Government Response to the Fifteenth Report of the Standing Committee on Justice and Human Rights

Corporate Liability

November 2002

The Hearings

Overview

There was virtually no support for the current Canadian model in the hearings. William Trudell, speaking for the Canadian Council of Criminal Defence Lawyers, was one of the few witnesses to endorse the current model.

While witnesses before the Committee recognized that Canadian courts have gone further than some other jurisdictions in acknowledging the possibility of multiple "directing minds," the focus on a single directing mind for any particular offence was generally viewed as too narrow. The requirement that one individual within the corporation must be liable before liability can be ascribed to the corporation was also seen as providing a measure of impunity to large corporations. As currently applied, this model makes it possible for larger corporations to hide behind their more complex decision-making processes while exposing smaller corporations to conviction.

Other witnesses, while not explicitly championing the current approach, cautioned the Committee against making radical changes to the law without carefully thinking through all the potential ramifications of a major change. Greg DelBigio, speaking for the Canadian Bar Association, urged the committee to allow time for submissions on any concrete proposals for reform, counseling caution and highlighting the danger of unintended consequences.

The Vicarious Liability Model

The Department of Justice Discussion Paper referred the Standing Committee to the vicarious liability model adopted by the federal courts of the United States. This model makes the corporation criminally liable for the acts of its officers, agents or servants who are acting within the scope of their employment and for the benefit of the corporation. For the corporation to be liable, it must be found that an individual employee committed the crime with the requisite state of mind, the employee must have acted within the scope of his employment and the employee must have intended to benefit the corporation. Mens rea can also be shown on the basis of collective knowledge on the part of employees as a group, even though no single employee possessed sufficient information to know that a crime was being committed.

The differences between Canadian law and American law with respect to assigning liability to a corporation should not be exaggerated. As Professor Healy pointed out, "The identification doctrine is vicarious liability. It's just a very focused narrow level, whereas you can have a wider range of people engaging the liability of the corporation under the American approach." [12]

In R. v. CIP Inc., the Supreme Court of Canada acknowledged that It should be kept in mind that "person" includes a corporation under the general provisions of the Interpretation Act, R.S.C., 1985, c. I-21. We must also remember that corporate criminal liability is essentially vicarious liability based upon the acts and omissions of individuals: "a corporation may only act through agents. (emphasis added)" [13]

The United Steelworkers of America in their very thorough presentation and brief to the Standing Committee expressed concerns about the American model. Andrew King, Department Leader, Health, Safety and Environment for the union stated: The basic problem with the American approach is that it is ultimately based on the principle of vicarious liability, which does get you into the situation people have talked about here today: things could be going on that people don't know anything about in the corporation, that, in fact, aren't even authorized by the corporation. In some jurisdictions in the U.S. that's still sufficient to warrant a conviction for the corporation. That, I think, would run into a considerable number of Charter challenges, as well as not accomplishing the purpose. [14]

Vicarious liability in this form was not the preferred option of any witness before the Standing Committee. The Government shares the concerns expressed by many witnesses that vicarious liability as applied in the United States is contrary to the principles that underlie Canada's criminal law. While its rigours are somewhat attenuated by the United States Sentencing Guidelines which allow for reductions in the prescribed fine in accordance with the corporation's culpability score, many would argue that under Canadian law it would be wrong in principle to impose the stigma of a criminal offence on a corporation when its actions are not morally blameworthy.

Specific Corporate Offences

The Standing Committee was referred to legislative proposals in the United Kingdom and Australia for offences targeting corporate killing and corporate negligence causing bodily harm. The Standing Committee questioned several witnesses about the advisability of adopting specific criminal offences regarding workplace health and safety. Witnesses were split on the value of this approach.

Many witnesses expressed support for the broad principles of Bill C-284, which sought to create specific offences related to worker safety as well as reform and clarify the general rules regarding corporate liability.

Louis Erlichman, speaking for the International Association of Machinists and Aerospace Workers in Canada, favoured both specific new offences to deter employers from endangering their workers as well as a broader basis for finding corporate fault in general to "remove the corporate veil which has allowed corporations and those in positions of authority to evade responsibility." [15]

Professor Boisvert cautioned the Standing Committee against establishing specific offences: I think that we should resist establishing a specific offence. I am thinking, namely, of corporate manslaughter, which was mentioned. We risk creating anecdotal legislation that does not cover the entire terrain, and which may lead to confusion. If special offences are planned for corporations, will this mean that it will not be possible to prosecute for other offences? We risk creating confusion and giving the message that it is a serious offence when workers are killed, but that it is not serious when they are injured. [16]

Greg DelBigio of the Canadian Bar Association was somewhat more supportive of creating specific offences than of any wholesale change to the approach used to identify corporate fault. In his testimony he noted that "writing a specific offence rather than rewriting the law of corporate criminal liability… probably invites less legal and constitutional peril." [17]

Other than corporate manslaughter or the duty to maintain a safe workplace, no specific offences were suggested to the Standing Committee. The Government notes that the proposals for specific offences in the State of Victoria, Australia, were recently rejected by the Legislative Council and that the government of the United Kingdom which has announced its intention to introduce legislation on corporate manslaughter has yet to do so.

