Canada: Directors And The Environment: Toward Accrued Liability?

Last Updated: March 3 2008

Edited by Julie-Martine Loranger

The environment has a more and more prominent position in the news and political sphere. Therefore it should not be surprising to see, over the next few years, an increase in sanctions relating to environmental legislation. And if in the past directors were relatively safe in that regard, it seems that sooner or later they will be the target of a tightening in terms of enforcement of standards.

Moreover, the table is already set for the authorities since both federal and provincial laws contain provisions pertaining to personal liability of directors in case of an offense.

Statutory liability of directors

a) at the Federal level

Federal environmental legislation, among which, the Canadian Environmental Protection Act (1999) ("CEPA") and the Fisheries Act, contain provisions for important monetary penalties in the case of directors and officers who participate in an offense, authorize it or permit it directly or by omission.

The CEPA contains a provision, among others, for an offense of "aiding and abetting" for directors and officers who have given the order, authorized, assented or participated in an offense of the CEPA. They are considered as being co-creators of the offense and are liable for punishment of the offense whether or not the corporation has been prosecuted or found guilty of the offense. Moreover, the CEPA forces directors and officers to exercise due diligence to ensure the corporation complies to the CEPA and its regulations as well as to the orders and guidelines of the Minister and its agents

Type of offenses

Offenses to the CEPA go from the communication of false information or the omission to communicate certain information, to the non-compliance to ministerial orders, the non-declaration of discharge in the environment and the omission of taking the required emergency measures. The fines contained in the CEPA can go up to a $1,000,000 a day as well as result in prison sentences.

Watch out for the fish

The Fisheries Act also contains an aiding and abetting offense for directors when there is a discharge of a dangerous substance in waters inhabited by fish or in any other location where there is a risk of the dangerous substance penetrating waters inhabited by fish or for the substance affecting a fish habitat. The fines contained in the Fisheries Act, just like in the CEPA, can go as far as a $1,000,000 a day, as well as result in prison sentences.

b) in Québec

The Environment Quality Act ("EQA") states that a director or officer of a corporation who leads the latter by means of an order, an authorization, an advice or encouragement, to refuse or neglect to comply with an order or to emit, deposit, release or discharge a contaminant into the environment in contravention of the provisions of the EQA, commits an offense and is liable to a penalty of at least $2,000 and at the most of $20,000.

Grounds of defense

The most common grounds of defense in the case of an environmental offense is that of due diligence. And thus, one of the most popular means for a corporation to meet the regulatory requirements of the courts, is to conduct an environmental due diligence verification as well as put an environmental management system in place, especially in the case of a corporation that presents risks to the environment. This process should include, among others:

  1. environmental policies and guidelines,
  2. adequate training for employees and directors,
  3. a crisis response plan,
  4. a verification of conformity to laws and regulations,
  5. a verification and maintenance of the equipment, and
  6. a regular inspection program.

Civil proceedings against directors and officers

In addition to statutory offenses, directors and officers are not protected from civil proceedings from the authorities or individuals. Indeed, the EQA also provides for civil proceedings against directors and officers, notably to recover costs relating to the refusal or neglect of the corporation to conform to an order pursuant to this Act.

This type of proceedings could be quite onerous for a director or officer in a case where, for example, the corporation does not conform to a remediation order of a site and the Ministry of Sustainable Development, Environment and Parks incurs the expenses of the remediation. This is exactly what happened in Saint-Basile-le-Grand in the warehouse fire that released PCBs: the attorney-general of Québec sought to recover the costs of the clean-up and decontamination of the site and of protecting the environment that amounted to more than 17 million dollars. In this case, the director and principal shareholder was sued personally for the costs since it had been decided that he was the directing mind of the corporation.

Also, directors can be the target of proceedings brought by individuals although, generally, up to now, these proceedings involving the personal liability of directors seem to have been rejected for lack of evidence. Thus, recently the Court of appeal refused to authorize a class action against directors in the matter of Regroupement des citoyens contre la pollution v. Alex Couture, J.E. 2007-934 by refusing to lift the corporate veil because of the lack of evidence of the directors' liability. However, in the case of the class action of Girard v. 2944-7828 Québec inc., J.E. 2003-1583 (S.C.) and J.E. 2005-182, the Superior Court and the Court of appeal agreed to lift the corporate veil and the directors operating a landfill site were sentenced solidarily to pay damages.

So every corporate director should be very cautious with respect to the environment, even if his or her corporation is not directly involved in the environmental sector.

Gowlings has many environmental specialists who know what type of situations to avoid and can give advice on the best protection measures.

Do not hesitate to contact us if you wish to discuss any of the questions relating to your duties and obligations or to have your policies, guidelines or environmental conformity program duly assessed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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