Bruce McMeekin Law

Can Corporations Benefit From the Constitutional Protection Against Cruel and Unusual Punishment?

In December 2018, the Supreme Court of Canada released its decision in R. v. Boudreault, 2018 SCC 58 (CanLII) finding, in part, that, fines levied against individuals can constitute cruel and unusual punishment if grossly disproportionate to what would otherwise be a fit sentence. In March 2019, the Quebec Court of Appeal (“QCA”) took Boudreault a step further, finding that fines levied against corporations could also constitute cruel and unusual punishment, attracting for the corporation the protection of s.12 of the Charter of Rights and Freedoms:

Everyone has the right to protection from all cruel and unusual treatment or punishment.

In 9147-0732 Québec inc. c. Directeur des poursuites criminelles et pénales, the defendant was convicted of a licensing offence contrary to the provincial Building Act. As a corporate offender, it was subject to the minimum fine of $30,843 prescribed at the time by the legislation. The trial justice rejected the defendant’s submission that, as a corporation, it was entitled to the protection of s.12, and to impose the prescribed minimum would constitute cruel and unusual punishment. The Superior Court upheld the trial court’s decision. Subsequently, in a split decision, a majority of the QCA reversed the latter, finding that the defendant corporation was protected by s.12. It remitted the matter back to the trial court for determination as to whether the imposition of the minimum fine in this case constituted cruel and unusual punishment.

Bélanger J.C.A., speaking for the majority, rejected what she described as the main argument that a corporation cannot benefit from the protection of s.12 because it is concerned with the protection of human dignity.  Although that is one concern, she found that s.12 is also engaged in protecting the human condition, meaning harm that is not physical such as stress, worry and depression. In her analysis, the context for the application of s.12 had matured from its historical concerns (corporal punishment and the death penalty), to include the human condition.

She found support in the 2004 expanded application of the Criminal Code to organizations, including both incorporated and un-incorporated entities, arguing that the notion of organization comes very close to the physical person. She also found that disproportionate fines that force businesses into bankruptcy and put their employees out of work do not serve the public interest. In the result, excessively disproportionate fines can be cruel to the corporation and impact the people (shareholders, directors and employees (the “stakeholders”)) behind it.

In dissent, Chamberland J.C.A. followed R. v. Big M Drug Mart, [1985] 1 S.C.R. 295  by conducting a purposive analysis of s.12, meaning he interpreted it by determining the interests it was intended to protect. He found that s.12 was concerned with the protection of human dignity, and for a sentence to be grossly disproportionate, it must be excessive to the point of being incompatible with it. As corporations are incapable of suffering an indignity, they are not protected by s.12.

He rejected the corporation’s submission that it could benefit from s.12 if the mandatory minimum fine constituted cruel and unusual punishment to the stakeholders standing behind the corporate entity. Such a finding would be contrary to the fundamental principle of corporate personality.

Some observations:

There is no discussion within the judgement as to the reason the Building Act provides for minimum fines. Presumably, the National Assembly decided deterrence, as the primary sentencing factor in regulatory offences, required that convicted corporate defendants not benefit from undertaking business without licensing. Fines must be large enough to capture any savings the defendant obtained operating while unlicensed.

Noteworthy, this is exactly the way the Court of Appeal for Ontario (“CAO”) recently characterized minimum fines prescribed in the Ontario Water Resources Act in Ontario (Environment, Conservation and Parks) v. Henry of Pelham Inc., 2018 ONCA 999 (CanLII). Although s.12 was not at issue in that appeal, the Court was not inclined to provide relief from the application of minimum fines on the basis of difficulties in paying. It follows R. v. Metron Construction Corporation, 2013 ONCA 541 (CanLII), a criminal case, in which the Court found the risk of corporate bankruptcy did not preclude levying substantial fines.

If the matter does return to the trial court, one would think that the reason for relying on minimum fines would be one factor that the court would need to consider when weighing proportionality.

There is a unique aspect to the majority judgement, influenced, perhaps, by the ongoing debate concerning SNC-Lavalin and the effect criminal conviction could have on it and its stakeholders. In effect, the majority’s position is that a corporate defendant’s veil can and should be pierced for the benefit of its stakeholders protecting them from the effect of fines levied against the corporation. Just as is the case when piercing the corporate veil to the prejudice of stakeholders, the circumstances permitting piercing to benefit them are exceptional in the sense that the levied fines must be grossly disproportionate.

Unlike the majority here, the CAO has recently refused to ignore corporate personality for the benefit of stakeholders. In Ontario (Labour) v. New Mex Canada Inc., 2019 ONCA 30 (CanLII), the CAO found that fines imposed against a corporation are distinct from fines levied against its directors and should not be treated as fines imposed on the latter. However, the Court made the following observation at paragraph 93:

[One] can, however, imagine arguments being made about how fines imposed on a closely held corporation can indirectly impoverish individual equity directors by reducing the value of their corporate asset, an event that could affect the ability of the individual equity directors to pay their own fines, or influence the quantum of fine needed to achieve specific deterrence.

Quebec has not yet applied for leave to appeal to the Supreme Court of Canada. This is an issue requiring its guidance. One would hope that a successful application is forthcoming.