R. v. Kelly

R. v. Kelly
Collection
Supreme Court Judgments
Date
1992-06-11
Report
[1992] 2 SCR 170
Case number
21719
Judges
L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley; Stevenson, William; Iacobucci, Frank
On appeal from
British Columbia
Subjects
Criminal law
Notes
SCC Case Information: 21719
Decision Content
R. v. Kelly, [1992] 2 S.C.R. 170
William Thomas Kelly Appellant
v.
Her Majesty The Queen Respondent
Indexed as: R. v. Kelly
File No.: 21719.
1991: October 31; 1992: June 11.
Present: L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Stevenson* and Iacobucci JJ.
on appeal from the court of appeal for british columbia
Criminal law ‑‑ Secret commissions ‑‑ Elements of offence ‑‑ Accused acting as financial investment advisor selling housing units to his clients ‑‑ Commissions paid to accused by development company for sale of units not disclosed to clients ‑‑ Whether accused guilty of corruptly accepting a reward or benefit under s. 426(1) (a) of Criminal Code ‑‑ Whether Crown required to prove existence of corrupt bargain between giver and taker -- Meaning of word "corruptly" ‑‑ Criminal Code, R.S.C., 1985, c. C‑46, s. 426(1) (a).
The accused was charged with four counts of corruptly accepting a reward or benefit contrary to s. 426(1) (a) of the Criminal Code . He was one of the principals of a company ("KPA") which offers, for a fee, financial planning services, including advice respecting investment in real estate and tax planning strategies. In 1980, the accused persuaded a property development company to give KPA the exclusive right to sell the units of its MURB project. KPA sold all the units, mainly to its clients, within the relatively short time prescribed in the agreement and received a commission from the development company for each unit sold. These commissions were the same as those which the development company would have paid to any salesman. At trial, the evidence indicated that KPA's clients were unaware of the commissions paid by the development company to KPA. At their initial meeting with new clients, KPA only gave vague and general information as to its sources of remuneration on a "white board". The accused himself later advised his associates that, with respect to the MURB project, he did not want further disclosures in writing. In defence, the accused testified that the clients purchasing the MURB units should have known of the commissions to be paid to KPA from two small references in the Offering Memoranda on the "Issuing and Sales Costs". The accused was convicted on all four counts. The trial judge found that he had an obligation to make full, frank and fair disclosure of the sales commission. The majority of the Court of Appeal affirmed the conviction. The question raised on this appeal is what the Crown must prove in order to obtain a conviction pursuant to s. 426(1) (a) of the Criminal Code . In particular, this Court must determine whether s. 426 has any application where the party making the payments was not part of a corrupt bargain with the taker.
Held (Sopinka J. dissenting): The appeal should be dismissed.
Per L'Heureux-Dubé, Gonthier, Cory and Iacobucci JJ.: In preserving the integrity of the agency relationship and protecting the vulnerable principals, s. 426 of the Code acknowledges the importance of that relationship in our society. There are three elements to the actus reus of the offence set out in s. 426(1) (a)(ii) as they apply to an accused agent/taker with regard to the acceptance of a commission: (1) the existence of an agency relationship; (2) the accepting by the agent of a benefit as consideration for doing or forbearing to do any act in relation to the affairs of the agent's principal; and (3) the failure by the agent to make adequate and timely disclosure of the source, amount and nature of the benefit. The word "corruptly" adds that third element to the actus reus of the offence. This word in the context of secret commissions means secretly or without the requisite disclosure. The Crown is not required to prove the existence of a corrupt bargain between the giver and the taker of the reward or benefit. It is thus possible to convict a taker despite the innocence of the giver.
The requisite mens rea must also be established for each element of the actus reus. Pursuant to s. 426(1) (a)(ii), an accused agent/taker (1) must be aware of the agency relationship, (2) must knowingly accept the benefit as consideration for an act to be undertaken in relation to the affairs of the principal, and (3) must be aware of the extent of the disclosure to the principal or lack thereof. When an accused is aware that some disclosure was made, the court must determine whether, in all the circumstances of the particular case, the disclosure was in fact adequate and timely.
