the TUC (2004) cited a wide range of national and international sources demonstrating the beneficial role played by trade unions in promoting health and safety at work. Workplaces with unions playing a safety role showed injury reduction rates of between 24 and 50 per cent. Observation of health and safety regulations was also shown to be substantially higher in unionised workplaces.”
The answers given by Jeremy Hunt about freedom of information thus far have been extremely unhelpful. See for example the Hansard report of Helen Jones’ question (Helen Jones is the Labour MP for Warrington North) on 11 June 2013 on the subject of “NHS Accountability”:
When the current language has been very much of “parity”, as per the “Fair Playing Field” review of the healthcare economic regulator “Monitor”, it is plainly counterintuitive that freedom of information will apply to some parts of the healthcare sector but not all. Logically, either the whole healthcare sector becomes opaque to freedom of information (as is currently the case), but this does not make sense when only this week Jeremy Hunt was singing the joys of “transparency” in the Commons Health Select Committee. The law generally has been slow to catch up with the formidable challenges in regulating against examples of pathological toxic cultures in the NHS. Clinical negligence can attempt to prove on the balance of probabilities breaches in a duty of care on the law of tort route, and indeed the clinical regulators can in theory encourage Doctors to report other people for a fall in acceptable standards, including adequate resources in hospitals. The law could even prosecute for misuse of public office in theory. However, all of these have proved to be impractical, and the number of sanctions or prosecutions has been relatively low. In this jurisdiction, and elsewhere (particularly the US), there has been a long narrative about whether it is possible to “pierce the corporate veil”, in a fashion of incremental judge-made law, but by far the easiest solution is for Parliament simply to legislate on this. The current Health Select Committee with its formidable membership is well placed to make recommendations to parliament. Certainly, the judiciary would presumably agree that manning a NHS ward with a safe number and quality of nurses is in the public interest, and rather than relying on the judiciary to remedy a suboptimal situation after the event (through intricate consideration of public interest disclosure and whistleblowing and other remedies), it might be more helpful if the legislature could do something before the horse has bolted. The savings in “the Nicholson Challenge” have been described as ‘bureaucratic’ in yesterday’s “Estimates” debate, and there is no sign of this abating (see for example the comment made by Stephen Dorrell MP, head of the Health Select Committee (HSC)):
“It is against that background that the Committee recommends in paragraph 16 of the report on health and social care:
“In our view it would be unwise for the NHS to rely on any significant net increase in annual funding in 2015-16 and beyond. Given trends in cost and demand pressures, the only way to sustain or improve present service levels in the NHS will be to continue the disciplines of the Nicholson Challenge after 2015, focusing on a transformation of care through genuine and sustained service integration.””
As is generally the case in medicine, prevention is better than cure, and it would be most helpful if the law could adopt this approach too. However, the good news is that nurses can participate in the Nursing Times “Speak Out Safely” campaign: “to help bring about an NHS that is not only honest and transparent but also actively encourages staff to raise the alarm and protects them when they do so.” Their Twitter is @NursingTimesSOS.
This inevitably is a complex problem, but requires a solution fast.
Time to have a radical rethink of the rôle of the company in UK national life
In 1897, in a remarkable piece of judicial intervention in the economic life of the country, it was considered convenient to permit the company to have its own legal personality [Salomon v. A. Salomon & Co. Ltd [1897] A.C. 22]. The decision of the House of Lords has remained the integrity of the separate personality of the company: the corporate veil will only be lifted in the most extreme of circumstances. The company or corporation, in the U.K., has grown in prominence like it has done in the U.S. Of course, it would be a “cheap shot” simply to rattle off a list of corporate disasters internationally, such as phone hacking or chemical plant explosions. Disasters happen in the public sector too. However, arguably, the unions in England have experienced more than their fair share of criticism, particularly from the Conservatives. Indeed, the donations page on the Conservatives website actually asks for donations to help protect the UK against the unions: “We believe that Labour, along with the Trade Unions who provide 85 per cent of their donations, are standing in the way of improving Education, reforming the Welfare State and reducing the budget deficit. We need your help in standing up to them.” It is no coincidence that deunionised workforces tend to have much lower pay, and less enforceable basic employment rights over redundancy and dismissal. There is no evidence that a more ‘flexible’ workforce would have a significant impact on the profitability of the UK as a whole. ‘Being in it together’ has become a farce with hardly a dent into the profits of leading CEOs in the UK.
And yet the narrative has been one of hostility towards the unions by the Conservatives, and indeed it is significant that none of the anti-Union rhetoric has been appreciably reversed by New Labour. The Conservatives have a big thing about ‘accountability’, yet their major stakeholders have latterly been big corporates who are not elected in the same way that unions are. It is well known that David Cameron’s Tory-led coalition wishes not so much as to ‘reduce the size of the state’, but to have functions of the state outsourced. People did not “vote for” multi-national companies, and yet the Government wishes these companies to take on an increasing workload in the state’s functions. This outsourcing experiment is not cheap. With any organisational change, you have invest much time and money into abolishing structures and forming new ones, but, most significantly, there can be enormous difficulties in cultural change. That is not a reason necessarily, however, why outsourcing should be abandoned.
