Canada: "Importance Criterion": Quebec Court Guidance On Corporate Criminal Liability

INTRODUCTION

Which individuals within a corporation can cause it to become criminally liable through their actions and intentions? This question was addressed by a lower court in Quebec at a preliminary hearing in the recent case of R. v. Global Fuels Inc. (the judgment is only available in French). This is the first decision in which a Canadian court has interpreted s. 22.2 of the Criminal Code, which was enacted by Parliament in 2004 as part of a series of amendments directed at more effectively prosecuting malfeasance in the business world. (The trial on the charges is scheduled for this fall. It remains to be seen whether the trial judge will reach the same conclusion as the preliminary hearing judge on the scope of s. 22.2.)

In answering this question, the court made it clear that s. 22.2 of the Criminal Code did have the effect of expanding the scope of corporate criminal liability. No longer is the liability of corporations to be determined based on an assessment of the actions and intentions of a limited group of individuals known as its "directing minds". Rather, criminal liability is to be assessed by applying what the court described as the "importance criterion". Under the "importance criterion", an individual can cause a corporation to be liable if he or she plays an important role in the establishment of an organization's policies or is responsible for managing an important aspect of the organization's activities relating to the impugned conduct.

If the broader approach to corporate criminal liability espoused by the Quebec court is adopted by other courts, it will be important for corporations and other organizations to be vigilant in preventing those individuals meeting the "importance criterion" from taking actions that could cause the corporation or organization to be criminally liable.

FACTS

Global Fuels Inc. (Global) owns and manages gas stations in Eastern Canada, and is responsible for setting the retail price of all gas sold at those stations. In 2008, Global was accused of conspiring to prevent or lessen competition in the retail gasoline market by fixing prices in Sherbrooke and Magog between May 2005 and May 2006. The key employees involved in the transactions in issue were a vice-president, a regional manager who reported to him, and two territory managers who reported to the regional manager.

At the preliminary inquiry, Global requested that it be discharged on the charges laid against it, claiming that the actions and intentions of the individuals involved in the allegedly illegal scheme could not cause Global to be criminally liable.

DISCUSSION AND ANALYSIS

Section 22.2 of the Criminal Code

In 2004, Parliament passed amendments to the Criminal Code relating to corporate criminal liability. One significant change was to specifically address who, within a corporation or other organization, could cause it to be criminally liable and under what circumstances. In particular, s. 22.2 makes an organization liable for the acts of its "senior officers" in three circumstances:

22.2 In respect of an offence that requires the prosecution to prove fault – other than negligence – an organization is a party to the offence if, with the intent at least in part to benefit the organization, one of its senior officers:

(a) acting within the scope of their authority, is a party to the offence; (b) having the mental state required to be a party to the offence and acting within the scope of their authority, directs the work of other representatives of the organization so that they do the act or make the omission specified in the offence; or (c) knowing that a representative of the organization is or is about to be a party to the offence, does not take all reasonable measures to stop them from being a party to the offence. [emphasis added]

The term "senior officers" is defined in s. 2 of the Criminal Code as meaning "a representative who plays an important role in the establishment of an organization's policies or is responsible for managing an important aspect of the organization's activities and, in the case of a body corporate, includes a director, its chief executive officer and its chief financial officer". The term "representative" is broadly defined as meaning "a director, partner, employee, member, agent or contractor of the organization".

On its face, the language of s. 22.2 and s. 2 appears to modify the common law test for determining corporate criminal liability. Under the common law, criminal liability of a corporation is to be assessed from the standpoint of its "directing minds" which the Supreme Court of Canada has defined as being those within the corporation who have been assigned the authority to design and supervise the implementation of policy as opposed to those who simply carry out that policy. The issue in R. v. Global Fuels was whether the common law test of corporate criminal liability had, in fact, been overtaken by s. 22.2 of the Criminal Code.

FINDINGS IN R. V. GLOBAL

The Quebec court outlined how corporate criminal liability is to be determined under s. 22.2 of the Criminal Code and, in so doing, made it clear that the common law test has been modified by this section. In order to determine if the individuals involved in the impugned transaction were capable of causing Global to be criminally liable, the court determined if they were "senior officers" of the corporation. In determining whether they were senior officers, the court held that it was necessary to apply the "importance criterion". To this end, the court considered the importance to the business of the activities for which the individual in issue is responsible. Only if the individual plays an important role in the establishment of a corporation's policies in relation to the impugned conduct or only if the individual manages an important aspect of the corporation's activities relating to the impugned conduct will he or she be capable of causing it to be liable.

The court applied its interpretation of sections 2 and 22.2 of the Criminal Code, and held that the regional manager (Payette) was a senior officer of Global. Payette met the importance criteria in relation to the impugned conduct of conspiring to prevent or lessen competition in the retail gasoline market by fixing prices. Among the factors relied upon by the court in arriving at this finding were:

• Global's primary commercial activity was the retail sale of gasoline. Setting the price of gas, and price management policies, had a significant and direct influence on the company's profitability.
• Payette supervised six territory managers, who were in turn responsible for giving price change instructions to Global gas stations.
• Payette was aware of, and approved the price management methods implemented by the territory managers, an important aspect of the company's activities. He was also involved (along with the Vice-President) in establishing company policies.
• Payette's actions were carried out in the interest and for the benefit of Global.

Having regard to the preceding, Payette was a "senior officer" of Global for the purposes of the impugned transaction and, as such, his actions triggered the criminal liability of Global, whether by participating himself in the offences (s. 22.2(a)), or by acting such that the territory managers were able to participate in the offences (s. 22.2(b)), or by neglecting to take measures to prevent the territory managers from committing them given that he was aware of their commission (s. 22.2(c)).

While this conclusion would have sufficed to engage Global's criminal liability, the court went on to examine the roles of the lower level territory managers, and held that they too were senior officers for the purposes of s. 22.2. The court focused on their actual roles and responsibilities related to managing the retail price for gasoline. Despite Global's assertions that senior management provided clear directives to the territory managers on pricing policy, the court found that they had, in fact, significant autonomy. Each territory manager was responsible for between 30 and 45 stations. The court found that, in practice, the policy regarding gasoline pricing and the mechanisms used to implement it were left in the hands of the territory managers, two of whom—with the approval of the regional manager—were allegedly able to implement an illegal and effective price-fixing strategy.

Interestingly, the court did not find the vice-president (Maddock) to be a senior officer, holding that "he is not involved in the supervision of the territory managers and he does not have any decision-making role related to the setting of gasoline prices." In other words, the vice-president would not have met the "importance criteria".

COMMENT

The decision of R. v. Global Fuels is consistent with our previous assessment that the enactment of s. 22.2 in 2004 broadened the scope of corporate culpability in Canada. Corporations and other organizations appear now to be at risk of becoming criminally liable based on the actions of a far wider range of individuals than under the common law doctrine of "directing mind". To minimize the risk of corporate criminal liability, it is clear that corporations and other organizations must ensure that their risk management plans – whether training, reviewing or auditing – include the wider group of individuals meeting the "importance criterion" and qualifying as "senior officers".

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