Crown Corporations in Canada

I am giving a talk at the School of Law, National University of Mongolia next week during their Fourth Annual Conference on Issues in Constitutional and Administrative Law, on the topic of state-owned enterprises. Here are my thoughts…

Why Crown Corporations?

Crown corporations are “structural heretics”, designed to function as commercial players but to achieve policy goals,[1] a “real paradox” between the desire to ensure both governmental responsibility but also “managerial autonomy”.[2] A Crown corporation is, for the most part, like a regular corporation, with distinct legal personality and a set of objectives to achieve. The term “Crown” is attached because in Canadian legal thought, the Crown is the personification of the state: it is our term for a state-owned enterprise. Crown corporations are common features of the Canadian legal landscape, for historical and structural reasons.

Historically, governments in Canada have sought to regulate trade in certain sectors, such as alcohol and gambling, on paternalistic grounds: indeed, some of the foundational cases of Canadian constitutional law addressed issues arising from the political strength of the temperance movement. One legacy of this historical paternalism is that in several provinces, liquor is distributed by Crown corporations, such as the Liquor Control Board of Ontario in Ontario and the Société des alcools in Quebec.

Structurally, some markets have lent themselves more readily to hands-on government intervention at various points: for example, natural monopolies exist or have existed in the electricity sector – hence Ontario’s provincially and municipally owned generation, transmission and distribution entities – and there has been a desire to deliver public goods in areas such as telecommunications – from whence springs the Canadian Broadcasting Corporation and its French-language equivalent Radio Canada.

Why Crown corporations? One early reason for using this particular legal form was that the Crown itself was subject to special rules when it came to entering into contracts and being sued. There was authority for the proposition that the Crown could not fetter its discretion by entering into contracts (and could freely breach them, at least in some areas, like national defence), and it was not possible to sue the Crown in tort until legislative reforms in the mid-20^th century.

All involved understood that it would be politically unpalatable and practically unrealistic for the Crown to engage in commercial activities despite these privileges: imagine an airplane manufacturer jilted by the Crown refusing to pay up on the delivery of contracted airplanes; or the relatives of victims of a plane crash told they could not sue for damages. Hence the attraction of distinct legal personality.

Another supposed advantage was to provide for managerial flexibility by taking the management of the entity outside the ordinary channels of civil service decision-making (not noted, unfairly or not, for celerity). Staff could be hired more easily and in some cases on more advantageous terms than those on offer in the civil service (the permanent apparatus supporting the government).

Still another was to make it possible to hire staff outside the constraints of laws and regulations relating to the civil service. As social and technological change required governments to become front-line participants in the Canadian economy, the Crown corporation was often the (legal) vehicle of choice from its first road test in the 1840s.

Characteristics of Crown Corporations

These entities are defined today at the federal level by the Financial Administration Act, RSC, 1985, c F-11: s. 83. The definitions are somewhat idiosyncratic and not especially intuitive but the basic idea is that a Crown corporation is a “corporation wholly owned directly by His Majesty, excluding departmental corporations”. This does not give much insight into the characteristics of Crown corporations. Happily, however, Wolfgang Friedmann’s discussion of the “universal legal characteristics of the public corporation” still rings largely true today even though it dates from the 1950s.[3]

Autonomy

First, as already seen, “public corporations have a dual nature: they are instruments of national policy but they are autonomous units, with legal independence and certain aspects of commercial undertakings”. Crown corporations can be used to achieve all sorts of policy goals. In Alberta, healthcare is delivered by Alberta Health Services, on the theory that operating at arm’s length from government will lead to better service provision. In Saskatchewan, a Crown corporation – Sasktel – provides competition in the wireless sector, in order to keep consumer prices down. In Ontario the role of Crown corporations in the electricity sector has changed in accordance with technological change, with private entities now able to compete in, for example, electricity generation.

Legal Personality

Second, “the public corporation has the legal status of a corporate body with independent legal personality”.

As a result, Crown corporations can be sued in contract, tort and so on just as ordinary corporations can be: “the general rule is that [a Crown corporation] is an entity that can sue or be sued in its own name. Capacity to sue or to be sued is one of the attributes of legal personality that is possessed by a corporation”.[4] Equally, a Crown corporation can enter into contracts and conduct business as a going concern, even as the governments of the day come and go. These features ensure that government is not subject to special rules when engaged in commercial activities.