Here, the Crown has established all the elements requisite for conviction under s. 426. It is clear that an agency relationship existed between the accused and his clients and that he was aware of the existence of that relationship. It is also clear that the nature of the commission paid by the development company was to encourage the accused to influence his clients to purchase the MURB units and that he was aware of this intention. He accepted the commission secretly and influenced the affairs of his principals. Finally, the payment of the commission was not disclosed in an adequate and timely manner. At the time of the sales, KPA's clients were not aware that KPA would receive a sales commission from the development company for each MURB unit sold to KPA clients. KPA disclosure of its sources of remuneration was vague and general and did not meet the objectives of s. 426. The accused himself made a conscious decision to limit the extent of the disclosure. While the Offering Memoranda for the MURB units contained two one-line references to "Issuing and Sales Costs" for the projects, there was no specific reference to the fact that it was the accused who was to receive these costs as a commission.
Per McLachlin J.: Lack of disclosure is an element of the actus reus of the offence of taking a secret commission under s. 426(1)(a)(ii) of the Code, and awareness of that lack of disclosure is an element of its mens rea. No corrupt bargain is required. However, since criminal law must be certain and definitive, the time and the degree of disclosure must be clearly defined. Agents must be given fair notice in advance whether a proposed course of conduct is criminal. With respect to the timing of disclosure, certainty requires that where the gravamen of the offence is the taking of a secret commission disclosure to the principal must be made by the time the commission is accepted. If the agent accepts a commission without beforehand (or simultaneously) advising the principal of the fact, the offence is established. With respect to the degree of disclosure, it is not enough to state at the beginning of a relationship between an agent and his principal that commissions may from time to time be taken. The requirements of s. 426(1) (a)(ii) will only be satisfied if the agent discloses to the principal that he will receive a commission with respect to the transaction in question. The amount of the commission is secondary and need not be disclosed in order to escape liability. The communication that the agent will receive a commission with respect to the particular transaction in issue will put the principal on notice that the agent is in a potential conflict of interest. Here, since there was no disclosure of the particular commission to the principals involved, the offence is made out.
Per Sopinka J. (dissenting): When an agent is charged with accepting a benefit under s. 426(1)(a)(ii) of the Code, it must be established that he accepted the benefit as a quid pro quo to influence him. To secure a conviction, the Crown must prove two essentials of the mental element of the offence: (1) that the benefit was so accepted with the agent's knowledge or belief that it was given for the purpose of influencing him; and (2) that the agent entered into the transaction mala fide. The first requirement looks to the state of mind of the agent at the time of the transaction. The corruption in this action is the belief that the valuable consideration is intended to influence the agent to show favour to some person in relation to the affairs of his principal. The taker is thus caught even if he was mistaken as to the true intention of the giver. The offence is complete without the necessity of showing that the agent was in fact influenced in his actions. It is his state of mind in accepting the consideration that is crucial. The second requirement is most easily satisfied through proof of dishonesty. Non-disclosure by the taker is not synonymous with the terms "corruptly" or mala fides, although it may be a strong indicator that the agent has acted in bad faith. In some situations disclosure or the intent to disclose will be highly relevant.
In this case, the accused should be acquitted. While he sold most of the units to his clients, that was not because he was influenced by the development company to do so nor because he believed that this was the intended purpose of either the agreement with that company or the payments. The agreement was entered into at arm's length, the commissions were the same amount as was paid to any other salesmen and they were to be paid regardless of to whom the units were sold. The decision to sell to his clients was one that the accused made unilaterally. His failure to make full disclosure amounted to a breach of his duty but he is not guilty of the offence charged.
Cases Cited
By Cory J.
Distinguished: Cooper v. Slade (1858), 6 H.L.C. 746, 10 E.R. 1488; R. v. Gallagher (1985), 16 A. Crim. R. 215; referred to: R. v. Morris (1988), 64 Sask. R. 98; R. v. Brown (1956), 116 C.C.C. 287; R. v. Arnold (1991), 65 C.C.C. (3d) 171; R. v. Wigglesworth, [1987] 2 S.C.R. 541.
