Canada: Shift of Corporate Criminal Liability From the Boardroom to Middle Managers

On April 17, 2015, Justice Tôth of the Quebec Superior Court imposed a one million dollar fine on a corporation found guilty of price fixing in the case of R. c. Pétroles Global inc (“Global Fuels“)¹. This case is important because it affirms that corporations will be penalized for the actions of middle level territory managers, even where there is no evidence that the head office of the company was aware of the misconduct. We have previously written about the conviction in this case, which set a precedent. On August 9, 2013, Justice Tôth delivered a decision in Global Fuels which affirmed that the Criminal Code provisions for organizational liability mark a fundamental change, if not a revolution, in the law of corporate criminal liability. It will no longer be necessary for prosecutors to prove fault in the boardrooms or at the highest levels of a corporation: the fault even of middle managers may suffice.²

The History

Responsible for managing

The Canadian Criminal Code definition of “senior officer” creates a disjunctive test. Under s. 2, “senior officer”,

means a representative who plays an important role in the establishment of the 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.³

The decision in Global Fuels affirms that the disjunctive test hinging on the word “or” abolishes the policy/operational distinction that had previously made it difficult for prosecutors to penetrate the boardroom and obtain convictions.⁴ Justice Tôth eloquently summarizes the change in the law as an extension outside of the boardroom and onto the plant floor.⁵

Important aspect of the organization’s activities

The intent of the Government of Canada in enacting the amendments to the Criminal Code was to merge the guilty mind of a middle manager with the guilty mind of the corporation itself. The following comments from Mr. Paul Harold Macklin, then Parliamentary Secretary to the Minister of Justice and Attorney General of Canada, demonstrate the government’s intent to ensure the legislation applied to middle managers: While the courts would still have to decide in each case whether a particular person is a senior officer, I believe the proposal clearly indicates our intention that the guilty mind of a middle manager should be considered the guilty mind of the corporation itself. For example, the manager of a sector of a business such as sales, security or marketing, and the manager of a unit of the enterprise like a region, a store or a plant, could be considered senior officers by the courts.⁶ The above passage was cited by Justice Tôth.⁷ The test to determine whether a person is a “senior officer” requires a functional analysis that goes beyond the title of the employee.⁸ From a functional viewpoint, the above test encompasses a wide array of persons who could be considered middle managers. Courts will have to further define the scope of what constitutes a “management” position. In Sharbern Holding Inc. v. Vancouver Airport Centre Ltd.,⁹ the Supreme Court of Canada noted that the business judgment rule is applied by courts when considering business decisions made by managers, where those managers must take reasonable risks.

Facts of Global Fuels

The facts in Global Fuels centered around a regional manager who supervised six territory managers, who were in turn responsible for giving price change instructions to gas stations operated by Global Fuels. The regional manager was aware of, and approved, the price management methods implemented by the territory managers. Each territory manager was responsible for between 30 and 45 stations. 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. Justice Tôth found that the regional manager qualified as a “senior officer” as he was responsible for the management of an important field of activity at Global Fuels¹⁰, and he let the territory managers participate in the collusion with his knowledge and without interference. Accordingly, Global was convicted of the charges.

The Sentencing Decision

Above the senior officer rung, the ladder is flat

Once an organization is liable for the actions of a middle manager who qualifies as a senior officer, it is not acceptable for an organization to argue on sentencing that the sentence should be reduced because the officer in question is not high on the corporate ladder. Justice Tôth cites the Ontario Court of Appeal decision in Metron¹¹ for this proposition: [76] Dans R. c. Metron, la Cour d’appel de l’Ontario écrit: 90 I agree with the appellant that a corporation should not be permitted to distance itself from culpability due to the corporate individual’s rank on the corporate ladder or level of management responsibility. Justice Tôth emphasized that Global Fuels’ culpability was not lessened for the purpose of determining penalties simply because the Board of Directors was unaware of and did not authorize the price-fixing scheme.

