Friday, February 7, 2014

Lex Luthor & Corporate Crimes in Canada

I recently read John Byrne’s mid 1980s classic The Man of Steel, a re-imagining of the original Superman story. This six part mini-series recounted how Superman escaped Krypton, met Batman and the Daily Planet crew, met Bizarro and perhaps most importantly met Lex Luthor and subsequently became his arch enemy. In the fifth comic of the story, Luthor, after an attempt to kill Superman, hides behind the myriad of corporations he controls and shields himself from any criminal responsibility for his actions. Have a look: 

Image from DC's The Man of Steel Vol. 1 #5 (December 1986) Writing and pencils by John Byrne, inks by Dick Giordano, colours by Tom Ziuko & letters by John Costanza. 
From DC's The Man of Steel Vol. 1 #5 (December 1986)
From DC's The Man of Steel Vol.1 #5 (December 1986)
The story has Lex effectively shield himself from the crime by way of his corporation(s). When I read this I thought it might be an interesting issue to discuss in this blog: namely when can a corporation be found guilty of a criminal act? The following entry will examine criminal law and how it relates to the corporate activity within the Canadian context. With hope, you’ll leave here with a better understanding of how Canadian corporate law works and how exactly a corporation can be found criminally responsible for an action it's involved in. For the purposes of this piece I will use the Canadian Business Corporations Act (CBCA) as the statutory basis for our examination. This is the statute used when companies choose to incorporate federally.

We start with the basic idea that a corporation created under Canadian law is a separate legal personality and has, according to Section 15 of the CBCA, the rights of a “natural person”. To better illustrate this Canadians can look back to England to get a sense of what this exactly means. The case Solomon v Solomon Brothers and Company Limited [1897] from the House of Lords held that Mr. Solomon, the founder of the company at issue could not be held personally accountable to creditors for the acts of his namesake company because they were separate legal personalities. This idea was later codified in the CBCA in Sections 15 and 45 with s.45 reading: “The shareholders of a corporation are not, as shareholders, liable for any liability, act or default of the corporation.” This notion, that there was a separation between shareholders and management and the corporation has subsequently been labelled by some as the “corporate veil” and was undoubtedly on Lex Luthor's mind when he taunted Superman. 

The notion that a corporate body has a separate legal personality hasn’t gone without commentary as common law developed and many jurists from both sides of the Atlantic have considered it. In the early 1600s for example, English jurist Sir Edward Coke (pronounced "Cook") in the Sutton Hospital Case (1613) noted that the corporation was “aggregate of many is invisible, immortal and resteth only in intendment and consideration of the law" (sic) and "They may not commit treason, nor be outlawed nor excommunicate, for they have no souls." Centuries later the fourth and longest serving Chief Justice of the United States John Marshall remarked in Dartmouth College v Woodward (1819) that the corporation was "an artificial being, invisible, intangible and existing only in contemplation of law". Clearly these legal greats saw corporations as strictly legal constructs. But this raises the question: what if these legal entities are used for less-than-honourable purposes? Such a consideration brings to mind the observations of Lord Thurlow who wrote in 1844 that corporations had: "neither bodies to be punished, nor souls to be condemned; they therefore do as they like.”

Which brings us back to managers like Lex Luthor who use the corporation to shield their criminal acts. A corporation cannot shake a hand, so it stands to reason it can also not wield a gun or in the case of The Man of Steel #5 a space-suited assassin! These are all issues the courts have dealt with since Solomon as corporations have grown to wield immense power and influence in modern society.

In the 1980s of Gordon Gekko, Lex Luthor was turned from mad scientist to fat cat capitalist criminal. Image from DC's The Man of Steel Vol. 1 #4 (November 1986)
To begin our discussion on corporate criminal liability, we should first briefly look at the basics of criminal fault. In criminal law, there are two principal elements that are needed for a crime to occur: the Mens Rea or the "guilty mind" and the Actus Reus, the "guilty act". Finding an Actus Reus of a corporate crime could require just looking to see if some kind of wrong has occurred. The harder part is finding a Mens Rea because it is somewhat complex to attribute a guilty mind to an abstract legal entity. Moreover, how could the prosecution, acting on behalf of the Crown in Canada, prove beyond a reasonable doubt that the corporation committed the crime? As is usually the case, a look at common law is the best way to understand how the courts have grappled with this issue over time.

