Canada: Disgorgement Of Economic Benefit And Increasing Penalties For Environmental Contraventions

Last Updated: August 15 2017
Article by Sean D. Parker and Sarah R. Levine

We have seen a new trend in the administrative monetary penalties ("AMPs") being issued by Alberta Environment and Parks ("AEP or the "Department") against parties that AEP has found to have contravened either the Water Act or the Environmental Protection and Enhancement Act ("EPEA") and associated regulations. Recently, the Department has been increasing these penalties by including an "economic benefit" component. The increasing use of the economic benefit component is used not only to deter future non-compliance, but to disgorge from the offender the economic benefit they derived from their contravening behaviour.

Previously, AMPs were typically used in a manner akin to a traffic ticket to address minor contraventions. However, in recent years AMPs have often included an economic benefit component, resulting in a dramatic increase in the monetary amount of these penalties. The authority to include the economic benefit component has always existed under the Water Act and EPEA. However, only in recent years are we seeing it being applied in an extreme way. This is a significant development in the context of AMPs given the absence of procedural requirements and safeguards that exist in the context of other enforcement and prosecution measures.

AMP Regulatory Framework

The typical process for issuing an AMP includes a Department Director first issuing a Notice of Administrative Penalty ("Notice") to the contravening party setting out the penalty amount for each contravention. A Notice may require the party to pay any or all of: a daily amount for each day or part of a day on which the contravention occurs and continues, and a one‑time amount to address economic benefit where the Director is of the opinion that the party has derived an economic benefit directly or indirectly as a result of the contravention. Generally, the party being issued the AMP will have an opportunity to meet and provide the Department with further information before the penalty is finalized.

The AMP's daily amount may not exceed $5,000 for each contravention or for each day or part of a day on which the contravention occurs and continues. However, there are no legislative limits on the economic benefit component, which allows the Director to potentially levy significant amounts for any benefit that the Department determines was derived from the contravention.

The Administrative Penalty Regulation includes the "Base Penalty Table", which cross references the type of contravention with its potential for adverse environmental effect. The Director has discretion to increase or decrease the amount of the penalty from the amount set out in the Base Penalty Table by taking into consideration factors such as the degree of willfulness or negligence in the contravention, whether or not there was any mitigation relating to the contravention or steps taken to prevent reoccurrence, the party's history of non-compliance, and whether the party has derived an economic benefit from the non-compliance.

BASE PENALTY TABLE

 

Type of Contravention

Major

Modetate

Minor

Potential for
Adverse Effect

Major

$5,000

$3,500

$2,500

Moderate

$3,500

$2,500

$1,500

Minor to None

$2,500

$1,500

$1,000

A significant feature of AMPs is that they are administrative in nature, meaning the Department decides to issue them without a hearing or other adjudicative process. In addition, an AMP may be issued even where there has been no adverse environmental effect attributable to the contravention. However, if an adverse effect does occur, it will often be considered an aggravating factor.

In some circumstances AMPs may be appealed to the Environmental Appeals Board (the "Board") where the penalty can be varied.

The Alberta Reclaim Decision

The Board recently upheld the Director's significant AMP pursuant to EPEA against both a bottle recycling company, Alberta Reclaim and Recycling Company Inc. ("Alberta Reclaim") and its directors personally for contravening the Beverage Container Recycling Regulation. The AMP included a penalty assessment of $75,000 and an economic benefit assessment of $769,778, for a total of $844,778. This penalty was appealed to the Board.

In its decision, the Board refers to the Department's Compliance Assurance Framework, which provides guidelines on the purpose of AMPs, noting that the penalty is issued to reinforce the appropriate change in behaviour and should have a deterrent effect. Disgorgement of economic benefits is designed to remove all money unlawfully obtained so that the contravening party does not retain any financial benefit from breaching the legislation. This may include all revenues obtained directly and indirectly from the contravention; economic benefit calculations are not restricted to profits realized.

Although the Alberta Reclaim matter is an extreme example, due to the egregious nature of the contraventions and conduct of the offending parties, the Board's decision in this matter provides a useful analysis of how the economic benefit component of an AMP may be reviewed. The Board reviewed the evidence before it and found the Appellants had received over $700,000 from the contravening behaviour. The Board noted that if the Director was limited to only assessing the administrative penalties or fines, which amounted to $75,000, the Appellants would have still been positioned to receive a benefit of over $625,000 after the "fines" were paid. From this perspective, the AMP without an economic benefit component would simply have been a cost of carrying on the unlawful conduct.

Recent Trend of Increasing AMPs

Given the trend of increasing the use of AMPs, and the rise of the economic benefit components being assessed as part of AMPs, it is reasonable to expect the trend of more frequent and higher AMPs to continue. The Alberta Reclaim decision provides helpful information as to how the Department and Board view and assess AMPs, although the facts of that matter are at the extreme end and consideration of the Board's decision should be viewed with that in mind. Other matters currently under appeal will provide further guidance in this developing area.

The recent rise in the use of the economic benefit component, and the potentially dramatic increase it can have on the monetary amount of the AMP, is something anyone conducting activities under the Water Act or EPEA should be aware of.

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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Authors
Sean D. Parker
Sarah R. Levine
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