Raising the AMPerage

Introduction

On July 31, 2000, Guy Westphal-Larsen arrived in Vancouver from Amsterdam carrying salami in his suitcase. Mr Westphal-Larsen told an inspector about the salami before his suitcase was about to be x-rayed.^[1] He was issued a “Notice of Violation and Penalty” under the Agriculture and Agri-Food Administrative Monetary Penalties Act^[2] for importing an “animal by-product” without complying with the requirements of section 40 of the Health of Animals Regulations.^[3]

Mr Westphal-Larsen appealed, first to the Minister, then to the Review Tribunal. The Tribunal found that because he complied with the obligation in section 18 of the Health of Animals Act of presenting the salami to an inspector at the time of importation, he was not guilty of breaching the regulations. The Canadian Food Inspection Agency appealed to the Federal Court of Appeal. The court held that by the time an object is presented for inspection in accordance with section 18, it has already been imported. Thus section 40 of the regulation applies.^[4]

In the result, Mr Westphal-Larsen was caught by a regulatory catch-22 enforced by one the most draconian administrative monetary penalty regimes in Canadian law. The court did have sympathy for Mr Westphal-Larsen, questioning whether the salami was in fact an “animal by-product” in the first place. The eventual outcome of this case is not recorded.

What is clear, however, is that administrative monetary penalties, or AMPs, which until the 1990s existed only in tax laws, have become sufficiently pervasive that every Canadian is liable to be shocked by an AMP for violating obscure regulatory systems that most of us (even lawyers) are not aware of.

This paper contains three parts. The first discusses the rationales advanced for implementing AMPs. The second contains examples of AMP provisions in Canadian federal and provincial laws. The third discusses some of the issues raised by AMPs.

Rationales for AMPs

AMPs are monetary penalties—basically, fines—whose payment is ordered by a decision maker acting under a statutory power, other than a court.

AMPs are attractive to regulators because they fill a gap between traditional administrative remedies and criminal prosecution.

In regulatory systems that do not provide for AMPs, the regulator will typically have a number of administrative remedies at its disposal, such as injunctive and remedial orders, and remedies relating to licensing ranging from imposing conditions on a licence to revoking the licence. The lesser of these remedies may be insufficient to deter non-compliance,^[5] and taking away a licence, if that licence is necessary to do business, can amount to economic capital punishment of a business. Such a scheme can leave a regulator with insufficient tools to do its job.

Many regulatory systems also allow the regulator to refer matters for criminal or quasi-criminal prosecution for breaches of the rules. The resulting proceeding is criminal in nature. Criminal proceedings for regulatory breaches involve a number of disadvantages.

The requirement of proving the breach beyond a reasonable doubt has a number of consequences. Only the clearest cases will be prosecuted, since it is inappropriate to lay charges where there is no reasonable prospect of conviction. Both the regulator and the accused will be forced to devote significant resources to the prosecution. As a result, the regulator will devote resources to only the most serious cases will be prosecuted. As a result there is little deterrence of less serious breaches.^[6]

Criminal proceedings are longer and more costly than administrative proceedings as a result of the high degree of procedural rights afforded to the accused, including, for instance, Stichcombe disclosure, preliminary hearings (for indictable offences), and rules of evidence. This increases the resources that the regulator must dedicate to each case, reducing the number of cases that can be prosecuted. Once again, less serious breaches will go unprosecuted and undeterred.

By contrast, administrative proceedings, being civil in nature, require only proof on a balance of probabilities. Pre-hearing proceedings may be shorter and less costly, since Stinchcombe does not necessarily apply (although some administrative tribunals mandate high levels of disclosure).^[7] The procedures are simpler, less formal, potentially faster, and less expensive.^[8]

In any event, the stigma associated with a criminal conviction is not appropriate for less serious breaches of regulatory rules.^[9] Criminalizing relatively minor breaches can have two, paradoxically contrary, effects. First, the recognition that the criminal stigma is not deserved may reduce the value of criminal stigma attached all breaches of the relevant legislation, including the more serious ones.^[10] Second, the stigma associated with criminal charges may lead companies to fight rather than to settle.^[11] Professor Coffee warns against the trend in the United States toward over-criminalization in the regulatory sphere, and urges civil penalties instead:

A principal cause of over criminalization is the profligate extension of the criminal sanction to cover all rules lawfully promulgated by an administrative agency. It has become the common statutory pattern in the United States for a statute establishing an administrative agency to provide that any wilful violation of the rules adopted by the agency constitutes a federal felony. As a direct result, one estimate places the number of federal regulations currently punishable by criminal penalties at over 300,000. Technical offenses-such as "stock parking," net capital, or margin rule violations (to give only examples from the federal securities laws)-are thus potentially punishable under the same statutory provisions that prohibit fraud. Civil penalties make the greatest sense in this area-as a replacement for criminal charges, not simply as a discretionary prosecutorial alternative. Optimally, federal statutes creating an agency or setting forth some comprehensive system of regulation should still contain criminal penalties-but only for more serious crimes, such as willful fraud, bribery, or reckless endangerment. In these cases, the statutory definition of the crime would require proof of actual moral culpability and not simply the equivalent of spitting on the sidewalk.^[12]

Another disadvantage of criminal prosecutions is that courts have relatively little experience in dealing with regulatory matters and may set fines for regulatory offences below the profit made from the breach.^[13] In one case in the United Kingdom, the fine for unlawful dumping amounted to only 10% of the cost savings enjoyed by the company that engaged in it.^[14] Clearly, fines of this magnitude do not deter unlawful behaviour; they may in fact incent it. By contrast, a properly designed AMP regime can allow for AMPs to be high enough to force disgorgement of at least the entire profit gained as a result of non-compliance.^[15]

Some have noted the relationship between regulatory enforcement and risk management.^[16] Regulators should deter the creation of unacceptable risks, not just actual harm. Administrative proceedings are better suited to this than criminal proceedings, since courts are more used to dealing with behaviour that causes actual harm and may be less inclined to penalize the creation of risk.^[17] In particular, the lower standard of proof that applies in civil (as opposed to criminal) proceedings is appropriate, Professor Brown argues, because of its relation to risk management. He writes:

