Can a Sentencing Court Order Officers and Directors of a Convicted Corporation to Complete Probationary Requirements on its Behalf?
An Alberta Queen’s Bench Justice has found that, in exceptional circumstances, it can.
In R. v. D&J Isley & Sons Contracting Ltd., the family owned, corporate defendant had been convicted by a provincial court judge of multiple offences contrary to Alberta’s (pre-2018) occupational health and safety legislation arising from the serious injuries caused in 2015 to two of its employees in the workplace. By the time of sentencing, the defendant had ceased operations and liquidated its assets. There was no suggestion by the Crown that the cessation of operations was caused by the convictions; in other words, that it was a fraudulent intent to circumvent the process of the court.
Despite the changed state of affairs, the court, citing the need for general deterrence, acceded to the Crown’s request that the corporation be placed on probation. Pursuant to ss. 732.1(3.1) of the Criminal Code (operative pursuant to Alberta’s Provincial Offences Procedure Act), the Court imposed sixteen conditions requiring the corporation to undertake a number of steps, including requiring employees to take courses, enact compliance policies and publishing a public acknowledgment letter describing the circumstances of the incident and the lessons learned from it.
The court went further. Relying on ss.732.1(3.1)(e) of the Code, which authorizes a court, as part of a probation order, to require an employer to identify the senior officer responsible for compliance with the employer’s policies, it appointed the defendant’s CEO as the corporate representative required to carry out some of the terms of the probation order. In other words, the CEO, in his personal capacity, became responsible and exposed to prosecution should there be non-compliance with these provisions of the order. The presiding justice acknowledged that this was akin to piercing the corporate veil, but defended it as appropriate in the unique circumstances of the case.
On the defendant’s sentencing appeal in the Court of Queen’s Bench, Devlin J. agreed with the appellant that requiring the CEO to carry out the conditions of the probation order was “a classic piercing of the corporate veil”. Subsection 732.1(3.1)(e) did not afford her with this authority in that it only permits a court to require within a probation order that the offender identify the senior officer who is responsible for ensuring compliance with ordered policies, standards and procedures.
However, relying on the 2018 Ontario decision in R. v. 1137749 Ontario Ltd. o/a Pro-Teck Electric, Devlin J. concluded that a sentencing judge crafting a regulatory penalty under the OHSA has the legal authority, in exceptional cases, to pierce the corporate veil at common law. Referring to a number of civil precedents from Ontario and Alberta, he concluded that the exceptional circumstances were formed through the advertent use of corporate structures (i.e. the principle of corporate separateness) to defeat justice through fraudulent, dishonest and deceitful behaviour. As there was no suggestion in the circumstances of the case before him that the CEO had incorporated the defendant to shield himself while engaged in this type of egregious conduct, Devlin J. found that the sentencing judge had erred in imposing personal liability on him through the probation order.
On a second issue, Devlin J. agreed that the sentencing judge had erred in issuing a probation order containing conditions requiring immediate action going to policies, standards and procedures when the convicted corporation was inactive. To allow these conditions to stand without amendment confirming that they became obligatory only should the corporation become active again in the future would be punitive with no rehabilitative effect.
Some observations in relation to the first (veil-piercing) issue:
The sentencing judge did not consider whether she possessed the common law power to pierce the veil. It is unclear from the decision on appeal, whether the Crown took this position before Devlin J. Moreover, Devlin J. provides no reasons for accepting Pro-Teck other than he accepted the thorough and persuasive reasoning therein. At paragraph 42 of his reasons he concluded:
A resonant theme in Pro-Teck, as with the further authorities cited below, is that piercing the corporate veil is a judicial response to active steps taken by a corporation, or a person associated with it, to intentionally and dishonestly defeat the court process through an abuse of the corporate separateness doctrine. To presage the outcome in this case, the court’s extraordinary authority to erase the legal line between a corporation and an individual in the sentencing process does not arise simply by virtue of the fact that a legitimate, pre-existing corporate structure or arrangement makes prosecution or punishment ultimately ineffective. It is the advertent use of the corporate structures to dishonestly defeat justice that engages these principles.
