Supreme Court Considers Defences Available To Regulatory Offences In Autorité Des Marchés Financiers v. La Souveraine, Compagnie D'assurance Générale

Late last year, the Supreme Court of Canada handed down an important decision on Quebec insurance regulatory matters and strict liability offences, ending a dispute dating back to 2004. While La Souveraine, compagnie d'assurance générale/Sovereign General Insurance Company ("Sovereign") ended up with a fine of $560,000, the Supreme Court's reasoning on several issues (particularly the dissenting opinion of Abella, J.), provides considerable food for thought and possible future defences.

In particular, this decision may assist regulated parties in arguing that a favourable legal opinion or the silence of a regulator should, in certain circumstances, provide defences to strict liability offences and that prosecutors should, when deciding whether to issue multiple statements of offence, assess the context of each offence on a case by case basis. Although the case focused on an insurance regulatory requirement, the decision will be more broadly relevant across the financial services sector and more generally.

Facts and history of the decision

In 2004, Sovereign, an Alberta insurance company, was registered to do business across Canada, including in Quebec under the Act respecting insurance (Quebec). Sovereign offered, among other things, group property insurance policies. In September 2004, Sovereign issued, through Flanders Insurance Management and Administrative Services Ltd. of Winnipeg ("Flanders"), a master group property insurance policy to GE Capital Commercial Distribution Finance ("GE"), which was based in Toronto and which financed inventory of recreational vehicle dealers across Canada. "At GE's invitation, 56 Quebec dealers acquired this policy through Flanders." (Autorité des marchés financiers ("AMF") c. Souveraine (La), compagnie d'assurance générale, 2012 QCCA 13 (CanLII) at para. 12) and Flanders issued insurance certificates to them. Flanders was not registered as a representative (that is, an insurance broker) under the Act respecting the distribution of financial products and services (Quebec) ("ADFPS").

Following the filing of a complaint by the Quebec dealers' former insurance broker, the AMF began an investigation of Flanders and asked Sovereign for information regarding Flanders' Quebec registration. Sovereign responded fully, providing its reasons as to why it believed that it did not need to use a firm registered under the ADFPS to issue the policy and certificates. Sovereign had been provided with a copy of an opinion that Flanders' lawyer had provided to Flanders, opining that the broker did not have to register in Quebec since GE had its headquarters in Ontario, the policy was negotiated and entered into in Ontario and the premiums were paid directly to the broker by GE. The AMF did not reply to Sovereign's response, but instead, more than six months later, filed 56 charges against Sovereign for having helped or induced an unregistered representative to contravene the ADFPS (s. 482 of the ADFPS).

Having lost in the Court of Appeal in a split decision (Dalphond, J. dissenting), Sovereign appealed to the Supreme Court of Canada arguing, in the alternative, that it should have been acquitted because

the s. 482 offence required proof of mens rea, e.g. that Sovereign had known it was committing the offence, and this element of the offence had not been proved beyond a reasonable doubt, even if the offence was a strict liability offence (e.g. one which did not require proof of mens rea), there was not sufficient proof of the actus reus (that Sovereign had engaged in some active participation in the offence or positive action, which had helped or induced the unlicensed representative to contravene the law), and in any event, Sovereign had exercised due diligence (in relying on the broker's lawyer's advice that the activities were legal and in itself writing to the AMF, which had not replied but had, instead, laid charges directly). Sovereign also argued that, even if it were held guilty...