In Canada, corporate criminal liability is increasingly becoming an area of focus for regulators, law enforcement officers, and the public. As stories of corporate wrongdoing have generated media and public interest, key stakeholders have been trying to develop various tools and mechanisms to properly apportion fault and determine liability in often complex and highly public scandals. One merely has to read about the SNC-Lavalin matter that has generated controversy and the calls for a public inquiry in the highest echelons of the Canadian executive branch to understand the importance of carefully managing corporate criminal liability. This blog posts reviews Canadian corporate criminal liability, setting out some new developments in the law and highlighting key areas of concern for corporations undertaking either an internal investigation or being investigated by a regulator.
Overview Of Canadian Corporate Liability Doctrine
In Canada, corporate criminal liability is narrow in scope. Unlike in the United States, Canada does not apportion criminal liability under the doctrine of respondeat superior. Rather, corporate liability is generally apportioned to the employees or individuals involved in the wrongdoing, instead of the actual corporations themselves.1
Unlike American precedent, Canadian jurisprudence has historically upheld the 'identification doctrine", an organizing principle of corporate liability wherein an "identity" is established "between the directing mind and the corporation, which results in the corporation being found guilty for the act or the natural person, the employee".2 The identification doctrine will only be used in narrow circumstances to hold the corporation accountable. It will not be engaged if the employee/individual who committed the alleged acts is not a 'directing mind" of the corporation, or if there was fraud on the corporation. Additionally, judges retain the residual right to not apply the doctrine depending on the circumstances of the case.
Directing minds of a corporation are senior officers or members of a corporation who have an "express or implied delegation of executive authority to design and supervise the implementation of corporate policy rather than simply to carry out such policy."3 A 'directing" mind of a corporation will be criminally liable when acting within the scope of his employment/role of the corporation. Where the criminal act is totally in fraud of the corporate employer or solely for the benefit of the employee, he will not be considered a 'directing mind of the corporation" and criminality will be assigned to him individually instead of the company. Rather than vicarious liability, Canadian courts will only attribute criminal acts of the directing mind to the corporation under the umbrella of corporate criminal liability.4
Actions taken by employees who are not directing minds will not engender criminal liability to the corporation: the fraudulent activities of directors, officers and employees cannot be attributed to the corporation unless there was sufficient reason to do so "for the particular purpose or defense at issue".5 The main question to be asked regarding corporate liability in Canada is "who should bear the responsibility for the criminal actions of a corporation's directing mind".6
...if the agent falls within a category which entitles the Court to hold that he is a vital organ of the body corporate and virtually its directing mind and will in the sphere of duty and responsibility assigned to him so that his action and intent are the very action and intent of the company itself, then his conduct is sufficient to render the company indictable by reason thereof.7
It is rare in Canada for criminal liability to be attached to the corporations for the actions of its employees; instead, perpetrators are found criminally liable on an individualized basis. The test for corporate attribution was set out in Canadian Dredge:
For the fraudulent acts of employees to be attributable to the corporate employer: (1) the wrongdoer must be the directing mind of the corporation; (2) the wrongful actions of the directing mind must have been done within the scope of his or her authority; that is, his or her actions must be performed within the sector of corporate operation assigned to him. For the purposes of this analysis, an individual will cease to be a directing mind unless the action (1) was not totally in fraud of the corporation; and (2) was by design or result partly for the benefit of the corporation.8
The Supreme Court in Livent clarified this by stating that the below factors provide "a sufficient basis" to find liability for a corporation, but not a necessary basis. Courts have the inherent discretion to not apply the corporate identification doctrine where it is contrary to public interest.9
Canada's background laws support and structure liability in this way as well. Even though there has been legislative action to change the nature of corporate criminal liability so corporations themselves could be held more liable, there have been extremely few cases where corporations have been criminally prosecuted. The legislative amendments in expanded the scope of potential criminal liability by replacing the word corporation with the more broadly-defined term "organization", and created provisions wherein corporations could be found criminally liable for negligence and non-negligence based facts.10 It created criminal offences regarding the health and safety of workplaces, and expanded the scope of corporate liability. However, the amendments have not been very successful, and corporate crime continues to primarily be an issue at the locus of the accused individual.