In Pro-Teck the corporate defendant had been charged and convicted with a number of offences contrary to Ontario’s Electricity Act. During the sentencing hearing, the Crown lead evidence that shortly after defendant was charged, its sole director had transferred its assets either to himself or to a newly incorporated company, leaving the defendant an empty shell. The presiding justice of the peace concluded that these transactions were intended to avoid the payment of fines, but declined to accept the Crown’s submission that she possessed jurisdiction to pierce the veil of the corporate defendant and hold its director personally responsible for payment.
O’Donnell J., sitting as a summary conviction appeal judge, overturned the trial justice, finding, despite the principle of corporate separateness, in exceptional cases a trial justice had the implied jurisdiction to pierce the veil when not to do so would be too flagrantly opposed to justice.
As discussed in a previous case comment, there are, with respect, two reasons suggesting Pro-Teck may have been wrongly decided:
First, piercing the veil may be an equitable remedy, as opposed to legal (Yaiguaje v. Chevron Corporation (2018), 141 O.R. (3d) 1 (C.A.) at paragraph 113). In Pro-Teck it was applied by O’Donnell J. to trump the law (the common law principle of corporate separateness) because, otherwise, the law would work an injustice, specifically a fraud on public safety and the administration of justice. Yet, ss. 11(2) and 13(2) the Courts of Justice Act only confirm the inherent (including equitable) jurisdiction of justices of the Superior Court of Justice and the Court of Appeal. Ontario Court of Justice judges and justices of the peace are clothed with statutory, but not inherent, jurisdiction. (Noteworthy, s. 9.2 of Alberta’s Provincial Court Act confirms the same, limited jurisdiction of its provincial judges.)
Second, O’Donnell J. did not include in his analysis that the Provincial Offences Act (the POA) makes provision for the collection of unpaid fines. Section 68 provides that the payment of unpaid fines is to be enforced in courts of competent jurisdiction, just like a civil judgement. This would suggest that it was the legislature’s intention to leave collection problems, including the hiding or moving of assets intended to frustrate fine/debt collection, to the Superior Court of Justice, clothed with its inherent jurisdiction.
Even if Pro-Teck was properly decided, respectfully, Devlin’s J. reliance on it in the case before him is concerning. In support of his conclusion that piercing the veil was a remedy available to the trial justice, O’Donnell J. (like Devlin J.) relied exclusively on civil judgements intended to settle commercial and other business law disputes wherein meeting the requirements of sections 7 and 11(d) of the Charter were a non-issue.
That is not to suggest that Pro-Teck would not pass Charter scrutiny. At its core it may be really nothing more than a debt collection case. After reviewing the POA, O’Donnell J. concluded that absent a finding that a sentencing justice had the implied jurisdiction to pierce the veil and order the sole director to pay the levied fines, the fines would go unpaid. That said, the director did not risk jail or any other deprivation of liberty should he fail to pay.
Devlin J. goes much farther in D&J Isley, engaging Charter considerations that may not have been necessary to address in Pro-Teck. Had the requirement of exceptional circumstances been satisfied, it appears that, without the sole director ever having been charged and convicted, he would have effectively sentenced the director by personally binding him to the implementation some of the terms of the probation order. A probation order is of course a deprivation of liberty, engaging section 7 of the Charter: Re B.C. Motor Vehicle Act,  2 SCR 486 at paragraph 76. How can anyone be lawfully subjected to probation without having first been convicted in a trial governed by ss.11(d)?
Although the decision in D&J Isley may appear on its face to be restricted to the crafting of a regulatory penalty under the OHSA, there is nothing to prevent its attempted application to other regulatory, and, indeed, criminal proceedings.