The Government does not support the creation of specific offences targeted at corporations unless there is a clear need for special provisions. In principle, the criminal law should apply to all persons without regard to how they choose to organize their affairs.

Moreover, the Government does not see the need for a separate offence applying to corporations for death and injury in the workplace. Any problems in applying the laws regarding manslaughter and criminal negligence to corporations would best be addressed through changes to the general rules regarding corporate criminal responsibility, particularly in relation to criminal negligence.

Corporate Culture Approach and C-284

The Justice Canada Discussion Paper analyzed the "corporate culture" model recently adopted by the Commonwealth of Australia as the basis for corporate criminal liability. Under the new Australian legislation, criminal liability of corporations may be established for federal crimes by proving that:

The first two grounds of liability reflect current Canadian law. The last two represent a new approach. Unfortunately, the limited criminal jurisdiction of the federal government of Australia has not allowed for the new law to be tested in a criminal prosecution for death or injury although corporate culture has often been referred to in regulatory offences as a factor in sentencing.

Bill C-284 also proposed a model of corporate criminal liability that included corporate culture. In addition to the specific mens rea of a directing mind, C-284 would have held a corporation criminally liable where the management of the corporation

Corporate culture was generally supported by witnesses representing labour and victims groups. However, some witnesses questioned whether the corporate culture model could survive Charter challenge. Professor Patrick Healy expressed "considerable anxiety" about the vagueness and overbreadth of Bill C-284. He noted that "there is the small matter of the presumption of innocence in Canadian criminal law and any accused, including a corporation, is entitled to the protection of the presumption of innocence." [20] Mr. DelBigio of the Canadian Bar Association warned the committee that "complicated law can sometimes make for complicated and ineffective prosecutions." [21]

The Government notes that "corporate culture" will not necessarily simplify the investigation of alleged corporate crime. It is still necessary to determine the facts. Determining whether the directors and officers of a corporation tolerated lax procedures would probably require the same investigation as determining whether they directed certain acts or omissions. As RCMP Assistant Commissioner William Lenton told the Standing Committee: Our role is to try to bring to the courts the clearest picture of what happened. That's where I say the investigation becomes complex, because the rules of evidence come into play. And it doesn't matter if the text of the law is very clear; the rules of evidence still have to be respected, the rules of disclosure have to be respected. All of those things can complicate and prolong the investigation and make it more difficult than what it would perhaps appear to be on the face of it, just based on the text of the law per se. [22]

The Government has noted the division among the witnesses with respect to the corporate culture approach and carefully considered the points made on both sides of the debate. Corporate culture is at this moment an untested basis for criminal liability. Corporate culture is at this moment an untested basis for criminal liability. The Government is conscious of the need for clarity in the law and considers that "corporate culture" is too vague to constitute the necessary corporate mens rea. Any changes to the criminal law should be simpler and depart less from general principles than the corporate culture model.

Directors, Officers and Employees

As stated earlier, under current Canadian law, the directors and officers of a corporation are its directing minds and their actions and mental state can be attributed to the corporation. Moreover, officers and directors of a corporation can be held criminally liable for acts of the corporation . Clearly, if they are directing the corporation to commit crimes, both they and the corporation will be criminally liable, individually and collectively.

A corporate executive or board member could also be liable under the Criminal Code for aiding or abetting the commission an offence (s. 21), counseling a person to be a party to an offence (s. 22), or being an accessory after the fact to an offence (s. 23). Quite often, managers and executives are charged as parties to an offence along with the corporation. However, they are liable on account of their own actions and not simply because of their positions in the corporation. Imposing liability in these circumstances is non-controversial and no witness argued for narrowing the current law.

Bill C-284 would have broadened the current law by imposing liability on directors where they knew or ought to have known the offence was about to be committed and failed to take all reasonable steps to prevent it. Furthermore, C-284 would have established a new offence for corporations of permitting unsafe working conditions to exist. Directors or officers who knew or ought to have known of the unsafe working conditions would also be guilty of an offence. Imposing liability where there may not be subjective mens rea would be a departure from established criminal law principles. Accordingly, the responsibility of officers and directors was a highly contentious part of the hearings.

Professor Patrick Healy expressed grave concern regarding C-284's proposals for the liability of directors:

This is a sweeping measure. I understand its purpose; nevertheless, it's sweeping in its scope, and I think there is a very real possibility …that this measure would be open to constitutional challenge on the basis that the grounds of culpability, certainly so far as directors and officers are concerned, are not of commensurate weight and culpability with the commission of an offence by a natural person.