By McLachlin J.
Referred to: Reference re ss. 193 and 195.1(1)(c) of the Criminal Code (Man.), [1990] 1 S.C.R. 1123.
By Sopinka J. (dissenting)
R. v. Brown (1956), 116 C.C.C. 287; R. v. Morris (1988), 64 Sask. R. 98; R. v. Gallagher (1985), 16 A. Crim. R. 215; R. v. Gallagher (1987), 29 A. Crim. R. 33; R. v. Gross (1945), 86 C.C.C. 68.
Statutes and Regulations Cited
Criminal Code, R.S.C. 1970, c. C‑34, s. 383(1)(a).
Criminal Code, R.S.C., 1985, c. C‑46, s. 426(1) (a).
Authors Cited
Bowstead on Agency, 14th ed. By F. M. B. Reynolds and B. J. Davenport. London: Sweet & Maxwell, 1976.
Fridman, G. H. L. The Law of Agency, 5th ed. London: Butterworths, 1983.
APPEAL from a judgment of the British Columbia Court of Appeal (1989), 41 B.C.L.R. (2d) 9, 52 C.C.C. (3d) 137, 73 C.R. (3d) 355, dismissing the accused's appeal from his conviction on charges of accepting a secret commission contrary to s. 426(1) (a) of the Criminal Code . Appeal dismissed, Sopinka J. dissenting.
Stephen Tick, for the appellant.
Patricia J. Donald, for the respondent.
The judgment of L'Heureux-Dubé, Gonthier, Cory and Iacobucci JJ. was delivered by
//Cory J.//
Cory J. -- The question raised on this appeal is what the Crown must prove in order to obtain a conviction pursuant to s. 426(1) (a) (formerly s. 383(1)(a)) of the Criminal Code, R.S.C., 1985, c. C‑46 . Particularly, it must be determined whether the section requires that there be a "corrupt bargain" between the "giver" and "taker" of the reward or benefit.
Factual Background
The appellant William Kelly was one of the principals of Kelly, Peters and Associates Ltd. ("KPA"). This was the central company of a group of companies which offered financial planning services to the general public. KPA and its related companies offered investment counselling to their clients and provided services to implement their planning advice. Clients of KPA were generally successful business people and professionals who earned a good income and required financial advice.
New clients were, as a rule, charged an advisory fee of $2,500 for a personalized "Base Plan". The Plan set out the client's financial situation and made certain basic recommendations regarding the organization of the client's financial affairs. These basic recommendations related to matters such as having a will drawn, purchasing life insurance and investing in registered retirement savings plans.
Clients of KPA paid additional advisory or counselling fees for advice respecting investments in real estate and tax planning strategies. These fees ranged between $2,000 and $30,000 annually depending on the nature of the advice.
Kelly was convicted of charges arising out of his dealings with Qualico Developments Ltd. ("Qualico"), a property development company. Each count related to a specific apartment building development marketed by Qualico. Units in these buildings were sold pursuant to the provisions of Canadian tax law respecting Multiple Use Residential Buildings, commonly referred to as MURBs. There is no question that MURBs were often purchased as tax shelters.
Prior to the fall of 1980, KPA had never recommended the purchase of MURBs to its clients. In October of that year, Kelly approached Qualico with regard to a MURB project being built in Vancouver and referred to as Mirror Development. Kelly told the Vancouver branch manager of Qualico that KPA provided financial advice to "good solid" clients who would be interested in investing in the MURBs of the Mirror Development. He persuaded Qualico to give KPA the exclusive right to sell the 112 units of this development.
Qualico had never before dealt with Kelly. As a result KPA was required to post a performance bond of $112,000. The terms of the agreement required KPA to sell all the units within a relatively short time. The agreement was signed on November 7, 1980. By the 24th of November, all the units were sold. KPA received $262,000 for the sale of the units and the performance bond was refunded. The majority of the units were sold to KPA clients, although Kelly, his wife, and some of the associates of KPA bought units as well.
