Late last year, the Supreme Court of Canada handed down an important decision on Quebec insurance regulatory matters and strict liability offences, ending a dispute dating back to 2004. While La Souveraine, compagnie d'assurances générales/Sovereign General Insurance Company ("Sovereign") ended up with a fine of $560,000, the Supreme Court's reasoning on several issues (particularly the dissenting opinion of Abella, J.), provides considerable food for thought and possible future defences.

In particular, this decision may assist regulated parties in arguing that a favourable legal opinion or the silence of a regulator should, in certain circumstances, provide defences to strict liability offences and that prosecutors should, when deciding whether to issue multiple statements of offence, assess the context of each offence on a case by case basis. Although the case focused on an insurance regulatory requirement, the decision will be more broadly relevant across the financial services sector and more generally.

Facts and history of the decision

In 2004, Sovereign, an Alberta insurance company, was registered to do business across Canada, including in Quebec under the Act respecting Insurance (Quebec). Sovereign offered, among other things, group property insurance policies. In September 2004, Sovereign issued, through Flanders Insurance Management and Administrative Services Ltd. of Winnipeg ("Flanders"), a master group property insurance policy to GE Capital Commercial Distribution Finance ("GE"), which was based in Toronto and which financed inventory of recreational vehicle dealers across Canada. "At GE's invitation, 56 Quebec dealers acquired this policy through Flanders." (Autorité des marchés financiers ("AMF") c. Souveraine (La), compagnie d'assurances générales, 2012 QCCA 13 (CanLII) at para. 12) and Flanders issued insurance certificates to them. Flanders was not registered as a representative (that is, an insurance broker) under the Act respecting the distribution of financial products and services (Quebec) ("ADFPS").

Following the filing of a complaint by the Quebec dealers' former insurance broker, the AMF began an investigation of Flanders and asked Sovereign for information regarding Flanders' Quebec registration. Sovereign responded fully, providing its reasons as to why it believed that it did not need to use a firm registered under the ADFPS to issue the policy and certificates. Sovereign had been provided with a copy of an opinion that Flanders' lawyer had provided to Flanders, opining that the broker did not have to register in Quebec since GE had its headquarters in Ontario, the policy was negotiated and entered into in Ontario and the premiums were paid directly to the broker by GE. The AMF did not reply to Sovereign's response, but instead, more than six months later, filed 56 charges against Sovereign for having helped or induced an unregistered representative to contravene the ADFPS (s. 482 of the ADFPS).

Having lost in the Court of Appeal in a split decision (Dalphond, J. dissenting), Sovereign appealed to the Supreme Court of Canada arguing, in the alternative, that it should have been acquitted because

  • the s. 482 offence required proof of mens rea, e.g. that Sovereign had known it was committing the offence, and this element of the offence had not been proved beyond a reasonable doubt,

  • even if the offence was a strict liability offence (e.g. one which did not require proof of mens rea), there was not sufficient proof of the actus reus (that Sovereign had engaged in some active participation in the offence or positive action, which had helped or induced the unlicensed representative to contravene the law), and

  • in any event, Sovereign had exercised due diligence (in relying on the broker's lawyer's advice that the activities were legal and in itself writing to the AMF, which had not replied but had, instead, laid charges directly).

Sovereign also argued that, even if it were held guilty of the offence, it should not have been charged with 56 separate counts of the offence, but only one, as all the offences were based upon the same set of facts.

The majority's decision

The majority of the Supreme Court of Canada (in a 6-2-1 decision) rejected all of Sovereign's arguments and held the following:

  1. S. 482 OF THE ADFPS IS A STRICT LIABILITY OFFENCE, AS ARE MOST REGULATORY OFFENCES ADOPTED TO PROTECT THE PUBLIC, AND THEREFORE PROOF OF MENS REA WAS NOT REQUIRED.

It was not necessary to prove that Sovereign had known its broker intended to break the law or that Sovereign had had the specific intent of helping or inducing its broker to do so.

The wording of s. 482 distinguishes it from s. 21 of the Criminal Code (Canada) (the aiding and abetting section) as, unlike s. 21, s. 482 does not contain the words "for the purpose of". S. 21 has been held to require that the defendant know that the principal offender's acts constituted an offence and to have done something "for the purpose of" aiding the principal offender to commit the offence. In addition, s. 482 creates a separate offence, and not just a mode of participation in an offence as does s. 21. The majority held:

[50] For these reasons, I conclude that the offence provided for in s. 482 of the ADFPS is one of strict liability and that it was not necessary to prove that the appellant knew its broker intended to break the law or that the former had the specific intent of helping or inducing the latter to do so. Proof that the appellant's actions in fact helped or induced its broker to contravene s. 71 of the ADFPS by distributing insurance products without holding the required licences is sufficient to convict the appellant.

  1. THE ACTUS REUS OF THE OFFENCE HAD BEEN ESTABLISHED.

The evidence showed that Sovereign's conduct had not, strictly speaking, been passive, since not objecting in a timely manner to its broker's actions (the issuance of the individual insurance certificates to the Quebec dealerships) constituted consent and/or authorization within the meaning of s. 482 of the ADFPS. In the court's view, Sovereign's conduct had had the effect of provoking a violation of the law by its broker, which meant that the actus reus of the offence had been established beyond a reasonable doubt. The court did not take seriously Sovereign's argument that it had not known that the broker did not hold a valid license since there was evidence that Sovereign had been aware of this.