Canadian law enforcement has also focused primarily on individual prosecution. As such, the American approach wherein corporations have an incentive to conduct internal investigations and aid law enforcement in uncovering corporate crime does not necessarily apply to the 'background" structure of corporate criminal law in Canada.
A. DEFERRED PROSECUTION AGREEMENTS ("DPAS") AND NON-PROSECUTION AGREEMENTS ("NPAS")
A formalized system for deferred prosecutions was enacted into Canadian criminal law in September 2018. Now, organizations can enter into "remediation agreements" under section 715.3-715.4 of the Code. A remediation agreement is defined under the Code as an agreement between an organization accused of having committed an offence and a prosecutor to stay the proceedings related to that offence if the organization complies with the terms of the agreement. Section 715.21 of Code sets out the broader purpose of this new regime, including amongst others:
- to encourage voluntary disclosure of the wrongdoing;
- denounce an organization's wrongdoing and the harm that the wrongdoing has caused to victims or to the community, and
- to reduce the negative consequences of the wrongdoing for persons — employees, customers, pensioners and others — who did not engage in the wrongdoing, while holding responsible those individuals who did engage in that wrongdoing.
Prosecutors are allowed to use remediation agreements when there is reasonable prospect of convictions, and the agreement is in the public interest and appropriate in the circumstances. Factors in determining the appropriateness of a remediation agreement include the nature and gravity of the offence or omission, whether the organization has taken any disciplinary action against individuals involved in the alleged acts, whether the organization or any of its representatives were convicted if an offence or sanctioned by regulatory bodies for similar acts or omissions, whether the organization has identified or is willing to identify persons involved in the alleged wrongdoing, and whether the organization has made reparations or taken other measures to remedy the harm caused by the act or omission, or to prevent the commission of similar acts. The remediation agreement needs to be approved by the Attorney General and a superior court.
Section 715.33(2) states that:
No admission, confession or statement accepting responsibility for a given act or omission made by the organization during the negotiations is admissible in evidence against that organization in any civil or criminal proceedings related to that act or omission, except those contained in the statement of facts or admission of responsibility referred to in paragraphs 715.34(1)(a) and (b), if the parties reach an agreement and it is approved by the court.
The legislative amendments arose after a series of discussions between the Canadian government and stakeholders from different sectors seeking to expand tools that the Canadian law enforcement could use to address corporate wrongdoing. Businesses were interested in developing a deferred prosecution regime that could ensure criminal sentences that were effective and proportionate, lead to more self-reporting and enhance compliance and improve corporate culture.11 Businesses also argued that a deferred prosecution regime would avoid a strict binary between prosecuting and not prosecuting, with a focus on restitution and improving judicial efficiencies.
Given the very recent introduction of the deferred prosecution regime, there is not yet any relevant Canadian case law. It remains to be seen whether these agreements will be successful in Canada. Recently, the Public Prosecution Service of Canada decided not to allow a remediation agreement with SNC-Lavalin, an engineering company, for an alleged bribery offence of a Libyan official.12
However, Canada does have a history of using similar diversion tactics in different contexts. One example is an Environmental Protection Alternative Measure ("EPAM"), which is a negotiated agreement between a federal prosecutor and a (usually corporate) defendant under the Canadian Environmental Protection Act.13 EPAMs are a constructive measure aimed at addressing remediation and assigning responsibility cooperatively and without trial.
