Canadian Lawyer InHouse

Apr/May 2010

Legal news and trends for Canadian in-house counsel and c-suite executives

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By Marc McAree Real liability for environmental harm 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 S of statutes and regulations passed at the federal, provincial, and local levels of government; case law; environmental orders; approvals and permits; and stan- dards, guidelines, and policies that are adopted by reference into law. Some of these laws set out require- ments aimed directly at corporate direc- tors and officers. They include environ- mental offences for causing pollution, failing to report discharges and spills, non-compliance with orders, approvals, and permits, and obstructing or provid- ing the regulator with false information. Typically, regulators focus on acts and omissions of the corporation. Regulatory abatement, investigation, and enforce- ment is about ensuring compliance with environmental laws, deterring bad actors, and improving future behaviour. Inherently, one might believe direc- tors 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 particular- ly 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, 10 • APRIL 2010 INHOUSE o just how much environ- mental "hot water" might directors and officers of your corporation find themselves in? This is not a 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 offi- cers may avail themselves of the defence of "due diligence." Acquittal will result where the defence is proven on a bal- ance 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 pol- icy, establishing an environmental man- agement system, documenting corporate environmental legal obligations, staying current with changing environmen- tal 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 appropri- ately delegate environmental responsibil- ity to a committee of the board or senior management that will report back good and bad news. Absent a top-down com- mitment, 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 environmen- tal statutes to five years from two. Various federal and provincial envi- ronmental statutes set out statutory sen- tencing guidelines and principles. The court should factor these into sentenc- ing decisions and consider the nature of the offence, impact on the environ- ment, 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 deliberate- ness of any environmental remediation, and implementation of mitigation mea- sures to prevent similar future environ- mental harm. Depending on the court's assessment, the acts and omissions of the convicted may be found to be aggravat- ing 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 pro- active measures to try to avoid unwanted legal attention and potential consequenc- es. 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 liabil- ity. Understanding how to structure and implement a corporate environmental policy and environmental management system is a good place to start. IH Marc McAree is a partner at Willms & Shier Environmental Lawyers LLP in Toronto.

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