KPA marketed three more Qualico projects in the same manner. It received total commissions from the four projects of $925,586. The fees paid by Qualico to KPA were the same as those which Qualico would have paid to any agent engaged to sell the units.
Evidence at Trial
A cross‑section of KPA clients testified. Each one of them had bought units in the Qualico MURBs. They all purchased the MURBs upon the recommendation of Kelly or one of his associates. They all testified that they were unaware that Qualico paid KPA a sales commission for each Qualico MURB unit sold to KPA clients.
At their initial meeting with new clients, KPA personnel outlined the history of the firm, the various professional backgrounds of members of the firm, the investment philosophy of the firm, the services the firm could provide, and the various sources of compensation that KPA received either directly, or indirectly through related companies. The presentation took as a rule from one to one and half hours. The explanation of KPA sources of remuneration took less than five minutes. Disclosure of the sources of KPA remuneration was never put in writing to be given to the clients, nor was it raised as a matter of discussion in the initial meeting with the client. Kelly testified that his practice was to write the general sources of KPA remuneration on a "white board" during the first meeting with a new client. Kelly advised associates in his firm that he did not want to put further disclosures with regard to the MURB project in writing.
Kelly, in his evidence, expressed the opinion that clients purchasing the MURBs should have known, from the Offering Memoranda, of the commissions to be paid to KPA. The Offering Memoranda for each of the four projects were lengthy, somewhat complicated booklets. They contained two one‑line references to "Issuing and Sales Costs" for the projects. It is not without significance that the accused in cross‑examination had great difficulty finding these references in the booklets despite his reliance upon them as providing disclosure of the commissions. The clients of KPA, on the other hand, indicated that they did not read the Offering Memoranda carefully because they relied upon the advice for which they were paying KPA. Significantly, no MURB projects other than Qualico projects were recommended to clients of KPA.
In 1982, the Canadian economy was beset by recession. Those who had invested in real estate could neither find buyers for their property nor make payments on their debt load. KPA's clients were thoroughly dissatisfied with their investments and were shocked when they found that the appellant had received substantial commissions for selling the MURBs. The appellant was charged with four counts of corruptly accepting a reward or benefit contrary to s. 383(1)(a) (now s. 426(1) (a)) of the Criminal Code, R.S.C. 1970, c. C‑34. He was convicted on all four counts: (1987), 1 W.C.B. (2d) 173. A majority of the Court of Appeal dismissed his appeal from conviction: (1989), 41 B.C.L.R. (2d) 9, 52 C.C.C. (3d) 137, 73 C.R. (3d) 355. He now appeals as of right to this Court based on the dissenting judgment of Hutcheon J.A.
The Judgments Below
Provincial Court of British Columbia
The trial judge found that the timing of the demand from the clients at KPA for MURBs coincided precisely with the two‑week period set out in the Qualico agreement for the sale of the units on the Mirror Development. Further, he noted that no other MURBs were recommended to KPA clients until the next Qualico project was ready.
The trial judge then considered the extent of the disclosure of compensation made to the clients with respect to the Qualico transactions. He found that most of KPA's clients were advised verbally that KPA received income from "real estate transactions". With regard to the terms contained in the Offering Memoranda pertaining to "sales costs" and "marketing costs" he observed that, although some experienced clients might have assumed from reading them that commission fees were being paid to KPA for the sale of the MURBs, not one of the clients testified that there was explicit disclosure with regard to the commissions to be received from Qualico.
The trial judge was satisfied that the appellant Kelly was indeed an agent for his clients. Kelly held himself out as a professional financial planner with special skills. He gave advice on significant and confidential matters. He specifically set out to establish a long‑term fiduciary relationship with his clients. He was both an advisor and the implementor of the advice for his clients who were, in that regard, his principals.
The trial judge emphasized that the appellant conducted himself "in a manner that was calculated to result in enjoying his clients' fullest confidence and trust". He also observed that "the Accused went a long way out of his way to deliberately close his clients' eyes to the possibility of corruption". It was his opinion that the appellant did not disclose the Qualico commissions to his clients. The essence of the judgment is set out in these words:
. . . he had an obligation to make full, frank and fair disclosure of the Qualico fees. At best on the evidence he deliberately made disclosure of those fees a remote possibility and not even a probability. In failing to make adequate disclosure, I find that the Accused acted dishonestly, unfaithfully, without integrity and therefore corruptly in accepting the Qualico fees.
