New Legislation in the U.K. Increases the Need for Anti-corruption Procedures

James M. Klotz, Toronto

Earlier this year, the U.K. enacted new legislation which should be of concern to Canadian companies operating internationally.

In the U.K., the Bribery Act 2010 introduces new concepts to anti-corruption regulation that will affect any Canadian company with operations in that country.  These concepts go much further than those found in Canada’s Corruption of Foreign Public Officials Act (CFPOA) or the U.S.’s Foreign Corrupt Practices Act (FCPA).

While The Bribery Act has many interesting provisions, the most notable is that it creates a corporate offence of failing to prevent bribery.  In essence, this is a strict liability offence which arises if there is any bribe (or even an attempt to bribe) made on behalf of the company, whether or not the company was aware of the actions.  The effect of this provision is to provide a defense to a company only if it has in place “…adequate procedures designed to prevent persons associated with the commercial organization from undertaking such conduct.”

In Canada, the CFPOA has no such provision.  Under Canadian criminal law, intention is required to commit the criminal offences under the CFPOA.  In certain circumstances, where a company chooses to be willfully blind to the payment of the bribe such that it deliberately fails to make inquiries (when it suspects there is reason for inquiry), it will be found to have the necessary intent.  It is for this reason that, since the enactment of the CFPOA, Canadian companies have been encouraged to put in place anti-corruption policies and training.  Under the Bribery Act, the standard is much higher.  Without evidence of such procedures, whether the company knew about the bribe or not, liability will be imposed. 

As a result, any Canadian company that operates in the U.K. without a robust program to ensure that bribery does not occur will face liability under the Bribery Act.  Furthermore, the Bribery Act imposes personal criminal liability on senior officers for offences committed by the company.  The staggering effect of this standard has yet to be fully acknowledged.  For corporate officers of companies with U.K. operations doing business in any of the myriad countries where corruption may be a fundamental component of business, criminal liability lurks by mere virtue of failing to have a proper anti-corruption compliance program in place.  Common sense would suggest that, when the Bribery Act comes into force, it would be foolish to conduct business without such a compliance program.

While the U.K. has yet to issue any guidance on what it believes would constitute “adequate procedures”, anti-corruption practitioners are fairly united in their perspective that the following practices are critical:

• Create a detailed anti-corruption compliance policy overseen and approved at the board level, including a policy on facilitation payments, hospitality, and travel.
• Review existing relationships involving foreign jurisdictions and ensure that regular, fulsome, documented due diligence is carried out on all third parties associated with the company, including agents and joint venture partners.
• Ensure that specific anti-bribery clauses are included in all commercial contracts, and that contracts are monitored to ensure compliance.
• Engage in regular anti-corruption training for all staff involved in dealing with either foreign parties or with third parties who deal with foreign parties on behalf of the company.  In particular, ensure that sales staff very clearly understand the company’s policy on facilitation payments.
• Create procedures for ensuring that payments to foreign agents are subject to scrutiny.
• Ensure that an effective whistleblower mechanism is available to all employees to facilitate the confidential airing of bribery concerns.
• Reconsider doing business in any country where it is unlikely that business can be done without the payment of bribes.  

The Bribery Act will come into force in April, 2011.  Prior to then,  the UK Government intends to issue a guidance on what will constitute “adequate procedures” so that companies will have a better idea of what changes they must make to their existing anti-corruption program. 

One other notable provision of the Bribery Act is that it contains a blanket prohibition on facilitation payments.  This is a marked departure from both the CFPOA and the FCPA which both exempt the modest payments often required to make an official do their job faster.  For example, in Canada under the CFPOA a payment will not be considered to be a bribe if it is “made to expedite or secure the performance … of any act of a routine nature that is part of the … official's duties or functions.”  The CFPOA gives a number of examples that include the processing of visas, issuances of licenses or police protection. 

Regrettably, the CFPOA does not provide any further detail about these exceptions and Canadian executives incorrectly rely on this escape clause to justify corrupt payments.  It is likely that the intention of this exception was to permit those payments that are routinely requested by minor functionaries in developing countries, who rely on these payments for their wages.  Unfortunately, the CFPOA does not give any guidance on the size of the payment, and it is at best a grey area as to whether a million dollar bribe to a Minister to speed up his approval process would be deemed a criminal act.  The subject of facilitation payments has long been a sore spot in the anti-corruption debate, and last year, the OECD Working Group on Bribery recommended that member countries review their position on facilitation payments and consider whether to maintain the exemption.  Clearly the UK has done so.

As a result of this new legislation, the UK will become one of the world leaders in anti-corruption legislation.  However, whether or not the UK will follow through with the required necessary enforcement remains to be seen.

Back to top

Vancouver v. Ward: The Supreme Court Upholds Damages as a Charter Remedy

J. Bruce McMeekin, Markham

For many years now, section 24(1) of the Charter of Rights and Freedoms (the “Charter”) has provided criminal trial courts with the jurisdiction to award costs to defendants against the Crown when their Charter rights have been infringed.  The justification for costs has been to discipline the Crown for acts that infringe a defendant’s Charter rights and needlessly compound the costs of the litigation.  Vancouver v. Ward goes one very large step further, in that the Supreme Court upholds damages as a just and appropriate remedy under subsection 24(1) when state action has injured an individual.