  1. A DUE DILIGENCE DEFENCE WAS NOT AVAILABLE BECAUSE THE APPELLANT WAS RELYING ON A PURE MISTAKE OF LAW.

The due diligence defence is available if a defendant (i) reasonably believed in a mistaken set of facts that, if true, would have rendered his or her act or omission innocent, or (ii) took all reasonable steps to avoid the particular event. However, this defence will not be available if the defendant relies solely on a mistake of law to explain the commission of the offence except if the mistake was an officially induced error and if it is not a strict liability offence.

However, the Supreme Court did not totally close the door to a due diligence defence being established in certain circumstances based upon a mistake of law in respect of strict liability offences:

[64] In my opinion, the appellant's arguments can lead to only one conclusion: its mistake was one of law. Moreover, I note that the appellant is not claiming that it believed in a mistaken legal situation and, at the same time, a mistaken set of facts. Rather, it is arguing that it mistakenly believed in the existence of a legal situation because of a set of facts that were actually true. At the very least, it claims that its belief in that mistaken legal situation was justified and should be excused in light of that factual reality [emphasis in original].

[65] In this regard, I agree with Cournoyer J.A. that [TRANSLATION] "[t]he AMF's silence cannot on its own transform an error of law into an error of mixed fact and law" (para. 232). And as I mentioned above, under the law as it now stands in Canada, no matter how reasonable a mistake of law may be, it cannot - unlike a mistake of fact or an officially induced error - serve as a valid defence in the case of a strict liability offence..

[76] In light of all these considerations, I find that the objective of public protection that underlies the creation of regulatory offences militates strongly against accepting a general defence of reasonable mistake of law in this context..

[77] Moreover, it is incumbent on a regulated entity that engages in an activity requiring specific knowledge, including knowledge of the applicable law, to obtain that knowledge..

[78] The regulator at issue in the instant case, the AMF, is not required by law to reply to those to whom the law applies or to inform them about their rights and obligations. As a result, it was not reasonable in this case for the appellant to view the AMF's silence as a confirmation of its interpretation of that law. This being said, the AMF's attitude is of some concern. Nevertheless, although its attitude does not reflect the greater transparency a regulator is normally expected to show, and as unfortunate as that might be, that attitude cannot be equated with improper conduct or bad faith on its part.

[79] Furthermore, even if the AMF's conduct were so vexatious as to justify accepting a new exception to the rule with respect to ignorance of the law, which I cannot find to be the case here, I am of the opinion that the steps taken by the appellant to avoid breaking the law do not meet the requirements for the due diligence defence. The appellant relied solely on the legal advice of professionals acting for a third party, Flanders, in Manitoba. A reasonable person would at least have sought an independent opinion from a member of the Barreau du Québec, preferably one who specializes in insurance law. Thus, the appellant in this case has not shown that it took all reasonable steps to avoid breaking the law.

[80] I am well aware of the difficulties of statutory interpretation that might result from the complexity of certain regulated activities. Here, it is troubling that the AMF itself had serious difficulty interpreting the applicable law in deciding whether the transactions in question were lawful. Is it reasonable to require those to whom regulatory measures apply to have a more extensive knowledge of the law than the body responsible for enforcing it?

[82] I would therefore suggest postponing the debate about the appropriateness of accepting a new exception to the rule that mistake of law can be a valid defence only in very specific circumstances [emphasis added].

  1. ALTHOUGH THE S. 482 OFFENCE IS A DISCRETE AND INDEPENDENT OFFENCE AND SOVEREIGN IS NOT LIABLE FOR THE OFFENCES COMMITTED BY ITS BROKER, THIS DOES NOT MEAN THAT SOVEREIGN CANNOT ITSELF HAVE COMMITTED SEVERAL DISCRETE OFFENCES.

In the court's view, Sovereign had committed discrete offences although the court acknowledged that it would nevertheless be preferable for a prosecutor, when exercising its discretion to issue multiple statements of offence, to assess the context in which the offences were committed on a case by case basis:

[91] In the instant case, at the risk of crossing the line between regulatory penal liability and criminal liability, the fact that there is a substantial minimum fine to sanction the commission of the offence provided for in s. 482 of the ADFPS raises the question whether it was fair for the AMF to decide to lay 56 separate charges against the appellant.

[92] It might have been preferable for the AMF to file a single statement of offence rather than the 56 statements it did file. Nevertheless, it will not be necessary to determine whether the AMF's conduct in proceeding as it did constitutes an improper use of procedure, since this question was not before the other courts and was touched on only indirectly in argument in this Court.

[93] Dura lex, sed lex: The law is harsh, but it is the law, and the AMF has obviously given full meaning to this expression where the appellant is concerned. Yet the AMF chose to prosecute Flanders, the principal wrongdoer, under s. 462 of the ADFPS, which meant that Flanders was liable to a lesser sanction that is in no way comparable to the fine that could be imposed on the appellant under s. 487 of that same Act. Although technically speaking the appellant did consent to and/or authorize the issuance of individual insurance certificates on 56 occasions, the fact remains that these offences arose out of a single decision to retain Flanders as a broker.