If his clients had been provided full, frank and fair disclosure some of them probably would not have acted any differently. But some of them might have been in a better position to negotiate down the amount of advisory fees they were paying. Some of them might have questioned both the quality and quantity of M.U.R.B.s they were told to buy. Some of them might have invested in other M.U.R.B.s, the purchase of which would not have resulted in commissions being paid to the Accused.
By contracting secretly with Qualico, the Accused knowingly fettered what he held out to be his professional judgment and put himself in a criminal conflict of interest. [Emphasis in original.]
The trial judge therefore found the appellant guilty as charged on all four counts of the indictment.
Court of Appeal (1989), 52 C.C.C. (3d) 137
Locke J.A., writing for the majority, quoted from the reasons of the Saskatchewan Court of Appeal, in R. v. Morris (1988), 64 Sask. R. 98, at p. 118, where that court found that the provisions of s. 383 (now s. 426) are directed toward the preservation of the integrity of employees and agents of a principal and those who deal with them. To that end society has decreed that secret commissions are not acceptable as they compromise the integrity of our commercial life. The essence of this offence involves the taking of a "secret commission". However, if the agent takes a commission with the full knowledge and consent of his principal then no offence is made out.
In the opinion of Locke J.A. the section is designed to prevent agents from being put in a position of temptation. He cited R. v. Brown (1956), 116 C.C.C. 287, at p. 289, for the proposition that "the act of doing the very thing which the statute forbids is a corrupt act within the meaning of the word "corruptly" used in the section under consideration" (p. 154).
He also determined that this section does not require a "corrupt bargain". He put his position in this way (at p. 155):
. . . the statute requires a transaction, but that transaction need be no more than the giver paying the taker to do something in relation to his client's affairs, and the taker knowing this. Such a transaction can be completely blameless in so far as the giver is concerned, and in the ordinary course of business. But the crime is committed by the taker who receives the money knowing the reason it is paid. That, in my view, is this case.
. . .
As I have said, in my opinion the "corruption" can be one‑sided only. The precise words of the section do not literally require that the other party to the transaction also be guilty of an offence. [Emphasis in original.]
He was of the view that the acceptance by Kelly of the commission from Qualico was "corrupt" unless sufficient disclosure was made to the clients of KPA.
He said "it cannot be successfully contended that there is no basis for the trial judge's finding that there had not been sufficient disclosure of the Qualico commissions" (p. 159). In his view, "[t]he disclosure must be adequate and full in the sense that the principal must be specifically advised, or it be otherwise made so crystal clear that he could not deny he ought to have known. That was not done in this case" (p. 160). As a result the majority dismissed the appeal.
Hutcheon J.A. dissenting found that this section required proof of a "corrupt bargain" between the agent and the third party. He concluded that this section had no application in the absence of a corrupt bargain between the taker and the giver. He then applied his conclusion to the facts of this case in these words (at p. 146):
. . . Qualico was not a party to a corrupt bargain. The commissions were paid at the ordinary rate and in the ordinary course of business. Qualico knew nothing of the relations between Kelly/Peters and its clients. As I view s. 383 , in every case of a completed offence, there must be a giver of the benefit "in consideration of ..." and a taker of the benefit "in consideration of ...". Qualico did not "give" anything; it paid the ordinary commission paid other agents. In these circumstances s. 383 of the Criminal Code has no application. [Emphasis in original.]
Hutcheon J.A. would have allowed the appeal and set aside the convictions.
