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2004 Corporate and Commercial Law Developments

  

  

DISCLAIMER - The information provided here is of a general nature and may not apply to any specific or particular situation. It is not to be considered as a legal advice nor presumed to be indefinitely up to date.

  

Corporate governance issues continue to dominate in Canada through amendments to the Criminal Code ("Code"), recent litigation pursuant to Ontario securities law and the Canadian Business Corporations Act ("CBCA"), as well as through a move towards implementing mandatory rules.
  

1. Expansion of Corporate Criminal Liability

  

Amendments to the Code brought into force on March 31, 2004, have expanded the laws relating to: (i) who qualifies as the directing mind of the corporation, (ii) what is required to establish the necessary intent of the corporation, (iii) what constitutes negligent conduct of a corporation and (iv) possible sentencing options.

   

The Directing Mind of the Corporation

  

To establish the necessary intent by a corporation, it was previously necessary to determine that the "directing mind" or "alter ego" of the corporation possessed the required state of mind. Determination of who qualified as the necessary individual was evaluated on a case-by-case basis, but typically it required that the person had sufficient authority to determine policy rather than merely manage the affairs of the corporation.

The definition of a "senior officer" under section 2 of the Code has been changed to include not only individuals responsible for setting policy, but also those responsible for the management of an important part of the corporation's activities. This prevents corporations from avoiding liability by suggesting that wrongdoers simply had a management function in relation to the corporation or one of its divisions and did not set policy.

  

Offences Requiring Proof of Intent of the Corporation

  

OSection 22.2 of the Code was amended to address the requirements necessary to find an organization guilty of an intent-based offence. An organization will be held criminally liable:

  • if a senior officer acts within the scope of his or her authority and is a party to the offence;

  • if a senior officer has the mental state required to be a party to the offence and acts within the scope of his or her authority, and directs the work of other representatives of the organization so that they do the act or make the omission specified in the offence; or

  • if a senior officer knows that a representative of the organiz-ation is or is about to be a party to the offence, and fails to take all reasonable measures to stop him or her from being a party to the offence.

These changes do not alter the requirement that the organization benefit at least in part from the actions of the senior officer. However, it is no longer necessary that the intent and the guilty act of a criminal offence reside in the same person. Further, senior officers are now under a positive obligation to act when they have knowledge that an offence has been or will be committed; failure to act will result in corporate criminal liability.

  

Negligent Conduct of Corporations

  

The amendments to the Code have also expanded negligence-based offences for corporations. Section 22.1 establishes that an organization will be held negligently responsible:

  • if acting within the scope of their authority (i) one of its representatives is a party to the offence, or (ii) two or more of its representatives engage in conduct, whether by act or omission, such that, if it had been the conduct of only one representative, that representative would have been a party to the offence; and

  • the senior officer who is responsible for the aspect of the organization's activities that is relevant to the offence departs—or the senior officers, collectively, depart—markedly from the standard of care that, in the circumstances, could reasonably be expected to prevent a representative of the organization from being a party to the offence.

These changes broaden negligence offences by allowing the combined conduct of two individuals, who individually may not be acting in a manner that is careless or reckless, to constitute the necessary elements of the crime in order to hold the corporation responsible.

  

  

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