As I say, certainly if you take the extreme example of the possibility of a corporation or a corporate officer or director being held liable for murder or for theft under a provision like this, it is highly improbable that a measure such as this would satisfy constitutional challenges. [23]

Because C-284 proposed both a new standard for officer and director liability and new specific offences, the two issues were often mixed during the hearings. The Standing Committee heard from a number of witnesses who felt that corporate officers and directors need to take more responsibility for ensuring the safety of their workers and undertakings and that the criminal law is an appropriate vehicle for expressing society's disapproval of officers and high-level managers who do not make even the most basic inquiries to ensure the safety of their workers.

Some concern was expressed during the hearings regarding "director chill" - that is, that good people would be discouraged from being on board of directors for fear of potential criminal liability. This view was forcefully put to the Standing Committee by William Trudell: I dreamt I came here and the bill had already been passed, and I was running to a phone to call all the persons I know who are directors of corporations to tell them to resign immediately before I was reported to the law society.

He also expressed serious concern about the approach taken by Bill C-284, especially its reverse onus provisions, calling them "a shock to the basic principles of criminal law." [24]

Most witnesses who commented on the issue supported criminal liability on directors who are wilfully blind to dangerous conditions or who take no action whatsoever to ensure a culture of safety. This is narrower than the C-284 standard, which would have required taking "all reasonable measures."

Bev Desjarlais, M.P., the sponsor of Bill C-284, told the Standing Committee: So we're not talking about holding directors personally criminally responsible for accidents, mistakes, or bad decisions by their underlings, nor are we disregarding the inherent dangers of some jobs, as working in a mine carries some inherent risk with it, but there are minimum safety standards mines and all workplaces ought to comply with. If managers or directors are warned about unsafe practices and turn a blind eye, if they cover up, if they encourage or pressure their employees to work in such conditions, there should be a crime under our Criminal Code. [25]

In his testimony before the committee, Assistant Commissioner Lenton stressed the importance of clarity and precision in the law both for investigators and for those persons who may incur liability under the Code. The police would like to have tools that are more straightforward. And not only the police, I think more importantly, if the legislation is clear to the directors of the company, they know what accountability they're going to have and they will act accordingly. [26]

The Government recognizes that the complicated corporate structures common today mean that directors and officers cannot have hands-on control of a corporation's many activities and must of necessity delegate authority. The persons who receive this authority assume added responsibilities for which they are compensated. The criminal law must neither allow them to turn a blind eye to potentially criminal activity nor impose upon them an impossibly high standard of care.

The Government believes that similarly placed individuals should be treated in the same way by the criminal law. Moreover, ensuring the safety of workers and the public should be a prime concern not only of officers and directors but also of everyone who is in a position to direct work. Accordingly, officers and directors should not be singled out and have liability imposed on them either generally or with respect to safety simply because of the way the business is structured. They should be held criminally responsible for the way they carry out their responsibilities and not be subject to criminal liability in the absence of personal fault simply because of their position in the corporation.

Sentencing

Corporations cannot be incarcerated, so fines are the normal punishment for corporate crimes. Statistics from the Canadian Centre for Justice Statistics cited by Professor Puri in her article indicate that although probation orders can be imposed on all persons, including corporations, no such orders were imposed on a corporation in 1998-1999 or 1999-2000.

Professor Puri made many thoughtful suggestions to the Standing Committee regarding innovative sentencing options, and the witnesses from the Department of Justice reviewed the very detailed sentencing guidelines in the United States. The United States Sentencing Commission has set guideline fines for various offences, but the fine is increased or reduced depending on such factors as whether there was participation in or tolerance of the offence by high-level personnel, whether the offence occurred despite an effective program to prevent and detect violations of the law and whether the corporation promptly reported the violation when it became aware of it.

There appeared to be a great deal of interest among members of the Standing Committee in creative approaches to sentencing, including imposing remedial measures, requiring a corporation to publicize its conviction and adjusting the punishment to reflect efforts by the corporation to avoid future offences.

Sentencing principles are set out in s. 718.2 of the Criminal Code but they are focused on the individual offender and there is no specific provision aimed at corporations or providing guidance to the courts on how to apply the principles to corporations. Sentencing is clearly an area where special provisions for corporations should be considered.

The Government favours innovative approaches to sentencing both to repair the harm done and to deter criminal activity, but it is concerned about the interrelationship of the criminal law and regulation. Where a corporation is convicted of criminal negligence as a result of unsafe working conditions, a form of probation requiring the corporation to change its processes would require the court or probation services to make determinations regarding occupational health and safety, a task better carried out by federal and provincial government departments which have the necessary expertise.

Furthermore, while fines should generally be set at a level to eliminate any profit, detailed sentencing guidelines such as those in the United States may inappropriately interfere with the discretion of the sentencing judge. Similarly, a community service order against a corporation could result in employees who had nothing to do with the offence being required to perform the actual work by their corporate superiors who were more culpable.