Court’s approval of remediation agreement yields guidance but raises questions

“The aim of remediation agreements is to get companies to go to court and resolve the problems,” said Guy Pinsonnault, a competition, antitrust and while-collar defence lawyer with McMillan LLP. “So if, in fact, in the process of approving the agreement, the court poses too many obstacles, this may discourage companies from going to court, because at the moment, the process is quite demanding for the companies. They have to devote a lot of resources, there are long negotiations with the prosecutors, there is an effect on their reputation because it will be publicized in the media, and there are large penalties to pay.”

But the decision also underscores the need for accompanying regulations, guidelines or policies in the remediation agreement regime, said Jennifer Quaid, vice-dean research in the civil law section at the University of Ottawa. “Going forward, what I think is becoming more and more obvious is that a lot of the things in the law are not sharp enough or clear enough to really provide the kinds of building blocks that you need to understand whether the agreement is a good or bad one,” said Quaid, a leading expert on organizational criminal liability and corporate accountability.

Remediation agreements, formally added into a new section of the Criminal Code Part XXII.1 in 2018, allow prosecutors to resolve corporate wrongdoing such as fraud and corruption by granting a corporate stay in exchange for certain undertakings that the corporation must fulfil in order to have the charges dropped. In place in the U.S. since the 1990s under the moniker deferred prosecution agreements, they have become a mainstay of white-collar criminal law enforcement, with more than 400 such agreements concluded from 1992 to 2022, according to a study by Columbia Law School professor Frederick Davis.

Justice David endorsed the agreement between federal prosecutors and Ultra Electronics Forensic Technology Inc. (UEFTI), nearly a year after the first remediation agreement was struck between the Quebec Director of Criminal and Penal Prosecutions and SNC-Lavalin Group Inc. The Montreal-based company was compelled to pay nearly $29.5 million to settle allegations of corruption in exchange for obtaining a bridge contract nearly two decades ago.

Under terms of the latest agreement, UEFTI will pay approximately $10 million in forfeitures, penalties, victim surcharge and reimbursement of expenses incurred by the PPSC to resolve allegations of criminal wrongdoing. The Quebec company, which sells its ballistics recognition technology to police forces throughout the world, was charged with offences under the Corruption of Foreign Officials Act and the Criminal Code after it paid bribes to officials in the Philippines and falsified records to cover up the bribes. As part of the accord, UEFTI will have to co-operate with investigators, abide by an anti-bribery and corruption program overseen by an external auditor, and report to the PPSC over the implementation of the remediation agreement.

In R. c. Ultra Electronics Forensic Technology Inc. (UEFTI), QCCS 500-36-010389-222, Justice David held that the court should exercise deference to the specific terms of the remediation agreement so long as the accord meets the public interest and proportionality criteria. Justice David added that the principles established by the Supreme Court of Canada in Anthony-Cook and Nahanee are transposable to the remediation agreement regime for a number of reasons, beginning with the fact that the terms result from resolution discussions between the parties, which in this case were “arduous” and lasted nine months.

A deferential approach, added Justice David, is also consistent with the “stated purposed” of the regime to encourage voluntary disclosure of wrongdoing. “Organizations will be inclined to resort to the remediation agreement regime if they are confident that the terms of the agreement will be approved by the court,” said Justice David. Deference is also appropriate given the “limited options” available to the court and the “court’s limited role” to independently ascertain facts different from those presented by the parties, added Justice David. But deference to the agreement should also be weighed against the extent of collaboration offered by the organization, potentially saving time and money particularly in the investigation of a transnational crime.

Yet in spite of militating in favour of a deferential approach Justice David nevertheless maintained that the courts still play a significant role during the approval stage of a remedial agreement, warning parties to be “attuned to any concerns expressed by the court and to adequately respond to those concerns.”

“The role of the court is indeed a major one, because they have to ensure that all the criteria are met and that the public interest criterion is met, but once they have verified all these criteria, their discretion is very limited,” said Pinsonnault, former general counsel of the Competition Law Section, Public Prosecution Service of Canada.

But Quaid believes that Justice David’s take on deference amounts to a plea deal that is subject to the Anthony-Cook standard. “That basically means you’re rubber stamping,” said Quaid. “This Anthony-Cook standard, and the sort of limited role that the court sees for itself, really worries me. It seems to me that this isn’t quite what was advertised (when remediation agreements formally became part of the Criminal Code). If that was the intention all along, why not just provide for absolute discharge. So it’s interesting how this is shaping up.”

In the United Kingdom, Quaid points out, prosecutors must obtain Crown Court approval, usually from a High Court judge for a remediation agreement in two distinct phases. Prosecutors must satisfy the court in a preliminary hearing that the proposed agreement is fair, reasonable, proportionate and in the interests of justice. After the terms of the agreement have been reached, prosecutors take part in a final hearing in which the court will once again determine whether the terms are once again fair, reasonable, proportionate and in the interests of justice. In both phases, judges write separate decisions, which are published only if the agreement is sanctioned.

In contrast in Canada “there are no rules about the procedure to follow,” explained Quaid. “The law doesn’t talk about procedures so the the prosecution and defence counsel have been adapting existing ways to do things to fill in the gaps because what else are they going to do. The problem is that most of this happens in secret.”

Quaid is also concerned about how the decision dealt with victims. Justice David held that “victim compensation lies at the heart” of the remediation agreement regime and that the “treatment of victims is a measure of the public interest component of an agreement.” Yet the UEFTI remediation agreement neither identifies or compensates victims. Both federal prosecutors and the forensics company asserted that there was a lack of evidence over the amounts of bribes that were disbursed and the identity of the recipients of the bribes. Justice David, heeding guidance from U.K. case law, held that at times it is nevertheless appropriate to approve a deferred prosecution agreement even in the absence of victim reparations. However, prosecutors have an obligation under those circumstances to state the reasons why reparations are not appropriate. The court will then consider the validity of those reasons in deciding whether an agreement should be approved.

“Some of the things that I worry about in this judgment are things that were that are already known problems,” said Quaid. “It’s hard to get good financials, it’s hard to calculate loss. There are methods to do it but the Canadian government has chosen not to have any regulations or any guidance or any kind of recommended formulas for how you might appropriately and reliably calculate loss because there are different ways of doing it.”

Yet another novel issue Justice David had to deal with is the victims’ standing to intervene in remediation agreement proceedings. In mid-November 2022, Concept Dynamics Enterprises (CDE) filed an appearance in the court record to “assert its rights, recourses, and interest as the victim and complainant with regard to certain improprieties on the part of Defendant [UEFTI], under reserve of all legal objections.” Justice David summarily dismissed CDE’s request for participant status in the ongoing remediation agreement approval application, noting that the legal framework around remediation agreements does not allow for it. The Criminal Code’s Part XXII.1 recognizes only two participants in the process, the prosecutor and the accused. “Though aggrieved victims occupy a central place in the RA framework, they are never considered participants to the process,” held Justice David, a finding that Pinsonnault agrees with. “This process is not designed to be a civil process where any party can interfere in the process and ensure that the agreement collapses,” said Pinsonnault.

Quaid disagrees. She wonders how else are victims supposed to get themselves heard. “At what point do victims have standing and where,” asked rhetorically Quaid. “And it comes back to the point about how the process seems to be slipping, sliding into more and more confidentiality, and less and less public disclosure which I think is a bit of a problem.”

This story was originally published in Law360 Canada.