The Corporation in Action

• Author: J. Anthony VanDuzer
• Pages: 211-246

211

CHAPTER 5

THE CORPORATION

IN ACTION

A. INTRODUCTION

As discussed in Chapter 3, it is often helpful to think of corporations

as having legal characteristics similar to those of natural persons. The

comparison may only be taken so far, of course, and in this chapter

we look at one of the most important differences between corporate

and natural person s: the necessity for corporate persons to act through

human agents. In particular, we will look at how corporations act-

ing through agents can be said to enter into contracts and to commit

crimes and torts. The rules governing corporate liability are fundamen-

tally important to all of the stakeholders in the corporation because

they determine the legal consequences of the corporation’s behaviour

in the marketplace such as, for example, when it will be responsible

to tort victims. Liability rules also inf‌luence corporations’ behaviour.

For example, the rules that determine when a corporation is bound

by contracts will affect how a corporation sets up its contract-approval

process. The corporation will want to en sure that only those employees

whom it has given authority to enter into contracts are in a position to

bind the corporation. Similarly, the rules that determine when the cor-

poration is liable for torts will affect how it trains and manages people

who act on its behalf to reduce the risk of liability.

The theories of liability developed by the court s over the years have

varied depending on whether the li ability sought to be imposed was, on

the one hand, contractual or, on the other hand, criminal or tortious.

THE LAW OF PARTNERSHIPS AND COR PORATIONS212

In imposing contractual liability, the courts have focused on whether

the individual whose actions are alleged to have given rise to corporate

liability was an agent of the corporation with authority from the cor-

poration to incur liability on its behalf. By contrast, to impose liability

on a corporation for a crime or a tort, the courts have asked whether

the natural person who committed the act alleged to constitute the

crime or the tort could be considered to be the same as the corporation

for the purpose of the act. The courts developed a rule that if a person

was the “directing mind and will” of a corporation, their actions could

give rise to criminal and tort liability. The signif‌icance of these distinc-

tions will be explained in the following sections.

In 2003, the Criminal Code of Canad a was amended to substantially

broaden the circumstances in which corporations may be held crim-

inally responsible.1 The implications of these important amendments

will be discussed as well.

B. LIABILITY OF CORPORATIONS FOR CRIMES

1) Introduction

Because corporations h ave “no soul to be damned; no body to be kicked,”2

but fundamentally comprise a locus of claims by the various stakehold-

ers, as discussed in Chapter 1, the reasons for and consequences of im-

posing criminal liability on corporations are somewhat different from

those associated with imposing liability on natural persons. It seems

unlikely, for example, that a conviction for a criminal offence would

have the same deterrent effect on a soulless cor poration as it would have

on an individual. Certainly, the managers of a corporation will be dis-

couraged from causing the corporation to commit crimes to some ex-

tent by the prospect that the corporation for which they are responsible

will be found criminally liable. The deterrent effect associated with the

prospective damage to the corporation’s reputation caused by a crim-

inal conviction, however, will not be as great as t he deterrence resulting

from the threat of personal responsibility. This problem of weak deter-

rence is mitigated to a signif‌icant extent by provisions in the criminal

1 Criminal Code, RSC 1985, c C-46, as ame nded by An Act to Amend the Criminal

Code (criminal liability of organization s), SC 2003, c 21, s 2 [Criminal Code]. The

amendments were pr oclaimed in force on 31 March 2004.

2 Lord Thurlow, quoted by Glanvil le Williams, in Criminal La w: The General Part,

2d ed (London: Stevens, 1961) at 856.

The Corporat ion in Action 213

law and many regulatory statutes that impose personal liability on the

individuals th rough whom corporations commit crimes.

To some degree the remedies used to sanction criminal behaviour

are problematic when a corporation is the offender. Imprisonment of

the corporation itself is not possible and, if a f‌ine is imposed on a cor-

poration, its shareholders, employees, and others with f‌inancial claims

against the corporation will suffer.3 However, despite the challenges as-

sociated with corpor ate punishment, the prospect of this most perva sive

form of business organization, which wields such enormous economic

power, being immune to criminal sanction is impossible to imagine.

For a time, the courts held that corporations were immune from

criminal liability in some cases. More recently, however, the courts

have developed rules on the basis of which corporations may be con-

victed of crimin al and regulatory offences. The rules that apply depend

on whether the offence is an absolute liability offence, a strict liability

offence, or one requiring a particular mental state or men s rea.

2) Absolute Liability Offences

The simplest types of offences to deal with are absolute liability of-

fences. These offences require only that the accused engaged in certain

proscribed behaviour. No state of mind or mens rea needs to be shown,

and no defence is available once the behaviour has been proven. An

accused cannot argue that they made an honest mistake. In general,

absolute liability offences are designed to encourage compliance with

some regulatory scheme and address behaviour that is not criminal

in nature. Exceeding the speed limit on the highway is one example.

Because it is only necessary to show that a person engaged in the pro-

hibited act, absolute liability offences can be easily identif‌ied and ef-

f‌iciently prosecuted.

Corporate liability for an absolute liability offence arises when a

person who engages in the behaviour does so on behalf of the corpora-

tion. All acts of employees in the course of their employment will give

rise to corporate liability for such offences.

Absolute liability offences punishable by imprisonment have been

held to be unconstitutional as violating section 7 of the Charter —

the right to life, liberty, and security of the person — with respect

3 An alternat ive sentence was imposed in R v NorthWest Territories Power Corpora-

tion, [1990] NWTR 115 (Terr Ct). The court ordered the d irectors and the chief

executive off‌icer of a cor poration convicted of a crimi nal offence to publish a

public apology.