Law Times

Page 12 august 4, 2014 • Law Times www.lawtimesnews.com The changing face of corporate criminal liability By Julius melniTzer For Law Times hen it comes to corporate criminal liability, Canada, as is the country is wont, has chosen the middle ground. At one end of the spectrum is the notion that corporations aren't criminally liable unless the "directing mind and will" of a corporation authorized the impugned conduct; at the other extreme is vicarious criminal li- ability for the acts of employees and agents. "The Canadian corporate criminal model is an example of a composite model that is based on the concept of senior officer which lies somewhere between directing mind and vicarious li- ability," says Ken Jull of Baker & McKenzie LLP's Toronto office. Whether the composite model or middle ground translates into a moderate approach, however, may be open to question. "There is an argument that our legislation is actually more power- ful and all encompassing than the legislation found in places like the U.S., whose corporate criminal liability regime re- sembles the vicari- ous liability mod- el," says Jull. The Criminal Code defines se- nior officer as in- cluding all of a cor- poration's employ- ees, agents or con- tractors who play "an important role in the establish- ment of an organi- zation's policies" or are responsible "for managing an im- portant aspect" of its activities. "The law no longer requires prosecutors to prove that fault lies in the boardroom or with top management," says Jull. Ultimately, determining whether someone is a senior officer involves a functional analysis. "It's an analysis that goes beyond someone's formal title given to a functional analysis of the scope of authority and deci- sion-making power bestowed on that person," says Janice Wright of Toronto's Wright Temelini LLP. So far, the jurisprudence on the subject suggests a broad in- terpretation. In R. v. Metron C o n s t r u c t i o n Corp., the Ontario Court of Appeal affirmed that an independent agent who man- ages an important aspect of a cor- poration's activi- ties may qualify as a senior officer whose actions the company may be liable for on a charge of criminal negligence caus- ing death where the agent has substantially de- parted from the standard of a reasonably prudent person. "The guilty plea in Metron was based on the conduct of a site supervisor who had been hired by the project management firm retained by Metron," says Da- vid Porter of McCarthy Tétrault LLP's Toronto office. "You can appreciate just how broad liability can be when the criminal liability of the corpora- tion results from the conduct of an employee of a contractor." The Quebec Superior Court took a similarly expansive ap- proach in R. v. Pétroles Global Inc. (also known as Global Fuels), a case that involved a gasoline price-fixing conspiracy. The def- inition of senior officer, the court ruled, eliminated the distinction in earlier case law (dealing with the directing mind) between in- dividuals responsible for policy and those who were responsible for implementing it. As the court put it, the new definition had moved the liability analysis out- side the boardroom to the plant f loor. "Parliament's intent was that the guilty mind of a middle man- ager was the guilty mind of the corporation itself," says Jull. "In Global Fuels, the corpora- tion's liability rested on the knowl- edge that a regional manager had of the price-fixing scheme." While Global Fuels is under appeal to the Court of Appeal, what seems apparent is that cor- porations will have to do more to ward off criminal liability. "Companies have to be mind- ful that liability can f low from players much further down the hierarchical ladder than the top brass," says Wright. "So things like a strong tone at the top, leadership, risk assessment, and a compliance regime and programs are more important than ever because the law is reaching further down into the organization." As Jull points out, the basis of liability can expand even further when the definition of senior of- ficer in the Criminal Code arises as an issue in the context of other legislation that operates extrater- ritorially. One such example is the Corruption of Foreign Public Officials Act. It creates a national- ity-based jurisdiction that could impose criminal liability on Ca- nadian companies even where foreign contractors committed the offences abroad. "It's unlikely that Canadian companies consider foreign agents and contractors as poten- tial senior officers," says Jull. Yet many contracts with foreign agents maximize their responsibilities. "Careful review of duty-heavy contracts may re- veal that the foreign contractor is actually managing an important part of the company's business in the foreign jurisdiction," says Jull. "That could make the con- tractor a senior officer." The upshot is that a Canadi- an company that hires a Chinese company to manage all of its public relations in China for $1 million could become criminal- ly liable if the contractor bribes a public official in China. "It's the contract that determines wheth- er the contractor gets caught as a senior official," says Jull. It is unclear whether a Ca- nadian court would actually go that far. Metron and Global Fuels, after all, dealt with agents and contractors in Canada. "Neither the [Corruption of Foreign Public Officials Act] nor the Criminal Code refer explicitly to foreign agents and contractors," Jull notes. LT FOCUS Draft your own customized documents with O'Brien's Encyclopedia of Forms, Eleventh Edition, Commercial and General, Division I. 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Preparing commercial documents has never been easier O'Brien's Encyclopedia of Forms and Precedents, Eleventh Edition Commercial and General, Division I Includes online access Order # L91111-65203 $1178 7 volume looseleaf supplemented book + online access Anticipated upkeep cost – $401 per supplement 3-5 supplements per year Supplements invoiced separately L91111 Also available in online only or print only formats Master Subject Index also available Shipping and handling are extra. Prices subject to change without notice and subject to applicable taxes. 00218EB-A43203 CANADA LAW BOOK ® Available risk-free for 30 days Order online: www.carswell.com/obriens Call Toll-Free: 1-800-387-5164 In Toronto: 416-609-3800 Interestingly, Gowling Laf leur Henderson LLP, which boasts the larg- est trademark portfolio of any law firm in Canada, didn't formally object to the amendments. Kelly Gill, leader of the firm's trademark group, says the primary reason was that the lawyers didn't agree with the argument that the amendments were unconstitutional and not a legitimate exercise of the federal government's trade and commerce power. "There are certainly issues with the changes," says Gill. "Overall, however, the submissions struck us as a bit reactionary in the sense of coming from the status quo and also a bit overblown." For its part, the government said the changes are an effort to bring Canadian law into conformity with international agreements such as the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, the Singapore Treaty on the Law of Trademarks, and the Nice Agreement Concerning the Inter- national Classification of Goods and Services for the Purposes of the Registration of Marks. But Brian Gray of Norton Rose Fulbright Canada LLP maintains the government's position is specious. "The U.S. has signed onto Madrid and made no changes to its use requirements," he says. Industry Canada has also maintained the amendments simplify the trademark application process by eliminating red tape for busi- nesses. What's clear, however, is that the changes relieve the gov- ernment of the need to assess the applicant's claim of prior use and would shift the burden of trademark enforcement to businesses. "At the end of the day, the government is looking to the public to police the trademark database for registrations people don't intend to use," says Scot Patriquin of Toronto's Brauti Thorning Zibarras LLP. Still, the regulations required to implement the international trea- ties aren't in place and they may offer some opportunity for the gov- ernment to deal with the criticisms. Otherwise, lawyers have actually welcomed some of the changes. "For example, the new legislation would allow a company to transfer one of a group of associated marks whereas right now only the group as a whole can be transferred," says Michelle Nelles, coun- sel at Torys LLP's Toronto office. "Companies buying and selling as- sets will certainly welcome that development." LT W Trademark changes Continued from page 11 'The law no longer requires pros- ecutors to prove that fault lies in the boardroom or with top man- agement,' says Ken Jull.

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