The Issue
The issue on appeal is relatively narrow. It must be based upon the question of law on which Hutcheon J.A. dissented from the majority. The formal order of the Court of Appeal was carefully drawn and settled by that court. The portion pertaining to the dissenting reasons of Hutcheon J.A. is as follows:
And be it further recorded that The Honourable Mr. Justice Hutcheon dissented and would have dismissed the appeal, and his dissent was grounded in whole upon the following questions of law:
1.The essence of the case for the Crown was that the commissions were accepted by Kelly/Peters secretly and contrary to Section 383(1) (a) of the Criminal Code . The main issue on this appeal is whether s. 383 has any application where the person making the payments was not part of a corrupt bargain with Kelly. My conclusion is that s. 383 (now s. 426(1) (a)) has no application in such circumstances and the conviction must be quashed.
Thus, it is apparent that the dissenting reasons give rise to only one question of law. Namely, it must be determined whether s. 383 (now s. 426) has any application where the party making the payments, Qualico, was not part of a corrupt bargain with the taker, Kelly. In answering the "corrupt bargain" question, it is necessary to examine this issue in the context of the elements of the offence and the meaning of "corruptly".
The Relevant Statutory Provision
Section 426(1) of the Criminal Code provides:
426. (1) Every one commits an offence who
(a) corruptly
(i)gives, offers or agrees to give or offer to an agent, or
(ii)being an agent, demands, accepts or offers or agrees to accept from any person,
any reward, advantage or benefit of any kind as consideration for doing or forbearing to do, or for having done or forborne to do, any act relating to the affairs or business of his principal or for showing or forbearing to show favour or disfavour to any person with relation to the affairs or business of his principal;
The Importance of the Agency Relationship
Before considering the purpose of s. 426, something must be said of the importance of the agency relationship in today's society. Society today simply could not function without the services of agents. The number of the principal/agent relationships is legion. It is difficult to sell a house or commercial property without relying upon a real estate agent. It is difficult to place insurance of any kind without consulting an insurance agent. Holidays are arranged through a travel agent. Brokers act as agents in the most complex and difficult financial transactions. Solicitors act as agents for their clients.
With increasing frequency financial advisors are acting as agents for their clients. Very often business and professional people earning a good income are too busy earning that income to properly arrange their financial affairs. They turn to financial advisors for assistance. The principal/agent relationship is almost invariably based upon the disclosure by the principal to the agent of confidential information. The relationship is founded upon the trust and confidence that the principal can repose in the advice given and the services performed by the agent.
The Nature of Agency
In The Law of Agency (5th ed. 1983), Fridman suggests at p. 9 the following definition of agency:
Agency is the relationship that exists between two persons when one, called the agent, is considered in law to represent the other, called the principal, in such a way as to be able to affect the principal's legal position in respect of strangers to the relationship by the making of contracts or the disposition of property. [Emphasis in original.]
The principal must be able to place trust and confidence in the agent since the agent has the authority to affect the legal position of the principal. This is perhaps the focus of the relationship. In essence the agent acts to achieve the same results that would have been obtained if the principal had acted on his or her own account. The influence the agent can have on the affairs of the principal and the power to take action on behalf of the principal are significant. They are of such great significance that it follows as the night the day that the agent must always act in the best interests of the principal.
The Duties of an Agent
The agent is obliged to perform those duties which he or she has undertaken to perform. The primary consideration in performing the duties of the agent must be to always act in the best interests of the principal. However, in performing them the agent must not exceed the authority which was delegated by the principal.
In the context of the "Secret Commission" cases, the fundamental duties of the agent are those arising from the fiduciary nature of the agency relationship. The relationship of trust focuses on the principal with the result that agents must not let their own personal interests conflict with the obligations owing to their principals. A conflict of interest exists when an agent is faced with a choice between the agent's personal interest and the agent's duty to the principal. Fridman, supra, put it in this way (at p. 153):
Where the agent is in a position in which his own interest may affect the performance of his duty to the principal, the agent is obliged to make a full disclosure of all the material circumstances, so that the principal, with such full knowledge, can choose whether to consent to the agent's acting.
The policy of the courts has been stringent in seeking to prohibit not just actual fraud perpetrated by agents on their principals but also in prohibiting the creation of a situation where agents could be tempted into fraud. The text, Bowstead on Agency (14th ed. 1976), provides several examples where the agent has a personal interest and, therefore, must make full disclosure (at p. 130):
. . . an agent may not buy his principal's property or sell his property to his principal because in such a case his interest will be in conflict with his duty. He is not allowed to receive a commission from both parties to a transaction; he may not make any secret profits by exploiting his position or the property of his principal; he may not acquire a benefit for himself by dealing with a third party in breach of his relationship with his principal, nor may he compete with his principal.
