The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
Issue link: https://digital.carswellmedia.com/i/218955
DIRECTOR LIABILITY going on, who's doing it, pursuant to what rules, how much money is being spent and what it's being spent on. If you need to work a little harder to find those things out, so be it," he says. "And don't sign anything that's written in Cyrillic." He notes that the OSC was already in the midst of an Emerging Markets Issuer Review when the Sino-Forest scandal broke and that they've since released a Guide for Issuers Operating in Emerging Markets. It calls on directors to "exercise additional diligence" to ensure that companies meet OSC requirements. The guide recommends securing independent translators; being wary of over-dependence on local management; exercising skepticism whenever corporate structures appear unusually complex; giving special attention to related-party transactions; identifying and disclosing all risks and particularly those unique to the operating jurisdiction; ensuring timely disclosure and remediation of risks and weaknesses in the business; careful evaluation of credentials of professional experts; and paying special attention to the capabilities of the underwriter and outside auditor, relative to the foreign jurisdiction. Increasing the ante in emerging markets are June 19 amendments to Canada's Corruption of Foreign Public Officials Act (CFPOA), making it comparable to the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. A new books-andrecords provision will make it an offense to attempt to disguise bribes paid to foreign officials. Milos Barutciski, with Bennett Jones LLP in Toronto, says an individual director who knows about corruption issues and does nothing about them "could easily engage his or her liability" and the same is true for an entire board. More broadly, Barutciski says that under the CFPOA, Canadian boards "will have to deal squarely with systems and policies," putting in place means to prevent bribery and falsification of records, as US counterparts generally have done. Under the new amendments, maximum terms of imprisonment have been increased from five years to 14. "Companies carrying on business in high-risk areas have to address those risks," Barutciski says. "The majority of even large public companies in Canada don't have an anti-corruption policy in place." And lest anyone suspect hyperbole, he adds, "I'm not saying this casually." It's an exposure he says Canadian directors need to address in the very short term. While it's still relatively uncommon for Canadian courts to find company directors personally liable for corporate misdeeds, it's a decidedly less rare thing for directors to have to defend legal actions in Canada stemming from their board responsibilities. Emerging-market fiascos, laws that now allow class actions in all provinces and securities regulations making it easier to launch proxy fights, are only three of many reasons the director class in Canada finds itself more frequently on the defensive. "Plaintiffs are being more and more creative in their theories of the causes [of legal actions]," says Loranger. "If you sit as a director, you really, really need to know what you are doing," she tells both Canadian and American clients who contemplate accepting appointments to boards of Canadian companies. Bresner says criminal liability is generally "harsher" for directors under United States laws than it is in Canada. "As Conrad Black found out, if you're going to be prosecuted criminally, you probably don't want that to happen in the US," Bresner observes. "But in civil law, it seems to switch the other way," with Canada showing wider scope for director liability. "The key difference is the 'oppression remedy' here," he says. "It comes as a huge surprise to US directors who come to Canada to sit on boards." Under s. 241 of the Canada Business Corporations Act (CBCA), courts are given power to impose any remedy they deem fit in order to rectify oppressive conduct by a corporation or its representatives. Cobb says most developed nations seek to make their corporate law "fairly homogenous [because] nobody wants to be the "AS CONRAD BLACK FOUND OUT, IF YOU'RE GOING TO BE PROSECUTED CRIMINALLY, YOU PROBABLY DON'T WANT THAT TO HAPPEN IN THE US. BUT IN CIVIL LAW, IT SEEMS TO SWITCH THE OTHER WAY, [WITH CANADA SHOWING WIDER SCOPE FOR DIRECTOR LIABILITY]." jurisdiction everybody wants to avoid," and this is particularly true between Canada and the US. Still, he says, there are important differences and Canada's more conservative legal tradition may actually work to make it more likely that directors will be named in civil actions. "In the US, discovery [of witnesses] is essentially unlimited," Cobb says. "In Canada, you get to examine one person. You don't get these marathon depositions of 25 people." This, he says, may work as an incentive for plaintiffs to sue individual directors in order to force them into discovery. Differences in director liability between the two countries are sometimes subtle — and sometimes not, Cobb says. Making this point with an investigator from the US Securities and Exchange Commission (SEC), he put it this way: "We're a real country — www.lexpert.ca | LEXPERT • December 2013 | 13