The main issue about having companies having an increasing rôle in national life, an agenda which neither the Conservatives or the Liberal Democrats were open about prior to the general election of 2010, is: who really runs Britain? The oddity in the argument against trade unions is that, whilst most opponents of trade unions appear to produce loud critical remarks, very few object to a democratic right to a membership of a trade union. Ed Miliband concedes that the company or corporation is part of national life, but his argument is against any section of society having undue influence, in his conceptualisation of ‘responsible capitalism’. In his world, he would prefer corporations to act as good ‘corporate citizens’. However, the production of the company in English law as a separate entity to its shareholders further impedes the democratic process. The case law developed for a reason. The main benefit which flows from the Salomon principle, arguably, is one of efficiency. Whereas previously a business organised as a partnership could only create contracts in a very complicated way – involving each partner becoming a party to that contract – as soon as it is recognised that a company is a distinct, legal person in itself then the company can create contracts in its own name. Consequently, the process of creating contracts with businesses became much simpler. However, the reality, as we approach 2013, is rather different. It is sometimes hard to identify corporate donors of political parties, as corporate donors do not provide donations as themselves. The electoral rules hinge on full disclosure and transparency in the system, but it is perfectly possibly for major shareholders from ‘behind the veil’ to donate to political parties. Therefore, unless you happen to know who the major shareholders are you are unlikely to find much of interest on the Electoral Commission website. Proving a link between donation and subsequent policy will be virtually impossible to establish in all cases, not least because of the temporal relationship, but the “corporate veil” is unlikely to be “pierced” for the rather specific scenario of electoral donations. Revealing ‘conflicts of interest’ is difficult to disentangle from aggressive lawful lobbying, and will not be offensive unless the rules and regulations about proper disclosure and shareholder approval for transactions of a certain nature have been breached.
Traditionally though, the corporate veil is likely to be pierced, in specific scenarios. Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Common law countries usually uphold this principle of separate personhood, but in exceptional situations may “pierce” or “lift” the corporate veil. A simple example would be where a businessman has left his job as a director and has signed a contract to not compete with the company he has just left for a period of time. If he set up a company which competed with his former company, technically it would be the company and not the person competing. Largely through the influence of the great Lord Denning, it is likely a court would say that the new company was just a “sham”, a “fraud” or some other phrase, and would still allow the old company to sue the man for breach of contract. A court would look beyond the “legal fiction” to the reality of the situation. Donating to a political party is not unlawful or illegal, but it is frustrating, when transparency is so pivotal to electoral donations, that many examples of methods of donation exist which can get round the electoral rules:
“Critics of proposals to introduce caps on donations point out that there are various ways in which big donors can evade a cap by splitting up their contributions to political parties. There are grounds to suggest that such practices may already be common. Big donations from specific wealthy individuals sometimes occur alongside equally generous donations made by husbands, wives and other family members. Donations made via corporate entities may also serve to ‘bundle’ donations, or partially obscure their source. For instance, some company directors donate alongside partners at the same business; whilst larger groups of wealthy people have formed unincorporated associations through which to channel political funds.”
There are new ways why the law is being tested in this new outsourcing of public duties landscape. There is an arguable case that private limited companies, performing public functions, should be open to ‘freedom of information’ legislation, particularly if doing such sensitive functions as running prisons or hospitals. Secondly, there is also a feasible case that private limited companies performing public functions, should be open to ‘judicial review’, as for example being involved in NHS procurement. In a way, the Conservatives “started it”. By starting a hate campaign against the Unions, which has seen Margaret Thatcher and successors unite against the workers, there is a case now that there should be a radical rethink of the rôle of the company in UK national life. This is a narrative which could be taken on by the legislature, should they feel ready for the challenge, or, failing this, maybe senior lawyers would like to have a go?
Time to have a radical rethink of the rôle of the company in UK national life
In 1897, in a remarkable piece of judicial intervention in the economic life of the country, it was considered convenient to permit the company to have its own legal personality [Salomon v. A. Salomon & Co. Ltd [1897] A.C. 22]. The decision of the House of Lords has remained the integrity of the separate personality of the company: the corporate veil will only be lifted in the most extreme of circumstances. The company or corporation, in the U.K., has grown in prominence like it has done in the U.S. Of course, it would be a “cheap shot” simply to rattle off a list of corporate disasters internationally, such as phone hacking or chemical plant explosions. Disasters happen in the public sector too. However, arguably, the unions in England have experienced more than their fair share of criticism, particularly from the Conservatives. Indeed, the donations page on the Conservatives website actually asks for donations to help protect the UK against the unions: “We believe that Labour, along with the Trade Unions who provide 85 per cent of their donations, are standing in the way of improving Education, reforming the Welfare State and reducing the budget deficit. We need your help in standing up to them.” It is no coincidence that deunionised workforces tend to have much lower pay, and less enforceable basic employment rights over redundancy and dismissal. There is no evidence that a more ‘flexible’ workforce would have a significant impact on the profitability of the UK as a whole. ‘Being in it together’ has become a farce with hardly a dent into the profits of leading CEOs in the UK.