The agency relationship is extremely important to the functioning of our society. It is a relationship based on trust and it is fiduciary in nature. It is essential that the integrity of that relationship be preserved.
The Purpose of Section 426
There can be no doubt that s. 426 acknowledges both the importance of the agency relationship and the necessity of preserving the integrity of that relationship. It confirms that an agent should not be placed in a position which is in conflict with that of the principal. It recognizes that a benefit taken by an agent from a third party will place that agent in a conflict of interest position with the principal unless the benefit is promptly and adequately disclosed. No one should provide an agent with a benefit, knowing the benefit to be secret, in order to influence the agent with regard to the affairs of the principal. To do so corrupts and destroys the agency relationship. The secret benefit renders the advice and services of an agent so suspect that they cannot be accepted.
The position was correctly stated in R. v. Morris, supra, where at pp. 112 and 116 the following appears:
The intent of the section is that no one shall make secret use of an agent's position and services by means of giving him any kind of consideration for it. . . . [T]he intent in passing this section was and is to protect the principal, the employer, in the conduct of his affairs and business against people who might make use or attempt to make use of his agent.
. . .
The legislative history of this section demonstrates that the purpose and intent of it is to criminalize an agent's or employee's act of accepting "secret commissions" for showing favour or disfavour to any person with relation to the affairs or business of his principal.
There can be no doubt that the commendable aim of s. 426 is to protect the agency relationship, to preserve its integrity and to protect the principal.
Is Section 426 Applicable to the Facts of this Case?
(a) Agency Relationship ‑‑ The First Element
First the Crown must establish that Kelly was acting, and knew he was acting, as an agent for the clients of his company KPA. There can be no doubt in this case that an agency relationship existed between Kelly and his clients and that Kelly was aware of the existence of that relationship. Indeed this element of the offence was not an issue on this appeal or at the trial.
(b) Accepting a Benefit to Influence One's Principal ‑‑ The Second Element
The second element the Crown must prove is that the agent took the benefit as consideration for acting in relation to the affairs of the agent's principal. There can be no doubt that Kelly accepted a commission from a third party. It goes without saying that this commission comes within the category of a "reward, advantage, or benefit" required by s. 426. Nor can there be any question that the commissions were accepted as consideration for doing an act in relation to the affairs of the principals. Clearly, Kelly accepted the payment for recommending and eventually selling the MURBs to his clients.
To establish the requisite mens rea for this second element, the Crown must prove that the taker, knowingly accepted the commission as consideration for acting in relation to the affairs of his clients or principals. It must be remembered that offences involving "secret commissions" are by their very nature secretive. They arise from operations that are inherently covert. It follows that courts should in these cases apply common sense and draw the reasonable and appropriate inferences from the proven facts.
Certainly Qualico's purpose in paying commissions to Kelly would be to encourage Kelly to influence his clients to purchase Qualico MURBs. Here it was Kelly who sought out Qualico to negotiate an agreement for selling MURBs and for receiving commissions on those sales. It was Kelly who advised the resident manager of Qualico that he had "good solid" clients to whom he could sell the MURBs. On the first development, Kelly was prepared to incur the risks of a performance bond with a strict time limit as part of the agreement for selling the entire development. The only time that Kelly advised any of his clients to purchase MURBs was when the Qualico developments were put on the market. Thus, it is clear from the inherent nature of commissions and from Kelly's actions that Kelly knowingly accepted the Qualico payments as consideration for influencing his principals (that is to say his clients) to purchase MURBs. He was eminently successful in doing just that.
(c)Non‑Disclosure and the Meaning to be Attributed to "Corruptly" ‑‑ The Third Element
(i) Meaning of "Corruptly" in Section 426
It will be remembered that s. 426 covers everyone who corruptly
1.gives, offers or agrees to give or offer to an agent, or
2.being an agent, demands, accepts or offers or agrees to accept from any person, any reward, etc.