The criminal standard of proof is appropriate when the liberty of the accused is at stake. However, this standard of proof is not warranted in the context of monetary penalties for health and safety offences because it gives the benefit of any reasonable doubt to employers' bank accounts rather than to the health and safety of workers. The civil standard of proof applied in administrative proceedings is more appropriate because it treats corporate treasuries as no more worthy of protection than the health and safety of employees.^[18]

The introduction of AMPs into the Competition Act in 1999 provides a good example of these rationales in practice. A 1995 a review of the Act culminated in a 1996 report of a consultative panel with members drawn from government, industry, and the bar. The report urged replacing the Act’s criminal misleading advertising provisions with a dual track system. The criminal track would retain the offence of misleading advertising, but as a full mens rea offence. The civil track would deal with “deceptive marketing practices” through cease and desist orders, orders to publish corrective notices, and AMPs. The report recites many of the drawbacks of criminal prosecutions noted above in support of the dual track system.^[19] The panel noted the importance of speed in resolving misleading advertising cases:

The Panel concluded that, when misleading advertising occurs, it is essential that it be stopped quickly to minimize any harm to the competitive process, including consumers, competitors and others. If an effective remedy is available to achieve this, it will also, in most cases, eliminate the need for further remedial action. These principles guided the Panel in its deliberations in this area.^[20]

The panel considered that cease and desist notices would be appropriate for all instances of misleading advertising, regardless of whether the advertiser had exercised due diligence, since “The purpose here is to stop the impugned practices in the marketplace”.^[21] Orders for the publication of corrective notices and AMPs should be reserved for businesses that fail to exercise due diligence, the panel recommended.^[22]

The dual track system was ultimately enacted through Bill C-20 in 1999. The then Commission of Competition,^[23] Konrad von Finkenstein explained the rationale for the changes to the House of Commons committee examining the legislation in very simple terms:

The creation of two tracks, criminal and civil, will give the [Competition] Bureau flexibility to deal with cases in the most expeditious manner. Under the civil regime we will be able to stop misleading advertising quickly without embarking on lengthy criminal court proceedings. However, we will not hesitate to use the criminal track for the most serious cases.

The reasons for these changes are that the civil remedy does not have the high criminal standard of proof and is cheaper as well as faster. It will also make it easier for the Bureau to obtain temporary Court Orders to stop particularly harmful advertising.

These amendments will not weaken our ability to deal with misleading advertising. Rather, they will continue to ensure the distribution of more accurate information in the marketplace. They will give us the necessary tools to react immediately and make us more effective by giving the court a wider range of remedial orders.^[24]

AMPs in Canadian Federal and Provincial Legislation

There are now hundreds of AMP provisions in Canadian federal and provincial legislation. Administrative regimes in a number of sectors now include AMPs among their regulatory tools, including transportation, food safety, product safety, occupational health and safety, agriculture, tax, securities regulation, environmental protection, and consumer protection. This part will focus on securities regulation, consumer protection, agricultural standards,  environmental protection, and market regulation.

Securities regulation

British Columbia was the first province in Canada to introduce AMPs into its securities legislation, in 1989.^[25] Ontario followed in 2002.^[26]

The two provisions are substantially identical. They provide for the securities commission to impose an AMP of up to $1 million on a person or company that has not complied with securities law if the commission determines that it is in the public interest to impose the AMP. These provisions are bare-bones: there is no statutory guidance for determining when to impose an AMP or in what amount.

Consumer protection

Competition Act – deceptive marketing practices provisions

As discussed above, in 1999, the Competition Act’s criminal misleading advertising provisions were replaced with a dual-track system which retains a criminal offence for serious cases, and deals with the rest through a civil system.  AMPs are among the remedies provided for in the civil track. The civil track deals deceptive marketing practices such as misleading advertising, misleading claims about ordinary selling price, representations as to tests, and the like.^[27]

Deceptive marketing practices proceedings are typically brought in the Competition Tribunal.^[28] Originally the Tribunal could order individuals to pay AMPs of up to $50,000, or $100,000 for “subsequent orders”, and corporations, $100,000, or $200,000 for “subsequent orders”.^[29] The limits were raised in 2009 to $750,000 or $1 million for subsequent orders in the case of individuals, and $10 million or $15 million for subsequent orders in the case of corporations.^[30]

The Act provides that the terms of an order against someone who has engaged in deceptive marketing practices, including an AMP order, must be “determined with a view to promoting conduct by that person that is in conformity with the purposes of this Part and not with a view to punishment”.^[31] It is noteworthy that this goes beyond a mere statement that the purpose of the order is compliance rather than punishment by making this a fundamental consideration when making an order. The Act also provides a list of considerations in determining the amount of the AMP. These include considerations relating to the gravity of the conduct, the victims, the effect on competition generally, the revenue and financial position of the respondent, and the compliance history of the respondent:

(5) Any evidence of the following shall be taken into account in determining the amount of an administrative monetary penalty under paragraph (1)(c):

(a) the reach of the conduct within the relevant geographic market;

(b) the frequency and duration of the conduct;

(c) the vulnerability of the class of persons likely to be adversely affected by the conduct;

(d) the materiality of any representation;

(e) the likelihood of self-correction in the relevant geographic market;

(f) the effect on competition in the relevant market;

(g) the gross revenue from sales affected by the conduct;

(h) the financial position of the person against whom the order is made;

(i) the history of compliance with this Act by the person against whom the order is made;

(j) any decision of the court in relation to an application for an order under paragraph (1)(d);

(k) any other amounts paid or ordered to be paid by the person against whom the order is made as a refund or as restitution or other compensation in respect of the conduct; and

(l) any other relevant factor.^[32]

British Columbia – Business Practices and Consumer Protection Act

The experience with the deceptive marketing practices provisions suggests that AMPs may be appropriate for addressing breaches of provincial consumer protection legislation as well. Ontario, however, continues to rely on criminal sanctions in its Consumer Protection Act.