With regards to competition law offences under the federal Competition Act14, there is potential for leniency with directors and officers of corporations if they are the ones to disclose an offence of which the Bureau is unaware, or whether the Bureau is aware but the director and/or officer is the first to bring forth sufficient evidence for potential referral to a prosecutor. The Competition Bureau also has an 'immunity program" wherein directors and officers may be granted immunity from an offence if they (a) terminate their participation in the cartel; (b) agree to fully co-operate with the investigation and (c) plead guilty to the offence.15 Immunity is not automatic, and is rather an "extraordinary remedy to forego prosecution in exchange for a formal, formidable, agreement to correct conduct by the corporation".16
The Ontario Securities Commission ("OSC") also has a "credit for cooperation" policy17 wherein corporate respondents may be entitled to beneficial consideration for their cooperation with regulators after the discovery of wrongdoing. The OSC stated that market participants and others participating in the capital markets "should be encouraged to self-police, self-report and self-correct matters that may involve breaches of Ontario securities law or other types of misconduct that will be considered contrary to the public interest".18 Potential benefits that a company may receive include: narrowing the scope of allegations; reducing proposed sanctions; the resolution of matters through settlement agreements such as settlements where no admission of liability is made; and in a few cases, concluding matters without taking any direct action against the company. This regime has a particular focus on the protection of the public: credit will mostly be given if the company tries to right the wrong done to the public, and when it puts the public interests ahead of its own/ ahead of its directors, officers, employees etc.
B. BACKGROUND LEGAL REGIME
1. Access to Employee Statements and Testimony
Generally, employees do not have any particular rights under employment law that govern how the company must interact with them during an internal investigation. The internal policies of each company are an important source of the rights and privileges both employers and employees benefit from in the context of an investigation. However, if an employee is treated unfairly during an investigation, the treatment may be a factor in wrongful termination proceedings.19
a. Prosecutors' Ability to Obtain Information from Employees
Where an employee is the source of relevant information, directors must ensure that there is no threats or retaliatory measures taken against the employee who provides information to a person whose duties include the enforcement of federal or provincial law. Section 425.1 of the Code precludes an employer from taking disciplinary action against, demoting, terminating or adversely affecting and employee (or even threatening to do so).20 It may be possible to dismiss an employee or mete out disciplinary actions for the failure of an employee to participate in an investigation, but this will be a facts-specific scenario and will depend on the provisions in the employees" contract.
b. Corporations' Ability to Obtain Statements by Employees
In Canada, it is important to not communicate with employees in a threatening or harsh way. Interviewees should be reminded that counsel acts for the corporation and not for the employee themselves.21 It is important to conduct the interview so that employees cannot validly argue the process was unfair if criminal, regulatory or civil proceedings subsequently arise.22
Employees have an obligation to respond to reasonable employment-related requests, which including attending an interview if they were involved or have knowledge of matters in question. They should be instructed that the interview is confidential in nature.23 The provision of Upjohn warnings is also an encouraged practice in Canada, though not required.24
When employees are the targets of an interview, it is appropriate to remind them of their right to counsel, particularly were they face potential personal liability.25 Employees who are merely witnesses do not have an inherent right to receive independent legal representation prior to or during interviews.26 The principle with regards to all interactions with the employee need to be grounded in fairness. Employees have the right, and employers should assure, that as far as possible the company will maintain confidentiality with respect to the employee as much as possible. If the employee has retained a lawyer, they cannot be interviewed without the express consent of the lawyer, and the interview will usually take place in the lawyer's presence.27
2. Attorney-Client Privilege and Work Product
Canadian jurisprudence around attorney-client privilege regarding in house counsel differs from European jurisprudence28 and is more closely related to American jurisprudence. An elevated degree of privilege is a "fundamental civil and legal right" in Canada. The communication must be of legal nature and the lawyer must be acting in his or her capacity as a legal advisor.29
Both attorney client privilege and litigation privilege may attach to work-product produced in an internal investigation. Attorney–client privilege will protect communications made in furtherance of the provision of legal advice. Litigation privilege will attach to documents where the 'dominant purpose' in creating the document was anticipated or ongoing litigation. Neither litigation privilege nor attorney–client privilege will attach to documents that predated the investigation or transcripts or factual summaries of interviews of employees or third parties not directly involved in instructing the lawyers conducting the investigation.
