Part 2: Strict Liability Offences

In 2004, an Albertan insurance company, La Souveraine, duly registered with the Autorité des marchés financiers (AMF), issued a master policy on recreational vehicles at dealerships all over Canada, including 56 located in Quebec. La Souveraine then retained the services of a Winnipeg based broker that was not registered with the AMF.

A complaint was filed and the AMF inquired to La Souveraine regarding its broker's permits. La Souveraine opined in response that the broker did not have to register in Quebec because the company had its headquarters in Ontario, the policy was negotiated and entered into in Ontario, and the company paid the premiums directly to the broker. Because La Souveraine did not receive a response from the AMF, and the broker's counsel provided reassurances with respect to the lawfulness of the business structure, La Souveraine continued its business with the broker and the company.

Business proceeded uninterrupted for La Souveraine, but more than six months later the company heard back from the AMF: they had filed 56 charges against La Souveraine for having violated the Act by allowing a broker unregistered with the AMF to issue an insurance policy to the dealerships in Quebec.

The Decision

Six of the nine judges at the Supreme Court of Canada (SCC) held that La Souveraine was guilty. The crux of the decision was the distinction between a mistake of fact and a mistake of law. As aforementioned, a reasonable mistake of fact is a defence available to a strict liability offence, but a mistake of law is not. Since La Souveraine was disputing a mistake of law the SCC held the company liable. It was also held by the Court that AMF's failure to respond could not transform a mistake of law into a mistake of mixed fact and law.

One of La Souveraine’s arguments was that AMF had essentially set a trap by acting unfairly towards it. In response to this argument the Court stated that the AMF was “not required by law to reply to those to whom the law applies or to inform them about their rights and obligations. As a result, it was not reasonable in this case for the appellant to view the AMF’s silence as a confirmation of its interpretation of that law.”

A defence of due diligence could not be invoked by La Souveraine because the Court was not satisfied that it had done all it could to avoid breaking the law. The appellant relied solely on the legal advice of professionals acting for a third party, (Flanders in Manitoba). The Court stated: “a reasonable person would at least have sought an independent opinion from a member of the Barreau du Québec, preferably one who specializes in insurance law”. 

Although in accord with the letter of the law, there was some obiter (non-legally binding but persuasive reasoning) in this decision that could affect future decisions on the topic of strict liability.

The trial revealed that the regulations were complex to the point where the AMF itself had encountered serious interpretation difficulties when attempting to reach a conclusion with respect to the lawfulness of the transactions in issue.

The majority judges pondered whether it is reasonable to require those to whom regulatory measures apply to have a more extensive knowledge of the law than the body responsible for enforcing it. Notwithstanding the reasonable answer to this question, the SCC decided to postpone the creation of a new defence to strict liability offences that would apply only in very specific circumstances.

Source: http://scc-csc.lexum.com/decisia-scc-csc/scc-csc/scc-csc/en/item/13341/index.do

PART 1: Supreme Court of Canada: The Evolution of Strict Liability Regulatory Offences

Greer Jacks is updating jurisprudence in EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.