British Columbia’s Business Practices and Consumer Protection Act^[33]contains an administrative enforcement regime that includes AMPs. Inspectors can conduct inspections, in the course of which they can (among other things) enter business premises, ask questions, look at, copy and even remove records.^[34] The Director can summons witnesses and compel them to produce records and things.^[35]

Enforcement tools available to the Director include accepting undertakings,^[36] issuing compliance orders,^[37] and imposing AMPs.^[38] Interestingly, a compliance order can include an order that a person pay compensation to consumers or other persons who suffer loss or damage as a result of a contravention of the Act.^[39]

AMPs can only be imposed for contravention of provisions of the Act prescribed by regulation,^[40] plus contraventions of conditions of a licence, compliance orders, and certain other orders. The maximum AMP is $5,000 in the case of an individual and $50,000 in the case of a corporation.^[41] The Director must give the alleged contravenor the opportunity to be heard before imposing an AMP.^[42] The Act sets out factors that the Director must consider before imposing an AMP. These are similar to those found in the Competition Act’s deceptive marketing practices provisions:

(a) previous enforcement actions for contraventions of a similar nature by the person;

(b) the gravity and magnitude of the contravention;

(c) the extent of the harm to others resulting from the contravention;

(d) whether the contravention was repeated or continuous;

(e) whether the contravention was deliberate;

(f) any economic benefit derived by the person from the contravention;

(g) the person’s efforts to correct the contravention.^[43]

The Act provides for protection from double jeopardy: a person against whom an AMP has been imposed cannot be prosecuted for the same offence, and a person who has been charged with an offence cannot be ordered to pay an AMP.^[44]

A person who has been AMPed can apply for “reconsideration” by the Director within 30 days of receiving a notice of imposition of an AMP.^[45] The Director can vary or cancel the AMP only if there is new evidence that is substantial and material and that “did not exist at the time of the review or did exist at that time but was not discovered and could not through the exercise of reasonable diligence have been discovered”.^[46]

As there are no appeal provisions in the Act, any appeal must be by way of judicial review.^[47]

Agricultural standards

In 1995, Parliament enacted the Agriculture and Agri-Food Administrative Monetary Penalties Act.^[48] This Act creates the AMP system that caught poor Mr. Westphal-Larsen. The Act provides a framework that allows the Minister of Agriculture and Agri-Food^[49] to make regulations designating contraventions of a number of agriculture-related statutes as “violations”. The regulations can also classify violations as “minor”, “serious”, or “very serious”, and fix AMPs for each violation, up to a maximum of $2,000 for a minor violation, $10,000 for a serious violation, and $15,000 for a very serious violation. There is also a maximum AMP of $2,000 against an individual who is not acting in the course of business. The regulations can also establish criteria for determining the amount of an AMP, which must include the following:

(a) the degree of intention or negligence on the part of the person who committed the violation;

(b) the harm done by the violation; and

(c) the history of the person who committed the violation of prior violations or convictions under agri-food Acts within the five year period immediately before the violation.^[50]

The regulations establish set penalties that are lower than the maximums but can be adjusted upwards or downwards by up to 50% depending on the “gravity value”. The gravity value is determined by adding up the values assigned to various circumstances set out in a series of tables.^[51] The highest possible AMP is $6,000 per day that a violation continues. In order to reach this level, the violation must be considered “very serious” and involve a combination of some or all of: previous violations, negligence or an intentional act, or serious and widespread harm.

AMPs are imposed by way of a Notice of Violation issued by officials designated for that purpose.^[52] The person to whom a Notice of Violation is issued can elect between four options: (a) pay the penalty, in which case they are deemed to have committed the violation and the payment ends the matter. (b) The accused can request to enter into a compliance agreement. (c) The accused can request a review by the Minister, or (d) by a Review Tribunal. If the person does nothing within the time limit, they are deemed to have committed the violation.^[53]

If the accused elects (b) to request to enter into a compliance agreement, and the Minister agrees, the agreement can provide for security for compliance and reduction of the AMP. The person is deemed to have committed the violation. If the person complies with the compliance agreement, the AMP proceedings are ended and the security is returned. If the person does not comply with the compliance agreement, they must pay twice the AMP, or the security is forfeit to Her Majesty.^[54] If the Minister refuses to enter into a compliance agreement, the accused can either pay the penalty or seek a review by the Tribunal.^[55]

If the accused elects a review by the (c) Minister or (d) Tribunal, the Minister or the Tribunal determine whether or not the person committed the violation and can reassess the AMP. Decisions of the Minister are subject to further review by the Tribunal.^[56] Decisions of the Tribunal are subject to judicial review in the Federal Court of Appeal.^[57]

The Act expressly removes defences of due diligence and honest belief, making violations absolute liability offences.^[58] The burden of proof remains on the Minister throughout the administrative process, including in reviews by the Minister and the Tribunal.^[59] The Act also replaces the criminal “continuing offence” doctrine by providing that each day on which a violation is continued constitutes a separate violation.^[60] The Act provides for protection from double jeopardy: commencing a proceeding in relation to conduct as a violation precludes prosecuting it as an offence, and vice versa.^[61]

In Doyon v. Canada,^[62] Létourneau J.A. criticized this AMP system as “draconian” and “highly punitive”. He held that it should therefore be interpreted strictly:

As this provision triggers a substantial monetary penalty, we must guard against a liberal interpretation that extends the scope of the essential elements, which are already quite broad, given the fact that the person who has committed the violation has absolute liability, that the prosecutor has a considerably reduced burden of proof and that the person who has committed a violation risks higher penalties in the event of a subsequent violation (see sections 5 and 6 and Schedule 3 of the AMPs Regulations).^[63]

To Létourneau J.A.’s criticism can be added that there is little possibility in this system of taking into account the profit made, or expenses saved by, a corporation that cuts corners in its compliance with agricultural standards. It would be difficult to call an AMP that forced disgorgement of such profit or saving punitive, no matter how high it may be. Yet there is no provision for setting AMPs on this basis. Thus, ironically, this draconian system risks under-deterring non-compliance.

Environmental protection

Both the federal and Ontario governments have recently enacted extremely detailed AMP provisions as part of their environmental laws. These provisions are worth outlining in some detail.