In Securities Commission investigations, there is no guidance on the privilege over documents given to the Commission as part of a co-operative effort "because there is no explicit position with respect to entering into confidentiality agreements with market participants seeking credit for cooperation, there remains further uncertainty about potentially unintended consequences of waiving privilege to the OSC".30 Once a company has decided to co-operate, a company may end up disclosing sensitive information and/or waive privilege.31 This information may at some point be disclosed publicly, which can be used against the company in civil proceedings.
Using employees as investigators is one tool available to corporations, but information produced in this regard would not be subject to privilege. Communications with in-house counsel are protected by solicitor-client privilege only if the communications are with the in-house counsel in his or her legal capacity as legal counsel. If the information is widely disseminated or not legal advice, privilege will not apply.32 As such, retaining independent outside counsel is one of the best means of maintaining privilege.
The party asserting privilege must assert on a balance of probabilities that the communication was created with the dominant purpose of preparing for the litigation or to provide legal advice33, which is easier if the counsel was retained at the beginning of the investigation.34 Privilege may not apply if counsel is only retained for a fact-finding investigation.35 Litigation privilege applies to documents and communications prepared in anticipation of litigation. The specific litigation at issue must have been in contemplation when the communication occurred or the material was created.
Notes taken by lawyers in the course of internal investigation are covered by litigation privilege so long as litigation was reasonably anticipated, which is based on the nature of the relationship, the subject matter of the advice and the circumstances that the advice is sought and rendered.36 Advice from in-house counsel would not be subject to litigation privilege if they were providing advice in a business capacity. The use of external counsel enhances the ability to protect privilege because it avoids doubt about whether the in house counsel was acting in legal or business capacity. With a lawyer leading the investigative team, information obtained in the investigation process and the results of the investigation may be protected by solicitor client privilege or litigation privilege.37 If there is a final report regarding the evidence gathered during the investigation, a court will consider whether the dominant purpose of the report was in anticipation of the litigation.38 Courts will also consider whether the report was delivered by a lawyer in the context of a solicitor-client relationship, whether the report was prepared for the purpose of providing legal advice and whether the report is prepared and delivered with the expectation of confidentiality.
3. Individual Documents and Records
In Canada, privacy laws are based on 10 key principles, three of which are limited consent, limited collection and limited use. The Personal Information Protection and Electronic Documents Act39 sets out the national standards for the privacy concerning all personal information collected, used, or disclosed in the course of commercial activity conducted by a private sector organization. Provinces such as Quebec, British Columbia and Alberta have also enacted their own privacy legislation which act in place of PIPEDA. PIPEDA applies to all provinces who have not adopted their own provincial laws.
The knowledge and consent of an individual is needed for the collection, use or disclosure of personal information. The collection of personal information must limited to the purposes of this information for that organization. Personal information may not be used or disclosed for purposes other than for what it was created, other than with the consent of the individual or by law.40 Upon request, an individual must also be informed of the use and/or disclosure of their personal information.41 Consent is not required when the information is being disclosed to a lawyer representing the organization.42 Consent and knowledge are also not needed if the collection of personal information is reasonable for purposes related to investigating a breach of an agreement or a contravention of a law, and if it is reasonable to expect that the individual's knowledge and consent would compromise the availability or the accuracy of the information.43
Corporations must ensure that they comply with all privacy laws when conducting an internal investigation. One issue may be an employee's "expectation of privacy" with respect to personal information that may be stored in his or her workplace computer or devices. The Supreme Court of Canada in R v Cole44 recognized that employees may have a reasonable expectation of privacy on an employer-owned computer, which may potentially limit the employer's access to information. Investigations should not be conducted recklessly because of the tort of intrusion upon seclusion.
However, there are some exceptions to the general rules of privacy law which may be helpful for internal investigations. Some provisions allow personal information to be collected, used or disclosed without consent if obtaining consent would "comprise the availability of the accuracy of the information". Information can be disclosed to a regulatory authority if the corporation has reasonable grounds to believe that the information relates to a breach of agreement or is in contravention to a provincial, federal, international or foreign law.