[94] In my opinion, it would be preferable for a prosecutor, when exercising its discretion to issue multiple statements of offence, to assess the context in which the offences were committed on a case by case basis. This would ensure that its procedures are not transformed into the equivalent of criminal proceedings and do not fuel confusion between regulatory penal liability and criminal liability [emphasis added].

The dissenting opinions

The dissents are also interesting. Fish J. and LeBel J would have substituted a single conviction for the 56 convictions on the basis that s. 482 of the ADFPS is not a party liability offence but a distinct substantive offence and therefore an insurer found guilty of having violated s. 482 of the ADFPS is not guilty of the same offences as the firm that it helped nor of the offences committed by that firm. Rather, s. 491 of the ADPFS is the appropriate party liability offence but it could not be used against Sovereign here because it had not been in force when the actions at issue here had occurred.

Abella, J. would have allowed the appeal and stayed the proceedings on the basis of officially induced error. She endorsed the 6 criteria for this defence elaborated by Lamer C.J. in R. v. Jorgensen, 1995 CanLII 85 (SCC), [1995] 4 S.C.R. 55:

  1. that an error of law or of mixed law and fact was made;

  2. that the person who committed the act considered the legal consequences of his or her actions;

  3. that the advice obtained came from an appropriate official;

  4. that the advice was reasonable;

  5. that the advice was erroneous; and

  6. that the person relied on the advice in committing the act. [para. 26]

Abella, J. reviewed the sequence of events:

  • On April 28, 2005, the AMF wrote to Sovereign asking it for documents and information pertaining to the "floor plan" insurance it was providing in Quebec through Flanders and directed Sovereign to send certain documents to the investigator in charge of the file.

  • On June 10, Sovereign sent the requested documents and, in an accompanying letter, gave a full accounting of its business relationship in Quebec with Flanders. It stated its view that there was no licensing issue, a view supported by a legal opinion Sovereign had obtained from Flanders' lawyers.

  • The AMF did not respond and, in August, Flanders renewed insurance certificates for the 56 Quebec dealers.

  • In January 2006, the AMF brought the 56 charges at issue here against Sovereign.  

Abella, J acknowledged that, to date, the officially induced error defence had only been used when actual advice or information from an official had been given. However, in her view, the AMF's silence in response to a reasonable question on a very complex legal issue was sufficient to constitute legally induced error here:

[137] I see in these facts all the requisite elements for officially induced error. La Souveraine took reasonable steps to satisfy itself that it was not violating the law. It based its conduct on a legal opinion from Flanders' lawyers, an opinion it could reasonably have concluded to be reliable based not only on the assumption that a lawyer's advice can be relied on as accurate, but also on the fact that that advice had proved to be accepted by the other provincial regulatory agencies. La Souveraine was entitled to assume that since Flanders was a national company, its lawyers would take the necessary steps to ensure compliance with respective provincial regulations. The jurisdiction in which the law firm was based is not relevant.

[138] The legal context was far from readily ascertainable. The AMF is responsible for regulating and being a resource for information about a highly complex financial sector. It has a duty to be diligent in performing its statutory role. Most of the entities it regulates require information in a timely way in order to carry on their businesses. This is certainly true in dealing with insurance, where the consequences of not having coverage can be catastrophic. La Souveraine set out its understanding of the relevant legal requirements and the bases for its understanding in an unambiguous letter to the investigator responsible for the file. Yet rather than respond to La Souveraine's letter, the AMF brought 56 charges 7 months later..

[139] In addition, it is worth remembering that the "clarity or obscurity" of the law will be a factor in determining whether reliance on information from an official is reasonable (Lévis, at para. 27). The legal question at issue in this case was indisputably complex. As Wagner J. points out, the regulatory body itself had great difficulty determining whether the law was being violated. In fact, there was nothing so demonstrably unreasonable with La Souveraine's asserted understanding of the law that it prompted the investigator responsible for the file to send a corrective response..

[140] In these circumstances it seems to me to have been reasonable for La Souveraine to rely on the AMF's conduct - in this case silence - as confirmation that its understanding of the law was correct and as an inducement to conduct itself accordingly and permit Flanders to renew the insurance coverage for the 56 dealers. Had the AMF responded in any way, let alone in a timely one, La Souveraine could have brought itself into conformity with the law [emphasis added].

Food for thought

The judgment, therefore, leaves some questions unanswered (in particular, the legality of group damage insurance in Quebec, which was discussed briefly at the lower court levels, but not addressed in the Supreme Court) and it raises others. It will be very interesting to see if the door opened by the majority respecting a possible defence based upon a mistake of law in strict liability offences is developed further in future cases, particularly if the party charged has itself received a favourable legal opinion on its conduct or been in contact with the regulator. We note again the majority's disapproval of Sovereign's not having obtained Quebec legal advice itself but relying instead on the legal advice of a third party's counsel who was not a member of the Quebec bar.