In Ward, the plaintiff was arrested and strip searched in 2002 on the suspicion that he intended to assault then-Prime Minister Chrétien during a civic ceremony in Vancouver.  His car was also seized without a warrant.  After spending close to 5 hours in custody, the police released him after concluding that there was no evidentiary basis on which the plaintiff could be charged with attempted assault and no grounds to seize his car.  The plaintiff subsequently sued the City for damages.  At trial, the B.C. Supreme Court found that the plaintiff’s section 9 right (his right not to be arbitrarily detained) had been infringed by his arrest and strip search.  Moreover, his section 8 right (to be free from unreasonable search and seizure) had been infringed by the seizure of his car.  He was awarded $5,000 in damages for the strip search and $100 for the seizure of his car.  The B.C. Court of Appeal and the Supreme Court subsequently upheld this decision.

For a unanimous court, Supreme Court Chief Justice McLachlin found that damages are a just and appropriate remedy for a Charter breach when:

• the plaintiff has established a Charter breach;
• the damages award is necessary to fulfil one or more of the objects of compensation, the vindication of the Charter right, or the deterrence of future Charter breaches;
• the state has failed to establish any factors which render section 24(1) damages inappropriate or unjust in the circumstances (for example, that there are alternative remedies which fit the circumstances); and
• the quantum of damages equals the purposes of the damages award (compensation, vindication and/or deterrence).

The Court found that although the plaintiff’s detention was brief and did not appear to cause any pecuniary loss, the strip search was inherently humiliating and constituted a significant injury to him.  The damages award of $5,000 was justified.  On the other hand, a modest award of $100 for the seizure of the plaintiff’s car was appropriate in that it met the need to vindicate the right against unreasonable search and seizure and deter further improper car seizures.

By way of jurisdiction, the Court found that provincial criminal courts are without jurisdiction to award damages at the end of a criminal trial.  It is unclear whether the Court intended to restrict this finding to the lower or provincial courts, or if a superior or high court hearing a criminal matter would also be so restricted. (There is no issue that the latter in a purely civil proceeding have the jurisdiction to award damages as a remedy under subsection 24(1)). In at least the situation of the lower courts, however, after a criminal trial which revealed that a defendant was charged, arrested, detained and/or tried in contravention of one or more Charter rights, the defendant would have to commence a separate civil proceeding to obtain damages.

What remains unanswered by Ward is whether access to damages is restricted to injured individuals or whether they are available to corporations as well.  Many Charter rights have been found by definition to be available to individuals alone, such as those in sections 7, 9, 11(c) and 13.  Other rights, such as those found in section 8, are available to corporations. Presumably, therefore, a corporation which has been damaged by an illegal search or seizure could rely on Ward to commence a claim under subsection 24(1) for damages.

Back to top

Are You Drafting an Agreement to Commit a Crime?

Andrew J. Roman, Toronto

A number of written agreements, such as those for the purchase and sale of interests in a business, contain non-competition provisions.  Some of these provisions may be agreements to commit a criminal offence under the Competition Act (the "Act").  After the client has been convicted of the offence, and sentenced, I leave it to your imagination to consider what might be the fate of the in-house counsel or outside law firm who advised that party, and drafted the offensive agreement.

The new section 45 of the Act makes it an offence for anyone to agree or arrange with a competitor to:

• fix, maintain, increase or control the price... of a product;
• allocate sales, territories, customers or markets for the production or supply of the product; or
• fix, maintain, control, prevent, lessen or eliminate the production or the supply of the product.

Every person who commits an offence under this section is liable to imprisonment for up to 14 years or to a fine of up to $25 million, or to both.  There is now no requirement that the conspiracy actually work to lessen competition, or have any effect, or be capable of having any effect on competition.  Under the old law, the prosecution had to show that the intention of the agreement was to limit competition “unduly.”  Today, “unduly” no longer matters.  If two persons, each with no more than 1% market share, were to agree to fix prices in the market – an agreement highly unlikely to succeed in the real world – the act of agreeing would be enough to convict them.

Potentially offensive non-competition provisions might include a provision that the vendor of a business or an interest in the business to an existing or potential competitor:

• cannot compete with the purchaser in a given territory, for particular customers, or in particular markets for an unreasonable length of time;
• cannot sell products at less than certain specified prices from the part of its business that was not sold to the purchaser; and
• cannot increase output from, or expand, the remaining part of its business not sold to the purchaser in order to compete with the purchaser.

The new section 45 has a new two-part defence.  If the accused can establish that the agreement under challenge is “ancillary to” a broader agreement that includes the same parties – which is likely to be true if an interest in the business is being sold – that would succeed on the first, and the easy part, of the defence.  The second part is that the agreement must be directly related to, and reasonably necessary for giving effect to, the objective of that broader agreement.  Although there is no case law on this new provision yet, it is likely that the expression “reasonably necessary” will be interpreted as an objective test.  Thus, what is reasonably necessary would be determined by the judge’s perception of what reasonable business people would do in these circumstances, rather than what the parties to the agreement considered necessary. 

Section 45 of the Competition Act is Parliament’s expression as to what constitutes lawful versus criminal agreements or arrangements intended to reduce competition.  Agreements on the sale of an interest in a business that require one or both parties not to compete, and that go beyond what is strictly necessary to preserve the value of the business transaction to the purchaser, will probably be held to be criminal. 

Lawyers who advise a client to draft a criminal agreement, or who actually draft such an agreement for their client, might be held to be aiding and abetting the commission of the crime.  That would itself be an offence.  If the law firm avoids conviction for aiding and abetting, it is still highly probable that the convicted client would sue the law firm and obtain substantial compensation.  The inevitable publicity surrounding such an event would be a public relations disaster for the reputation of the law firm.  No law firm can afford to take such risks.  Non-competition provisions in any contract between two actual or potential competitors should be carefully reviewed for compliance with the Competition Act.

Back to top