Sometimes a Crown corporation is constituted directly by legislation, such as the Canada Post Corporation Act, RSC 1985, c C-10. Other times, the corporation is incorporated separately and then placed on a statutory footing, as with Hydro One (the entity responsible for electricity transmission in Ontario): Electricity Act, 1998, SO 1998, c 15, Sch A, Part IV. In either case, the objects of the Crown corporation will be set by political actors, either through legislation or the articles of association.

Accountability

Third, “the responsibility of the public corporation is to the government, represented by the competent minister, and through the minister to Parliament”. Federal Crown corporations enjoy a high degree of discretion in the conduct of their affairs but are ultimately accountable to Parliament through the responsible minister: Financial Administration Act, RSC 1985, c F-11, s. 88. Indeed, at the federal level it is clear that government retains oversight power: “On the recommendation of the appropriate minister, the Governor in Council may issue directions to a parent Crown corporation if the Governor in Council is of the opinion that it is in the public interest to do so”: Financial Administration Act, RSC 1985, c F-11, s. 89(1).

This no doubt accounts for why the legal structure of a Crown corporation provides relatively little political cover for the government of the day when the corporation acts in a politically maladroit fashion. There is a good contemporary example. In the province of Quebec, the Crown corporation responsible for administering the provincial automobile insurance scheme recently implemented a dysfunctional new online service portal: the Minister for Transport had to cut short a trip to Europe to return to address the fallout, whilst her colleague responsible for information technology in government has been hauled over the coals in recent days. Some functions, moreover, are inherently political in the Canadian public eye – healthcare for example – and performing them through a Crown corporation is unlikely to insulate the politicians from public unhappiness with the services delivered.

The Board

Fourth, “the administration of the public corporation is entirely in the hands of a board which is appointed by the competent minister, sometimes after and mostly without consultation with any special group or industry but invariably not on a basis of representation of specific interests”.

The level of control required federally is explained by s. 83(2)(b) of the Financial Administration Act, RSC 1985, c F-11:“the directors of the corporation, other than ex officio directors, are appointed by the Governor in Council or by a minister with the approval of the Governor in Council”. A degree of government control is ensured by the presence on the board of individuals appointed by the Government. Quebec’s SAQ is an example: “The Government shall appoint the members of the Board, other than the Chair of the Board and the President and Chief Executive Officer, taking into account the competency and experience profiles established by the Board. These members shall be appointed for a term of not more than four years”: Act respecting the Société des alcools du Québec, CQLR c S-13, s.7. Board members of Crown corporations are subject to removal at the pleasure of the government of the day.[5]

In previous eras ministers were appointed to, and sometimes even chaired, the boards of Crown corporations, but this is now a historical relic: if the purpose of creating a Crown corporation is to give it legal and managerial autonomy, it makes little sense to have a minister interfering in its day-to-day operations. If control is needed, members of the board can be removed or (if it has the power to do so) the government can issue directives about policy issues.

Accounting Rules

Fifth, “all public corporations are supervised by commercial accounting and auditing as well as some form of public control. But the type of accounting and public control varies according to the type of public corporation”.

Different rules may apply to the approval of spending, borrowing and so on depending on the structure chosen.[6] In addition, legislation may require the development of key performance indicators. In Quebec, various boards are required to “adopt… measures to evaluate the effectiveness and performance of the corporation, including benchmarking with similar undertakings: Act respecting the governance of state-owned enterprises, CQLR c G-1.02, s. 15.

Crown Agency

The status of a Crown agent is conferred by law. Federally, a “Crown corporation authorized by Her Majesty by express declaration under another Act of Parliament” is a Crown agent: Financial Administration Act, RSC, 1985, c F-11, s. 83(1). In Ontario, a Crown agent is any “board, commission, railway, public utility, university, manufactory, company or agency, owned, controlled or operated by Her Majesty in right of Ontario, or by the Government of Ontario, or under the authority of the Legislature or the Lieutenant Governor in Council”: Crown Agency Act, RSO 1990, c C.48, s. 1 (though note that legislation frequently specifically excludes these entities from the status of Crown agent: see e.g. Electricity Act, 1998, SO 1998, c 15, Sch A, s. 8)).

