Suspicion of corrupt practices not enough to forego contractual obligations: Ontario Court of Appeal

The Ontario Court of Appeal has refused to recognize a public policy principle that would allow a party not to give contract payments to those under a “cloud of suspicion for corrupt practices.”

Kirloskar Technologies (P) Ltd. v. Best Theratronics Ltd., 2022 ONCA 331 involved a dispute over an agency agreement setting out commission rates that the appellant would pay to the respondent for the sale of medical equipment in India and Nepal. The appellant was a Canadian corporation that manufactured the medical equipment. The respondent, on the other hand, was incorporated under Indian laws and was the appellant’s Indian agent.

The parties, who had a long-standing commercial relationship, did not disagree over the outstanding amounts. Until the dispute, the appellant paid all the respondent’s commissions.

At trial, the appellant made the following contentions:

• Part of the owed amounts were statute-barred under Ontario’s Limitations Act
• The appellant was entitled to a set-off against the owed amount for the respondent’s alleged contractual breaches
• The appellant was risking prosecution under the Corruption of Foreign Public Officials Act, S.C. 1998, c. 34, if it made any payments to the respondent.

The trial judge ordered the appellant to pay its outstanding debt and awarded the respondent a total judgment of $553,747.46, exclusive of pre-judgment interest and costs. On appeal, the appellant only raised its third argument.

The Court of Appeal found that the evidence did not support the appellant’s arguments that criminality tainted the parties’ agreement or that the appellant’s obligation to pay its debt was unenforceable.

The trial judge made no errors in rejecting the appellant’s contention that a perceived risk of prosecution under the Corruption of Foreign Public Officials Act would absolve the appellant from paying an outstanding, legitimate, and acknowledged debt or would delay payment of that debt, the appellate court said.

The appellant also argued that the court should recognize a public policy principle that a party did not need to provide contract payments to agents who were under a “cloud of suspicion for corrupt practices.”

In response, the appellate court said that it should rely “sparingly” on public policy considerations and should be careful not to expand the heads of public policy for setting aside contractual provisions, in line with Uber Technologies Inc. v. Heller, 2020 SCC 16.

The appellant was ordered to pay the respondent costs of $15,000, inclusive of disbursements and applicable tax.