Analysis of factors

Justice Tôth considered a number of well-established sentencing principles when determining the appropriate penalty for Global Fuels:

• Seriousness of the offence: The crime of collusion cannot be punished summarily, is subject to a steep maximum fine, and is a significant economic offence where greed is the only motivation.
• Deterrence: As it is difficult to find a substitute for the product at issue, namely gasoline, an appropriate penalty should send a clear message to deter those who would want to exploit such a captive market. The scheme at issue was significant given its scale, the number of participants, the economic consequences, and its duration.
• Proportionality/Economic perspective: From an economic perspective, the costs of committing the crime (i.e., the penalty) should exceed any potential benefit. However, appropriate penalties cannot be determined by way of simple arithmetic, notwithstanding the domino effect on the economy from price-fixing schemes related to gasoline.

Justice Tôth also analyzed a number of factors specific to organizations, including moral turpitude, the public interest, and the organization’s likelihood of rehabilitation or recidivism. The following company-specific facts could not be ignored when determining the appropriate penalty:

• An illicit profit of $645,000 had been made, from which Global Fuels directly benefitted.
• The “senior officer” had effectively given his blessing to the complex and coordinated scheme, which had had a significant impact on consumers.
• While the public interest would not be served by bankrupting the company, Global Fuels had yet to be punished for its participation and had not paid any restitution to victims.
• Compliance with the Competition Act became an important topic of conversation at management meetings in the wake of the scheme, but the company had yet to adopt any written policies or codes of conduct. Instead, it had decreased the number of its retail outlets, which could reduce the potential for future offences.

Justice Tôth acknowledged the cost and difficulty of combatting economic conspiracies because consumers often do not know that they are being victimized. Consequently, the risk of detection and punishment for this type of offence is low, which could encourage criminal behaviour and should be a factor in determining what level of penalty will have the appropriate deterrent effect. After considering relevant sentencing principles and factors, Justice Tôth concluded that a fine of $1 million was appropriate, payable in installments.

Steps That Organizations Should Take

The sentence in the Global Fuels case is the result of careful reasoning and the balancing of various sentencing factors. To mitigate the risk of such offences from the outset, organizations should take the following steps:

1. Identify who will qualify as senior officers.
2. Develop written policies, codes of conduct or guides of good practice.
3. Institute compliance training at the senior officer level.
4. Conduct risk assessments of the potential for illegal conduct.
5. Implement the appropriate level of auditing in accordance with the risk assessment.
6. Design compensation systems to reward compliance as a factor that is weighted along with profit maximization.

______________________________ 1    R. c. Pétroles Global inc., 2013 QCCS 4262 [Global Fuels], leave to appeal to the Quebec Court of Appeal granted, 2013 QCCA 1604, Case No. 450-73-000633-085 (002). 2    Ibid at para. 40. The underlined wording is a quote from Todd L. Archibald, Kenneth E. Jull and Kent W. Roach, “The Changed Face of Corporate Criminal Liability” (2004) 48 CLQ 367. 3    Government of Canada, Criminal Code, R.S.C., 1985, c. C-46, at s. 2. 4    Global Fuels, supra note 1 at para. 41, citing Todd L. Archibald, Kenneth E. Jull and Kent W. Roach, Regulatory and Corporate Liability: From Due Diligence to Risk Management (Aurora, Ont.: Canada Law Book, 2004), at p. 5:40:30. 5    Global Fuels, supra note 1 at para. 42. 6    Parliament of Canada, Second Reading of Bill C-45, (15 September 2003), Hansard online, at 1335. 7    Global Fuels, supra note 1 at para. 35. 8    Global Fuels, supra, note 1 at para. 47. 9    Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23 [Sharbern]. 10  Global Fuels, supra note 1 at para. 211. 11  R. v. Metron Construction Corporation, 2013 ONCA 541 [Metron].