The agent acts “on behalf of” or “on behalf of” the Crown.[7] Designation as an agent of the Crown carries significant legal consequences. Most importantly, the agent benefits from Crown immunity for acts done in furtherance of its objects which violate the law:

When a State agent acts in accordance with the public purposes which he is legally entitled to pursue, he or she is entitled to avail himself or herself of State immunity from law enforcement because he or she is acting on behalf of the State. However, where the agent goes beyond the purposes of the state, he is acting personally and not on behalf of the state, and he cannot invoke the immunity enjoyed by the agent of the state.[8]

A useful example is Eldorado Nuclear, where a Crown corporation was held to be immune from prosecution for price-fixing because it was acting in furtherance of its mandate as an agent of the Crown to promote the nuclear industry in Canada.

Crown agency is not a ‘get-out-of-jail-free-card’ in all circumstances. For instance, in Canadian Broadcasting Corporation v. The Queen,[9] the Canadian Broadcasting Corporation invoked immunity from a charge of showing an obscene film contrary to the Criminal Code. However, a regulation promulgated under the Broadcasting Act had prohibited the broadcast of any “presentation… obscene…, indecent or blasphemous…” The Supreme Court agreed with the Ontario Court of Appeal’s analysis that the CBC consequently did not have immunity, as it was acting beyond the relevant state purposes:

In my view, in exercising its powers to carry out the objectives of the Broadcasting Act, it is acting in its capacity and in Her Majesty’s agent only. But when it exercises its powers in a manner inconsistent with the objectives of the Act, it is no longer exercising its role as an agent. This role exists only to the extent that the Corporation’s programs implement the policy set out in the Act.[10]

Notice, though, that this status must be conferred by law. If it is not, “[i]n the eye of the law the corporation is its own master and is answerable as fully as any other person or corporation”.[11]

Note also that Crown immunity as an agent of the Crown does not mean immunity from the ordinary rules of private law: these continue to apply; the special immunity applies only to legal prohibitions.

Conclusion

Since their first appearance in the 19^th century, Crown corporations have become an important feature of the Canadian legal and political landscape. They have proved popular and durable both politically and economically, no doubt because they are subject to the ordinary rules of law (save in limited circumstances when Crown agency provides a protective shield) and allow governments to respond to the desires of the population in a flexible manner without necessarily renouncing political accountability for commercial decisions.

[1] J Hodgetts, The Canadian Public service 1867-1970 (Toronto: University of Toronto Press, 1971), at Ch 7, quoted in Edward Iacobucci and Michael Trebilcock, “The Role of Crown Corporations in the Canadian Economy: An Analytical Framework” (2012) 5 The School of Public Policy Research Papers 1.

[2] J.E. Hodgetts, “The Public Corporation in Canada” in Wolfgang Friedmann ed., The Public Corporation: A Comparative Symposium (Carswell, Toronto, 1954), at p. 61.

[3] “The Legal Status and Organization of the Public Corporation” (1951) 16 Law and Contemporary Problems 576, at pp. 578-579.

[4] Hogg et al, Liability of the Crown at pp. 472-473. Legislation nonetheless makes explicit provision for the application of ordinary law to Crown agents. Federally this seems to be uniform practice, or close to it. See the formulation in the Telefilm Canada Act, RSC 1985, c C-16., s. 17(4) (Telefilm Canada); Broadcasting Act, SC 1991, c 11, s. 47(4) (Canadian Broadcasting Corporation) : “Actions, suits or other legal proceedings in respect of any right or obligation acquired or incurred by the Corporation on behalf of Her Majesty, whether in its name or in the name of Her Majesty, may be brought or taken by or against the Corporation in the name of the Corporation in any court that would have jurisdiction if the Corporation were not an agent of Her Majesty”. Section 47(2) of the Broadcasting Act permits the Corporation to enter into contracts on its behalf or on behalf of the Crown. Explicit provisions like these at least prompt the thought that a failure to make explicit provision might mean that a Crown agent is not subject to the ordinary law of the land. It would take brave counsel to argue this point, however.

[5] Pelletier v. Canada (Attorney General), 2008 FCA 1.

[6] Edward Iacobucci and Michael Trebilcock, “The Role of Crown Corporations in the Canadian Economy: An Analytical Framework” (2012) 5 The School of Public Policy Research Papers 1, at p. 8.

[7] R. v. Eldorado Nuclear Ltd., [1983] SCR 551, at pp. 566, 572.

[8] R. v. Eldorado Nuclear Ltd., [1983] SCR 551, at pp. 565-566.

[9] [1983] 1 S.C.R. 339.

[10] [1983] 1 S.C.R. 339, at p.353.

[11] Tamlin v. Hannaford, [1950] 1 KB 18, at p. 24, per Lord Denning.

This content has been updated on March 16, 2023 at 12:08.