Federal – Environmental Violations Administrative Monetary Penalties Act

The Environmental Violations Administrative Monetary Penalties Act^[64] is Canada’s newest AMP system. It was enacted in 2009 but is not yet in force. The Act is very similar to the Agriculture and Agri-Food Administrative Monetary Penalty Act: it creates a framework for the Governor-in-Council to designate the contravention or failure to comply with provisions in a number of federal environmental statutes as “violations”, and to set an AMP of up to $5,000 in the case of an individual or $25,000 in the case of a corporation, ship or vessel.^[65]

The Act provides for liability of directors, officers, and agents of corporations if they are involved in or even acquiesce in the violation.^[66] Similar provisions apply to shipowners and operators, masters and chief engineers of ships and vessels.^[67] Similarly, corporations, ships, and vessels are liable for violations caused by their employees or crew.^[68]

Environmental AMPs are imposed by way of a “notice of violation” issued by an enforcement officer.^[69] The alleged violator has 30 days to seek a “review”, which is held by a “review officer” or a “review panel” appointed by the “Chief Review Officer”.^[70] The review is de novo, since the Minister bears the burden of proving the violation, on a balance of probabilities.^[71] The alleged violator has the right to appear in person or through counsel,^[72] and to make oral representations.^[73] It is not clear whether the alleged violator has the right to call evidence. The review officer or panel can summons witnesses.^[74] The decision of the review officer or panel is subject to judicial review, but not to appeal.^[75]

The Act expressly excludes defences of due diligence and honest belief, but not other defences available at common law.^[76] It replaces the criminal “continuing offence” doctrine by providing that each day on which a violation is continued constitutes a separate violation.^[77]

The Act contains a double-jeopardy provision that precludes criminal prosecution for a matter for which a notice of violation has been issued.^[78]

A new common penalty system for criminal offences created by federal environmental statutes was introduced in the Environmental Enforcement Act (the legislation that enacted the Environmental Violations Administrative Monetary Penalties Act).^[79] Under the new system, the various offences were classified as more serious or less serious, with minimum and maximum fines set for individuals, “small revenue corporations” and “large revenue corporations”. The highest possible fine is $6 million.^[80] The Environmental Enforcement Act implements this system by amending the offence provisions in a number of environmental statutes.

Ontario – Environmental Protection Act

In 2005, the Environmental Protection Act was amended to permit the Director to impose an “environmental penalty” for breaches of certain provisions in the EPA or regulations by “regulated persons”.^[81] Regulated persons are entities that hold certain licences or belong to a class that is designated by the regulations.^[82] In practice, this means entities in nine industrial sectors: petroleum, organic chemicals, inorganic chemicals, industrial minerals, metal mining, metal casting, iron and steel, pulp paper, and electric power generation facilities.^[83]

The amount of the penalty is determined according to the regulations,^[84] but cannot exceed $100,000 for each day on which the contravention occurred.^[85] No due diligence defence is available.^[86] However, for certain offences, steps taken to prevent or mitigate the effects of the contravention can reduce the amount payable.^[87]

The Environmental Penalties Regulation^[88] states the purposes of environmental penalties, which are worth quoting in full:

1. The purpose of this Regulation is to provide for the assessment of environmental penalties in a manner that encourages regulated persons to,

(a) take steps to prevent contraventions;

(b) take steps to mitigate the effects of contraventions and to prevent their recurrence;

(c) implement environmental management systems; and

(d) enter into agreements under subsection 182.1 (9) of the Act to take steps for the protection of the natural environment beyond the measures required by an Act of Ontario or Canada, by a regulation or instrument under an Act of Ontario or Canada, or by a public body.

It is the last purpose statement that is unusual. EPA s. 182.1(9) allows for the accused and the Director to reach a settlement providing that the accused will take certain steps in return for a reduction in penalty. The regulation makes clear that the government intends to use environmental penalties as a bargaining chip to incent companies to agree to do more than is required by the environmental legislation itself. While this may be perfectly innocuous, there is a potential for misuse of these provisions.

The regulation sets out a mathematical formula for determining the amount of the penalty. The formula is quite simple: it is (A) the monetary benefit received by the accused, plus (B) the gravity component, less reductions on account of (C) prevention or mitigation, (D) environmental management systems, and (E) agreements with the Director, thus, “A + (B – C – D – E)”.^[89] The gravity component is determined according to whether it is Type 1, 2, or 3, and whether the seriousness of the contravention is “less serious”, “serious”, or “very serious”.^[90] Gravity components range from $1,000 to $100,000. Contraventions are assigned to one of Type 1, 2, or 3 in a table.^[91] The regulations set out criteria for determining the seriousness of the contravention.^[92] The regulations also provide criteria for determining the reductions attributable to prevention or mitigation, environmental management systems, and agreements with the Director. The maximum reduction available for prevention or mitigation is 30% of the gravity component, and for environmental management systems, 5%. There is a complicated formula for determining the reduction attributable to agreements with the Director.^[93] Finally, if the result of the formula is a penalty whose amount is punitive, the Director must reduce it.^[94]

The accused can require a hearing by the Tribunal.^[95] The accused bears the onus of proof for certain contraventions relating to discharges;^[96] otherwise it would seem that the Director bears the onus at a hearing.^[97] The Tribunal cannot change the amount of the penalty unless it considers the amount set by the Director to be unreasonable.^[98] There are two appeal routes from a decision of the Tribunal: to the Divisional Court^[99] and to the Minister.^[100]

Astoundingly, the EPA expressly abrogates the double jeopardy rule. Subsection 182.1(11) provides:

(11) A person may be charged, prosecuted and convicted of an offence under this Act in respect of a contravention referred to in subsection (1) even if an environmental penalty has been imposed on or paid by the person or another person in respect of the contravention.

Since 2008-2009, the Ontario Ministry of the Environment issued 19 environmental penalty orders for total penalties of $181,726. In 2009, an average 13% penalty reduction was applied per violation.^[101]

Economic and market regulation

Federal – Competition Act

In 2009, a second AMP provision was added to the Competition Act.^[102] This provision permits the Competition Tribunal to impose an AMP of up to $10 million or $15 million for “subsequent orders” on a firm who is found to have abused its dominant position. This provision mirrors the AMP provision in the deceptive marketing practices provisions of the Act. It provides guidelines for determining the amount of the AMP, and states that the purpose of an AMP is to promote compliance, not to punish.^[103]

Alberta – electricity markets regulation

In 1996, Alberta deregulated its electricity market. The legislation governing this market provides for two different kinds of AMPs, “specified penalties” for less serious breaches and “administrative penalties” for more serious breaches.

