The shift of corporate criminal liability from the boardroom to the factory floor

Corporate Compliance
Toronto
The shift of corporate criminal liability from the boardroom to the factory floor
On August 9, 2013, Justice Tôth of the Quebec Superior Court delivered a decision in the price fixing trial of R. c. Pétroles Global inc ("Global Fuels")1, which affirms 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
This is the first litigated case to test Canada's new corporate criminal liability rules. Justice Tôth found Global Fuels guilty for its role in a gasoline price-fixing conspiracy in Victoriaville, Sherbrooke, and Magog, Quebec. Individual representatives from the company pleaded guilty in September and October, 2008, and also in March, 2009.
Policy / operational distinction is abolished
The 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 [emphasis added]
The decision in Global Fuels affirms that the disjunctive test hinging on the word "or" abolishes the policy/operational distinction that had made it difficult for prosecutors to penetrate the boardroom and obtain convictions.4 Justice Tôth
1 R. c. Pétroles Global inc., 2013 QCCS 4262 [Global Fuels], leave to appeal to the Quebec Court of Appeal granted, 2013 QCCA 1604.
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.
Newsletter
October 2013
In This Issue:
Responsible for managing
Important aspect of the organization's activities
Facts of Global Fuels
Link to sentencing
Pro-active steps
2 The shift of corporate criminal liability from the boardroom to the factory floor October 2013
eloquently summarizes the change in the law as an extension outside of the boardroom and onto the plant floor.5
Guilty mind of a middle manager equals the guilty mind of the corporation
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 they are asked to resolve disputes involving business decisions made by managers where they 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.
5 Global Fuels, supra note 1 at para. 42.
6 Parliament of Canada, Second Reading of Bill C-45 (15 September 2003), Hansard, online <http://www.parl.gc.ca/HousePublications/Publication.aspx?pub=Hansard&doc= 119&Language=E&Mode=1&Parl=37&Ses=2#T1335>, at 1335.
7 Global Fuels, supra note 1 at para. 35.
8 Global Fuels, supra, note 1 at paragraph 47.
9 Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23 [Sharbern].
3 The shift of corporate criminal liability from the boardroom to the factory floor October 2013
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 Fuels was convicted of the charges.
Justice Tôth did not rule on the secondary issue of whether the territory managers were also senior officers, as this finding was not necessary once he had found that the regional manager was a senior officer with sufficient knowledge of the scheme. At the preliminary inquiry, Justice Chapdelaine also found that the lower level territory managers were senior officers in light of their significant autonomy to implement an illegal and effective price-fixing strategy. This finding will not be binding on future courts, but may be persuasive. The outer limits of the concept of "senior officer" remain to be determined in future cases.
Link to sentencing
A link should be drawn to the decision of the Ontario Court of Appeal in Metron,11 which involved a sentence appeal in a case of corporate negligence causing death. Justice Pepall for the Court recognizes that the new law flattens distinctions between the boardroom and the factory floor once the threshold of senior officer is met. 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."12 The Metron ruling shifts the focus from hierarchical distinctions in a way that makes system-wide compliance much more important.
Conclusion: The role of corporate compliance
The decisions in Global Fuels and Metron demonstrate that systems of due diligence are increasingly important, and that these systems must transcend the boardroom onto the factory floor. Risk management will be increasingly important as the decision making of managers is put under the microscope.
Canadian organizations should be taking corporate compliance seriously in the coming decade. This involves ensuring that five essential elements of compliance are in place: the program is founded upon strong leadership, a proper risk assessment is completed, standards and controls are developed and implemented, training and communication protocols are rolled-out, and the program is properly monitored, audited, and updated as necessary.
10 Global Fuels, supra note 1 at para. 211.

Chanel Sterie Student-At-Law +1 416 865 6902 [email protected]
Baker & McKenzie LLP Brookfield Place, Suite 2100 181 Bay Street, P.O. Box 874 Toronto, Ontario, Canada M5J 2T3
4 The shift of corporate criminal liability from the boardroom to the factory floor October 2013
Organizations must institutionalize comprehensive internal policies - both at home and abroad to reduce the chances of illegal practices taking place. Otherwise, they leave themselves open to either a future criminal or regulatory prosecution.
The foregoing has been prepared for clients of Baker & McKenzie. While every effort has been made to ensure accuracy, the information contained herein should not be relied on as legal advice; specific advice should be obtained in each individual case. No responsibility for any loss occasioned to any person acting or refraining from action as a result of material herein is accepted by the authors or Baker & McKenzie. If advice concerning specific circumstances is required, we would be pleased to be of assistance.