Monitoring Employee-Owned Communication Systems
Canadian law generally permits employee monitoring provided the monitoring is reasonable in both the purposes and manner in which the employer conducts the monitoring. Courts and regulators recognize that employers have legitimate interests in monitoring computer use, including emails sent and received via a business email account for purposes related to compliance and network security. However, general monitoring of computer usage may be subject to higher levels of scrutiny. There are various guiding documents across the provinces that establish the boundaries between what counts as reasonable and unreasonable monitoring, and it is always a factually dependent analysis. Due to the patchwork of federal and provincial privacy and data protection laws across Canada, determining privacy and privilege during an internal investigation may be a difficult exercise for employers.
Corporations who are either being investigated by a regulatory body or conducting internal investigations must adopt a multi-faceted approach, taking into consideration the rights of key stakeholders like employees, management, and shareholders. Another important consideration is managing the public-facing aspects of an investigation while also ensuring every aspect of the internal investigation is conducted carefully and in a manner that respects individual and corporate laws and regulations. This will reduce the risk of litigation arising from the conduct of the investigation itself.
It will also remain to be seen whether the introduction of deferred prosecution arrangements will change the nature and procedures of corporate criminal liability in Canada, and whether such arrangements will become widely used as they are in the United States. However, it is an unassailable truth now that corporate criminal liability is an important issue of concern, and organizations would be well-served by having well-established systems and procedures in place as a preparative measure.
1 See also section 22.1 and 22.2 of the Canadian Criminal Code, R.S.C. 1985, c. C-46 [the "Code"].
2 R v McNamara, sub nom. R v Canadian Dredge & Dock Co.  1 SCR 662 at para 38 ["Canadian Dredge"].
3 Rhȏne (The) v Peter AB Widener (The),  1 SCR 497 at para 32.
4 Barry D Lipson, "The Controlling Mind – Exercising Legal Control: Its Obligations and Liabilities" Thomson Reuters (2012: Toronto) at 115.
5 Deloitte & Touche v Livent Inc (Receiver of), 2017 SCC 63 at para 97 [Livent].
6 Ibid at 102.
7 R v St. Lawrence Corp.,  2 OR 305 at para 23.
8 Livent at para 100, citing from Canadian Dredge at paras 10-13.
9 Ibid at para 104.
10 Norm Keith, "Corporate Crime, Accountability and Social Responsibility in Canada" LexisNexis (2016: Toronto) at 75.
13 SC 1999, c 33.
14 RSC, 1985, c C-34.
15 Helen A Daley and Simon Bieber, "Directors" and Officers" Liability in Canada", LexisNexis (2015: Toronto) at 283.
19 Graeme Hamilton and Milos Barutciski, "Canada" in Judith Seddon, Eleanor Davison et al. eds, The Practitioner's Guide to Global Investigations Volume II: Global Investigations around the World, 3rd ed (London: Global Investigations Review, 2019) at 62 (PDF: 336 KB)
20 Barry J. Reiter, "Directors" Duties in Canada", LexisNexis & Bennett Jones, (2016: Toronto) at 1025.
21 Supra note 19 at 1038.
23 Supra note 20.
27 Supra note 18 at 67.
28 Supra note 19 at 1048.
29 Ibid at 1041.
30 Ibid at 1054.
31 Ibid at 1055.
32 Ibid at 1040.
33 McCarthy Tetrault v Ontario, 1992 OJ No 1680.
34 Supra note 19 at 1041.
36 R v Campbell,  1 SCR 565.
37 Gower v Tolko Manitoba Inc, 2001 MJ No 39.
38 Supra note 19 at 1045.
39 SC 2000, c 5 [PIPEDA].
40 Supra note 19 at 1002.
42 Ibid at 1006.
43 PIPEDA, s 7(1)(b). See Re PIPEDA Case Summary No. 73, 2002 CarswellNat 5379.
44 2012 SCJ No 53.
Originally published by New York University School of Law
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.