The wholesale market for electricity is operated by the Independent System Operator established under the Electric Utilities Act,^[104] which is known as the Alberta Electric System Operator (“ISO” or “AESO”). The AESO is empowered to make rules governing the operation of the power pool and electric system (among other things).^[105]

The market is overseen by the Market Surveillance Administrator (“MSA”), an office established by the Alberta Utilities Commission Act.^[106] The MSA is empowered to investigate contraventions of the Electric Utilities Act and AESO rules (among other things), either on its own initiative or upon receiving a complaint or a referral from the AESO.^[107]

The Alberta Utilities Commission (“AUC”) can make rules prescribing which contraventions of AESO rules will be treated as less serious breaches subject to “specified penalties”, and determining the amount and manner of calculating specified penalties, up to a maximum of $100,000 per day.^[108]

AUC Rule 19, Specified Penalties for Contravention of ISO Rules, creates three categories of contraventions, and specifies penalties of $500 (Categories 1 and 2) to $1,500 (Category 3) for the first contravention within a rolling twelve month period. The amounts increase for each subsequent contravention, up to a maximum of $10,000 for the fourth and subsequent contraventions. It should be noted that these specified penalties are the amount for each day on which the contravention continues.^[109]

If the MSA finds that a person has contravened an AESO rule for which a penalty has been specified by the AUC, it can issue a “notice of specified penalty” to that person. If that person either fails to pay or disputes the notice, the MSA refers the matter to the AUC for a hearing. The AUC can rescind the specified penalty, confirm it, or impose an administrative penalty.^[110]

In the case of other contraventions of AESO rules or of the Electric Utilities Act, the MSA refers the matter to the AUC for a hearing.^[111] If the AUC determines that the person is guilty of a contravention, it can order an “administrative penalty”, impose conditions on that person’s participation in the electricity or natural gas market, and prohibit that person from engaging in certain conduct or require that person to do something.^[112]

The maximum amount of an administrative penalty is $1 million for each day that the contravention continues plus a one-time payment to address the economic benefit the person obtained from the contravention.^[113]

The double jeopardy rule applies: a person who pays an administrative penalty cannot be charged with an offence for the same contravention.^[114] Oddly, there is no provision making this rule applicable to the payment of a specified penalty.

One issue that came up in the first two contested specified penalty hearings before the AUC was whether a due diligence defence was available. In both cases, the MSA and the respondents agreed that the defence was available, and the AUC proceeded on that basis. The AUC noted, however, that the question remained open. In both cases, as well as a subsequent case, the AUC applied the due diligence defence as it exists in criminal law.^[115]

Issues Commonly Raised by AMPs

This part deals with three issues that AMP provisions commonly raise. The first is whether a due diligence defence is available where the legislation does not either expressly include or exclude it. The second is whether AMP provisions have retrospective application. The third is the potential of the novel language used in AMP provisions to create new interpretive difficulties.

Due diligence defence

In R. v. Sault Ste. Marie, the Supreme Court distinguished between three categories of criminal offence based on the fault element. The first category consists of full mens rea offences. The second consists of “strict liability” offences, for which mens rea does not need to be proven, but the accused can exculpate himself by proving that he took “all reasonable care”. This is known as the “due diligence” defence. The third consists of “absolute liability” offences for which the due diligence defence is not available; proof of the actus reus of the offence is sufficient to convict. The court held that “public welfare offences”, which include regulatory offences, are presumptively strict liability offences, not absolute liability.^[116]

As noted above in respect of the Alberta Utilities Commission, the question immediately arises: in administrative proceedings arising from an alleged contravention of a statute or other rule, is the contravention one of strict or absolute liability? As noted above, some schemes, such as the Competition Act, expressly provide for the due diligence defence. Others, such as the agriculture and agri-foods scheme and the new federal environmental AMPs, expressly rule it out. For statutes that do not address the availability of the due diligence defence, the answer is less clear. The current trend seems to be that the presumption is that the defence will be available.

The Ontario Securities Commission initially took the position that the due diligence defence was not available in public interest proceedings under section 127, in a case involving Gordon Capital Corporation. This case involved an application to impose conditions on Gordon Capital’s registration; it predates the addition of AMP powers to the Securities Act. The Divisional Court upheld the OSC’s decision on this point.^[117]

More recent OSC cases show greater openness to the defence. In Re Biovail Corp., the OSC noted that the mens rea component of the offence of making a false or misleading statement does not apply to administrative proceedings, but held that,

In our view, in considering whether Melnyk's conduct was contrary to the public interest, we should consider whether, in all of the circumstances, Melnyk has demonstrated that he exercised due care and diligence. If we are satisfied that he exercised such care or diligence, we would not conclude that it is in the public interest to issue an order against him under section 127.^[118]

Similarly, in Re YBM Magnex International Inc., the OSC accepted a due diligence defence in respect of certain of the directors of a company charged with material non-disclosure in a prospectus.^[119]

However, in Re Sabourin, the OSC rejected the availability of a due diligence defence to allegations of trading securities without registration and without filing a prospectus. The OSC stated:

68           In our view, there is no need for us to determine a respondent's motive or what a respondent knew, intended or believed in order to determine whether that respondent traded in breach of the Act or to exercise our public interest jurisdiction under section 127 of the Act.

69     Further, we do not accept that a respondent's diligence or reasonable mistaken belief is a defence to an allegation that the respondent contravened section 25 or section 53 of the Act. In our view, Staff is required to demonstrate only that the relevant sections of the Act were breached by the Respondents or that the Respondents acted contrary to the public interest.^[120]

Sabourin is not completely irreconcilable with Biovail and YBM Magnex. It is difficult to imagine how one could have a due diligence defence to a breach of such fundamental rules as those breached by Sabourin.