Let's begin with the case Lennard’s Carrying Company v Asiatic Petroleum [1915] from the UK's House of Lords. Here Lord Haldane held that the guiding principle in English corporate law would be that: 

The corporation was an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purpose may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.

Sound familiar? Here Lord Haldane essentially tows the Coke line and left the corporation untouched with regard to criminal acts. This notion would remain strong in Canadian law until decades later when it started to get chipped away by judges who saw things differently and pushed the law in another direction. For example, in 1941 the Alberta Court of Appeal in R v Fane v Robinson Ltd. set aside an acquittal of two companies where two of the directors and officers conspired to defraud an insurance company. The judge in this case found that the people responsible were acting and directing the corporation and it was here that we saw the germination of what would become the Identification Theory. The Identification Theory merges a Mens Rea with a corporate body using something called the Directing Mind.

For the Identification Theory to work the Directing Mind must use the corporation as a means to commit the crime while at the same time be at the centre of its operations. For example in R v St. Lawrence Corporation [1969] the Ontario Court of Appeal (the highest court of Canada’s largest province and one step below the Supreme Court of Canada) held that the officer or senior official must be a "primary representative through whom the company acts, speaks and thinks." St. Lawrence also remarked how actions taken outside the official responsibility of the leader do not fall within the Identification Theory. So if Lex Luthor was embezzling money from one of his companies then it would be another matter entirely because the company is the victim. In this instance it would be up to the shareholders to sue Luthor on behalf of the company in what is called a Derivative Action. 

Luthor could never understand why Superman didn't want to work for him. Imagine that! Image from DC's The Man of Steel Vol.1 #4 (November 1986)
A good example of the Identification Theory at work is in R v Waterloo Mercury Sales Ltd. [1974] from the Alberta District Court. In this case the sales manager of a car dealership reversed odometers to help sell cars. The dealership had a policy against this clearly fraudulent activity, but it was still not enough to keep it blameless because the individual doing the tampering was the directing mind for the purposes of the criminal activity.

Image from DC's The Man of Steel Vol. 1 #4 (November 1986)  
Since 1985 the most important case relating to corporate criminal responsibility has been R v Canadian Dredge and Dock Ltd. which was heard before the Supreme Court of Canada. In this case several corporations were charged with fraud after colluding in bidding for a contract to dredge Hamilton Harbour at the west end of Lake Ontario. The group's plan was to low-ball one offer and then have the winning company issue contracts to each of the losing partners. Here the court upheld the Identification Theory and stated that when the operating mind, brain area or ego of the corporation was so identified with the act of the individuals then the legal entity (the company) became the source of primary liability. This marked a near entrenchment of the Identification Theory into Canadian law.

And in light of the power corporations have in Canadian society, it should surprise no-one that in 2003 the Canadian parliament passed amendments to the Criminal Code of Canada that redefined the circumstances in which corporations could be held criminally responsible. The current law says that it is no longer simply a Directing Mind that needs to commit the crime, but now it can also include a representative, senior officer or anyone who was knowingly involved in the offence in a specific way, even if they did not actually commit it. The Code also expands liability so that the Mens Rea of the crime may be split into multiple representatives of the corporation and can now include not just directors and officers but also employees, agents and even contractees. 

So there you have it: a little bit about corporate criminal acts and Canadian law using Lex Luthor as a prompt. I hope you enjoyed it and even learned a little something with the help of an important comic mini-series.  As for The Man of Steel itself, it was good trade-paperback. A little dated as happens with 80s comics in 2014, but still an enjoyable reading experience. As always, thanks for stopping by and happy reading!