The Corporation in Action

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

211

CHA PTER 5

THE CORPOR ATION

IN ACTION

A. INTRODUC TION

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

as having legal characteristics sim ilar 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 tort s. The rules governing corporate liabilit y are fundamen-

tally importa nt 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. Li ability rules also i nf‌luence corporations’ behaviour.

For example, the rules that determ ine when a corporation is bound

by contracts will a ffect 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. Simila rly, the rules that determine when the cor-

poration is liable for torts will a ffect 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, cri minal or tortious.

THE LAW OF PARTNERSHIPS AND COR PORATIONS212

In imposing contractual l iability, 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 author ity from t he cor-

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

on a corporation for a crime or a tort, the courts have a sked 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 t hat if a person

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

give rise to cri minal 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 circumstance s in which corporations may be held cri m-

inally responsible.1 The implications of thes e important amendments

will be discussed as well.

B. LIABILITY OF CORPOR ATIONS FOR CRIM ES

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 var ious stakehold-

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

posing crimi nal liability on corporations a re somewhat different from

those associated with imposing liabilit y 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. Cert ainly, the managers of a corporation will be d is-

couraged from causing the corporation to commit cr imes to some ex-

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

will be found criminally liable. The deterrent effect associ ated with the

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

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 cri minal

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 regulator y statutes that impose personal liability on the

individuals th rough whom corporation s commit cr imes.

To some degree the remedies used to sanction crim inal behaviour

are problematic when a corporation is the offender. Imprisonment of

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

poration, its shareholders, employees, and others with f‌in ancial 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 organiz ation, which wields such enormous economic

power, being immune to crimina l sanction is impossible to imagine.

For a time, the courts held that corporat ions were immune from

crimina l liability in some case s. 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 li ability

offence, or one requiring a particul ar 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 accu sed engaged in certain

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

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

accused cannot argue t hat 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 cri minal

in nature. Exceeding t he 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 e asily identif‌ied and ef-

f‌iciently pros ecuted.

Corporate liability for an absolute liabilit y offence arises when a

person who engages in the behav iour 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 impr isonment 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.