What are my Professional Risks? Criminal Corporate Liability

There are three broad categories of corporate liability a corporation can face; criminal liability, contractual liability, and liability in tort. Not all three types of liability will apply to every scenario, and the severity of the risk any individual Director or Officer may carry under each type of liability is often very fact dependent. In this blog, DBH Law will explore corporate liability both for the corporation as a whole, and for the Directors and Officers who may ultimately be held responsible for the corporation’s practices, action, and decisions.

What is Criminal Corporate Liability?    
Corporations are considered to be “persons” under Canadian law. Not natural persons, but legal persons. By recognising a corporation as a “person”, the corporation has the legal status it needs to enter into contracts, initiate legal actions, and be held accountable for its promises and actions. However, many of the standard penalties for a person who has committed a criminal act in Canada do not make sense in the context of a corporation. A corporation is, after all, not a natural person that is impacted by penalties such as being incarcerated, entering rehabilitation, or completing a set number of community service hours. The result is a distinct area of law known as criminal corporate liability (“CCL”). CCL is the extent to which a corporation as a legal person can be held liable for the acts or omissions of the (natural) persons it employs. In practice, this area of law governs where directors, officers, and sometimes shareholders, can be held personally liable for the criminal acts or omissions of a corporation.

What Kinds of Criminal Corporate Liability Are There?
The most straightforward way to understand CCL is to look at the different types of offences that a corporation might be held liable for. These include offences where just a prohibited action has taken place, and offences where an intentional prohibited action has taken place.

  1. Intentional and Unintentional “Regulatory Offences”
    In some cases, liability for an offence arises even where breaking a rule or regulation was not intentional. These are like the speeding tickets of CCL. It does not matter if the corporation knew that it was breaking a regulation, or if it made an honest mistake. Once it has been demonstrated that the corporation broke the regulation, it is liable for its actions no differently than a driver is liable to pay their speeding ticket. These offences can include breaches such as failing to file financial returns, failing to meet occupational health and safety regulations, or selling goods unfit for public consumption or use. Sometimes these offences are called “regulatory offences”. Typically these offences only result in a fine, and do not carry the same risk to Directors and Officers as offences that require proof of intention.

Where corporate liability for a breach does require the corporation to have intentionally broken a rule or regulation, the most common defence is “due diligence”.  For example, think of a pipeline transporting oil or bitumen. If a section of the pipe corrodes and causes a small spill, the company that owns the pipeline has committed a prohibited act by allowing its pipeline to fall into disrepair. However, the company has the opportunity to demonstrate that it should not be held criminally liable for the spill beyond its own clean-up costs and internal measures. The due diligence defence in this example would be for the company to demonstrate that it had exercised due diligence in its choice of pipeline materials, by ensuring consistent maintenance, and only transporting appropriate products in the line. In other words, due diligence is demonstrating that the company took all reasonable steps to prevent the spill, and so cannot be held criminally liable for what is functionally an accident. It did not intentionally allow the pipeline to fall into disrepair. However, if a Director, Officer, or another person considered to be the “directing will and mind” of the corporation’s pipeline team is found to have been less than diligent in their duties, they may be held personally liable for their role in the spill.

  1. Prohibited Criminal Acts
    Other corporate offences, such as fraud, charging a criminal interest rate, price fixing, insider trading, disposing of property to defraud creditors, and providing misleading receipts, all require the corporation to have intentionally engaged in a prohibited criminal activity under the Criminal Code. For these offences, the human actor or actors who committed the offence on behalf of the corporation must have a directing mind and will. This test is not onerous, and the practical result is that there may be many directing minds and wills of any given corporation aside from its Directors and Officers. For example, if a used car salesman regularly turns back the odometer on the vehicles he sells, he is liable for fraud. The corporation that employs him can also be held criminally liable for the actions of its employee, even if the corporation has a policy against turning back odometers. It is particularly important for members of management teams to be aware of how far liability may extend in these cases. If a member of management was knowingly involved in fraudulently turning back the odometers, or was aware of the offence and failed to stop it, they can also be held liable for the fraudulent actions of their employee.

If you, a friend, a colleague, or a family member are concerned about your exposure to corporate liability, or are facing litigation as a result of allegedly committing a prohibited act, contact DBH Law. Our experienced litigation team is on hand to help you navigate your legal challenges professionally and efficiently.