Tesco Supermarkets Ltd v Nattrass

A principal who, through employees, gives a misleading price indication is prima facie strictly liable under section 11(2) of the Trade Descriptions Act 1968. Liability is qualified by section 24(1). The principal may establish that the offence resulted from another person’s act or default and that the principal personally took all reasonable precautions and exercised all due diligence.

For a corporate accused, an employee is another person unless identified with the company’s directing mind and will. That category ordinarily comprises the board, managing director or a person entrusted with independent corporate management. A shop manager working within a hierarchy is not the company. An effective compliance system, supported by reasonable selection, training and supervision, may therefore establish the defence despite a supervisory employee’s default.

Tesco Supermarkets Ltd v Nattrass arose from a supermarket’s continued display of a poster advertising washing powder at a reduced price after the specially priced stock had been exhausted. A customer could obtain only an ordinarily priced packet and was charged the higher price. The company was convicted under section 11(2) of the Trade Descriptions Act 1968.

The magistrates found that the offence resulted from the store manager’s failure to operate the company’s proper compliance system. They also found that the company had taken all reasonable precautions and exercised all due diligence, but held that the manager was not another person for the purpose of section 24(1)(a). The Divisional Court held that he was another person, yet upheld the conviction because his negligent operation of the system was treated as the company’s failure. The central issue was whether a supervisory employee’s default prevented the corporate employer from relying on the statutory defence.

1. Disposition. The House of Lords unanimously allowed the appeal. Each of Lord Reid, Lord Morris of Borth-y-Gest, Viscount Dilhorne, Lord Pearson and Lord Diplock concluded that the company had established the defence under section 24(1) of the Trade Descriptions Act 1968. The conviction could not stand.

2. Strict liability and the statutory defence. The five Law Lords accepted that the facts prima facie constituted an offence under section 11(2), without proof of mens rea. The statutory scheme nevertheless permitted an accused to escape liability by proving both limbs of section 24(1): the offence resulted from a specified external cause, including another person’s act or default, and the accused took all reasonable precautions and exercised all due diligence.

3. Another person. Lord Reid, Lord Morris, Viscount Dilhorne, Lord Pearson and Lord Diplock treated the store manager as another person. His status as an employee with supervisory responsibilities did not identify him with the company. Section 24 would be deprived of practical effect if every default by a supervisory servant were automatically treated as the employer’s default.

4. Corporate identification. Applying the principle illustrated by Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] A.C. 705, the House distinguished identification from vicarious liability. Lord Reid explained that the board, managing director and possibly other superior officers ordinarily perform the company’s management functions. A person entrusted with independent management powers may act as the company within the delegated sphere. Lord Morris, Viscount Dilhorne and Lord Pearson likewise focused on the directing mind and will, while Lord Diplock emphasised the company’s constitution and any authority conferred under it. Ordinary operational discretion was insufficient. The manager remained subject to several superior levels and did not exercise corporate powers.

5. Due diligence. The relevant inquiry concerned the precautions and diligence of the employer itself. Reasonably assigning operational and supervisory tasks to competent employees was a means of performing that duty, not an irrevocable delegation of it. A large employer could satisfy section 24(1)(b) through an effective system, proper selection and training, and reasonable measures to ensure observance. The magistrates’ finding that those requirements had been met entitled the company to the defence.

6. Earlier authority. The contrary delegation principle in Series v Poole [1969] 1 Q.B. 676 was rejected and the decision overruled. The proposition attributed to R C Hammett Ltd v London County Council (1933) 97 J.P. 105, that an employer must prove due diligence by supervisory servants, was also disapproved as inconsistent with the statutory defence.

1. House of Lords: Unanimously allowed the company’s appeal. It held that the store manager was another person and that the magistrates’ findings established the defence under section 24(1) of the Trade Descriptions Act 1968.
2. High Court, Divisional Court: Dismissed the appeal from the magistrates. Although it held that the manager was another person, it concluded that his failure to operate the compliance system prevented the company from proving due diligence.
3. Magistrates’ court: Convicted the company under section 11(2) and imposed a fine of £25 and costs. It found that the company had devised and implemented a proper system with due diligence, but held that the store manager was not another person under section 24(1)(a).