In Papa’s Holdings Ltd. v. Northwest Territories (Liquor Licensing Board), the Northwest Territories Court of Appeal applied the due diligence defence to a regulatory offence under liquor legislation. A bar owner was charged with having for sale two bottles of wine that had been purchased from a retail liquor store rather than from a wholesale liquor store (where the prices were higher). An employee had traded two bottles of wine she had purchased for two in the bar, in order to have chilled wine for personal use. The Liquor Licensing Board fined the bar owner. The Court of Appeal followed Sault Ste. Marie, citing the serious administrative consequences of the offence as its rationale:

10 This offence under the Liquor Act has the potential for serious consequences to the respondent. The loss or suspension of its liquor licence is a possible result, and even the fine imposed here was a serious penalty. Conversely, the social danger from inadvertently switching two bottles of wine is minimal. Regulatory offences are prima facie located in category 2 (strict liability). No legislative intent is visible in the enactments here to categorize this offence as one of absolute liability.^[121]

In Whistler Mountain Ski Corp. v. British Columbia (General Manager Liquor Control and Licensing Branch), the British Columbia Court of Appeal applied Papa’s Holdings to an administrative proceeding under BC’s liquor legislation. A bureaucrat known as the Deputy General Manager found that “Dusty’s Bar” had liquor that had not been purchased from a Liquor Distribution Branch. He suspended Dusty’s licence for 30 days. The General Manager could also have administratively imposed a fine on Dusty’s, but did not. Dusty’s owner, Whistler Mountain, appealed. The BC Court of Appeal applied Papa’s Holdings and relied on very similar reasoning in determining that the due diligence defence should be available:

34 While it is true that there is no possibility of imprisonment on the facts of the case before us, the General Manager has the power under s. 20(2) to fine, suspend and even cancel licenses. There are no limits on these powers prescribed by this section. These actions can have very serious consequences for a licensee, including the loss of their livelihood. As stated in Sault Ste. Marie, the importance – which I take to mean significance – of the penalty is an important consideration in determining whether an offence is one of absolute liability.^[122]

The New Brunswick Court of Appeal reached the same conclusion, also in a liquor licensing case, in 2005.^[123] In that case, the court relied on the 1998 decision of the Federal Court of Appeal in Consolidated Canadian Contractors Inc. v. Canada.

Consolidated Canadian Contractors Inc. v. Canada^[124]raised the issue of whether the defence of due diligence was available to a company that was AMPed for underpaying on a GST remittance, even though it had done everything that could reasonably be expected of it, including relying on bulletins and advice from the Department of National Revenue.^[125] Nevertheless, the Excise Tax Act applied an automatic penalty.

The court began by noting an earlier decision of the Tax Court of Canada on the same point. In that case, the court determined that the defence of due diligence should be available. Judge Bowman applied Sault Ste. Marie, holding that

That a person should be susceptible of being penalized administratively by a public servant without any possibility of exculpating himself by demonstrating due diligence is not only extraordinary. It is abhorrent. It is no less abhorrent because it is mechanically and routinely imposed by anonymous revenue officials and therefore qualifies for the essentially meaningless rubric "administrative" rather than "criminal". A punishment is a punishment. Neither its nature nor its effect is tempered by the use of palliative modifiers.^[126]

The court then embarked on a detailed review of Sault Ste. Marie, holding that the rationales that led the court to adopt a presumption that regulatory offences should be strict liability rather than absolute apply to administrative penalties as well. Robertson J. reiterated the Supreme Court’s point that there is no evidence that imposing absolute liability causes people to follow a higher standard of care.^[127] Nevertheless, he held, the unfairness of imposing a penalty without fault was insufficient to read a defence of due diligence into the statute.^[128] Rather, the statute must be examined with a view to determining whether it was Parliament’s intention to make the administrative contravention one of strict or absolute liability.

Robertson J. held that the four part analysis set out by the Supreme Court in Sault Ste. Marie was applicable to AMP provisions as well. That analysis considers:

(1) the precision of the statutory language, (2) the importance of the penalty, (3) the subject matter of the legislation, and (4) the overall regulatory pattern adopted by the legislature.^[129]

Robertson J. started from the proposition that there should be a rebuttable presumption that Parliament did not intend to impose absolute liability. This presumption can, however, be rebutted where the statute unequivocally imposes absolute liability:

37 The principle that there is to be no punishment without fault translates into a rebuttable presumption that Parliament did not "intend" to impose absolute liability. This presumption is also a logical extension of the understanding that penalties serve as an incentive to ensure that persons exercise a minimum standard of care in fulfilling their obligations imposed by law. The idea is to encourage people to exercise reasonable care so they can avoid breaching their legal obligations. If so, then the person being penalized should be able to plead that he or she acted in accordance with the required standard of care. Hence, it seems both fair and logical to assume that Parliament intended strict not absolute liability. This presumption, however, will be rebutted if the language chosen by the draftsperson is unequivocal that absolute liability was intended or where the penalty leads to trivial consequences. If the presumption is not rebutted on those grounds, then it is necessary to determine whether the due diligence defence is incompatible with the legislative scheme or whether it frustrates the purposes for which the penalty was imposed.^[130]

He ventured further still, holding that the court is justified in reading words into the statute to avoid unfairness, so long as this is compatible with the legislative scheme:

38 As much as I reject the idea that unfairness or manifest injustice is a sufficient reason for implying a due diligence defence, I am of the opinion that a court is justified in reading words into an Act to avoid such a result, if it can be shown that the relief being granted is compatible with the legislative scheme and neither frustrates nor undermines its purposes.^[131]

Robertson J. then applied the Sault Ste. Marie test to the Excise Tax Act AMP provisions. He had no difficulty concluding that none of the first three considerations made the AMP provision an absolute liability provision. In respect of the fourth consideration, the legislative scheme, the Minister argued that the availability of a due diligence defence was incompatible with the legislative scheme, for two reasons. First, the Act empowered the Minister to grant relief from penalties. Second, the Act contains AMPs for willful false statements (a full mens rea AMP provision) and for summary conviction and indictable offences for flagrant non-compliance. Robertson J. accepted that it was a reasonable inference from these provisions that it was Parliament’s intention to make the AMP in question absolute liability, but that this was not dispositive.^[132]

Robertson J. noted that there was no incompatibility between the due diligence defence, which exculpates the respondent, and a relief provision, which allows the Minister to waive a penalty that is otherwise payable.^[133] Moreover, the Minister had adopted the position that due diligence was not a grounds to grant relief.^[134] In the end, he held, the presumption in favour of strict liability had not been rebutted; the due diligence defence was therefore available.^[135]

In summary, while the question of whether a due diligence defence is available in administrative proceedings has not been conclusively settled in Canada, the clear trend is toward a presumption that the defence is available unless it is excluded by clear words or is incompatible with the overall scheme of the statute.

