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Lecture 5

LAW 534 Lecture 5: Class 12 – Chapter 8 and 10

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Ryerson University
Law and Business
LAW 534
Lori Anne Heckbert

1. Class 12 – Chapter 8 and 10 Chapter 8 - Individual Liability within Organizations 5 Types of Individual Liability  Overview of five types of liability (discussed in detail in following slides):  Principle -> individual actually commits the offence  Party to an offence  Acquiescence to an offence by director or officer  Specific duty on director or officer to exercise reasonable care  Specific statutory definitions of persons in control which can extend liability Obvious relevance to any person who has a position of significant responsibility or control in an organization Principal Liability Principal liability means that the individual in question actually took part in the commission of the offence – individual had a “hands on” role; this is sometimes hard to prove as most of these actions are covert or part of complex organizational conduct (cover up?) – sometimes hard to find witnesses to such actions… Example: Drabinsky and Gotlieb - significant jail time for false representations of financial positions and “kick-back scheme Remember, professionals (lawyers, accountants, etc.) working for an organization also have obligations to their professional bodies and not just their “clients” – this includes letting upper management know what is going and resigning if conduct continues Job title is not determinative and it is level of personal involvement in the offence that is critical Harper case is double-edged sword against the defendant  If the individual defendant is sophisticated, higher standard will be expected from that individual  If individual defendant is not sophisticated, court could find that this individual’s conduct did not meet industry standards Party Liability Party liability relates to assisting in the commission of the offence - the Crown needs to show that the individual defendant had mens rea (i.e. sufficient knowledge and participation in the offence) – an individual cannot be a party to something of which he is not aware! As a result, showing that someone was a party to an offence (even if the offence is not a crime) is as difficult as prosecuting a true criminal offence because the Crown has to show that the party to the offence had the necessary mens rea to participate in the offence…. Under “party liability” not enough to show that the individual passively acquiesced or failed to take preventive measures (but, see following slides…) Authorize, Permit or Acquiesce Many regulatory statutes have created a particular type of offence that imposes individual liability when a director or officer “authorizes, permits or acquiesces” in the commission of an offence by an organization (ex: s. 122(3) of the Ontario Securities Act, see page 8-10.7) There is an ongoing debate in the case (which is not yet fully resolved) whether these types of offences: (i) require the Crown to prove mens rea of the individual (i.e. the individual knew what he was assenting or acquiescing to); or (ii) create strict liability offences where the Crown does not need to prove mens rea of the individual director or officer R. v. Felderhof: court finds that the director acquiescence provision in the Ontario Securities Act are strict liability offences because there are no words like “wilful”, etc. R. v. Peterson: court comes to a contrary view and finds that director acquiescence offences are actually full mens rea offences – as a result, the court acquitted the 82 year old accused since he had nothing to do with the day-to-day business operations of the company and had no knowledge of the offences committed R. v. Aftergood: election statute was found to be a strict liability offence R. v. Del Bianco: Court found that Alberta securities offences was a strict liability offence (like the Felderhof case) R. v. Sidhu: accused found guilty after he acted as a courier for drugs – he suspected, but did not know for sure, what he was transporting in a suitcase from India to Toronto (in this case, heroin); remember discussion on “wilful blindness” from a previous class – “having kept himself in the dark, he cannot rely on his lack of knowledge as a mitigating factor” Quebec (Autorité des marchés financiers) c. Souveraine, cie compagnie d'assurance générale: Supreme court of Canada case at 8-10.11 -seems to go in the direction of the Felderhof case; however, this case may be of limited use because dealt with unique Quebec regulatory statute and it did not explicitly deal with Felderhof and Peterson cases Bottom line: debate still ongoing… Specific Duties to take Reasonable Care Some statutes have specific provisions for directors and officers to take certain steps under certain circumstances. The duty imposed can be:  Specific – example from Corporations Tax Act (“officer must file a return” in certain circumstances)  General – example from Environmental Protection Act (“every director or officer has a duty to take all reasonable care to prevent the corporation from…discharging contaminants”) The rest of the discussion in this section is a little confusing, but the above is the key point… Statutory Language Defining Influence and Control Regulatory tools being expanded to go beyond the typical categories of directors and officers Instead of focusing on titles, a specific statute can define responsibilities for those who are in certain positions of “influence and control” – for example: supervisors  Occupational Health & Safety Act: supervisors (who are not directors or officers) may be charged personally if they fail to protect the workers for whom they are responsible  Environmental Protection Act: “person in occupation or who has charge, management and control of a source of contaminant”  R. v. Harkin: Shell Oil and a Shell Oil supervisor were convicted of failing to report a spill that was within their scope of control Other method is to focus on words “cause or permit” – requires some element of knowledge Chapter 10 - Risk Management Systems for Individuals Compliance Officers Note Professor Glasbeek’s observations regarding increased range of managerial obligations…with duties multiplied dramatically…society in danger of throwing out the baby with the bathwater…. Discussion of Hollinger In
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