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Nortel case raises questions about expertise of bench, Crown

Prof holds up Quebec system for handling financial cases as best practice.
|Written By Jennifer Brown
Nortel case raises questions about expertise of bench, Crown
Steven Salterio says generalist judges and prosecutors don’t cut it in complicated corporate law trials.

Those who had hoped for a different outcome in the acquittal of three former Nortel Networks executives might want to consider that judges and Crown attorneys might need more experience with corporate law to get a conviction in future trials.

A Queen’s University accounting professor and auditing expert says judges and Crowns need more business knowledge to successfully win complicated trials like Nortel.

“I have no way of disputing whether the decision here was right or wrong, but I can tell you as long as we have generalist prosecutors and generalist judges in Canada dealing with these sorts of white collar corporate crimes we’re not going to see any difference in the outcome of future such cases,” says Steven Salterio, who is also director of the CA-Queen’s Centre for Governance.

He says as investigation and enforcement initiatives ramp up in Canada and white-collar crime comes forward to the courts, the challenge will be to have experts who have deep understanding of business practices.

He points to Quebec as an example of a jurisdiction where the system has been re-designed to better handle such cases and there have been convictions obtained with judges and prosecutors who have “significant backgrounds” in the area of corporate law and corporate criminal activities.

“It would seem one of the issues we face in Canada is the fact we have generalist Crown prosecutors and generalist judges attempting to understand very complex business issues. It’s not unsurprising, then, that they take a very conservative interpretation of these matters,” he says.

Salterio says he looked at the expertise of the judge in the Nortel case — Ontario Superior Court Justice Frank Marrocco — and that of Crown attorney Richard Hubbard.

“He [Marrocco] was a noted immigration law expert before he was appointed to the bench and the only corporate law experience I could find in his background was that he led the failed prosecution of Bre-X,” he says. “The Crown prosecutor had little or no experience in corporate law — he is an expert in wire tapping and evidence issues.”

When put up against expert defence lawyers who specialize in corporate law, he says it’s not surprising there are few convictions in English-speaking Canada in the realm of cases like Nortel.

“I’m actually of the view this judgment might counter that view a little,” says Brandon Barnes, a lawyer with Davis LLP in Toronto. “Justice Marrocco didn’t shy away from analyzing the facts very closely. There wasn’t any attempt to gloss over areas of weakness of understanding or uncertainty and the decision rests very heavily on the facts.”

However, in Barnes’ opinion, the Crown will get some blame given the outcome and the nature of the decision — the suggestion being the evidence prosecutors brought forward didn’t support their case.

“Even there I think that’s a little uncharitable. Prosecutions of financial matters are difficult — not because there aren’t experts at the Crown’s disposal. They’re difficult because the evidentiary burden is complex and the law is developing.”

So while there is always benefit to having a more business-literate Crown and judge, Barnes doesn’t think the Nortel decision lacked in those areas.

To illustrate how Quebec has been successful in creating a separate body to handle financial cases with specialized teams, Salterio references the 2005 Norbourg scandal, which was the first criminal conviction of its kind involving misstated financial statements.

He says the Autorité des marchés financiers in Quebec brought in a special prosecutor who had a background in corporate law and corporate criminal prosecution and supported him with an integrated team from the AMF and Sûreté du Québec.

“It was a very stable team instead of the teams we have with IMET [Integrated Market Enforcement Teams] in English-speaking Canada. One of the beautiful things about Quebec is there is a lot more stability. It was also a criminal conviction registered by a tribunal devoted to these sorts of regulatory matters,” says Salterio.

“In the last few years since Quebec separated the prosecutor from the judge role, unlike our securities commission in Ontario and most English-speaking provinces where they do everything, in Quebec the AMF is the regulator and the prosecutor and the judging panel is a separate panel — and they’ve had the most criminal prosecution success in Canada since they’ve done that.”

Barnes points out another aspect to consider is U.S. prosecutors are more willing to use inchoate offences to prosecute white-collar accused, such as mail fraud or obstruction of justice, which provide ways around the main offence.

“That culture doesn’t really exist in prosecution in Canada in any respect in financial crimes or anything else, so it looks like we’re doing less and the penalties are less severe when, in fact, I think we could say the Nortel decision is a sign the Crown is willing to confront the problem head-on. It doesn’t mean they always get a conviction,” he says. “It can’t be said they were attempting to secure a conviction at any cost by taking the route that they took.”

Recently the federal government has said it will pursue prison sentences for those convicted of violating certain criminal provisions of the Competition Act. But until the courts become better equipped to handle such cases, Salterio says it won’t change anything.

“Penalties aren’t going to make a difference as long as we have the people prosecuting and trying these cases with inadequate knowledge of business practices. They have a difficult time judging and determining what evidence to put into the system,” he says.

  • Lawyer

    Donald Duncan
    Complaining about the expertise of the judge or prosecutor sounds like 'sour grapes'. Aside from the sheer volume of documentation, it turns out all the Crown had was motive (the bonuses) and opportunity (the massive accounting reserves) - but no actual fraudulent activity.

    The fact remains that these defendants had to release excess reserves into profits at some time or other - and that the decision as to when to do so was mostly guesswork. (As anyone who has ever tried to value accounts receivable, allowances for doubtful accounts, or the value of WIP knows, there is no single 'right' answer.)

    A cynical view would be that this prosecution was more about the fact that Nortel failed, and there were cries for blood, than any real evidence of criminality. The main regret was that the prosecution was carried through to its conclusion without any real hope of conviction.
  • RE: Nortel case raises questions about expertise of bench, Crown

    L. Douglas Rae
    Well, the American authorities are certainly better at prosecuting uppity women (Martha Stewart) and arrogant foreigners (Conrad Black) and they know when to issue pardons to their own kind (Marc Rich). So I'm sure their advice to the Canadian prosecutors is simply that they made a poor choice of defendants in the Nortel case.
  • Don't shoot the messenger

    David Debenham
    1. This case had little to do with corporate law, and everything to do with accounting principles and the criminal law of fraud. Corporate lawyers have some experience with accounting principles, but the actual treatments involved in this case were beyond the kin of most corporate lawyers.
    2. As a trained forensic accountant, trial lawyer, and certifed fraud specialist I can assure you that no specialist would have done a better job than Justice Marriocco in tying together the seemingly gordian knot of American accounting principles, Canadian fraud, the tone at the top at Nortel and the Nortel culture as a whole into one neat bow. Any inference that he did anything other than a stellar job is to be immediately rejected.
    3. One wonders if these critiques are based on disappointment in the minds of those who are simply troubled by the result. I would be more troubled to live in a country where every prosecution resulted in a guilty verdict
  • Why are acquittals so scrutinized?

    Steve S.
    "... judges and Crowns need more business knowledge to successfully win complicated trials like Nortel."

    Judges don't win cases. They try the evidence and apply the law. If the judge got the law wrong, the matter should be appealed. If the law was right, but the evidence didn't support a conviction, then maybe there was no evidence to support a conviction.

    This is no different than other cases where experts are relied upon. If the evidence and issues are complicated, then the prosecutor should do what most practising lawyers do and read up on the subject and retain experts.

    I think its unfair to suggest that Bob Hubbard lost the trial because of his inexperience in corporate law. He is a very experienced Crown counsel and knows how to prosecute both federal and provincial offences.

    Sometimes an acquittal is just the just outcome.
  • RE: Nortel cases raises questions about expertise of bench, Crown

    thomas chalmers
    Did it occur to the professor that Crown may have lost because it had no evidence. This sounds a plea to tilt the playing field in favour of the prosecution. Let's not import from the United States that tendency.