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April 01, 2010

Real Liability for Environmental Harm

Canadian Lawyer Magazine, April 2010
by Marc McAree

So just how much environmental “hot water” might directors and officers of your corporation find themselves in? This is not a rhetorical question. The answer has real implications for you, your company, and those in charge at the highest ranks.

Environmental law comes in the form of statutes and regulations passed at the federal, provincial, and local levels of government; case law; environmental orders; approvals and permits; and standards, guidelines, and policies that are adopted by reference into law.

Some of these laws set out requirements aimed directly at corporate directors and officers. They include environmental offences for causing pollution, failing to report discharges and spills, non-compliance with orders, approvals, and permits, and obstructing or providing the regulator with false information. Typically, regulators focus on acts and omissions of the corporation. Regulatory abatement, investigation, and enforcement is about ensuring compliance with environmental laws, deterring bad actors, and improving future behaviour.

Inherently, one might believe directors and officers would not normally have much risk of liability for corporate environmental non-compliance. After all, they are not usually responsible for day-to-day operations. This is particularly true in larger corporations. However, several environmental laws specifically target corporate directors and officers. The Canadian Environmental Protection Act provides that “[i]f a corporation commits an offence under this act or the regulations, any officer, director or agent of the corporation who directed, authorized, assented to, acquiescenced in or participated in the commission of the offence is a party to and guilty of the offence, and is liable to the punishment provided for the offence, whether or not the corporation has been prosecuted or convicted.” Similar language is found in certain provincial environmental laws.

This statutory language creates a reverse onus on directors and officers to prove fulfilment of their statutory duty. This imposes a positive obligation on them to ensure corporate compliance with environmental laws. If charged with an offence, corporate directors and officers may avail themselves of the defence of “due diligence.” Acquittal will result where the defence is proven on a balance of probabilities. The courts have said “superhuman effort” is not required to show “due diligence.” The bar is still high.

Legal compliance with environmental laws may be achieved where corporate boards institute environmental policies and programs. These safeguards may include: adopting an environmental policy, establishing an environmental management system, documenting corporate environmental legal obligations, staying current with changing environmental regulations, tracking environmental industry standards, ensuring adequate resources to address environmental issues on an ongoing basis and where exigent, and establishing a culture of continuous improvement. The board must appropriately delegate environmental responsibility to a committee of the board or senior management that will report back good and bad news. Absent a top-down commitment, corporate directors and officers leave their corporations and themselves vulnerable to environmental liability.

Most environmental statutes provide that corporate directors and officers who are liable for an environmental offence may be subject to a range of penalties, including fines and/or imprisonment. The Canadian government has recently passed the Environmental Enforcement Act, which although not yet proclaimed in force, sets new minimum fines. It raises maximum fines to $12 million for repeat offenders and amends the prosecution limitation period in several environmental statutes to five years from two.

Various federal and provincial environmental statutes set out statutory sentencing guidelines and principles. The court should factor these into sentencing decisions and consider the nature of the offence, impact on the environment, deliberateness of the activity, if the offence was a repeat, if a prior warning was disregarded, extent of co-operation with the regulator, speed and deliberateness of any environmental remediation, and implementation of mitigation measures to prevent similar future environmental harm. Depending on the court’s assessment, the acts and omissions of the convicted may be found to be aggravating factors that may increase the penalty.

In addition to prosecution, corporate directors and officers may also be named in Ministry of the Environment orders and/or as defendants in civil actions.

Directors and officers should take proactive measures to try to avoid unwanted legal attention and potential consequences. To position themselves, they often need the guiding hand of corporate counsel to kick-start the process of implementing safeguards before an environmental event gives rise to corporate and personal liability. Understanding how to structure and implement a corporate environmental policy and environmental management system is a good place to start.

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