And yet the narrative has been one of hostility towards the unions by the Conservatives, and indeed it is significant that none of the anti-Union rhetoric has been appreciably reversed by New Labour. The Conservatives have a big thing about ‘accountability’, yet their major stakeholders have latterly been big corporates who are not elected in the same way that unions are. It is well known that David Cameron’s Tory-led coalition wishes not so much as to ‘reduce the size of the state’, but to have functions of the state outsourced. People did not “vote for” multi-national companies, and yet the Government wishes these companies to take on an increasing workload in the state’s functions. This outsourcing experiment is not cheap. With any organisational change, you have invest much time and money into abolishing structures and forming new ones, but, most significantly, there can be enormous difficulties in cultural change. That is not a reason necessarily, however, why outsourcing should be abandoned.
The main issue about having companies having an increasing rôle in national life, an agenda which neither the Conservatives or the Liberal Democrats were open about prior to the general election of 2010, is: who really runs Britain? The oddity in the argument against trade unions is that, whilst most opponents of trade unions appear to produce loud critical remarks, very few object to a democratic right to a membership of a trade union. Ed Miliband concedes that the company or corporation is part of national life, but his argument is against any section of society having undue influence, in his conceptualisation of ‘responsible capitalism’. In his world, he would prefer corporations to act as good ‘corporate citizens’. However, the production of the company in English law as a separate entity to its shareholders further impedes the democratic process. The case law developed for a reason. The main benefit which flows from the Salomon principle, arguably, is one of efficiency. Whereas previously a business organised as a partnership could only create contracts in a very complicated way – involving each partner becoming a party to that contract – as soon as it is recognised that a company is a distinct, legal person in itself then the company can create contracts in its own name. Consequently, the process of creating contracts with businesses became much simpler. However, the reality, as we approach 2013, is rather different. It is sometimes hard to identify corporate donors of political parties, as corporate donors do not provide donations as themselves. The electoral rules hinge on full disclosure and transparency in the system, but it is perfectly possibly for major shareholders from ‘behind the veil’ to donate to political parties. Therefore, unless you happen to know who the major shareholders are you are unlikely to find much of interest on the Electoral Commission website. Proving a link between donation and subsequent policy will be virtually impossible to establish in all cases, not least because of the temporal relationship, but the “corporate veil” is unlikely to be “pierced” for the rather specific scenario of electoral donations. Revealing ‘conflicts of interest’ is difficult to disentangle from aggressive lawful lobbying, and will not be offensive unless the rules and regulations about proper disclosure and shareholder approval for transactions of a certain nature have been breached.
Traditionally though, the corporate veil is likely to be pierced, in specific scenarios. Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Common law countries usually uphold this principle of separate personhood, but in exceptional situations may “pierce” or “lift” the corporate veil. A simple example would be where a businessman has left his job as a director and has signed a contract to not compete with the company he has just left for a period of time. If he set up a company which competed with his former company, technically it would be the company and not the person competing. Largely through the influence of the great Lord Denning, it is likely a court would say that the new company was just a “sham”, a “fraud” or some other phrase, and would still allow the old company to sue the man for breach of contract. A court would look beyond the “legal fiction” to the reality of the situation. Donating to a political party is not unlawful or illegal, but it is frustrating, when transparency is so pivotal to electoral donations, that many examples of methods of donation exist which can get round the electoral rules:
“Critics of proposals to introduce caps on donations point out that there are various ways in which big donors can evade a cap by splitting up their contributions to political parties. There are grounds to suggest that such practices may already be common. Big donations from specific wealthy individuals sometimes occur alongside equally generous donations made by husbands, wives and other family members. Donations made via corporate entities may also serve to ‘bundle’ donations, or partially obscure their source. For instance, some company directors donate alongside partners at the same business; whilst larger groups of wealthy people have formed unincorporated associations through which to channel political funds.”
There are new ways why the law is being tested in this new outsourcing of public duties landscape. There is an arguable case that private limited companies, performing public functions, should be open to ‘freedom of information’ legislation, particularly if doing such sensitive functions as running prisons or hospitals. Secondly, there is also a feasible case that private limited companies performing public functions, should be open to ‘judicial review’, as for example being involved in NHS procurement. In a way, the Conservatives “started it”. By starting a hate campaign against the Unions, which has seen Margaret Thatcher and successors unite against the workers, there is a case now that there should be a radical rethink of the rôle of the company in UK national life. This is a narrative which could be taken on by the legislature, should they feel ready for the challenge, or, failing this, maybe senior lawyers would like to have a go?