Retrospective application

The criminal law is clear: the presumption against retrospective application of legislation means that the law as it stood at the time of the alleged offence, including the penalties for the offence, applies.

The situation is not as clear in administrative law. In Brosseau v. Alberta (Securities Commission),^[136] the Supreme Court held that the principle of retrospective application of legislation did not apply to the imposition of a remedy under the Alberta Securities Act even though the conduct predated the provision creating the remedy. That case involved allegations that a company’s solicitor had filed a prospectus containing false or misleading statements about materials facts. A criminal charge against Brosseau failed because it was laid after the limitation period expired. The Alberta Securities Commission then proceeded administratively against Brosseau, seeking an order that he cease trading in securities.

The matter ultimately wound up before the Supreme Court. L’Heureux-Dubé J., writing for the court, adopted Elmer Driedger’s classification of statutes into three categories. It is the third category that is relevant to the question of retrospective application in administrative proceedings:

… there are three kinds of statutes that can properly be said to be retrospective, but there is only one that attracts the presumption. First, there are the statutes that attach benevolent consequences to a prior event; they do not attract the presumption. Second, there are those that attach prejudicial consequences to a prior event; they attract the presumption. Third, there are those that impose a penalty on a person who is described by reference to a prior event, but the penalty is not intended as further punishment for the event; these do not attract the presumption.^[137] [Emphasis added]

L’Heureux-Dubé J. then described a “sub-category” of the third category as consisting of “enactments which may impose a penalty on a person related to a past event, so long as the goal of the penalty is not to punish the person in question, but to protect the public”.^[138] She referred to two of English authorities where statutes disqualifying certain people from practicing a trade or profession on account of criminal conduct were held to operate retrospectively.^[139]

L’Heureux-Dubé held that Brosseau’s case came within Driedger’s third category, because the provisions that would disqualify him from trading were designed to protect the public, and the sanction was not designed as punishment:

53 The present case involves the imposition of a remedy, the application of which is based upon conduct of the appellant before the enactment of ss. 165 and 166. Nonetheless, the remedy is not designed as a punishment for that conduct. Rather, it serves to protect members of the public.

[…]

55 The provisions in question are designed to disqualify from trading in securities those persons whom the Commission finds to have committed acts which call into question their business integrity. This is a measure designed to protect the public, and it is in keeping with the general regulatory role of the Commission. Since the amendment at issue here is designed to protect the public, the presumption against the retrospective effect of statutes is effectively rebutted.

In 1999, AMP provisions were added to Alberta’s securities legislation. In Morrison Williams Investment Management Ltd. (Re),^[140] the Alberta Securities Commission relied on Brosseau in holding that it could impose an AMP for conduct that predated the enactment of the AMP provision. The ASC reasoned:

We conclude that we can make an order under section 165.1 of the Act because, although it permits the imposition of a penalty, the goal of the penalty is not to punish but rather to protect the public interest.^[141]

In Alberta (Securities Commission) v. Brost,^[142] the Alberta Court of Appeal considered whether the rule in Brosseau applied to AMPs. On June 8, 2005, the maximum AMP available for a breach of the Securities Act was raised from $100,000 to $1 million. In Brost, the ASC held that the new maximum applied, even though the conduct to which it was applying the AMP occurred before the maximums were increased. The Court of Appeal affirmed this decision, but gave extremely sparse reasons on this point, saying merely that

57 The Commission was correct to conclude that the presumption against retrospective application did not apply in this case because administrative penalties under the Act are not punitive but are instead designed to protect the public: Brosseau v. Alberta Securities Commission […]. Moreover, contrary to what Brost and Alternatives suggest, it is well settled that "[e]xcept for criminal law, the retrospectivity and retroactivity of which is limited by s. 11(g) of the Charter, there is no requirement of legislative prospectivity embodied in … any provision of our Constitution": British Columbia v. Imperial Tobacco Canada Ltd. [Citations omitted.]^[143]

In the 1990 case of Attorney General of Canada v. Royal Canadian Mounted Police Public Complaints Commission,^[144] the Federal Court of Appeal distinguished Brosseau. The issue was whether amendments to the Royal Canadian Mounted Police Act establishing the Complaints Commission were retrospective such that the Commission could investigate complaints into events that occurred before the Commission’s creation. The trial judge had held that the amendments were enacted to protect the public and were procedural. Thus the presumption against retrospective application did not apply.

The Federal Court of Appeal disagreed, holding that the amendments operated prospectively only. MacGuigan J.A., writing for the panel, began by noting the distinction drawn by Driedger between retroactive statutes and retrospective statutes. A retroactive statute is one that operates backwards; in other words, it is deemed to have come into force before its enactment. Express words are normally used to make a statute retroactive. A retrospective statute “changes the law only for the future but looks backward by attaching new consequences to completed transactions. It thus opens up closed transactions and changes their consequences as of the future.”^[145]

MacGuigan J.A. then embarked on analysis of L’Heureux-Dubé J.’s reasons in Brosseau and of Driedger’s third category. He concluded that the third category established a narrow exception to the presumption against restrospectivity:

In short, there is an exception to the presumption against retrospectivity where there is (1) a statutory disqualification, (2) based on past conduct, (3) which demonstrates a continuing unfitness for the privilege in question. To my mind this is quite a narrow exception to the general presumption…^[146]

MacGuigan J.A. dealt with L’Heureux-Dubé’s characterization of this exception as only a “sub-category” of the third category by noting that this sub-category “is nevertheless expressed in almost identical terms with Driedger's description of the whole category”.^[147] He observed that there could not be a broad public interest exception to the rule against retrospective application, since Parliament is presumed always to legislate in the public interest. He wrote:

34 Whether there is a general category broader than the sub-category, it must at least be recognized that there cannot be any public-interest or public-protection exception, writ large, to the presumption against retrospectivity, for the simple reason that every statute, whatever its content, can be said to be in the public interest or for the public protection. No Parliament ever deliberately legislates against the public interest but always visualizes its legislative innovations as being for the public good.