What meaning should be given to the word "corruptly" in the context of this section? It is argued that the offence is complete as soon as the agent takes the benefit as consideration for influencing the affairs of the principal. This is based upon decisions such as Cooper v. Slade (1858), 6 H.L.C. 746, 10 E.R. 1488, and R. v. Gallagher (1985), 16 A. Crim. R. 215 (Vict. C.C.A.). I cannot accept this position. It stems from the old jurisprudence on the corruption of voters. It is true these cases together with those which deal with the bribery of officials are concerned with the interpretation of "corruption". However, they are readily distinguishable from the secret commissions cases. In bribery cases there is no prerequisite that an agency relationship exists. Yet the whole aim and object of s. 426 is the protection of the vulnerable principal and the preservation of the integrity of the agent/principal relationship. Furthermore, the nature of a commission is very different from that of a bribe.
The interpretation of the word "corruptly" must take place within the context of s. 426 itself. It is a trite rule of statutory interpretation that every word in the statute must be given a meaning. It would be superfluous to include "corruptly" in the section if the offence were complete upon the taking of the benefit in the circumstances described by the section. The word must add something to the offence.
In my view, corruptly, as used in the section, designates secrecy as the corrupting element of the offence. It is the failure to disclose that makes it impossible for the principal to determine whether to act upon the advice of the agent or accept the actions of the agent. It is the non‑disclosure which makes the receipt of the commission or reward corrupt. The word corruptly, in this context, adds the element of non‑disclosure to the actus reus of the offence.
The recognition of secrecy as the corrupting element of s. 426 is consistent with the analysis in R. v. Brown, supra. There Laidlaw J.A. discussed the meaning of "corruptly" in the context of s. 368 (now s. 426). He found that the "evil against which that provision in the Criminal Code is directed is secret transactions or dealings with a person in the position of agent concerning the affairs or business of the agent's principal" (p. 289). (Emphasis added.)
The interpretation of corruptly as secretly or without disclosure reinforces the aim of s. 426 to preserve the integrity of the agent/principal relationship. It is as well supported by the heading "Secret Commission" which precedes this section. It is the secrecy of the benefit and not the benefit itself which constitutes the essence of the offence. The appellant Kelly argued that the words in the heading are merely marginal notes, and as such should not be considered when interpreting the words in the section. I cannot agree with that contention. R. v. Wigglesworth, [1987] 2 S.C.R. 541, makes it clear that it is appropriate to consider the statutory heading and the history of a section as an aid in interpreting the aim of a section.
In sum, corruptly, in the context of secret commissions, means without disclosure. This definition provides some symmetry between the two offences created by s. 426(1) (a). Corruptly, with respect to the taker/agent, refers to the agent's failure to disclose the payment to the principal in an adequate and timely manner. With respect to the giver, corruptly means the reward was given with the expectation and intention that the agent would not disclose it to the principal in an adequate and timely manner.
(ii) What is the Appropriate Standard for Disclosure?
What then is the extent of disclosure that is required of an agent? To put it in another way, what degree of non‑disclosure is the Crown required to prove in order to establish the guilt of an agent under s. 426? The majority of the British Columbia Court of Appeal in Kelly held that the disclosure "must be adequate and full in the sense that the principal must be specifically advised, or it be otherwise made so crystal clear that he could not deny he ought to have known" (p. 160). The Supreme Court of Nova Scotia, Appeal Division in R. v. Arnold (1991), 65 C.C.C. (3d) 171 agreed with this standard. These courts held that there must be full, frank and fair disclosure made by the agent. On the other hand, Hutcheon J.A. dissenting in Kelly stated in obiter, that a standard of "full, frank and fair disclosure" would be too high for criminal law and that "partial disclosure may be sufficient".
Once again a consideration of the aim of s. 426 may be of assistance in determining the requisite standard of disclosure. The policy motivating the prohibition of secret commissions is the protection of vulnerable principals and the preservation of the integrity of the agency relationship. A