R v Hi-Tec Security and Investigations Ltd.

R. v. Hi-Tec Security and Investigations Ltd.

[2004] O.J. No. 779
Ontario Court of Justice — W. Cohen J. | February 17, 2004

Background

George and Susan Koprash bought Hi-Tec Security and Investigations Ltd. in 1998, taking over a business they knew nothing about. The Ministry of Public Safety and Security required them to keep experienced personnel on staff, so they retained Dave Verreault as general manager — a man with 12 years in the security field who was specifically responsible for ensuring all guards were properly licensed.

What the Koprashes didn't know was that Verreault had been systematically hiding completed license applications in secret compartments in his desk, telling his bosses that renewals had been sent to the Ministry while letting guards work unlicensed for months. The scheme unraveled when competitors complained, and Detective Constable Tatasciore investigated. When the Koprashes finally searched Verreault's desk in January 2002, they found applications hidden "flat on the bottom of the drawer with a piece of wood on top, hidden underneath all the hanging folders." Hi-Tec was charged with 10 counts of employing unlicensed security guards under sections 5(4) and 32(1)(c) of the Private Investigations and Security Guards Act.

Issues

1. Whether Hi-Tec could raise a due diligence defence when their general manager was arguably a "directing mind" of the corporation
2. Whether Hi-Tec had actually exercised due diligence in preventing the violations

The Due Diligence Defence and Corporate Sabotage

The Crown argued that since Verreault was Hi-Tec's general manager and "directing mind," his actions should be attributed directly to the company, making a due diligence defence impossible. But Justice Cohen found that Verreault, while a general manager, was still just "an employee in a supervisory capacity" — not an officer who developed corporate policy.

More importantly, the court recognized this as a case of internal sabotage, not negligence. The Koprashes had put reasonable systems in place: they hired experienced personnel as the Ministry required, retained the former owner as a consultant, and assigned licensing duties to their most trusted and knowledgeable employee. They had no reason to suspect Verreault was deliberately hiding applications and lying about sending them to the Ministry.

The judge distinguished this from typical due diligence cases involving inadequate systems or training. Here, the system worked — Verreault had even prepared the renewal cheques that Susan Koprash signed and thought had been sent with the applications. As Justice Cohen noted: "This is not a case of negligence, or carelessness or lack of attention. This is a case of sabotage from within."

Key Takeaway

Due diligence can survive even when a trusted employee deliberately sabotages your compliance system.

The court recognized that no reasonable system of controls can prevent a determined insider from committing sabotage. If you've hired qualified people, established proper procedures, and have no reason to suspect deliberate misconduct, you may still have a due diligence defence even when those systems are secretly undermined from within.