35 If there is a public-interest exception at all, therefore, it must in my opinion be reducible to a matter of legislative intent, that is, whether parliament intended prospectivity or retrospectivity.^[148]

With that background, MacGuigan J.A. proceeded to examine the amendments that created the Commission. The Commission relied on the fact that it had no power to impose any penalties, and argued that the amendments were purely procedural, and thus not subject to the presumption against retrospective application. However, MacGuigan J.A. held, because the amendments provide for public scrutiny of conduct of the RCMP, “it would be unrealistic to conclude that there will be no effect on those investigated as a result of any investigation undertaken”.^[149] The amendments impose a form of penalty on RCMP members, and as such, the presumption against retrospective application applied, he held he held:

The introduction of Part VII imposes new disabilities (as to reputation and discipline) and new duties (as to responding to complaints) on RCMP personnel. It cannot realistically be said that any such penalties are not intended as punishment for the event. That is indeed one of the purposes, where fault on behalf of RCMP personnel is found. The public is not being protected merely against a continuing unfitness as in Brosseau, but by exposure and punishment of wrongdoers.^[150]

In 2005, the Ontario Divisional Court followed RCMP Complaints Commission in holding that the Ontario College of Teachers’ Professional Misconduct Regulations could not be given retroactive effect to apply to conduct that predated the promulgation of the regulations.^[151]

In the 2009 case of Thow v. British Columbia (Securities Commission),^[152] the BC Court of Appeal faced exactly the issue as the Alberta Court of Appeal in Brost: do increased maximum AMPs apply to conduct that occurred before the maximums were increased? The BC court held that it the presumption against retrospective application applied.

The court analyzed examples of statutes coming with Driedger’s third category and found that

The common theme of the cases in Driedger's third category is that they impose sanctions against persons not as penalties for past misconduct, but to protect society against future misconduct. Past misconduct is treated as an indicator of propensity or of bad character, and is used to identify people who pose a particular risk to society.^[153]

 Indeed, Brosseau itself fits within this framework, as the court later implied:

41 While some of the language used in Brosseau may be interpreted as supporting a very broad "protection of the public" exception to the presumption against retrospectivity, I do not think that that was the Court's intention. The Court's reasons in Brosseau draw heavily on Driedger and on the cases he cites. The reasons do not suggest any intention to broaden the exception, and there was no need to do so in order to resolve the issues in the Brosseau case.^[154]

The court then expressed general agreement with the Federal Court of Appeal’s decision in the RCMP Complaints Commission case, although it broadened that court’s characterization of the third category to include not just disqualification cases, but also, for example, cases where a regulator wished to impose conditions such as supervision or special reporting obligations on a registrant.^[155] The court thus restated the third category as follows:

 46 The exception does, however, appear to be applicable only where a prejudicial sanction is imposed, not for penal purposes, but as a prophylactic measure to protect society against future wrongdoing by that person. While the imposition of such sanctions may, incidentally, inflict hardship on the wrongdoer, the infliction of such hardship is not the goal.^[156]

The court resolved the issue by distinguishing between “punitive” in the narrow sense of being imposed for the purpose of punishment, and “punitive” in the broader sense of being designed to penalize and deter:

49 Here, the Commission's imposition of the fine was arguably not "punitive" in the narrow sense of the word; that is, it may not have been imposed as a punishment for Mr. Thow's moral failings, and it may not have been motivated by a desire for retribution or to denounce his conduct. Nonetheless, it was "punitive" in the broad sense of the word; it was designed to penalize Mr. Thow and to deter others from similar conduct. It was not merely a prophylactic measure designed to limit or eliminate the risk that Mr. Thow might pose in the future.^[157][Emphasis added]

Thus, the court held, the presumption against retrospective application applies to AMPs imposed under the BC Securities Act.

The better view on this issue is that expressed by the BC Court of Appeal in Thow. As that court pointed out, AMPs are different from disqualification remedies. AMPs are a penalty for past conduct; disqualification may be justified by past conduct, but its purpose is to protect the public from a repetition of the conduct. Clearly, however, this is a disagreement among the Courts of Appeal on this point, which may require resolution by the Supreme Court at some point.

New terminology that raises interpretive difficulties

Our law has well developed and distinct sets of terminology for criminal and civil proceedings. The terminology for administrative contraventions is less well developed. A review of AMP provisions suggests their drafters struggled to find terminology analogous to criminal law concepts such as “offence”, “prosecution”, and “conviction” without using criminal law terminology (which would itself be problematic as it would inevitably make the provisions criminal or quasi criminal in nature). This struggle will inevitably give rise to interpretive difficulties.

As good example of this is the expression “subsequent order” in the AMP provisions in the Competition Act. The AMP provisions for deceptive marketing practices and abuse of dominance provide for higher AMPs for “subsequent orders”. It was likely intended as a civil analogue to the criminal law term “conviction”, making the higher AMP applicable to recidivists.

The Competition Bureau has taken an expansive view of the meaning of “subsequent order” pursuant to which each count of deceptive marketing practices would be considered an order. In a settlement, it achieved an AMP of $1.2 million—more than ten times the maximum at the time—from sporting goods retailer The Forzani Group Ltd,^[158] even though Forzani had never been convicted of misleading advertising or been the subject of an order under the deceptive marketing practices provisions.

My view is that the Bureau’s position, which has yet to be tested in a contested proceeding, is not well founded. Proceedings in the Competition Tribunal result in one final order, not several. In the case of the deceptive marketing practices provisions, the Competition Act defines the meaning of “subsequent order” by providing a list of conditions, each of which will make an order a “subsequent order”. These include previous orders under the deceptive marketing practices provisions as well as past convictions for misleading advertising.^[159] This list supports the position that “subsequent order” is meant to deal with cases where the respondent has previously been “convicted”, administratively speaking, of the same contravention.